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Entrepreneurship
M.COM
Contents
Chapter Page No.
1. Entrepreneurship: Meaning, Elements, Determinants
and Importance ......................................................................................
1—13
[Meaning and Concept of Entrepreneurship, Definition of Entrepreneurship,
Elements/Features or Characteristics of Entrepreneurship, Importance of
Entrepreneurship, Determinants of Entrepreneurship, Indicators of Entrepreneurial
Determinants, Theories of Entrepreneurship, Critical Evaluation of Various
Theories, Factors Contributing to the Development of Entrepreneurship, Questions.]
2. Entrepreneurship and Creative Behaviour.................................. 14—25
[Entrepreneurship and Creative Response to the Society, Problems at Work for
Entrepreneurs, Barriers/Challanges to Entrepreneurship, Cause of Entrepreneurial
Failure, Questions.]
3. Dimensions of Entrepreneurship ....................................................
.26—42
[Intrapreneurship, Technopreneurship, Cultural Entrepreneurship, International
Entrepreneurship, Netpreneurship : (Net + Entrepreneurship = Netpreneurship.
Ecopreneurship, Ecology + Entrepreneurship = Ecopreneurship, Social
Entrepreneur-ship : Introduction, Characteristics, Types and Examples, Examples of
Social Enterprises in India, Questions.)]
4. Entrepreneurship: Micro, Small and Medium Enterprises......... 43—58
[Introduction, Small Enterprise, Medium Enterprise, Role or Significance of Small
anr. Medium Enterprises (SMEs) in India, Growth and Performance of Micro, Small
anr Medium Enterprises (MSMEs), Government Scheme and Incentives for
Promotion ol Micro, Small and Medium Enterprises, Importance of Micro, Small
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and Medium Enterprise (MSME) in India, Problems Faced by Micro, Small and
Mediun Enterprises (MSMEs) in India, Remedies Suggested for Micro, Small and
Mediun Enterprises (MSMEs), Questions.]
5. Concept of Business Groups and Role of Business Houses
and Family Business in India............................................................. 59—76
[Introduction, Structure of Business Group or Corporate Structure, Types of
Business Ownership, Role of Business Houses, Examples of Corporate Social
Responsible; Features or Characteristics of Business Group, Leading Business
Groups in Indi Family Business in India, Family Business as a Successful Business
Mode. Emergence of Entrepreneurial Class in India, Questions.]
The Contemporary Role Models in India Business: Their Values, Business
Philosophy and Behavioural Orientation .
[Introduction, Conflict in Family Business and its Resolution, Questions.]
7. Public and Private System of Stimulation, Support and
Sustainability of Entrepreneurship............................................... 89—
108
[Introduction, Entrepreneurial Ecosystem, Entrepreneur Development Programmes
(EDPs), Innovation, Characteristics of Innovation, Creativity-A Perquisite to
Innovation, The Government of India's Role in Promoting Innovation for
Entrepreneurship Development, India's Innovation Ecosystem, Major Problems
Faced by India's Innovation Ecosystem and Entrepreneurship, New Policy Initiatives
to Boost Indian Innovation Ecosystem, Entrepreneurial Development Programmes in
India, Role of Government and Institutions, Causes of Slow Development of
Entrepreneurship in India, Suggestion for Improving EDPs in India, Questions.]
8. Requirement, Availability and Access to Finance, Marketing Assistance,
Technology and Industrial
Accommodation............................................................................... 109—
134
[Meaning and Need for Estimating Fund Requirements, Business Capital:
Importance and Need, Importance of Different Types of Finance, Policies
Influencing Access to Finance in the Context of Innovative Entrepreneurship, Types
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of Fund Requirements, Sources of Raising Funds/Finance, Market Assistance for
Innovative Entrepreneur-ship, Policies Influencing Market Development and Access
in the Context of Innovative Entrepreneurship, Market Assessment, Marketing
Environment, Demand Forecasting, Demand Forecasting for New Product,
Marketing Concept, Nature and Scope of Marketing, Technology for Innovative
Entrepreneurship, Technological Collaboration between Firms for Innovative
Entrepreneurship, Types and Dimensions of Collaboration between Firms,
Importance of Technological Co-operation for the Success of Innovative Businesses,
Policies Related to Technological Co-operation between Firms and Innovative
Businesses, Policies Related to Technological Cooperation between Firms and
Innovative Business, Industrial Accommodation, Questions.]
9. Role of Industries/Entrepreneur's Association, Business Incubators Angel
Investors, Venture Capital and Private
Equity Fund....................................................................................... 135—160
[Role of Industries Association, Indian Industries Association, Partners of Indian
Industries Association (IIA), Types of Venture Capital Funding, Questions.]
L0. Sources of Business Ideas, Tests of Feasibility and
Significance of Writing Business Plan/Project Proposal ......... 161—
166
[Sources of Business Ideas, Business Feasibility Test, Importance of Business
Feasibility Test, Dimensions of Business Feasibility, Some other Sources of Help to
Conduct Business Feasibility Test, Business Plan/Project Proposal, Project
Formulation or Formulation of Business Plan, Selection of a Product and Project
Formulation, Questions.]
11. Content of Business Plan, Designing Business Processes........ 167—181
[Business Plan, Types of Business Plans, Content of Business Plan, Need of
Enterprise Location, Importance of Enterprise Location, Steps in Enterprise
Location, Questions.]
[Meaning and Definition of a Project, Characteristics of a Project, Objectives of a
Project, Importance of a Project, Stages or Phases of Project Preparation, Project
Identification, Importance of Project Identification, Project Report, Project Appraisal
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or Evaluation, Break-Even Analysis, Planning Commission Guidelines for Project
Feasibility Report, Legal Requirement for Establishing a New Unit, Sample Projects
Report, Questions]
13. Mobilizing Resources for Start-up, Accommodation and Utilities,
Preliminary Contracts, Contract Management,
[Mobilization of Resources, Role of Entrepreneur in Mobilizing Resources, Kinds of
Resources and their Origin, Accommodation and Utilities, Basic Start-up Problems,
Preliminary Contract, Significance of Preliminary Contract, Terms and Conditions
of Preliminary Contract, Necessary Documents for Preliminary Contract with
Vendors, Sample Contract of Preliminary Contract with Vendors, Necessary
Documents for Preliminary Contract with Banks, Contract Management, Questions.]
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ENTREPRENEURSHIP: MEANING, ELEMENTS, DETERMINANTS AND
IMPORTANCE
MEANING AND CONCEPT OF ENTREPRENEURSHIP
Entrepreneurship is the basis for industrial, economic and social
development. It is only through rational entrepreneurial ideas that the problems of
poverty, unemployment, iw productivity and economic inequality can be dealt with.
Entrepreneurship plays a leading role in this direction. A. N. Whitehead has rightly
said, "A great "society is a society which its men think of and practice
entrepreneurship." Entrepreneurship is not just a means of livelihood but also a
technique of skill and personality development. Economic and Rrial development of
any nation is the end result of entrepreneurship.
Entrepreneurship is a skill, a view point, a thinking, a technique and a
working procedure. Traditionally, on economic front, entrepreneurship means the
capability and :-_-ndency to bear risks involved in industries and businesses.
Entrepreneurship has been used in various ways and in different" senses, and it is :
ifIcult to define it precisely. The word entrepreneurship has been derived from the
French v- ord which means to undertake. Today, people call it by different names
like, adventurism, "novating, risk-taking, thrill-seeking, etc.
Entrepreneurship refers to a function performed by an entrepreneur in
establishing an r.terprise. In other words, entrepreneurship is an act of being an
entrepreneur.
In modern times an entrepreneur is one who can judge new situations in one's
environment, evaluates these situations and makes changes in economy according to
requirement and eeds. One establishes one's organization to achieve one's goals,
arranges various factors ind functions after due thought and firm decisions. Thus
according to modern concept of "trepreneurship, an entrepreneur is one who
possesses following characteristics : (i) Risk Bearer (ii) Innovator
(iii) Organiser (iv) Creative
(v) Technically competent (vi) Self confidence
(vii) Social responsibility (viii) Optimistic
(ix) Communication ability (x) Decision maker
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JaffreyA. Timmons has summed up the entire concept of entrepreneurship in
following srords : -
"The ability to create and build something from practically nothing.
Fundamentally, a man creative activity, it is finding personal energy by initiating,
building and achieving D enterprise or organisation rather than by just watching,
analysing or describing one. It .uires the ability to take calculated risk and to reduce
the chance of failure, it is the ility to build a founding team to complete the
entrepreneur's skills and talents. It is the nack for sensing an opportunity where
others see chaos, contradiction and confusion. It the know-how to find, marshall and
control resources and to make sure the venture does " run out of money when it is
needed most."
Entrepreneurship thus, can be regarded as a creative and innovative response
to the nvironment and an ability to recognise, initiate and exploit an economic
opportunity. It is acerned with performance and coordination of the entrepreneurship
functions. This also ~eans that entrepreneur precedes entrepreneurship.
DEFINITION OF ENTREPRENEUR SHIP
Entrepreneurship can be defined by dividing it into three categ - -
I. Classical View
II. Neo-Classical View
III. Modern View
Classical View : As per thinkers of this view point entrepreneur<hir promotion of
business and industry, organisation and capacity to undertake risks.
(1) According to Higgins, "Entrepreneurship is the function of seeking investment
and production opportunity, organising an enterprise to undertake a new production
process, raising capital, hiring labour, arranging the supply of raw material, finding
site, introducing new techniques and commodities discovering new sources of raw
materials and selecting top managers for day-to-day operations of an enterprise."
(2) According to A.H. Cole, "Entrepreneurship is the purposeful activity of an
individual or a group of associated individuals, undertaken to initiate, maintain or
aggrandise profit by production or distribution, of economic goods or services."
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II. Neo-Classical View: The thinkers of this category have defined entrepreneurship
in reference to managerial skills and innovations.
(1) According to Peter F. Drucker, "Maximisation of opportunities is meaningful in
business, indeed a precise definition of entrepreneurial job."
(2) According to H. W. Johnson, "Entrepreneurship is a composite of three basic
elements—invention, innovation and adoption."
(3) According to Joseph Schumpeter, "Entrepreneurship is an innovative function. It
is a leadership rather than an ownership."
III. Modern View : According to modern thinkers, entrepreneurship is defined in
practical sense. It has been related to social innovations and dynamic leadership.
Entrepreneurship links business, society and environment.
(1) According to Robert Lamb, "Entrepreneurship is that form of social decision-
making performed by economic innovators."
(2) According to Richman and Kappan, "Entrepreneurship implies more creative,
external or open system orientation. It involves innovation, risk-bearing and
relatively dynamic leadership."
ELEMENTS/FEATURES OR CHARACTERISTICS OF
ENTREPRENEURSHIP
Entrepreneurship is a multi-dimensional concept. Peter F. Drucker, Joseph
Schumpeter, Richard Cantillion, Robert Lamb, McLelland, etc., have suggested
following features of entrepreneurship :
1. Innovation : Any innovative work is entrepreneurship. New resources;, new
products, new technology, new utilities, new managerial skills, etc., come in the
perview of entrepreneurship. Thus, the basic feature of entrepreneurship is
innovation. An entrepreneur forsees the potentially profitable opportunity and tries
to exploit it, Innovation involves solving of problems and the entrepreneur is a
problem-solver. Entrepreneurship role involves doing things in a new and better
way. One who believes in traditional ways, cannot be an entrepreneur. An
entrepreneur has to take decisions under uncertainties. The results of which are also
uncertain and unpredictable.
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2. Risk-bearing : Entrepreneurship is essentially a risk-bearing task because
entrepreneur works and takes decisions in uncertain environment. The future is
uncertain and unpredictable and thus entrepreneurship is foreseeing these problems
rationally and to bear risks.
3. A High Achievement Function : Achievement orientation is the most important
factor for explaining economic behaviour 'Doing things in a new and a better way'
and 'decision-making under uncertainty', can be regarded as two important features
of entrepreneurship. It is evaluation of one's performance in relation to some
standards of excellence. Those who have high need for achievements are most likely
to become entrepreneurs. McClelland suggests that people with high achievements
are not influenced by money rewards as compared to people with low achievements.
Profit is merely a measure of success and competency for people with high
achievement need. The level of achievement motivation can be increased by
deliberate and constant efforts.
4. Organisation Building Function : Entrepreneurship is a skill to build an
organisation. For the development of industries organisation building is the most
critical and complex task. This skill implies the ability to build oneself by effectively
delegating responsibility to others. Thus, entrepreneurship is not just developing new
ideas but also developing good leadership and administration. Harbison is of the
view that in the absence of organisational skills and abilities all the innovations will
fail to stimulate economic development.
5. Entrepreneurship is a Group Behaviour: Entrepreneurship is not only a
personal trait but a group activity. Young has suggested that entrepreneurial
characteristics are found in groups which are identified as entrepreneurial groups. In
his studies he revealed the tendency to describe the situation as a problem to be
solved, an awareness of pragmatic effort, required confidence in their own ability to
solve the problem and tendency to take the viewpoint of each individual in turn and
analyse the situation as he might see it before suggesting an outcome.
Leadership in entrepreneurship transforms from a single individual to an
organised group of experts. In modern times the concept of multiple entrepreneur,
joint entrepreneur )r group entrepreneur is more practical. That's why
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entrepreneurship is termed as a group activity and the investor, promoter capitalist,
innovator and manager behave in group in the entrepreneurial tendencies.
6. Managerial Skills and Leadership : According to Hoselitz managerial skills and
leadership are the most important features of entrepreneurship. An entrepreneur has
to be something more than just a drive to earn profits. Financial skills have
secondary importance and just a strong desire to make profits is not enough to
succeed in entrepreneurship. There has to be ability to lead and manage. If an
enterprise has these abilities other skills automatically develop. '
7. Knowledge Based Practice : Entrepreneurship is a knowledge-based activity.
Entrepreneurial traits develop only on the basis of knowledge and experience. Peter.
F. Drucker states that "Entrepreneurship is neither a science nor an art. It is practice-
based on knowledge." It is not just a feeling arising out of a person's inner
knowledge or internal motivation; it is based on principles, ideologies and
behaviour. The knowledge of economics, management, technology, statistics, law,
sociology, psychology and practical science is important for the development of
entrepreneurship.
8. Creative Activity : The nature of entrepreneurship is creative. Work culture and
qualitative improvement are developed only through creative thinking by promoter
organisation and management. According to Joseph Schumpeter, "Basically
entrepreneurship is a creative activity." Creative thinking always motivates to
execute positive fundamental and practical thinking.
9. Essential in all Activities and every Economy : Enterprise is essential in every
human activity. Entrepreneurship is essentially require 1 in all activities like
education, research, social and political, sport, etc. Entrepreneurship is not just
confined to economic institutions but i? a way of life.
10. Business-oriented : Entrepreneurship motivates a person to develop business
ideas and business promotion. It is a process of coordinating and establishing
material resources and factors of production and to exploit their economic value. It is
only through entrepreneurship that new entrepreneur and business activities establish
in any society or nation.
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11. Environment-oriented Activity : Entrepreneurship is not only an economic
activitybut an open system related to environment. Entrepreneurial traits develop by
keeping in touch with social, political, scientific, technological, economic and
physical environment and their changes. According to Schumpeter,
"Entrepreneurship is a creative answer to each external condition. Social
assumptions and values, education, science, population, administrative and
government policies change the viewpoints and thinking which, in turn, motivates to
develop entrepreneurial traits."
IMPORTANCE OF ENTREPRENEURSHIP Entrepreneurship plays a great role
in development of a nation, particularly in developing countries like India, where
there are numerous economic and social problems. Entrepreneurship plays a great
role not only in industrial sector but also in agricultural and service sector.
Ever increasing population, unemployment, poverty, etc., are the problems which
can be controlled only by industrial development and to achieve this,
entrepreneurship is developing small scale industries and businesses. Only industrial
development can solve problems of economic power, regional imbalances,
exploitation by monopoly, etc., which is possible only by successful
entrepreneurship. Although in India entrepreneurship has not developed fully but is
gaining importance very fast. Constant changes and innovation are the need of the
enterprises to survive in world's economy. Only through strength of
entrepreneurship, it is possible to convert day-to-day managerial jobinto organised
enterprise.
Thus, it can be said that entrepreneurship plays a great role in overall
development of an economy of a country.
DETERMINANTS OF ENTREPRENEURSHIP
According to classical authors the entrepreneurial success depends upon the
qualities like intelligence, general ability, knowledge of the trade, ability to deal with
uncertainty, foresightedness, intellectual capacity, creativeness and leadership to
exploit profit opportunities.
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Some researchers debate whether entrepreneurs are uniquely optimistic and
more willing to assume risks or whether environmental factors such as bankruptcy
laws and availability of credit are more significant.
The economic researchers Anne Villamil and Stefan Crasa have developed a
model that considers individual differences in willingness to bear risk and optimism
and that can evaluate the effect of bankruptcy rules on small firms. Their model
suggests that owner of small firms tend to use personal assets to support their
business, often opting to 'bail out' their companies rather than declare bankruptcy.
INDICATORS OF ENTREPRENEURIAL DETERMINANTS
The following are the indicators of entrepreneurial determinants :
A. Entrepreneurial Capabilities
Entrepreneurial capabilities play a critical role in market entry and in the
success of new ventures. They determine the capacity to identify opportunities, run
new businesses and drive innovations. In other words entrepreneurial capabilities
aim to capture a firm's capacity to sense, select and shape opportunities and
synchronize their strategic moves and resources in pursuit of these opportunities.
A strategic leadership of an entrepreneur plays an essential role in honing a
company's entrepreneurial capability.
The need and importance of leadership is given in the following points :
(i) Organizing group activities
(ii) Obtaining co-operation
(iii) Facilitating authorities
(iv) To attain success
(v) To change management into a social process.
Furthermore the risk taking ability of an entrepreneur reflects one's
entrepreneurial -apability. Business and risks are complementary to each other. A
business can never be bought without risks. The very basic characteristic of an
entrepreneur is to bear balanced ind practical risks. A person who does not bear risks
cannot be called an entrepreneur.
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Decision making ability of an entrepreneur attributes to one's entrepreneurial
capability, a the field of business decision-making assumes added significance as
many decisions involve time and money.
There are many alternatives available for doing work but choosing the best
among these is known as decision-making.
B. Market Conditions
Market opportunities determine the conditions that lead to the success or
failure of a usiness. Market development and access plays a key role for innovative
entrepreneurship. Barriers to market entry are a substantial obstacle for innovative
entrepreneurs. Competition an foster innovation by giving firms an incentive to be
more effective. However, the impact : competition on innovative entrepreneurship is
unclear. The empirical evidence is mixed and there is a lack of consensus on the
impact of competition on innovation. To sum up, competition will not always benefit
innovation if it does not allow innovators to recover the cost of their investments in
innovation and therefore the rate of those investments will decline.
Markets for technology also play a critical role in innovative entrepreneurship
as they allow new ventures to get access to technologies'that might be too expensive
and too time Insuming. ,
C. Access to Finance
Access to finance is essential in the creation, survival and growth of
innovative new atures. Due to lack of finance new ventures cannot invest in
innovative projects, improve "-heir productivity, finance their growth, cover
working capital requirement and meet market | remand. A finance gap has been
observed in many locations for new and small firms involved in the early stages of
innovation, especially in the market for high risk capital.
The importance of different types of finance varies across the stages of
business envelopment. In earlier stages, self financing is particularly important since
innovative entrepreneurs cannot overcome information asymmetry and therefore
seldom fii\d any lender or investor, even for potentially profitable projects.
Subsequently, financing may be supplemented by seed capital investment from
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informal privated investors and in few cases It;, seed financing funds and venture
capitalists.
ID. Regulatory Framework
The regulatory framework is a critical factor affecting entrepreneurial performance.
IA combination of opportunity, capabilities and resources does not necessarily lead
to entrepreneurship if opportunity costs and start up costs outweigh the potential
benefits. In peneral, regulatory framework encompasses taxes, regulations and other
public rules and institutions affecting entrepreneurship.
A strategic leadership of an entrepreneur plays an essential role in honing a
company's entrepreneurial capability.
The need and importance of leadership is given in the following points :
i I Organizing group activities
ii) Obtaining co-operation
(iii) Facilitating authorities
(iv) To attain success
v I To change management into a social process.
Furthermore the risk taking ability of an entrepreneur reflects one's entrepreneurial
ability. Business and risks are complementary to each other. A business can never be
ught without risks. The very basic characteristic of an entrepreneur is to bear
balanced i practical risks. A person who does not bear risks cannot be called an
entrepreneur. Decision making ability of an entrepreneur attributes to one's
entrepreneurial capability. " :he field of business decision-making assumes added
significance as many decisions involve time and money.
There are many alternatives available for doing work but choosing the best among
:hese is known as decision-making.
B. Market Conditions
Market opportunities determine the conditions that lead to the success or failure of -
finess. Market development and access plays a key role for innovative
entrepreneurship. arriers to market entry are a substantial obstacle for innovative
entrepreneurs. Competition in foster innovation by giving firms an incentive to be
more effective. However, the impact : competition on innovative entrepreneurship is
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unclear. The empirical evidence is mixed and there is a lack of consensus on the
impact of competition on innovation. To sum up, competition will not always benefit
innovation if it does not allow innovators to recover the cost of their investments in
innovation and therefore the rate of those investments will decline.
Markets for technology also play a critical role in innovative entrepreneurship as
they allow new ventures to get access to technologies that might be too expensive
and too time consuming. .
C. Access to Finance
Access to finance is essential in the creation, survival and growth of innovative new
entures. Due to lack of finance new ventures cannot invest in innovative projects,
improve eir productivity, finance their growth, cover working capital requirement
and meet market demand. A finance gap has been observed in many locations for
new and small firms Ived in the early stages of innovation, especially in the market
for high risk capital.
The importance of different types of finance varies across the stages of business
lopment. In earlier stages, self financing is particularly important since innovative
entrepreneurs cannot overcome information asymmetry and therefore seldom find
any lender or investor, even for potentially profitable projects. Subsequently,
financing may be supplemented by seed capital investment from informal privated
investors and_ in few cases by seed financing funds and venture capitalists.
D. Regulatory Framework
The regulatory framework is a critical factor affecting entrepreneurial performance.
combination of opportunity, capabilities and resources does not necessarily lead to
(entrepreneurship if opportunity costs and start up costs outweigh the potential
benefits. In (general, regulatory framework encompasses taxes, regulations and other
public rules and pnstitutions affecting entrepreneurship.
E. Creation and Diffusion of Knowledge
The broader system of knowledge creation and diffusion is equally important for
productivity growth. The diffusion of foreign technologies is associated with the
intensified collaboration between firms and universities. Therefore the policy makers
should facilitate the flow of knowledge and encourage the development of markets
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and networks enabling circulation and diffusion of knowledge. Policies for
commercialisation of public research should go beyond patent and licensing and
should also include public-private collaborative research.
F. Entrepreneurial Culture
An entrepreneurial culture is an environment where someone is motivated to
innovate, create and take risks. In a business, an entrepreneurial culture means that
the employees of an enterprise are encouraged to brainstorm new ideas or products.
THEORIES OF ENTREPRENEURSHIP The theory and concept of
entrepreneurship have been quite old and have undergone changes over a period of
time. The concept of entrepreneurship is very complex. It is introduced by many
factors such as political, economic, social, cultural, psychological, technical, ethical
and religious. Different authors have viewed the concept from their own viewpoint.
For example, Richard Cantillon laid emphasis on risk-taking, while J. B. Say
emphasised on managerial abilities whereas Schumpeter laid emphasis on
innovativeness. However, the fact remains that entrepreneurship is a continuously
changing process. It is different in developed countries and developing countries.
Different authors have developed different theories of entrepreneurship from time to
time. The important ones are as follows : I. Economic, Theory II. Sociological
Theory
III. Psychological Theory
IV. Integrated Theory
V. Innovative or Dynamic Theory VI. Cultural Value Theory
Now let us discuss these one by one:
I. Economic Theory: According to economic theory, entrepreneurship and economy
will grow in those situations when particular economic conditions and opportunities
are most favourable for them: This theory was mainly advocated by G. E. Pataneck
and I. R. Harris. According to them, the main driving forces for entrepreneurial
activities are economic incentives. Entrepreneurs emerge due to incentives and
economic gains: An entrepreneur tends to act and take initiative when he realises
that he can gain by purchasing and producing goods at a particular time and selling
them at higher prices at a later stage. He tries to seek profitable opportunities as and
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when they arise. Sometimes these opportunities may not be evident, but inner drives
are always associated with economic gains. Thus, it can be said, that these economic
incentives and gains are sufficient conditions for emergence and growth of
commercial and business entrepreneurship. It is a well-known fact that business and
economic conditions do not remain same always. At the time of slack period prices
fall and prices tend to rise during boom period. Thus, when an entrepreneur realises
that the market for a product or service is out of equilibrium ; he may purchase or
produce them at the prevailing price and sell to those who are prepared to pay the
highest price at a later data.
II. Sociological Theory: Sociologists are of the view that entrepreneurship emerges
in specific social culture. According to sociological concept, social sanctions,
cultural values,
.raditions, group dynamics and role expectations are responsible for emergence of
entrepreneurship. Sociological theories were mainly propounded by Thomas
Cochran, Everett Hagen, Max Weber Peter Bert. F. Hoselitz, Frank W. Young,
Randall G. Stokes
etc.
(i) According to Thomas Cochran's theory, "Cultural values, role expectations,
ambitions and social sanctions occupy important place in entrepreneurial
development." In India, Marwaris and Parsees are considered to be the dominant
social classes as sources of entrepreneurship.
(ii) According to Everett Hagen the driving force in an entrepreneur is the
withdrawal of status or respect, i.e., Social change, when a person feels that his
status or respect has been withdrawn, he feels hurt and reacts to regain his lost status
or respect by creatively solving the problems of his social group. Then feeling of
deprivation and will to regain drives him to entrepreneurial activities.
(hi) Max Weber has linked development of entrepreneurship with protestant and
many other religions. He states that religious belief has an important role in
profession of an entrepreneur. The religious communities which emphasize on
capitalism, materialism and rationality give birth to entrepreneurs, wealth and
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capitalism. Protestant belief has contributed to the development of entrepreneurship
in England, USA, Turkey, etc.
(iv) According to Rendall. G. Stokei theory, economic activities based on economic
and cultural values have contributed a lot in development of entrepreneurship. He
lays more emphasis on socio-cultural values in entrepreneurial development than
psychological feelings.
(v) Frank W. Young is of the opinion that entrepreneurial and economic activities
can be developed by entrepreneurial group rather than individuals.
III. Psychological Theory : According to this theory, cause of emergence of
entrepreneurship is certain in psychological characteristics of an individual such as
high need for achievement, capacity to withstand social opposition. Following are
main psychological theories :
(i) Accordingto Everett E. Hagan "The cause for development entrepreneur's
personality is withdrawal of status of a social group." Withdrawal of status means
forcibly withdrawal of status, status symbol, fall in status symbol due to distribution
of economic power or not enjoying desired status when entering a new society. In
such situations such person or group tries to regain the position or status by creative
behaviour, which will help in development of entrepreneurship.
(ii) Schumpeter believed that entrepreneurs are primarily motivated and atavistic
will to power, will to form a private kingdom or will to conquer."1
(iii) According to McLleland need for high achievement drives individuals toward
entrepreneurial activities. People with high achievement need are not motivated by
monetary rewards only, such people regard profit as a measure of success. On the
other hand, people with low achievement need are motivated by monetary rewards.
(iv) According.to Peter F. Drucker, "Entrepreneurship is neither an art nor a
science, it is process." It is a practice the basis of which is knowledge. Objectives
can be achieved through knowledge. Knowledge is the outcome of practice. The
process based on knowledge
practice keeps moving, which helps achieving goals.
IV. Integrated Theories : Integrated theories of entrepreneurship are based on
several economic, social, cultural, political and psychological factors. The main
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advocates of these theories are T.V. Rao and B. S. Venkata Rao. According to them
entrepreneurial disposition plays an important role in development
ofentrepreneurship Really speaking, the fundamental of entrepreneurship is
entrepreneurial. If entrepreneurial disposition is withdrawn from the entrepreneur
then, las existence will come to an end. It is the entrepreneurial disposition which
motivates an entrepreneur to take risk, move forward and establish new enterprises.
T.V. Rao has included following factors in entrepreneurial disposition :
(a) Dynamic incentives,
(b) Long-term devotion,
(c) Individual, Social and'Physical Resources, and
(d) Social and Political system.
B.S. Venkata Rao has described following five stages in the development of
entrepreneurship :
(a) Stimulation: Providing various stimulations and incentives to future
entrepreneurs to provide an appropriate business environment.
(b) Development: Conducting various programmes for managerial training, technical
training and business guidance.
(c) Follow up : Evaluating various Government policies relating to entrepreneurial
development.
(d) Promotion : Establishing various organisations to help promotion of industrial
activities and entrepreneurship.
(e) Identification : Includes identification of future entrepreneurs in different areas.
V. Innovative/Dynamic Theory: This theory was given by Joseph Schumpeter. He
is of the view that entrepreneurship is essentially a creative activity. It involves
doing such things which are not ordinarily done in course of business. Entrepreneur
is one who innovates, i.e., carries out new combinations. He takes forward the
economy. He foresees the potentially profitable opportunities and tries to exploit it.
Innovation may occur in following forms :
(a) Introduction of new products
(b) Introduction of new methods of production
(c) Opening of a new market
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(d) Discovering new source of raw materials
(e) Carrying out new organisation or an industry.
Schumpeter theory also includes other elements such as risk-taking, superintendence
and coordination but his main emphasis was that all these attributes without ability
to innovate will not make an individual an entrepreneur. McLeland1 identified two
characteristics. First, doing things in a "new and better way". It is nothing but
innovation which was emphasised by Schumpeter. Secondly, decision-making under
uncertainty, i.e., risk-taking which was stressed by Richard Cantillon.
Every social environment has its own ways of carrying out innovations, e.g., in
developing countries like India, revolutionisation of agricultural methods,
introduction of nylon garments, computer aided manufacture, rise of joint stock
companies, development of mail order business, etc., are all examples of innovation.
VI. Cultural Value Theory : This theory believes that entrepreneurship emerges
because of cultural values. Thomas Cochran regards entrepreneur as a model
personality.2
The model personality of a man is shaped by prevailing culture in a
society. Changes in social values change his attritude toward his occupation, and
role expectation by his groups.
Cultural values differ from caste to caste and community to community. Various
researchers have shown that entrepreneurs have emerged from certain caste and
communities. For instance Parsis and Marwaris are considered as born entrepreneurs
in our country, because such entrepreneurial characteristics are not found in other
castes and communities. Although this is again a fact that entrepreneurial skills can
be developed by education and training but still certain individuals are born with
certain characteristics which are in their blood which are God gifted and cannot be
developed with any education and training.
CRITICAL EVALUATION OF VARIOUS THEORIES
If we carefully analyse the above theories we find that each theory emphasises on
one aspect or the other. Each author has tried to analyse the emergence of
entrepreneurship from his own point of view. Schumpeter emphasises on innovation,
which makes him entrepreneur. Cochran stressed on cultural and social values for
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economic and entrepreneurial development. Hagen1 laid stress on technological
change which is the result of an individual's creativity.
In spite of different views and emphasis by different theories of entrepreneurial
development, the fact remains that the focus of all theories is on the individual and
his personality influenced by environmental factors in general and internal values in
particular.
The various theories consider the entrepreneur differently such as innovator, risk-
taker, decision-maker, problem-solver ,-organiser, coordinator, etc., but none of
these theories take composite view of an entrepreneur. An entrepreneur has to
perform all these roles to initiate, maintain and develop enterprises to boost
economic growth. None of the theories is comprehensive. Neither it can be said that
any of these theories is wrong. Entrepreneurship is a complex phenomenon, and
hence its theories also cannot be simple.
FACTORS CONTRIBUTING TO THE DEVELOPMENT OF
ENTREPRENEURSHIP
Various factors which contribute to the development of entrepreneurship are :
1. Economic Environmental Factors : Economic environment plays an important
role in entrepreneurial development. Modern enterprises are believed to be social
and economic institutions, therefore, their development is influenced by various
social and economic factors. These factors include economic system,
industrial.policies, licencing, foreign exchange policy, banking policy, technological
development, etc. An enterprise has to function within the framework of these
environmental factors. These are discussed as follows : .
(a) Economic Systems : The progress of entrepreneurship depends upon the type of
economic system followed in a country, viz., Socialist, Capitalist or Mixed. The type
of economic system decides various economic, industrial and foreign trade policies
which has a bearing impact on entrepreneurship.
(b) Industrial Policy : Industrial policies of any country describe the policy of any
government towards development of industries. In our country various industrial
policies were announced by the government in 1948, 1956, 1973, 1977, 1980, 1985
and 1990. New Industrial Policy of 1990-91 has laid emphasis on development of
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small scale industries and rural employment, as a result of which small and cottage
industries are encouraged to establish and develop.
(c) Industrial Licensing Policy : The government follows a licensing system in
order to control and regulate the establishment of new industries and increasing the
capacity of existing industries. The Industrial policy announced by Central
Government of India on 24th July, 1991 has helped a lot in the develppment of
enterprises. Under this policy licencing procedures were simplified and licencing
was made liber.. changing policies licencing was even abolished for some products
which gave to industrial development.
(d) Economic and Business Policies : Several business policies are announced by
the government from time to time to encourage entrepreneurs. These include
taxation policy, price policy, export-import policy, etc. These policies are framed to
motivate entrepreneurs and to build an industrial environment.
(e) Foreign Investment : The government has allowed foreign direct investment
(FDD in almost all industries barring a few under its foreign policy. The time limit
for thinking over foreign investment proposals is also reduced from 6 weeks to 30
days. This has helped industries to grow further.
(f) Banking Policies : The Government of India and Reserve Bank of India have
framed banking policies from time to time in order to encourage industries. The
recent -policy of lowering interest rate on deposits by various banks and financial
institutions has tempted people to invest in business and commercial activities rather
than deposits. This has eased availability of capital, resulting in development of
industries.
(g) Five Year Plans: Government of India has provided various facilities and
incentives to entrepreneurs from time to time. The total expenditure for development
of these programmes is constantly increasing. This has helped, coordinated and
balanced growth of entrepreneurship.
(h) Other Contributions: Other contributions for the industrial development
include positive taxation policy, i.e., providing various exemptions and concessions
to encourage certain products, encouraging woman entrepreneurs, establishing
District. Industry Centres and attracting them for managerial and technical education
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and providing easy term loans to unemployed youth and women, providing special
grants to develop industries in backward hilly and desert areas and development of
technical and professional education, etc.
In addition there are some common factors prevailing in every economy which play
a great role in entrepreneurial development which are as follows:
(i) Capital
(ii) Labour
(iii) Land
(iv) Raw Material
(v) Equipment
(vi) Market
(vii) Stage of Economy
(viii) Investment Opportunities
(ix) Price Controls and Distribution Systems
(x) Sound Competition
(xi) Sound Working Conditions
(xii) Per Capita and National Income
(xiii) Availability of Technical Know-how
(xiv) Innovations
(xv) Level of litracy, etc.
2. Social Environmental Factors
Enterprises are born in society. Social environment includes prevailing social
and ultural assumptions in a country. Every enterprise is a part of the society and
therefore is influenced by social environment and assumptions, values, traditions of
society. The existence and conduct of any enterprise is based on sociological
background. Thus, social :r, ironment plays a great role in the development of
entrepreneurship. This is discussed is follows :
(a) Social Changes : Social change plays an important role in building of business -
nterprise. An entrepreneur formulates his policies, objectives and ideals through
social and ethical values. These changes bring about changes in thinking, working
views and standard of living. Thus, social changes give direction to entrepreneur.
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(b) Social Consciousness : The social environment of a business is founded in
society's human tendencies, desires, education and mental level values, traditions,
customs, etc. If an entrepreneur ignores these factors he faces criticism from the
society. No enterprise can survive if it does not take care of social values and
objectives. Sensitivity toward social norms increases the reputation of business
enterprises. Social values and beliefs have undergone changes during the last one
decade and every entrepreneur has to make them is basis of their professional
philosophy.
(c) Cultural Environment: Culture is an important part of society. It describes the
thinking and mental development of individuals. An entrepreneur can take a country
to path of development by providing opportunities for saving, investment and
sources of income. The professional and business decisions have a great impact on
cultural foundations.
(d) Ecological Balance : In modern times the first social challenge before the
entrepreneurs is to maintain an appropriate balance between industrial production,
and natural conditions. An enterprise has to depend upon natural resources for raw
materials. Pollutions and wastage of natural wealth and beauty due to
industrialisation is creating - xial problems. Thus, ecological factors influence
entrepreneurship.
(e) Caste and Community : Caste and community factors have important bearing in
the process of entrepreneurial development. Empirical studies have proved that
entrepreneurs emerge in particular castes and communities. History also supports
this view. For example, Gujaratis, Marwaris, Banias, Mahajans, etc., are found
engaged in trade, business and profession in every corner of the world. In U.K. a
large number from Sikh community are found engaged in different professions,
occupations and trades. Entrepreneurial talent is found in blood of certain castes and
conmnunities. Certain entrepreneurial traits are innate. These cannot be enhanced by
education, training and skill development programmes.
(f) Family Background : Family background also plays, an important role in
entrepreneurial development. For example, Tata, Birla, Dalmia, Kirloskar families
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have tradition of being engaged in industry, trade and commerce. Family business
passes from generation to generation, i.e., from father to son and then to grandson.
(g) Educational Background : Educational background also helps an individual to
become entrepreneur. Taking for example, B.S, Narayan was an electronics engineer
in Bharat Electronics Ltd. for 9 years. He innovated the idea of manufacturing
special oil filled pulse transformer and chokes and started his own venture called
EXCEL PAR ELECTRONICS. The purpose of imparting vocational training, job-
oriented courses and entrepreneurial development programmes is to encourage
individuals to become self sufficient entrepreneurs. Such individuals possess greater
potential to become successful entrepreneurs.
(h) Social Environmental Factors
Enterprises are born in society. Social environment includes prevailing social and -
itural assumptions in a country. Every enterprise is a part of the society and therefore
nfluenced by social environment and assumptions, values, traditions of society. The
tence and conduct of any enterprise is based on sociological background. Thus,
social ironment plays a great role in the development of entrepreneurship. This is
discussed follows :
(a) Social Changes : Social change plays an important role in building of business
aterprise. An entrepreneur formulates his policies, objectives and ideals through
social ethical values. These changes bring about changes in thinking, working views
and mdard of living. Thus, social changes give direction to entrepreneur.
(b) Social Consciousness : The social environment of a business is founded in
ciety's human tendencies, desires, education and mental level values, traditions,
customs, etc. If an entrepreneur ignores these factors he faces criticism from the
society. No enterprise can survive if it does not take care of social values and
objectives. Sensitivity toward social norms increases the reputation of business
enterprises. Social values and beliefs have undergone changes during the last one
decade and every entrepreneur has to make them as basis of their professional
philosophy.
(c) Cultural Environment: Culture is an important part of society. It describes the
thinking and mental development of individuals. An entrepreneur can take a country
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to path of development by providing opportunities for saving, investment and
sources of income. The professional and business decisions have a great impact on
cultural foundations.
(d) Ecological Balance : In modern times the first social challenge before the
entrepreneurs is to maintain an appropriate balance between industrial production,
and natural conditions. An enterprise has to depend upon natural resources for raw
materials. Pollutions and wastage of natural wealth and beauty due to
industrialisation is creating social problems. Thus, ecological factors influence
entrepreneurship.
(e) Caste and Community : Caste and community factors have important bearing in
the process of entrepreneurial development. Empirical studies have proved that
entrepreneurs emerge in particular castes and communities. History also supports
this view. For example, Gujaratis, Marwaris, Banias, Mahajans, etc., are found
engaged in trade, business and profession in every corner of the world. In U.K. a
large number from Sikh community are found engaged in different professions,'
occupations and trades. Entrepreneurial talent is found in blood of certain castes and
conmnunities. Certain entrepreneurial traits are innate. These cannot be enhanced by
education, training and skill development programmes.
(f) Family Background : Family background also plays, an important role in
entrepreneurial development. For example, Tata, Birla, Dalmia, Kirloskar families
have tradition of being engaged in industry, trade and commerce. Family business
passes from generation to generation, i.e., from father to son and then to grandson.
(g) Educational Background : Educational background also helps an individual to
become entrepreneur. Taking for example, B.S, Narayan was an electronics engineer
in Bharat Electronics Ltd. for 9 years. He innovated the idea of manufacturing
special oil filled pulse transformer and chokes and started his own venture called
EXCEL PAR ELECTRONICS. The purpose of imparting vocational training, job-
oriented courses and entrepreneurial development programmes is to encourage
individuals to become self sufficient entrepreneurs. Such individuals possess greater
potential to become successful entrepreneurs.
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(h) Occupational Background : Occupational background also helps in making
successful entrepreneurs. A person with occupational background is less hesitant and
reluctant to start an enterprise because he has entrepreneurial skills, abilities and
knowledge owing to his occupational background.
(i) Technological Development and Innovations : 7 logical development and
innovations play an important role. It is evident from the growth of information
technology, which has opened new avenues for the entrepreneur. A large number of
computer education and training centres have come up. Firms dealing with software
and hardware cyber cafes have flourished in recent years. Schumpeter is also of the
view that economic growth depends upon rate of technical process, i.e., innovation.
(j) Migratory Character : The tendency of individuals to migrate from one's native
place to another place in search of employment also helps entrepreneurial
development. Such individuals take advantage of opportunities available at other
places. For example, Gujaratis, Marwaris and Punjabis have high migratory
character in them as they have migrated to very far flung areas including USA,
Canada, UK in search of economic avenues and have become successful
entrepreneurs. On the other hand, individuals who prefer to stick to their native place
have remained static.
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ENTREPRENEURSHIP AND CREATIVE
BEHAVIOUR
It is one of the basic characteristic of entrepreneur is creativity because entrepreneur
always comes with the new creative ideas in order to succeed in Market, this is also
one of the differentiating aspect of entrepreneurs with the traditional business man.
So we can say creativity is one of the important drives for entrepreneur by this there
is discovery of new business opportunity.
• Creativity can be defined as the process of generating new ideas that leads to
improved effeciency and also the effectiveness of any business system. Creativity is
not only important for business enterprise but also plays an important role when any
strategic decisions are being taken by entrepreneurs for entire business creation
process.
• Creativity is also the source of innovation which leads to more competitive
capabilities in the areas like :
> Improvement of Product.
> New product development.
> Process development.
> Production improvement.
> Service improvement and development.
> New marketing strategics development.
> Minimising the wastage and cost cutting.
As par as concern about the creative behaviour it is baked by creativity skills
acquired by an entrepreneur, creative skills can be either acquired by entrepreneur
by some professional courses, training or learnt from the environment, other side we
can also say it has been found some successful entrepreneur has God gifted or in
born ability which is reflected right from childhood, such people in small age starts
doing innovative things and when they grow up same creativity and innovation skills
they used for developing new product concepts and technology for commercial
success may be as entrepreneur or intrapreneur.
However it has be noted in past entrepreneurship studies that how entrepreneur
identifies opportunities recognition, As opportunity recognition is often considered
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as the key factor to entrepreneurship as well as the first step of the entrepreneurial
process.
It is important to notice that one cannot guarantee future success without identifying
opportunities recognition in market, hence just understanding opportunities
recognition can't only help for business success it also requires for entrepreneur to
apply personal creativity to win the business game in such competitive environment.
ENTREPRENEURSHIP AND CREATIVE RESPONSE TO THE SOCIETY
Role of Societies on Promoting Entrepreneurship
World wide many countries concentrating on giving great importance to prepare and
develop budding entrepreneurs to acquire knowledge and skills through different
training programmes for e.g., in India government starked programmes like-skill
India, Make in india etc. in order to give technical, financial and training support to
young entrepreneur with innovative ideas.
The UNICEF also sets a high value on training and development of SME's and
entrepreneurs both in advanced transition and emerging market economies, it
recognised that government can help in creating and enabling environment for SME;
so that they can more easily cope with increasing challenges in national and
international market.
The most significant problems of SMEs include the transition to the culture of -
ntrepreneurship in the society, the aquisition of business and management skills and
rechnical awareness of the product and service qualify demanded by market driven
economies, so it is possible only when all the attributes are in place supported and
regulated economic environment anticipate the sustainability of small and Median
Enterprises. Benefits of an Entrepreneurs to Society
1. Economic Growth : Most basic aspect to economy by entrepreneur is that they
create wealth or revenues for all people who are directly or indirectly associated
with entrepreneurs and their enterprise, through employment creation and other
areas. Hence entrepreneurship creates wealth on a national scale for the government
by paying taxes, which is further redistributed by government accordingly to the
services and different communities in society that need it the most.
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Entrepreneur adds value to the lives and its users by creating product or services, an
innovation can help to push a market forward on a domestic level as well as drive
exports to new overseas markets, this again is a wealth-creating exercise performed
by entrepreneurs act as a key driver of economic growth.
2. Capital Formation : When entrepreneur starts any enterprise they mobilize the
idle savings of the public through industrial securities, so investment of public
savings in industry results in productive utilization of resources this leads to increase
rate of capital formation which is essential for rapid economic growth.
3. Improvement in per Capital Income : Entrepreneur converts the resources like
land, labour and capital which are idle into the national income and wealth by
locating and exploiting opportunities. So ultimately they help to increase net national
product and per capita income of country which is important parameter for
increasing economic growth of any nation.
4. Balanced Regional Development: Regional disparities are removed by both
public and private sector entrepreneurs as they set up industries in backward or
underdeveloped areas in order to avail various concession and subsidies offered by
the central and State Governments. For e.g., various public and private sector like
Modi, Tata, Birla established various plants in remote areas and today those areas
are reflected in International Maps.
5. Generation of Employment: When ever there is establishment of any business
enterprise by entrepreneur there is generation of employment both directly and
indirectly, directly includes those people who worked as employees within the
organisation including self-employment of entrepreneur which offers the best way
for independent and honourable life, indirectly for those people who are associated
with the business enterprise like— suppliers, distributors, Marketers, etc., thus
entrepreneurship is helpful to reduce unemployment problem in the country.
6. Economic Independence : As entrepreneurs starts enterprise with new, idea,
product, technology, process, service etc. so they are not dependent to foreign
companies or others, so they act as essential person for national self-reliance. Tne
industrialists who are entrepreneurs manufactures indigenous substitute of imported
products for e.g., Patanjali in India, there by reducing dependence on foreign
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countries. Entrepreneurs also export goods and services on a large scale and there by
contribute the country to earn the scarce foreign exchange, such export promotion
helps to ensure the economic independence of the country.
7. ^Improvement of Standard of Living : Whenever new products comes in the
market which are developed by cost cutting and improved technology it is affordable
to customer as substitute of after expensive or imported products in the market so
whenever entrepreneurs set up industries it removes the scarcity of essential
commodities and new affordable new products are introduced, for e.g., production of
goods on large scale achieves the concept of economies of scale in manufacturing
such as handicrafts, food products, ayurvedic medicines, natural products, organic
products by small scale industries helps to improve the standard of life of a common
man.
8. Backward and Forward Linkage: Entrepreneur is the person who intitiate
change which has long chain reaction in the society, as whenever any enterprise are
set up it has several backward and forward linkage for e.g., establishment of
automobile plant generates several ancillary units andexpands the demand for iron,
tyres, electronic product etc. these are backward linkage, similarly establishing steel
plant increases the supply of steel, and also facilitates the growth of machine
building, tube making, utensil manufacturing and other such units.
9. Philonthropy : We can not say all entrepreneurs wish to contribute for charitable
activities but yes we can say many successful business owners done lots of things for
the society through charitable trust made by them, some of then has come from
financial help and are keen to redistribute their new-found wealth to charities and
local communities welfare ventures.
10. Innovation: It is well known fact that necessity is the mother of invention,
necessity is baked by needs of human being with respect to new products, services,
process or technology, so most of the entrepreneurs enter market successfully due to
innovative approach with respect to product or services they offer or the way in
which they deliver it efficiently.
Approach followed by finding a solution to a problems whether as explicit or merely
an opportunity for competitive advantage, as the result entrepreneur can drive
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innovation in a market and create competition results in better and often more
affordable products and services for consumers for e.g., steve jobs and his team of
Apple corporation invented iPod which created an landmark area of innovation in
MP3 players as well as iPhone which has created technological excellence at the top
end of the market and perfectly functional products at the budget end which
benefitted the buying customers in the Market.
11. Increased Competition : For any economy and market healthy competition is
good thing for customer, by healthy competition company's and compelled to deliver
a better quality product or services in order to survive in the market. This can also
creates words for e.g., Redmi phones when entered in Indian market with good
quality phones and reasonable lower prise they created price war in the market to
Samsung, Sony, L.G., etc., to lower their product prize in market, it is the true fact
one can notice in market that often only the strongest in terms of quality will prosper
and ultimately this competition benefits to the general public.
12. Entrepreneurship and Environment Response : Entrepreneurship growth is
not spontaneously happens in any environment there are several factors prevailing in
environment which has direct or indirect influence impact for entrepreneurial growth
like economic, social, political, natural and psychological factors, these factors
sometimes has both positive and negative influences on the growth of
entrepreneurship. Various factors influencing the emergence of entrepreneurship are
below :
(a) Economic Condition : Positive economic environment acts as supportive factors
for the growth of entrepreneurs because entrepreneurs find out the way how to
efficiently and effectively utilize economic factor for his enterprise as well as social
welfare the economic factors can be enumerated as :
• Capital: Availability of capital is one of the important prerequisites to establish an
enterprise for an entrepreneur, by sufficient capital entrepreneur brings together the
labour, machines, infrastructure, raw material to produce goods or services, so we
can say capital is therefore regarded as a lubricant to the process of production and
hence it is has direct influence entrepreneurship increase.
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• Labour : World wide there is huge demand of cheap labour who has skills to work
for new emerging technologies with respect to quality and quantity. India due to
high population is one of the most affractive destination worldwide for multinational
companies low cost labour has direct influence in production process as it can lower
per unit cost of manufacturing.
• Raw Material: Availability of raw material is another important factor influencing
entrepreneurial growth, many enterpreneurs explored availability of raw material
some of them may be vary scarce in nature of e.g., Natural gas which is very good
substitute of petroleum now-a-days. Therefore raw material has also direct impact in
the emergence of entrepreneurship, in the absence of raw materials, neither any
enterprise can be established nor an entrepreneur can emerge.
(b) Social Factors : Social environment of any country has a significant impact on
the emergence of entrepreneurship because any business enterprise exists by the
society and for the society as employees working in enterprise belongs to the society
and consumers are also from that society. This we can understand by the example—
In India if we look social structure and culture of South Indian and North Indian are
totally different if we see taste and preference in South India coconut oil is used
mainly for cooking purpose while in North India mustard oil is mainly used for
cooking. The main component of social environment are :
> Social Mobility-social and geographical mobility of people.
> Social Security-not having fear of loosing economic assets.
(c) Psychological Factors : Psychological of an individual based on different factors
prevailing to his surroundings like—family background, society, community,
religion, education level, customs, ethics and values, family business, reference
group, training and development, attitude, personality etc. These factors has direct
influence on psychological state of mind of an entrepreneur.
(d) Governmental Influence : For the development of any nation government
policies as well as government stability and decision making develops both the
economic and non-economic conditions for entrepreneurship. Government can
facilitate the entrepreneurs by creating basic facilities, utilities and services through
their industrial policies and providing incentives and concessions and facilitating
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socio-economic setting to entrepreneurs as well. Thus we can say the supportive
actions of the government appears as the most conductive factor to the
entrepreneurial growth.
13. Small Business act as Seedbed of Entrepreneurship : As we know that the
person who organises, managers, and take risk involved in running a business or
enterprise is being called as 'entrepreneur'. Mostly entrepreneur starts small
enterprise first of all with low investment and simple technology by using local
resources and caters largely to local demands and same person may perform various
roles simultaneously as an capitalist, owners, manager, organiser, labourer etc. thus
small-scale enterprise act.- as entrepreneurs as well, that why government of India in
annual budget every year gives special packages and incentives to small scale
industries due to which small sectors has achieved an impresive growth since last
decades as in establishment of many number of units.
In pursuant of the Government of India's new economic and small enterprise policy
promoted and strengthened small, tiny and village enterprises, thus, small scale
enterprises serves as seedbed for the emergence of entrepreneurship in the country.
Small enterprises serves as the seedbed of entrepreneurship due to the following
features :
(i) SSI are based on local resource utilization.
(ii) SSI can be easily located any where as they occupies small space.
(iii) SSI leads to equitable distribution of income and wealth to society.
(iv) SSI creates more self-employment opportunities with comparatively less capital
investment.
(v) SSI creates relatively less environmental pollution and discription.
(vi) SSI provides quick return of investment with having shorter gestation period.
(vii) SSI units facilities vast industrial dispersion and avoid problems of unplanned
urbanization in the society.
(viii) SSI can be start-up with simple technology and lower managerial skills.
(ix) SSI also acts as ancillaries to assists large and medium industries.
(x) SSI helps for better utilization of local resources and skills which might remain
unutilized.
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(xi) SSI also helps to maintain and develop the traditional skills and handicrafts
through better marketing and distribution in market.
PROBLEMS AT WORK FOR ENTREPRENEURS
Any business enterprises come into existence by tremendous efforts made by
entrepreneurs although government provides lots of support, subsidies and other
benfits but when at the ground level implementation related problems causes many
problems to the young entrepreneurs, there are several issues and problems faced by
entrepreneurs while giving shope to their ideas to workout these can be as follows :
(a) Selection of Business : There many be very creative any unique idea in the mind
of entrepreneur but how these ideas can be converted into commercial success is the
big issue to any entrepreneur, however successful implementation of the idea into
business activity involves number of pain taking exercise by entrepreneur, this
involves number of steps and if by chance any step not done properly it may lead to
failure of concept and business.
First of all entrepreneur has to study the market which involves proper maarket
research procedure to know whether the idea of products or service could be
accepted by the market or not, for this purpose entrepreneur has to determine market
demand and futher carryout exercises to find out the projected costs of products or
services. By this entrepreneurs shall be able to know as to whether the venture is
profitable or not. This types of study in management term can be called as
'feasibility study' which is further presented in the form fa project report known as
'Feasibility Project Report'. So by project report entrepreneurs
can himself known to every facts which helps him/her to select the types of business
as ell as they can convince the financial institutions for getting finance to their start
up
business.
(b) Choice of form of Business : As per company act there is many choice of form
of usiness enterprice, according to act there are different categories of form of
business
enterprise such as :
> sole proprietorship
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> partnership
> joint stock company
> co-operative society
> trust
> private limited company etc.
All above categories of form of business choices are having different advantages and
I -advantages for small scale industries, however there are certain lines of business
where other choices are not available, for e.g. : Insurance and banking is only
allowed by the _ eminent under joint stock companies.
• Company form of organisation is suitable for large-scale operating organisation.
• For small scale enterprise maximum benefits offered by government under
category sole proprietorship or partnership and has been considered more suitable
for small and medium enterprises.
(c) Choice of Location : This is also one of the area where entrepreneur faces the
problem. The problem of selecting the lcoation of business should be carefully
handled by
"repreneur this issue is depending upon many factors like availability of raw
material, availability of transport, water, power supply, nearness of market,
infrastructure etc.
The government of India provides many insentives in the form of tax holidays,
ofrastructure facilities, rebate in power consumption, water supply bills, subsidies in
fuel md even providing provident fund EPF to employees to the units located in a
under-developed r backward areas, thus in order to get benefits of all these factors
entrepreneurs has to ike proper decision to finalise the location for setting up a
business unit.
(d) Financing: Finance can be compared like blood in body without it no any
business [)rise%an be established or run properly, but arranging finance always
troubles the
repreneur, first of all capital which is required to start business and to buy fixed
assets land, building, machinery, equipment, raw material, packing material, etc. has
to bee ranged by banks or other financial institutions.
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Further, finance is also needed to meet out day to day expenses occured for running
le business so after proper estimation of capital required an entrepreneur may have
to rrange finance from different institutions like IFCI, IDBI, ICICI, etc. as they have
various r.emes like 'seed capital fund' or 'venture capital fund' but without proper
project report I he new enterprise these institutions mainly look into the factor
of'Return bn Investment', " nee, the entrepreneur should arrange proper detail project
report and approach these aancial institutions and banker in order to get loans or
funds in appropriate time.
(e) Deciding the Initial Size of Unit: Size of the unit is also one of the important
ion which is influenced by several factors like technical, financial and market
. nsiderations. Mainly financial aspect is most considerable factors because when
overall budget is devided for land, building, covered area and open area required so
the acquisition of size of land and building should be appropriate so that rest amount
can be used for after running cost for the business.
Generally entrepreneurs starts their operations on small scale level and when they
feel that they can market the intended product or services successfully they expand
gradually. For e.g., the owner of Nirma Limted Dr. Karsanbhai Patel started business
at very small level and even used to sell washing power in bicycles in 1980; and
with subsequently increase in sales and operation established big set up and has now
become renoucited Nirma limited company. So we can say by starting business on a
small scale, it is easier for entrepreneur to adopt to changes without musk-risk as
huge investments which is having chance to block in parmanent assets.
It has however observed that in the present chaging business scenario many
entrepreneurs short their ventures on large scale as they are prepared to take big risks
specially technocrats who are professionally trained and employed earlier in big
firms has become the entrepreneurs for e.g. : O/a, Urban clap, trivago, naukri.coirr,
shadi.com etc. and contribution for the economic development of the country
leaving lucrative jobs and starting new ventures at bigger level.-
(f) Problems Regarding choice of Machines and Equipments : This is also one of the
problem generally faced by entrepreneurs due to lack of proper knowledge about the
source of getting proper machines and equipments as the choice of machines,
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equipments and process is a delicate problem before starting a new venture as this
depends on various factors like-availability of funds, size of production and the
nature of production process. Thus mainly emphasis should be placed on
productivity and consequently on availability of facilities of repairs, maintenance,
availability of spare parts, after sales services given by machine suppliers so that
after starting production machines and equipment should not affect the functioning
of business enterprise.
(g) Problem Regarding Suitable Manpower : Manpower expected by any
entrepreneur must match to the zeal, enthusiasm, passion and creativity as
entrepreneur possess, so to find out such dedicated and skilled manpower sometimes
a tough job to find out. Skill and knowledge are developed through experience in
same field as well as the training and development programmes, so sometimes
entrepreneur provides training to selected employees so that they can work in
organisation as per expectations. If the size of business is large then entrepreneurs
has to find competent persons for various functional areas like—marketing,
managing accounts and finance, technicals expertise, production oriented, human
resources management etc. so entrepreneur has to identify first of all thc-right
persons for each area and motivate them to join the set up which is not an easy job, it
involves lots of patience and continous persuasion, this is only possible when
success parameters are ensured by making proper choice and arrangement done in
systematic order.)
Table : Factors Influence Entrepreneurship Problems at Work
S.N Facilitating Factors S.N. Problems at Work
1. Entrepreneurial training 1. Lack of Market Knowledge
2. Technical knowledge 2. Lack of technical skills.
3. Family business 3. Lack of other business
knowledge ,
4. Market contacts 4. Lack of seed capital
5. Local manpower 5. Legal and bureaucratical
constraint
6. Availability at capital 6. Social stigma problems
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7. Export advisors and supporters 7. Patent inhibitions
8. Successful role model projection 8. Time pressure and distraction
9. Supplier assistance to business 9. Political instability
10. Government and other intitutional 10. Non-cooperative attitude of
banks
support and other institutions.
BARRIERS/CHALLENGES TO ENTREPRENEURSHIP
Although government has full support for the development of entrepreneurs inspite
of that entrepreneurial development is found to be very slow in underdeveloped and
developing countries, this happens due to various factors as seen in the different
studies done on the entrepreneurial development, as per researcher Mr. Gunnar
Myrdal he found that in most of the asian countries there is slow growth of
entrepreneurship not because of lack of money or raw material but because of
attitude of the people. There are several such factors can be classified and explained
which acts as barriers for entrepreneurial development are as follows :
A. Environmental Barriers : Every country or state has different environmental
factors which directly or indirectly affects or acts as barriers to entrepreneurship :
1. Lack of Skilled Labour : There are many underdeveloped countries where
education level is very low so unfortunately desired manpower may not be available,
it may also be due to lack of committed or loyal employees in the organisation.
2. Non-Availability of Quality Raw Material: Some countries or states are rich in
natural resources which are used as raw material for production for e.g., India is very
rich in Iron ores which is basic need for steel industry while Japan is lacking in Iron
ores so they import about 95% of iron ores from India and Australia for their
industrial use, so lack of raw material is also barrier for entrepreneurial growth.
3. Lack of Proper Infrastructure : This is one of the major barrier to the
entrepreneurial gowth because lots of investment is required to purchase land and
building •'.hich is primary necessity to set of any business enterprise. This is main
problem in underdeveloped and developing countries. In India government is trying
to set up industrial park and zones where sheds and other infrastructure facilities like
adequate cheap power, transportation, roads, water supply, drainage, godowns, cold
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storages are made and initially government provides space on rent or lease to
entrepreneurs. But in remote areas or in rural areas there is big infrastructure related
problems.
4. Lack of Funds : As we know there are various methods by which an entrepreneur
arranges funds-first of all by own savings, borrowings from friends and relatives,
banks and i ter financial institutions, but practically there are many paper work
formalities for getting
ans and funds due to which small entrepreneurs generally find it very difficult to get
large : :ount of cash for installing modern machinery and other requisites to shart
new ventures.
5. Lack of Good Machinery: Good machinery are very much essential to have
efficient duction of goods and due to rapid technological developments there is
chance of machines ting obsolete very soon, so small entrepreneurs are not able to
update themself due to
ck of cash for installing modern machinery which leads to remain behind from their
big cmpetitors in the market.
6. Other Environment Barriers : This may include lack of education, motivation,
uption, high cost of production, natural disaster, climate etc. which may act as
barriers
fcr the growth of entrepreneurship in under developed countries.
B. Personal Barriers : This types of barriers are associated with personal factors of
an individual which are caused by emotional aspects and state of mind, some of the
personal barriers may be outlined as below :
1. Lack of Confidence : Without proper training, experience, educational
background many people think that they lack qualities and confidence to be
successful entrepreneur as they think that they can't be master of all the skills
required so such people are reluctant to become entrepreneur inspite of this they
choose to do job in some after organisation.
2. Lack of Motivation : Sometimes when an individual faces challenges of real
business or due to some losses in initial stages of business, inspite of enthusiasm and
initially having drive to achieve success he loses interest or demotivated, hence it is
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necessary that they should attend some training programes, conferences on
entrepreneurs so that by interaction with other successful entrepreneurs they get
motivated.
3. Unwillingness to Invest Money: In the country like India from childhood parents
put presure on their children to become doctor, engineer, IAS etc. so even
havingTnoney and creativity in child they are not willing to take the risk of investing
money in business.
4. Lack of Patience : Modern youth is more dreamer and having ambition to
achieve success in the very first attempt or to become a rich person with shortcut or
small span of time, and when such short cut method fails and dreams do not fulfill
they lose interest, this is due to lack of patience leads to gradually lowering drives to
fail in business.
5. Inability to Dream : Entrepreneur should always have longterm plans and vision
but those who are having short vision and with smaller success only sometimes they
lose interest in further expansion/growth of business.
C. Social Barriers: This type of barriers are due to the societal background and
social attitude which inhibits many people even from thinking of starting business,
most prevalent sotia\ barriers can. be as MVows
1. Custom and Tradition of People : Most people want their children to do
government or after jobs, even the parents who are in family business would not like
their children to be entrepreneur as they think there are many problems in the
country like India due to corruption in the system, so they do not support their
children even the other relatives and people of society hinder the growth of
entrepreneurs.
2. Low Status : It is general phenomena belived in the society specially in India that
business is activity which can be done by people of high business class and those
who have traditional family business and high status or financial background, also
some section of the society believes that entrepreneurs are the people who exploit
the society, thus general attitute of the society towards entrepreneurs is not positive,
hence people of law status inspite of good ideas of business do not short their own
enterprise influenced by social barriers.
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CAUSES OF ENTREPRENEURIAL FAILURE
Entrepreneurial success although depends on number of factors as we discussed
earlier but sometimes even one mistake or wrong dicision can leads to failure of
entrepreneurs, so it can be said success of an entrepreneur might not just depends on
good ideas or bad ideas, strong markets or weak markets but also it has everything to
do with how we think and behave towards the each and every small mistakes or the
factors which directly or indirectly dedicing factors for success or failure of
entrepreneur, some of the common causes can be enumerated as follows :
1. No Revenues : Many entrepreneurs are not able to generate revenue to start or run
business.
2. Due to Limited Business Opportunities : Sometimes due to wrong market
research even good ideas cannot work to genrate demand due to availability of other
substitute products in the market customers are not attracted.
3. No Proper Written Plan or Project Report: If the ideas are not executed well in
written form as project report then project feasibility will be doubtful.
4. Highly Competive Market: It is generally observed that big fish eats smaller fish
this thing is applied in market too, big business competitors sometime give big
discount on their product so that new entrants could not survive, as they are having
limited financial resources.
5. Lack of Intellectual Property : Due to cut throat competition in market many
company copy the new ideas and floats similar products in the market so if the idea
or product is new go for trade mark registration or patented with copyrights so that
no other can copy similar goods or services.
6. Inexperienced Team : Business unit may be new but there should be experienced
team member among the employees because they can suggest what to do in the
market and how to handle things properly, so always prefer experienced people.
7. Small Marketing Efforts : Marketing is the only department which generates
revenue for any business organisation, hence entrepreneur should have great
promotion which should be asessed and executed by professional marketing team, if
entrepreneur have nice product or services it requires great marketing efforts to
convince people to buy products.
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8. Lack of Direction : Starting a business is easy job but having clear goals and well
created plans to achieve those goals are necessary, so it is required to develop a
complete business plan before launching business enterprise, so that all employees
can work to the planned direction.
9. Greed : Entrepreneur should not be very greedy because this factors influence
entrepreneur to make a lot of money in shorter direction this lead to failure of the
business enterprise.
10. Impatience Behaviour: In order get success in very short direction entrepreneur
may be impatience by which owner try to accomplish too much too soon, so there is
good role to remember that everything costs twice as much and takes three times as
long as expected.
11. Poor Cost Control: Sometimes if there is no proper cost control by entrepreneur
there may b<J%hance to spend too much, especially in the early stages capital
money may be spend during start up before achieving profitability.
12. Poor Product Quality: Product may be new but if the output is not of
appropriate quality if will be refused by customers and it will be difficult to sell in
the market without repetitive business.
13. Improper Budgeting: Budgeting mean allocation of money for different heads
or functions in business, sometimes if there is improper budgeting it may lead to
failure of business, so budgeting-should be properly done in written from for
different operations that includes all small expenses too.
14. Loss of Momentum of Sales : Sales department requires proper monitoring and
motivation because it may leads to a decline in cash flow and ultimately collapse of
enterprise.
15. Failure to Anticipate Market Trends : In present scenario of market there is
rapid changes in trends, taste and preferences, so an entrepreneurs must be updated
because if he does not recognises changes in demand, customer preferences it will
affect business.
16. Lack of Managerial Ability : As we know management is art of getting things
done by others, so entrepreneur should be good manager also so that he can
understand the important skills to run the business.
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17. Indecisiveness : An entrepreneur is unable to make key decision during difficult
time or if the decision is delayed or improperly made then this may lead to failure.
18. Bad Human Relations : If entrepreneur is not having skills to maintain good
human relations and personal problems and conflicts with staff, suppliers, creditors
and customers can easily lead to business failure.
19. Diffusion of Effort : An entrepreneurs have lots of things to do, he has to take
decisions on time but if he fails to set priorities and do not focused on high-valued
task this may lead to failure.
20. Unable to Execute Things on Time : Having brilliant idea is one aspect, but
proper execution of idea is another aspect, so entrepreneur must be able and capable
enough to make the hardest decision while taking the risk wisely for the welfare of
business enterprise.
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DIMENSIONS OF ENTREPRENEURSHIP
Entrepreneurship is having wide dimensions in itself, there are large number of
varied factors associated with the growth of entrepreneurship. Each dimension have
their own importance and affect, we cannot escape any single dimension, these
dimensions can be broadly classified as follows :
1. Cultural Factors : Culture is important dimensions of any society which
influence the behaviour and thinking of person living in that society if has two
aspects first is tangible which is man-made we can see in physical from for e.g. the
way person live, dressup, wear cloths, office environment, living standard, etc. "If
we compare culture of South India and North India we will find as India is known as
land of diversity there is huge differences just if we compare even different states of
India just by seeing the person we can gives which part of India he/she belongs it is
due to the cultural factors reflects.
Similarly there are other intangible factors such as-laws morals, knowledge values
and other behavioural aspects prevailing in the society has direct or indirect
influences on entrepreneurs. The important cultural dimensions influencing
entrepreneurnal growth are briefly explained below :
(a) Religious Beliefs : Religion is one of the primary cultural dimension by which a
person learns right from childhood, according to Max Weber a renounced researcher
entrepreneurism is a function of religious belief and the impact of religion
contributes a lot to shapers the entrepreneurial culture.
(b) Values and Ethics : Values and ethics are closely related to culture and has
direct influence on human behaviour these values and ethics are certain standards-
which are made by particular society and it is acceptable in that particular society for
e.g. some societies worldwide have customs of polygamy while some do not have
such customs.
(c) Minority Groups : World wide in every religion and society there are certain
minority groups for e.g. Minority groups like Jews and Greeks in Medieval Europe,
Lebanese in West Africa, Anglo Indians in America, Parsee in India etc.
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According to Hoselitz he explained that the supply of Entrepreneurship is governed
by cultural factors and these culturally minority groups acts as the spark plugs for
entrepreneurnal and economic development.
(d) Spirit of Capitalism : Capitalism means when society is governed and run by
big capitalist for e.g., In China, Russia, capitalist plays an important role for framing
economic policy, they also guide the entrepreneurs in such a way to engage in
activities that can bring more and more profits, this profit motive character also
associated with the attitude towards acquisition of money for an individual to short
new venture.
2. Social Factors : Any business organisation exists anywhere has a direct influence
from the society as employees and customers both belongs to the same society,
society moulds a person into an entrepreneur due to the sociological and
environmental factors right from childhood, from school, family, colony, college,
reference groups, job environment, mobility, occupation, parents etc. There are
different sociological dimensions as follows
(a) Social Marginality : There are mainly two factors legitimacy of
entrepreneurship and social mobility which leads to social marginality likely to
promote entrepreneurship influenced by the perimeter of a given social system or
between two social systems provide the person to assume the entrepreneurial roles.
(b) Legitimacy of Entrepreneurship : Every society has their own norms and
values within their socio-cultural setting which is responsible for the emergence of
entrepreneurship in that society. So the degree of approval or dissapproval granted
by society to entrepreneurial behaviour largely influence the emergence for e.g.,
some society do not allow women to do business, on to interact with unknown
persons so in such society success rate of women entrepreneur will be neglibiable.
(c) Family, Role Models, Religous head Influence : Entrepreneur is primarily
influenced by his/her family if the family is supportive it is good for an individual to
become a entrepreneur, in same way if the family or in the society there has been
any successful role model as entrepreneur this motivates young entrepreneur to start
new venture. If a person is in association with successful entrepreneur this also adds
the desire to that person for setting up a new venture, for e.g. Reliance, Birla, Modi,
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Tata's are inspiration to young entrepreneur. According to Robert (1991) he coined
the term 'entrepreneurial heritage' in order to describe the importance of the family
background for the entrepreneur, this heritage is influenced by the factors such as the
father's occupation, family size, family work ethic and religion, growing up
experience etc. affects entrepreneurial behaviour.
(d) Education and Technical Qualifications : Education level of a particular
society prepares a person to understand and explore the opportunities and to become
a successful entrepreneur, education is regarded as best means of developing
person's resource fullness which promotes dimensions of entrepreneurship. Well
educated society develops the institutes where technical skills can be developed
among young entrepreneurs, so we can say that high level of education enables the
entrepreneurs to exercise their talent more effectently and effectively.
(e) Caste System : In India caste division within the society is world's largest, some
religious or caste communities like—Marwaris, Parsee, Sindhees seems to have an
affinity for entrepreneurial activity.
(f) Social Status : In every society every social class wants to upgrade to more
higher class so every human being aspires in his/her life for a high social status and
once they achieves a reasonable levels further aspirations and desires starts getting
multiplied. So in order to achieve upper status people work hard which ultimately
contributes to entrepreneurial growth.
(g) Social Responsibility : Every good society take care to all belongs to that
society with the sense of social responsibility towards them, so entrepreneurs of such
society generates more and more opportunities and employment for other weaker
sections in the society for e.g., Sikh community always work on the concept of food
for all and work for all, they directly or indirectly helps weaker section as well.
(h) Occupation : Occupation also plays an importance role, those who already seen
and experienced the business from their business background families have not only
an advantage of having financial backup for carrying out business but also learn the
business skill by continuous interaction with customers, parents, employees and
visitors in family shop, offices etc.
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3. Psychological Factors : Everyone wants to follow those people in their life as
role model who has proven themself successful in the society, so inspiration for
achievement prepares an entrepreneur to set higher goals of their life and sincerely
do hard work to achieve them. Various important psychological dimensions can be
as follows :
(a) Personal Motive : Every personal has their motive of life what they want to
achieve in life, so personal motive are the crucial factor responsible for
entreprenurship for e.g., all successful entrepreneurs such as Bill Gates, Dhirubhai
Ambani, Mark Zukerberg dreamt that one day they would become the richest person
and they achieved their motives.
(b) Need for Achievement: First of all every individual should recognise their need
for achievement in life because without any goal set up one cannot achieve anything
in life, people having need for achievement will be so much self-confident that they
do not believe in mere luck, so need for achievement will lead to successful
entrepreneur.
(c) Need for Recognition : Every one want to fullfd. Social need which is possible
when they do something in the society for recognition, so sometimes people do big
things in life in order to get recognition in the society, this is also one factor for
entrepreneurship.
(d) Need of Authority : Some people believes that it is better to give job than to do
job under after authority this develops the sense of getting authority which inspires
men to work, when they become entrepreneurs, they can exercise authority over
manager, employees etc.
4. Economic Factors: This is also one of the important dimension of
entrepreneurship, economic condition of any country influences the growth of
entrepreneurship, important economic factors can be enumerated as follow :
(a) Financial Resources : As we discussed earlier for entrepreneurship first of all
capital is required to manage machine, materials, equipments etc. so capital is
regarded as lubricant to the process of production, lack of financial resources
discourages the youth and budding entrepreneur who want to start new venture.
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(b) Infrastructure Facilities: It is well known fact that entrepreneurial development
requires certain basic infrastructure like, land, buidling, power, transportation,
communication, technology etc. these factor promotes external economics and
improve the efficiency and better return on investment by entrepreneurs.
Infrastructure facilities in underdeveloped countries, are not sufficent while in
advanced or developed countries, those who are desirous of stalling an enterprise
will findnO difficulty in awaiting the infrastructural facilities at reasonable cost.
(c) Market Conditions : Due to FDI and multinational companies now the choice of
products are more in number in Indian market, even in some areas inspire of large
population there is situation of market saturation, hence companies are exploring
new market for selling their products, the size and composition of market has direct
influence on entrepreneurship, practically monopoly, duopoly in a particular product
in market becomes more influential than a competitive market.
(d) Labour Condition : This is one of the major dimension for entrepreneurship
worldwide there is scarcity of skilled labour in market, the availability of cheap
labour positively affects, labour problem can be solved not by capital intensive
technologies but by increasing the mobility of labour force to the place they required
by offering them lucrative facilities, incentives and concessions in every remote
corner of the country.
(e) Availability of Material: There are many types of material required to start any
business like raw material, packing material, supportive maintenance material etc.
entrepreneurs are encouraged only if there is adequate supply of above mentioned
material at reasonable cost and continuous supply, easy availability and technical
know-how is essential for innovation so that sophisticated techniques of production
can be adopted easily by entrepreneurs.
(f) Government Policy: Government role is very Crucial for any nation
entrepreneurial growth and development, the socio-political and economic policies
of the government has direct influence on entrepreneur, primary facilities includes
land, heds, power, supply of material and other physical facilities provided by the
government to facilitate setting up of new enterprises. Also government tries to
promote backward areas with a view to attain a balanced regional development.
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5. Personality Factors : Individual personality dimensions are also matters for to be
an entrepreneur, there are factors like initiativeness, foresight edness, organising and
managerial competence depends on types of personality process by entrepreneurs.
So there are different personality factors as follows :
(a) Individual Personality: It depends on skills, styles, motives, values etc,
impressive personality and individual skill helps to develop individual as
entrepreneur, good personality is required by entrepreneur because they have to
work with officers, managers, labourers, customers, investors, government
representatives, etc.
(b) Independence Approach : The biggest advantage of entrepreneur is his
independence approach to take decision, an entrepreneur works out plans on his
own, searches and explores,resources, experience and uses inner urge to make the
enterprise a success instead of depnding on others or directions from others.
(c) Compulsion Factors: There are certain compelling factors which forces the
person to become entrepreneurs as he/she experience from the environment these
may includes :
> unemployment or dissatisfaction from existing job.
> utilize technical or professional knowledge and skill for own business.
> utilize idle funds in proper way to start business.
> change the occupation they are in.
> social welfare.
> generating employment for others motive etc.
So it has been observed a large number of professionally and technically qualified
after gaining initial experience from other organisation if not satisfied by their
growth have a compulsive effect to try for entrepreneurship.
INTRAPRENEURSHIP
'Intra' means within the organisation, so intrapreneurship can be defined as
entrepreneurship practice which happens within an existing business set-up that's
why they are often called as corporate entrepreneurship also. In any big organisation
generally the top executives are encouraged to catch hold new ideas and indulge in
entrepreneurial activities like diversification into a new products or new business
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through reasearch and development within the framework of organisation they are
working so they can be called as intrapreneurs.
The concept of Intrapreneurship has become very popular in developed countries
like : Germany, America, Intrapreneurs is like a Manager who focuses on innovation
and creativity, do brainstroming, dreams big and puts all their efforts and ideas into
profitable ventures by operating within the organisational environment. It has been
found that an increasing number of intrepreneur is leaving their jobs in big
organisations and starting their own enterprises if not satisfied with their present
jobs, many of such intrapreneurs have become exeedingly successful in their
ventures.
Characteristics of an Intrapreneurs
An Intrapreneurs are not very much different from entrepreneurs but year there are
certain characteristics which differentiate them, as intrapreneurs are working with
other organisation it is obvious that they have considerably reduced risk compared to
entrepreneurs, secondly the desire for independence and material success is not as
strong in case of Intropreneurs hence some of the main distinguishing charateristics
can be enumerated as follows :
1. Motivation : Generally Intrapreneurs do work with self motivation but if his
organisation provides sufficient expert corporation reward and recognition this
automatically motivates intrapreneurs.
2. Orientation : Intrapreneurs are generally achievement oriented because his
efforts leads to his organisation growth and profit and in return he gets good
recogition and promotion in his organisation.
3. Vision : It is very basic requirement for any successful venture that employees
vision should be matched perfectly with organisation vision or goals so intrapreneurs
has good ability to visualise from idea to its implementation in order to achieve
organisational vision too. ...
4. Locus of Status : Intrapreneurs has desire to work on their own rather than treated
or delegated like managers in order to maintain his/her locus of status.
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5. Risk Appetite : Intrapreneurs are moderate risk takers compare to intrapreneurs
as their risk acceptance depends on their skills, but wild risk takers are not very
much affordable to corporates.
6. Failure and Mistake : As intrapreneurs is always answerable to his organisation
because any mistake done by him or team member may lead to project failure, hence
intrapreneur hides highly risky projects and ideas to ensure learning without political
cost and public failure, for this they generally develop multi disciplinary team in the
organisation and sometimes may go beyond organisation boundaries for results.
7. Organisational Goal Setup : As Intrapreneurs are self-motivated so they have
important role to set organisational goals and quality standards.
Table: Difference between Entrepreneur & Intrapreneur
Entrepreneur
Independent: An Entrepreneur is an independent person in his business operations.
Need not be Highly Educated : It is
not necessary that an Entrepreneur should have a high education. He can learn
everything be experience provided he has the basic qualities of a successful
Entrepreneur.
Fund Raising : An Entrepreneur himself raises funds necessary for starting and
establishing his enterprise.
Intrapreneur
Dependent : On the other hand an intrapreneur is completely depending on the
Entrepreneur for everything in the organisation. He cannot take any decision by
himself.
High Educated: An intrapreneur enters into an existing organisation with a high
education and qualification. He is indeed a business specialist in the chosen field.
No Fund Raising : An entrapreneur is completely free from the botheration of
raising funds.
Risk Bearing : An Entrepreneur has to bear all the risks involved in the business by
himself. Routine Work : Entrepreneur is more concerned with doing routine work
and something he may not know the important details of his own business.
Operation from Outside : An
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Entrepreneur always operates from outside. The owner is different and the enterprise
he owns is different. Strong Authoritarian: Generally, an Entrepreneur operates
with a strong authoritarian back-up.
No Risk Bearing: An intrapreneur need not beat any risk involved in the business.
Specialist : An intrapreneur acts as a aspecialist in his chosen field and serves as an
outside professional.
Operation from Inside But, an intrapreneur operates from within the organisation
itself. He is a part and parcal of the organisation.
Less Authoritarian : On the contrary, intrapreneur is less authoritarian. He is more
adaptable' in the organisation.
TECHNOPRENEURSHIP
Today 'world is becoming a local village' due to vast development of technology and
mmunication, whole world is connected with internet, people doing business related
rtivities online, companies like Amazone, Flipcart, etc. doing 100% business online
this leads to motivate people to start business using internet and technology.
The people who use intensive technology for the purpose of doing business is called
as i hnopreneurship for e.g. Billgate, Mark Jukerberg (facebook) etc. are well known
ntrepreneurs who not only used technology but set themselves as a role model as
technopreneur.
Technopreneurship is process of merging technology process through
entrepreneurial ".alent and skills, In a digital knowledge based society, strategic
directions, decision making process is demanding, this requires tertiarylevel
different professional development programs ad training to produce strategic
thinkers who can dynamically change global environment. It has been observed now
a days just having traditional educational programs or system is - : sufficient to
transform today's students into creative, innovative, visionary global leaders ithout
understanding the importance of technoprenership.
Technopreneurs are the person who percieves an opportunity and creates an
organisation hange dynamically the existing economic order by introducing by
introducing new product - services, by exploring new raw material and the process
of production, so technopreneurs -tinguishes themselves through their ability to
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manage and accumulate knowledge, as ell as their ability to mobilize resources to
achieve a specified business or social goal. Technopreneur is an entrepreneur who is
technology savy, innovative, creative, dynamic, ase unexplored path and very
passionate about their work, they take challenges and rk hard to lead their life with
greates success, also act as stimulator to look things differently _-. modern business
scenario.
Technopreneurs uses innovation and creativity as a specific tool by which they
exploits flange as an opportunity for a different business or a different service, so
technopreneurs otinuously go through an organic process of continual improvement
and always try to -e-define the dynamic digital economy changes.
Potential Technopreneurs must be equipped with technical and business skills
because he has to coordinate, promote, manage and supervise all activities pertaining
to technopreneur development process.
Technopreneurs in todays business world contributing majorily for economic
development of country and leading to many economies to prosperity for e.g. Steve
Jobs well known for his innovations in ipod and iphones, Google, wikipedia,
whatsapp, facebook, hotmail, etc.
Technopreneurship is not a product based but also a process of synthesis in
engineering the future of a person, organisation, nation and the world.
CULTURAL ENTREPRENEURSHIP
"A cultural entrepreneurship are an entrepreneur who creates a business that is based
on arts, creatively inelined or is relevent to the cultural heritage of a specific society
or community."
The term cultural entrepreneurship applies to the concept for creation of any product
or services that primarily forget our taste in terms of fashion, music, movies, stories,
games, opinion or cuisine, the goal of cultural entrepreneur's business venture is to
address social problems with the shifting of traditional belief and attitudes of
community, cultural entrepreneurs can also be characterised as a sub-set of social
entrepreneurship or a business visionaries that want to transform the world for the
better innovative, creative and scalable business practices.
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"Cultural entrepreneurs also act as cultural change agents and resourceful visionaries
who organises culture, social, financial and human capital aspects in order to
generate revenue through cultural activities which result to economically sustainable
cultural enterprises by creating cultural values and wealth."
If we look some Indian cultural entrepreneurs since independence film and music
were enthusiastically adopted and today these industries has grown up international
level. Lots of changes has been observed in last few decades Indian culture has been
followed and adopted in various countries through cultural exchange programmes as
well as Indian also adopted western culture in either in field of food, clothings,
publishing, animation, revival in comics, fashion, cafes etc. for e.g., Pizza, Pasta,
Doremon, hollywood movies, jeans, has be adopted by youth of India.
Recently the present government headed by Mr. Narendra Modi given more and
more emphasis on the cultural exchange in this direction in January 2016 'Start up
India' was launched to promote the cultural entrepreneurs. The world is moving from
the industrial age to on age of information, so it effect India to leverage the
unfolding policies and existing opportunities to become on IT powerhouses and
develop to ourself in order to join the league of other more developed countries.
Difference between Social Entrepreneur and Cultural Entrepreneur
Social Entrepreneur
Social Entrepreneur creat business to address a social problem and issues, for e.g.,
privatisation of drinking water, pollution control, education etc.
Cultural Entrepreneur
Cultural Entrepreneur may also share the same goal of leveraging business to better
society, but. not only developing the physical product or services they foster social
change related to visual art, music, films etc.
They work on establishing financial viable enterprises that provide solution for
better access to social problems.
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Social entrepreneurs solve the problems by disrupting existing system. Social
Entrepreneurs may lead to break through product design for e.g. solar powered light
to reduce pollution.
Cultural entrepreneurs often rely heavily on new media tools such a Twitter,
facebook etc. and uses persuasive communications tools to shift attitudes, beliefs
and behaviour in order to change world for the better tommorow. They focus
primarily on reimaging social roles and motivating. Cultural entrepreneurs on the
other hand solve problems by disrupting belief system using television shows, online
videos, movies etc.
INTERNATIONAL ENTREPRENEURSHIP
The term international entrepreneurship was introduced around 1988 for those who -
"art business in export-import and capture foreign markets by opening new ventures
- -'fleeting a new technological and cultural environment.
According to McDaugall (1989) define international entrepreneurship as "It is the
process : development of new ventures or enterprise through inception, eagage in
international business by entrepreneurs by viewing the new operating domain in
international market.
Simply we can say "International Entrepreneurship is the process of an entrepreneur
conducting new business activities across national boundaries which may be related
to •exporting, franchising, licensing or opening branches or sales office in another
country."
Now a days International business has become increasingly important to all size
firms, because domestic market are sometimes saturated for certain goods or
services hence for exploring new market companies are going for international
market and contributing a lot gain foreign currnecy ultimatily promoting economic
development of nation.
So we can say international entrepreneurship is helpful for an entrepreneur when
they fully understand how all the dimensions of international market can be
understood and respond accordingly to be successfully being global.
India at present operates the largest and oldest programmes for the development of
SSI and entrepreneurs among any developing countries due to which small
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industries have made inpresive growth in units, production, employment and exports
over the year. The significant role of small enterprise in the Indian economy
accounts 35% of the gross value of the output in the manufacturing sector, about
75% of the total industrial employment and about 40% of the total exports of the
country where international entrepreneurs do have important contribution.
Through the growth of exports from the small enterprises is not doubt impressive but
it is also true fact that India's share in overall world export is still very low i.e., about
0.5 percent, India is now become the active member of World Trade Organisation
(WTO), hence there are opportunities to improve, its share in world's exports to be a
global player so ternational entrepreneurs has lot to explore in this regard.
Major contrains for International Entrepreneurs
There are about 24 lakh registered and unregistered small scale units in the country
amongst them 90 percent are tiny industries with an investments in plant and
machinery upto Rs 5 lakhs only.
As technology is crux of quality of product and competitiveness in international
marke: so tiny units find it difficult to go for modernisation and technology
upgradation due to low investment. The major constraints encountered by the
international entrepreneur or sn scale units in exporting their products are as follows
:
1. Infrastructure Facility : Lack of facilities like power supply, transportation and
communication adversely affects the quality and quantity of production, costing
upon the export performance of small scale units. For this government launched new
scheme called 'Integrated Infrastructure Development' scheme in rural and backward
areas which may prove a right step in right direction.
2. Credit Policy : As small enterprise has limited sources of finance, hence they
hav> to depends on State Financial Corporation (SFCs) and other commercial banks
to meet their long and short term capital requirements, there is availability of credit
from financial institution in India is very low about 8.1 percent of output, similarly
for tiny units it is merely 2.7 percent of their output which is big constraint.
3. Technology: The adoption of new technology is also one of the biggest constaint
for small scale units or tiny units due to limited funds and resources, so government
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of India is trying to set up several tool room's production, process centres, regional
testing centres, workshops, industrial parks and ISO .9000 norms facilitation in order
to promote exports from small scale units.
Scope or Potential for International Entrepreneurs
There is an observation that small units are inherently flexible to react to market
signals and changing tastes this quality makes SSI or International entrepreneurs
more innovative and open to new ideas, there are many products in which there is
large scope to export with small changes or innovations as follows :
1. Leather Goods : India has large cattle population too which provides substantial
raw material as base for leather-based industries, presently there is percent overall
share of world leather market which can be raised by 12% by 2020 because this
sector holds potential for exports. However there are some weakness too if they can
be removed the export can be increased as low volume of production units, lack of
standarlisation, poor technology, etc.
2. Food Processing Industries : There are many countries in world where climatic
conditions do not support favourably for agricultural production, India has been the
second largest producer of a wide variety of fruits and vegetables in the world due to
favourable climatic conditions. But processing of food products is not more than 2
percent which is 30 percent in Philippines and 83 percent in Malaysia, considering
the growth of international demand for processed foods, the items which hold good
potential for exports from India are spices, cashew, nut, fruits, vegetables, fruits
pulp, juices, jams, pickles, canned fruits, dehydrated fruits etc. hence there is wide
scope for international entrepreneur in food processing.
3. Electronic Goods : During deeades 1981-90 onwards there has been phenomenon
growth rate of electronic industry in India which is about 35 percent, among this
40% small units shared 40% of output. But the global market is dominated by China
and Indian electronic goods share merely 0.15 percent which is having 80% exports
of such electronic goods by export processing zones alone. Hence electronic industry
holds tremandous potential for exports, this potential needs to be tapped by
international entrepreneurs.
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4. Plastic Goods : India is the country where impressive growth has been observed
in recent years, there are around 19,000 units manufacturing various typer of
industrial and consumer plastic goods, among them around 17,500 units belongs to
small scale sector,
during year 1995-96 the small sector contributed 47 percent of plastic products for
exports. So there is still enough scope to diversity the products and opportunities for
international entrepreneurs to penetrate new markets.
NETPRENEURSHIP : [NET + ENTREPRENEURSHIP =
NETPRENEURSHIP]
Netpreneurship is the term basically means a small start-up which is mainly based
on online or internet through website/blog/e-presence. for e.g. such entrepreneurs
can be freelancer, may be working from home taking projects online or launching
some e-marketing compaigns or running on JEO company. This type of
entrepreneurs can be regarded generally as making money online.
The internet is the biggest platform and only a few decadesold and now a days
believed to be biggest communication platform to human kind. Everyone is familiar
about the fact that internet represents one of the biggest cultural shift,'various social
media for e.g., facebook, youtube, Flicker, twitter etc. provide entrepreneurs and
business an opportunity to engage their customers and communicate directly their
messages. So these days a lot of Netpreneurs have emerged since it is free to join
website and easy to promote content through the network. Some of the successful
examples may be :
naukari.com - for jobs.
shadi.com - for marriage proposal.
99 acres.com - for property promotion.
cardekho.com - for car comparison and features.
policybazar.com - for different insurance policy comparison and
information.
trivago - for hotel bookings and comparison of price.
extra marks - for preperation of exams, etc.
Distinguish Characteristics of Netpreneurs
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In the new economy Netpreneurs are very noticeable people who delivers products
and services over digital networks, so various distinguished attribute can be as
follows :
1. Netpreneurs Introduce Virtual Loyalty Ore Brand : There are various
marketing organisation driven by netpreneurs who make aware about brand
preferance and also provides greater choice to vendors, so consumer expectation
rises accordingly for brands.
2. Eliminates Geographical Barriers : Netpreneurs due to use of internet are able
to disintegrates the boundries of all kinds between countries, industries,
organisations, -uppliers, customers and even competitions.
3. Multi-disciplinary Action : Netpreneurs are creating successful solutions in the
age of new economy by process of integrating diverse disciplines like—contents,
technology, graphics, service and relationships, the traditional business world also
taking helps from these models hybrids to represent themselves in new company.
4. Promoting Collaborations: Netpreneurs are also acting as agent for
collaborations among two or more business enterprises in order to engage and
involve stakeholders in every step of the way doing business through research and
development, packaging, delivery, support and the ongoing improvement process,
for e.g., Amazone, flipcart offerig lakhs of : roducts it is possible when they have
collaborated with different manufacturers for different products for marketing.
5. Act as Intermediaries : Websites started by Netpreneurs first of all provides all
ailed informations to all the users about products, price, quality, warranties,
technology,
-?age, compositions, after sales services, standarisation etc.
6. Maintaining Intellectual Assets: Every Netpreneurs have build up their own
website, systems and process and have distinguished assets like informations,
objects, images, videos, movies, testimonials, facts and figures etc. which is
increasing their values in digital form. Contribution of Netpreneurs for Economic
Environment
Netpreneurs today contributing a lot for the development of economy, they maily
leads to the following:
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1. Providing Flexibility : As economic environment is dynamic in nature, things are
changing rapidly around the world so netpreneurs helps business enterprise to be
more flexible and adaptive with respect to changes occuring in technology, people
competition, shift in markets and buyer patterns.
2. Scope of Experimentation : Netpreneurs are willing to try out new ideas in the
market place, they have recent update and data regarding market, As traditional
business organisation don't have enough resources and time for 'market research' to
evaluate any action, so they take help of Netpreneurs for any experimentation in
market.
3. Maintaining Pace : Through internet with advares in computing, globalisation,
changing expectations of stakeholder the speed of change is faster than ever due to
which business organisations are able to react and respond quickly and able to
maintain pace of business.
4. Leading Constant Innovation : There is more demand of innovative new
products worldwide hence just getting the product to market is only the start of the
journey but due to competitive forces and the market demand for continuous
improvement compells business to focus more on innovations.
5. Promotes Distribution : Proper distribution of product is real challenge in today's
business world, there is great need for proper broadcasting of brand and identity
alongwith product and services, for this purpose netpreneurs are contributing and
facilitating a lot by lowering the barriers to entry and sustain success by offering
distribution channels.
6. Focused Niche Marketing : Netpreneurs are very much focussed on well defined
market sectors called Niches, due to this they can achieve a dominent position or
able to discover unserved/under-served markets. So netpreneurs provides exciting
opportunities lie in creating new segments and then focusing on the core
competencies.
Some Interesting Facts about Netpreneurs Netpreneurs contribution by 2015 :
> E-learning: $ 33 billion,
> E-books : $ 32 billion.
> Mobile Apps : $ 28 billion.
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> Coaching : $ 2.5 billion.
> Personal growth : $ 12.5 billion.
> By 2018 every second buyer purchasing decision influenced by social media.
> According to world bank survey every 10% increase in broadband in developing
countries leads to 1% increase in GDP.
> In U.S. every 1 jobs out of 4 new jobs created is related to digital jobs.
> Coca-cola planning to promotional strategy by using mobile marketing double by
2020.
> If facebook establish their own country of their members will be world's third
largest country as per population.
> Over the past 5 years (2012-2017) the digital market has grown in excess of 20%
per annum.
ECOPRENEURSHIP
Ecopreneurship term was coined in year 1990 which was earlier knowned as
'enviromental entrepreneurship'. Ecopreneurship is represented which is applied to
create such types of business practice that solve environmental problems or operate
sustainably to save environment.
According to Gwyn Schuyler in 1999 in his book named 'Merging economic and
environmental concerns through Ecopreneurship' defined ecopreneurs as :
"Ecopreneurs are entrepreneurs whose business efforts are not only driven by profit,
but also by a concern for the environment. Ecopreneurship also known as
environmental entrepreneurship and eco-capitalism, is becoming more wide spread
as a new market-based approach to identifying opportunities for improving
enviromental quality and capitalizing upon them in the private sector for profit."
ECOLOGY + ENTREPRENEURSHIP = ECOPRENEURSHIP
Ecopreneurs are those persons who undertakes innovations, financial aspects and
business practices in such a way to transform goods and services into environmental
safe and economic viable products. As ecology or environmental biology is the
branch of biology which takes into consideration the examination of living
organisms and various effects on then in natural environment. Ecology includes the
study of individuals, populations, ecosystems and communities as a whole. This
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created enormous importance in last decade due to man's interest for better
environment in which he lives by finding ways to protect the environment in order to
make it sustainable.
So ecopreneurs are individuals who are focused on ecologically-frendly issues and
causes, attempting to do business in such a way so that there should not be adverse
effect on environment, they promote products like :
• Solar powered cells.
• Water and natural habitat conservation.
• Compostable or bio-degradable packaging.
• Minimising harmful wastes.
• Reforestation activities.
• Eco-friendly product development.
• Eco-friendly process and technology development etc.
These acts leads entrepreneurs to' be motivated to adopt the process focusing on
solving the problems face by society by creating the wealth defined by tangibles like
: health, well ness, eco-friendly environment, vibrant community life and family.
They are not just concern with sustainable development only to meet present human
needs but also to preserve the environment so that resources can also be utilized by
future generations, sustainability includes the balance of three basic spheres which
are economic, social and environmental. Driving Forces for Ecopreneurship
An ecopreneurs are those whose business efforts are not only driven by profit, but
also for concern of better environment that's why they are also sometimes called as
'eco-capitalist'. There are many driving forces for ecopreneurship as follows :
1. Increasing Life Expectancy : Ecopreneurs are very much concern to make better
environment which should be pollution free clean and green so that new generation
can get better tommorrow with good health, so they value life not only their own
family but of the whole humanity with moto for everyone to live a longer and
healther life that's why they continuously work to develop eco-frendly products and
finds a way to increase life expectancy.
2. Consider Global Population Growth : Ever: ws well that natural resources and
land areas are limited but as the world's population is growing day by day there is
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need to conserve these resources, so considering this ecopretneurs sense their
responsibility to ensure that there should be enough resources availability to fulfill
the needs of current population but also for the future generations. Ecopreneur finds
way to conserve energy, materials and after natural resources by developing new
technologies and finding ways to need the food and shelter demand for the growing
population.
3. Resources Scarcity Factors : Day by day diminishing natural resources by over
exploitation is a big issues for today's world for e.g. petroleum, forest, mines, rivers,
drinking water etc. so in order to sustain these resources ecopreneurs constantly
search alternatives by recycling them or using cheaper and aboundantly available
resource as much as possible.
4. Climate Change Factor : Due to large level of industrialization taking place
world wide tonnes of pollutants of being released in environment by excessive used
of fossil fuels which is adversely affecting the climate leads to global warming and
its effects like acid rain, melting of glacoers etc, as climate shapes the way we live
on this planet, so in order to sustain the climate ecopreneurs are inolved in research
and development to find alternative ways to produce energy which has low effect on
climate.
5. Inequality in the World : It has been observed and studied by different
researchers of economics that 5% of the total population in the world has 60% of the
total money due to which at one end these people has best quality of food, water,
home and other luxury but on other end majority of population are struggling even
for basic necessities of life, that's why this is also one of the major concern for
ecopreneurs who want to make sure that every living being on the world is treated
equally so that no one is deproved of anything for better life, so world wide active
members of movements is conducted by WTO and WHO to find ways to produce
goods and services affordable by everyone.
6. Eco-system Services Improvement: All the services related for the protection of
eco-system, natural resources and preventing environmental degradation is one of
the factor of inspiration for a green business idea for ecopreneurs.
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7. Promoting Eco-efficiency and Eco-effectiveness : Efficiency can be defined as
ration between input upon output, so better is efficiency there is desser the wastage,
so ecopreneurs always trees to find out better technology and methods of decreasing
wastage and increasing productivity in order to sustain resources for eco-
effectiveness.
8. Promoting Corporate Social Responsibility : Eco-preneurs also work out to
realise many companies about their business responsibility towards the society and
environment, so many companies are now engaging themselves in CSR activities by
implementing various ecopreneurial policies. Companies can achieve two objective
by using CSR firstly keepingtheir stakeholders happy and same time achieve
sustainability. Various industries established recycling plants, energy production by
using waste materials, by products, making new products etc. have been grown a lot
in the recent years but still there is lot of scope in the green-industry.
SOCIAL ENTREPRENEURSHIP: INTRODUCTION, CHARACTERISTICS,
TYPES AND EXAMPLES Social entrepreneurship is related to the attempt done
by entrepreneurs to develop business techniques to find out solutions to the various
problems prevailing in society.
The social entrepreneur is a mission-driven individual who uses entrepreneurial
skills to deliver social values to the less privilaged section of the society.
Characteristics of Social Entrepreneurs
• Social entrepreneurs have the patience, energy and full of enthusion to teach and
help others.
• Social entrepreneurs make use of all the combinations related to innovation,
resources and opportunities to provide solutions for social problems.
• Social entrepreneurs believes that every one can perform and have the capacity to
help social issues.
• Social entrepreneurs are focused and have determination for the well being of
society.
• Social entrepreneurs always measures and monitor their results.
• Social entrepreneurs primary motive is not profit generation, belives on social
welfare first.
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Types of Social Entrepreneurs
There are mainly three types of social entrepreneur as follows :
1. The Leveraged Non-profit: This types of social entrepreneur sets up a non-profit
organisation to drive the adoption of an innovation that overall adressed market or
government failure. This business model leverages resources in order to respond to
social needs. In doing so, the entrepreneur engages a cross section of society,
including both private and public organisations to drive forward the innovation.
2. The Hybrid Non-profit : Hybrid non-profits are often created to deal with
government or market failures, as they generate revenue to sustain the operation
outside of loans, grants and other forms of traditional funding. This types of social
entrepreneur usually sets up a non-profit organisation but the also include some
degree of cost-recovery through the sales of goods and services to a cross section of
intitutions, public and private as
ell as target population groups.
3. The Social Business Venture : This type of social entrepreneur set up a business i
is designed to create change through social means. The entrepreneurs in this
category :p a profit oriented entity or business to provide a social or ecological
products or
rvices. Profits are ideally generated with main aim is not to maximise financial
returns r shareholders but to grow the social venture and reach more poeple in need.
Importance of Social Entrepreneurship for Development
One of the renounced social activist 'Mohd. Yunus' who was the founder of
'Grameen also won the Nobel Peace Price in 2006, by his efforts rural people
realised the tance and benefits of Banking system and started opening accounts in
the branches of oen banks of their nearby area, which leads to safety of their money
and valuables ith return of interests on their deposits, Also small financial helps
through banks helped em for agricultural and related activities. So by this example
we can enumerate various ortance of social entrepreneurs as follows :
1. Developing Social Capital : Every business organisation mainly concern With
nomic capital development but most important values created by social
entrepreneurship social capital for e.g. German and Japanese economies are
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successful due to their long-rm roots in relationships along with ethics of co-
operation both for essential innovation and industrial development.
2 Employment Development : This is one of the most important aspect of social f-
.trepreneurs that they creates jobs and employment. There are 2-7% of the total
people employed in the social entrepreneurship sector. Social entrepreneurs prefers
weaker section the society on priorities such as-disabled, homeless, womens, and try
to provide longer nn employment and self dependency to them.
3. Innovation for Social Development : Social entrepreneur develop and apply
innovations which are important to social and economic development which leads to
affordable new goods and services. Also other issues related to socretal problems
such as HIV, mental illness, illiteracy, crime and drug abuse are resolved by social
entrepreneur in innovative ways.
EXAMPLES OF SOCIAL ENTERPRISES IN INDIA
1. AMUL (Anand Milk Union Limited)
Social Entrepreneur : Dr. Verghese Kurien Type of Organisation : Co-operative
Website : www.amul.com
Amul has been a sterling example of a co-operative organisation's success in the
long term. It is one of the best examples of co-operative achievement in the
developing economy. The Amul Pattern has established itself as a uniquely
appropriate model for rural development. Amul has spurred the White Revolution of
India, which has made India producer of milk and milk products in the world.
2. SKS India
Social Entrepreneur : Vikram Akula Type of Organisation : For-profit Website :
www.sksindia.com
Mission : Empowering the poor to become self-raliant through affordable loans SKS
believes that access to basic financial services can significantly increase economk
opportunities for poor families and in turn help improve their lives. Since inception,
SKS has delivered a full portfolio of microfinance to the poor in India and we are
proud of out current outreach. As a leader in technological innovation and
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operational excellence, SKS ii excited about setting the course for the industry over
the next five years and is striving t reach our goal of 15 million members by 2012.
3. Grameen Bank
Social Entrepreneur : Muhammad Yunus Type of Organisation : Body Corporate
Website : www.grameen-info.org.
Grameen Bank (GB)has reversed conventional banking practice by removing the nes
for collateral and created a banking system based on mutual trust, accountability,
participate and creativity. GB provides credit to the poorest of the poor in rural
Bangladesh, withoqj any collateral. At GB, credit is a cost effective weapon to fight
poverty and it serves as catalyst in the over all development of socio-economic
conditions of the poor who have be> kept outside the banking orbit on the ground
that they are poor and hence not bankah Professor Muhammad Yunus, the founder
of "Grameen Bank" and its Managing Direct reasoned that if financial resources can
be made available to the poor people on terms arJ conditions that are appropriate and
reasonable, "these millions of small people with the« millions of small pursuits can
add up to create the biggest development wonder."
As of .May 2009, it has 7.86 million borrowers. 97 percent of whom are women. W«
2,556 branches, GB provides services in 84,388 villages, covering more than 100
percent the total villages in Bangladesh.
4. Arvind Eye Hospital and Aurolab
Social Entrepreneur : Dr. Govindappa Venkataswamy (Dr. V.) and David Green
Type of Organisation : Trust Location: Madurai, India Website: www.aravind.org
Mission : Marking medical technology and health care services accessible,
affordable and financially self-sustaining.
Founded in 1976 by Dr. G. Venkataswamy, Aravind Eye Care System today is the
largest and most productive eye care facility in the world. From April 2007 to March
2008, about 2.4 million persons have received outpatient eye care and over 2,85,000
have undergone eye surgeries at the Arvind Eye Hospitals at Madurai, Theni,
Tirunelveli, Coimbatore and Puducherry. Blending traditional hospitality with state-
of-the-art ophthalmic care, Aravind offers comprehensive eye care in the most
systematic way attracting patients from all around the world.
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5. Shri Manila Griha Udyog Lijjat Papad
Type of Organisation : Society Website : www.lijjat.com
Shri Mahila Griha Udyog Lijjat Papad is a Women's organisation manufacturing
various products from Papad, Khakhra, Appalam, Masala, Vadi, Gehu Atta, Bakery
Products, Chapati, SASA Detergent Powder, SASA Detergent Cake (Tikia), SASA
Nilam Detergent Powder, SASA Liquid Detergent. The organisation is wide-spread,
with it's Central Office at Mumbai and it's 67 Branches and 35 Divisions in different
states all over India.
The organisation started of with a partly sum of ? 80 and has achieved sales of over
? 300 crores with exports itself exceeding ? 12 crores. Membership has also
expanded from an initial number of 7 sisters from one building to over 40,000 sisters
throughout India. The success of the organisation stems from the efforts of it's
member sisters who have withstood several hardships with unshakable belief in 'the
strength of a women'.
Long Answer Type Questions
1. Explain the different type of entrepreneurs.
2. Describe any five qualities that a person should process to be a successful
entrepreneur.
3. What are the important functions performed by entrepreneurs, after conception of
a business idea ?
4. A person having sufficient amount of money can become a successful
entrepreneur. Do you agree with this statement ? Give reason in support of your
answer.
Short Answer Type Questions
1. Explain the three roles played by entrepreneurs.
2. State the importance of Entrepreneurship in the economic development of a
country.
3. What are the objectives of Entrepreneurship Development Programmes (EDPs) ?
4. What issues and problems do entrepreneurs face in 'Selection of Business' and in
'Choice of form of business enterprise' ?
5. What are the causes of entrepreneurial failure ?
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6. Distinguish between entrepreneur and Manager.
ENTREPRENEURSHIP : MICRO, SMALL AND MEDIUM ENTERPRISES
INTRODUCTION
This is known fact that every entrepreneurial activity starts with an innovative idea ,
an entrepreneur is the person who has idea but generally do not have enough
resources, so generally they start business in relatively low investment such units
belongs either as micro or small units, one they become successful then they are
specified for MSME's units and subsequently moves to become large enterprises.
In order to encourage self-employement and innovation government of india always
try to support and even set up seperate ministry referred to a Ministry of Micro ,
small and medium enterprise (MSME) to look after various small units and their
establishment. World wide large number of countries has great concern for support
of small units, they have made special policies and adopted different criterion to
define a small enterprises. These criterion may be related to number of employes,
assets, revenues finance, turnover, tax stracture, infrastructure facilities, plant and
machinery etc.
In India government took concrete decision by training Micro, small and Medium
Enterprise Development Act (MSMED Act) in 2006 , The Act seeks to facilitatus
the development of the small enterprise and also enhance their competitiveness, It
provides the first-ever legal frame work for the recognition of the concept of a
enterprise' which includes both manufacturing and service entities. This Act also
provides for a statutory consultative mechanism at the National level with balanced
representation of all sections of stakeholders, partically the three classes of
enterprises i.e Micro, Small and Medium with a wide range of advisory functions.
On 9th May 2007, further amendment has be done by government of India with
respect to allocation of business rule 1961, the Ministry of Small scale Industries and
the Ministry of Agro and rural industries were merged to form the Ministry of
MSME to further promote and facilitate project, programmes and schemes of small
enterprises.
Figure-1: Definition of Micro, small and Medium Enterprise in india.
MSME's
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lanufacturing sector: Investment in plant and Macinery
Service Sector Investment in Equipment & labour
Micro
Small
Medium
Micro
Small
Medium
Less than 25 ^akh rupees
More than 25 lakh but less than 5 crores
More than 5 crore but less than 10 crores
Less than 10 lakh rupees
More than 10 lakhs but less than 2 crores
More than 2 crores but less
Micro Enterprise
Concept of Micro enterprises varies according to policies differences from country
to country .In Australia microenterprises are categorised as business enterprises
having less 5 people working either owner operated business operated from home.
The European Union (EU) categorise 'Micro enterprises' as those that neet two of the
criteria i.e less than 10 employes , balance sheet total less than 2 million Euro,
turnover less than 2 milllion Euro.
• In U.S micro-enterprises are cateyorrsed with 5 or fewer employees, U.S allows
such entrepreneurs recognising the fundamental right of people who can apply their
individual talents, creativity and hardwork to establish micro - enterprises for better
lives . For this U.S government launched 'plan for achieving self support' under
'Social Security Administration in order to encourage those people who are disabled
to set money for various reasons : training, schooling, funding.Similary in Australia
the NEIS (New Enterprise enterprise initiative Scheme) launched schemes which
assest-unemployed people to start their own businesses.
Definition of Micro-enterprise in India
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1. Manufacturing Micro Enterprise : The manufacturing micro enterprises are
those enterprises initially defined under Industrial Development and Regulation Act
1951 which are engaged in manufacture of goods employ plant and machinery upto
investment of 25 lakh rupees.
2. Service Micro Enterprise : These are those enterprises which are engaged in
providing services with the investment in equipment upto 10 lakh rupees.
General characteristics of Micro-enterprises
Following are some general characteristics which represent Micro enterprises :
1. Started for purpose of self employment. ,
2. Initially there is small level of capitalisation (upto25 lakh ).
3. Initiated and managed by individual or household.
4. They use simple, less expensive technology & Equipment.
5. Local resources are primary utilized.
6. Internal transactions are done initially.
7. Ease of entry in market.
Some facts about Micro enterprises in India
• According annual census of MSME majority of micro enterprises about 85%, was
found to be unregistered as most of the rural enterprises are logging behind in
registering themselves due to lack of knowledge about registration and sometime-
unwillingness for registration as they don't want to reveal themselves about their I
enterprises to avoid tax and regulatory process, but such enterprise- mooing out!
benefits provided by government like subsidies and other tax relaxations.
• According to GIZ India the demand of micro enterprises for credit was about 7.9J
billion while the supply of loans from banks was only estimated to be ? 1.5 billion
fori micro enterprises.
• The debt gap in micro enterprises sector is ? 2.3 billion which constitutes total gap
ofl ? 3 billion in MSME sector in india.
SMALL ENTERPRISE
Small industries have been given due importance in the overall industrial framework
of Indian planning since independence. There have been bath ideological and
economic -easons in India as Gandhiji always supported the movement for self
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dependence and self reliance which is only possible when small industries are look
after and supported by government. Today, India operates large number of
programmes for the development of -mall-scale enterprises due to which small
sector has now emerged as a dynamic and vibrant sector for India economy in last
decade, as in evident from the fact that this sector accounts for about 35y. of exports
which is next to agriculture in term of employed generation . Definition of small
Enterprises in India
In context to Manufacturing Sector : SSI related to manufacturing sectors are
those who are engaged in production of good if the investment in plant and
machinery is more than ? 25 lakh but not exceeds ? 5 crores.
In context to Service Sector; SSI related to service sector are those who are
engaged in service with the investment in equipment more than ? 10 lakh but not
exceeds ? 2 crores.
• For small-scale industries the planning commission of India also uses the term
'village and small-scale Industries' which also include new terms modern small-scale
industries', 'cottage industries' and 'household industries :
Types of Small-Scale Industries
Today there are five main types of classification for SSI as follows :
1. Mining SSI : Which are engaged in mining of Minerals, Ores, Marbel, Coals etc.
2. Ancillary working for Large Industries : These SSI are those which makes -
mall components & parts and rendering services to large industries for eg. For a car
company there are many associated ancillary units which manufacture products like-
small components, seats, lights, electrical components, etc. for large company.
3. Feeder Industries : These are those SSI who are specialised in certain types of
product and serviced like-electro-plating, fabrication, polishing, costing, welding
etc.
4. Pure Manufacturing Industries : These are major SSI among all SSI in India
who are producing complete goods or articles for direct consumption and also
different
• .'cessing industries.
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5. Pure Servicing or Service Industries : these type of SSI engaged in covering
edit, repair, maintenance and after services.
Objectives of SSI : Main objectives of developing small enterprises in india can be
enumerated as follows :
(i) To resolve unemployment problem from the country.
(ii) To promote regional balance through dispersal of industries to all over areas of
country covering small towns, villages and different economically logging regions.
(iii) To contribute GDP of the country with relatively low investment.
(iv) To promote backward states and areas in the mainstream of national
development.
(v) To ensure more equitable distribution of national income.
(vi) To improve the level of living of people by providing affordable goods and
services.
(vii) To utilize properly effective mobilization of country's untapped resources.
(viii) To promote export and generate foreign reserve for the nation.
(ix) To enhance value of Agricultural product through processing industries.
(x) To contribute for fiscal reserve for country by paying tax.
Scope of SSI : The scope of small-scale industries are unlimited and having wide
range of activities to be explored requiring less sophisticated technology. In order to
strengthen the scope of SSI development in India the government always supporting
through different assistance programmes, also announced different reservation
policies for small sector in the country.
In 1967 major decisions were taken by the government that time only 47 items were
reserved for exclusive production in small-scale sector but conseiquently in year
1983 it was increased to 836 items. The main objective of reserration policies was to
insulate small sector from unequal competition of large industries. The important
areas reserved for exclusive development of SSI can be enumerated as follows :
• Textile products
• Leather and related products
• Food and allied industries
• Rubber Products
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• Footwears
• Plastic Products
• Chemical Based Products
• Natural essential oils
• Organic & Ayurvedic products
• Glass and ceramics
• Transport and Mechanical products
• Metal products
• Pressure store & electrical appliances
• Electronic equipments and components
• Bicycle and tricycles parts
• Auto parts components
• Ancillary and Garrage equipment
• Mathematical and survey instruments
• Sports goods & Stationary items
• Clocks and electronic watches etc.
MEDIUM ENTERPRISE When micro or small scale sectors grows and exceeds
their business from their defined categories enters into category of medium
enterprise, as a company earns more revenue,
they expand their business and even diversity themselves which leads to more need
of buildings, equipment, finance and employees, medium enterprises are belived to
be bridge between the gap prevailing among small industries and large scale
industries.
Definition of Medium Enterprise in India
1. In Context of Manufacturing : Those medium enterprises who are engaged
production of goods if their investment in plant and machinery is more than Rs 5
crores but not exceeding Rs 10 crores.
2. In Context of Service Sector : Those enterprises who are engaged in rendering
services can be categorised under medium enterprises if their investment in
equipment and plant is more than Rs 2 crores but not exceeding Rs 5 crores.
Characteristics of Medium Enterprises
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Medium enterprises are only big version of small-scale sector hence their
characteristics are almost matching to small-scale sector, although some
characteristics can be enumerated as follows :
(i) Medium enterprises also produces, wide range of industrial products, they target
both domestic as well as global market.
(ii) Medium enterprise generally utilizes the local resources as input of production,
(hi) Medium enterprise can be easily establish, develop and expanded due to
government
support.
(iv) Medium enterprise also creates employment at large scale and are labour
oriented.
(v) Produce goods and services for the masses at large scale than SSI.
(vi) Medium enterprises are more flexible to adopt changes related to methods of
production, technology, new products etc.
(vii) Both state government and central government are providing all types of
assistance to medium enterprises either financial non-financial and other subsidies.
(viii) Medium enterprises also helpful for their contribution on GDP. (ix) Medium
enterprises helpful in promoting regional balance.
ROLE OR SIGNIFICANCE OF SMALL AND MEDIUM ENTERPRISES
[SMEs] IN INDIA
Small and medium enterprises play a.very important role in overall development of a
nation. In recent years, although there has been a significant development of large
scale industries, SMEs enjoy a predominant role and place in Indian economy.
SMEs occupy an important place in Indian economy because of following reasons :
(i) Employment Potential : The most acute problem of India is unemployment. As
the SMEs are labour-oriented, i.e., the ratio of labour to capital is quite high as
compared to large industrial units, there is a vast employment generation potential in
SMEs. A given amount of capital investment in SMEs is likely to give more
employment than the similar amount invested in large scale units. This is an
important consideration for India where :rores of people are either unemployed or
underemployed. That is why the SMEs have been assigned a greater role in
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employment generation in planned development of our economy. The
encouragement of SMEs also serves to counteract the seasonal employment in
agriculture sector. According to Karve Committee, "The principle of self-
employment is at least as important to a successful democracy as that of self-
government." The argument is based on
assumption that small industries are labour-intensive and hence create employment
per unit of capital employed.
According to a study of World Bank, small to medium scale industries employ more
unskilled workers, i.e., 65% in comparison to medium to large industries with about
50%. The creation of unskilled jobs certainly has a positive impact on removal of
poverty.
(ii) Low Capital Requirements : The SMEs require relatively smaller amount of
capital as compared to large scale undertakings, as the capital output ratio is smaller
in these units. Thus, small and medium undertakings are most suitable to countries
like India where capital is scarce and labour is surplus.
(iii) Capital Formation : SMEs make best possible economies in the use of existing
capital and also utilise the untapped capital in the country by collecting funds from
friends, relatives and local people, which otherwise would never have been used in
productive activities. Thus, SMEs help in capital formation by mobilising untapped
funds from various sources.
(iv) Equitable Distribution. of Wealth and Income : The SMEs ensure more
equitable distribution of national wealth and income in the society by
decentralisation of industrial activities. The development of large scale industries
concentrates income and wealth in a few hands which is not suited for a country like
India. The Small and Medium Industrial System fits best in the highly populated
country like India.
(v) Balanced Regional Development : SMEs bring in dispersal of industries in
different regions, particularly in backward regions. This helps to promote the much
desired objective of balanced regional development and to overcome the drawback
of uneven industrial development in the country. On one hand, there is an enormous
growth of large scale industries in few areas and on the other a virtual absence of
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such industries in large parts of the country. The development of SMEs helps in
decentralisation of economic activities in the country, which further helps in
broadening the industrial base and a progressive rural economy. This will not only
offer optimum utilisation of human and other resources but also make possible the
democratic way of life.
(vi) Use of Indigenous Resources and Lesser Reliance on Imports : SMEs require
a relatively smaller proportion of imported material and equipment as compared to
large scale units. The low import intensity in the capital structure of small and
medium industries reduces the need of foreign exchange, which helps to a great
extent in solving balance of payment position of the country. SMEs also make best
use of indigenous organisational and managerial capabilities and provide
opportunity to industrial entrepreneurs to gain experience.
(vii) Export Potential : SMEs go in a long way to promote exports of the country.
Due to rise of SMEs over the years, it has been observed that there is a substantial
increase in the exports of India, particularly in case of readymade garments, canned
and processed fish, leather products, food products, hosiery and marine products.
Various products like sports goods, tobacco and plastic are with small and medium
sector.
(viii) Production : Small and Medium enterprise units account for about 95% of
industries of India. Thus, they have vast production potential. This sector produces
around 7,500 products of wide range, which includes food products, beverages,
hosiery and garments, spices, leather products, cotton textiles, tobacco products, etc.
GROWTH AND PERFORMANCE OF MICRO, SMALL AND MEDIUM
ENTERPRISES (MSMEs) _ Summary Results : Fourth All India Census of
MSME
SI.
No.
Charcteristics Registere
d Sector
Unregister
ed Sector
Economics
Census-
2005
Total
I II III IV V VI
1. Size of Sector (in Lakh) 15.64 198.74 147.74 361.76
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2. No. of Rural Units (in Lakh) 7.07
(45.20%)
119.68
(60.22%)
73.43
(49.82%)
200.18
(55.34%)
3. No. of Women Enterprises
(in Lakh)
2.15
(13.72%)
18.06-
(9.09%)
6.40
(4.34%)
26.61
(7.36%)
4. Total Employment (in Lakh) 93.09 408.84 303.31 805.24
5. Per unit Employment 5.95 2.06 2.06 2.23
6. Total original value of Plant
& Machinery (? in Lakh)
1050246
1
9463960 — 19966421
7. Per unit original value of
Plant & Machinery (? in
Lakh)
6.72 0.48 — —
8. Total fixed investment (? in
Lakh)
4491384
0
24081646 — 68995486
9. Per Unit fixed investment (?
in Lakh)
28.72 1.21 - — —
10. Total Gross Output (? in
Lakh)
7075102
7
36970259 — 10772128
6
Performance of MSME : Employment and Investment
SI.
No.
Year Total Working
Enterprises (in lakh)
Employment (in
lakh)
Market Value of
Fixed Assets (X in
crore)
I II III rv V
1. 2006-07 361.76 805.23 868,543.79
2. 2007-08* 377.36 .842 920,459.84
3. 2008-09* 393.7 880.84 977,114.72
4. 2009-10* 410.8 921.79 1,038,546.08
5. 2010-11* 428.73 965.15 1,105,934.09
6. 2011-12* 447.64 1,011.69 • 1,182,757.64
7. 2012-13* 467.54 1,061.40 1,268,763.67
8. 2013-14* 488.46 1,114.29 1,363,700.54
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9. 2014-15* 510.57 1,171.32 1,471,912.94
Contributions of MSME Sector in GDP and Output [at 2004-05 prices]
Year Gross Value of
Output of MSME
Manufacturing
Sector (Rs in
crore)
Share of MSME sector in total GDP
(%)
Share of MSME
Manufacturing
output in total
Manufacturing
Output (%)
Manufacturin
g Sector
MSME
Service
Sector
MSME
Total
2006-07 1198818 7.73 27.40 35.13 42.02
2007-08 1322777 7.81 27.60 35.41 41.98
2008-09 1375589 . . 7.52 28.60 36.12 40.79
2009-10 1488352 7.45 28.60 36.05 39.63
2010-11 1653622 .39 29.30 36.69 38.50
2011-12 1788584 7.27 30.70 37.97 37.47
2012-13 1809976 7.04 30.50 3754 37.33
Source : 1. Fourth All India Census of MSME 2006-07,
2. National Account Statistics (2014), CSO, MoSPI and
3. Annual Survey of Industries, CSO.MoSPI.
GOVERNMENT SCHEMES AND INCENTD/ES FOR PROMOTION OF
MICRO, SMALL AND MEDIUM ENTERPRISES
Introduction
Government of India has been implementing several schemes and programmes for
promotion and development of these enterprises, whose descriptions are given as
under : 1. Prime Minister's Employment Generation Programme (PMEGP) :
Government of India has approved the introduction of a new credit linked subsidy
programme called Prime Minister's Employment Generation Programme (PMEGP)
by merging the two schemes that were in operation till 31-03-2008 namely Prime
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Minister's Rojgar Yojna (PMRY) and Rural Employment Generation Programme
(REGP) for generation of employment opportunities through establishment of micro
enterprises in rural as well as urban areas. PMEGP will be a central sector scheme to
be administered by the Ministry of Micro, Small and Medium Enterprises (MSME).
The scheme will be implemented by Khadi and Village Industries Commission
(KVIC), a statutory organization under the administrative control of the Ministry of
MSME as the single nodal agency at the National level. At the State level, the
Scheme will be implemented through State KVIC Directorates. State Khadi and
Village Industries Board (KVIBs) and Distric Industries Centres (DICs) and banks.
The government subsidy under the scheme will be routed by KVIC through the
identified banks for eventual distribution to the beneficiaries/entrepreneurs in their
bank accounts.
Objectives
(i) To generate employment opportunities in rural as well as urban areas of the
country through setting up of new self-employment ventures/projects/micro
enterprises.
(ii) To bring together widely dispersed traditional artisans/rural and urban un
employed youth and give them self-employment opportunities to the extent possible,
at their place.
(hi) To provide continuous and sustainable employment to a large segment of
traditional and prospective artisans and rural and urban unemployed youth in the
country, so as to stop migration of rural youth to urban areas, (iv) To increase the
wage earning capacity of artisans and contribute to increase in the growth rate of
rural and urban employment. Eligibility Conditions of Beneficiaries
(i) Any individual, above 18 years of age.
(ii) There will be no income ceiling for assistance for setting up projects under
PMEGP. (hi) For setting up of project costing above Rupees Ten Lacs in the
manufacturing
sector and above Rupees Five Lacs in the business/service sector, the beneficiaries
should have at least VIII standard pass educational qualification.
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(iv) Assistance under the scheme is available only for new projects sanctioned
specifically under the PMEGP.
(v) Self Help Groups (including those belonging to BPL provided that they have not
availed benefits under any other scheme) are also eligible for assistance under
PMEGP.
(vi) Institutions registered under Societies Registration Act, 1860.
(vii) Production Co-operative Societies.
(viii) Charitable Trusts.
(ix) Existing Units (under PMRY, REGP or any other scheme of Government of
India or State Government) and the units that have already availed Government
subsidy under any other scheme of Government of India or State Government are
not eligible.
2. Market Development Assistance Scheme for Micro/Small Manufacturing
Enterprises/Small and Micro Exporters
The scheme offers funding for :
(i) Participation by manufacturing Small & Micro Enterprises in International Trade
Fairs/Exhibitions under MSME India stall.
(ii) Sector specific market studies by Industry Associations/Export Promotion
Councils/ Federation of Indian Export Organisation.
(iii) Initiating/Contesting anti-dumping cases by SSI Associations.
(iv) Reimbursement of 75% of one time registration fee (w.e.f. 1st January 2002)
and 75% of annual fees (recurring) (w.e.f. 1st June 2007) paid to GSI (formerly
EAN India) by Small & Micro units for the first three years for bar code.
Objectives
(i) To encourage small & micro exporters in their efforts at tapping and developing
overseas markets.
(ii) To increase participation of representatives of small/micro manufacturing
enterprises under MSME India stall at International Trade Fairs/ Exhibitions.
(iii) To enhance export from the small/micro manufacturing enterprises,
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(iv) To popularize the adoption of Bar Coding on a large scale.
3. Assistance Schemes for Training Institutions
The scheme envisages financial assistance for establishment of new institutions
(EDIs), strengthening the infrastructure of the existing EDIs and for supporting
entrepreneurship and skill development activities. The main objectives of the
scheme are development of indigenous entrepreneurship from all walks of life for
developing new micro and small enterprises, enlarging the entrepreneurial base and
encouraging self-employment in rural as well as urban areas, by providing training
to first generation entrepreneurs and assisting them in setting up of enterprises. The
assistance shall be provided to these training institutes in the form of capital grant
for creation/strengthening of infrastructure.
4. Rajiv Gandhi Udyami Mitra Yojana
(A Scheme of "Promotion and Handholding of Micro and Small Enterprises") There
are still widespread variations in the success rate, in terms of actual setting up and
successful running of enterprises, by the EDP/SDP/ESDP trained entrepreneurs. It
has been observed that new entrepreneurs generally face difficulties in availing full
benefit under available schemes of the governments/financial institutions,
completing and eomplyin with various formalities and legal requirements under
various laws/ regulations, in selectioi of appropriate technology, tie-up with buyers
and sellers etc. In order to bridge the gaj between the aspirations of the potential
entrepreneurs and the ground realties, there is : need to support and nurture the
potential first generation entrepreneurs by giving then handholding support during
the initial stages of setting up and managing their enterprises Objectives
The objective of Rajiv Gandhi Udyami Mitra Yojana (RGUMY) is to provide
handholdinj support and assistance to the potential first generation entrepreneurs,
who have ahead; successfully completed EDP/SDP/ESDP or vocational training
from ITIs, through the selectee lead agencies i.e. 'Udyami Mitras', in the
establishment and management of the nev enterprise, in dealing with various
procedural and legal hurdles and in completion o various formalities required for
setting up and running of the enterprise. Under RGUMY. financial assistance would
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be provided to the selected lead agencies, i.e., Udyami Mitras for rendering
assistance and handholding support to the potential first generation entrepreneurs.
Role and Responsibilities of Udyami Mitras
The selected lead agencies i.e., Udyami Mitras would be expected to render
following services :
(i) Networking, co-ordinating and follow up with various government departments/
agences/organizations and regulatory agencies on the one hand and with support
agencies like banks/financial institutions, District Industries Centers (DICs),
technology providers, infrastructure providers on the other hand, to help the first
generation entrepreneurs in setting up their enterprise. Udyami Mitras are expected
to help the first generation entrepreneurs in :
• Identification of suitable project/product/enterprise and preparation of viable
projeci report for the same.
• Creation of the proprietorship firm/partnership firm/ company/society/SHG etc.
• Filing of Memorandum (as prescribed under MSMED Act 2006).
• Accessing bank loans, admissible capital subsidy/assistance under various schemes
of the central/state government and other agencies/organizations/financiaL
institutions/banks etc. by networking with respective agencies.
• Assistance and support in establishment of work shed/office.
• Sanction of power load/connection.
• Selection of appropriate technology and installation of plant and machinery/office
equipments.
• Obtaining various registrations/licenses/clearances /No Objection Certificates.
(NOCs etc. from the concerned regulatory agencies/government departments' local
bodies municipal authorities etc.
• Allotment of Income Tax Permanent Account Number (PAN) and Service Tax/
Sales Tax/VAT registration etc.
• Sanction of working capital loan from the banks.
• Arranging ties up with raw material suppliers.
• Preparation and implementation of marketing strategy for the product/service and
market development.
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• Establishing linkage with a mentor for providing guidance in future.
• Creation of web page and e-mail identity.
(ii) Once the enterprise has been successfully set up, the Udyami Mitras would also
monitor and follow up on the functioning nf the enterprise for a further period of
minimum 6 months and provide help in overcoming various managerial, financial
and operational problems.
Only those beneficiaries would be enrolled who have already undergone EDP/SDP/
ESDP of at least two weeks or who have successfully completed the vocational
training in ITIs.
Hero & Small Enterprises-Cluster Development Programme (MSECDP)
Office of the Development Commissioner (MSME) launched Micro and Small
Enterprises Cluster Development Programme (MSE-CDP) for holistic development
for selected MSEs Clusters through value chain and supply chain management on
cooperative basis. Designed :n need assessment, the major components of the
scheme are technology upgradation, quality up-gradation and certification, credit
facilitation, marketing support, including -xposure to the global markets and
collective capacity building of the cluster units with a •iew to enabling them to
ultimately operate as collectives of their own. Establishment and :Deration of
Common Facility Centres (CFCs), organized procurement and marketing
countinuous skill and technology up-gradation is the deliverables of any intervention
under E-CDP. Recently, support for infrastructural up-gradation for resurgence of
the clusters as also been included in the MSE-CDP.
Objectives of MSE-CDP
• Key strategy for enhancing productivity/competitivencess of small enterprises.
• To facilitate economies of scale. -
• To integrate and focus development of MSEs.
• Interventions for large number of units with higher gains at lower cost.
Credit Guarantee Fund Scheme for Micro and Small Enterprise
The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was
aunched by the Government of India to make available collateral-free credit to the
micro lacd small enterprise sector. Both the existing and the new enterprises are
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eligible to be fcr. ered under the scheme. The Ministry of Micro, Small and Medium
Enterprises and Bfcall industries Development Bank of India (SIDBI), established a
Trust named Credit fcuarantee Fund Trust for Micro and Small Enterprises
(CGTMSE) to implement the Credit fc-arantee Fund Scheme for Micro and Small
Enterprises. The scheme was formally launched pc August 30, 2000 and is
operational with effect from 1st January 2000. The corpus of "-TMSE is being
conributed by the Government and SIDBI in the ratio of 4:1 respectively.
National Award Scheme
The Micro, Small & Medium Enterprises (MSMEs) in India have seen a vast
development ".he last five decades. The MSMEs have registered tremendous growth
and also progress as of quality production, exports, innovation, product development
and import i ition, very much beyond the expected objectives of setting up MSMEs
by the planners of industrial production base in the country. Entrepreneurial efforts
have made it possible to produce number of items, which hitherto were imported. In
quite a few cases new variants so produced are having additional attributes than their
original versions and are capable of solving a multitude of user problems. This all
has become possible owing to the ambitions and visionary spirit of entrepreneurs of
MSMEs.
Objectives
The Ministry of Micro, Small and Medium Enterprises with a view to recognizing
the efforts and contribution of MSMEs gives National Award annually to selected
entrepreneurs and enterprises under the scheme of National Award.
8. Schemes for Women Entrepreneurs
(a) Mahila Udyami Yojana (MUY): IDBI has set up special fund under this
scheme with corpus fund of Rs 5 crore to provide seed capital assistance to the
women entrepreneurs intending to start projects in SSI sector. This scheme is
implemented by SIDBI with following conditions :
• 51% of equity should be managed by women.
• Seed capital is provided as soft loan-15% of fixed cost without insisting security.
• Promoter should contribute atleast 10% of fixed cost.
• Repayment is for 10 years with moratorium period of 5 Yrs.
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• Debt equity ratio should be 3:1.
(b) SBI Stree Sakthi Package : Under this EDPs are exclusively designed and
conducted for women entrepreneurs, ? 25000 is provided without collateral security.
(c) Priyadarshini Yojana : It is implemented by Bank of India. Financial assistance
is provided to women entrepreneurs who take up small business, retail traders, and
transport; (Auto rickshaws), professional and self employed, and who take up allied
agricultural activities.
• Maximum loan is upto 2 lakhs for term loan and 1 lakh for working capital.
• Assets acquired with finance are hypothecated as security.
• Repayment period is 3-5 years.
• Margin money is 20% depending on type of activity.
Besides these programmes other schemes like PMRY, SEPUP (Self Employment
Programme for Urban Poor.), SGSY, IRDP and Rashtriya Mahila Kosh help women
entrepreneurs in providing financial assistance. In conclusion, government
incentives available are of two types of subsidies.
• Investment subsidy to establish more enterprise: It includes capital investment
subsidy, transport subsidy, power generator subsidy, social subsidy to women
entrepreneurs.
• Other subsidies include export/import subsidy, tax subsidy, excise subsidy/duty
exemption and capital subsidy for technology upgradation.
IMPORTANCE OF MICRO, SMALL AND MEDIUM ENTERPRISE
[MSME] IN INDIA
The role of micro, small and medium enterprise in the economic and social
development of the country is well-established. The development of the micro, small
and medium sector is on the priority of government agenda. As per the report of the
working group on Micro, Small and Medium Enterprises growth for 12th five year
plan '2012-2017), the sector accounts 45% of the manufacturing output and 40% of
total exports of the country. The sector provides employment to about 69 million
people through 26 million enterprises throughout the country. Over 6000 products
ranging from traditional to hightech items are being manufactured by MSEs in the
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country. The overall growth in MSME sector is much higher than the large
industries.
The MSMEs are important for the national objectives of growth with equity and
inclusion. Over the years, the small scale sector in India has progressed from the
production of simple consumer goods to the manufacturing of many sophisticated
and precision products. The process of economic liberalization and market reforms
has further exposed these enterprises to increasing levels of domestic and global
competition. MSMEs in India manufacture over 6000 products. Some of the major
subsectors in terms of manufacturing output are textiles and readymade garments
(14.05%), leather products (1.98%), plastic products (3.9%), furniture (2.62%),
metal products (7.52%), basic metals (8.81%) and Chemical products (7.55%).
The statewise distribution of MSMEs show that more than 55% of these enterprises
are in six states namely Maharastra, Tamil Nadu, Uttar Pradesh, West Bengal,
Andhra Pradesh and Karnataka. About 94% of MSMEs are proprietorship based or
partnership based.
Micro, small and medium (MSME) sector is characterized by low investment
requirement, operational flexibility and location wise mobility. This sector in India
is highly heterogenous in terms of the size of the enterprises, variety of products and
services produced and the level of the technology employed.
Government's policy initiatives like enactment of the Micro, small and Medium
Enterprises Development (MSMED) Act 2006, advising financial institutional to
enhance the flow of credit to the SME sector are all initiated towards boosting
entrepreneurship investment and growth.
PROBLEMS FACED BY MICRO, SMALL AND MEDIUM ENTERPRISES
[MSMEs] IN INDIA
Some of the major problems faced by MSMEs are summarised as below :
1. Lack of Adequate Raw Material : The first and most serious problem faced by
MSME is difficulty in obtanining right type of raw material at the right time and
price. As i result they are forced to use cheap and inferior raw material which lowers
down the (uality of the product manufactured through this raw material. This results
in loosing
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dibility and lowering profits and this vicious circle leads to low quality of products.
2. Scarcity and Irregularity of Power: MSMEs in India face the problem of
scarcity (1 irregular supply of power. In some areas, the power is not available at all.
Scarcity of over and power cuts also hinder the regular flow of output. Moreover
manual labour is
relatively more expensive.
3. Problem of Finance : The other important problem faced by Indian MSMEs is
that finance. Finance is the life blood of any economic activity. This problem is
mainly due two reasons—(i) It is partly due to scarcity of capital in the country as a
whole, and It is partly due to weak creditworthiness of MSMEs. Due to their weak
economic base, difficult for these industries to obtain finance from commercial
banks and as such they forced to obtain finance from money-lenders at very high
interest rate.
4. High Cost of Production : Many MSMEs use outdated technology, particularly
traditional industries. Most of the traditional industries have remained unchanged for
irs, in spite of revolutionary changes in the techniques of production in other
countries, icreases cost of production of these products and hence find difficulty to
compete in ket because of high prices and low quality.
5. Poor Transportation Facilities : The MSMEs located in rural and backward
areas face another problem, i.e., of transportation. As a consequence, these industries
find it difficult to send their products in different parts of the country and are forced
to sell their products in local areas. High cost of transportation also results in
increase in the prices of their products.
6. Marketing Problems : Another problem faced by MSMEs is of marketing. These
units often do not have any marketing structure. Therefore they find it difficult to
compare the quality of their products with those of large scale industries and suffer
comparative disadvantage.
The government, in order to save these units from comparative disadvantage, has
reserved a number of items for this Sector. At present such items are 824. But still in
absence of well defined pricing system and regulatory laws these units face various
marketing problems.
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7. Under-uitilisation of Capacity : The MSME units also face problem of under-
utilisation of their installed capacities. The All India Census of Small Scale
Industries in 1972 states that the utilisation capacity of various industries in small
scale sector was as follows :
Mechanical Engineering Industries 47% Electrical Equipment Industries 50%
Automobile Ancillary Industries 58%
Leather Products 55%
Plastic Products 29%
Thus, on an average we can say that 40 to 50% of the capacity was not utilised in
small scale units. The main factor behind the under-utilisation of capacity is the
power problem. The power supply to these industries is not regular and whatever
power supply they get is limited to few hours only. Moreover, the MSMEs cannot
afford to go in for other industries, because of high cost factors.
8. Other Problems : In addition to problems described above, the small industries
face other constraints also. The seventh Five Year Plan has enumerated various
problems faced by these industries :
(a) Technological obsolescence
(b) Inadequate and irregular supply of raw material
(c) Imperfect knowledge of market conditions
(d) Unorganised nature of operations
(e) Lack of organised market channels
(f) Inadequate credit facility
(g) Inadequate infrastructural facilities like power, etc.,
(h) Deficient technical and managerial skills.
All these problems and constraints have resulted in high cost structure of these
industries resulting in comparative disadvantages aganist large scale industries both
in domestic market and international market.
REMEDIES SUGGESTED FOR MICRO, SMALL AND MEDIUM
ENTERPRISES [MSMEs] The goverment and other agencies should try to solve
the above mentioned problems faced by small scale industries, otherwise the very
purpose of planned economic development will be defeated. Since MSME sector
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plays an important role in economic development of a country, the following
remedies are suggested in this regard :
1. Education and Training: The government should expand education and training
programmes for technical education. More and more education and training
institutions should be set up for promoters and workers of small scale industries.
2. Survey : The government should conduct surveys of the existing industries and
should lay emphasis on those industries which are essential for the economy. The
production programme of the main MSMEs should be drawn up.
3. Supply of Raw Material: The government should arrange to supply raw material
to MSMEs at an economical rates. Further, the government should ensure regular
supply and good quality of raw material.
4. Credit Facilities : The government should set up specific financial institutions
cooperative societies, in order to provide cheap and adequate finance to these
industries, particularly smaller ones in their category. The commercial bank's
attitude of providing finance on 'Creditworthiness' is hurdle in MSMEs financing.
State Financial Corporation should also play greater role in this direction.
5. Effective Marketing Organisation : The government should help the MSMEs :n
marketing front by opening marketing centres in all important towns of the country.
The exhibitions of MSMEs products should also be organised from time to time.
6. Power Facilities : The government should give priority to MSMEs for granting
power connection and must ensure regular power supply. The power rates for
MSME units should be comparatively lower than large scale industries.
7. Standardisation : The quality specifications and standards should be laid down
for industries and should be enforced in all lines of production by providing required
testing facilities. As'far as possible consumer goods should be produced by the
MSMEs.
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CONCEPT OF BUSINESS GROUPS AND ROLE OF BUSINESS HOUSES
AND FAMILY BUSINESS IN INDIA
INTRODUCTION
A business group is the highest level of organisation and the largest grouping of
employees across which one may report. In other words a business group or group of
companies is a collection of parent and subsidiary corporations that function as a
single economic entity through a common source of control. The forming of
corporate groups usually involves consolidation via merger and acquisitions of
existing corporate entities. The concept of a group is frequently used in tax law,
accounting and company law to attribute the rights and duties of one member of
group to another or the whole. If the corporations are engaged in entirely different
businesses, the group is called conglomerate.
Since a business group is composed of companies therefore the general rule is, that
company is a separate legal entity from its shareholders, that is the shareholders
liability for the subsidiary's debts is limited to the values of the shares, and the
shareholders cannot be required to perform the company's obligations.
However, some jurisdictions create exceptions to this rule and it varies from country
to country. For example, in New Zealand, the Companies Act provides that the
assets of related companies may be pooled to pay the creditors if one of the
companies is liquidated. In Germany Affiliated Enterprise Law has been created
which provides situations in which one company is liable for the debts of another
company.
Definitions of Business Group
1. According to Powell and Smith, a business group is a network of firms that
regularly collaborate over a long time period.
2. Goto states that business groups are essentially coalitions of firms pursuing their
common interests through a system which co-ordinates decisions made by member
firms.
3. Leff defines business group as a group of companies that does business in
different markets under common administrative or financial control whose members
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are linked by relations of interpersonal trust on the basic of similar personal ethnic or
commercial background.
STRUCTURE OF BUSINESS GROUP OR CORPORATE STRUCTURE
Organisational structure can be defined as the way than an organisation arrange their
people and jobs so that business working can be performed efficiently to achieve its
goals. In order to work any organisation communication is required to be done with
each department frequently so there is need for formal structure so that there should
be proper delegation of arious task and responsibilities so that proper decision
making take place.
In an organisation of any size or complexity, employees responsibilities are typically
cefined by what they do whom they report and by whom they get instructions for
further process this requires proper channel and structure following the hierarchy.
The best organisational structure for any businees depends on many factors like :
• They of work or business.
• Type of products
• Size of the firm
• Number of employees
• Revenue of business
• Geographical dispersion of units & offices
• Range of its business
• Degree of diversi fication
• Product Mix & Product line etc.
There are multiple structural variations from business to business, but there are few
base principles that apply and a small number of common patterns, followed by
descriptions of several alternate organisational structures including those arranged
by product, function and geographical or product market.
Traditional Organization Structure
So for the structure of every organisation found to be unique in some respects, but
all organisational structures develop or designed to enable the organisation to
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accomplish its work. Typically, the structure of an organisation evolves as the
organisation grows and changes overtime. In this field researcher identified four
basic decisions that managers have to make as they develop an organizational
structure as :
President
VP Operations
Mgr
Purchasing
Mgr
Warehous
e
Director
Mgr
Mgr
Information
Technology
!
Mgr
Engineerin
g
Vendor
Relations
— Super
Shipping
Plant
Mgr
Plant 1
Super
Network
service
- Mgr
Developme
nt
Forecasting Super
Receiving
Plant
Mgr
Plant 2
Super Mfg
Systems
- Mgr Mfg
Engineerin
g
Super
Inter-Plant
Plant
Mgr
Plant 3
Mgr
Maintenanc
e
Fig. 1. Organizational Structure
1. Firstly, the organization's work most be divided into 'specific jobs', this is referred
as division of labour.
2. Secondly there should be proper 'departmentalization' irrespective of size of
organisation the jobs must be grouped in same way.
3. Thirdly size of people and jobs are grouped in such a way so that 'span of control'
should be there.
4. Forth proper 'decision making' authority must be determined.
In making each of these design decisions, a range of choices are possible, at one end
of this spectrum there are jobs which are highly specialized with employees
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performing a narrow range of activities but they are highly important, while at the
other end of the spectrum big number of employees perform variety of tasks.
In traditional bureaucratic structures, there is a tendency to increase task
specialization as time of span the organization grows larger. In this there is grouping
of jobs into departments, manager decides the basis on which grouping of jobs are
being done.
The most common basic until the last few decades was on functional basis for eg. all
marketing jobs can be grouped in marketing department, accounts in accounts
department, engineering and production in production department and so on. The
degree of authority distribution throughout the organisation can very as well, but in
traditionally structured organisations final decision authority is at highest level in
vertically structured hierarchy. The traditional model of organizational structure is
thus characterised by high job specialization, functional departments, functional
departments, narrow spans of control, centralised authority, such a structure has been
referred to as traditional, classical, bureaucratic, formal, mechanistic, command or
control.
Traditional structure is hierarchial or pyramidal structure with a president or other
executive at the top and small numbers of senior manager under the president and
several layers of managers blow, with the majority of employees at the bottom of
pyramid.
Basic for Departmentalization
There are four commonly used bases for designing organisation structure as -
1. Functional departmentalization
2. Geographic departmentalization
3. Product departmentalization
4. CustomeiVMarket departmentalization
1. Functional Departmentalization :
This depends on various key function of any manufacturing company like :
• Production
• Purchasing
• Marketing
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• Accounting
• Personnel
• Inventory
• Promotions etc.
for e.g. the function of a hospital may include - surgery, psychiatry, nursing,
housekeeping, billing etc.Grouping jobs that require the same knowledge, skills and
resource allows them to be work done efficiently and promotes the development of
greater expertise in addition, coordination of work across functional boundries can
become difficult for management some times due to people with the same skill and
knowledge may develop a narrow departmental focus and have difficulty
appreciating any other : in this case organisational goals may be sacrifised in favour
of departmental goals.
Headquarter: Top Manager
Department: Department: Department: Department:
Operations Marketing R&D Sales
Fig. 2. Example: Functional Organizational Structure
2. Geographic Departmentalization : When business activities of any organisation
spread over a wide area may find advantage in organising geographic based structure
so that all the activities performed in a region can be managed together. In a large
organisation if simple physical seperation is made it leads centralized co-ordination
more difficult, also important characteristic of geographic structure is that if helps to
promote local market focus. Companies that markets their product globally generally
adopt a geographic structure, in addition exprience gained in a regional division
proves to be excellent training for managers who worked in different region which
help them when they reach at higher levels.
Drug Company President
North Region Vice President
South Region Vice President
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Central Region Vice President
East Region Vice President
West Region Vice President
Fig. 3. Example: Geographical Organisational Chart 3. Product Departmentalization
: Those companies which have large number of product mix and product line this is
the structure which they follow, under this all the activities necessary to produce and
market a product or group of similar product are grouped together, In such structural
arrangement the top manager of the product group typically has considerable
autonomy over the operation, also personnel in the group can focus on the particular
needs of their product line and subsequently become experts in its development,
production and distribution, each product group requires most of the functional areas
such a finance, marketing production etc. So sometimes there is duplication of
resources.
Board of Directors
Soap Hair Makeup Fragrance Grooming
Product
s
Products Products Products Products
Marketing of Hair Product
Finance for Hair Product
Marketing Makeup Product
Finance for Makeup Product
Fig. 4. Example of Cosmetic Product Departmentalization. 4. Customer/Market
Departmentalization : Many company makes different product? for different
segments of customers, so this types of structure is advantageous to organise
according to the types of customer. They are targetting for e.g a company that
manufacture; product and sells to customers, government clients, large businesses
and small businesses may decide to base its primary divisions on different markets
as pidilite manufacture of fevicol does. In this types of structure the personnel
becomes proficient in meeting the needs of different customers. Following figure-5
depicts on organization grouped by customers and markets.
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President/CEO
V.P. consumer Products
V.P. Businees Market
V.P. Small Accounts
V.P. Major Finance
Rsearch & Development -Manufacturing -Marketing & Sales
Rsearch & Development Manufacturing I—Marketing & Sales
Accounting
-Planning
— Rsearch & Development
— Manufacturing
— Marketing & Sales
Matrix Organisational Structure : Very big organisations who manufacture large
product mix to different geographic location and Market find that none of the afore-
mentioned single structure meets their requirement, so they adopt the combination of
two or more different structures, where functional structure is commonly combined
with either product, customer or after structures.
Matrix structure is advantageous because it facilitates the use of highly specialized
staff and equipment, rather than duplicating functions, resources are shared as
needed and in some cause highly specialized staff may divide their time among more
than one project of company. Large muetinationals corporations that use a matrix
structure most commonly combine product groups with geographic units, Product
manager have global responsibility for the development, manufacturing, and
distribution of their own product or service line, while managers of geographic
regions have responsibility for the success of the business in their regions,
President/CEO
Marketing Engineerin
g
Research ' Manufacturin
g
Materials |
Product
Mgr.
i
Engineerin
g
Research
Employee
Manufacturin
g Employee
Materials
Employee
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Employee
1
1
Product
Mgr.
Laboratory
Engineerin
g
Employee
2
Research
Employee
2
Manufacturin
g Employee 2
I
Materials
Employee
2
Product
Mgr.
Process
Engineerin
g
Employee
3
Research
Employee
3
Manufacturin
g
Employee 3
Materials
Employee
3
Product Mgr.
Pharmceutical
Engineerin
g
Employee
4
Research
Employee
4
Manufacturin
g Employee 4
Materials
Employee
4
Fig. 6. Matrix Structure
Strategic Business Units (SBU)
This is also one of the modern practise when any corporations become very large
they often restructure as a means of revitalizing the organization they do business as
strategic Business Units., Growth of a business often is accompanied by a growth in
bureaucracy, as positions are created to facilitate developing needs or opportunities,
this leads to encourage new ways of thinking and acting is to reorganise parts of the
companv into largely atonomous groups called SBU.
SBU structure are units generally set up like separate companies with fall profit andj
loss responsibility invested in the top management of the unit consist of the
president of the unit and senior vice president of the larger corporation, this type of
arrangement can be; seen as taking any of the departmentalization schemes, The
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SBUs might be based on product! lines, geographic markets, or other differentiating
factors of production.
President/CEO
VP Europe
Manufacturing
- Marketing - Marketing
Finance Accounting Finance
Accounting
Development Development
North America
Manufacturing
Manufacturing
Latin America
VP Asia
Marketing
Finance Accounting
Development
Manufacturing
Marketing
Finance Accounting
Development
Fig. 7. SBU Structure TYPES OF BUSINESS OWNERSHIP
There are different ownership for any business organisation to choose it depends or.
resources and other requirements like finance, man power, tax benefits, risk level,
liabilities etc. So different ownerships can be as follows :-
1. Sole Proprietorship : It is most common form of ownership structure
characterizec by one individual or married couple doing business alone, thus type of
business is simple to form and operate having greater flexibility of management,
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fewer lagal controls and fewer taxes however the business owner is personally liable
for all debts incurred by the business Other characteristics are :
• In this structure proprietor is have personal responsibility for company's liabilities
• Assets are at risk and could be seized to satisfy a business debt or legal claim can
be done.
• Raising money by sole proprietors can be difficult so they depends mainly on
personne. saving, home equity or family loans.
• But biggest advantages is that if business is successful all profits enjoyed by
individu. soleproprietor
2. General Partnership Structure: When there is two or more persons (not a
marrie: couple) who agree to contribute money, labour or skill to a business is
called generaJ partnership. Some of the characteristics are as follows :
• Each partner shares profit, losses and management of business.
• Each partner is personally and equally liable for debts of the partnership.
• There is written partnership agreement necessary for registration called partnershJ
deed.
• Patnership is of two types general partnership and limited partnership.
• The general partners own and operate the business and -assume liability for the
partnership, while the limited partners serve as investors only, they have no control
over the company and are not having liability as general partner.
• Limited Partnership (LP) : A Limited Partnership is composed of one or more
general partners and one or more limited partners. The general partners manage the
business and share fully in its profits and losses. Limited partners share in the profits
of the business, but their losses are limited to the extent of their investment. Limited
partners are usually not involved in the day- to- day operations of the business.
Filing with the Washington Secretary of State is required.
• Limited Liability Partnership (LLP): A Limited Liability Partnership (LLP) is
similar to a General Partnership except that normally a partner doesn't have personal
liability for the negligence of another partner. This business structure is used most
by professionals, such as accountants and lawyers. Filing with the Washington
Secretary of State is required.
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• Limited Liability Limited Partnership (LLLP) : A Limited Liability Limited
Partnership is a Limited Partnership that chooses to become an LLLP by including a
statement to that effect in its certificate of limited partnership. This type of business
structure may shield general partners from liability for obligations of the LLLP.
Filing with the Washington Secretary of State is required.
• Corporation : A corporation is a more complex business structure. A corporation
has certain rights, privileges, and liabilities beyond those of an individual. Doing
business as a corporation may yield tax or financial benefits but these can be offset
by other consideration, such as increased licensing fees or decreased personal
control. Corporations may be formed for profit or nonprofit purposes. Filing with the
Washington Secretary of state is required.
The corporate structure is more complex and expensive than most other business
structures. A corporation is an independent legal entity, separate from its owners,
and as such, it requires complying with more regulations and tax requirements.
The biggest benefit for a business owner who decides to incorporate is the liability
protection he or she receives. A corporation's debt is not considered that of its
owner, so if you organize your business as a corporation, you are not putting your
personal assets at risk. A corporation also can retain some of its profits without the
owner paying tax on them.
Another plus is the ability of a corporation to raise money. A corporation can sell
stock, either common or preferred, to raise funds. Corporations also continue
indefinitely, even if one of the shareholders dies, sells the shares or becomes
disabled. The corporate structure, however, comes with a number of downsides. A
major one is higher costs. Corporations are formed under the laws of each state with
its own set of regulations. You will probably need the assistance of an attorney to
guide you. In addition, because a corporation must follow more complex rules and
regulations than a partnership or sole proprietorship, it requires more accounting and
tax preparation services.
Non-profit Corporation : A Non-profit Corporation is a legal entity and is typically
run to further an ideal or goal rather than in the interests of profit. Many non-profits
serve the public interest, but some engage in private sector activities. If your non-
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profit organization is, or plans to,raise funds from the public, it may also be required
to register with the Charities Program of the Washington Secretary of State.
Charitable activities may require additional registration. Contact the Office of the
Secreatry of State for more information.
Limited Liability Company (LLC): A Limited Liability Company (LLC) is formed
by 1 or more individuals or entities through a special written agreement. The
agreement details the organization of the LLC, including provisions for
management, assignability of interests, and distribution of profits and losses. LLCs
are permitted to engage in any lawful, for- profit business or activity other than
banking or insurance. Filing with the Washington Secretary of State is required.
Massachusetts Trust: A Massachusetts Trust is an incorporated business with the
property being held and managed by the trustees for the shareholders. The trustees
are considered employees since they work for the trust. Filing with the Washington
Secretary of State is required.
Trust : A Trust is a legal relationship in which one person, called the trustee, holds
property for the benefit of another person, called the beneficiary.
Joint Venture : A Joint Venture is formed for a limited length of time to carry out a
business transaction or operation.
Tenants in Common : A Tenants in Common allows 2 or more people to occupy the
same business while retaining separate identities in regard to assets or liabilities
resulting from business activities.
Municipality: A Municipality is a public corporation established as a subdivision of
a state for local governmental purposes.
Association : An Association is an organised group of people who share in a
common interest, activity, or purpose.
ROLE OF BUSINESS HOUSES OR
CORPORATE SOCIAL RESPONSIBILITY
Definitions
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1. "Social responsibility is the personal obligation of everyone as he acts for his
owners' interests, to assume that the right and legitimate interests of all owners are
not impinged."
-Koontz and O' Donnell
2. "Social responsibility of business is to pursue those policies to make those
decisions, or to follow those lines of action which are desirable in terms of
objectives and values of our society."-H. R. Bowen
3. "In the real sense of assumption of social responsibility implies recognition and
undertaking of the aspiration of the society and determination to contribute to its
achievement."
-George. A. Stenier
4. "Social responsibility of business means responsibilities of business towards
customers, workers, shareholders and the community."
-International Seminar. .New Delhi, 196.5
Concept and Meaning
Corporate Social Responsibility [CSR] means obligation to take those decisions and
perform those activities which are desirable in the terms of the objectives and value
of the society. According to George A, Steiner "Social responsibility of business
implies recognition and understanding of the aspiration of the society and
determination to contribute to their achievement."
Corporate social responsibility can also be understood as what business does over
and above the statutory requirement for the benefit of the society. The word
"responsibility" emphasizes that business has some moral obligations towards the
SOCK
H. S. Singhania has classified corporate social responsibility into two categories.
(i) The manner in which a business carries out its own business activity.
(ii) The welfare activity that it takes upon itself as an additional function.
The concept of corporate social responsibility cannot be understood without an
examination of the nature of the corporate and their responsibilities. Nature of
Corporates and their Social Responsibility
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Corporate Social Responsibility recognises that business groups have different kinds
of responsibility, including economic and legal responsibility. Various social
responsibilities of business groups are described as under :
(1) Responsibility towards Customer : The ultimate aim of all economic activities is
the customers' satisfaction. Therefore it is obligatory for the business houses to
produce goods which meet the needs of the consumer of different classes with
different purchasing power. The produced goods should be provided to the consumer
at reasonable prices. The grievances of the customers should be handlled quickly
and carefully and regular supply of goods and services should be ensured.
(2) Responsibility towards Suppliers : The business houses should assist the small
scale suppliers by placing orders with them and ensure regular payments to them.
They should keep the suppliers informed about their future plans and help them in
improving the quality of their products.
(3) Responsibility towards Owners or Investors : The owners or shareholders
provide funds to the business houses. Therefore it is the responsibility of the
business houses to ensure regular return on the investment of owners or
shareholders. They should keep the owners well informed about the progress and
financial position of the company and also safeguard the assets of the business.
(4) Responsibility towards Employees : The Business houses should fulfil the
obligations towards their employees by paying them reasonable wages and salaries
and providing them good working conditions. The business houses should provide
adequate opportunities to workers to develop their skill through training and
education. Time bound promotion of the employees should also be ensured by the
business houses.
(5) Responsibility towards Government.: The business houses should abide by the
policies and guidlines issued by the government. They should pay taxes to the
government in time and avoid corrupting government employees. They should
encourage fair trade practices in the country and adopt fair dealings in foreign trade.
(6) Responsibility towards Community and General Public : The business houses
should work for the welfare of the local environment where the plant is located and
ensure safety of local surroundings. They should take steps to prevent air, water ana
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nose pollution and make optimum use of natural resources. They should work for the
welfare of the local community by opening schools, hospitals etc. and also strive to
generate employment opportunity.
Factors responsible for Need of Social Responsibility of Business
In modern times business has assumed an important responsibility towards society.
The main factors behind the realization of the social responsibility are as follows :
I. Government Regulations : Modern Governments play an important role in making
business responsible towards society. The entrepreneurs are made aware of their
social responsibi-ity through various legislators from time to time. A number of laws
relating to security of workers, pollution, quality and price controls, hoardings and
blacs marketing, adulterations, etc., compel an entrepreneur to fulfil his social
responsibility
2. Market Forces : In a competitive economy only those businesses survive whics
provide quality goods at cheaper.rates. On the other hand, those who do not bother
for the tastes, preferences and paying capacity of the buyers find no place in the
market. Thus market forces help in making a business aware of its social
responsibility.
3. Professional Management: In modern times the job of managing business has
heen assumed by professional management. The professional managers have all
together different approaches towards workers or employees working with them.
They have a deepjfe map understanding of psychological and social aspects of
business. Hence, they try to tackle thej««trepre situation in a compassionate way.
4. Trade Unionism : The growth of trade unions is also an important factor for
thelwrial ob realization of social responsibility. They demand for better working
conditions, welfare 4 busine measures, social security, better wages, etc., for
workers, thereby compelling theArgume entrepreneurs to fulfil their social
responsibility.
5. Good Public Image : All.entrepreneurs try to have good public image for th
growth and development of their enterprises. This is possible only by undertaking
social^' ousine welfare measures. Arguments in Favour of Social Responsibility
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In modern times business and social responsibility of business are studied side by
sideocial val because business is responsible towards society. Following can be
achieved by realizationif the bus Sal of social responsibility of business.
(i) Helpful in growth of economy
(ii) To take care of customers' interest (hi) To satisfy labour force and employees
(iv) To promote ethical values
The modern concept of business supports the assumption of social responsibility
Following are the arguments in favour of social responsibility :
1. Long-term Business Interests : By performing social obligations, the busines:
gains in long run i.e., profit maximization. If business undertakes social
responsibilities towards various sections of society like customers, employees,
shareholders, governmen: suppliers, workers, etc., it will achieve its profit motive
easily.
2. Government Support : Since business is an economic activity it cannot hi
conducted without the support of the government. Business enterprises fulfilling
then social obligations can get the active support of the government. If the business
does not cc so government intervenes and enact suitable legislations to force the
businessmen u shoulder their social responsibility.
3. Better Business Environment: The concept of social responsibility of businesj
creates a better environment for the establishment, development and success of
business,
4. Moral Justification: Every business uses capital and physical and human resource!
of the society to fulfil its business objectives. It also depends upon society for the
sale anJ purchase of goods and services. In addition, business also makes use of
public facilities sudj as roads, electricity and power, water, etc., therefore it is the
primary duty of the businea to fulfil its social responsibility and work towards
welfare of the society.
5. Social and Cultural Norms : There is a growing feeling that business should
regulated by social and cultural norms of the society in order to fulfil its social
obligatio la our country, where social and cultural norms have a long and rich
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heritage, only business which promotes social and cultural norms enjoy social
patronage. No business can be allowed to function at the cost of the society.
6. Changed Public Expectations: Public expectations from business have
completely changed. If a business wants to exist for a long period, it must respond to
the social needs, hopes and aspirations of the society.
7. Safeguarding Owner's Interests : A business realising its social obligations will
be in a position to protect its own interests also. Public will hold a good opinion
about the entrepreneurs who response to social obligation.
We can conclude by saying that no business can survive without realising and
fulfilling social obligations. The dream of earning more and more profits can be
fulfilled only when a business realises the importance of social requirements.
Arguments against Social Responsibility
The opponents of social responsibility of business believe that business is an
economic activity therefore the money or profit alone should be the yardstick to
measure the success business. They consider business as a money-making machine
and give the following arguments in support of their viewpoint :
1. Effect of Business Values : Business should not be socially responsible because
kocial values will dominate business values which is not a favourable condition in
long run. |If the business is socially responsible then people will be so much
influenced by the business
initial years that in future the business will come in dominating position and will
start eglecting society and'may try to earn profits by unfair means.
2. Contrary to the Objectives of Business : Business is purely an economic
istitution and hence profit maximisation is its sole objective. John Dean also states
that, laximization of profits is the chief social responsibility of management in a
competitive onomy."
3. Cost Burden : Ass.uming social responsibility requires cost which a business is
not pared to pay. If the cost burden is passed on to the consumer it will increase the
prices ich will in turn affect the interest of consumer as well as the society.
4. Inefficiency in the System : There is no force other than .self-interest which
tivates a person to work. If the business starts thinking for social responsibility,
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leaving iwn interest aside, the entire system will become inefficient. This means that
when ple realize the fact that they will not get the entire profits they will not show
interest :he business.
5. Social Welfare is the Responsibility of the Government : This is the
coonsibility of the Government of a country to help the weaker section of the society
and tor their welfare in its different policies and plans. Business has nothing to do
with welfare activities,
6. Lack of Accountability: Another argument against social responsibility of
business management of a business enterprise is accountable to the owners and not
to public why business is asked to fulfil its social responsibilities and wants of the
public.
7. Lack of Social Skills : Business people do not possess the required social skills
types of complex and varied social problems. He has to devote all his skills in
running business smoothly. Hence, he should not be compelled to comply with
social obligations lse he will not be able to tackle these problems.
8. Adverse Effects on Economic Efficiency: If the business enterprise is engaged in
fulfilling its social obligations, it might affect the main business activity of
producing quality goods and services at optimum cost and selling at competitive
prices.
9. Ambiguity of the Term Business Ethics : The meaning of the term business ethics
is not clear. It has a wide scope and covers many things. Thus, the business should
not be held responsible towards society till the term business ethics is clearly
defined. The Government should make clear the scope of the term business ethics.
From the above discussions, it is evident that discharging social responsibility leads
to both benefits and costs. However, the obligation to discharge social responsibility
is in the interest of business itself. The businessmen not taking up social
responsibilities may not find suitable place in the society in which business has to
survive. Hence fulfilling social obligation is a must for the success of any enterprise
in modern times.
EXAMPLES OF CORPORATE SOCIAL RESPONSIBILITY
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1. Tata Steel Rural Development Society [TSRDS] set up by TISCO has launched
community development project in 600 villages spread over Bihar, Odisha and M.P.
2. Usha Martin set up Krishi Gram. Vikas Kendra in Ranchi to reduce the disparity
in living standards between their workers and other rural families.
3. Hindustan Ciba-Geigy started an ambitious project in 1990 to eliminate leprosy
from Goa.
4. Lupin Laboratories launched 'Lite for Life' programme in 1993 to control and
eventually eliminate tuberculosis from India.
5. Finolex Industries started the Hope Foundation in 1979 for the detection and
treatment of cancer.
6. Microsoft Corporation donates $ 100 million (i.e. more than Rs 450 crore) for the
containment of AIDS in India.
FEATURES OR CHARACTERISTICS OF BUSINESS GROUP
The salient features of a business group are given as under :
(i) Separate Legal Identity : A business group enjoys a separate legal identify which
means that it has existence independent of Its members. The shareholders are neither
the owners nor the agents of the company.
(ii) Perpetual Existence : A business group has a perpetual succession. Its existence
is not affected by the death or bankruptcy of its members.
(iii) Limited Liability : A business group has a separate legal entity. Its members
cannot be held liable for the debts of the business group.
(iv) Common Seal: A business group acts through directors. All the acts of a
business group done through the directors are authenticated by the common seal of
the group. The common seal is the official signature of the company.
(v) Risk-bearing : The risk-bearing in case of a business group Ls scattered over its
shareholders. The liability of the shareholders is limited to the extent of the issue
price of the shares held by each in case of the loss by the group.
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(vi) Control and Management: The shareholders elect representatives or directors
who collectively manage the group. It is the board of directors which appoints chief
executive and higer level executives for running the group.
LEADING BUSINESS GROUPS IN INDIA
1. Tata Group : Leading Indian business group with ninety three operating
companies in seven business sectors : information systems & communications,
engineering, materials, services, energy, consumer products & chemicals; based in
Mumbai.
2. Aditya Birla Group : Indian multinational business group with interests in
viscose staple fibre, non-ferrous metals, cement, branded apparel, chemicals etc;
based in Mumbai; group companies: Grasim, Hindalco, Aditya Birla Nuvo, Ultra
Tech, Birla Sun Life Insurance etc.
3. Bharti Enterprises : New Delhi based telecommunications group whose flagship
company is Bharti Airtel (leading mobile services company); other interests :
making telecom equipment, telecom services in Seychelles, VAS products &
services, agri-products etc.
4. ITC Limited BOM: One of India's largest private sector companies with a
diversified presence in cigarettes, hotels, paperboards and specialty papers,
packaging, agri-business, packaged foods & confectionery, information technology,
branded apparel etc; Kolkata-based.
5. Reliance ADA Group (Anil Dhirubhai Ambani Group): Business group
headed by Anil Ambani; based in Mumbai; group companies include Reliance
Capital (financial services), Reliance.Communications (telecom), Reliance Energy
(power utility), Reliance Health & Reliance Media & Entertainment.
6. Reliance Industries Limited (RIL) : Five Hundred flagship company of the
Reliance Group; the group's activities span exploration & production of oil & gas,
petroleum refining & marketing, petrochemicals (polyester, fibreintermediates,
plastics and chemicals) & textiles; based in Mumbai.
7. Godrej & Boyce Mfg. Co. Ltd. : Holding company of the Godrej group; business
divisions include appliances, construction, furniture (Interio), locks, precision
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engineering, process equipment, storage solutions, vending, electricals and
electronics, etc.
8. Adani Group : Diversified group headquartered in Ahmedabad with interests in
commodities trading, edible oil manufacturing, port operations (Mundra) & natural
gas distribution; companies : Adani Enterprises Ltd., Gujarat Adani Port, Adani
Wilmar, Mundra SEZ etc.
9. Birla Corporation Limited : Flagship company of the M.P. Birla Group, based
in Kolkata; has interests in cement, jute goods, pvc goods, auto trim parts, iron &
steel castings.
10. Escorts Group : Business group with interests in agricultural machinery,
telecommunications, healthcare, construction & material handling equipment,
automotive railway ancillaries, IT, financial services etc; based in Faridabad,
Haryana.
FAMILY BUSINESS IN INDIA In India, the family plays an important role in the
functioning of a business enterprise. Majority of businesses in India are dominated
by the families. Business activities led by tamilies commenced in post independent
era and gained momentum thereafter. Big corporate houses like Tatas, Ambanis,
Birlas, Thapars, Munjals, Adanis and many others are controlled by the families.
There are many business families which have broken up due to the inner -inflicts of
their family members resulting in the split of their business activities. Some split
groups have prospered while some have failed.
It has been observed that most business families can't keep their flock together for
more than three generations. The Ambanis split in the second generation while the
Birlas and the Bajajs split in the third generation.
One of the main reasons of splitting in Indian business groups is that they don't
involve daughters in their family business A business family that only has brothers
at the helm make the business enterprise unstable because the brothers often end up
with ego issues. The involvement of daughters and other members make the bond
more stronger.
The major shift that business families are trying to make is to include their daughters
in the succession as well as in the discussion plan which is a welcome change. The
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Godrej group is a good example. Adi Godrej has two daughters. Tanya Dubash and
Nisa are both playing an active role in the group.
Family businesses in India have prospered a lot but they face many management
challenges. These challenges arise due to the difference in the attitude of family
members, absence of family constitution on running of business and handling of
movable and immovable assets, inability to keep pace with the modern technique
and advancements and lack of communication among the family members.
FAMILY BUSINESS AS A SUCCESSFUL BUSINESS MODEL
OR
CONTRIBUTION OF FAMILY BUSINESSES IN THE GROWTH OF
INDIAN ECONOMY
For large section of society in India family business remains the norm. There are
certain business houses which are taken over by the professional teams to run the
empire and are growing at different levels.
In the present growing economy the family businesses are undergoing radical
changes with the increase in the element of professional management and
professional participation which is the key to a success business model.
In a family businesses, the family members can be valuable resources to tap. Indian
business houses are competing with multinational companies and therefore the
family members are properly groomed to be a source of advantage in their
understanding and also commitment to the business. Further the members of the
following generation know their roles to be played in the enterprise. This attracts
Investors to invest more in the enterprises and the investments are properly utilized
in the projects.
The educated new generation has realised the value of right governance structure,
right talent and right delegation. The new generation also looks forward to have
alliances and joint ventures in India and overseas. Availing global opportunities by
way of FDI, JVs, has become an aim of the new generation of business families.
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It is being observed that the large families are shrinking to unit families and are also
interested in settling down the succession related issue relating to their personal
assets in a professional manner.
In the recent times the business families in India have made a remarkable break-
through by including their daughters in the succession and discussion plan. This is a
welcome change and has paid dividends by way of contribution in the growth of
enterprises and its stability . One of the examples of the daughter's contribution in
family business is Ajay Piramal's daughter Nandini. She has played a very active
role in Abbott's purchase of Piramal's generics business. She is also assisting Ajay
Piramal in other new ventures that they have planned.
EMERGENCE OF ENTREPRENEURIAL CLASS IN INDIA
Several factors like social, economic, psychological, caste origins, religion, family :
ackground, environment, occupation, education, technical know-how, migratory
character, professional character, family tradition, ideas, systems, customs, forms of
ownership, cultural brces, etc., have affected the emergence of entrepreneurial class
in India. These factors TXERCISE a strong influence on the personality or personal
background of entrepreneur.
In this regard many studies have been conducted from time to time to examine the r
mergence of entrepreneurial class in India. R. A. Sharma1 conducted a study of
private, public and Govt, companies between 1961 and 1963. Similarly N.
Gangadhar conducted rtudy of 87 industrialists in 13 industrial estates of Andhra
Pradesh. After going through these studies, it can be concluded that following
factors affected the entrepreneurial tevelopment in India :
1. Caste Emergence: After going through the historical facts for the entrepreneurial
development in India, one can easily conclude that caste system is responsible for
emergence :: entrepreneurial class in India. Entrepreneurial traits are found in certain
regions and castes, who encourage growth of entrepreneurial talents such as
Panseers, Marwaris, Sindhis, Gujaratis, Jains, Khatris, Maheshwaris, Punjabis,
Baniya, etc. Even today, these
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Communities are dominating the source of entrepreneurial class in India. In general,
it is I seen that most of the enterprises in India are dominated by Vaishyas.
2. Family Background : In India, family background has also played an important le
in the emergence of entrepreneurial class. The tendencies like desire to raise family
atus, initiative, farsightedness, profiteering and desire to earn reputation of some
business
houses have encouraged the emergence of entrepreneurial class in India. The family
•mtrepreneurial groups like Tata, Birla, Modi, Singhania," Bajaj, Kirloskar came
into existence the form of industrial giants of India.
3. Religious Background : Religious background has encouraged emergence of
Ttitrepreneurial class in India. Max Weber propounded the theory that the protestant
ethics
:ong Christians, foster the right attitude for entrepreneurship. However, Weber's
theory as questioned by various researchers. Several studies reveal that religion in
India does : inhibit entrepreneurial spirit. However, it is an admitted fact that
religion is also : sponsible for the emergence of entrepreneurial class in India.
4. Occupational Background : Occupational background has an important role in -
itrepreneurial development. For example, professionals are more attracted toward
j -ztrepreneurship than agriculturists. According to one survey there are a great
number of I -ttrepreneurs who were unemployed in the beginning. Likewise
entrepreneurship is not I fined to a particular profession but for this many other
qualities like nature, courage, I ic.iities, technology, farsightedness are also required.
In a study by R. A. Sharma 134 out 198 entrepreneurs were from business
community.
5. Migratory Character Community : In India,' four-fifths of the entrepreneur were
immigrants having come from different places within the state or from outside the
Late whether it is Bengal, Assam, Tamil Nadu or Maharashtra. Thus, migratory
character also played an important role in the emergence of entrepreneurial class in
India.
6. Education and Technical Know-how : There is a close relationship between mc
.cation, entrepreneurship and development. S. Ashok Kumar found in his study that
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fcti.ority of entrepreneurs were graduates and post-graduates particularly in
engineeringand other disciplines. Kamma and Brahmin entrepreneurs were relatively
more educated than others. Ranchodlal Chhotalal, a Nagpur Brahmin, was the first
Indian to think of setting the textile manufacturing unit on the modern factory lines
in 1847.
7. Form of Ownership Preferred : In India, more than one-half of the units were
partnership firms, nearly one third were sole trading concerns and about one-tenth
were private, limited companies. Most of the entrepreneurs preferred partnership in
order to avoid long legal formalities, red-tapism and corruption prevailing in Govt,
machinery in starting a company in India.
8. Type of Industry : According to a recent survey, with regard to emergence of
entrepreneurship in India, about two-thirds of the entrepreneurs started industrial
units in engineering works. About one-tenth preferred to start units in non-metallic
products while 7-5% started units belonging to plastic works. The rest started units
in food products, textiles, aluminium products and other miscellaneous products.
9. Individual Factors : Individual factors have also played an important role in
emergence of entrepreneurial class. An entrepreneur takes interest in the
establishment of a new unit of his own taste and choice, collects necessary
resources, i.e., land, labour, capital, managers,, makes plans for its development,
faces new challenges, uses his own skill, takes risk, establishes the unit at the right
place and right time and turns it into profitable unit in due course of time.
10. Swadeshi Movement: The Swadeshi movement in India is also responsible for
the .development of entrepreneurial class in India. It gave a much needed boost of
indigenous and local entrepreneurship. The second wave of entrepreneurial growth
began after the First World War. The government adopted the policy of
discriminating protection. It stipulated that companies receiving protection should be
registered in India with rupee capital and some Indians as directors. These measures
helped the growth of manufacturing industries in the country. In 1813, the East India
Company lost its monopoly. European and Indian managing agents emerged to
provide venture capital and entrepreneurial talent. However, partition of the country
in 1947 caused some harm to growth of entrepreneurship.
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INDIA'S TOP 20 BUSINESS
GROUP
BY ASSESTS
1951 1990 2016
Rank Business Group Rank Business Group Rank Business Group
1. Tata l.Tata(exclACC)* 1. Tata
2. Birla 2. Birla 2. Mukesh Ambani
3. Martin Bum 3. Ambani 3. Birla AV
4. Sahu Jain 4. JK Singhania 4. Anil Ambani
5. Bird Heilgers 5. Thapar 5. Vedanta
6. Andrew Yule 6. Mafatlal 6. Bharti
7. Shriram 7. Bajaj 7. L&T
8. Mafatlal 8. Modi
9. Kasturbhai Lalbhai 9. MA Chidambaram 9 HDFC
10. JK Singhania 10. TVS 10. Mahindra
11. Walchand 11. Shriram
12. Thapar 12. UB 12 1 >PJindal
13. Bangur 13. Bangur 13. JSW Group
14. Khatau 14. Kirloskar 14. Jaypee Group
15. Indra Singh 15. Walchand
16.Seshayee
17. Ramakrishna
18. Kirloskar
19. Mahindra
16. Mahindra
17. Goenka
18. Nanda (Escorts)
19. Lalbhai
16. Wipro
17. DLF
18. Axis Bank
19. GMR
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20. Shapoorji 20. Ruia (Essar) 20. Rahul Bajaj
*Sources for data for 1990 and 1951 are RK Hazari's. The Structure of the Corporate
Private Sector : A Study of Concentration, Ownership and Control, Gita Piramal's
Big business and entrepreneurship in Seminar, August 2003, 2016 figures based on
data from Capitalise database. Financial figures have been adjusted for listed
subsidiaries of key group companies. For bank and financial companies networth has
been into consideration instead of total assets.
Fig. 12 : Inch's top 20 Business Croups by Assets holding. In India, 15 of the top 20
business groups are family-owned
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THE CONTEMPORARY ROLE MODELS IN INDIAN BUSINESS : THEIR
VALUES, BUSINESS PHILOSOPHY AND BEHAVIOURAL ORIENTATION
INTRODUCTION
In India, after independence there were many family business group in India, already
existed at that time and man}' come from Pakistan during partition with very less
capital and started small business in India. Some of the popular names can be : Tata,
Dabur, Birla, Bajaj, etc. which has become today a ziant business groups having
large contribution to Indian economy.
Initially very few sectors were allowed by the Government for doing business in
India but since 1980's when Government adopted some liberal policies then
economic environment of India become less restrictive which leads to many family
businesses more flourished, As time passed number of business both family and
non-family have grown exponentially. In India people generally have the opinion
that first generation builds, the second generation holds and the third generation ends
the family business, but this myth has been proven wrong by many business
families, some of the famous, successful business examples can be as follows who
successfully carried on business to unbelievable heights even after third generation :
Third Generation Business : Tata, Bajaj, Birla, Dabur, Hero Group. Second
Generation Business : Reliance, Wipro, Modi, Escort, Mahindra &
Mahindra.
First Generation Business : Adani Group, Future Group, Bharti Enterprises, TVS
etc.
Family Business
First
Generation
Second
Generation
Tiiird
Generation
Fig 6.1. Categorization of Business According to Age Growth of Role Model
Business in India
Role model business are those which are inspiration to new entrepreneurs, although
many role model business are family business groups who achieved remarkable
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growth from first generation to third generation in India. These business groups are
the lifeline of any economy, it we see the economical facts it has been estimated that
globally role model family businesses contribute around 70-80% of the global GDP.
However, Indians have general tendency to take safer path of employment with
corporate organisation, professional firms or government jobs rather than taking risk
of being self-employed, but after seeing the success of family-run businesses, as a
role model more and more people turned towards beign self-employed or
entrepreneurs. Today in India about 80% family owned business have captured the
market, among with 68% of total listed companies with market capitalization are
exceeding more than US S 50 million in terms of value.
As we have seen many Indian family business groups has been role model for athers
and even survived beyond the third generation for e.g., Birlas, Tata"s, Bajaj,
Murugappa, Godrej, Kirloskar, Dandekar, TVS group, etc.
In addition to above second category role models which are more recent
conglomerates belongs to second generation are : Ambani's of Reliance, Piramal
group. Rvias of the Essar group, Khorakiwalas of Wockhardt group, Hamieds of the
Cipla group, Reddy family of Dr. Reddy's group etc. several of these Indian listed
their companies in Fortune 500 list.
Following the second generation role models first generation entrepreneurs are fastly
catching up the race for e.g. : Kishore Biyani of future group, Azim Premji of wipro
group, Lakshmi Mittal of Arcelor Mittal group, Sunil Bharti Mittal of Bharti
Enterprises, Gautam Adani of Adani group etc.
Success stories of these role model business group is very much influenced by
Indian cluture where two main characteristics are very cemmon that is authoritative
and patriarchal. Authoritative means in Indian Culture the eldest family member
controls the command of the business with all decrision-making power. While the
siblings offer a supportive role to business.
The patriarch are those who have burden of performing double role firstly they are
responsible for the growth and success of the business and secondly for survival of
the business for next generation, this is achieved by smooth transition of leadership
role and handover ownership to the next generation with proper guidance this
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prevents splits and keeping the family united by providing appropriate authorities
related to business.
However with change in generation as times passage aspirations of other family
members sometimes demands an active role in the business which leads to evolving
trend of inclusive leadership as compared to authoritarian control. The decision
making process gradually becoming participative with other family members taking
mutual decisions. For e.g. Kirloskar group in India now upcoming forth generations
are actively involved in managing all their group companies and for that they
regularly consult each other for any decisions.
Another aspect which is also observed in big role model business groups is
professionalism as they studies management courses from International Universities,
they adopted professional style of managing affairs, for e.g. Dabur Group which is
among one of the oldest family-run business in India, took a collective decision
some year back that the family will not be involved in executive management inspite
they reamain as Dabur's founder family. Other such example are Wadia groups and
Haldiram where they inducted a totally new team of non-family professionals for
professional decisions and affairs.
Today family-run businesses are now entrusting competent managers with key
decision making powers and making entry to the business competitive for family
members until they prove themselves as competent enough to handle business
affairs, for e.g. Recently Cyrus Mistry succeeding Ratan Tata as the chairman of the
US $ 100 billion Tata group instead of family bearer Noel Tata. Which is live
example of merit over family loyalty. Another example is Dr. Vishal Sikka being
selected to become CEO of 'Infosys' instead of any member of founder family.
Another practices are often observed in various Indian family role model businesses
as they are also transforming their succession practices for e.g. big business houses
such a Birlas and Ambani's started the practice of documented succession planning,
they first ensure hat the younger generation undergoes $TOfe%%\«xvali
fe&uc&'tioTri and 'then trained, groomed by the seniors of the family before the
baton is passed to this generation. Also the family values, ethics and business visions
are clearly taught to them at the beginning of their career for e.g. Godrej group the
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younger generation has to join firstly to the lower executive level and once they are
well trained groomed and found to be expertised then only they are allowed to climb
to upper hierarchy.
Next interesting trend is also being noticed among India role model family business
is active and successful involvement of female members in business decision
making, although Indian family business were primarily male dominated but in
Modern times it has been noted many female members played important role by
actively supporting their husbands/ fathers with active role in decision making for
e.g. Neeta Ambani runs NGO and other business of Reliance Industries. In Agra Dr.
Ranjana Bansal successfully took over her family business Ashok Auto Sales and
Cosmos mall management and established herself as successful women entrepreneur
of western U.P.
So we can say Indian business landscape is rapidly changing expanding fast
ideology of 'Harmony in family and Symphony in business' which is part of Indian
culture of followed in spirit will lead Indian role model businesses to go a long way
by ensuring survival of family-run business.
Values, Business Philosophy and Behavioural Orientation of Famous Role Models
Business Role Model I: Birla Group : Kumar Manglam Birla.
First Business Role model we take of Mr. Kumar Manglam Birla who is heading
'Aditya Birla Group' which is named after his father and initially founded by his
great grand father Shri 'Ghanshyam Das Birla'. Kumar Mangalam Birla was given
the responsibility of chairman of the group at very young age of 28, till this he was
not having so much experience to handle all of sudden such a big responsibility.
This was due to sudden dealth of his father in year 1995. But his dedication and
hardwork towards his business enterprise he not only strenthered the existing
business but also added new companies and Aditya Birla group and established big
empire.
Kumar Manglam Birla percieved that forth coming era is of organised big retails so
he entered into retail business under the name 'Aditya Birla Retail' through opening
of retail chains in big cities of India. Secondly cellular phone companies were
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booming like anything in India from year 2001 onwards, so he ventured into cellular
business by launching 'Idea cellular' which is well know brand even today.
As every successful business has some distinguish vision and working style, if we
look the pattern of doing business one of the drastic contribution done by Birla
group is that there is introduction of profesionalism by Kumar Manglam Birla in his
business. Birla group followed conservative policy but they recruited qualified
professionals at various level of management.
Also when Kumar Mangalam took the charge of Birla group there was no retirement
policy in Aditya Birla group, at that time more focus was on loyalty of employees at
the cost of efficiency. It was first time in Birla group Kumar Mangalam introduced
retirement age in the group in order to give chance to new blood of younger
generation which added new energy into the business, this lead to brought down the
average of employees from 56 year to 36 years.
Revenue of the Birla group also increased from $ 1.6 billion in 1995 to remarkable $
41 billion in 2015. Kumar Mangalam Birla has been well known role model with
proven successful business model so he was also choosen head of committee on
corporate GovernaJ set up by SEBI in year 1999.
Vision of Kumar Mangalam Birla
Kumar Manglam is the man who has personality of a person who believes in lefting
hi work speak. He person certain qualities like-hard working, leadership, calm
nature, compose* very good strategist, introduced radical changes in conservative
Birla group.
Kumar Manglam Birla having quality to take well-informed risks and capability a
diversity from traditional sector to new upcoming sectors like infrastructure a
manufacturing. He always given due importance to expert knowledge, new
technology experienced professionals so by keeping this in his mind be engaged
competent professional in his business group.
Kumar Mangalam Birla is also strong believer of team work and always took
decisioa with the consulting his core team members and continously like to take
personal interest every small or big decision of business and always have been good
listener too.
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Business Philosophy and Behavioural Orientation
As far as concern about business philosophy and behavioural orientation of Aditya
Birii group they always focusses on delivering superior value to all associated
stakeholders eithei their employees, clients, shareholders and society at larger extent,
In terms of delivering value, emphasis on speed Birla group is well known. Birla
group continously works meeting customer's demands and requirements in the
market with priority, Overall Aditya Birla group always given lot of emphasis on
maintaining integrity and fullfilling commitmenj with passion to execute at excell
leVel.
Business Role Model II: Dhirubhai Ambani: Reliance group.
Dhirubhai Ambani born in Dec. 28, 1932 in Gujrat, he is the person who built India';
largest private sector company, created an equity cult in Indian capital market,
Reliance is the first Indian company to feature in Forbes 500 list.
Dhirubhai Ambani was the most enterprising Indian entrepreneur, he is rememberec
as the one who is role model rewrote Indian corporate history and built a truely
globa corporate group. He belonged to lower middle class family, his father was
teacher in school, he started his entrepreneurial carrer by selling 'bhajias' to pilgrims
in Mount Girnar over the weekends. After doing his matriculation at the age of 16,
Dhirubhai moved to Aden yemen firstly worked there as a gas-station attendent and
as a clerk in an oil company he returned to India in 1958 with ? 50,000 and set up a
textile trading company, then after he added more business like spinning mill in
Naroda near Ahmedabad, started cloth; manufacturing with brand name 'Vimal', In
1977 Reliance Textiles came out with a Publk issues which was highly subscribed at
that time, in 1982 his company started manufacturing polyester yarn, later
diversified into chemicals, petrochemicals, power and telecommunication even
today jio is world's largest cellular service provider.
Assisted by his two sons Mukesh and Anil Dhirubhai Ambani t sector company. As
a role model he revolutionised capital marke of rupees in wealth for those who put
their trust in his companie named the Indian entrepreneur of commerce and Industry
FICC Poll by the Times of India 2,000 he was voted for being greates century'. At
the time he died on July 6,2002 in Mumbai Reliance] company.
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Values in Reliance : Dhirubhai Ambani was the person who built fortunes out of
nothing, he always believed in exploring new opportunities and dreaming big, he
was having progressive nature always to move ahead without waiting to develop
infrastructure or other facilities first, he believed in creating his own path and always
taking care of employees and his shareholders. Such values of Reliance was
reflected when reliance industries came out with public issues in 1977, about 58,000
investors across India Subscribed to it's share, he was the person who delivered to
promise to his investors made initially, He was the person with the aura that many
annual general meetings of the Reliance were held in stadiums to accomodate all the
people who want to listen his speech.
Reliance : Business Philosophy and Behavioural Orientations : Reliance has
proven their main philosophy 'Growth' Reliance believes that survival is possible
only through growth and diversification, as Reliance group starting from just a
textiles firm and later on diversified into petrochemical, power, telecommunication,
retail and money other areas, Reliance always focus on mass production by doing so
they achieved economies of scale and able to make good quality products to the
customers at a reasonable lower price.
Business Role Model III: Tata JRD Tata & Ratan Naval Tata
Tata group was started by JRD Tata he born in July 29,1904 he had the honor of
being India's first pilot and was chairman of Tata & Sons for 50 years and recieved
pretegious 'Bharat Ratna' award by Government of India in 1992. JRD Tata was one
of the most enterprising Indian entrepreneur launched Air India International as
India's first international airline, he was pioneer aviator and built one of the largest
industrial houses of India.
JRD Tata was born in Paris, his mother was french and father was Parsi, his full
name was Jehangir Ratanji, Dadabhoy Tata, he was the second child among four
childrens done studies in France, Japan and England.
In 1938 at the age of 34, JRD Tata was elected chairman of Tata & Sons making him
the head of the largest industrial group in India, he started with 14 enterprises under
his leadership and half a century later on July 26, 1988 he left the position, till then
Tata and Sons was a conglomerate at 95 enterprises, under the guidance of JRD Tata
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Asia's first cancer hospital "Tata Memorial Center for cancer, Research and
Treatment" established in Bombay in 1941. Also other Institutions established :
• Tata Institute of social sciences 1936 (TISS)
• Tata Institute of Fundamental Research 1945 (TIFR)
• National Centre of Performing Arts
In 1956, JRD Tata initiated a programme of loser 'employee association with
management' to give worker stronger voice in the affairs of the company. He family
believed in employee welfare and implemented the principles of an eight hour
working day, free medical aid, PF schemes, workmen's accident compensation
schemes which was later adopted as statutory requirements under company act in
India.
JRD Tata cared a lot for his workers, in 1979 Tata steel instituted a new practice, he
establish Tata steel township which was also selected as UN global compact city
because of the quality of life provided to workers with all basic infrastructure
developed in township.
JRD Tata due to his large contribution also received number of a wards like : Padma
Vibhushan in 1957, Guggenheim Medal for aviation in 1988, highest civilion honour
in 1992 Bharat Ratna Award. He died in Genera, Switzerland on November 29,1993
at the age of 89.
Ratan Naval Tata : He was born 28 December. 1937 in Bombay. He is the person
who further promoted Tata group. In 1981 he was made chairman ofTata Industries,
in 1991. He took over charge of entire Tata group as chairperson. Under his
leadership Tata group scaled new heights, Tata group roots are so strong not affected
much even during recession in economy and competition of multinationals. Ratan
Tata took Tata group to new heights as :
• In 1998, Tata motors lanched first Indian car Indica'
• In 2000, Tata acquired Tetley U.K. based tea brand
• In 2004, Tata motors listed on New York Stock Exchange.
• In 2008, Tata motor purchase Jaguar and Land Rover car brand.
• In 2006, Tata sky a sattellite TV network service was I!. -.
• In 2007, Tata steel purchased Corus Group an Anglo-Dutch steel plant.
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• In 2009, Tata Telecommunication launched GSM service under brand name
DOCOMO.
• In 2009, Tata launched world's chepest car 'Nano'.
Now the Tata group has 100 + companies working under one umbrella also
diversified into different sectors like :
Retail: Tanishq (Jwellery), Titan (Watches), Croma (Electronics), West side
(Clothes).
Infrastrcuture : Tata Power distribution.
Media and Entertainment: Tata sky .
Renewable Energy : Solar and wind power.
Automobile : Domestic and commercial vehicles.
Hotels and resorts : Hotel Taj chains.
Software Solution : TCS
Food Products : Salt, Spices, Tea etc.
Tata group is one of the largest exporters of India dealing different products to more
than 100 countries worldwide, At present around 3,50,000 employees are associated
with Tata group, In history of Indian economy Tata group will be in First chapter
creating landmark.
Values of Tata Group : Ratan Tata is the man with highly competent qualities like-
great visionary, risk taker, futuristic approach, leadership quality due to which he
has initiated lots of mergers and acquisitions to strengthen and boost Tata group, he
focused always on delivering the quality products to the customers. Due to which
general public developed a confidence in Tata group and the name Tata is
considered as Synonym to Quality. Ratan Tata following tradition ofTata group is
alway a strong believer of maintaining fairness and transparency in all business
dealings, he is very much trust worth and strong promoter of ethical practices in all
his companies.
Business philosophy and Behavioural Orientation ofTata : Tata group has been
always known for their excellent work culture which is always values based. History
ofTata group reveals that Tata mainly focus on delivering quality products with
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honesty and transparency. Satisfaction level of employees of Tata group always at
high level due to complete respect, care and comparison for employees.
Business Role Model IV : Narayana Murthy : Infosys.
Globally Indian IT companies are playing big role, silicon vally in America beleived
to be world largest IT hub where about 40% employees are Indian, infosys has
emerged as one of the big business organisation with various offices spread across
India and globe. Infosys is a software company started by Narayana Murthy in the
year 1981 along with six other professionals with sum of? 10,000 borrowed from his
wife Sudha Murthy. Main business of Infosys is to provide software solutions and
consultancy services to a number of IT companies across the globe. In a span of
around 32 years infosys has ground phenomenally. They provided employment to
thousands of youth who are educated and skilled in field of computer programing
and earned large foreign exchange for te country. Some of the major landmarks
thieved by Infosys can be as follows :
• In 1987, Infosys opened its first abroad office in U.S.
• In 1993, Infosys issued Initial Public offer.
• In 1999, Infosys become the first Indian company to be listed on NASDAQ.
• In 2001, Infosys was rated best employer by Business World Survey.
• In 2002, Nandani Nilekani became CEO of Infosys.
• In 2006, Infosys complete glorious 25 years in IT field having more than 50,000
employees working.
• In 2012, Infosys company listed on NYSE market.
• In 2014, Dr. Vishal Sikka became the CEO of Infosys.
Infosys is the business role model for the young entrepreneur who are educated and
skilled, from a capital of US $ 250 in 1981 Infosys shown enormous growth with
capital of US $ 9.50 billion in Financial year 2016-17 having market capitalization
of approximately US $ 13.7 billion.
Vision of Infosys : Mr. Narayana Murthy being a good human is efficient leader
who always believes in following utmost transparency and-ethics in the business
dealings. He relieves in disclosing every essential fact in books of account. Narayana
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Murthy has always take care to his employees and his company is known paying one
of the best salary and other welfare to his employees. Infosys public offers has been
always in demand, he also -hared portion of equity with infosys employees, in this
regard company gave stock worth 50,000 crores to its employees which helped
company to retain employees for longer period ' ith loyalty. One of the important
decision taken by Narayan Murthy as founder of Infosys as that they will not enter
into business dealings with any company either owned or associated with relatives
also they decided another policy that none of the founders of Infosys add continue
after the age of 65 to any active authority past in company.
Business Philosophy and Behavioural Orientations of Infosys: Infosys company
always known to be focusing on providing best technology solutions by hiding the
best professionals, Infosys always follow best ethical practices in achieving its goals.
Infosys also focus on having fair and transparent conduct with clients, vendors,
society and employees at arge, At Infosys welfare of their employees has been prime
concern.
Business Role Model V: Ekta Kapoor : Balaji Telefilms
Ekta Kapoor is the name will known in film industry of India also called as the
reigning een of India television industry, she is creative director of Balaji Telefilms
awarded with Ernst and Young (E & Y) startup entrepreneur of the year award in
2001.
She produced India's first daily soap seria1 'Shanti' which was great hit with -the
masses are dominating all the major TV. channels in India. Balaji Telefilms also
produced ny commercial films too. Ekta Kapoor was born on June 7,1975, she is
daughter of former Bollywood Superstar I endra and Sister of Tusshar Kapoor. Ekta
Kapoor and her schooling from Bombay Scottish >ol and further graduated from
Mishibai college, At the age of 19 she told her father at producing serial and soon
she changed the face of Indian television industry.
Vision and Business Philosophy : Being creative director of Balaji Telefilm Ekta
Kapoor produced more than 27 serials almost for every popular channels like:
Doordarshan, Zee, Sony, Sab, Starplus, One of the most popular serial whose actress
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is minister in central government break all the records of popularity is 'Kyuki Saas
Bhi Kabhi Bahu Thi' Balaji believe that letter 'K' is very lucky for the company lots
of other serials are : 'Kahani Ghar Ghar Ki', 'Kahin to Hoga', 'Kavyanjali'. 'Kya Hoga
Nimmo Ka', 'Kasam Se', 'Kahin Kisi Roz', 'Kasauti Zindagi Ki', 'Kusum', 'Kalash',
'Kundali', etc. Balaji telefilms always given opportunities to young actress and
actresses making their carrer to reach on heights, created many job opportunities for
film and moving making. Balaji telefilms is established production houses with
strong brand image.
Examples of other Successful Business Role Models in India
• Sabeer Bhatia : Co-founder to Hotmail.com
• Ghanshyam Das Birla : Birla Group
• Subhash Chandra : Chairman of Zea Network & Essel Group
• A. M. Murugappa: Chairman of Murugappa Group
• Raj Anand : Founder of Kwiqq '
• Cap G. R. Gopinath : Founder of Air Deccan
• T. V. Sundram Iyengar : Founder of TVS Group
• Kasturibhai Lalbhai: Founder of Arvind Mills
• K.C. Mahindra & I.C. Mahindra: Mahindra Group.
• Kiran Mazumdar : Founder of Biocon
• Sunil Mittal: Founder of Bharti Enterprise
• Brijmohan Lai Munjal: Founder of Hero Group.
• Karsanbhai Patel: Founder of Nirma Group, etc.
CONFLICT IN FAMILY BUSINESS AND ITS RESOLUTION
Inspite of various successful business family growth observed in India, there has
been many family businesses which faced conflict lead to either seperation of
business and also even closure of many enterprise, following diagram shows the
main challeges faced by a family business.
1. Conflicting Values : This is one of the cause for conflict in family business due to
younger generation aspiration to achieve success by short cut, conflict may be
regarding values systems, expansion plans or approach, usually younger generation
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wants to follow aggresive approach, unlike their eiders, overall outlook of younger
generation is different from the older generation.
2. Fail to Attract and Retain Outside Talent: This has been observed in a family
business, usually key positions are hold by the family members and there is
reluctance for outsiders to join family business because of the following reasons :
• Non-adjustment of outsiders due to non-corporate culture.
• Family business are not following professional approach.
• Old traditions are mainly followed in family business.
• All the authorities are concentrated centrally to the head of the family.
• To keep business secrets within the family.
• Less professional approach as business organisation.
3. Different Personalities: Every family has their own background, society,
traditions, thinking, Attitute, etc. which differentiate their approach so way of doing
business is different due to personality, Even members of the family may have
different personalities which leads to conflict in the family and there on in business.
4. Compensation Demand : There are two types of member in family may be very
active and other may be inactive so when inactive member demands compensation
may also be cause of conflict, If criteria for deciding compensation is not
competence then non-performing members can take due advantage and leads to
conflicts.
5. Expectations of Family Members : If in a family business responsibilities are not
asigned according to competencies but according to influence and status of a
particular member in the family leads to conflict in family business. As every
member of the family, irrespective of the generation wants a bigger role in
management this often due to power politics often teads to sibling rivalaries and
inter-generational conflicts.
6. Compensation Demand : In a family business every member of the family either
active or inactive claims their ownership the business, so deciding the compensation
of various family members may also be the cause of conflict, because sometimes
criteria for deciding compensation is not competence and according to contribution
to the business but rather to make everybody happy, this results excessive
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compensation is paid to the non-performing members in order to hold the family
together.
7. Succession for Business: Succession is also one big question in family businesses,
as every members want to succeed the business, this gives rise to conflicts between
the siblings as we have seen in Reliance company where its founder Dhirubhai
Ambani died vithout naming and of his son as successor due to which conflict
occured between the two brothers and lead to division of Reliance group between
two.
Resolution of Conflict in Family Business : Conflicts are not good for running
family business smoothly as we have seen above the reasons of conflict, the owner
of family business should be attentive enough and capable to sense the cause of
conflict which is only possible by directly addressing the various problems faced by
a family business, some of the measures can be taken as follows :
1. Proper Communication : There should not be any communication gap between he
family members, communication between the various family members should be
unrestricted and open. Regular meetings should be held and equal opportunities
should be given to every member to put their views or problems so that they can
update everyone including dormant members about the ongoing status by business.
Hence communication if the only way to resolve and manage both inter and intra
generational conflicts in family business.
2. Retaining Outside Talent : People who are not the family member but they
contribute through their talent and skills for the growth of business should be given
due respect and recognition, business need to be more open in their succession
planning, a clear message should be sent to all employees that important business
responsibilities will be assigned on the basis of competence and not only based on
family hierarchy for e.g. In Tata group Cyrus Mistry succeeded Ratan Tata as the
Chairman of group instead of family name bearer Noel Tata, is a live example of
merit over family loyalty, same practise has been also observed in Dabur group
where group is headed by non-family member.
3. Participative Decision Making: There are two types of decisions in any business
first is Routine decision or short term decision and other is Non-routine or long term
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decision, routine decision can be taken by employees which is related with day to
day working, while long term decisions are big decisions where decision making
must be more participative by family members and it should not only be restricted to
family members but also including experts and professionals who are employees of
the organisation, decision making guidelines should be clearly defined so that family
members does not face dilemma between his professional and personal role.
4. Equal Importance and Stake to Female Members : Mostly in India family
businesses are dominated by males due to which sometimes female members are not
given due importance, but in modern times females are also qualified and proven
themselves better manager and entrepreneurs, so female members of the family who
are interested to perform should be treated equal to male members in a family
business. Key managerial roles of business should be assigned according to
talent/skill and not on the basis of gender.
5. Establish Family Forum as Institute : There should be establishment of family
forum or family counsil where family members can come together and openly
discuss the various issues pertaining to the family business, In this forum there
should be regular meetings where even dormant family members can come together
and get an update about the current staff of the business, so through these meetings
family members are opened up to communicate and give suggestions for welfare of
business and leads to reduce the chance? of conflict among the members.
6. Proper Succession Planning: Owner/Head of the family business should identif.
that who can be capable enough to handle business successfully after him, so it
should be clearly defined and communicated to family members that succession will
be entirely basec on competencies and sometimes the successor may be family
member or may be non-famih member. However in spite of these measures there
may also be chance for conflict to be arised, so a business must have a clearly
defined mechanism to handle conflicts.
7. Conflict Resolution Machanism Properly Defined K ory family business shod
frame proper rules and policies for every aspects of business, same policy should
also be related to Mechanism of conflict resolution, there should be proper set up of
conflict resolutio: Mechanism, so that whenever a conflict arises in a family it
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should not be settled throug: ! court only, If suppose there conflict among family
members regarding division of the famin business, a forum should be created where
family members can come and freely voice the:-differences. In case of family
disputes it has be observed emotions run high, so a conflictl resolution committee is
set up which is usually headed by an reputed outsider who is unbaised, trusted and
well accepted by all the members of the family. He brings objectively and offers
advice by providing solutions to problems after taking into consideration opinions of
all the family members for e.g. In Reliance business conflict there was great role of
Mr. K.V. Kamath CEO of ICICI for distribution of Reliance business as he was man
trusted by the family.
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PUBLIC AND PRIVATE SYSTEM OF STIMULATION, SUPPORT AND
SUSTAIN ABILITY OF ENTREPRENEURSHIP
INTRODUCTION
The stimulation of economic and job growth through the application of
entrepreneurship and innovation has been a common theme in government policy.
Strategies to reduce unemployment, particularly amongst youth through the
"encouragement of entrepreneurship" is one of the main objectives of the
government. It has been analysed that more jobs are generated in small
independently owned businesses than in large companies. Therefore it is
recommended that government policy should target indirect strategies rather than
direct strategies with a greater focus on the role of small firms.
The interest of the government in entrepreneurship and small business development
is the potential solutions to flagging economic growth and rising unemployment. It
has helped to create a new field of academic study and research.
Now-a-days science and technological parks can be found scattered around the
world, mostly supported by government policy with universities and research and
development centres collocated with the park.
Across the world there are many places where innovations and enterprises have
flourished. But California's Silicon Valley is one of the best known centres where
high-tech entrepreneurial activities have taken place.
For entrepreneurial growth, governments across the globe want to replicate the
formation and growth of what have been described as "Entrepreneurial Ecosystem."'
In nutshell, it is important to understand about "Entrepreneurial Ecosystems" and
what role can be played by government policy in the formation and growth.
ENTREPRENEURIAL ECOSYSTEM
Definition
"The Entrepreneur Ecosystem can be defined as the study of industry clustering and
the development of National Innovation Systems." Diagrammatic representation of
nine major elements that are considered important to the generation of an
entrepreneurial ecosystem are shown in Fig. 8.1.
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ENTREPRENEUR DEVELOPMENT PROGRAMMES [EDPs] Meaning and
Definition
From the above discussion, it is clear that the Entrepreneur Development
Programmes help in creating a successful industrial or business environement by
giving education and training, providing information about material resources and
by framing a policy of regional development. This helps the entrepreneurs to
progress.
Entrepreneur Development Programme is a comprehensive programme which lays
emphasis on the development of entrepreneurs, so that industry can be developed. It
is a part of the human resource development. It can be defined as "a programme
designed to help an individual in strengthening his entrepreneurial motive and in
acquiring skills and capabilities necessary for playing his entrepreneurial role
effectively. It is necessary to promote his understanding of motives and their impact
on entrepreneurial "values and behaviour for this purpose." (N.P. Singh)
Other definitions of Entrepreneur Development Programmes are :
(i) "Any such plan which helps to acquire the necessary qualities needed to make the
role of an entrepreneur more effective."
(ii) "Providing necessary information and knowledge to establish the enterprise and
enhance the entrepreneurial capacities of an individual is known as Entrepreneur
Development Programme."
Need and Importance of EDPs
Entrepreneurial Development Programmes play an important role in economic and
industrial development of any country whether developed or developing. The main
objective of EDPs is to develop entrepreneurs, to motivate them to establish their
own enterprises, to make them able for this, so that they set-an example to others,
also to motivate them. Moreover an entrepreneur lives under a constant pressure-first
to survive, then to stay alive and finally to grow and withstand in competitive
environment. In such a situation entrepreneur developement programmes only can
help him. Entrepreneur development programme is a comprehensive and effective
human resource development programme. It is a systematic and organised
programme which helps in developing analytical ability, outlook, farsightedness,
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arousing and reforming entrepreneurial behaviour, increasing the motivation,
knowledge and skill, assisting and developing his own ventures successfully, and
last but not the least gives confidence to face and solve variety of problems boldly
and safely. Economic progress is dependent upon successful industrial development
for which good, organised and systematic entrepreneurial development programmes
play a great role.
Economic progress depends upon new techniques. But new techniques in themselves
cannot help in making economic progress until and unless these techniques are
commercially exploited by the entrepreneurs. A successful entrepreneur makes best
use of economic resources like land, labour, capital and techniques for which EDPs
are of a great help.
Thus, entrepreneur development programmes help in economic progress in the
following ways :
1. Employment Opportunities: Ever increasing unemployment is a serious
problem, particularly in developing economies. Entrepreneur development
programme motivate people to establish their own business and make them capable
self-employment. This not only provides employment to new entrepreneurs but they
also create employment-opportunities for others. In India also, many welfare and
development programmes have been started in order to eradicate poverty and
remove unemployment.
2. Formation of Capital : Entrepreneur development programmes help in capital
formation which is very necessary for the economic development of the country.
Capital is the basis for the establishment and development of any enterprise. An
entrepreneur uses his financial resources for the establishment and development of
the enterprise by making effective use of factors of production.
3. Formulation of Projects : After selection of a project its financial and technical
analysis is a must without which there are possibilities or fear of economic losses.
Entrepreneurial development programmes help in structuring or formulation of
projects. These programmes provide necessary information related to projects like
plant, machinery, equipment, raw material, structural facilities, selecting land and
sites, labour resources, financial resources, marketing, etc.
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4. Balanced Regional Growth : Among other problems, developing nations face
problems of un-balanced regional growth. On one side there are states like Punjab,
Maharashtra, Gujarat, etc., where economic progress is very fast. On the other hand,
states like Bihar, Jharkhand Rajasthan, Odisha, etc., which are far behind as far as
economic growth is concerned. Entrepreneur development programmes help to
establish small scale units in such areas, thereby stop centralisation of capital.
Various State governments also give several concessions and subsidies which help
to accelerate the industrialisation, which in turn helps in balanced growth in the
country.
5. Use of Local Resources : Entrepreneur development programmes help the
entrepreneur to use local resources effectively and in proper way through their
various programmes, by education and training, by providing aid, etc. The proper
use of local resources reduces the cost of development in that area.
6. Helpful in Preventing Slums: The biggest problem in industrially developed area
is creation of industrial slums. Industrial slums-are responsible for many other
problems like pollution, health, downfall in moral values, crime, etc. The main cause
behind this is unbalanced industrial growth. People from backward area migrate to
industrially developed areas in search of employment. Entrepreneur development
programmes play an important role to solve this problem by providing various
incentives, subsidies and basic amenities (facilities) to entrepreneurs in order to
motivate them to establish industries in backward areas. ^
7. Development of Entrepreneurial Qualities: All entrepreneurial qualities do not
come on their own in entrepreneurs. There are certain qualities which an
entrepreneur possesses by inheritance like loyalty, hardwork, sincerity, etc., whereas
other qualities like analytical ability and farsightedness can be enhanced or
developed. Entrepreneur development programmes help in development of these
qualities through education, training, experimentation and orientation programmes.
8. Enhancing Organising and Managerial Abilities : Entrepreneur development
programmes help the entrepreneurs to enhance their organising and managerial
abilities so that they can run their enterprise efficiently and successfully. This is
done through organising educational, management, training and orientation
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programmes. Various specialised agencies like National Institute for
Entrepreneurship and Small Business Development (NIESBUD), New Delhi and
Entrepreneurship Development Institute of India (EDII), Ahmedabad are engaged in
entrepreneur development programmes. NIESBUD is an apex body which is
responsible for co-ordinating and surpervision of various agencies engaged in
entrepreneurial development. EDII is an all India body set by public financial
Institutions and Government of Gujarat.
9. Helpful in Selection of Project and Product : Entrepreneurial development
programmes play a vital role in helping the entrepreneurs in selecting suitable
projects and products. EDPs help them in evaluating various projects and products
and choosing the most suitable one which can be established and started easily, gives
maximum profits with least possible risk and which have scope for further
development.
10. Providing Information : Entrepreneurial development programmes provide
different types of information to the entrepreneurs, from time to time, i.e., technical,
market, finance and government programmes, etc., so that the entrepreneurs can use
that information in their interests.
11. Discovering New Markets: Entrepreneurial development programmes help the
entrepreneurs in discovering new markets in the country and exports. This helps the
entrepreneurs to produce according to market demand.
12. Helpful in Setting up of the Enterprise: Entrepreneur development
programmes help an entrepreneur in setting up an enterprise. It is done through
various support services which provide funds, equipments, machinery, raw materials
and various infrastructural facilities like land, power, water, through EDPs.
13. Improvement in Standard of Living: EDPs help in establishing new
organisations which develop more and more goods, services and employment
opportunities which, in turn, help in capital formation. Capital formation helps in
growth of productivity both quantitatively as well as qualitatively which increases
per capita income. Different types of goods and services are produced which
increase competition. Increased competition develops the quality of production and
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reduces prices. Better products are made available at cheaper rates, which results in
improvement of standard of living of people.
14> Helps in Searching and Exploiting Opportunities : There are many
opportunities for entrepreneurs in various fields i.e., electronics, medicine,
engineering, agriculture, communication, atomic energy, food technology or
packing. Entrepreneurial development programmes help in searching such
opportunities. Such opportunities become more profitable when they are exposed to
latest developments in respective fields either in terms of technology use or style of
living. It is the EDP which provides necessary information, guidance and assistance
in the search for opportunities.
15. Reducing Social Tension : Root cause of social tension is unemployment.
Social tension gives rise to many evils in the society. Entrepreneur development
programmes put the youth in right direction by guidance, training and helping them
to establish their own enterprises. This not only gives them employment but also
creates employment opportunities for others which help in reduding social tension.
16. Economic Independence : Due to entrepreneurial development programmes
new and competitive industries are devdoped which make a country capable of
producing new and quality products. Successful entrepreneurs develop alternatives
to goods which are imported from foreign countries. This ends the dependence on
foreign countries and the valuable foreign exchange is saved. It also helps in earning
foreign exchange by exporting our products. In a nutshell, we can conclude that
EDPs help in export promotion and import substitution which make a country
economically independent.
Relevance of EDPs : An entrepreneurial development programme is relevant only if
it proves fruitful to social, economic, political and legal environment of a countrv
Various researches conducted in and outside the country have shown that the
countrywhich have implemented entrepreneur development programmes have
attained high economic growth in various fields as compared to those who have not
done so. Economic development of a country never takes place by chance or
accident, it has to be designed. It is a result of constant, and positive efforts made by
the government and its agencies. Entrepreneurial development programmes search
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prospective entrepreneurs and encourage them to establish business in backward
areas which helps in balanced regional growth. EDPs also encourage research and
development which helps to establish new business in and outside the country.
Objectives of Entrepreneur Development Programmes
From the foregoing discussion and after studying the objectives suggested by
various institutions we can conclude that following are the main objectives of
entrepreneur development programmes :
(i) Identifying prospective entrepreneurs and giving them training.
(ii) Developing knowledge and qualities of those participating in these programmes,
(hi) To impart basic managerial understanding.
(iv) To provide assistance after training.
(v) To analyse the environment related to the project.
(vi) To plan for implementation of these programmes.
(vii) To select right project and thf product.
(viii) To find out sources of help, incentives and subsidies available from the
government in setting up the enterprise.
(ix) To promote and develop small and medium enterprises which would encourage
self-employment to growing and potential entrepreneurs.
(x) To develop new entrepreneurial opportunities.
(xi) To develop a feeling of social responsibility in entrepreneurs.
(xii) To develop industries in rural and backward areas.
(xiii) To help in balanced regional development.
(xiv) To enhance managerial capacities of the entrepreneurs.
(xv) To develop and strengthen entrepreneurial quality and motivation.
(xvi) To understand rules, process, procedure and regulations for running the
enterprise.
Thus, we can say that entrepreneur development programmes are conducted with a
thinking that individuals can be developed. Their veiwpoint can be changed and then
an idea can be organised in a positive shape in order to give it a form of successful
business organisation. Traditional thinking is that only those people can become
successful entrepreneurs who have business family background, has taken the form
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in new thinking that only that person can become successful entrepreneur who has
acquired capabilities through knowledge and experience. Such knowledge and
experience can be gained only through proper entrepreneur development
programmes. Curriculum of Entrepreneur Development Programme
The curriculum and course of an entrepreneur development programme is decided as
per the objectives of EDPs. Usually, the training programme is of six weeks'
duration. It generally has following six parts :
(a) General Introduction : In the first part, the participants are given general
knowledge of entrepreneurship, i.e., factors affecting small scale industries, the role
of entrepreneur in economic development, behaviour and various facilities available
for setting up small industries.
(b) Motivation Training : This part of EDP aims at inducing and increasing the need
for achievement among the participants. The participant's confidence and positive
attitude is developed. The effort is made to make the participants start their own
enterprises after training. To motivate them further, sometimes successful
entrepreneurs are also invited to share their experiences regarding setting up and
running of a business.
(c) Management Skills : Any type of business requires management skills. Since
every entrepreneur cannot employ management experts to manage the business, he
must 141
SBPD Publications Entrepreneurship
have basic and essential management skills in such areas like finance, production
and marketing. The- EDPs impart basic management training which enables him to
run his enterprise smoothly.
(d) Support System and Procedure : The participants must have knowledge of
various supports available from various institutions and agencies for establishing and
running an enterprise and also the procedure for applying, approaching and
obtaining support from them.
(e) Basics of Project Feasibility Study: Under this part the participants are given
guidance on the effective analyses of feasibility of the project, with regard to
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marketing, organisation, technical, financial and social aspects, basic knowledge to
prepare the project report is also given to them.
(f) Plant Visits ; Plant visits are also arranged for the participants in order to
acquaint them with real life situations in small business. This helps them to gain
knowledge about entrepreneur's behaviour, personality, thoughts and aspirations.
These influence the participants to behave accordingly to run their enterprise
smoothly and effectively. Achievements of Entrepreneur Development
Programmes
The speed at which industrialisation has taken place in recent years is due to the
major role played by the entrepreneurial development programmes. The way, the
most economically developed nations like America, Britain, Japan, etc., have moved
forward, the entrepreneurial development programmes have contributed a lot in the
success of these countries. Likewise, the fast developing nations like China and
India are also moving forward due to EDPs.
The Entrepreneurial development programmes are pre-requisites, for the overall
economic development of a country. EDP is a process in which entrepreneurs are
prepared to establish, develop and expand their business enterprises and face the
business risks. Following are the major achievements of EDPs :
1. These programmes have played an important role in establishment, development
and expansion of the practice-oriented development programme. Training is an
integral part of managerial and technical development, and is essential for both old
and new entrepreneurs. In India, almost all the training programmes conducted are
organised and developed under EDPs. The steps taken by EDPs in this direction
include—(a) Creation of necessary infrastructure, (b) preparing training syllabus, (c)
designing tools and techniques for selection of trainees, (d) identification of suitable
and viable projects, and (e) specific training in technical trades, etc.
2. Entrepreneurial development programmes have also developed and established
various support systems necessary for the entrepreneurs. They strenghen and co-
ordinate these support systems. The major support-systems are credit, service and
implementing institutions.
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3. Entrepreneurial development programmes have not only created a background for
industrialisation but have also given momentum to it.
4. These programmes have contributed a lot to solve the problem of unemployment.
EDPs have helped to a great extent in this direction by starting self -employment
programmes and by giving momentum to the speed of industrialisation.
5. Another achievement of these programmes is establishment and development of
new enterprise. It is a very difficult task to establish and develop new enterprise in
today's competitive era. EDPs have provided various inputs to establish new
enterprises and also by developing various entrepreneurial skills and qualities, like
farsightedness, imagination, patience, technical, knowledge, etc.
6. Entrepreneurial education and training has spread because of entreprenurial
development programmes. This has resulted in increase in the knowledge,
imaginative power, farsightedness, decision-making ability and risk taking ability of
the entrepreneurs and has also helped in developing their personality.
7. Entrepreurial development programmes have also contributed in project
formulation. Choosing a right type of project is a difficult task as resources are
limited. The choice of a project requires detailed analysis of technical and financial
aspects. EDPs have proved very useful in such situations.
8. Many entrepreneurship development institutions have been established becuase of
the EDPs in India and abroad. For example, the major entrepreneurial development
institutions in India are : (i) Management Development Institute, (ii) National
Institute of Entrepreneur and Small Business Development, (iii) Entrepreneurial
Development Institute of India, (iv) Small Industry Service Institute, (v) Small
Industries Development Organisation, etc.
9. Entrepreneurial Development Programmes have helped in balanced regional
development by encouraging people to establish small industries in villages and
backward areas.
10. Another important achievement of EDP's is availability of cheap and quality
product to the consumer. Due to EDPs new ventures have been established which
have increased competition and the tendency of open market. As a result of which
the products which were out of the reach of common man have reached him-that too
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at cheaper rates. The standard of living has improved,, national income has increased
and the economic power has decentralised.
Phases in the Conduct of EDPs
Entrepreneurial development programmes pass through following three stages :
I. First Stage : The first stage of entrepreneurial development programme is pre-
training phase. The success or failure of any entrepreneur development programme
depends upon the preparation or groundwork carried on by the organisation
conducting it. This stage involves following activities :
1. Designing Course-Curriculam for Training: It is essential for any
entrepreneurial development programme that whatever material for study or training
is designed should fulfil the needs or purpose of the entrepreneurial development
programme. The main objectives to be kept in mind while designing the course-
curriculam are as follows :
(i) To provide knowledge and introduction regarding entrepreneurship, role of
entrepreneur in economic development and available facilities regarding
establishment of the enterprise to the prospective entrepreneurs.
(ii) To provide motivation training to the prospective entrepreneurs to develop right
approach and behaviour towards business. The EDPs should aim at increasing need
of achievement and confidence among participants. The main thrust should be on
prompting and preparing entrepreneurs for starting their own enterprises.
(hi) To provide and arrange for necessary course material necessary for management
and technical information. The basic aim should be to impart managerial and
technical know-how required by the participants to run their business effectively and
efficiently.
(iv) To collect and provide information regarding various agencies engaged in
providing assistance to entrepreneurs to establish and run the enterprises. The aim
should be to make the participants aware about the procedure for applying and
obtaining assistance from the institutions.
(v) The participants should be provided with various project reports so that they can
study and analyse the feasibility of various projects with regard to marketing,
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technical, financial and social aspects. This way they are provided knowledge for
preparing project and feasibility report.
(vi) An attempt should be made to make participants familiar with real life
situations. This can be done by arranging plant visits to make them learn about
entrepreneurial behaviour, thoughts, personality and aspirations.
(vii) Lastly but most important is to make the participants quality conscious and
socially responsible.
2. Selection of Faculty or Resource Persons : The success of an entrepreneurial
development programme depends upon able or well-qualified and experienced
faculty or resource persons. Thus, selection of the proper faculty is an important part
of pre-training phase. For this teachers or faculty members from various professional
education institutions, universities, technical institutions, banks, research and
development institutions can be invited. The terms and conditions for inviting them
have also to be decided well in advance.
3. Advertisement : Next important task in the first stage of entrepreneurial
development programme is giving advertisement about the EDP to be conducted, so
that maximum number of participants may part. Advertisement can be given in local
newspapers by means of handbills, or through Distt. Industries Centres. Employment
exchange and educational institutions can also provide imformation regarding
interested candidates. The advertisement can be repeated in case the response is not
good.
4. Selection of Potential or Prospective Entrepreneurs : For the success of an
entrepreneurial development programme it is essential that only those participants
can take part who really have qualities to be potential entrepreneurs. Thus,
identification and selection of right candidates is very important. The selection
should be done in such a way that maximum 20 to 30 participants can take part in
one entrepreneurial development programme. The selection of prospective
entrepreneurs can be made on following basis.
(i) on the basis of information available from application form.
(ii) on the basis of written examination to check the aptitude.
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(hi) on the basis of personal interview of the candidates in order to know the
personal details, family background, risk taking ability, aspirations, etc. Such
interview should be conducted by a board which must comprise of representatives of
agency conducting EDP, nominee of District Industries Centre and representative of
financial institutions, banks etc. Failure in proper selection of prospective
entrepreneur will be sheer wastage of time, money and effort of the agency
conducting EDP.
II. Second Stage : The second stage in the conduct of entrepreneurial development
programme is training phase. In a training programme the participants are given
written and practical knowledge so that they develop motivation and entrepreneurial
qualities in them. Under this, imformation and training regarding market survey,
process of research and development, marketing, preparation of project report and
feasibility report, etc. is given. There are a number of methods to provide training.
Some of these methods are : 1. Lecture Method : Under this method the instructor
directlv communicates with 2. Written Instructions Method : Under this method
written material is provided to the participants for their use. Whatever important
factors or elements are required for setting up an enterprise, those are provided by
way of written instructions.
3. Demonstration or Practical Method: For better understanding of the candidates
every thing related to entrepreneurship is taught by demonstrations. Every minute
detail is explained by giving demonstrations for the practical performance of the
work.
4. Conference : Under conference method, experts in various fields are invited to
share their ideas with the participants. The aim is to provide knowledge to trainees
for improving their effectiveness.
5. Meetings: Meetings provide opportunities to candidates to discuss various
problems faced by them. They discuss and exchange ideas on various issues and
arrive at firm conclusion.
6. Individual Training : Under those circumstances where only one person is to be
given information or knowledge on a particular aspect, then individual training is
imparted.
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7. Group Training : This method of training is best suitable where a group of
individuals has to do a similar type of work and where similar types of instructions
are to be given to all of them.
III. Third Stage : The third or final stage of entrepreneurial development programme
is post-training phase. As the EDPs aim at developing right-type of entrpreneurial
behaviour among the potential entrepreneurs, so that they can set up and run their
own enterprises effectively and efficiently. The success of an entrepreneurial
development programme can be judged from, the objectives it has achieved, that is
how many participants actually started their own enterprises after getting training
from these programmes. This stage is also known as follow-up stage, through which
we can know about past performances; weaknesses and can improve those by taking
necessary corrective measures. In follow-up stage following three things come :
(i) Was the programme conducted as per plans ?,
(ii) If not, what were the deviations from the plan, and
(hi) Taking corrective action to improve the weaknesses after identifying them.
INNOVATION
In every business, it is imperative to be industrious, innovative and resourceful.
Entrepreneurship produces financial gain and keeps the economy afloat, which gives
rise to the importance of innovation in entrepreneurship. Entrepreneurs are
innovators of the onomy. However, innovation is often viewed as the application of
better solutions that meet new requirements, unarticulated needs or existing market
needs.
According to Forest Frantz, "Entrepreneur is an innovator and promoter as well".
According to Howard W. Johnson, "Entrepreneurship is a composition of three
basic ments : (i) Invention, (ii) Innovation, (Hi) Adaptation."
Systematic innovation exists in purposeful and organised search and in systematic
analysis of the opportunities, such changes may offer social and economic charges.
Types of Innovation
Innovation can be of following types (Kuratoko, R.H. Hogelts and Donald F.)
1. Innovation : Innovation is the production of entirely new product, service or
rocess which is not yet tried.
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2. Extension : Extension involves a new use or application of a product, service or
rocess which is already existing.
3. Duplication : Duplication is production of an already existing product, service or
a process. It is just copying of already existing product, service or process with
sligh; additions to increase or improve the existing one.
4. Synthesis : It is a combination of existing concepts and ideas and devising a way
so that they form a new application after combining.
Sources of Innovation
Innovations result from opportunities which exist in the external and interna!
enviornment of an enterprise. The entrepreneur keeps on looking for opportunities
anc innovation comes out from these opportunities. Following may be the sources of
innovations
1. Sudden or unexpected happenings : Sometimes, innovations emerge as a result
of some unexpected success or failure of an enterprise, which are normally
unanticipated and unplanned. These are those opportunities which most businesses
have disapproved.
2. Difference between expectation and reality : Sometimes, when there is a
considerable difference between the expectation and reality, the innovation takes
place The gap between actual performance and expectation motivates the
entrepreneur to innovate with all his strength.
3. Changes in demography : Change in demography creates entrepreneurial
opportunities. Whenever the level of population, education, urbanisation,
occupations, age composition, etc., change the entrepreneur gets opportunities. For
example, the spread of IT education has given ample opportunities to entrepreneur
concerned with computer in order to cater the need of people.
4. Changes in tastes and preferences : Constant change in tastes, fashions and
consumer preferences result in change of structure and. design of the product, which
results in generation of opportunities for innovation and improvements.
5. Perceptual change t Perceptual change is change in the attitude, feelings, inter-
pretation, etc., of the people. Perceptual change does not change the basic object or
fact but changes the attitude toward that.
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6. Knowledge based concept: The constant research and development, professiona
knowledge and expertise is also an important source of innovation. These are basis
for | development and creation of new products and markets. These require testing
and 1 modifications and hence are time-consuming.
CHARACTERISTICS OF INNOVATION
Management thinkers like Joseph A. Schumpeter, Frantz and Peter F. Drucker, etc j
have conducted an in-depth study and researches on the development of innovatior.
innovative nature, values and decisions in the enterprises. After a number of analysis
the have concluded the main features or characteristics of innovation as follows :
(i) Experimentation on new ideas.
(ii) Feeling of happiness with changes.
(hi) Facing uncertainties in bringing ideas into practice.
(iv) Evaluating non-traditional practices.
(v) Not to avoid any task and not to be disturbed by mistakes while doing ne»
experiments.
(vi) Application of new uses of existing techniques or instruments or services.
(vii) Finding problems in order to solve them.
(viii) Working on those problems which are causing difficulties to others, (ix)
Presenting the product or service in own basic methods.
(x) Always eager to distribute unstructured tastes.
(xi) Important contribution toward a new idea.
(xii) Presentation of evaluation of proposed ideas.
Thus, in a nutshell, we can say that innovation is the most important task of an
entrepreneur.
An entrepreneur develops and. adopts innovations to improve enterprise's competi-
tiveness and to provide maximum satisfaction and services to the society. He gives
rise to new changes in the society. He brings in improvements in his products,
production process and services, etc., by research, study and creative approaches. He
constantly discovers/puts efforts to discover new values, high standard of
living/utilities thereof and new satisfaction. There is a strong tendency to work on
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innovations and taking initative in the entrepreneurs. They don't just dream but they
work to make dreams a reality.
CREATIVITY-A PREREQUISITE TO INNOVATION
Generally, creativity and innovation are understood to have the same meaning but in
reality they differ. Creativity is the quality to bring innovation into reality whereas
innovation is the process of doing new things. The difference between the two is
very important. Any new idea or imagination is of no value until and unless it is
converted into a new product, service or a process. Innovation basically is
conversion of creative ideas and concepts into profitable practices whereas creativity
is a pre-requisite of innovation.
Alexender Grahm Bell has defined the creativity process as follows :
Recognition--> Rationalisation
—> Incubation -> Realisation -> Validation
As is clear from the above diagram creativity process involves following stages :
1. Recognition : Recognition stage is also known as germination stage. Here a new
thinking takes birth, which may be the discovery of a new idea or new solution to an
existing problem.
2. Rationalisation : When an in-depth thinking is given to the new idea, it is called
rational analysis of idea or simply rationalisation. In this phase the promoter of the
idea explains the idea in an analytical way. He collects the related literature,
imformations and knowledge in this stage.
3. Incubation : This is the stage of development of the idea. It is also known as
incubation stage.
4. Realisation: After going through the above stages the importance and
understanding of the new idea becomes clear. This helps to understand the structure
of the idea and develops a faith in implementation of the idea.
5. Validation : At this stage the idea is examined under various aspects and angles
in order to classify the real value of the idea.
THE GOVERNMENT OF INDIA'S ROLE IN PROMOTING INNOVATION
FOR ENTREPRENEURSHIP DEVELOPMENT Introduction to Innovation in
Indian Context
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The Government of India has adopted Entrepreneurship Development as one of the
mechanisms towards the creation of job opportunities for the acceleration of
economic growth. The government assumes that support for innovation would
enhance entrepreneurship development. Unfortunately due to a fragmented
innovation ecosystem, India has not been able to realize its innovative potential
inspite of having a large publicly funded science and technology, infrastructure and
a sizeable education base.
The innovative potential of the young Indian population, if supported through an
effective innovative ecosystem, holds potential for developing entrepreneurship and
providing the growth and job opportunities that India needs.
India's current national innovation system in India is a vast and complex system of
knowledge producers such as science and technology'institutions, academia and
innovating individuals. India has evolved a largely publicly funded Research and
Development structure due to priority given to science, technology and innovation
by various governments.
Under various ministries there are various councils and research structures which
cater to different research areas. For Example :
• Council of Scientific and Industrial Research (CSIR).
• Indian Council of Agricultural Research (ICAR).
• Indian Council of Medical Research.
• Defence Research & Development Organisation.
In the field of academics there are 280, universities in the public sector including
institutions of higher education such'as Indian Institutes of Technology [IITS] and
Indian Institute of Science [IISC].
Financial Institutions such as SIDBI and IDBI lend support innovation besides
entrepreneurship.
INDIA'S INNOVATION ECOSYSTEM
India's innovation ecosystem can be described as a combination of two distinct
economies,
i.e. :
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(i) Knowledge Economy which comprises of knowledge producers and which is
driven by fundamental research.
(ii) Commercial Economy which comprises of knowledge users and which is driven
by market.
The functional goal of the innovation ecosystem is to enable technology
development and innovation. Government R&D expenditures account for 0.47% of
GROSS DOMESTIC PRODUCTS [G.D.P.]. 95% of business research and
development activities are funded by firms themselves 73% of public research is
funded by block grants which are allocated on the basis of national research
priorities.
Going through the above data the current performance of the Indian innovation
ecosystem appears weak inspite of a large national innovation system. However the
Government of India has declared the period between 2010-2020 as the "Decade of
Innovation" for which the road map would be prepared by the newly established
National Innovation Council.
MAJOR PROBLEMS FACED BY INDIA'S INNOVATION ECOSYSTEM AND
ENTREPRENEURSHIP
The major problems faced by India's Innovation Ecosystem are listed below :
1. Fragmented policy and policy implementation.
2. Inadequate Funding of R D.
3. Difficult and Lengthy Procedures.
4. Weak linkages between stakeholders.
5. Non-conducive Education system.
6. Risk Aversion among Entrepreneur.
7. Poor Infrastructure Facilities in Villages.
8. Inadequate Protection of Intellectual Property Rights.
NEW POLICY INITIATIVES TO BOOST INDIAN INNOVATION
ECOSYSTEM
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The Science, Technology and Innovation Policy 2013 outlines the major policy
initiatives to strengthen the innovation ecosystem and gives a boost to innovation led
entrepreneurial development.
The key initiatives of this policy explored in context of the problems faced in
boosting innovation ecosystem for promoting entrepreneurial development is given
as under :
1. Funding : The policy has enhanced the Gross Expenditure in Research and
Development [G.E.R.D.] from less than 1% to 2% of the Gross Domestic Product
[G.D.P.] over the next five years.
2. Promotion of Science : The policy promotes the spread of scientific interest and
understanding across all sections of society. This policy also addresses the need for
educational reforms.
3. Strengthening the Linkages between Stakeholders : The policy calls for the
mobility of effects from academics to industries and vice versa. Special and
innovative mechanism is also devised for fostering partnerships among academia,
research and industry.
4. Risk Taking Ability : The policy accepts risk as an integral part of a vibrant
innovation system and emphasizes risk sharing by the government. New financing
mechanisms would be created for investing in enterprises without any
apprehensions.
5. Participation in Global R&D Infrastructure : The policy has proposed the creation
of high cost glpbal infrastructure in some field through international consortia
model. Indian participation in international projects will be encouraged and
facilitated to gain access to facilities for advanced research in cutting edge areas of
science.
ENTREPRENEURIAL DEVELOPMENT PROGRAMMES IN INDIA
Industrial development was very limited in India before independence. Although
Indian entrepreneurs have been world famous for their art and skill and business
expertise. Some Indian products like Mal-Mal of Dhaka, Kashmiri Shawls, Sarees of
Banaras, Utensils of Mumbai, Pune and Hyderabad have found a prominent place in
the world market. Prior to 1850, entrepreneurship had not emerged due to lack of a
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solid industrial structure, although artisans used to make certain artistic products _in
some areas like Varanasi, Allahabad, Mirzapur, Gaya, etc. Industrial development
could not take place because of certain infrastrtuctural problems and non-initiative
by foreign rulers in the country. Many businessmen migrated and started settling in
other countries because scarcity of capital, political diversities, numerous currencies,
regional markets and taxation policies of governments were not motivating them to
establish the enterprises in India.
It can be said that the process of industrial development started in India mainly after
the East India Company came to India, Parsis started first ship building factory in
1673 in Surat. Likewise a 'Gun Powder Mill' was also established in 1677 in
Bombay (Mumbai). In 1852, a Parsi named Porman started a steel company in
Bombay (Mumbai).
By the start of twentieth century some industrial houses had emerged in India.
Prominent among these was Jamshedji Tata. Due to his efforts and entrepreneurial
abilities industries in the field of steel, engineering, power, ship building were
developed. But this development •as confined to very limited areas (basically
Mumbai, Calcutta ports and nearby areas) and that too in the hands of a few
communities before independence. Various studies reveal that most of the industrial
companies were managed and controlled by Parsis, Gujaratis, Marwaris ind Bengalis
after the British between the period 1911 to 1951.
Post-Independence : After independence entrepreneurship was developed with a sh
beginning in a systematic and planned manner. Keeping that in mind the first
Industrial Policy was framed in 1948 in which many programmes were made for the
industrial development.
In the first Five Year Plan (1951) many plans were presented for the development of
entrepreneurs both in public as well as private sector and their areas were
specifically determined. Basic infrastructural industries were reserved for public
sector whereas other industries like engineering, medicine, textiles, cement, sugar,
etc., were left for private sector. Some financial institutions were also established in
order to provide the financial assistance to the entrepreneurs.
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Second Five-year Plan (1956) laid emphasis basically on industrial development.
More and more importance was given to the development of entrepreneurs in public
as well as private sector and special concessions were given to entrepreneurs in the
private sector.
Since then, in all five year plans, efforts were put for the entrepreneurial
development. Industrial development has accelerated due to these five-year plans.
For the development of entrepreneurship many institutions were established during
that period.
ROLE OF GOVERNMENT AND INSTITUTIONS
As explained in previous paragraphs, industrial development was limited to some
cities and some families in India before independence. Therefore, the government
decided to develop industries in rural and backward areas by giving various facilities
with the objective of balanced regional development. The main objective of these
programmes was to help the entrepreneurs in the field of technique, finance, market
and entrepreneurial development, so that they help to accelerate and adopt the
changes in industrial development. Various institutions were set up by the central
and state governments in order to fulfil the said objective.
(a) Institutions set up by Central Government:
(i) Small Industries Development Organisation (SIDO) : SIDO was established
by the Central Government in 1954. It has 27 Small Industries Service Institutes, 31
Branch Institutes, 38 Expansion Centres, 4 Regional Training Centres, 20 Local
Testing Centres, 4 Product Co-process Centres, 2 Shoe Training Centres and 4
Production Centres. In addition to provide services in these areas, SIDO is also
engaged in providing training to the entrepreneurs.
(ii) Management Development Institute (MDI) : Management Development
Institute is located at Gurgaon (Haryana). It was established in 1973 and is
sponsored by Industrial Finance Corporation of India, with the objective of
improving managerial effectiveness in the industry. It conducts management
developtment programmes in various fields. It also includes the programmes for the
officers of Indian Administrative Services (IAS), Indian Economic Services (IES)
and for the officers of a number of public sector undertakings like Bharat Heavy
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Electricals Ltd. (BHEL), Oil and Natural Gas Commission (ONGC), Bharat
Aluminium Company Ltd. (BALCO), Export-Credit Guarantee Corporation of India
(ECGC), Hindustan Zinc Ltd. (HZL), Hindustan Machine Tools Ltd. (HMD and
many leading PSUs.
(iii) Entrepreneurship Development Institute of India (EDIII: EDII is sponsored
by all India Financial Institution and the Government of Gujarat. It conducts
research, training and institution building activities to encourage participation of
backward regions and specical target-groups in entrepreneurship.
The training programmes of EDII consist of :
(a) Selection of potential entrepreneurs
(b) Providing achievement motivation training
(c) Selection of the product and preparation of project report
(d) Training for business management.
(e) Practical training and work experience
(f) Support system and follow-up
The programmes of Entrepreneurship Development Institute of India are the oldest,
argest, best organised and most comprehensive in the country.
(iv) All India Small Scale Industries Board (AISSIB) : Established in 1954, the
AISSIB determines the policies and programmes for the development of small
industries
That a Central Government Minister as its President and the representatives of
various organisations, i.e., Central Government, State Government, National Small
Industries Corporation, State Financial Corporation, Reserve Bank of India, State
Bank of India, Indian Small Industries Board, Non-Government members, such as
members of Public Service Commission, Trade and Industries Members.
(v) National Institution of Entrepreneurship and Small Business Development
NIESBUD), New Delhi : It was established in 1983 by the Government of India. It
is an apex body to supervise the activities of various agencies engaged in
entrepreneurial development programmes. It is a society under Government of India
Soceity Act of 1860. '•'»Tien there is absence of organisation conducting newEDPs
it assumes the task. The major activities of the Institute are :
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(a) To evolve effective training strategies and methods, fb) To formulate scientific
selection procedure.
(c) To standardise modal syllabi for training.
(d) To develop training aids, tools and manuals.
(e) To provide facilities and support to other agencies engaged in EDPs. (j) To
conduct EDPs which are not undertaken by other agencies.
(g) To evaluate the benefits of EDPs and promoting the process of entrepreneurial
development.
(h) To conduct workshops, seminars, conferences, etc.
(i) To help and support various governments and other agencies in executing
entrepreneur development programmes.
(j) To undertake research and development in the field of EDPs.
(vi) National Institute of Small Industries Extension Training: It was established
1960 with its headquarters at Hyderabad. The main objectives of National Institute
of
i Industries Extension Training are :
(a) Directing and Co-ordinating syllabi for training of small entrepreneurs.
(b) Advising on managerial and technical aspects.
(c) Organising seminars for small entrepreneurs and managers.
(d) Providing services regarding research and documentation.
(vii) National Small Industries Corporation Ltd. (NSIC) : The NSIC was
..blished in 1955 by the central government with the objective of assisting the small
triesin the government purchase programmes. The corporation provides a vast
market "the products of small industries through its marketing network. It also
assists the small rats in exporting their products to foreign countries.
viii) Risk Capital and Technology Finance Corporation Ltd (RCTFC): RCTFC
* established in 1988 with an authorised capital of Rs. 15 crores. The main
objectives of RCTFC are : provision of risk capital for the extension and expansion
of entrepreneurial development and venture capital for the projects with high
techniques for technology development and transfer.
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(ix) National Research and Development Corporation (NRDC) : NRDC was
established in 1953 under the Department of Science and Industrial Research under
Government of India. Its main objectives are :
(i) Providing assistance 'in technology transfer.
(ii) Transfer of technology.
(hi) Establishing relations with various technology institutions and collecting various
indigenous techniques developed by them. At present there are 29 training centres of
the NRDs in India.
(x) Indian Investment Centre : This is an autonomous organisation established by
central government. Its main objective is to assist in promoting foreign co-operation
with Indian entrepreneurs and providing necessary information to foreign
entrepreneurs. Indian Investment Centre has also established Entrepreneurship
Consultancy Institute with the objective of identifying useful projects. In addition,
this institute helps entrepreneurs in preparation of project, selection of proper place
and necessary financial assistance.
(xi) Khadi and Village Industries Commission (KVIC) : Khadi and Village
Industries Commission was established by an Act of Parliament in 1956. It is a
service organisation engaged in promotion and development of Khadi and Village
Industries in rural areas. Its main objectives are :
(i) Providing employment in rural areas.
(ii) Improvement of skills, (hi) Rural Industrialisation.
(iv) Transfer of technology.
(v) Building strong rural community base and self-reliance among rural people.
(xii) Indian Institute of Entrepreneurship (HE) : It was established by the
department of Small Scale Industries and Agro and Rural Industries in 1953. It is an
autonomous organisation with its headquarters at Guwahati. Its main objective is to
undertake research, training and consultancy activities in the field of small industry
and entrepreneurship.
(xiii) Miscellaneous, Organisations : In addition to above, various organisations at
all India level are assisting, and are engaged in entrepreneur development. These
include ICICI, IFCI, SIDBI, UTI, IDBI, IIBI etc.
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(b) Institutions Set up at State Level: There are a number of institutes established
at state level for organising, developing, assisting and making successful
entrepreneurial development programmes. Prominent among these are :
1. Small Industries Service Institute (SISI).
2. State Financial Corporations (SFCs).
3. State Small Industries Corporation (SSIC).
4. District Industries Centres (DICs).
5. Technical Consultancy Organisation Ltd. (TCO
6. Industries Directorates.
7. Commercial and Co-operative Banks.
8. State Industrial Development Corporation.
9. Industrial Estates. 10. State Industries Corporation.
The above mentioned institutions of central and state level have provided a number
of concessions and facilities to promote entrepreneur development in India. They
have also played an important role in balanced industrial development in the
country.
Conclusion : To conclude, we can say that an entrepreneur development programme
throws light on the concept that viewpoint of an entrepreneur can be changed by
developing them. Entrepreneur development programmes are not just training
programmes but are also a technique to increase motivation, knowledge and
capacities of entrepreneurs. These programmes provide information needed for
establishing the enterprise and developing entrepreneurial capacities of a person.
CAUSES OF SLOW DEVELOPMENT OF ENTREPRENEURSHIP IN INDIA
The entrepreneurship development in India has been very slow in comparison to
other developing nations. The main causes for slow development of
entrepreneurship are given below :
1. Traditional Social Ideology : The social ideology of any nation affects life of
individuals and business. In India, the traditional social ideology has an important
say due to which progressive and developmental thoughts could not be developed.
Such type of viewpoints suppress entrepreneurship feeling.
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2. Non-materialistic Approach : Since long our culture had been non-materialistic
in comparison to countries in the west, although some changes are taking place in
recent years. Non-materialistic approach is great hinderance in the path of capital
formation, private profits and other economic and productive activities. This
approach emphasises on limiting needs and simple living, as a result industries do
not develop.
3. Social System : Entrepreneurship tendencies could not develop in India because
of many ill-traditions like casteism, regionism and superstitions, etc. Individuals do
not have freedom to choose the work or profession according to their interest and
qualifications to hereditary professions due to which capable entrepreneurs do not
emerge.
4. Lack of Training Facilities : Another reason for slow development of
entreprenerurship in India is lack of-training facilities. Training centres are situated
in big cities and towns. Their availability in small towns and villages is negligible.
5. Lack of Capital: The rate of capital formation is very slow in India. People do
not want to undertake risks in establishing enterprises, instead they want to invest in
housing, land, gold and silver, etc., where there js no risk or minimum risk. In
addition to this the saving capacity of people is also low. That is why industrial
development is very slow.
6. Bureaucracy and Red Tapism : An entrepreneur has to depend upon various
government offices and institutions. Corruption, unnecessary rules and formalities,
negative and impractical attitudes prevailing in government machinery become an
obstacle in the growth of entrepreneurship
7. Lack of Technical Education : In India, more emphasis is laid on traditional
non-vocational education and there are not enough technical education instituions.
Although there has been some improvement in this regard in recent years but still it
is not sufficient. This is one of the reason entrepreneurship is not developing in
India.
8. Resistance to Changes and Innovation : In India, there has been a feeling of
neglecting new programmes and changes. The entrepreneurial tendencies have also
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not developed because of lack of scientific approach towards research, development
and problems.
9. Monopoly and Fear of Competition: There has been dominance of a few business
houses in our country and they enjoy monopoly in certain trades and industry. This
is one of the reason the new and prospective entrepreneures do not want to take
chance because of fear of competition. As a result entrepreneurial development is
adversely affected.
10. Lack of Basic Facilities : There is lack of basic infrastructural facilities required
for establishing an enterprise, i.e., electricity and power transportation,
communication, etc. That is why expansion of industries is limited to some cities
and towns only.
11. Lack of Entrepreneurial Spirit : The young lot in our country in general is
inclined towards jobs and fine arts, that is why, they are not in a position to
accumulate wealth and capital. Due to lack of professional interests, risk taking
ability, creative thinking, entrepreneurial skill, entrepreneurial development is slow.
SUGGESTIONS FOR IMPROVING EDPs IN INDIA
Unemployment is posing a serious threat to the highly populated country like India.
Thus, a serious thought has to be given to solve this problem. There can be various
alternatives to solve this problem, one of them is proper conduct of entrepreneurial
development programme so that new industries can develop and feeling of self-
employment rises and as a result others also get opportunities of employment. The
following are some suggestions to improve entrepreneurial development
programmes and to make them more effective :
1. Improvement in Training Programmes : The entrepreneurial training programmes
should be made varied and comprehensive. More emphasis should be laid on
practical aspects than theoretical. The selection procedure should be such that only
competent candidates should be allowed to establish and run their enterprises. The
curriculam should be framed by experts and as far as possible the programme should
be of full time.
2. Financial and other assistance : The financial institutions. should provide adequate
and timely credit and technical assistance to small sectors at reasonable terms and
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conditions. It will help to motivate and inculcate entrepreneurial spirit in new class
of entrepreneurs.
3. Action against Bogus and Forged EDPs : The government should initiate coercine
action against bogus and forged institutions.
4. Emphasis on Research and Development : The institutions providing entrepreneur
development programmes should lay emphasis on research and development. The
modern techniques should be adopted and if needed, help and assistance should be
taken from the experts from developed countries.
5. State Assistance : Economic administration of the state should be improved and
made effective so that objectives of economic policies are achieved in the overall
interests of the country. Evils of monopoly in a few big entrepreneurs should be
checked and controlled. A general policy to encourage small entrepreneurs should be
framed. Business climate should be improved by the government by framing well
designed policies—fiscal, commercial, industrial or agriculture. This will benefit the
entrepreneurs in long way and facilitate healthy development of entrepreneurship.
6. Education System : Our education system should be changed comprehensively.
Instead of traditional education, the emphasis should be on entrepreneurship,
oriented education. The number of technical and professional education institutions
should be increased.
7. Provision of on the Job Training: There should be a provision for on the job
training in the professional and technical institutions in addition to the basic
theoretical education.
8. Proper Facility : The success of entrepreneurial development programmes
mainly depends upon the facility to trainers. Thus, good faculty should be hired from
reputed r.stitutions. For this services of teachers of universities, professional
institutions, engineering r.stitutions should be taken.
9. Duration of EDPs : Most of the entrepreneurial development programmes are
:onducted for a duration of 4 to 6 weeks which is not sufficient even for imparting
basic entrepreneurial training. Thus, the duration of these programmes should be
increased at least to 6 months so that the prospective entrepreneurs are in a position
to know various aspects of entrepreneurship in detail.
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10. Provision for Part Time EDPs : There may be people who want to establish
their own enterprises or self-employment but are not in a position to take part in
these programmes regularly. Part time EDPs should be conducted for such people.
The working people or students can take advantage of part time entrepreneurial
development programmes.
11. Development of Backward and Rural Areas : Industrial estates should be
established in backward and rural areas and basic infrastructural facilities should be
improved, so that the enterprises are established in such areas.
12. Long-term Financial and Industrial Policy : The state should form loiig-term
financial and industrial policy in order to achieve entrepreneur development. The tax
structure should be simplified in order to encourage entrepreneurs.
With some suggestions explained above, there can be revolutionary changes in
entrepreneur development. This is true that with the policy of globalisation and open
economy there have been improvements in entrepreneurship but the area is limited
to few towns and cities. By implementing these suggestions and improving
government machinery our country can also move forward towards industrialisation
and economic progress through entrepreneur development programmes.
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REQUIREMENT, AVAILABILITY AND ACCESS TO FINANCE,
MARKETING ASSISTANCE, TECHNOLOGY AND INDUSTRIAL
ACCOMMODATION
FINANCE FOR INNOVATIVE ENTREPRENEURSHIP
For the creation, survival and growth of innovative new ventures, access to finance
is essential. Scarcity of finance stops new ventures from investing in innovative
projects, improving their productivity, covering working capital requirement,
meeting market demand and financing their growth.
It has been inferred through various researches that access to finance is a key deter-
minant of entrepreneurship and clearly identifies a finance gap in many locations for
new and small firms involved in the early stages of innovation, especially in the
market for high risk capital.
MEANING AND NEED FOR ESTIMATING FUND REQUIREMENTS
Finance is the life blood of an enterprise. Finance to an enterprise is what blood to
human body. As human body cannot survive and function without blood. Similarly,
an enterprise, big or small, cannot survive and run without capital. Finance is one of
the important pre-requisites to start an enterprise. It is the finance which facilitates
an entrepreneur to bring together land, labour, machinery and raw material to
combine them to produce goods. The significance of finance in production is like a
lubricant to the process of grinding. The saying—"whoever has the gold makes the
rule" also underlines the very significane of finance for enterprises in particular and
industry in general. Many potentially successful enterprises fail because of under-
capitalisation. Therefore, it is necessary for every enterprise to clearly chalk out its
future financial requirements in the very beginning itself.
Thus, fund means that money or capital which is required for establsihment and
running of an enterprise. The decision taken by an entrepreneur well in advance
regarding future financial requirements is called financial planning..
Raising of Funds : Raising of funds with reference to an enterprise means arranging
or collecting funds for establishing, working and development of an enterprise. After
deciding about the establishment of a new project, necessary funds are needed, how
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much finance is required and what should be the capital structure—taking decisions
about these and the process of arranging them is called raising of funds.
Need for Estimating Fund Requirements: While planning financial requirements, an
enterprise needs both long-term and short-term funds. While estimating fund
requirements it is essential to pay attention on estimation of total financial
requirements and profit earning capacity of the business enterprise. Both over-
capitalisation and under-capitalisation should be avoided. This requires a
comprehensive study of total funds requirement. Estimation of funds requirement
will include the following :
1. Cost of fixed assets or fixed capital, such as land, buidling, plant machinery,
furniture and fittings, etc.
2. Requirements for current assets or working capital, such as raw material, stock,
bills recievables, credit sales and day-to-day expenses such as salaries, wages rent,
stationery, etc.
3. Promotion expenses including legal expenses.
4. Company organisation establishment expenses, i.e.. expenses on hiring services of
managers, experts, etc.
5. Cost of obtaining requisite finance, such as underwriting commission, brokerage,
etc
6. Cost of intangible assets, such as patents, purchase of goodwill, etc.
7. Expenses for strengthening business such as advertising, sales promotion, etc.
BUSINESS CAPITAL : IMPORTANCE AND NEED Capital is an important means
for growth. That part of money or wealth which is helpful in production is called
capital. According to Prof. Marshall—Except for free gifts of nature, capital includes
all those wealth which give income." Capital comprises of machines, raw material,
factory, building, etc. Capital may be of different form in different businesses but
whether a wealth is capital or not is dependent upon its objective. If the wealth
(properties) are utilised for earning money it will be capital otherwise not. It is
worthwhile to note that capital is a wealth but entire wealth cannot necessarily be
capital because entire wealth is not used for production.
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Although capital is not the basic means for production, it is often termed as means of
further production. The importance of capital can just be understood from the fact
that large scale production takes place with the help of machinery in modern time
and hence modern era is called capital era. Without sufficient capital, the success of
an enterprise in today's competitive world is just a dream. It is impossible to
undertake production process or rur. the enterprise without adequate capital. The
quantity of production and production capacit;. both are dependent upon capital. All
the resources and factors of production can be obtainec only from capital. The
payment of wages and arranging for sales all require capital. Thus capital is needed
right from establishment of an enteprise to its development, promotion and to its
end.
Economists are of the view that capital includes all those wealths (which are not fre
gifts of nature) which is produced by man and is used for producing more wealth.
"Capital is that property which is the product of past labour, but is used as a means
c' further production." —Fisher
"Capital is a part of that wealth of individuals or communities other than land, whic
is used to assist in the production of further wealth" —S. E. Thoma-
Thus, capital is that part of wealth, which is used for further production of wealth
Need for Business Capital : Business and Industrial units require two types capital:
(a) Long-term capital
(b) Short-term capital
Long-term capital is required for long-term assets like land, building, machinery anc
other fixed assets.
Short-term capital is needed for meeting day-to-day expenses like raw material,
purchase I of semi-finished and finished goods, and other expenses like freight,
wages, salaries. This is also called working capital. .
Besides these an organisation needs medium-term capital for its expansion aadji
development. Short-term capital is generally needed for one year, medium-term for
one v»l 10 years and long-term capital is needed for more than ten years.
TYPES OF BUSINESS FINANCE
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Finance is required at every stage of running of the enterprise. A business can smm
finance from :
• Owners of business, or
• Loans and advances from financial institutions.
The first type of capital is known as owned capital and second one as loan capital.
In addition to these two there is another type of capital which is earned by business
itself and is re-invested in business. This is known as 'Retained Profit' or 'Ploughing
Back of Profits'.
Every business needs long-term, medium-term and short-term finance. Hence, the
source and method of financing has to be determined on the basis of time. On the
basis of time finance can be divided into three types :
Types of Finance
Long-tern Medium-
term
Short-term
Shares, Debentures Financial-Institutions Retained Earnings
Bonds, Debentures, Public Deposits, Bank Loans Loans from Financial Institutions
Commercial Banks,
Trade Credits, Customer Advances
1. Long-term Finance : Long-term finance is required for acquiring fixed assets
like land, building, plant, machinery, etc. Company's expansion programmes also
require long-term finance. Any finance which is for a period of seven years or more
is long-term finance. Following are the soruces of long-term finance :
(a) By issue of share capital
(b) By issue of debentures
(c) Raising from financial institutions
(d) Ploughing back of profits of retained earnings.
2. Medium-term Finance : Medium-term finance is required for working capital of
the business. This finance is also required to pay back the price of assets acquired.
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Any finance which is for a period of two to seven years is termed as medium-term
finance. Following are the sources of medium-term finance : -
(a) Issue of bonds
(b) Debentures issued for a period of one to ten years
(c) Financial assistance from special financial institutions
(d) Public deposits
(e) Finance from commercial banks.
3. Short-term Finance : Short-term finance is required to meet day-to-day capital
requirements. Any finance which is for a period of one year or less is short-term
finance. Short-term finance can be raised from :
(a) Short-term bank loans from commerical banks which are for a period of less than
one year
(b) Public deposits (for less than one year)
(c) Advances from customers
(d) Bills recievables etc.
IMPORTANCE OF DIFFERENT TYPES OF FINANCE
The importance of different types of finance varies at different stages of business
development. In the initial stages, technology-driven high growth SMEs can obtain
it from entrepreneurs or from family and friends. Self financing is particularly
important in earlier stages since innovative entrepreneurs cannot overcome
information asymmetry and therefore seldom find any lender or investors, even for
potentially profitable projects. Seed Capital investment from informal private
investors may supplement the financing. In few cases financing may be
supplemented by seed financing funds and venture capitalists.
In the stage of expansion, SEMs generally require increasing amounts of equity for
maintaining Research Development and to expand marketing and^sales activities
and these amounts are raised through other sources such as initial public offerings on
stock exchanges.
Hypothesis For Policy Intervention in Support of Access to Finance
In the event of market failure there is a need for policy intervention for access to
finance for new and small innovative entrepreneur. Due to capital market
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imperfections, the profitable investments in innovative and entrepreneurial activities
are liquidity MM constrained which adversely affect Capital Market
Imperfections.
The innovative entrepreneurs face several difficulties which crop up from various A
sources. They typically lack the availability of collateral security and are involved in
innovation processes whose outcomes are uncertain. They deal with a public good
whose return on investment is not predictable and they own assets whose nature may
be intangible and difficult to evaluate. The smaller and younger the business, the
more opaque the information on its business performance and financial
consolidation will be.
POLICIES INFLUENCING ACCESS TO FINANCE IN THE CONTEXT OF
INNOVATIVE ENTREPRENEURSHIP
Policies related to access to finance in the context of innovative entrepreneurship can
be influenced by :
1. Debt Financing: Debt financing influences access to finance by guaranteeing part
of losses caused by the potential default of the borrower. Incentives for banks are
increased to promote SME lending. Access to-finance can also be influenced by
offering credit mediation to companies in case of a loan rejection. Credit mediators
bridge the gap between entrepreneurs and loan officers. This policy has been
recently experimented in France, Italy and Belgium. Subsidising loans through the
intermediation of a National Development Bank along with supporting alternative
types of debt finance, such as convertible loans and subordinated loans also
influence access to finance.
2. Venture Capital : Venture capital influences access to finance for innovative
entrepreneurship by creating public funds that directly invest in the start up firms, by
establishing public fund-of-funds that invest in private venture capital firms and by
promoting co-investment funds that use public money to match private investment.
3. Business Angels : Business Angels influence access to finance for innovative
entrepreneurship, by providing tax incentives to private individuals investing in
specified types of investments and businesses, by supporting angel association,
networks or groups, by promoting co-investment funds that use public money to
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match private investment and by offering training to investor so that they turn into
successful angel investor.
4. Private Source of Funding: Private source of funding plays an important role in
influencing access to finance for innovative entrepreneurship by setting the
framework conditions for new sources, such as crowd funding and establishing
bankruptcy regulations so that innovative entrepreneurs will be more willing to
invest in innovative businesses.
TYPES OF FUND REQUIREMKNT-As discussed previously, finance can be of
three types, iiz.. long-term, medium-term or short-term. Modern economists divide
financial requirements of business in two parts :
(i) Long-term or Fixed Capital, and
(ii) Short-term or Working Capital
We will discuss these two in detail here : Long-term or Fixed Capital
The money which is invested to acquire fixed assets is known as fixed or blocked
pital. Such capital remains in business or industry permanently and cannot be drawn
ilingly. This capital is used to purchase fixed assets. Fixed assets include land,
building, ant and machinery, patents and promotional expenses. In addition to this,
the fixed capital - also utilised for changing obsolete and old machinery, to purchase
new machinery under rxpansion programmes, extension of buildings, raising
minimum level of stock of raw material and stores, etc. The investment in such
assets is absolutely non-liquid. The sources invested in such assets remain in these
permanently. Such finance is called rmanent capital or long-term capital or fixed
capital or blocked capital.
According to Finney and Miller : "Fixed assets are assets of a relatively permanent
iture used in the operation of business and not intended for sale." Features of Fixed
Capital
(i) This capital is utilised for meeting long-term requirements.
(ii) This cannot be withdrawn from business as and when required. Need for Fixed
Capital : Fixed Capital is needed for the following :
(i) To purchase fixed assets.
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(ii) Promotional expenses, establishment expenses, expansion, extension and
development of present structure.
(hi) Renewals and renovations of fixed assets.
(iv) Research and development expenses.
(v) For fixed working capital.
(vi) Initial expenses or preliminary expenses.
Types of Fixed Capital: According to its investment in fixed assets, fixed capital is
f two types :
(i) Tangible Fixed Capital : The capital invested to purchase tangible assets like
ind, building, plant and machinery, etc.
(ii) Intangible Fixed Capital: The capital invested to acquire intangible assets like .
dwiil, patents, preliminary expenses, etc.
Factors Determining Fixed Capital Requirements: The fixed capital requirement
: an enterprise is dependent upon following factors :
1. Nature of Business : The manufacturing concerns which are capital intensive and
iblic utilities such as bridges, dams, etc., require huge amount of fixed capital. On
the
ier hand, trading concerns and concernes engaged in rendering personal services
need v small amount of fixed capital. Hence, the nature of .business is one of the
influencing :tors in fixed capital requirements.
2. Size of Business: Fixed Capital requirements in large scale units will be more
than .11 scale units. Concerns producing single product may require lesser fixed
capital than se producing more number of products.
3. Leasing Arrangement: If the fixed assets are acquired under leasing arrangement
: the fixed capital requirement will be less in comparison to those who purchase
fixed
4. Ancillary Units : If the business concern purchases some of the components from
ther units and themselves do only assembly work, then its fixed capital requirements
will
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5. Provision for Sub-Contract: An enterprise allowing others to produce essent
components for a product instead of producing all components itself and takes up
onjl assembling process will require lesser amount of fixed capital.
6. Presence of Peculiar Features : If some peculiar features like slow technology a;
changes in production process, availability of old equipments at cheaper rates, and
nioJ production capacity of old existing plants, are present in certain industries the
fixed capi J requirements are reduced to a considerable extent.
7. International Conditions : When the business is carried on international scaj
then more expansion plans are needed if the international conditions are favourable f
J sales promotion. Such programmes require more fixed capital. On the other hand,
if the-is international crisis with regard to sales, the companies have to postpone the
expansi plans and hence fixed capital requirements will be less.
8. Trends in the Economy: While determining fixed capital requirements, a
thorougl study of long run trends in the economy has to be undertaken. If the future
of economy anticipated to be bright, the entrepreneur can go ahead with expansion
programmes. The would require large amount of fixed capital.
9. Consumer's preferences : The establishment or expansion of a project is mainii
motivated by consumer's preferences. Thus, a clear analysis of consumer's
preferences J of great help in determining the fixed capital requirement of an
enterprise.
10. Production Process : If the production process is complex and the production A
to be carried on with the help of modern automatic devices, then definitely the fixed
capital requirements will be more in comparison to old and traditional techniques.
11. Over-valuation of Assets: If the promoters of the concern transfer their
propertied to the company at a high price or when other business organisation is
purchased at a highei price, then the fixed capital requirements will be more.
However, the determination of fixed capital is a function of personal judgement of
thai promotor or entrepreneur and the availability of finance. There is no precise tool
to determinJ the capital adequacy of the_ firm. Hence, the above mentioned factors
may enable tha promotor to decide about adequate amount of fixed capital to a
certain extent.
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Sources of Raising Fixed Capital: Long-term resources are needed to obtain fixe!
capital, which are :
(i) Ownership Capital
(ii) Borrowed Capital
(iii) Public Deposits
(iv) Ploughing Back of Profits
(These sources are discussed in detail in later part of this chapter)
II. Short-term or Working Capital
Meaning and Definitions : Working Capital means capital required for day-to-daJ
operations of an enterprise. Working capital is required for purchasing raw material
payment of wages, salaries, rent, advertisement expenses, etc. Such capital is
invested current assets such as cash, debtors, bills receivables, stock of goods or raw
material, Those assets change their form from time to time. Thus, working capital is
that part of assets of a concern which keep on changing their form from one to other.
But there is agreement on this definition. Some scholars view sum of current assets
as working capital while others regard it as excess of current assets over current
habilities (i.e., Workuat Capital = Current Assets - Current Liabilities
Definitions
1. "Working Capital means Current Assets." —Mead, Mellot and Field
2. "It has ordinarily been defined as excess of current assets over current liabilities."
-Gerstenberg
3. "The sum of current assets is the working capital of the business." —J. S. Mill
4. "Net working capital represents the amount of the current assets which would
remain if all the current liabilities were paid, assuming no loss or gain in converting
current assets into cash." —Kennedy and Mcmillan
Working Capital requirements will change from firm to firm and from time to time
depending upon the demand for goods. When the demand is more, larger amount of
working capital is required. Working Capital requirements are of short-term nature
and keep on fluctuating.
It is important to remember that the minimum amount of working capital is always
needed. Such part of working capital will be fixed capital.
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(i) Working capital keeps on changing its form.
(ii) It can be easily convertible into cash and that cash can again be convertible into
assets.
(iii) Requirements of working capital keeps on changing in different times and
situations.
(iv) Need for working capital is sometimes fixed and sometimes temporary. But
some amount, of working capital is always required.
Importance and Necessity of Working Capital : Business cannot run just by
arranging capital for fixed assets but arranging capital for current assets is also
important for the progress of the concern. Capital is required for purchase of raw
material, converting the raw material into finished products, selling and marketing
the finished product and selling goods on credit to customers. Thus, working capital
fulfils following needs :
(i) Purchase of raw material or for financing the purchase.
(ii) All processes involved in converting raw material into finished product, (i.e.,
wages, fuel and power, water and daily production expenses).
(hi) Arranging for sales or financial requirements for credit sale.
(iv) Meeting other expenses of office.
(v) To keep the concern a going concern.
Types of Working Capital : Working Capital can be divided on two bases :
(a) On the basis of concepts
(b) On the basis of necessities
(a) On the Basis of Concepts : On the basis of concepts working capital is divided
into two parts :
(i) Gross Working Capital: Gross Working Capital means sum of all current assets.
Current assets include Cash in hand and at bank, Sundry Debtors, Stock, Bills
Receivable, Prepaid expenses, Short-term investments, etc.
(ii) Net Working Capital : The excess of current assets over current liabilities is
known as Net Working Capital.
Mathematically,
Net Working Capital = Current Assets - Current Liabilities
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(b) On the Basis of Necessities : Working capital can be divided into two parts : (i)
Fixed or Regular Working Capital: That part of working capital which always
: mains invested in current assets for normal working of the enterprise. For example,
Minimum stock level, minimum finished stock level, minimum cash in hand or at
bank.
(ii) Variable or Seasonal Working Capital: That working capital which is required
to purchase more raw material and components depending upon seasonal variations
is called variable or seasonal working capital, e.g., demand for certain products is
more in festival season. So to meet that demand more raw material is needed to
produce more.
Factors Determining Working Capital Requirements : Requirement of working
capital depends upon a number of factors, such as proportion of cost of raw material,
labour cost, length of period of manufacture, nature of industry, etc. These factors
differ from industry to industry and firm to firm in the same industry. Following are
the important factors on which working capital requirements depend .
1. Proportion of Cost of Raw Material : Larger the proportion of cost of raw
materials in the total cost of production, the larger will be working capital
requirement. For example, in jewellery manufacturing industry, large amount of
working capital which has to be invested in the purchase of gold as compared to
manufacture of cold drinks where the cost of raw material will be very less.
2. Cost of Labour : In case of labour intensive process of production large number
of workers will be required. Hence a large amount of working capital will be needed
to pay wages to the workers. On the other hand in capital intensive industries more
fixed capital is needed in comparison to working capital.
3. Length of Manufacture : Longer the time for manufacture of goods the larger
will be working capital requirement, becasue capital will remain invested till the
goods are ready for sale. For example, in a ship building industry it takes a long time
(3 to 5 years) to build a ship. The working capital remains blocked during the period
of manufacture. On the contrary, in case of bakery industry the products are ready
overnight and sold next day. Hence, a small amount of working capital will be
needed in this case.
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4. Sales Turnover : Sales turnover means the speed with which goods produced are
sold. Larger the sales turnover, the larger will be the speed of recovery of working
capital invested in the production of goods. As in example of jewellery manufacture,
the jewellery may remain in show case before it attracts the prospective customer.
As such the working capital will remain blocked in the stock of jewellery. On the
other hand, in case of bakery, the bread will be sold in a day or two. Hence, a small
amount of working capital will be required.
5. Terms of Purchase and Sales : If the terms of purchase and sales are favourable
lesser amount of working capital is needed and vice versa. In case the purchases are
on credit and sales are on cash, the payment for purchases can be made when goods
are sold. In such case no or very little working capital will be required. But on the
other hand, if the conditions are reverse i.e., purchases are on cash and sales are on
credit, double amount of working capital will be required—first, to purchase goods
or raw material and second, to give credit to the buyer. In this cases, the entire
working capital will be blocked till the amount of sales is realised.
6. Cash Requirements : If the cash needed for every day operations is large, the
larger will be the working capital. A concern requiring large cash for payment of
salaries, wages, rent, taxes, advertisement, etc., will require more working capital
and vice versa.
7. Seasonal Variation : In case of seasonal industries, such as woollen garments or
sugar industries the main production takes place in a particular season. In such
industries, working capital requirement will be more in the season of production and
little or less in off seasons.
8. Tax Liability : Concerns having high tax liability will have to make provisions
for taxation and hence working capital requirements will be more.
9. Volume of Purchase : If the raw material is purchased in advance for the whole
year, more working capital wil be needed but if it is purchased from time to time as
per requirements, lesser amount of working capital will be needed.
10. Rate of Development of Business: If the rate of development of business is
slow, more working capital will be required to make it faster and vice versa.
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11. Business Cycles : Working capital requirements are also affected by business
cycles. In normal situations less working capital is sufficient to meet business
requirements. During general prospering condition (boom) the price of raw material
increases in companies to prices of finished product and thus business requires more
working capital to purchase raw material but at the time of depression business
activity slews down and prices of raw material falls hence less amount is needed as
working capital.
12. Dividend Policy : Dividend policy of a concern is also an important factor in
determining working capital requirements. If a large part of dividend is given in cash
to the shareholders more working capital is required. On the other hand, if the
dividend is given in the form of bonus instead of cash, working capital requirements
will be less.
Sources of Working Capital : Following are the main sources of working capital:
(i) Shares, (ii) Debentures, (hi) Short-term loans from financial institution, (iv)
Ploughing back of profits, (v) Public Deposits, (vi) Loans from banks.
(Sources of working capital are discussed later in this chapter) SOURCES OF
RAISING FUNDS/FINANCE In a business enterprise there are mainly two sources
of raising funds:
1. Owned Capital : Owned capital means capital contributed by owners or share-
holders and the ploughing back of profits. This is a permanent source of finance for
a company. It provides risk capital to a business. Such capital is raised to meet long-
term requirements of a business. Following are its main sources :
(i) By Issue of Shares
(ii) Ploughing Back of Profits.
2. Borrowed Capital: Capital raised by issue of debentures and by raising long-term
and short-term loans is known as borrowed capital. This is a temproary source of
finance for a business. Interest is paid on such capital at regular intervals. Those who
provide loans
finance, do not have any control over the business. Its main sources are :
(i) Issue of Debentures
(ii) Public Deposits and Loans (hi) Loans from Banks
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(iv) Loans from Specialised Financial Institutions
(v) Loan from Investment Institutions.
Issue of Shares : The Capital of the company is divided in units or parts of small :
nomination, each such part is known as share. For example, if the capital of the
company ? 10 lakh divided into 10,000 shares, the value of each share will be ? 100.
According to Companies Act, 1956, Sec 2 (46), "Share means share in the share
mpital of the company and includes stock, except where distinction between share
and stock expressed or implied."
In the words of Lord Lindley, "The proportion of capital to which each member is
''itled is the share."
A company can issue different types of shares to attract different type of investors, -
e may be (i) Equity Shares, and (ii) Preference Shares.
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SBPD Publications Entrepreneurship
(i) Equity Shares : The Company Act has negatively defined an equity share.
Accordingly, a share which is not a preference share is called equity- share. A
preference share is defined as share which has preferential rights :
(i) as to the payment of dividend in preference to other shareholders.
(ii) as to the return of capital in preference to other shareholders in case of winding
Up of the company.
Equity share is also known as ordinary share. Equity shareholders enjoy voting
rights and are the real owners of the company and the entire management vests in
them. They can get unlimited dividend in case company earns a good amount of
profits. However, they bear the risk of even loosing capital in case the company is
unable to earn profits. They also enjoy the benefit of capital appreciation as the
value of share goes on increasing with increasing dividend. In case the company is
not in a position to pay good dividend the value of equity shares may fall below their
face value. Due to the risky nature, equity shares capital is also known as/Risk
Capital' or 'Venture Capital.'
Merits of Equity Share Capital :
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(i) It provides Jong-term capital which-is repayable only when the company goes
into liquidation.
(ii) It provides 'risk capital' or 'venture capital.'
(iii) It does not impose any burden on the company as it is not obligatory to pay
dividend.
(iv) It does not create any charge on assets of the company. As such the company
can raise loans on the security of its assets.
(v) The company who has sufficient equity capital can get loans easily.
Dermerits of Equity Shares :
(i) It may lead to over-capitalisation as surplus funds cannot be returned. In such
cases these funds may remain idle or under-utilised in the absence of investment
opportunities.
(ii) It may lead to speculation and inside trading in the shares of the company.
(iii) Equity shareholders may adopt questionable means to gain control of
management of the company.
(iv) In case only equity shares are issued, the company may not be in a position to
take the advantage of trading on equity, i.e., it cannot raise the rate of dividend on
equity shares by issuing interest bearing securities.
(v) Cost of raising capital by issuing equity shares is higher than rasing funds
through preference shares, debentures, etc.
(ii) Preference Shares: Preference shares are those shares, which have preferential
rights :
(i) regarding payment of dividend in preference to other shareholders, and
(ii) regarding return of capital in preference to other shareholders in case company
goes into liquidation.
The rate of dividend on preference shares is fixed. However participating preference
shares have a further right to dividend after dividend at a certain rate has been paid
to the equity shareholders. They do not have voting rights u
(i) their dividends are in arrear, or
(ii) their interests are affected.
MARKET ASSISTANCE FOR INNOVATIVE ENTREPRENEURSHIP
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Market development plays a major role for innovative entrepreneurship because
market : pportunities ultimately determine the conditions that lead to success or
failure of businesses.
Innovation can be fostered by competition by giving firms an incentive to be more
effective. Barriers to market entry are the major hurdles for innovative
entrepreneurs. Moreover, accessibility to domestic and foreign markets can facilitate
the acquisition of foreign technologies which will lead to the expansion of markets
of the enterprises and also I contribute to improved knowledge spillovers.
Competition would not benefit innovation if the innovators fail to recover the costs
of I *.heir investments in innovation.
In innovative entrepreneurship, markets for technology also play a critical role as
they I allow new ventures to get access to technologies that might be too time
consuming and too I expensive.
It is generally observed that smaller innovative companies have fewer internal
capabilities to develop in-house technologies and depend more on external linkages.
Therefore market for technology might be of highest value for smaller innovative
companies.
Public procurement can be particularly influential if set up specifically to support
innovative entrepreneurs. However the impact of competition on innovative
entrepreneurship is unclear. There is still a lack of consensus on the import of
competition on innovation. POLICIES INFLUENCING MARKET
DEVELOPMENT AND ACCESS IN THE CONTEXT OF INNOVATIVE
ENTREPRENEURSHIP
1. State of Competition : State of competition influences market development and
Its accessibility in the context of innovative entrepreneurship by assessing the direct
and linintended impacts of rules, regulations and policies on competition. It also
influences fcarket development by enabling businesses to benefit from their
innovation through an
APPROPRIATE intellectual property right system and by further improving the
competition policy framework through network policies.
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2. Access to Foreign and Domestic Markets : Access to foreign and domestic tr
arkets can be influenced by providing targetted support programmes to selected
innovative
I businesses and by reducing tariff and non-tariff barriers to provide domestic firms
with Ipsier access to foreign advanced technologies and knowledge. Providing
incentives to Ktract foreign firms R & U and innovation and encouraging knowledge
spillover also ^tfluence market development in the context of innovative
entrepreneurship.
3. Public Procurement for Innovation: Public procurement for innovation
influences parket development in the context to innovative entrepreneurship by
developing expertise ptnpetencies within the public administration to design and
monitor innovation. Oriented
pr-uirement, evaluating effectively the effects of public procurement on innovation
and pducing barriers for SMEs in assessing public procurement.
4. Markets for Technology : Markets for Technology influence the development of
crarket by raising companies awareness about strategic opportunities offered by
markets
■ - technology and establishing standard and transparent methods for valuing
patents. The fcoport of trading mechanism that facilitates the match between supply
and demand for hnologies such as licensing markets and patent auction houses also
influence the market ^pvelopment in the context of innovative entrepreneurship.
MARKET ASSESSMENT The demand of products or services and the supply,
apart from such factors, depends m-- various other factors, e.g. .quality of product,
source of supply and tools of distribution. While assessing a market an entrepreneur
must take care of the following things :
(1) Demand : The estimate of the demand must be determined after the produr.
identification. While forming an estimate of the demand, the size of the market or
the area should be taken care of in which the product is to be sold. The merchandise,
whether tc be sold in the local market or in the national or international market,
which is worth-considering. Not only this, but this is also to be considered the
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identity of prospective buyers, their preference and interests and also with regard to
the variables.
(2) Supply and Competition : The aspect of supply of the merchandise is of a
paramount importance at the time of market-assessment. Supply refers to the
replenishmen: of the goods from all resources. Even the imminent supply of goods
and its resources shoulc also be taken care of. If the demand of a product is seasonal
its production should be monitored accordingly. The consideration of demand and
supply should always be kept in mind. Generally, there is always a competition in
terms of supply of almost of all the products, but a docile entrepreneur is supposed
to be watchful and efficient in ensuring the supply of his goods, in having the
demand increased and also in streamlining the financial status and all these factors
ought to be taken care of.
(3) Cost and Price of the Product : As already indicated that in determining the
identity of a product, its cost is a major factor. On the basis of the cost of a product
the price is determined and this factor must be viewed in wake of the prices of other
competitive products.
(4) Project Innovation and Change : To facilitate the process of market analysis it
becomes essential to look for innovative changes and to study the scope which is the
job of an entrepreneur. It is also imperative to understand the technical advantages of
such innovative change and its impact on the product reliability cost and its price.
Factors Affecting Market Assessment
The exterior environment of a company can be categorised as follows :
(1) Micro Environment: It refers to the strength of a company's product which can
influence its customers. Though these strengths are external yet do affect the
marketing strategy of a company. These peculiarities include the suppliers and the
mode of supply, competitors, consumers and the public etc. Generally, these factors
are uncontrollable but as compared to the macro factors, these micro, ones are more
effective.
(2) Suppliers: In order to strengthen the products or the services and their rendering,
a company has to look upon various aspects. The suppliers of the goods or the
services are known as the Kelson of the company who are directly responsible for
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the success and failure. The marketing people or representatives are not related to
the suppliers. However, during the shortage of the goods worries them too. The
success of the marketing system is attributed to adequate availability and good
quality of the merchandise. More the supply more the reliability. There the supply
can affect the marketing strategy. The marketing personnel must take care of the
goods availability. The goods inadequacy or the delayed supply can jeopardise the
sales which can result in the damage to the company's reputation The marketing
managers should also he vigilant with regard to the prices of the supplier-The best
suppliers must be prioritised.
(3) Marketing Intermediaries : They are the people or an organisation which a:
independent who can help a company, enhance its 1 ng a direct senic to the company
and also ensure a quick supply to the consumers. These intermediaries an of two
kinds : (i). Wholesalers and (ii) Retailers. Both these intermediaries always assist the
company in increasing its sales and finding new clientele. Sometimes these
intermediaries are also called re-salers.
(4) Competitors: In the true marketing sense a successful company should be
customer-oriented. It should ever be an endeavour to be considerate to the
customer's aspirations and their needs and provide better than its competitors. At
times the company's decisions not only influence the customers rather affect the
competitor's strategies also. As a result, the marketing forces keeping into account
the competitive climate, the durability and reliability of the products, marketing
channels and prices etc., in terms of managing the strategy.
Sellers may face the following three competitive situations :
(a) Substitute Product : Such a competition takes place only when a product gets
replaced by an another product. For instance, in case of transportation, goods-train
has a competition with road or air transportation when the price of a particular
product is increased, the prices of all other rival products also look up.
(b) Similar Product : When various competitors have the similar products, as in
electrical appliances i.e., BPL, Onida, Voltas and Soni etc., the manifestation of the
competition is obviously seen.
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(c) Purchases of Customers : The identical competition is found in all kinds of
organisations. Each company does face more or less competitions e.g., like Amitabh
Bacchan's dining in some hotel or going on a trip to some zoo.
Market competition is a symbol of success or failure of a product. The marketing
people must remain vigilant to the competitor's strategy. When new products are
introduced to the market their popularity, demand and prices remain low and as
such, the competitive strategy should be formulated accordingly. All the rivals must
explore their own strategies which differ from one company to the other. The large
companies resort to different kinds of strategy and take into account the following
factors while determining their modus operandi : (i) Strategy of a company and its
potential in terms of financial resources, objectives and profitability, (ii) Division of
limited resources on the basis of opportunities, (hi) The marketing personnels have
to take some of the important decisions, e.g., product, price, distribution and sales
price as a result, a company can assert its supremacy over its rival companies.
(5) Customer : Each company has to categorise its customers into following five
groups :
(a) Consumer Markets: are those customers who buy the products for their
personal use.
(b) Industrial Markets : refer to those organisations which buy the products or the
services for using them in their production processes in future and not for the
present.
(c) Government Markets : This category includes the government offices and those
agencies who sell the merchandise to those who need them after purchasing.
(d) Re-seller Markets : This category consists of those people who first buy the
merchandise or only to sell them for earning profit. They can be either wholesalers
or retailers.
(e) International Market : Even the individuals or the organisations can also be
customers and such buyers are settled abroad out of which consumers, producers, re-
sellers or the government can also be the buyers.
(6) Public : Public implies a community of the people whose present and future
depends on the existence of a company who buy its products to sell and thus, extend
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all the assistance to the company. According to Kotler and Armstrong, there are five
categories of public which are as follows :
(a) Financial Public : This category includes banks, investment agencies and such
agents who become the financial resources of a company
(b) Media Public : These are the people who manage to promote the news through
media, newspapers, magazines, radio, T.V. etc. are included in this category.
(c) Government Public : A company must concentrate on the government policies.
The marketing team should remain in contact with the legal experts at times only to
ensure the safety of the merchandise, safety of advertisements and in other matters
also.
(d) Citizen Action Public: The marketing decisions of the company are
communicated to the consumer federation or the minority groups and this job of
connecting public to the company is performed by the company's public department.
(e) Local Public: Each company is in contact with the local public as neighbours
and relatives and social organisations etc.
MARKETING ENVIRONMENT Meaning and Definitions
Generally, the market activities are carried on in a particular environment. While
performing such activities, it becomes very important to conduct a research on
market environment. Marketing mixing also requires a specific environment. All the
factors of market environment are inadequate for market management. After a very
careful study of the market environment market strategy should be formulated.
Market process gets affected by various factors prevalent in very organisations
which can be termed as controllable and uncontrollable factors and that immensely
influence the business. The marketing department must act within the purview of
such factors.
Here are some of the important definitions of the market environment :
(1) "A company's marketing environment consists of the factors and forces outside
marketing that affect marketing management's ability to develop and maintain
successful transactions with its target customers." -Kotler and Armstrong
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(2) "Marketing environment in which is external to the marketing management
function, largely uncontrollable, potentially relevant to marketing decision-making
and changing and constraining in nature" . -Cravens and Others
Conclusion : By marketing environment we mean the factors and forces of
marketing working outside and affect marketing management's ability to develop
and maintain successful transactions with its target customers. _
DEMAND FORECASTING
Prior to understanding 'What is Demand Forecasting ?' it is important to know about
demand. Generally, it is the public desire to buy a product or services and its
capacity to buy, can be termed as 'demand'. In other words, when a customer is
prepared to buy some product/services, he is anxious to buy it at any cost, it can be
said that the product is in demand. When we have this definition in mind, all the
prospective customers who have desire and potential to buy a merchandise/services
it is called a 'total market'. It is agreeable and admissible that each unit has its own
area of operation the demand is defined. On the basis of this fact, Phillip Kotler has
clearly defined Demand Forecasting which goes as, "Market demand for a product is
the total volumes that would be bought by n defined customer group in a defined
geographical area in a defined time period in a defiiud marketing environment
under a defined marketing programme."
If we evaluate the above given definition, the total quantity, the customer
community the geographical area, time limit and the marketing climate, etc. are the
subjects of study prior to determining the demand forecast and this is known as
'Demand Forecasting', and this type of analysis or presumption which is very
essential for a company to enable it to ensure production in time and the various
resources of production i.e.. raw material, tools and machinery, labour and building,
etc., can be well supervised in advance. The demand forecasting is always helpful in
forming an estimate with regard to the demand and to plan the strategy accordingly.
In fact, demand forecasting also helps in planning the strategy. It also helps the
management in lessening its dependance on opportunities. From the industrial point
of view, the demand forecasting is widely prevalent in the developed countries
where the terms of demand are uncertain than terms of supply, whereas in
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developing countries the situation is the other way round. In these countries the
exorbitant prices and the black marketing adversely affect the supply. In the country
like India where the supply forecast is more important than the demand-forecast but
due to the concession in the industrial sector and the liberalisation, the conditions are
also changing here. In such areas where the investment is an intense factor but in
other areas the competition is widespread. In such areas supply always exceeds the
demand as a result the producers in order to establish their markets continue to
remain engaged in the industrial battle. Therefore, in India, the importance of the
demand-forecasting is getting prominence.
Factors involved in Demand Forecasting
The following six factors are attributed to demand forecasting :
(1) Length of Forecasting : It is further split into the following sub-factors :
(a) Short-term Forecasting : The maximum span in short-term forecasting is 12
months, which is considered adequate for determining the sales volume, inventory
control, production level, budgeting and the capital flow, etc.
(b) Medium-term Forecasting : The span in this regard ranges from one to two years
for ensuring discipline-level, operational level and the budgetary control over the
expenditure, etc.
(c) Long-term Forecasting : These long-term forecasts vary from three years to ten
years are considered to be adequate for capital investment-expenditure, employment
requirements, financial needs, needs of the raw material and research and
development in terms of their size and areas, etc. However longer the span more the
uncertainties.
(2) Levels of Forecasting : Levels of forecasting can be adopted at three levels :
(a) Micro-level Forecasting: It is related to all the business conditions in the
economic-management which is strictly in accordance with the determined standards
of industrial production and national income and expenditure.
(b) Firm-level Forecasting: It is the most significant from the management's point of
view.
(c) Industry-level Forecasting : It is determined and established by various
federations.
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(3) Classification of Products fit is essential to classify the products as the
productive and the consumerable items. An economic survey or analysis determines
their demands separately which itself is an indication of their respective demands.
(4) General or Specific Forecasts : Should a forecast be uniform and accurate and
precise? One firm can find it useful but on the basis of objective forecast or sales
area forecast it can be separately determined.
(5) Problems and Methods of Forecasting : Problems and methods of forecasting are
different in case of old and new products. The sales trend of the old and the existing
products is already known but in case of the new products the trend of the sales can
be ascertained on the basis of certain factors.
(6) Special Factors : To conclude while forecasting the demand and sales of all the
products/services the peculiarities- of the each market must be carefully taken into
consideration. The nature of competition, the complexity of the uncertain
environment,
incalculable risk, the oral In the female-related pre
Joel Dean h .
(i) To form an eatai
ting, etc., are the factors worth-considering, ors are of utmost importance.
G FOR NEW PRODUCTS
(i) On the demand forecasting for new products: lucts against the demand of the
existing and
(ii) To make aa analysis of the new product in terms of its demand in parallel to the
existing product.'services in form of a substitute,
(iii) On the basis of the uplooking trend of the existing product a forecast for the new
product can be determined.
(iv) On the basis of sales and type of the product and obtaining informations from
the buyers, the demand forecast can be determined.
(v) To launch a new product for sale through the multi-shop complexes; and the
postal-trade system a demand forecast can be determined in addition to floating the
product in the multi-variety market.
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(vi) To make a survey of the newly launched products through the company's sales
representative and with their help the reaction and response of the consumers is to be
ascertained and the company's representatives after exploring the consumer's needs
and preferences can give the useful informations to the company to help it determine
the demand forecastfor the newly-launched products.
MARKETING CONCEPT Meaning : Broadly speaking by 'Marketing Concept'
we mean the sale and purchase
of a product which bears the stamp of the authority and also in terms of price-fixing
of the commodities but the term 'Marketing' is so vast that starts right from
imagining about the process of production and continues even after the sales and this
phenomenon is an unending one which takes place even prior to research work,
product planning, determining of the prices, determining of the modes of marketing
communication and product distribution system, service-after-sales and obtaining
relevant information are the activities which are incorporated into Marketing.
Therefore, the marketing activities ever -concept can be divided
Service after sales
Consumer Research
Product Planninf
Marketing Communication
Price-Fixing
Deciding upon Mode of Distribution
Marketing Cycle
remain in force which keep revolving around one another. Marke into two categories
: (1) Traditional or Old Concept of Marketir Marketing.
(I) Traditional or Old Concept of Marketing : The
believe in traditional marketing concepts :
1. According to Prof. Pylle, "Marketing includes both sal
2. In the opinion of Edward and David, "Marketing is an help of which the
products or services are exchanged and also th
3. As per the opinion of Converse, Huegy and Mitchell. - of Economics in which
the creation of the location, time and the i for creating clientele."
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_ New Concept of given by those who purchase activities." manic process with the
prices are determined." beting is that constituent fry of rights are studied
Conclusion : All the above-cited definitions articulated the traditional marketing
concept because :
(1) It refers only to sale and purchase whereas, in fact, the process of marketing
begins prior to production which is ensured in accordance with the desires and
demand of the consumers.
(2) After the sales of the merchandise no job is done whereas in order to satisfy and
please the customers there is a provision of service-after-sale e.g., assuring
guarantee, repair-facility and exchange facility in case of a product-disapproval etc.
(3) As per the traditional market concept, the consumer's preferences are not worth-
considering but more emphasis is laid down on the production, irrespective of the
fact whether or not the customers get satisfied. All such definitions are the product-
oriented.
(4) In the traditional marketing concept the consumer welfare and social
responsibilities are violated, whereas today more emphasis is accorded to consumer
welfare, benefits and satisfaction.
(II) New Concept of Marketing : New Concept of Marketing goes as follows :
(1) According to Prof. Paul Mazaur, "Marketingprovides the society a life-
standard."
(2) Prof. McCarthy opines, "The need of Organising the product planning in
conformity with the consumer's aspirations and the response of the traders on this
account, is called 'Marketing'."
(3) In the opinion of Prof. Stanton, "Marketing refers to the overall system of
mutual business activities which could provide a sense of satisfaction to the
consumers by answering their expectations and needs from the products/services,
planning on the subject of commoditie I services, price fixing, changes to be brought
about, etc., for fostering the marketing."
(4) As stated by Cundiff, Still and Govoni, "Marketing is an activity of the
management which ensures production in view of the market demand and is
approved of by the authority I owners."
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Conclusion : All the above-given definitions envisage the new marketing concept
for tne following reasons :
(1) Accordingly, the maximum attention is accorded to the customer-satisfaction in
absence of which the chances of profitability are bleak and moreover no longer can
the business survive.
(2) New-marketing concept envisages a provision of raising the life-style and once
this level is maintained, it must not see decline from that point.
(3) The production of merchandise here is subjected to the consumer's expectations
and aspirations.
(4) All the activities prior even to production, are incorporated into the term
'Marketing' which continue even after the sales targets are accomplished.
(5) The business is accountable to customer's welfare and social liabilities, which are
of the paramount importance.
Therefore, an inference is arrived at that the implications of'Marketing' are
multipronged which start from the process of production to consumption taking the
consumers expectations into consideration and raising the public standard of living
etc. and earn proper profit.
NATURE AND SCOPE OF MARKETING
All the activities conducted by an entrepreneur right from the production stage unto
the consumer, fall under the nature and scope of marketing.
Prior to the operation of production, an entrepreneur tries to ascertain the
preferences of the consumer in terms of design, colour, shape or size, its price-range,
its weight and measurement and its packing etc. Then follows the production. The
price is determined. Till the time it reaches the customer the distribution system is
decided upon and in order to acquaint the consumer to the merchandise
advertisement and other sales promotion activities are taken up for consideration and
after the sales, the service-after-sale is introduced. As such, the marketing operation
never comes to an end. The Nature and Scope of Marketing is explained as
following :
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(1) Product-Planning : The producer decides, at the time of product planning in
terms of the shape, colour, size, design, packaging, price, the scope of production,
label, trademark and brand etc.
(2) Determination of Distribution Channels : The producer, on the basis of his
financial potential, determines the mode of distribution and the nature of
merchandise also affects the mode of distribution. He has also to take decision while
appointing wholesalers, retailers, company's representatives, travelling sales persons,
etc., and also the rate of remuneration and other facilities.
TECHNOLOGY FOR INNOVATIVE ENTREPRENEURSHIP I. Choice of
Technology
The success of any enterprise.is attributed to its chosen production technology and
used process. Every enterprise exploits the technology to transform its input into
output. In order to achieve its objectives, he gathers the entire paraphernalia in terms
of equipments, technical and mechanical know-how and the experienced team
members and involve them into a kind of structure or some framework for some
operational activities. As such, an entrepreneur has to choose technique and a
process which is a significant task. It is expected of an entrepreneur to take this
decision prior to the actual production process. By taking a prior decision in terms of
production technique and process, he must study the some aspects with regard to the
production of various merchandise and the technical changes taking place in the
market and on the basis of such observations he should determine his strategies with
regard to the production techniques. This would help the entrepreneur in reducing
the production cost and improve upon capacity to combat competition. Choice of
technology becomes very important for a quick development of the business.
Therefore, an entrepreneur must be exceedingly careful in his decision with regard
to the choice of technology. In fact, it is technology that predominates in
accelerating the rate of development, investment structure, cost factor and the nature
of price, etc. If the entrepreneur's choice falters somehow, in that case not only
planning gets jeopardised rather a mistrust towards the planning would create. As
such the impetus of the economic growth and the progress of the enterprise, all
depends on the choice of technology. Oftenly, in a developing nation there are
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abundant human resources but the capital sources are limited or lacking. In that case,
the rate of economic growth becomes a challenge to be streamlined that gives way to
the question how to. accelerate the rate of development. There are several
alternatives in this regard-first, labour-intensive or capital-intensive techniques and
their choice, agriculture and industry, light and heavy industry, etc. Eventually the
decision in terms of labour-oriented or capital- oriented and with an intent to
escalate the growth, need to be taken. Even, in that case, in the developing nations
such a technique is to be used in which the human resources and the physical ones
be exploited to the optimum level. Besides in the form of a solution to this problem
optimum production at the minimum of cost need to be ensured. On the contrary, the
developed nations would evolve such a technique by which the available capital and
the physical resources are to be utilised to the optimum level because the human
resources or the strength remains in wanting.
It becomes evident here that where there is the want of capital as compared to the
labour, in that case labour-intensive technique tends to be more important and in
case of the sufficient capital with lesser labour-capital-intensive technique is more
preferable.
II. Concept of Technology
Technology implies change of its sources-skill, tactfulness, equipment into
production by organisation. According to Galbraith, "Technology is used for
accomplishing the business activities by exploiting the scientific methods and other
organising skill and for acquiring this knowledge, can be defined in this way."
According to the aforesaid definition it can be inferred that technology is a method
to be used for concluding an activity and solving the problems in relation to the
products or sendees. Technology is related to the product design, techniques, quality
assured products, human resources development, management strategies and such
relevant elements.
III. Need for Technology
Technology is essential due to the following reasons :
(1) The technological standard is essential for being an indicator of the national
economic growth.
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(2) With the help of technology an improvement can be brought about in terms of
labour, capital and other factors with regard to the production.
(3) Technology is also imperative for economic growth and its technical
specification.
(4) Technology is an integral source or a means of bringing about innovation for
changing the production to consolidate the captial and to upgrade the machinery and
infrastructure.
(5) It is instrumental in obtaining and exploiting the natural resources for the
purpose of their optimum utility.
(6) By means of technology, new skills, new sources of production, and methods,
novel and the latest uses of the raw material and the adequate use and new
experimental devices of machines and equipments can be acquired.
(7) Technology enables us to strengthen the manpower and its coordinate use with
the natural and geographical resources.
IV. Types of Techniques
Generally, these techniques involve two categories :
(I) Labour-intensive Technique, (II) Capital-intensive Technique.
(I) Labour-intensive Technique: It refers to the sufficient amount of labour and the
meagre amount of capital to be exploited. As per Prof. Myint, "Labour-intensive
techniques are those where there is more demand of labour against one unit of the
capital." It regards both the human skill and capital availability equally significant.
Advantages of Labour-intensive Technique : Following are the main advantages
of this technique :
(1) Decentralised Production System : By means of the labour-intensive technique
the medium scale enterprises are encouraged by efficiently controlling the
shortcomings of the production factors. This system ensures the society to move
ahead towards the decentralised economic system where the social justice is the
main objective of the governance.
(2) Creation of Economic and Social Endowment : With the help of it a lesser
expenditure is to be incurred on economic and social problems. The labour-intensive
industry oftenly exists in villages and rural areas which involve a less expenditure on
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roads, transportation, social amenities, labour colonies and the basic privileges or
amenities. Thus, the money saved in this way is invested on additional development.
(3) Increase in Employment Opportunities : The developing nations continue to
encounter the menace of the human strength and the want of capital. There always
exists
the lesser finance-labour ratio. Under such circumstance, they ought to give priority
to the labour-strength and by saving finances they should invest on more profitable
investment. As such the labour-intensive technique would give rise to the
employment opportunities.
(4) Higher Level of Production : The labour-intensive techniques ensure a high level
of production by exploiting the indigeneous sources since the labour is available at a
lesser cost. Therefore, the production cost per unit is less. In fact, in the developing
economic conditions as in India, social value of labour is relatively lower than that
of the capital and this is the right utility of the available sources in the country.
(5) Effective Utilization of Capital : In the developing economy the capital is a
meagre resource. By labour-intensive techniques the meagre capital resources can be
earmarked for other uses. The consumer product enterprises can make an optimum
use of the human potential and thus, by saving the capital sources, they can divert
this finance on other profitable activities.
(6) Distribution of Income : It helps raising the level of income of the low income
group of the workers, more than it is expected, and by means of it a large group of
workers happen to get employment by virtue of social welfare.
(7) Saving of Foreign Exchange : The local and indigenous sources are exploited in
this technique. There may not be required any foreign equipment and machine. The
rural industrial units use the ordinary equipments and machines which are easily
available in the country.
Limitations of Labour-intensive Technique : The various limitations of labour-
intensive technique are as follows :
(1) The expansion or growth of the capital is limited.
(2) They are fixed but ephemeral by nature.
(3) These techniques are inadequate for development of human skill.
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(II) Capital-intensive Technique : It may be defined as the technique wherein the
desired and maximum capital is used but the amount or force of labour is meagre. In
this technique there is more capital involved in proportion to production per unit.
Wheras in labour-intensive technique it is other way round. As such in capital-
intensive technique more emphasis is laid on technical and mechanical production.
Advantages of Capital-intensive Technique: Following are the advantages of this
technique :
(1) Latest Production System : This technique is a source of encouragement to the
latest production system that ensures the optimum production at lower cost. The
material is available at lesser cost for society.
(2) Rapid Economic Development: It ensures an optimum amount of profit to the
entrepreneurs and their saving capacity gets consolidated. More profitability implies
more investment and economic growth.
(3) Higher Level of Production : It enhances labour productivity. According to Prof.
Hervman, "Capital-intensive technique enhances the labour efficiency' and skill. The
improving labour productivity is a testimony of economic growth because it
facilitates the feasibility of the higher rate of capital formation."
(4) Strategic Effect: The capital-intensive techniques have a tremendous impact on
the process of ecomomic development. Prof. Herman states that, "When the
government happens to instal a hydro-electric power station or a steel plant mi
investment it can start several labour-intensive projects yet it cor it till completion."
(5) Increase in Employment Opportunities : Higher the development rate, more
are the employment opportunities. The importance of the adequacy of manual or
manpower in the long term is a temporary condition. The capital-intensive technique
leads to the development of the industrial infrastructure and the industrial growth
which requires a maximum manpower. As per Prof. Baran, "The planning authority
should understand that prior to the middle of the life span of a project, the need of
the manpower tends to be a weaker factor against expectation." Therefore the
capital-intensive techniques offer to the society greater employment opportunities.
Limitations of Capital-intensive Technique : The various limitations of capital-
intensive technique are as follows :
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(1) Due to this technique the society is divided into two categories : haves and have
nots.
(2) This technique involves a great deal of financial investment which is beyond the
capacity of the developing countries.
(3) It tends to exploit both the manpower and the consumers.
(4) It tends to ignore the balanced development of the region.
(5) It tends to encourage the adverse use of capital sources.
V. Types of Production Techniques
Following are the categorised techniques of production, according to Wood Ward :
(1) Mass Production and Large Batch Technology : Under this technology, there
involves a mass production. This technology fs used in manufacturing the vehicles
by Maruti Udyog Ltd. and the Suzuki Motor Cars.
(2) Unit or Small Batch Technology : Under this technology the production is
initiated on the consumer's demand or the manufacturing/production is undertaken
by the experts technicians in limited quantity. By using this technique the Hindustan
Aeronautics Ltd. that manufactures helicopters for the government and the Diesel
Locomotive Works that manufactures the diesel engines for the Indian Railways and
railworks of other countries also.
(3) Continuous Flow Process Technology : According to this technology the
production undergoes a continuous flow process. This is a complex technology. This
process helps in manufacturing medicines like chemicals and the purification
process is undertaken by various companies.
VI. Factors Determining the Choice of Techniques
Following are these factors for the choice of techniques :
(1) Existing Technological Level: Technique development process is a slow
moving process. Instant change is not a source of an effective development. In the
initial stages lesser-capital-techniques should be exploited and gradually the more
capital-investment techniques should be used. If any country happens to acquire the
high level of technology, it should exploit the higher capital-intensive techniques.
(2) Institutional Arrangement: The thoughts and ideological aspects of the masses,
social conditions, qualification and skills are taken into due consideration by the
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social and economic institutions and organisations and these have a tremendous fall-
out on the technological level of the country. For improvement and reformation the
changes become essential for which a congenial environment and the social
psychology essentially need to be changed. The technological reforms are initiated
in conformity with the social, organisational and developmental measures.
(3) Government Policy : Choice of techniques more or less gets influenced by the
government policy. If the government is not in favourof foreign aid, and wants to
encourage the indigenous employment opportunities in that case the labour-intensive
techniques be used. On the contrary, if the government wants to ensure the
maximum production at the minimum of cost, it should resort to capital-intensive
technology and should also encourage this technology.
(4) Technological Capability : For a developing country like India according to its
major requirements, an adequate technological base should be evolved. Prof. Vakil
and Brahmanand have identified the following conditions on the basis of the
technological capability:
(i) For poor and under-developed countires there are several beneficial techniques
which can reduce the gestation period of the investment.
(ii) For adopting new techniques it is important to choose those techniques which
need to be learnt in a shorter possible time.
(hi) The poor countries regard such techniques more adequate by the use of which
the production factors, viz, land, mines, electricity be conspicuous in terms of
growth.
(iv) In order to ensure economy in material and rare sources it is better to bring
about economy in labour, that is a good testimony of technology.
(5) Prevailing Factor Endowment : The technique should be such that can make the
best use of the available and existing sources. The technique should exploit the
cheap resources and use the most convenient ways which need to be encouraged.
The economic management of the manpower should be provided by the labour-
intensive techniques.
(6) Available Resources : The various resources available in a country determine its
technological level. These resources are to determine the appropriate technological
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organisations and the extent of production. The capital-intensive technique is
regarded as the best one but at a certain level of technology the organisational skill
and natural resources are also realised to be essential. As such at the time of
determining the choice of techniques, the absorption capacity of the capital in
economy and the availability of resources must be worth considering.
TECHNOLOGICAL COLLABORATION BETWEEN FIRMS FOR
INNOVATIVE ENTREPRENEURSHIP
It is essential to have technological collaboration between firms for the success of
business enterprises. Technological collaboration between the firms can be
established by creating a network, for the flow of knowledge. Access to knowledge
is essential for innovative entrepreneurship. It is the key source of innovation driven
opportunities.
Creation spin offs, by research organisations can be a source of innovative
entrepreneurship. Knowledge spillover arising from public research organisations
may particularly benefit SMEs as they lack the assets and resources to invest in
formal R.D.
Beyond the simple knowledge connection, strategic alliances are also important.
They help the companies to overcome other types of barriers such as limited
funding, lack of management resources and insufficient technological competencies.
TYPES AND DIMENSIONS OF COLLABORATION BETWEEN FIRMS Types
of Collaboration
(A) Technological Collaborations are classified as :
(i) Formal Arrangement: It includes joint ventures, strategic alliances and sponsored
research agreements.
(ii) Informal Arrangement: It is a relevant arrangement and includes collaboration of
regionally close firms.
(B) Collaboration at Horizontal Level: Partners in such collaborations can be with
businesses working together On research technology, licensing, sales and marketing
arrangements.
(C) Collaboration at Vertical Level: At this level, buyers and suppliers can
collaborate in product or process innovation or in outsourcing specialised outfits.
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Dimensions of Collaboration
(A) Local Technology Collaboration : It indicates regional proximities between
firms, including firms in clusters and their impact through formal or informal types
of relations.
(B) Global Technology Collaboration : It involves business located not only in
different regions but also in wider zones. Inflow and outflow of knowledge is
contributed by cross border alliances by involving firms and organisations in
activities, such as international product licensing or joint agreements for product or
process development. Foreign Direct, Investment and Foreign skilled labour force
also attract Global knowledge transfers. '
IMPORTANCE OF TECHNOLOGICAL CO-OPERATION FOR THE
SUCCESS
OF INNOVATIVE BUSINESS
Knowledge from one industry will spill over more easily to another related industry
when knowledge spillovers take between sector that share competencies rather than
within one specific sector. As a result the industries tend to cluster geographically on
a common science base. According to Feldman and Audretsch, diversity among
complementary economic activities with a common is more conducive to innovation
in terms of returns on R & D investments than narrow sector specialization.
According to Fritsch and Slavtcher, there is a U shaped relationship between
industrial diversity and regional economic performance which implies the existence
of an optimum degree of industrial diversity beyond which both broader
diversification and narrower specialization will have a negative effect on local
innovation.
POLICIES RELATED TO TECHNOLOGICAL CO-OPERATION
BETWEEN FIRMS AND INNOVATIVE BUSINESSES
Concerns relating to disclosing of proprietary knowledge and substantial transaction
costs in the process of finding the right partners and negotiating collaboration deals
are some of the barriers that may hamper technological co-operation. Some policies
have been formulated for co-operation in following ways : Strengthen the
Awareness and Capabilities of Businesses
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Clear barriers exist to the emergence of international networks of innovative
businesses. Firms may not be aware of overseas opportunities or may be too inward
looking to search for knowledge sources abroad. Similarly, they may also be
unaware of the steps and procedures needed to enter into formal agreements with a
foreign partner or may be discouraged by the high costs and risks involved in the
internationalization process (OECD, 2008b). As a result, public policy has a key role
to play in helping to address information barriers and ensuring that the risks and
costs of international networking are minimised for participating businesses {i.e.,
through the provision of loans and guarantees). Chambers of Commerce and
Business Associations can play an important role in both the design and delivery of
effective support instruments at the local level.
Promote Cross-fertilizing Technologies with Multiple Industrial Applications
This will favour cross-sectoral knowledge flows and the possible emergence of new
industries, rather than only strengthening existing sectors. Programmes that promote
the overall commercial use of biotechnologies, nanotechnologies or material
sciences go in this direction, though they require a strong knowledge base at the
university level. The United States has traditionally been at the forefront in the
promotion of cutting-edge and cross-fertilising technologies, through a
comprehensive approach in which two key programmes are Small Business
Innovation Research (SBIR; and the Technology Innovation Programme (TIP). The
two programmes are complementary : the large awards granted by TIP focus on
next-stage commercialisation and help advance the commercialisation potential of
successful prototypes funded by SBIR.
INDUSTRIAL ACCOMMODATION
Accommodation in industrial estates has been cited as the foremost environmental
stimulant for entrepreneurial initiation. Even in the cases where the respondents did
not depend on allotment of industrial accommodation to start their venture,
subsequent shifting thereof to the industrial estate, in effect was the statement of
coming of the entrepreneur off the experimental beginning in a backyard.
It may be pointed out that what one gets in an industrial estate is nbt merely the
accommodation but also a host of infrastructure related and other facilities and
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automatic access to variety of fiscal incentives in the form of sales/income tax
exemption, capital subsidy, etc.
It is therefore not surprising that this factor should figure as the strongest stimulant
of industrial entrepreneurship. It should be interesting to see the accessibility of this
facility across entrepreneurial backgrounds, as it is often alleged that those already
in business, corner facilities and incentives for entrepreneurship despite proclaimed
focus on the "New Entrepreneurs".
The availability of industrial accommodation seems to have particularly attracted
entrepreneurs without prior business background. A usual requirement of industrial
space for technically qualified persons meant that the industrial estate programme
could attract professionals into the domain of industrial entrepreneurship.
Both, limited access to, as well as prefrence for accommodation in industrial estate
for women entrepreneur meant their lesser representation. An interesting aspect of
research in respect of availability of industrial accommodation is the relatively better
access for the entrepreneurs coming from successively higher economic background.
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ROLE OF INDUSTRIES/ENTREPRENEUR'S ASSOCIATION, BUSINESS
INCUBATORS ANGEL INVESTORS, VENTURE CAPITAL AND PRIVATE
EQUITY FUND
ROLE OF INDUSTRIES ASSOCLVTIONS
For any nation where sustainable development has to be done should meet the needs
of present generation without compromising needs of future generation, there is need
for business development in that nation. In this regard industrial associations and
other support agencies plays an important to accelerate sustainable development.
Industrial associations are bodies established to support and protect the rights of
particular industry as well as the people who work in that industry business. The
world over, small and medium enterprises (SMEs) are recognised as a dynamic
sector and credited with the creation of over 80 percent of the total employment, If
we see in India SME; have created 480 million jobs. So there has been different
industrial associations who aims to promote entrepreneurship and facilitates
industrial growth as trade and industry from an integral part of ecohomic
development of the country. Micro, Small and Medium Enterprises (MSME) are like
engines of growth in every region of country, so industrial assciations are providing
and asisting these SMEs to form network within the country as well as overseas for
strategic partnerships either technical or commercial, through facilitating meeting
with bankers, policy-makers, tectnocrate, international trade agencies and diplomats,
some of the national level associations and their roles and functions are disucssed
below :
All India Association of Industries (AIAI): AIAI was established in 1956in Mumbai
the commercial capital of the country by Shri Babuhai M. Chinai M.P. Role arid
Functions of AIAI
• AIAI is one of the biggest industrial association of India which has more than
1,500 member industries and represents over 50,000 industries, among these
industries nearly 70% of its members are from SME sector.
• AIAI acts as a catalyst for industrial growth and investment promotion, it
represents its member effectively on various national and regional level panels and
also with financial institutions on economic, trade and fiscal issues.
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• AIAI main activities includes organising seminars, workshops, trade fairs, business
meetings trade delegations, economic and business forums in order to provide
information and promote domestic and international trade, investment and
technology transfer through networking.
• AIAI continously endeavours to promote SME's involved in almost all major
manufacturing and service sectors like engineering, chemicals, textiles, hospitality,
education, IT, health, pharmaceuticals, rubber, metals, plastic, sugar and proper.
• AIAI also hosts business meetings with international diginitaries, senior
government officials, economists, bankers, business delegates from overseas and
investment promoters of various countries,
• AIAI also signed more than 200 agreements for co-operation with International
Trade Promotion bodies and chamber of*commerce for over 60 countries this fosters
joint ventures and other technological alliance which contributes a lot for the process
of globalisation.
• AIAI organise various international trade related events held annually like ITM
Expo, Global vendor programme, China Product fair and Expo, Autofair, Indfair,
Marine exhibitions and above all flagship event Global Economic Summit.
• AIAI is also associated with Indian council of foreign trade to explore overseas
market for Indian origin products, the association also intiated Indo-Polish chamber
of commerce to facilitates bilateral trade, joint venture, technology transfer,
investment and after international exchange between India and Europion Union.
• AIAI established Russian-Indian Trade house Mumbai in association with world
trade centre, Mumbai with the support of Embassy of the Russian Federation).
• AIAI has been affiliated to UNCTAD and represented the WTO meeting at
Geneva, Singapore, Seattle and Oman.
• AIAI initiated Young Entrepreneur's Society (YES) in 2001 in order to promote
and groom young individuals having entrepreneurial drive and instituted young
Entrepreneurs Achievement Awards for various industries budding business people.
• AIAI also represents employees at ILO Geneva as an advisor and is a part of
Government of India delegation team and other Institution like RBI; «SIDBI and
JNPT.
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• As supplimentary functions AIAI also publish books and papers on recent import
and research and issues like—'Prospects and Problems of SSI', 'WTO : Impact on
Indian Business", "Indian Economic Miracle" etc.
• AIAI initiated a business portal BIZBOARD in order to effectively connect the
members of the affiliated association in India and Abroad, AIAI also conduct
various CSR activities in this regards they adopted Mumbai Port Trust, Sagar Upvan
which is 14 acres botanical garden maintained with lushgreen herbs and trees which
improves lives of citizens and environment care.
INDIAN INDUSTRIES ASSOCIATION
Indian Industries Association (IIA) is one of the major representative body of Micro,
Small and Medium Enterprise (MSME) with a strong membership base of about
6,500 Micro, Small and Medium Enterprises (MSMEs). HA is member of National
Board of MSME as well as an accredited association from NABET, QCI with
GOLD GRADE. IIAs primary motto is to create an enabling environment for the
development of MSMEs in today's extremely competitive industrial scenario.
IIA's has its extensive network of more than 40 chapters spread in most of the
industrialized districts of UP., Delhi, Uttrakhand and surrounding states. In 1985 a
group of committed young professionals joined forces and conceived the idea of an
organisation that can act as a catalyst for the promotion and growth for Micro, Small
and Medium Enterprise. It was thus that U.P. Chapter of NAYE (National Alliance
of Young Entrepreneurs) came into being. In July 1992, however, NAYE was
renamed Indian Industries Association (IIA) with the roles and objectives of the
organisation futher widened to suit the needs of changing socio-economic
environment.
Objectives of IIA : IIA operates on objective of fostering co-operation and support
for the promotion of Micro, Small and Medium Enterprises. Since 30 years IIA has
worked consistently in creating an environment conducive to industrial growth
specially for MSMEs. Working to aware about valuable information on legal and
technical aspects, latest development in industry and market, about latest
Government policies, procedure and laws etc.
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Representation : IIA is consist of active and permanent member of more than 3
consultative committees/boards/expert groups formed by Government of India and
the State Government. The important few are : Member of High Level Task Force
constituted by the Prime Minister Office for MSME development, Member of
National Board for Micro, Small and Medium Enterprises (NBMSME), Member of
Planning Commission's working groups on MSME Growth and HRD with special
focus on Skill Development and labour flexibility for the formation of 12th five year
plan, RBI Standing Advisory Committee on flow of credit to MSME, Regional
Advisory Committee of CBEC and CBDT, Member SLIIC, All industry related
committee/bodies of Government of Uttar Pradesh, Export Promotion, Minimum
Wages Advisory Board, Committee for Selection of MSME for National Award and
Udyog Bandhu at all levels etc.
Organisational Structure : IIA has a two tier system operating at State/National/
International and the Divisional/District/Local area level. Eligible members elect
representatives to the CEC for a three years term out of which one-third members
retire every year by rotation.
21 elected members elect the President who in turn nominates his team comprising
of Sr. Vice President, Vice President, General Secretary, Honorary Secretaries and
Treasurer at the State/National/International level. The president also nominates
Chairmen of various Subject Committees and Special Invitees to the CEC. At the
Divisional level the President nominates Divisional Chairman.
At the District/Local area level, a Chapter Chairman nominated by the President
operates through his team of office bearers. The Central Secretariat is headed by a
full time Executive Director.
Activities and Support to Members
• IIA represents its MSME member industries before the Government for effective
policy formulation and modification.
• IIA liaisons at the Government and department levels to help the member units in
overcoming their troubles.
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• In association with the Govt, or other institutions IIA organizes Conventions,
Trade Fairs, Seminars and Conferences to educate and inform entrepreneurs and thus
facilitate industrial growth.
• IIA also acts as resource group for the entrepreneurs providing them with the
consultancy in assortment of areas including technological, legal and policy related
matters.
• IIA identifies new business opportunities for its members in particular and MSMEs
in general for promoting their business through Trade Fairs, Exhibitions, Buyer
Seller Meets, Visits within and Outside India, Foreign tie-ups etc.
• IIA have constituted working groups to discuss, analyze, review and recommend
various issues and problems of different industrial sectors/areas in areas such as
Labour, Textile, International Business Promotion, MSME Programme, Smart Cities
and Cluster Development, Agri and Food Processing Industries, State Level
Departments, Rice Mills, Women Entrepreneur Cell Working Group, Employment
Exchange, RTI Working Group, IIA Branding and Promotion, Power Working
Group, Small and Medium Enterprises. IT, Food Processing, Import-Export, Labour,
Energy' Taxation, Environment, Quality management and W.T.O. etc. Since
inception of IIA, these working groups are constantly contribution for the promotion
and development of the industries.
• IIA acts as a close friend and protector of MSME entrepreneurs by taking up any
kind of industry related problems/issues for solution at various levels. This personal
attention/help is the need of MSME entrepreneurs as it saves lots of time, money and
efforts of the MSME Entrepreneurs.
• IIA organizes Capacity Building programs and workshops from time to time for
enhancing entrepreneurial and managerial skills.
• IIA publishes a monthly newsletter by the name of "IIA News" which has a
readership of more than 20,-000 and is available online on IIA website as well. This
managzine is full of useful and latest information covering a wide variety of topics
besides the regular columns on taxation, energy/power and labour laws.
• IIA conducts studies, surveys and developmental programmes on a regular basis to
help in the professional and personal growth of the entrepreneurs.
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• IIA's website offers latest information and lots of facilities for the members such as
buy-sell desk, IIA members online directory, latest tenders, nofitications/ciuulars,
more than 800 projet profiles, exporters directory, placement services, IIA
Employment Exchange, special offers to IIA members, latest new updates, important
links of all website related to industrial development and many more. The unique
facility of "MSME—Products & Services" enables the MSME entrepreneur wide
exposure and easy access to the International Market. As on date IIA website is
getting more than 12,000 hits per day and is viewed in more than 60 countries across
the Globe.
• IIA conducts a search for technology and quality up-gradation among MSMEs.
• IIA aids in building an interface with foreign delegations for technical know-how,
exports and imports.
PARTNERS OF INDIAN INDUSTRIES ASSOCIATION (IIA) Following are the
Major Partners of IIA :
• SIDBI: A part from MKB-a joint venture with SIDBI, IIA has signed an MOU
with SIDBI for providing term loan facility to IIA members.
• NSIC : IIA is actively involved in Public-Private Partnership (PPP) initiative of the
Govt. IIA have signed an MOU with NSIC for popularizing their schemes among
MSME's.
• UNCTAD/FISME/FICCI : IIA has been a partner for the UNCTAD project on
"Strategies and Preparedness for Trade and Globalization" along with FISME and
FICCI.
• Professional Institutions : IIA have regular interaction with professional
institutions for Industry Institute Interaction e.g. IIM Lucknow, Jaipuria Institute of
Management Lucknow and Amity University.
• Ministry of Food Processing : In association with Ministry of Food Processing
Govt, of India and Department of Food Processing Govt, of U.P., IIA has been
organizing a National level event "INDIA FOOD EXPO" since 2004 till 2008. A
MOU with Department of Food Processing Govt, of UP has also been signed for the
promotion of Agro & Food Processing Industries in U.P.
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• Ministry of MSME, Govt, of India : IIA has been a partner for Number of
proramme including Rajeev Gandhi Udyami Mitra Yojna and is participating in
International Co-operation Programme etc.
• Quality Council of India : IIA is a member of the Governing Council of QCI.
• Export Promotion Bureau, U.P. : A consistent and fruitful partnership in the form
of collaborations for different activities like EXPO and seminars besides the projects
like U.P. Exports News Letter, Maintenance of EPB website and Geographical
Indication Registration etc.
The Federation of Indian Chambers of Commerce and Industry (FICCI)
• Established in 1927, FICCI is one of the largest and oldest apex business
organisation in India. Federation of Indian Chambers of Commerce and Industry
(FICCI) is the largest and oldest apex business organisation of Indian business.
• FICCI has nationwide membership of over 2,000 corporates and over 500
chambers of commerce and business associations, FICCI represents the shared
vision of Indian businesses and speaks directly and indirectly for over 2,50,000
business units.
• FICCI is a non-government, not-for-profit organisation which act as the voice of
India's business and industry.
• FICCI articulates the views and concerns of industry. It serves its members from
the Indian private and public corporate sectors and multinational companies,
drawing its strength from diverse regional chambers of commerce and industry
across states, reaching out to over 2,50,000 companies.
• FICCI provides a platform for networking and consensus building within an across
sectors and is the first port of call for Indian industry, policy makers and the
international business community.
• In order to provide arbitral services for settlement of commercial disputes of a
domestic as well as international nature, FICCI, in the year 1952, established FACT
(formerly known as the FICCI members and other parties who may desire to submit
their disputes to FACT. FACT, headquartered at New Delhi with offices spread all
across the country and overseas, has an active panel of prominent arbitration experts
on its board. Besides, it has signed international co-operation agreements with
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several arbitration organisations around the world for facilitating international
arbitration.
Objectives of FICCI
• To administer international and domestic arbitration under the Rules of FACT.
• To establish and maintain a comprehensive Panel of Arbitrators and Conciliators
from an extensive array of distinguished and impartial persons, including retired
Judges, Advocates, Chartered Accountants, Executives, Engineers, Company
Secretaries, Businessmen, Foreign Nationals, Maritime Experts etc.
• To promote public confidence in the ADR mechanism of conciliation/mediation as
a process for resolving disputes and to create a settlement of disputes through such
mechanisms.
CII: CII was founded in 1895, when five engineering firms, all members of the
Bengal Chamber of Commerce and Industry, joined forces to form the Engineering
and Iron Trades Association (EITA). Over the years the association has undergone
various name changes following the evolution of the Indian industrial environment
but always representing engineering industries. After India's economic liberalization
in the 1990s the association became CII, represents inter sectoral integration. Such
integration becomes possible through a process of diversification and expansion of
industries in a way that better represents different interests and complexities within
an industry.
CII is currently India's premier business association. It has a direct membership of
over 7,100 organisations from the private as well as public sectors, including biotech
SMEs and pharmaceutical MNCs, and an indirect membership of over 90,000
companies from around 250 national and regional sectoral associations. In 1990 CII
rose to prominence by supporting the economic liberalisation agenda initiated by the
Indian government at that time. Unlike other umbrella industry associations CII
provided extended support to government in initiating reform process.
One key role of CII is also promoting international industrial co-operation. It
identifies and addresses specialised needs of the SMEs sector. For example, CIFs
International Division provides services through networking with Indian missions
overseas and over 45 counterpart organisations throughout the world. The
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association provides up-to-date information to both government and industry on a
number of topics. Post 2010 CII has established an "Innovation Council" and has
been involved in the development of innovation meMes that are appropriate to the
local context.
In addition to this, CII also organises specialised fairs, including the 'Indian
Engineering Trade Fair', and it publishes a number of reports and bulletins
concerning the economy, industry, business and innovation.Tn this way, CII diffuses
macro level information to not only a broad industry constituency, but also
government and its various agencies; thus stragegically positioning itself between
these two insititutional actors.
From our analysis so far, it becomes apparent that associations such as CII are filling
institutional gaps in developing countries with substantial impact on government
competencies for tackling institutional corruption.
World Association for Small and Medium Enterprises (WASME) : WASME is a
global non-profit organisation, head quartered at Noida, India, that has been
spearheading the cause and development of Small and Medium Enterprises (SMEs)
world over since its inception in 1980. With events and conferences bringing
together global thought and policy leaders held all over the world and consultative
status with many UN agencies, WASME invites businesses, policy makers,
influencers, members of chambers of commerce, diplomats, heads of financial
institutes and global change makers to associate with them.
• World Association for Small and Medium Enterprises (WASME) is a global non-
profit organisation, headquartered at Noida, India, that has been spearheading the
cause and development of Small and Medium Enterprises (SMEs) world over since
its inception in 1980.
• Over 35 years, WASME has emerged as one of the most representative, effective
and leading international organisation working towards the promotion of SMEs
worldwide through Policy Advocacy, Information Dissemination, Conferences,
Seminars, Events, Trainings, Publication, Network linkages and many more.
• WASME enjoys consultative status with many UN agencies such as UNCTAD,
ITC, WIPO, UNIDO, UNESCO, UNICITRAL, UNESCAP and ILO, several
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intergovernmental and international organisations like WCO, OECD, ICSB, APEC,
APCTT, etc.
• Still, WASME is emerging as a powerful international organisation with
representatives in different parts of the world that include Permanent
Representatives, Seminar Advisors, External Consultants etc.
Vision
The build WASME as a foremost world private and cohesive community of micro,
small and medium enterprises (MSMEs) that is dedicated to strengthen and foster
them as prime driver of global economy.
The mission of WASME is to be a catalyst in stengthening national and international
cooperation for the growth and development of SMEs.
• Establish : A synergistic network of MSMEs, national government; ministries,
financial institutes, SME promotion agencies, international organisation etc.
• Promote : National and international cooperation for MSMEs through policy
advocacy, information dissemination, events, trainings and other activities.
• Set Up : WASME as strategic resource centre for MSMEs facilitating networking, .
business meetings, financial assistance, technology transfer, knowledge assistance,
skill and entrepreneurship development, consultancy etc.
• Create Mechanism: To assess and facilitate cost-effective international networking
and trade opportunities for aspiring MSMEs.
• Be a Catalyst : For SMEs to be more competitive, environment friendly socially
responsive, culturally sensitive and ethical in their busienss practices.
Federation of Indian Micro and Small and Medium Enterprises (FISME) :
Federation of Indian Micro and Small and Medium Enterprises (FISME), thugh
established in the year 1995, traces its origin to 1967 when the National Alliance of
Young Entrepreneurs (NAYE) was established to promote small industries. In the
pre-liberalized era (prior to 1991), the agenda of an interventionist and highly
protectionist India was adequately met by NAYE. However, post liberalization (after
1991), India needed to adopt a different approach for the promotion of Small and
Medium Enterprises (SME). Subseouently, in the year 1995,
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NAYE along with eight state level associations formed FISME to lead SME in the
refurbished economic environment.
The national and global changes in the post liberalized era have shaped FISME's
twin objectives of :
1. Promoting entrepreneurship and facilitating the creation of a competitive
environment in the country.
2. Improving the market access for Indian Micro and Small and Medium
Eenterprises (MSME's) in India and abroad.
Out main activities can broadly categorized into the following headings :
1. Networking and Training: FISME has signed MoIJ with like-minded associations
in a few countries and also has representatives in some countries. Out partner
associations and representatives give us the opportunity to use our extensive network
for the development of Indian MSME's. We regularly organise focused seminars,
B2B meetings both within and outside the country, take .trade delegations to foreign
countries, extend hand-holding support to our members etc.
2. Research and Publication : We are continuously involved in research work and
strive to apprise our members and partner association on various trade related issues
that attract our attention from time to time. Some of the latest research work can be
found in the 'research and studies' tab of this website.
FISME is the progressive face of Indian MSMEs and is regarded as such by
Government of India. FISME is a member of National MSME Board formed under
MSME Act 2006. FISME is well represented in and consulted by SME policy
making set-up of the country and also works in close cooperation with major
multilateral and bilateral bodies in india such as UNIDO, ILO, UNCTAD, DFID,
GTZ etc.
Currently, under the multilateral project Stragegies and Preparedness for Trade and
Globalisation in India supported by UNCTAD, DFID and Ministry of Commerce &
Industry, FISME, as a Tier-I partner, is leading 22 provincial SME bodies in 18
states.
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Organisation Structure : The chief decision making body of FISME is Central
Executive Committee or the CEC. ThelCEC constitutes of 27 members of which 21
members are elected members and 6 members are nominated.
Of the 21 elected members, 7 longest serving members retire every year. Therefore,
there is election for the 7 seats of the CEC every year. After induction of 7 new
elected members, the CEC elects the President. The President nominates his team of
office bearers.
Besides the President, the office bearers include one Senior Vice President, Four
Vice Presidents, one Treasurer and one Secretary General. The Secretariat is headed
by the Secretary General. The secretariat works under the guidance of the office
bearers.
Entrepreneurs Association of India : EAI in collaboration with several National and
International Organisations, organising, 'National Agripreneurs Summit (NAS)' on
Aug. 26, 2017 at CCI, New Delhi which aims to attract, connect and collaborate
young entrepreneurs and promote entrepreneurship in most promising 'Agricultural
Sector'.
Entrepreneurship Association of India (EAI) is the most unique and versatile
platform in the country for all spheres of Entrepreneurs (potential as well as
flourishing), Students, Startups, StartUp aspirants, Youth, Women, people of all age
groups in and outside India to come together as a whole with the aim to achieve
growth and development of their Community, District, State and ultimately Our
Country, INDIA.
Unlike other associations, EAI mainly focuses on development and growth of
Entrepreneurs/Start ups/Young aspirants on District and Community levels across
the nation, which has never happened before and thus distinguishing EAI above all
from the league.
EAI provides an easy-to-access social network, allows entrepreneurs to connect and
volunteer to business mentors present across the globe so they can solve problems
and build a feasible business model together. EAI acts as a linkage between growing
communities among District/State and Country level with our numerous mentors
who continue to make an impact through the power of mentoring to help small
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enterprises thrive. This is the Association where Fellows share connections, funding
and opportunities; they team up on projects and on various other issues to provide
you an exposure to Global ever-changing market and updating Technology Trends
by adding cutting-edge skills to your toolbox. Vision
• For social enterprise to reach its potential as a force for more effective and
sustainable social impact.
• We empower social enterprises with the tools and resources they need to succeed.
• Support and grow in the field a national scale and serve as a voice for more
sustainable social impact and work to foster a social enterprise ecosystem in which
they can thrive.
Mission
• Providing a platform for entrepreneurs and enterprises to connect socially.
• Building national and local entrepreneurship networks.
• Caring and sharing knowledge to build capacity.
• Developing the Positive and Supportive Entrepreneurial ecosystem. Services
• Identifying and interfacing with potential partners, buyers, collaborators.
• Opportunity to meet with business delegation from India, other states and different
countries.
• Arranging special meeting for visiting CEOs and senior executives from India,
other state companies and MNCs.
• Providing support and network from partner organisations like IACC, WEF and
funding organisations read here.
• Organising summits, conventions and other mettings on national bi-national issues.
• Participating in exhibitions and trade fairs in India and other states.
• Interactive sessions with US Embassy/consulate General's and foreign commercial
service offices.
• Mounting business and trade delegation to the India and other states.
• Arranging meeting with government official/corporate.
• Providing business support services for Indian and foreign based businessmen in
India and other states.
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. • Advocacy/representation with government on behalf of Entrepreneurs and youth
from India and other states companies on policies and trade related matters.
• Arranging special meetings for visiting CEOs and senior executives from India,
other state companies and MNCs.
NAS (National Agripreneurs Summit) : In recent years, the growth rates of world
agricultural production and crop yields have slowed down which shows that the
world may not be able to grow enough food and other commodities to ensure that
future populations are adequately fed.
The reason for this slow down is not only because of shortages of land or water but
rather because Agriculture is not taken professionally as a business and due to that
more and more people are leaving agriculture and efficiency is decreasing as a
whole. Context of India
• Agriculture contributes 14.7% of total exports of the country and provides
employment to around 65% of the total work force.
• On average, about 2,035 farmers are losing 'Main Cultivator' status every single
day for the last 20 years.
• As per Census 2011, 95.8 million cultivators have farming as their main
occupation (i.e., less than 8% of the population).
• This shows down from 103 million in 2001 and 110 million in 1991. Including all
marginal cultivators (22.8 million) and that is still less than 10%.of the population.
• In last few years, India has become A Farm Importer then a Farm Exporter.
• More Aged people left "in Rural India-on field, the newer Generation left the field.
In Context of World
• Globally, a $940 billion economy gets hit (i.e., a third of food produced is lost or
wasted every year) due to inefficiencies in planting, harvesting, water use and
trucking, as well as uncertainty about weather, pests, consumer demand and other
intangibles.
• Venture capitals have flooded the Agri tech space, with investment increasing 80%
annually since 2012, as investors realize big data can revolutionize the food chain
from farm to table.
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• As per a survey, globally 74.2 million unemployed young people will be there this
year, an increase of 3.8 million since 2007.
• Fewer small-scale farmers tomorrow, potentially drastically changing the profile of
farming.
Objective
• NAS is a faith-driven Continuous dialog on agriculture that is designed to create
connections and relationships locally and globally that lead to coordinated, market-
based, community-building actions.
• The VISION is flourishing farms, systems and communities, now and in the future,
bringing restoration and reconciliation in a world of hunger and poverty.
• Join hundreds of local, regional and global producers, service-providers, students,
faculty, pastors and business people who are living, working and serving in
agricultural communities.
Focus Areas
• Bringing Professional Approach in Agriculture
• Policy Makers on a Single Platform
• District Representatives from across all States
• Global Organisations
• Farm Technology
• Entrepreneurs
• Innovation
• Experts
• Corporate
• Agri Revolutionaries expected Outcomes
• More participation traction and Positive attitude towards Agriculture
• More venture, More Agri-enterprises, More business, More Employment
opportunities
• Increased contribution from agriculture in GDP
• Innovative Agri-products in market
• Professionalism in agriculture
• Encouragement to farmers—Huge Profitability and Productivity
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• Increasing individual and national income
Federation of Women Entrepreneurship (FWE): Women Entrepreneurs in India
represent a dynamic group of Women who have broken away from the beaten track
where demands at home, family oppositions and cultural inhibitions have led to lack
of support, resources and opportunities; are now exploring new vistas of economic
participation with an all new vigor. A great many of them have chosen the
Entrepreneur World because of a compelling urge to do something positive. They
are the pace setters for women in their quest for economic independence.
The Federation of Indian Women Entrepreneurs (FIWE) which is a National-level
Organisation brings the business women on a common platform and ensures that
their opinions, ideas and visions are collectively and effectively taken up with policy
makers and various other agencies respeectively for the development of
Entrepreneurship amongst Women.
Collectively FIWE endeavors to: Create public awareness towards women's
contribution to the National Economy, Establish pressure groups advocating the
cause of women, and Educate & Train young women entrepreneurs for their
initiation into business.
FIWE is working towards Nation al and International Co-operation amongst Women
Entrepreneurs with a singular motive : Together Towards a Glorious Future.
Background : The Federation of Indian Women Entrepreneurs (FIWE) is an
outcome of the decisions taken at the International Conference of Women
Entrepreneurs held in December 1993 at Hyderabad (India). The idea was that the
Women's Wing of the erstwhile National Alliance of Young Entrepreneurs (NAYE)
converts itself into an Autonomous National-level Women Entrepreneurs
Organisation whose main function would be networking and to provide a package of
services to the Associations of women entrepreneurs in different parts of the
country.
It was accordingly announced that NAYE Women's Wing will henceforth be known
as Federation of Indian Women Entrepreneurs (FIWE) and will have not chapters.
Associations of Women Entrepreneurs in various Districts and States will be
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provided to Women Entrepreneurs in India. Individual Women Entrepreneurs could
also be eligible for general membership.
Brief Profile : Federation of Indian Women Entrepreneurs (FIWE), a National-level
organisation, founded in 1993 and registered under the Society Act of India in May,
1999,
is today, one of India's Premier Institution for Women throughly devoted towarai
Entrepreneurship Development in the country. It has branches in different states of
Incj with a membership base of 15,000 individual members/professionals and 28
memba associations spread throughout India. Small-scale entrepreneurs account
forapproximate:i 60 percent of FIWE's combined membership, with large firms
representing 5 percent an micro-enterprises the remaining 35 percent.
The organisation educates and trains young aspirants and start-up women
entrepreneur for their right initiation into business and does awareness programs and
business conselin to aspirant women. Besides, it provides hand-holding and
networking opportunities to the as well as women interested in growing their
business further and creates a launching pa to empower women in the regional
economic framework and graduated from small | medium enterprises.
FIWE regularly organizes Enterprise Development Programs and Skill Developmerj
Programs in various Traders such as IT, Computers, Garment Stitching and CuttinsJ
Security Guards, Retail, Bedside Patient Attendant, Spinning and Weaving, etc. in
various) cities/Towns across the country for Below Poverty Line (BPL) youth.
Training of Trainer; Programs are conducted in different regions of India, for the
same, Over 5,000 women ha\ • already benefited in the last three years. Women's
Economic development has resulted i: poverty alleviation and reduction of
feminization of poverty in the country.
Sexual harassment at the workplace is a common problem in both urban as well aJ
rural areas due to the mindset of the men who find it difficult to accept women as
leadersf in their field. This harassment of their members is dealt by FIWE by
organising awarenes programs on the issue in which men are also encouraged to
participate activity.
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FIWE brings business women to a common forum, ensuring that their opinions, idea
and visions are collectively and effectively taken up with policy-makers and various
other] agencies for their entrepreneurship development. It endeavours to create
public awareness towards women's contribution to the national economy and
established pressure groups advocating the cause of women. Interaction with
government agencies and policy advocacy is a strong mandate. Its activities of
assembling and representing women business association and enterprises of all
economic sectors, is well articulated all over India.
To encourage women entrepreneurs to achieve greater heights and as an impetus :
their initiatives for business growth, FIWE presents awards to deserving, successful
won. candidates nationally and internationally, every year.
FIWE has an international presence as well. It is member of South Asian Wome™
Entrepreneurs (SAWE) as well as of International Federation of Women
Entrepreneur™ (IFWE) and promote sale of products through Business to Business
meetings in conferencsB exhibitions at the international level. It also organizes
Buyer-Seller Meets at National p-.^B International seminars. The online networking
platform, a B2B portal-httr'M www.fiwemart.com website will soon start in a full-
fledged manner. Women entreprene_- I have expanded and benefited through this
networking with resultant growth of their produce I
Directorate General of Employment and Training (DGE&T), Ministry of Labour aid
Employment, Govt, of India has empaneled Federation of India Women
Entreprer.exB (FIWE) amongst others as an Assessing Body, to assess the
competencies of persons train^B under Modular Employable Skills (MES) Courses
as well as Direct Canditates who haw acquired Skill informally.
Directorate General of Employment and Training I DGE&T), Ministry of Labour
Employment, Govt, of India empanelled FIWE as Assessing Body amongst others,
to a.-^J
the competencies of persons trained under MES courses as well as Direct Candidates
who have acquired Skill informally.
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FIWE is an independent Third Party Organisation, not involved in conducting MES
Training Programs and hence offers a most impartial assessment thereby ensuring
quality of training and credibility of the scheme.
FIWE has been Accredited by Quality Council of India under National Accreditation
Board of Education and Training, New Delhi which will further confirm adherence
to acceptable level of performance, integrity and quality.
Mission
• To promote Entrepreneurship among Women and thereby empower them to join
the economic mainstream.
• To enhance the Status of Women in the society, by creating a culture of
Entrepreneurship amongst women, both in Rural and Urban areas.
• To develop successful models of Entrepreneuship for emulation world-wide.
Objectives
The key objectives of the Federation of Indian Women Entrepreneurs (FIWE) are as
follows :
• To provide training facilities in Export Marketing and Management, Domestic
Marketing, Quality Control and Standardization, Management of Enterprise Laws,
Regulations, Procedures and Systems for running Small and Medium sized
enterprises and sustaining their growth.
• To facilitate Enterprise to Enterprise Co-operation within the country and with
SME and Women Entrepreneur counterparts in 96 countries of the world as on 30th
June, 1994, having Members and Associates of World Association of small and
Mediuam Enterprises (WASME), with which FIWE is affiliated.
• To provided greater access to latest technologies, know-how, related equipments
and services for modernization and expansion of existing small and medium sized
enterprises runned by Women Entrepreneurs.
To facilitate participation in International and Regional exhibitions, buyer-seller
meet, trade fairs, seminars and symposia, to help women entrepreneurs to get greater
exposure to Regional and Global business environment and opportunities.
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• To effectively articulate the problems and constraints faced by women
entrepreneurs to get greater exposure to regional and global business environment
and opportunities.
• To strengthen affiliated Associations of Women Entrepreneurs by providing them
package of services including information, contracts, training facilities and other
related supporting measures.
• To bring out a quarterly newsletter to educate and inform women entrepreneurs on
business opportunities, management and exchange of experience and expertise.
• To enhance access to term working capital loan.
• Assisting in the identification of investment opportunities.
Skill Assessment: Assessment is the process of documenting, usually in measurable
terms, knowledge, skills, attitudes and beliefs. Assessment can focus on the
individual learner, the learning community (class, workshop, or other organized
group of learners), the institution, or the educational system as a whole (also known
as granularity).
The final purpose of assessment practices in education depends on the theoretical
framework of the practitioners and researchers, their assumptions and beliefs about
the nature of human mind, the origin of knowledge, and the process learning.
Quality Objectives
• We aim to achiever customer satisfaction level of more than 75%.
• We achieve 95% TAT for release of test results.
• We aim to have less than 5% errors as seen by our customers.
Methodology : Non-profits often are told to maximize their organisational capacity
as
a way to improve their performance. Knowing what capacity actually means and
how to identify areas of need, however, can be confusing. Tools that define and
assess organisational capacity can help organisations identify their unique capacity
building needs and guide the development of plans to address them.
Federation of Indian Women Entrepreneurs in India represents dynamic group of
women who have broken the beaten track and are exploring new vistas, of economic
participation of clients, demands at home and other family oppositions leading to
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lack of support. A great many of them have chosen the entrepreneurs world because
of a compelling urge to do something positive. They are the pace setters for women
in their quest for economic independence. FIWE is a national Organisation which
brings the businesswomen on a common platform and ensures that their opinions,
ideas and visions are collectively and effectively taken up with policy makers and
various other agencies respectively for the development of Entrepreneurship
amongst Women.
ISBA (Indian Science and Technology Entrepreneurs Park and Business
Incubator Association): ISBA was started a decade ago (2004), by a small motley
crowd of Science and Technology Entrepreneur Parks and Technology Business
Incubators that were established under the umbrella of the Department of Science
and Technology, Goverment of India. Today it has grown to membership base of 70
+ organisations that are into entrepreneurship development and incubation.
ISBA is registered as a not-for-profit Society under the Societies Registration Act
1860. Its main objective is "To promote business incubation activities in the country
through exchange of information, sharing of experience, and other networking
assistance among Indian Business Incubators (TBIs), Science and Technology
Entrepreneurs Parks (STEPs) and other related organisations engaged in the
promotion of start-up enterprises"
ISBA is the only pan India network of Business Incubators and has an abundance of
expertise and knowledge base in technology business Incubation that has been
acquired over a period of 25 years. A unique feature is its diversity, with member
organisations coming from Academic Institutions/Universities of repute such as
IIM-A, IIT Bombay, IIT Kanpur, University of Pune, NIT Trichy, NIT Surathkal,
NID, VIT University, PSG etc., Research & Development organisations such as
NCL, ICRISAT, NDRI etc. and Technology Parks such as ICICI Knowledge Park,
Technopark etc. Further, virtually every emerging technology sector are addressed
beginning with ICT and covering Life Sciences, Electronics Design, Agri-Business,
Manufacturing, custom writing here Textiles etc. by the Incubator members.
The main activities of ISBA include :
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1. Conduct of an Annual Conference that brings together Incubators and other
players of the eco-system for networking, experience sharing and new learnings.
2. Advocacy initiatives with Central and State Central government on policy,
regulatory framework incubation development etc.
3. Providing facilitation and escort services to establish more Entrepreneurship
Development Centres and Business Incubators in the country.
4. ISBA Awards an annual programme for recognizing outstanding achievements of
startups and ventures from the member fold.
About Science and Technology Entrepreneurs Park (STEP) : The Science &
Technology Entrepreneurs Park (STEP), was the scheme launched by the
Department of Science and Technology, Government of India in the early part of
1980's. The core philosophy behind the programme was to convert "Job Seekers to
become Job Creators". It main objective was to help in craeting an atmosphere and
awareness for youth to take up entrepreneurship, initiate active interaction between
acadamic institutions and industrial for sharing ideas, knowledge, experience and
faclities for the development of new technologies and their rapid transfer to the end
user.
In a period spanning 15 years,, about 14 STEPs were established in premier
academic Institutions from both Government and Private Sectors.
Objectives
• To forge a close linkage between universities, academic and R&D institutions on
one hand and industry on the other.
• To promote entrepreneurship among Science and Technology persons, many of
whom were otherwise seeking jobs soon after their graduation.
• To provide R&D support to the small-scale industry mostly through interaction
with research institutions.
• To promote innovation based enterprises.
About Technology Business Incubators (TBI) : By the early 21st Century, India
had made rapid strides in higher science and technology education and also
significant results began to yield from the several R&D Centres. The Department of
Science and Technology, recognizing this, introduced the scheme of "Technology
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Business Incubator" in the year 2000, with an emphasis oh creation of knowledge
based high technology driven ventures'.
Over the years, more than 60 such TBI's have been established in Academic
Institutions, R&D Centres, Technology Parks and more recently in PPP mode.
Objectives
TBIs are promoted to achieve the following objectives :
• Creation of technology based new enterprises
• Creating value added jobs and services
• Facilitating transfer of technology
• Fostering the entrepreneurial spirit
• Speedy commercialisation of R &D output
• Specialised services to existing SMEs.
Sector Focus: A diverse range of technology sectors are being addressed by the
TBI's, to name a few :
• Information and Communication Technology (ICT(/Internet of Things (IOT)
• Healthcare
• Manufacturing
• Electronics and ESDM
• Agriculture and allied fields
• Clean-Tech-waste, water, environment, sanitation etc.
• Energy
• Speciality sectors such as—nano technology, design, social, textiles, fin-tech. etc.
Self-Help Group :The definition of SHG as approved by National Bank for
Agriculture
and Rural Development [NABARD] the apex banking body in India, is "An SHG is
a small, economically homogeneous and affinity group of rural poor voluntarily
formed to save and mutually agree to contribute common fund to be lent to its
members as per group decision for their socio-economic development."
As the name indicates, self-help group is an informal group of about 15-20 people
from a homogeneous class, these people come together for addressing their common
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problems. Group itself becomes a base to convey necessities and sort out social
economical problems of their group members.
Main aim of SHG is to make group members self sufficient and self reliant
[independent] by self-employment and empowerment through group dynamics.
Main Principle of SHG : "Unity- is Strength"
Self-help group is a best way to get strengthen. Ex : A single wooden piece can be
easily broken, but a bundle of 15-20 wooden pieces can't be broken easily. As like
this a group of people can easily sort out any of the problem, because group
decisions carry more weightage than individual decision.
Characteristics of an Ideal SHG : SHG should have following structural features
and characteristics :
1. An ideal SHG consists of 15-20 members who have good co-ordination among
them.
2. All the members should belong to the same socio-economic strata of society so
that there should not by any communication barriers.
3. There is Rotational leadership in order to have encouraged distribution of power
and to provide leadership opportunities to all the members.
4. All active member of SHG should regularly attend meetings, save money and
participate in all activities voluntarily.
5. The procedure of major or long term decision-making in SHG follows democratic
system.
6. The SHG group frames rules and regulations time to time, which are required in
its effective functioning of group with common objectives.
7. There is proper transparency in account keeping and accounts which are
maintained and updated regularly.
8. An SHG acts as socially viable institution.
Role of Self Help Groups in Empowering Women in India : The self-help groups
empower women and train them to take active part in the socio-economic progress
of the nation and promote to be self-made and self disciplined. The SHGs have build
up great confidence in the minds of rural women to succeed in their day-to-day life.
SHGs also work to enhance the quality of status of women as participants, decision
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markers and beneficiaries in the democracitc, economic, social and cultural spheres
of life. The SHGs developing the capacity of women in molding the community in
right perspective and explore the initiative of women to undertake the
entrepreneurial ventures.
Participation of women in SHGs helps women come out in open and discuss their I
problems. It also helps to bring about awareness among rural women about savings,
education, health, environment, cleanliness, family welfare, social forestry, etc.
Researches also reveal that increased participation of women in decision making at
all level will help to adjust the goals pursued through development.
Empowerment is induced in such a way so that women can exercise a level of
autonomy. There should also be 'self empowerment' so that women can look at their
own lives. The process of'learning by doing and earning' would certainly empower
rural women. More and more rural women need to be involved in self-employment
in areas agriculture, village and small industries and retail trade and services. Self-
employment is also conducive to the ievelopment of individual initiative and
entrepreneurial talent and offers greater personal ' freedom. The emergence of self-
help groups in this context is a welcome development. The groups would provide a
permanent forum for articulating their needs and contributing their perspectives tp
development.
Self Help Group is able to overcome most of the practical problems encountered in
the t mplementation of the various income generating programmes for the economic
empowerment of women. SHGs have also been organized during last decade under
various orogrammes of the government, e.g., District Poverty Eradication
Programme, Aapni Yojna, Development of Women and Children in Rural Areas,
Krishi Vigyan Kendra, etc.
The number of SHGs existing at present in the country is estimated to be about -
.60,000. Out of these; about 90 percent are women group. The cumulative number of
SHGs inked to the bank till March 2002 is 4,61,478 and to the tune of 10,263
million rupees has been advanced to the SHG for income generating activities. As
per the report of NABARD, SHG bank linkage programme has benefited 4 million
families, covering an estimated 20 nillion very poor people during 2001-2002.
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The SHGs are a viable alternative to achieve the objectives of rural development and
get community participation in all rural development programes. The possible
outcomes : women's entrepreneur through SHGs at household level are self
employment, sustainable -velihoods, enhanced social dignity and better status of
women. SHG would lead to benefits l »t only to the individual women and women's
groups but also for the family and community - a whole through collective action for
development. Empowerment is not just for meeting _-eir economic needs but also
for more holistic social development.
The Concept, Role and Functions of Business Incubator : Indian government is lying
to aggressively promote entrepreneurship, but entrepreneurs continue to face
jmerous challenges due to which new venture failure rate is quite high. In view of
this isiness incubation centres are being opened with the support of government so
that they rovide an enabling environment to deal with the difficulties in the process
of entrepreneurship . providing comprehensive and integrated support to the
entrepreneur's, thereby reducing the new venture failure rate substantially.
These incubator centres provide start-up business with a variety of service such as
shysical space, office equipment, business, services, management guidance and on
enabling nvironment in order to facilitate their development until they are capable of
surving on heir own after exit from incubator, also we can say at the macro level,
they generate public lonfidence in entrepreneurship and help to create overall
entrepreneurial environment. Business incubation initiatives have arisen especially
over the last decade with varying iegree of success in different parts of the country
and continously experimenting to foster tntrepreneurship.
Start up Incubators : Start up incubators are those institutions that provide helps to
new entrepreneurs in order to develop their business, especially in their initial stages.
All those institutions who have experience in business and technology world
perform incubation functions, these incubator support may includes providing
technological facilities and oher advices, initial growth funds, networking linkages,
co-working spaces, lab facilities, mentoring and advisory support. So we can say
that start-up incubators are an important part of economic ecosystem.
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Role of Incubators : Incubators has an very important role in the governments start
up India schemes, under this scheme government recognised incubators role and has
recgonised 56 active incubators across the country for supporting the startups,
slowly and steadly overall now around 250 incubators has been recognised in the
country among which majority of them are sponsored by esteemed educational
institutions like IIMs, IITs and at the universities which helps to educate, training
and financial supports to them.
Government start-up policy gives prime role to incubators by giving then
recognition, regulation guidelines and financial helps, Government has started Atal
innovation Mission also promotes Atal Incubation Centres at various part of country
in order to realise its mission objectives.
Atal incubation Centers (AIC) schemes has created world class incubation facilities
across India with suitable physical infrastructure, AIC, provide capital equipment,
operating facilities, experts for mentoring the starts up, business planning support,
supply of seed capital, providing industry partners, training etc, required for
encouraging innovative startups. The areas which are coveted by AIC are
manufacturing, transport, enegry, health, education, agriculture, water and sanitation
etc.
AIC also support business and technology related entities including higher education
institutions, R&D institutes, Corporate Sector, alternative investment funds
registered with SEBI, business accelerators, individual groups etc.
The selected AIC's government provides grants upto ? 10 crore for a maximum
period of 5 years to cover the capital and operational expenditures, Also different
private companies and public institutions sponsore business incubator programmes
with the goal to help, create and grow young business by providing them necessary
support and financial, technical services, there are appoximately 900 business
incubators nation-wide supported by private and public institutions according to the
National business Incubator Association.
All business incubators arealike they are specialized in different ideas of business, s
those young entrepreneurs who wants to start business in specific areas must first of
a. find out related areas incubators and the make a project report accordingly and
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submit the: proposal to concern incubators where screening and evaluation is done
by incubators an if project is feasible all the helps are provided to entrepreneurs.
Functions of Business Incubators : According to the National business Incubati
Association an incubator's primary objective is to produce successful and financially
via! firms that can servive on their own, Early incubators focuses on technology
companies on a combination of industrial and service companies, but now newer
incubators are work with companies from diverse industries, so all the functions
which are performed by incuba' can be summarised as follows :
1. Financial Support : Incubators are very helpful to the start ups by saving tk
operation costs, as the companies that are part of an incubator can share the same
facilit and share on overhead expenses, such as utilities, office equipment rentals and
ot services. Start-ups can also take advantage of lower lease rates of the incubator is
located in low-rent industrial parks. So incubator provides financial supports to
budding young entrepreneurs.
2. Management Skills: It is not necessary every entrepreneurs may have
professional management skills so some time start ups also need guidance with
respect to management of business enterprise, so incubators forms network of
experienced entrepreneurs and retired executives who can provide management
guidance and operational assistance for e.g. restaurent entrepreneur could learn
about the difficulties of overseas expansion from retired hospitality industry
executives, startup on have senior retired executives on their boards of director and
scientific advisory panels, because these individuals provides invaluable connections
and experience to manage business.
3. Synergy Function : The close working relationships between an incubator's start-
ups create synergees, as start-up entrepreneurs can provide encouragement to our
another and employees may share ideas on new approaches to old problems, startup
may plan joint marketing compaign and cooperate on product development
initiatives with colaboration and co-ordination between different departments.
4. Economic Development: By helping new business proper or entrepreneur
incubator performs function through assisting in creating long-lasting jobs further
host communities, due to which there is creation of long-lasting jobs for new
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graduates, experienced mid-career personnel and veteran executives. When any new
business enterprises are established in any society there is employment generation,
profit generation due to which per capita" income increases and overall economic
development of nation.
Types of Incubator Services : As any start-up entrepreneurs generally lacks many
resources experience and network, so initially incubators play very important roles
to provide different services which helps then to face hurdles in starting up a
business. Hurdles which are very common can be space requirement, funding, legal,
formalities, accounting system, computer services and after pre-requisites to start
and run business, hence incubator most common services can be :
• . .Helping for business basics.
• Networking activities
• Market asssistance
• Accounting and financial management
• Access to bank loans, loan funds
• Presentation skills training
• Providing links to strategic partners
• Access to angle investor's or venture capitals
• Comprehensive business training programes
• Setting up advisory boards
• Providing mentorship
• Teaching business eliquelte
• Technological assistance
• Assistance for regulatory compliance
• Intellectual property management
Types of Business Incubators : There are different types of business incubators
which are focused on particular industries or on a particular business models, so
according to different services provided by incubators they can be categorised as
follows :
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1. Virtual Business Incubators : They provides all the assistance through internet or
online, benefit of such incubator is that they can provides solutions of problems from
remote centers too without physically presence on site.
2. Food Service Incubator : They are also called kitchen incubator because they are
expertised on food industry helful to establish restaurant and food processing related
technology and machinery.
3. Public Incubator : They are specialised on public dealing and helpful for public
goods assistance providing to related business enterprises.
4. Corporate Accelerator Incubator: They work on corporate level providing services
related to expansion of existing business and also if they want to diversity to new
market or products.
5. Start-up Studio Incubator : These types of Incubator primarily work for new
startups with interacting portfolio companies and helping start up projects.
6. Hybrid Incubators: These types of incubators are providing mixed services where
there is combination of both virtual incubator with on-premise activities including
various after functions.
Angel Investor : An angle investor (also known as informal investor, business angel,
private investor or seed investor) is an affluent individual who provide capital for a
business start-up, usually in exchange for convertible debt or ownership equity.
There are many big or small increasing number of angel investors who invest online
through equity crowd/unding or organise themselves into angle network or angel
groups in order to share research and pool their portfolio companies.
Usually angel investors invest their money as capital in start ups or small businesses
although these start-ups are highly risky companies typically have little or no occurs
to capital markets. Angel investing has soared in recent years as a growing number
of individuals seeks better returns on their money than they can get from traditional
investment vehicles.
Angel investors may include professionals such as doctors, lawyer's business
associates, executives, suppliers customers and even other entrepreneurs, unlike
venture capitalists and bankers, many angel investors are not motivated solely by
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profit making, they may be motivated for enjoyment of helping a young business
succeed and generating employment and social welfare.
Types of Angel Investors : Angel investors vary widely, but they are typically
willing to accept risk and demand little or no control in return for the change to own
a part of a business may be valuable someday. Angels can be classified into two
groups as :
• Affiliated
• Non-affiliated
An affiliated angel is some one who has some sort of contact with business but is not
necessarily related to acquainted with business. While non affiliated angel ha s m n-
'iiiiection with business directly they only invest money. There can be different
types of angel investors as follows :
1. Professionals : These includes those professionals who has discretionary income
available to invest in outside projects and if they found good return they also
recommends their collegues, professional may includes doctors, dentists, lawyers,
accountants, C.A., other business professionals.
2. Business Associates : These are those people who comes in contact with during
the normal course of business activities, they can be divided into four subgroups :
(a) Supplier/Vendor : These are those who supply inventory and other needs and
has a vital interest in company's success and acts as angel investors, they may not
only invest .n form of cash but also in the form of better payment terms or cheaper
prices or even use their credits and helping to get loans.
(b) Customers : There are many customers who has long term association with
business enterprises, customers may be shop keepers, distributors, wholesalers etc
who like companies policy and products and want to be associated with the company
through investment.
(c) Employees : Some of the key employees having long association with company
may invest their money in business either directly or purchasing shares of the
company.
(d) Competitors : There include owners of similar companies who don't directly
compete with, such competitor may be doing business in another part of the country
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and does't infringe on entrepreneur's territory, these competitors may be an
empathetic investor and may share not only capital but also informations.
(e) Business Brokers :These are,the brokers which either invest themself or they
imow hundreds of people with money who are interested in buying shares or
investing money in business.
(f) Friends and Business Associates : Family and friends are often common source
of capital for a new venture, they are most likely to invest due to their relationship
with the entrepreneur, although it is relatively 'easy to obtain money from family and
friends, like all sources of capital, there are positive and negative aspects but if the
family or friends are treated the same as any investor, potential future conflicts can
be avoided. Similarly business associated like suppiers, distributors etc. also act as
angel investor for new enterprise of they sense good rate of return in business.
Venture Capital : The term Venture Capital' represents financial investment in a
highly risky project with the objective of earning a high rate of return, although the
concept of venture capital is very old, but recent liberalisation policy of the
government appears to have given momentum to the venture capital movement in
India, we can say venture capital financing is one of the most recent entrants in the
Indian capital market, there is a significant scope for venture capital* companies in
our country because of increasing emergence' of technocrat entrepreneurs who lack
capital to be risked.
Some people think that venture capitalist do the early-stage financing of relatively
small, rapidly growing technology companies, it is more accurates to view venture
capital broadly as a professionally managed poal of equity capital, freuently, the
equity pool is formed from the resources of wealthy limited partners other principal
investors in venture-capital limited partnerships are pension funds, endowment funds
and other institutions including foreign investors.
1. Private Venture Capital Firms : These were emerged in late 1960's and usually
formed as limited partnership with the venture-capital company acting as general
partner that received a management fees and percentage of profits earned on a deal,
where as limited partners who supplied the funding were frequently institutional
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investors such as insurance companies, endowment funds, bank trust departments
pension funds and wealthy-individuals and families.
2. Small Business Investment Companies (SBIC) : The next major development by
SBIC Act which was passed in 1958 in which married private capital with
government funds to be used by profesionally managed small business investment
companies to infuse capital into start-up and growing small business, with the tax
advantages, government funds for leaverage and a private capital company SBICs
were the start of the now formal venture-capital.industry. In 1960s there has been
significant expansion of SBICs with the approval of significant expansion of SBICs
with the approval of approximately 585 SBIC licenses.
3. Industry Sponsored Venture Firms : In this type there has been money big
industry partners who pool funds to invest in new businessness as by doing so they
get tax benefits as well as long term capital gains. This took place through banks and
financial institutions as well as non-financial institutions.
4. State-Sponsored Venture Capital Fund : In response to the need for economic
development, a fourth type of venture capital firm emerged in the form of the state-
sponsored venture-capital fund, these state sponsored funds have a variety of
formats, while the size and investment focus and industry orientation vary from state
to state.
5. University Sponsored : There is fifth emerging university sponsored venture-
capital fund, these funds, usually managed as seperate entities, invest in the
technology of the particular university.
Features of Venture Capital: The main features of venture capital can be summarised
as follows :
(i) High Degree of Risk : Venture Capital represents financial investment in a highly
risk project with a objective of earning a high rate of return.
(ii) Long term Investment : Venture capital financing is a long term investment, it
generally take a long period to encash the investment in securities made by the
venture capitalists.
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(iii) Equity Participation : Venture capital financing is, invariably, an actual or
potential equity participation wherein the objective of venture capitalist is to make
capital gain by selling the share once the firm becomes profitable.
(iv) Participation in Management: In addition to providing capital, venture capitalist
take on active interest in the management of the assisted firms, they support young
entrepreneur through their support in area of managing technology, Marketing and
other areas, thus we can say approach of venture capitalist is different from that of a
traditional Render of bankers, 'Venture capital combines the qualities of banker
stock market investor and entrepreneur in one."
In additional to the venture capital companies, the government of India has been
intrumental in setting up a number of new financial agencies to serve the increasing
need of the entrepreneurs in the area of venture capital these includes :
• IDBI—Venture Capital Scheme.
• ICICI—Venture Capital Scheme.
• Risk Capital and Technology Corporation Ltd. (RCTC).
• Infrastructure Leasing and Financial Service Ltd.
• Stock Holding Corporation of India Ltd. (SHCIL).
• The Credit Rating Information Service of India Ltd. (CRISIL).
• The National Venture Fund for Software and IT Industry (NVFSIT) launched in
the year 1999-2000.
Private
Management
Firm
Risk
Raise Capital
Growth
Start-up Business
Fig. Related Areas of Venture Capitalist Stages/Process of Venture Capital
Funding : The venture capital funding process typically involves four phases in the
company's development:
1. Idea generation.
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2. Introductory Meeting.
3. Due Diligence.
4. Term Sheets and Funding.
Step I: Idea Generation and Submission of the Business Plan : The initial step in
apprating a venture capital is to submit a business plan, the plant should includes the
belown points in detail :
• Executive summary of the business proposal.
• Description of the opportunity and the market potential details.
• SWOT analysis of competitive scenario.
• Detailed financial projections.
• Detalis of the management of the company.
• Details of the proposed organisation structure.
Step II: Introductory Meeting : This is the second step after priliminary study is
being done by the venture capitalist and they finalised the project as per their
preferences, then there is one-to-one meeting that is called for discussing the project
in detail, after this meeting the venture capitalist finally decides whether or not to
move forward to the due diligence stage of the process.
Step III: Due Diligence : This is third stage called due deligence depending upon
the nature of the business proposal this process involves solving of queries related to
customer references, product development, business startegy evaluations,
management interviews, and after such exchanges of information during this time
period.
Step IV : Term Sheets and Funding : After due diligence phase is satisfactory, the
VC offers a term sheet, which is non-binding documentation explaining the basic
terms and conditions of the investment agreement, the term sheet is generally
negotiable and mist be agreed upon by all parties, after which on completion of legal
documents and legal d> deligence, funds are made available.
TYPES OF VENTURE CAPITAL FUNDING
The classification of venture capital are as per their application at various stages of a
business, the venture capital funding procedure gets complete in six stages of
financir.r! corresponding to the periods of a company's development :
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1. Seed Money : This is initially low level financing for fruitifying new idea.
2. Start-up Funds: For new firms needing funds for expenses related with
marketing and product development.
3. First-round Funding : This is done for setting manufacturing unit and after earl;.
sales funding.
4. Second-round Funding : This is related to operational capital for early stage
companies for all the operations related activities like machines, labour, raw
materia! inventory, etc.
5. Third-round Funding: This type of funding done by venture capitalist also
known as Mezzanine financing, this is the money for expanding a newly benefecial
company.
Beside above mentioned six stage of financing many books categorised mainly three
principal types of venture capital as :
1. Early Stage Financing.
2. Expansion Financing.
3. Acquisition/Buyout Financing.
1. Early Stage Financing : This is first category called early stage financing further
has three sub division as :
• Seed Financing
• Start-up Financing
• First Stage Financing
2. Expansion Financing : This is second category of financing which is done
mainly for expansion of business includes following sub divisions as :
• Second-stage financing (for expansion)
• Bridge Financing (for collaboration)
• Third Stage Financing (Monetary assistance for issuing IPO)
3. Acquisition or Buyout Financing : This is third category called acquisition or
buyout financing which assists a company to acquire certain parts or on entire
company, also called leveraged buyout financing which helps a particular
management group to obtain a particular product of another company.
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Disadvantages of Venture Capital : There are many advantage of venture capita!
but some disadvantages are also being observed which can be as follows :
• Usually venture capital as investor becomes part owners, so autonomy and contro.
of the founder is lost sometimes.
• Venture Capital investment requires many formalities and documentation hence i:
is tengthy and complex process.
• Venture capital believed to be uncertain form of financing by some experts.
• Venture capital rate of return is risky and long-term so benefits from such
financing can be realised in long run only.
Private Equity Fund : A private equity fund can be defined as a collective investment
scheme used for making investments in various equity security. Private equity funds
are typically limited partnerships with a fixed term of 10 years (with annual
extensions).
A private equity fund is raised and managed by investment professionals of a
specific private equity firm (the general partner and investment advisor), typically a
single private equity firm will manage a serves of distinct private equity funds and
will attempt to raise a new fund every 3 to 5 years as the previous fund in fully
invested.
A private equity fund is typically open only to accredited investors and qualified
clients. Accredited investor and qualified clients include institutional investors, such
as insurance companies, university endowments and pension funds and high income
and net worth individuals.
The initial investment amount for a private equity investment is often very high, if
an individual are not able invest in private equity funds directly, he/she may be
indirectly invested in a private equity fund through pension plan equity based or
insurance policy. The companies having such schemes they invest some portion of
their large portfolios in private equity funds.
Private equity firms are known for their extensive use of debt financing to purchase
companies, which they restructure and attempt to resell for a higher value. Debt
financing reduces corporate taxation burdens and is one of the principal ways in
which private equity firms make business more profitable for investors.
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A private equity investment will generally be made by a private equity firm, a
venture capital firm or an angel investor. Each of these categories of investors has its
own set of goals preferences and investment strategies, however all provide working
capital to a target company to nurture expansion, restructuring of company's
operations, new-product and market development, management support etc.
Common investment strategies in private equity include leveraged buyouts, venture
capital, growth capital, distressed investments and mezzanine capital, in a typical
leveraged buyout transaction, a private-equity firm buys majority of on existing or
mature firm. This is distinct from a venture capital or growth capital investment in
which the investors invest in young, growing or emerging companies and rarely
obtain majority control.
Private equity is also often grouped into a broader category called private capital,
generally used to describe capital supporting any long-term illiquid investment
strategy.
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SOURCES OF BUSINESS IDEAS, TESTS OF FEASIBILITY AND
SIGNIFICANCE OF WRITING BUSINESS PLAN/ PROJECT PROPOSAL
SOURCES OF BUSINESS IDEAS 1. Identification of Business Idea : In the words
of McNaughton, "The take off point of every business enterprise is an idea. Ideas are
the forces which keep every business enterprise on its trajectory. These enterprises
which do not possess a power plant of original and practical ideas will diminish and
disappear." So the first stage in promotion, and innovation is the identification of
business idea. Any decision to establish the enterprise is taken only after
identification of an idea and examining its practicability and profitability. This stage
involves three things—(a) Motives of Business, (b) Business ideas, and (c)
Evaluating feasibility and profitability
(a) Motives of Business : Motivation plays an important role in the spread and
development of entrepreneurship in the society. It has been found that certain social
needs within the broader perview of motivation are prominently associated with
entrepreneurial behaviour. Such factors or motives are needed for achievement,
power, individual achievement, social achievement, recognition, etc.
(b) Business Idea : A creative and concrete work plan is most important for a
business or innovative idea. A.business idea has to be selected from among various
alternatives. For example, whether to establish a manufacturing unit or to establish a
service sector or to establish food and agricultural product industry.
(c) Evaluating the Feasibility and Profitability of the Ideas : After selection of
business idea for the promotion or innovation- the next step is to examine the
following:
i(i) The feasibility or practicability of the selected product or service, (ii) What are
their uses ?
(hi) What are the probable capacities of the production ?
(iv) What are the technical complexities/systems ?
(v) What would be the investment level for probable capacity ?
(vi) What are the market prospects ?
(vii) What would be probable annual sales ?
(viii) What are the expected profits ?
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(ix) What are the factors for determining the success ?
Answer to these questions is most important to work out the productivity, feasibility
and profitability of the business idea. Suggested Sources of Business Ideas
(1) End Consumer : Prospective customers must be paid attention by potential
customers for idea generation. For manufacturing a new product or providing a new
service the potential customer is the final focal point of the idea.
(2) Existing Companies and Market Surveys : Good business ideas are generated
by monitoring and evaluation of the competitive products and services of the
existing companies. Market survey is carried out for this purpose which reveals the
nature, number, supply and demand position and deficiencies of various competitive
products and services.
(3) Distribution Channel : Representatives of distribution channel like retailers.
wholesalers,distributors and C/F agents are very well exposed to the needs and
requirements of the markets. They act as an excellent source for new ideas.
(4) Government Agencies : Various government agencies like state financial
corporations, technical consultancy cells, investment centers, export promotion
council's etc. generate ideas by way of providing advice and assistance in technical,
marketing and financial fields.
(5) Industrial Exhibitions and Trade Fairs : At national and international levels
various trade fairs and exhibitions are organized where new and modified versions
of products are displayed at the stalls of various manufacturers. Such venues prove
to be an excellent source of business ideas. They provide good opportunities for the
purchase, manufacturing, collaboration and distribution of new product. In India
exhibitions and trade fairs are organized by Trade Fair Authority of India which is
an autonomous body.
(6) Professional Expert: Professionals such as technical consultants, commercial
consultants, advertising agencies can also provide good business ideas and services
on the ground of their experience.
BUSINESS FEASIBILITY TEST
Definition and Concept
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"A Business Feasibility Test can be defined as a controlled process for identifying
problems and opportunities, determining objectives, describing situations, defining
successful outcomes and assessing the range of costs and benefits associated with
several alternatives for solving problems."
The Business Feasibility Test is used to support the decision making process based
on a cost benefit analysis of the actual business or project viability. It is an analytical
tool that incudes recommendations and limitations which are utilised to assist the
decision makers when determining the viability of Business Concept. Generally the
business tests are conducted during deliberation phase of the business development
cycle prior to commencement of a formal Business Plan.
IMPORTANCE OF BUSINESS FEASIBILITY TEST
Business Feasibility Test is an effective way to safe guard against wastage of further
investment or resources. A feasible project is followed by a full Business Plan. The
research and information uncovered in the feasibility study will support the business
planning stage and reduce the research time.
A thorough viability analysis provides an abundance of information that is necessary
for the Business Plan. A feasibility study should contain clear supporting evidence
for its recommendations. Recommendations will be a mix of numerical data with
qualitative, experience based documentation. A business feasibility test is heavily
dependent on the market research and analysis. It provides the stakeholders with
varying degrees of evidence in context to the viability of Business Concept.
DIMENSIONS OF BUSINESS VIABILITY
The Business Feasibility Test places the findings of the Dimensions of Business
Viabi ity Model assessment into a formal business report which is assessed by
potential investor-and stakeholders regarding their credibility and depth of argument.
For the purposes of understanding the structures of a Business Feasibility Study, the
following represent the framework of the Dimensions of Business Viability.
1. Market Viability
2. Technical Viability
3. Business Model Viability
4. Management Model Viability
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5. Economic and Financial Model Viability
6. Exit Strategy Viability.
The significant component of the findings should relate to the likelihood of success,
projected return on investment and mitigation of identified risk.
The purpose of the feasibility study is to consolidate an argument based on factual
evidence and analysis to help justify one's decision in relation to the core question of
actual viability of the business venture.
SOME OTHER SOURCES OF HELP TO CONDUCT BUSINESS
FEASIBILITY TEST
• Business Enterprise Centres : Information, business counselling, training
workshops, research facilities, back up and support facilities, networking and
publications.
• Accountant: Advice on all financial issues, assist in feasibility study, legal
structure suggestions, assist in funding estimates, sourcing and applications, check
books if buying an existing business.
• Solicitor : Contracts, leases, legal representation.
• Bank : Finance, information and support, leasing, advice on contracts, specialist
services.
• Business Advisors/Consultants : Someone to talk to, specialist advice, monitor-
ing, negotiations, training, back-up.
• Trade Associations : Membership and support, group deals, training, advice,
research, industrial relations expertise and networking.
• Potential Suppliers : Information, back up, promotional support, training, etc.
• Sources of Information : Own research, government departments, information
and publications available from many departments.
• Competitors : Check the competition, their location, layout, advertising and
service.
• University Libraries and On-line Entrepreneurship Resources.
BUSINESS PLAN/PROJECT PROPOSAL Concept of Business Plan
Before promoting the enterprise planning is to be done in order to achieve tin
objective of the enterprise. Therefore a business plan can be explained as a written
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document that describes in detail how a new business is going to achieve its goal.
Business plans can range in size from a simple few sentences to more than 100
pages.
Comprehensive business plans are categorised into three sections i.e., business
concept, market place and financial. There are further categorised into seven
components that include summary of the plan, description of the business, market
strategies, competition analysis, design and development, operations and
management.
Significance of Business Plan
1. Classify Direction and Future Vision : The primary objective of a business plan is
to clarify, what the business is and what it intends to be over a period of time.
Clarifying the purpose and direction of one's business allows one to understand what
needs to be done for future development. Classifying one's business can specify the
exact product lines and services one wish to offer as well as detailed description of
ones ideal customers.
2. Attract Finance : The preparation of business plan is beneficial for those small
enterprises who have applied for loans from financial assistance from financial
institutions and commercial banks. Financial institution make appraisal on the basis
of business plan or project proposal to find out the feasibility of the project.
3. Attract Team Members : Business plans can act as a sale tool to attract executive
level employees, financial partners into their new venture. The perspectives of the
project can be explained to the desired partners or executive candidates and persuade
them to join the team.
4. Manage Company : A business plan .acts as a management tool that can be
regularly referred to ensure that the business is on course with meeting operation
milestones.
PROJECT FORMULATION OR FORMULATION OF BUSINESS PLAN
Project formulation means the systematic development of a project idea for arriving
at an investment decision. It contains a mechanism of knowing risks at the earliest
possible stage of resource mobilisation. It involves a step by step investigation and
development of project idea. It also provides for a controlled mechanism for
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curtailing expenditure on project development. In case a weakness is observed at any
stage of investigation, the entrepreneur can exercise his discretion of calling off that
exercise, if required.
Project formulation is a process which involves team effort of various,experts. For
this, each member of the team should be familiar with broad strategy, objectives and
other aspects of the project. Project team should consist of experts in major
substantive fields of the project. Depending on the situation any large project should
comprise the following team members :
(i) One industrial economist
(ii) One market analyst
(hi) One or more technologist/engineer specialised in the appropriate technology
(iv) One mechanical and/or industrial engineer
(v) One civil engineer, if needed
(vi) One management accounting expert.
Significance of Project Formulation : A well formulated project is of great help in
obtaining assistance from financial institutions. When resources are limited and are
allotted to various projects on the basis of their relative importance and viability, a
well formulated project is the best way of convincing a financial institution.
Secondly, well-formulated projects get easy Government clearance and in removing
hurdles of procedural formalities. It provides an independent assessment of the
feasibility of obtaining these sanctions based on Government's policies. The project
establishes credentials in the eyes of the bureaucracy and obtains the government's
sanctions without much difficulties.
Elements of Project Formulation : Project formulation is by itself an analytical
management aid. It enables the entrepreneur to arrive at most effective project
decision. A project formulation process involves the following aspects :
1. Feasibility Analysis
Sources of Business Ideas, Tests of Feasibility and.....Project Proposal 165
2. Techno-economic Analysis
3. Project Design and Network Analysis
4. Input Analysis
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5. Financial Analysis
6. Social cost benefit Analysis
7. Project Appraisal
8. Location and Layout Analysis
9. Selection of form of ownership.
SELECTION OF A PRODUCT AND PROJECT FORMULATION
An entrepreneur has to identify or select the product according to market needs. He
has to identify short-term and long-term effects of the product. In our country there
is scarcity of innovative entrepreneurs because the capital and technical market is
not much effective or developed. The limitations or drawbacks of an underdeveloped
economy are basic reasons for not evolving new products or techniques. Lack or
improper training and development facilities are not paying proper attention on
research are some other reasons in this direction. An innovative entrepreneur has
desire to do something new and therefore he uses his knowledge, experience,
capacity and motivation to decide the product, and this motivation induces him to
produce and develop new market. On the other hand, the entrepreneur-who does not
think something new and just follow prevailing products or techniques with no or
little changes can improve the present market. Before deciding about the product, an
entrepreneur must try to answer the following questions :
(i) Who are the prospective buyers for the product ?
(ii) At what price they will buy the product ?
(hi) When will they buy and how much will they buy ?
(iv) From where they will purchase the product ?
(v) What are their expectations in our product ?
(vi) Who are our competitors and what methods they adopt ?
(vii) How the product will be marketed ? etc.
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CONTENT OF BUSINESS PLAN, DESIGNING BUSINESS PROCESSES
BUSINESS PLAN
Business plan can be defined as road map or written document that provides
directions for future, business plan usually contains the guidelines regarding how to
conduct business in future.
Not all business plans are for starts up that are launching some new thing, existing
business also use business plans to manage and steer the business, not just to address
changes in their markets and to take advantage of new opportunities. Business plan
can be used as a plan to reinforce startegy, establish,metrics, manage responsiblities
and goals, tract results, and manage and plan resources including critical cash flow.
For existing business, a robust business planning process can be a competitive
advantage that drives faster growth and greater innovation, instead of a static
document, business plan in existing businessess become dynamic tools that are used
to track growth and spot potential problems so .that business is not affected.
There are certain common components that are found in almost every business plan,
such a sales forecasts and marketing strategy, business plan formats can be very
different depending on the audience and the type of business for e.g. if some one
building a plan for a pharmaceutical firm then plan must be having details about
government approval processes. If we plan for restaurant, details about location and
renovations might be critical factors. Plans can also differ greatly in length, detail
and presentation. Plans that never leave the office and are used exclusively for
internal strategic planning and management might use more casual language and
might not have much visual polish, on the after end a plan that is made for the desk
of a top venture compitalist will have a high degree of polish and will forces on the
high-growth aspects of the business and the experienced team that is going to deliver
stunning results.
Types of Business Plans
Generally there are three common types of business plans :
1. One-page Business Plan
2. The Internal Business Plan
3. External Business Plan
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1. One-page Business Plan : This is the shortest plan can be called as quick
summary of business delived on a single page which means the business is described
in very concise language that is direct and to the point. This types of one page plan
can serve two purposes, firstly as a tool to introduce the business to outsiders with
whom business is associated like potential investors as they have very little time to
read detailed business plans in that case one-page business plan is very helpful so
that investor can see the entire concept at a glance and quickly reviews the refined
concepts of new ideas.
2. The Internal Business Plan : This type of business plan is extension of one-page
plan in detail focuses mainly on business strategy, business objectives and
Milestones,
metrice budgets and forecasts also includes the review schedule for monthly review
anc revision. As this type of plans are made for internal staff and employees so
internal busines • plans skip details about company history and management team
since everyone in the company almost certainly knows these informations. Internal
business plans are management tools used to guide the growth of bath start up and
existing business, they help business owners think through strategic decisions and
measure progress towards organisation goals
3. External Business Plan : This is most detailed types of business plans called as
formal business plan documents that are designed to be read by outsiders to provide
information about a business, the most common use of this plan is to convince
investors to fund a business and also to support a loan application. Certainly this
type of business plan is also used to recruit or train or absorb key employees.
A formal business plan document is an extension of the internal business plan this is
very well-presented with more attention to detail in the language and format, it also
details new potential funds are going to be used in future and detailed analysis about
funds and expected returns. Content of Business Plan
Generally any business plan contains the following components :
1. Title Page
2. Executive Summary
3. Description of the Business
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4. Description of the Product or Services
5. Market Analysis
6. Competitive Analysis
7. Operations and Management
8. Financial Coponents
9. Supportive Documents
1. Title Page : Any business plan is presented with a cover called title page listing
the name of the business, owners name(s) of the principal(s), address of Head Office
and Plant location, phone numbers, e-mail, website and date, presentation of title
page should be professional, easy to read and informations well-put-together. If
there is any logo can be put in it, further table of contents follows the executive
summary or statement of purpose, so that readers can quickly find the information or
financial data.
2. Executive Summary : Also statement of purpose which reflect reason for writing
the business plan, this summary tells the reader what you want and why suppose if
you require loan 50 lacs then you have to give detail for the purpose of utilization
loan amount either for remodel, refurbish your factory or to expand your product
live or to buy nc equipment ? Also detail about return on investment, how to repay
loan etc.
The executive summary or statement should be no more than one page in length ar
should cover the following key elements :
• Business concept describing the business, products, market and competitr
advantage.
• Financial feature and financial highlight such as sales and profits.
• Financial requirements and capital requirements.
• Current business position and relevant information about the company.
• Major achievements such as patents, prototype, contracts regarding product
development or any results from test marketing if conducted in Market.
3. Description of the Business : This part of business plan contains description
usually begins with a short explanation of the industry, facts and research which
provide information on all the various market within the industry, including
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references to new products or developments that could benefits or hinder your
business, while doing this base your observation on reliable data and be sure to
footnote and cite your sources of information wherever necessary. As one should
keep in mind that bankers and investors won't risk money on assumption or
conjecture.
At the time of explaining busines person have to describe in which sector his
business falls into it may be wholesale, retail, manufacturing, food services,
hospitality, etc. and also describe the business is new or established.
After this describe business is sole proprietorship, partnership, company etc. There
explain the business principals and what bring to the business. Discuss who are the
customers of business, how much market is big and the way of distribution channel
and marketing of the product or service the business belongs to.
4. Description of the Product or Services : The business description depends on the
complexity of your plan, it can be few paragraphs to a few pages. Try to keep your
business description short if your plan is not complicated, describe one paragraph of
Industry, another para of product or service then business and its success factors in
another two more paragraphs.
At the time of describing your product or" service make sure to your reader about
idea you are presenting. Discuss in detail how your product or service is different
from other products or service those already in the market and how they can easily
use your product or service. You have to be specific about your business apart from
those of your competitors.
Also to mention why your business will be profitable, factors to be successful, hard
facts about new equipment, experience of the key people in the business, choice of
location and reason for selling the particular products in market.
5. Market Analysis: There should be through market analysis which define prospects
as well as information regarding pricing, distribution and promotional strategies that
will help your company to be successful compared to competitors both in short and
long-term.
So do market analysis by defining the market in forms of size, demographic, market
structure, growth prosepcts, trends and sales potential, next is to determine how
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often your product or services will be purchased by your target market, then figure
out the potential annual purchase, benchmark of market share along with market-
planning projections.
Also other aspects of market analysis should be done describing positioning strategy,
differentiating product or services from competitors and USP (Unique Selling
Proposition) of your product or services.
In marketing if the product is new in the market pricing is very important so you
should clearly mention the methods of establishing prices considering following :
• Cost-plus pricing can be used mainly by manufacture to assure that all cost (fixed
and variable) are considered for calculation in order to obtain desired profit
percentage.
• Demand pricing is also used by companies that sell their products through a variety
of sources differing prices based on demand.
• Competitive pricing is used when there is lot of competition already on established
price for particular products in the market.
• Mark up pricing is used mainly by retailers calculated by adding your desired
profit to the cost of the product.
Finally in market analysis detail information shoidd be there with respect to
distribution and promotional strategy including all the ways of communication in
market and customers to make them aware of your product or service, so for
successful promotion strategy one should address in detail about advertising,
packaging, public relations, sales promotions and personal sales.
6. Competitive Analysis : This is very important for a new business that they should
know detail about their competitors in the market because in today's market due to
availability of large variety of products in the market by competitors may affect new
products due to quality, pricing, market share etc.
So the purpose of competitive analysis is to determine the following :
• The strengths and weakness of the competitors within your market.
• Competitive strategies that will provide you with a distinct advantage.
• Barriers that can affect your product from entering in market.
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• Any weakness of competitors that can be exploited in the product development
cycle.
So competitor analysis is done mainly to identify both direct and indirect
competition related to your business in present scenario as well as in future, once if
competitors are grouped then detailed marketing strategies can be identified which
helps you to determine distinct competitive advantages.
7. Operations and Management : This part includes all the aspects and process
related with operations and management of business, this includes the components
of business plan designed to describe how the business functions on a continuing
basis. The operation plan highlights the logistics of the organisation, such as all the
responsibilities of management team, various task- assigned to each division and
hierarchy within the company also the capital and expenses requirements related to
the operations of the business.
8. Financial Components : After defining the products, market, operations the next
area is very important to analyse the financial components, as finance is like blood
in body without it body organs cannot work. So financial statements that form the
backbone of any business includes three main components as r
• The Income Statement
• Cash Flow Statement
• Balance Sheet
The income statement is a simple and straight forward report on the business cash-
generalising ability, It is a scorecard on the financial performance of your business
that relects when sales are made and when expenses are incurred, it also draws
information from the various financial models developed earlier such as reenus,
expenses, capital and cost of goods, by combining all these elements, the income
statement illustrates just how much your company makes or loses during the year by
substracting cost of goods and expenses from revenues to arrive at a net result,
which is either a profit or loss.
The cash flow statement is one of the most critical information tools for your
business, since it shows how much cash you will need to meet obligations, when you
will require it and where it will come from, the result is the profit or lose at the end
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of each month and year, the cash flow statement carries both profits and losses over
the next month to also show the cumulative amount. The cash flow statement should
6 prepared on a monthly basis during the first year, on a quarterly basis for the
second year and annually for the third year.
The last financial statement needs a balance sheet, unlike the previous financial
ratements, the balance sheet is generated annually for the business plan and is more
or .ess, a summary of all the preceeding financial information broken down into
three tomponents i.e., assets, liabilities and equity.
Balance sheets are usually used to calculated the net worth of a business or
individual directly measuring assets against liabilities, if the business plan is for a
new business, try to project what your assets and liablities will be occur the course
of the business plan determine what equity you may accumulate in the business, so
to obtain financing for new business one should need to include a personal finance
statement or balance sheet, finally analysis of the balance sheet should be kept short
and cover key points related to -sets and liabilities of business.
9. Supportive Documents : In this section of business plan includes any other
documents that are either directly or indirectly required for starting and running the
business which may include :
• Licence
• Contracts with Suppliers
• Identity of Customers or Clients
• Letters of References
• Letters of Intent
• Copy of Lease
• Tax Returns for Previous Three Years
• Any other Legal Documents Details etc.
So we can say business plan is very important document which helps as a guide line
to bath proposer and investors, although many people thinks that business plan is
only required of someone are trying to borrow money from banker or a venture
capitalist, it is true but a business plan is more than a pitch for financing also a guide
to help a business man in order to define and meet busines goals.
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Business plan can be compared like if we start cross-country drive without a road
map, similarly without business plan you cannot run any business strategically
business plan at as a road map for the success of any business enterprise. Business
plan help you to avoid some common causes of business failure such as under-
capitalization or lack of an adequate market.
Plant Location and Layout: Location of an enterprise is an important entrepreneurial
decision as it affects the operational as well as financial performance. So
entrepreneur is required to identify that location at which the enterprise will have
easy access to physical, economic and social endowments. The general objective in
selecting a location is to minimize total cost of production and distribution. The
selected location should be in a position to help in generating maximum revenue and
provide an opportunity for further growth and expansion. An entrepreneur is
expected to evaluate his targets in terms of time and cost variable and try to select a
proper location and seek possession of the site before the zero date. Generally,
financial institutions are also interested to inspect the location or site of the plant
before sanctioning any loan to the enterprise concerned. Efforts should also be made
by the entrepreneur to remove all uncertaintty associated with the site before the
zero date. Entrepreneur should also know that any change in location or site of a
later date not only targets will be missed but even the viability of the project may
also be lost. Thus ideal location site helps in smooth and efficient functioning of an
enterprise, it also ensures a reduction in cost as well as improves productivity and
financial viability of the enterprise.
Need for Enterprise Location
The need for location or site is generally govern by the following circumstances:
(i) To promote the establishment of a new enterprise.
(ii) To undertake exapansion, decentralisation and diversification necessary for
meeting (hi) To manage the situations arising due to non-renewal of existing lease
of a
establishment demand of products.
(iv) To develop new location if existing location has been declared as undesirable or
unsuitable.
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(v) To arrange a new location by shifting from existing location due to change in
market pattern, depletion of raw materials, change in production processes and
transport facilities, etc.
(vi) To open new branch or production facility at new places for increasing the
volume of production and distribution activities.
Importance of Enterprise Location
Selection of plant location or site is quite important due to the following reasons :
(i) It enables the enterprise to operate smoothly, efficiently and with the minimum
cost.
(ii) It controls wastages in efforts and talents at the entrepreneurs.
(iii) It reduces uncertainty in results.
(iv) It encourages effective mobilization of raw-materials, labour and potential
customers, (v) It develops the area by attracting other potential entrepreneurs and
endowments
like physical, economic and social variables.
Steps in Enterprise Location
Following steps are important in selecting a particular location or site for the plant:
(i) Selection of the region.
(ii) Selection of the locality or community.
(iii) Selection of the exact site and
(iv) Selection of an optimum site.
Generally, entrepreneur is free to select and location or site for the plant
development. However, regulatory provisions of the government also affect the
choice of plant location or site.
Location, Localisation and Planned Location of Industries: Location is
concerned with a particular site where entrepreneur is interested to establish his
enterprise or plant having lowest cost objective. If a particular industry is
concentrated mainly in one areas is called as localisation of industries. For example,
Kolkata and Mumbai are known for jute and textiles industry respectively. Planned
location of industries is a systematic approach by which location of industries is
planned to give each region or area or place a variety of industries to promote
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dispersal of industries. For example, in Ludhiana, different types of industries have
been developed and no particular industry is concentrated in that particular area.
Factors Influencing the Selection of the Location of an Enterprise or Plant or
Project: Following are the important factors which are normally to be considered
when selecting the location of an enterprise or project :
(a) Availability of Land : Land should be large enough to meet out present
requirement with provision for further expansion. Land should be for industrial use
(land usage pattern to be adhered to) and proper layout of plant and equipment must
be possible as per the clinical feasibility study. Drainage level of land, soil testing
report (should be suitable for the construction of the factory) should be favourable to
the project requirements.
(b) Availability of Raw Materials : Availability of required quantity and quality of
raw materials at a resonable cost. Cost of materials generally constitutes a major
chunk of total cost of production and thus, the impact of raw materials on location
depends their nature and the source of their deposits.
(c) Supply of Manpower: Every enterprise requires an adequate supply of manpower
with appropriate skills. Availability of skilled manpower, cost of labour, labour
expectations, local culture affect the supply of manpower to enterprise. Sometimes,
it becomes difficult to obtain high skilled people to work at very remote places with
big town facilities. Alfred Weber rightly remarked that "an industrial site will
deviate from the point of minimum transportation cost to the cheaper labour centre if
the additional cost of transportation at the new centre is more than compensated by
the savings in labour cost." However, this situation has been changed. Labour is
mobile and there is a level of minimum wages fixed by the Government from time to
timev Moreover certain industries are capital intensive and they require less labour.
(d) Transport and Communication Facilities : Transport services are required for
assembling of materials and distribution of products. At the time of selection of a
particular efforts should be made to ensure that transportation facilities are easily
available at reasonable rates. Site should be well connected by road and rail or
nearer to national highways, major railway yard etc., Transportation of equipment,
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material, product and personal is an important requirement and it should be ensured
in time and in efficient manner.
(e) Proximity to the Market : Availability of consumer market also affects the
viability of the enterprise. An entrepreneur can improve his customer relations if
they are available in nearby perishable commodities and those producing for a local
market are also interested to develop their plants in potential consumer's area as it
would ensure a reduction in transportation cost involved in distributing the finished
products. Actually, an enterprise tends to disperse only if they find a new consumer
market.
(f) Water, Power and Fuel : Uninterruptd operations of an enterprise is the result of
sufficient supply of water, power and fuel etc. In this context, efforts are required to
assess local sources of water. Besides, required water supply to be assessed in terms
of water conditions or sub-soil water etc. Availability of power in the region is to be
evaluated in terms of actual requirements. Some industries consume lot power
(aluminium) or water (Paper industry) and these variables are a very important factor
for them. Nowadays, industries are facing the problem of power shortages and they
are shifting to the fuel option—coal. For example, coal is the major source of fuel
for the iron and steel industry and these industries are located near the coal mines.
(g) Regional Development : In our country, government is pursuing the policy of
balanced regional development to solve the problems like slum, disparity of income
and wealth and optimum use of resources. In order to ensure balanced regional
development, government has declared certain areas as backward areas and zero
industry areas. Government gives certain benefits like tax benefits but it is necessary
to evaluate the process to what extent they would outweigh the disadvantages.
(h) External Economies : In some cases, an enterprise prefers to be located in those
centres where other industrial units are already located. There are certain facilities
like transportation, warehousing, banking, insurance, communication and factoring
services etc. which are easily available and industrial units tend to be concentrated in
these areas Besides, raw materials are. also available at cheaper prices and in large
quantity. For example, by product of one enterprise may be used as raw material by
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another enterprise Enterprises working as distilleries are generally located in nearby
areas of Sugar mills because they supply molasses as raw materials to distilleries.
(i) Personal Factors : Personal prefrernces and prejudices of an entrepreneur alsr
effect the selection of location. Entrepreneurial preferences are also affected by law
and order, political stability and safety etc. Thus, entrepreneurs prefer to locate their
enterprises in those areas which are safe and free from law and order problems.
(j) Local Laws and Regulations :In certain cases local laws and regulation imposes
restrictions on the development of industrial units in special areas. For example,
consent of various agencies like local Panchayat, municipality, government, state
planning bodies is mandatory for the entrepreneurs otherwise they cannot run their
enterprises in municipal or local areas. Similarly, high rate of income-tax, sale-tax,
octroi, etc. discourage entrepreneur to develop their plant in a particular area or state.
But facility of tax holidays encourages them otherwise to develop their units in a
particular area or state.
(k) Ecological and Environmental Factors : Certain industrial units are required to
be governed by the ecological and environmental provisions of Pollution Control
Act. Industrial units are required to follow the norms of Pollution Control Board.
They have to make efforts for the disposal of effluents are directed by the pollution
control authorities. They have to arrange the nearest source where effluent (after
treatment) could be discharged.
Government Locational Policy : Industrial location has received closer attention of
the government and policy planners in recent times. Actually, location policy is an
extension of the policy of development backward areas and industrial disposal. It
deals with negative aspect and positive thrust. The negative aspect is concerned with
preventive measures for developing new units in the already advanced areas and
urban, metropolitan centres with the dictates of then government from time to time.
But positive trust deals with instruments like concessional finance, investment tax
incentives subsidies etc. which are being used by government to develop new units
in backward and zero industries districts of different states. With the help of positive
strategy, government is trying to ensure effective dispersal of industrial units to
backward areas. The government has already formulated a policy that "The new unit
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should not be located within the standard urban area limit of a large metropolitan
city having a population of more than prescribed limit determined by government.
The location of industrial units is further regulated by the local zoning and land-use
regulations as also the environmental regulations. Hence, even if the requirement of
the locational policy as stated above is fulfilled, but the local zoning and land-use
regulations of a State government, or the regulations of the Ministry of Environment
do not permit setting up of an industry at a location, then the entrepreneur would be
required to abide by that decision.
Thus, selection of location of an eterprise is an important and entrepreneur should
try to assess the implication of the above factors. These factors affect the survival
and viability of the enterprise in the long run.
One study of locational considerations from small-scale units revealed that the
native place or homelands (personal factor) of the entrepreneur was the most
important factor.
Heavy preference to homeland suggests that small-scale enterprise is not freely
mobile. Low preference for Government incentives suggests that concessions and
incentives cannot compensate for poor infrastructure.
Table given below also suggests that the locational choice undergo with differences
in the levels of development across the regions (hills and plains).
Table : Factors Affecting Location Decision
Considerations
Entrepreneur's Response
Hills Plains Total
No. % No. % No. %
Homeland 15 67 11 39 26 52
Government
Incentives
3 14 1 4 4 8
Availability of Raw
Material
o 0 1 4 1 2
Availability of
Labour
2 9 0 0 2 4
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Availability of
Market^
0 0 5 18 5 10
Availability of
infrastructure
facilities
1 5 9 32 10 20
Others 1 5 1 4 2 4
Total 22 100 28 100 50 100
Layout : Layout involves determining the space requirement for the facilities and
arranging them in a manner to ensure steady flow of operations with minimum
overall cost. In order words, a layout is a floo"r plan for arranging the desired
facilities, machinery, equipment in an optimum locations so as to permit the quickest
flow of materials and manpower at the lowest cost and with the least amount of in
process handling from receipt of raw material to shipment of finished products.
Since, a layout once made cannot be changed/modified easily and without incurring
considerable cost on one hand and disrupting the operations on the other hand,
layout decisions are strategic decisions. Hence, layout has to be considered at the
time of planning a new venture. A good layout should result in comfort,
convenience, better appearance, safety, efficiency and profits. A poorly planned
layout causes congestion, disruption in flow of man and/or materials, accidents,
delays, rejections leading to frustration and inefficiency. In a production unit layout
includes factory design, that is layout of workshop, raw material stock yards,
finished goods stores, generator, compressor room etc. In hospitals it involves fixing
the location of wards, operation theater, out-patient departments, canteen, doctors
and nurses duty rooms etc. At another level layout planning involves layout of
different machines, work stations etc., in the shop floor and patient's beds, drug
store, doctors and nurses seats and other facilities in a hospital ward.
Considerations of Plant Layout
• Maximum use of the available space.
• Compatibility with the production technology and product mix.
• Minimum movement of materials as well as men.
• Provision of proper space for maintenance.
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• Arrangement of proper in-transit storage and stacking space.
• Promotes effective supervision.
• Proper lighting and ventilation.
• Provision of maximum flexibility.
• Safety of operators and other staff.
• Minimum handling of materials.
• Provision for future expansion.
• Security against fire, theft, detonation-etc.
• Maximum flexibility to accommodate changes in production volume and product
mix.
• Should meet the specific requirement ofthe production process viz., air
conditioning, air cooling, dust control, humidity control and may be required.
Advantages of Proper Plant Layout
1. Increase in Productivity
2. Maximum utilization of Space
3. Effective Supervision and Control
4. Economy in Material
5. Improved Safety and Handling
6. Improved Working Environment and Morale
7. Better Quality Control.
Types of Layout: As discussed so far the plant layout facilities the arrangement of
machines, equipment and other physical facilities in a planned manner within the
factory premises. An entrepreneur must possess an expertise to lay down a proper
layout for new aor existing plant. It differs from plant to plant, from location to
location and from industry to industry. But the basic principles governing plant
layout are more or less same.
As far as small business is concerned, it requires a smaller area of space and can be
located in any kind of building as long as the space is available and it is convenient.
Plant layout for Small Scale business is closely linked with the factory building and
built up area.
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From the point of view of plant layout, we can classify small business or unit into
three categories :
I. Manufacturing units
II. Traders
III. Service Centers and Establishments I. Manufacturing Units
In case of manufacturing unit, plant layout may be of four types :
(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout
(a) Product or Line Layout: Under this, machines and equipments are arranged in
one line depending upon the sequence of operations required for the product. The
materials move from one workstation to another sequentially without any
backtracking or deviation. Under this, machines are grouped in one sequence.
Therefore materials are fed into the firs machine and finished goods travel
automatically from machine to machine, to output of one machine becoming input of
the next, e.g. in a paper mill, bamboos are fed into the machine at one end and paper
comes out at the other end. The raw material moves very fast from one workstation
to other stations with a minimum work in progress storage and material handling.
The grouping of machines should be done keeping in mind the following general
principles.
(i) All the machine tools or other items of equipments must be placed at the point
demanded by the sequence of operations.
(ii) There should no points where one line crossed another line.
(hi) Materials may be fed where they are required for assembly but not necessarily
at one point.
(iv) All the operations including assembly, testing packing must be included in the
line. Advantages : Product layout provides the following benefits :
(i) Low cost of material handling, due to straight and short route and absence of
backtracking.
(ii) Smooth and uninterrupted operations, (hi) Continuous flow of work.
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(iv) Lesser investment in inventory and work in progress.
(v) Optimum use of floor space.
(vi) Shorter processing time or quicker output.
(vii) Less congestion of work in process.
(viii) Simple and effective inspection of work and simplified production control, (ix)
Lower cost of manufacturing per unit.
Disadvantages : Product layout suffers from following drawbacks :
(i) High initial capital investment in special purpose machine.
(ii) Heavy overhead charges.
(hi) Breakdown of one machine will hamper the whole production process, (iv)
Lesser flexibility as specially laid out for particular product.
Suitability : Product layout is useful under following conditions :
(i) Mass production of standardized products.
(ii) Simple and repetitive manufacturing process.
(hi) Operation time for different process is more or less equal.
(iv) Reasonably stable demand for the product.
(v) Continuous supply of materials.
Therefore, the manufacturing units involving continuous manufacturing process,
producing few standardized products continuously on the firm's own specification
and in anticipation of sales would prefer product layout e.g. chemicals, sugar, paper,
rubber, refineries, cement, automobiles, food processing and electronics etc.
(b) Process or Functional Layout: In this type of layout machines of a similar type
are arranged together at one place. E.g. machines performing drilling operations are
arranged in the drilling department, machines performing casting operations be
grouped in the casting department. Therefore the machines are installed in the plants,
which follows the process layout.
Hence, such layout typically drilling departments, milling department, welding
department, heating department and painting department etc. the process of
functional layout is followed from historical period. It evolved from the handicraft
method of production. The work has to be allocated to each department in such a
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way that no machines are chosen to do as many Process layout showing movement
of two products :
The grouping of machines according to the process has to be done keeping in mind
the following principles,
(i) The distance between departments should be as short as possible for avoiding
long distance movement of material.
(ii) The departments should be in sequence of operations.
(iii) The arrangement should be convenient for inspection and supervision.
Advantages : Process layout provides the following benefits :
(i) Lower initial capital investmentin machines and equipments. There is high degree
of machine utilization, as a machine is not blocked for a single product.
(ii) The overhead costs are relatively low.
(hi) Change in output design and volume can be more easily adapted to the output
of variety of products.
(iv) Breakdown of one machine does not result in complete work stoppage.
(v) Supervision can be more effective and specialised.
(vi) There is a greater flexibility of scope for expansion.
Disadvantages : Process layout suffer from following drawbacks :
Gen
(i) Material handling cost are high due backtracking.
(ii) More skilled labour is required resulting in higher cost. tend (hi) Time gap or
lag in production is higher. layo*
(iv) Work in progress inventory is high needing greater storage space. the
(v) More frequent inspection is needed which results in costly supervision. sh'a
Suitability : Process layout is adopted when bash
(i) Products are not standardized.
(ii) Quantity produced is small.
(hi) There are frequent changes in design and style of product.
(iv) Job shop type of work is done.
(v) Machines are very expensive. ar Thus, process layout or functional layout is
suitable for job order production involving
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non-repetitive processes and customer specifications and non-standardised products,
e.g., tailoring, light and heavy engineering products, made to other furniture
industries, jewellery. is
(c) Fixed Position or Location Layout : In this type of layout, the major product
being produced is fixed at one location. Equipment labour and components are
moved to that location. All facilities are brought and arranged around one work
center. This type of layout is not relevant for small scale entrepreneur. The following
figure shows a fixed position layout regarding shipbuilding.
Advantages : Fixed position layout provides the following benefits :
(i) It saves time and cost involved on the movement of work from one workstation
to m
another.
The layout is flexible as change in job design and operation sequence can be easily
incorporated.
It is more economical when several orders in different stages of progress are being
executed simultaneously.
Adjustments can be made to meet shortage of materials of absence of workers by
changing the sequence of operations. Disadvantages : Fixed position layout has the
following drawbacks :
(i) Production period being very long, capital investment is very heavy.
(ii) Very large space is required for storage of material and equipment near the
product, (hi) As several operations are often carried out simultaneously, there is
possibility of
confusion and conflicts among different workgroups. Suitability : The fixed position
layout is followed in following conditions :
(i) Manufacturing of bulky and heavy products such as locomotives, ships, boilers,
generators, wagon building, aircraft manufacturing etc.
(ii) Construction of building, flyovers, dams.
(iii) Hospital, the medicines, doctors and nurses are taken to the patient (product),
(d) Combined or Group Layout: Certain manufacturing units may require all three
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processes namely intermittent process (job shops) the continuous process (mass
production shops) and the representative process combined process (i.e.,
miscellaneous shops).
In most of industries, only a product layout or process layout or fixed location layout
does not exist. Thus, in manufacturing concerns where several products are
produced in repeated numbers with no likelihood of continuous production,
combined layout is followed. Generally, a combination of the product and process
layout or other combination are found, in practice, e.g. for industries involving the
fabrication of parts and assembly, fabrication tends to employ the process layout,
while the assembly areas often employ the product layout. In soap, manufacturing
plant, the machinery manufacturing soap is arrange done the product line principle,
but ancillary services such as heating, the manufacturing of glycerin, the power
house, the water treatment plant etc. are arranged on a functional basis.
II. Traders
When two outlets carry almost same merchandise, customers usually buy in the one
that is more appealing to them. Thus, customers are attracted and kept by good
layout i.e., good lighting, attractive colours, good ventilation, air conditioning,
moden design and arrangement and even music. All of these things mean customer
convenience appeal and greater business volume.
The customer is always impressed by service, efficiency and quality. Hence, the
layout is essential for handling merchandise, which is arranged as per the space
available and the type and magnitude of goods to be sold keeping in mind the
convenience of customers.
There are three kinds of layouts in retail operations today :
(a) Self service or modified self service layout.
(b) Full service layout.
(c) Special layouts.
The self-service layouts, cuts down on sales clerk's time and allow customers to
select merchandise for themselves. Customers should be led through the store in a
way that will expose them to as much display area as possible, e.g., Grocery Stores
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or department stores. In those stores, necessities or convenience goods should be
placed at the rear of the store.
The use of colour and lighting is very important to direct attention to interior
displays and to make the most of the stores layout.
All operations are not self-service. Certain specially enterprises sell to fewer number
of customers or higher priced product, e.g., Apparel, office machines, sporting
goods, fashion items, hardware, good quality shoes, jewelry, luggage and
accessories, furniture and appliances are all examples of products that require time
and personal attention to be sold. These full service layouts provide area and
equipment necessary in such cases.
Some layouts depend strictly one the type of special store to be set up, e.g., TV
repair shop, soft ice cream store, and drive-in soft drink stores are all examples of
business requiring special design. Thus, good retail layout should be the one, which
saves rent, time and labour.
III. Services Centers and Establishments
Services establishments such as motels, hotels, restaurants, must give due attention
to client convenience, quality of service, efficiency in delivering services and
pleasing office ambience. In today's environment, the clients look for ease in
approaching different departments of a service oraganisation and hence the layout
should be designed in a fashion, which allows clients quick and convenient access to
the facilities offered by a service establishment.
Applicability of Plant Layout: Plant layout is applicable to all types of industries or
plants. Certain plants require special arrangements which, when incorporated make
the layout look distinct from the types already discussed above. Applicability of
plant layout in manufacturing and service industries is discussed below.
In case of manufacturing of 'detergent powder' a multi-storey building is specially
constructed to house the boiler. Materials are stored and poured into the the boiler at
different stages on different floors. Other facilities are also provided around the
boiler at different stations.
Another applicabihty of this layout is the manufacture of'talcum powder'. Here
machinery is arranged vertically i.e., from top to bottom. Thus, material is poured
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into the first machine at the top and powder comes out at the bottom of the
machinery located on the ground floor.
Yet another applicability of this layout is the 'newspaper plant', where the time
element is of supreme importance, the accomplishment being gapped in seconds.
Here plant layout must be simple and direct so as to eliminate distance, delay and
confusion. There must be a perfect co-ordination of all departments and machinery
or equipments, as materials must never fail.
Plant layout is also applicable to 'five star hotels' as well. Here lodging, bar,
restaurant, kitchen, stores, swimming pool, laundry, shaving saloons, shopping
arcades, conference hall, parking areas etc. should all find an appropriate place in the
layout. Here importance must be given to cleanliness, elegant appearance,
convenience and compact looks, which attact customers.
Similarly plant layout is applicable to a 'cinema hall', where emphasis is on comfort,
and convenience of the cinemagoers. The projector, screen, sound box, fire-fighting
equipment, ambience etc. should be of utmost importance.
A plant layout applies besides the grouping of machinery, to an arrangement for
other facilities as well. Such facilities include receiving and dispatching points,
inspection facilities, employee facilities, storage etc.
Generally, the receiving and the dispatching departments should be eight end of the
plant. The storeroom should be located close to the production, receiving and
dispatching centers in order to minimize handling costs. The inspection should be
right next to other dispatch department as inspections are done finally, before
dispatch.
The maintenance department consisting of lighting, safety devices, fire protection,
collection and disposal of garbage, scarp etc. should be located in a place which is
easily accessible to all the other departments in the plant. The other employee
facilities like toilet facilities, drinking water facilities, first aid room, cafeteria etc.
can be a little away from other departments but should be within easy reach of the
employees.
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PROJECT: PRESENTATION AND APPRAISAL
MEANING AND DEFINITION OF A PROJECT
An organisation or the enterprise is based on project. In simple words, project is a
plan to achieve the objectives within a definite time. An entrepreneur has to take a
number of decisions to convert his ideas into a running concern. In setting up his
enterprise, his decision-making starts with project selection. In fact, the project
selection is the first cornerstone to be laid down in setting up an enterprise. The
success or failure of an enterprise largely depends upon a project. In simple words, a
project is an idea or plan that is intended to be carried out. defined
Definitions : The dictionary meaning of a project is that it is a scheme, design, a
proposal of something intended or devised to be achieved. Some more definitions of
a project are :
1. "A project typically has a distinct mission that it is designed to achieve and a
clear termination point, the achievement of the mission."—Newman, Summer and
Warren1
2. "The whole complex of activities involved in using resources to gain benefits."
-Gillinger
3. "A project is an organised unit dedicated to the attainm,ent of a goal—the
successful completion of a development project on time, within budget, in
conformance with predetermined programme specifications." —Encyclopaedia of
Management
4. "The term 'project' means the establishment of a new enterprise or the
introduction
of something new into an existing product mix. A project can encompass a wide
range of I «oods ai possibilities, from a single piece of machinery to an entire plan."
-David Clifton and D.E. Fyffe
5. "Project is a scheme for investing resources which can reasonably be analysed
and evaluated as an important unit." —Little and Mirrlee
Thus, it can be said that a project is a scientifically evolved work plan devised to
achieve a specific objective within a specified period of time. Projects can differ in
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their size, nature and objectives, time duration and complexity but all the projects
have three basic attributes
(i) A course of action,
(ii) Specific objectives,
(iii) Definite time prospective. Every project has a starting point and an end point
with specific objectives.
CHARACTERISTICS OF A PROJECT After the careful analysis of above
definitions, we can evolve following characteristics of a project :
(i) Definite Objective : Every project has a definite objective. The project comes to
an end as and when these objectives are achieved.
(ii) Single Entity : Every project is a single entity which is handed over to an
accountable authority.
(iii) Uniqueness : Every project is unique in itself. No two projects can be similar
although methodology can be same.
(iv) Life Span : Every project has a definite life span. The project comes to an end
with completion of task.
(v) Team Work : Project is a team work, and hence no project can be completed
without team spirit.
(vi) Uncertainty : Projects exist in uncertain environment. When and which
uncertainty arise in life span of a project cannot be found at any stage.
(vii) Element of Risk: An element of risk is always there in a project. Such element
of risk is different in different projects. For example, if the objectives of a project are
not defined properly, more will be the element of risk.
(viii) Change : 'Change is law of life.' This saying applies to a project also. A
project has to undergo many changes in its lifetime.
(ix) Made to Order: Every project is formulated according to needs of the
customer.
(x) Unity in Diversity : Unity in diversity is found in every project because it
comprises of many complexities, like technology, plant, material, labour, difficulty
of work culture, etc.
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Thus, in any project there is comprehensive contribution of alternatives, appropriate
ideas, proper control and identification of key factors. Hence, a project is fully
defined economic activity which has a definite beginning and end.
OBJECTP/ES OF A PROJECT
A project is a proposal to invest to do some definite work, increasing production of
goods and services in a particular area, or expansion and/or development of these
goods or services. Following are the main objectives of a project :
(i) Increasing production of goods or services
(ii) Increasing productivity of goods o'r services
(iii) Increasing capacities of existing projects
(iv) Increasing rate of profits at minimum risk and according to organisational plans
and policies
(v) Conducting test from time to time and evaluating them
(vi) Making objectives of the projects according to available resources.
IMPORTANCE OF A PROJECT
A project :
(i) Initiates the process of development.
(ii) Acts as a factor for speeding up economic development and progress .
(iii) Contributes towards environment and development of basic infrastructure.
(iv) Provides framework for future activities of a project.
(v) Tries to bring necessary changes according to time.
(vi) Helps in speeding up social and cultural developments.
(vii) Determines future of nature of services.
STAGES OR PHASES OF PROJECT PREPARATION
Any new project passes through different phases or stages. Whether to or not to
invest in any new project is decided after detailed verifications. Basically, there are
following three stages in the process of project preparation : I. Pre-investment phase
II. Implementation phase III. Operational phase.
I. Pre -Investment Phase : This stage is related to search for profitable
opportunities of investment and preparations. This stage begins with project
identification, passes through formulation and appraised process and ends with
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selection decision. The main objective of this stage is to determine whether the
business idea will be practically possible in terms )f economic viability at the
commercial level after due evaluation.
In this stage final decision regarding selection of project after studying its
practicability, following are sub-steps in this stage :
(i) Identification of Investment opportunities,
(ii) Preliminary Project analysis,
(iii) Feasibility study, and
(iv) Decision-making.
II. Implementation Stage : After sufficient investigation and taking investment
decision, a detailed work plan is prepared for implementation of the project.
Necessary distribution of financial and other resources is done by top management.
A control and information system is developed for arranging the supply of necessary
equipments and other requirements, so that the project is implemented and started as
fast as possible. All facilities relating to production are established. Following are
main tasks performed in this stage :
(i) Preparing project and engineering designs.
(ii) Entering into contract with different parties to complete the project.
(iii) Establishing buildings, plant, machinery, equipment, office, etc., according to
project requirements in order to start production process.
(iv) Recruitment, selection and training of required personnel according to project
requirements, viz., technicians, engineers, managerial staff and labour.
(v) Setting up plant for preparing production process.
III. Operational Stage : This is the last and of course the longest stage of a project.
This stage begins with the production of goods and ends with completion of project.
Operational stage includes following activities :
(i) Uninterrupted operation of the production.
(ii) Maintenance of the quality standard of the product.
(iii) Maintenance of productivity norms.
(iv) Realisation of specific and general objectives.
(v) Market acceptance of the product.
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(vi) Maintenance of consumer satisfaction.
PROJECT IDENTIFICATION Project identification is concerned with the
collection, compilation and analysis of conomic data for the eventual purpose of
locating possible opportunities for investment id with the development of the
characteristics of such opportunities.
Project identification is the most important decision because the fate of an
organisation is entirely dependent upon right choice of the project.
Peter F. Drucker (1955) has suggested three kinds of opportunities : (a) Additive, (b)
Complementary, and (c) Break through.
(a) Additive opportunities are those opportunities which enable the decision-maker
to better utilise the existing resources without changing the basic character of the
business.
(b) Complementary opportunities are those opportunities which involve introduction
of new ideas and require some change in the existing structure of business.
(c) Break through opportunities are those opportunities which involve entirely new
ideas and therefore require fundamental change in both the structure and character of
business.
Additive opportunities involve the least disturbances in existing structure and hence
involve least risk. The element of risk is more in other two. With the increase in risk,
it becomes important to precisely define the scope and nature of project idea, to
develop alternative course of action, and to minimise resource consumption and
risks to optimise profits.
Necessity of project identification : Identification of the project is the most important
task because the success 6r failure of an enterprise is dependent upon right selection
of production. Although there are no strict rules or guidelines for identification of
the project, even then entrepreneur uses his experience and mental skills for this. If
some entrepreneurs become successful in some enterprises others also follow them
and slowly and steadily phe strength of entrepreneur in a particular line increases to
an extent that the profit giving projects soon turn into loss giving, which is not a
healthy trend. This is not guaranteed that if some project is fruitful for some
entrepreneurs, it will be same for others also. The burning example of this trend is
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generator set industry in Ferozabad. This industry was on peak a few years back and
was making profits. The majority of entrepreneurs in this industry were technically
mature. But slowly many other entrepreneurs entered this industry, who had least
technical knowledge. The result was that the profit-making industry was ruined,
some of them even became insolvent. Thus, project identification is a must for future
entrepreneurs.
IMPORTANCE OF PROJECT IDENTIFICATION
Importance of the project identification can be known because of the following
reasons :
(i) Pre-identified project acts as a factor of speeding up economic development.
(ii) An identified project leads to complete development, i.e., process of raising
income and employement.
(iii) An identified project provides direction to future activities of an organisation.
(iv) Project identification leads to long run profitability.
(v) Helps in speeding up social and cultural development.
(vi) Helps in developing basic facilities and environment.
(vii) Project identification avoids time and again changes in projects.
PROJECT REPORT
A project may be defined "as a scheme, design, a proposal or something intended to
be devised." —Webster New 20th Century Dictionary
In simple words project report is a business plan. It is a written statement of what
entrepreneur is likely to take up. It is a course of action what an entrepreneur hopes
toachieve in the business and how will he achieve it. Project report serves as a big
road map to reach the destination determined by the entrepreneur.
Thus, a project report can best be defined as a well-evolved course of action to
achieve the specified objective within a specified period of time. Hence, it is an
operating document.
A project report serves two purposes :
(i) It serves as a guide map. It describes the direction by which the enterprise will
gain in what are the objectives, where it should be, how it is going to reach these
goals.
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(ii) A project report is made to attract lenders and investors. Although preparation of
project report is not essential for small scale entrepreneurs but still it is advisable for
them to do so, because of many reasons such as getting financial assistance from
financial institutions and other government agencies.
Contents : Generally a good project report should contain following contents :
(i) General information, i.e., project profile and its details.
(ii) Promoter's Name, educational qualifications, work and project related
experience.
(iii) Locational aspect place, lease or freehold, locational advantages.
(iv) Land and Building Area, construction area, type and cost of construction, etc.
(v) Production Resource production processes, technical know-how, technology
alternatives, production programme, etc.
(vi) Various utilities, water, power, steam, compressed air, cost estimates and their
sources.
(vii) Modes of transport and communication.
(viii) Details regarding raw material and its sources. ,
(ix) Details of manpower requirements and sources.
(x) Product details, i.e., product mix, estimated sales, channels of distribution,
competitors, standards, substitutes, etc.
(xi) Working capital requirements.
(xii) Market details, i.e., ultimate users of product, distribution of market as local,
national and international, trade practices, market research, proposed sales
promotional devices.
(xiii) Requirement of funds.
(xiv) Cost of production and profitability for first ten years.
(xv) Break-even analysis.
(xvi) Schedule of implementation. Objectives of a Project Report:
(i) To obtain financial assistance.
(ii) To evaluate investment opportunities.
(iii) To send the report to Government departments and District Indus.nw Centre.
(iv) To have the knowledge of objectives and available resources.
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(v) Comparative study of estimated cost and incomes.
(vi) Project reports are systematic viewpoints for investment decisions.
(vii) Serve as strong basis for getting tax concessions, financial help, facilities,
subsidies and incentives from Government and other agencies.
PROJECT APPRAISAL OR EVALUATION
It is very important that the resources used in a project are fully utilised, which is
possible only if the project is perfect and profitable. A good project helps an
entrepreneur to achieve his goals and ensures fair returns on his investments. Thus,
evaluation of the project is most important for any project.
Meaning : In simple words we can say that project appraisal is assessment of a
project. Project appraisal is done for both proposed as well as executed projects. The
evaluation for proposed projects is called ex-ante analysis and in case of executed
projects it is called post-ante analysis. Here, we are dealing only with project
appraisal of proposed projects.
To adjudge the viability of a project, project appraisal is done. Thus, it is a cost-
benefit analysis of different aspects of a project. In a project scarce resources are
employed, and hence an entrepreneur has to appraise various alternative projects
before allocating the scarce resources for the best project. Project appraisal helps
him to select the best among various alternative projects. Various economic,
financial, technical, market, managerial and social aspects are analysed for
appraising a project.
Thus, project appriasal is a detailed evaluation of the project to determine the
technical feasibility, economic necessity, financial viability of the project and the
managerial competence required for its successful operation. It is a technique of
judging future profitability, practicability and desirability of a project after
considering various technical, financial, economical, commercial and managerial
aspects.
Objectives of Project Evaluation : Project evaluation is a tool for analysing
proposed projects. The following are its main objectives :
• To arrive at concrete and pre-determined profits
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• Evolving methods or measures to determine the rate of success or failures of the
proposed project
• Collecting and compiling important information to know success or failure of the
proposed project.
• Conducting feasibility analysis of the proposed profit and evaluating its technical
aspects
• Determination of estimated cost and profit of proposed projects.
Various Aspects and Areas of Project Evaluation
Evaluation of feasibility of a proposed project is done on the basis of evaluation of
various factors. Any weakness or drawback in any of these factors affects entire
proposed project. For example, banks and financial institutions also examine the
feasibility of the project before granting loan or financial assistance. These
institutions ensure whether the invested funds will give adequate returns or not.
Because they know that an entrepreneur will be able to pay back the amount or
interest thereon only if there are sufficient returns. Thus, before starting the project,
its detailed evaluation is a must, so that the desired results are obtained. Thus,
following aspects are to be evaluated in this regard.
1. Technical Evaluation
2. Financial Evaluation
3. Managerial Evaluation
4. Commercial Evaluation
5. Socio-economic Evaluation
6. Operational Evaluation
7. Environmental Evaluation
1. Technical Evaluation : Technical evaluation has the most important place in the
evaluation of a new or proposed project which is done by qualified and experienced
experts in the field. If the project size is very big and is of technical importance then
service of experts from outside can also be taken. Technical evaluation is based on
following factors :
(i) Location and site
(ii) Size and capacity of plant
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(iii) Technology and Equipment
(iv) Product and product-mix
(v) Sources of Raw material and consumables
(vi) Building and layout
(vii) Manpower
(viii) Water and Steam Gas
(ix) Electricity and fuel
(x) Foreign collaborations
(xi) Efficient Treatment
(xii) Research and Development facilities
(xiii) Latest Technology to be adopted
(xiv) Infrastructural facilities like Roads, Bridges, Railways, Airways, etc.
(xv) Product planning and scheduling etc.
2. Financial Evaluation : Taking decisions about heavy finances to be expanded in
the proposed project is an important decision. Both long-term and short-term capital
is needed in any project. The basic objective behind financial analysis is to see
whether the proposed investment is in a position to give fair returns and whether the
entrepreneur will be in a position to pay interest and principal on the financial
assistance taken from banks or other institutions. Financial analysis has a wide
scope. Mainly it covers following areas :
(i) Estimation of cost, (ii) Cost of Production, (iii) Deciding about various financial
institutions from which finance is to be obtained, (iv) Determining margin of safety
in relation to paying back capacity, (v) Debt-Equity Ratio, (vi) Working Capital and
margin money for the same, and (vii) Profitability Analysis.
3. Managerial Evaluation : The success of any proposed project is largely
dependent upon managerial capabilities.
Inefficiency on the part of management leads to failures even in very good projects.
On the other hand, if the management is capable, experienced and possesses
organisational capabilities even the weak projects become successful. Thus, while
evaluating managerial capacities, their source, understanding and trust-worthiness is
to be evaluated. Hence, while doing project appraisal the managerial competence or
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talent of the promoter should be taken into consideration. Research studies have
shown that most of the enterprises fall sick because of lack of managerial
competence or mismanagement.1 This is more so in case of small scale enterprises
where the proprietor is all in all, i.e., both owner and manager. Due to this one-man
show, he may be 'Jack of all trades but master of none.'
4. Commercial Evaluation : The proposed project should be completely sound and
healthy commercially. While appraising the project the following commercial
aspects are to be given due consideration :
(i) Market demand of the product.
(ii) Availability of competitive products in the market.
Project: Presentation and Appraisal
280
(iii) Choice of the market.
(iv) Size of the market.
(v) Position of demand and supply in national and international markets.
(vi) Nature of Competition .
(vii) Price policies and prices in comparison to the type of product.
(viii) Market strategies, systems and competence of sales force.
(ix) Import possibilities.
(x) Position and price of imports in the country, in case the product is import
substitute.
5. Socio-Economic Evaluation : It is necessary to do the socio-economic evaluation
of any project, because a project whether commercial or non-commercial cannot
dare to neglect social interests. Thus, it is important for a project to contribute in
attaining economic and social objective of a country. Socio-economic Evaluation of
any project can be done after considering the following contributions made by it
towards society :
(i) Creation of employment.
(ii) Contribution towards economic progress of a country .
(iii) Contribution in equitable distribution of income and wealth.
(iv) Encouraging self-dependence.
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(v) Earning of foreign exchange and saving.
(vi) Development of backward areas .
(vii) Development of small, cottage and allied industries.
(viii) Contribution in basic infrastructure and industrial atmosphere.
(ix) Contribution in development and transfer of technology.
(x) Improvement in types and quality of production.
(xi) Improvement in national welfare, life style and standard.
(xii) Contribution in upliftment of village and backward classes.
(xiii) Proper utilisation of scarce resources and preservation of power and energy.
(xiv) Priorities of the project in economic structure of the country.
(xv) Contributing in upliftment of social status.
(xvi) Preventing misuse of social property.
6. Operational Evaluation: The operational evaluation of a project helps in
studying the capacity of the project. The capacity of a project must be able to meet
the demand of the product-mix. Operational Evaluation helps to predict its optimum
capacity for first four to five years. This can also estimate the achievement of objects
or manpower requirements at various levels of capacity utilisation.
7. Environmental Evaluation : The situations, Country, time in which a person
takes birth and lives is called environment. Broadly speaking, projects are of two
types :
(i) Production oriented projects, i.e., projects dealing with materialistic projects,
i.e., cement, paper, steel, chemicals, soap, oils, fertilizers, textiles, etc
(ii) Service oriented projects, i.e., projects dealing with services, i.e., health,
education, security, law and order consultancy, etc.
Environment is primarily concerned with production oriented projects. Before
starting such project it is necessary to give certificate to the Government that such
project will not affect the environment adversely and the project will be pollution
free. Thus, environment analysis is also an important part of project evaluation.
BREAK-EVEN ANALYSIS
Break-even Analysis is an important part of marginal cost analysis. It is used t
determine that level of activity at which total cost is equal to total revenues. Break-
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even analysis is based on cost-volume-profit relationship. With the help of break-
even analysis, the effect of changes in cost volume and price on profit can be
determined.
Break-even point shows that point of production or sales where there is no profit or
loss or in other work at break-even sales or production only fixed and variable costs
are met. Thus, to earn profit, the entrepreneur will have to sell more than break-even
point. Any sale or production below break-even point gives losses.
Thus, the break-even analysis defines the manner in which profits from a project
vary with the changes in level of production activity.
The break-even analysis is most commonly known as Cost-Volume-Profit (CVPi
analysis. It is a point of zero profit or loss. In broad sense it refers to a system of
analysis that can be used to determine the probable profit at any level of activity.
Mathematically,
PLANNING COMMISSION'S GUIDELINES FOR PROJECT FEASIBILITY
REPORT
In order to process investment proposals and arrive at investment decisions, the
Planning Commission of India has issued some guidelines for the formulation of a
realistic project report, which are summarised as follows :
1. General Information : The feasibility report should include an analysis of the
industry to which the project belongs. It should contain the past performance of the
industry. The description of the type of industry should also be given, i.e., its
priorities, increase in production, role of public sector, allocation of investment of
funds, choice of technique, etc. This should contain entire information about the
enterprise which is submitting the feasibility report.
2. Preliminary Analysis of Alternatives : This should contain (a) present data or
gap between demand and supply for the outputs which are to be produced, (b) data
on the capacity that would be available from projects that are in production or under
implementation at the time when report is prepared, (c) a complete list of all existing
plants in the industry, giving their capacities and their level of production actually
attained, (d) a list of projects for which letters of intent/licences have been issued,
and (e) a list of proposed projects. All options that are technically feasible should be
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considered at this stage. The location of the project, its implications, an account of
foreign exchange requirements should also be looked into. The relative profitability
and the rate of return on investment should also be calculated and presented in the
report :
3. Project Description : The feasibility report should provide a brief description of
the technology or process chosen for the project. Information related to
determination of optimally of the location chosen should also be included. In
addition a feasibility report must present information on specific point in order to
assist in assessment of enviornment effects of a project, i.e., population, water, land,
air, flora, fauna, effects arising out of the project's pollution and other enviornmental
description, etc. The report should contain a list of important items of capital
requirements and operational requirements of plant, of water and power, of
personnel organisational structure planned, transport costs, activity-wise phasing of
construction and factors affecting it.
4. Marketing Plan : Marketing plan should contain:
(a) Data on marketing plan, demand and supply in each area to be served.
(b) The methods and data used for estimating supply and selection of market areas.
(c) Estimates of degree of price sensitivity.
(d) Analyses of past trends of prices.
5. Capital Requirements and Costs : The estimates of capital requirements and
cost should be presented. These estimates should be reasonably completed and
properly estimated. All information on costs should be carefully collected and
presented.
6. Operating Requirements and Costs : Operational costs are those which are
incurred after commencement of the project or commercial production. These costs
relate to cost of raw material and intermediaries, fuel, utilities, labour, repairs,
selling expenses, etc. All such information should be collected and presented.
7. Financial Analysis : Financial analysis is presented to measure the financial
viability of the project. It should include proforma balance sheet. Depreciation
should be allowed on the basis of standards fixed by Bureau of Public Enterprises.
Foreign exchange requirements should be cleared by the Department of Economic
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Affairs. The feasibility report should also take into account income tax rebates,
incentives for backward areas, accelerated depreciation, etc. The report must analyse
the sensitivity of rate of return on the level and pattern of product prices.
8. Economic Analysis : An enterprise must try to present the impact of foreign
trade, indirect costs and profit on its operations after carefully asessing them.
9. Miscellaneous Aspects : Various other aspects like use of computers, Data
Processing Services, Cash Flow Statements and accounting procedure should also be
presented.
LEGAL REQUIREMENTS FOR ESTABLISHING A NEW UNIT
Everyday many new industrial units are established but it is not necessary that every
unit will be successful. There are many reasons for this and one of the most
important
among these is not completing some of the legal requirements in establishing a unit.
Most of the entrepreneurs do not realise this fact and treat their failures as co-
incidence. But the fact is that modern business is full of legal and statutory
formalities which are to be given well thought before establishing a business unit.
"Establishing a new unit is like giving birth to a child", which means that as a
mother has to take many precautions before giving birth to a child, in the same way
an entrepreneur has to undergo and follow many legal formalities and procedures. It
is important to follow conditions and rules forwarded by Central and State
governments before establishing a new unit.
Before 1991 India followed controlled regime, i.e., there were many complex
procedures for establishing a new unit. That era is often termed as 'License Raj'. But
thanks to new Industrial Policy announced on 24th July, 1991 which has reduced or
abolished a number of stationery requirements for setting up an enterprise and given
a place to economic liberalisation, privatisation and globalisation.
Broadly speaking following legal or statutory requirements are to be fulfilled before
establishing a new unit:
1. License : The first and the foremost step to be taken for establishment of a new
business unit is to obtain license from the concerned authority either in the Central
Government or from the State Government, as the case may be. It is important to
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note that as per the new Industrial Policy, 1991, no license is required for the
establishment of small scale industrial unit either from Central Government or State
Government. Industrial units employing less than 100 workers and having a fixed
cost of less than 10 lakh rupees are not required to obtain any licence under the
Modified Industrial (Development and Regulation) Act, 1951. Moreover, under the
New Industrial Policy of liberalisation and globalisation, no new small scale unit is
required to take any license for the establishment of small scale Industry from the
Central or State Government. Only Municipal License is to be obtained. As per the
provisions in new licensing policy, only 15 industries are required to obtain license,
others are exempted. Many concessions are given for import of foreign technology
so that they can compete internationally. Priority industries are now free to import
foreign technology upto Rs. 1 crore or upto 15% of domestic sales or 8% of the
exports without any license.
2. Clearance from Pollution Control Board : Pollution has become a serious
problem for the entire world today. Pollution may be of different types like air
pollution, water pollution, sound pollution, etc. It is mandatory for an entrepreneur
to obtain pollution clearance certificate from the Pollution Control Board under the
Water (Prevention and Control of Pollution) Act, 1974 and Air (Prevention and
Control of Pollution) Act, 1981.
3. Provisional Registration Certificate : A Provision Registration Certificate has to
be obtained from the concerned District Industry Centre of the state by the
entrepreneur who intends to establish an industry. It is initially issued for a period of
one year, which can be further extended for a period of six months each for two
terms, in case the unit is not in a position to start production due to circumstances
beyond his control.
The Provisional Registration Certificate entitles the entrepreneur :
(i) To apply for a built up shed or a plot in an industrial estate.
(ii) To apply for municipal license.
(iii) To apply for power connection.
(iv) To apply for financial assistance from a bank or other financial institutions.
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4. Permanent Registration Certificate : After obtaining Provisional Registration
Certificate, if the industrial unit has actually started production or is about to start
production, permanent registration certificate is issued.
5. Registration under Shops and Establishment Act : It is mandatory for a small
scale industrial unit for getting itself registered under Shops and Establishment Act
of the concerned state in which unit is to be established. The main objective of this
Act is to regulate working hours, weekly holidays and payment of salaries to the
employees.
6. Capital Issue Certificate : Every industrial unit requires a capital, both working
as well as fixed. Therefore, after obtaining permanent registration certificate,
enterprise is required to take sanction for issue of necessary capital under Capital
Issue (Control) Act, 1947.
7. Registration under the Factories Act, 1948 : If the proposed unit intends to
carry on manufacturing unit by employing 10 workers or more with the aid of power
or 20 workers or more without the aid of power, it is required to get itself registered
and obtain license under Factories Act, 1948 from the concerned State Government.
8. Import Licence : In case the proposed unit intends to use imported raw material,
spare and machinery it is required to obtain import licence from the Chief Controller
of Imports and Exports, New Delhi.
9. Registration of Small Scale Industrial (SSI) Units : In case an entrepreneur
intends to establish a small scale industrial unit, he is required to get himself
registered and obtain necessary certificate from Directorate of Small Units of the
concerned State.
10. Notice by the Occupier under the Factories Act, 1948 : If the entrepreneur is
required to obtain license under the Factories Act, 1948, he is also required to give
15 days notice in the prescribed form to the concerned factory inspector before
occupying the factory to start prdduction.
11. Certificate under Essential Commodities Act, 1955 : If the new enterprise
intends to produce essential goods, it is also required to obtain necessary certificate
under the Essential Commodities Act, 1955
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12. Obtaining Power Connection : Power is categorised in two parts—(1) The Low
Tension (LT) and (2) The High Tension (HT). A consumer can avail LT only if the
connected load is upto 75 Horse Power (HP) where the connected load is between 75
HP and 130 HP, the cousumer can avail either LT supply or HT supply and if the
connected load exceeds 130 HP, the unit is classified as HT Consumer. Most of the
small scale units fall in LT category.
To get a power connection, the new entrepreneur has to apply to concerned State
Electricity Board. The new entrepreneur may have to pay security deposit amounting
to three months power consumption or according to rules.
13. Application for Water Connection : The entrepreneur has to apply to local
municipal authority to ensure adequate water supply.
14. Registration with Sales Tax and Income Tax Authority: If the entrepreneur is
engaged in trading business he has to obtain a sales tax registration number from the
State Government and if necessary from Income Tax Department also.
15. Registration with Excise Department : If the entrepreneur is engaged in
manufacturing business on which excise is levied by Central Government, he is
required to get registered with Excise Department.
16. Registration of Trademarks : The manufacturing concerns are required to get
their trademarks registered in order to prevent other manufacturers in the same trade-
mark, e.g., Coca Cola, Colgate, Brooke Bond, etc. The application for registration of
trade-
marks is made to the Registrar of Trademarks of the concerned state on a prescribt-c
proforma.
17. Registration of Design : Like registration of trademark, an entrepreneur car get
his patent or design registered so that no other entrepreneur copies his design.
Applicatior. for registration of design has to be made in the prescribed form to the
Controller of Patents and Design.
SAMPLE PROJECT REPORT
PROJECT REPORT!
Phone Mobile Fax
Educational Qualification Present Job Date of Birth
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PERSONAL DETAILS OF THE PROPRIETOR
Name : Rajeev Bansal
Address : 3/20B, Agra-Mathura Bye Pass Road, Near Tulsi Cinema.
Agra-282 002
(0562) 2854327, 2527707, 3257009, 3208010, 4042977 09358177555, 9412258081
(0562) 2858183; e-mail : [email protected] MCA
HCL (Programer) 29-11-1964
INTRODUCTION & PROJECT BACKGROUND
Mr. Rajeev Bansal is going to start a computer training institute in area of Lajpat
Kunj, Agra for which he approached to the 'Bansal Computer Centre' (BCC) for
franchise. The institute agreed with Mr. Bansal on following terms and conditions :
(a) Initial Fees Payable 2,50,000
(b) Royalty (in percentage) 25%
(c) Study Material Cost Actual Cost to be paid (Estimated at 5% of Average
Collection)
(d) Local Advertisements are to be borne by the franchise owner.
(e) Media Advertisements will be incurred by Bansal Computer Centre (BCC).
PHYSICAL DETAILS OF THE PROPOSED UNIT
Location
Ownership of the Building Size of the Building Water & Electricity
Lajpat Kunj, Agra Rented @ ? 10,000 p.m. 1,000 sq.ft (approx) Existing
PROFDLE OF THE BANSAL COMPUTER CENTRE
The Institute set up in the year 2005 in Lajpat Kunj and currently having more than
100 centres all over India, including 10 Regional/Zonal Offices in Agra, they setup a
Zonal office to offer prompt support to franchisees in and around Agra.
The main feature of BCC is that they are offering 'JOB GUARANTEED' Courses
besides some 'NON-JOB GUARANTEED' Courses. Different courses offered by the
institute are as follows :
Courses J.GINon-J.G. Duration Fees
Industrial Accountants (IA) J.G. 12 Months 25,000.00
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Industrial Accountants +
(IA+)
J.G. 12 Months 36,000.00
Management Accountant
(MA)
Non-J.G. 6 Months 15,000.00
* Average Course Fees on Job Guarantee
Students (25,000 + 36,000/2) 30,500.00
* Average Course Fees on Non-job Guarantee
Students (15,000 + 0) (because one type of student) 15,000.00
The above courses are the main sources of revenue. Beside the above mentioned
courses, the institute is also offering some tailor-made Non-job Guaranteed Courses.
We have visited some of the centres in and around Agra and after having a long chat
with them we came to know that the percentage of booking in Job Guarantee
Courses and Non-job Guarantee Courses is around 4 : 1 (in other word yearly
collection from Non-job Guarantee Courses should be 25% of Job Guarantee
Courses.)
A. FIXED ASSETS REQUIRED FOR THE UNIT
S.No. Description Nos. Rates Amount (?)
1. Computer 10 18,500 1,85,000
2. Printer 1 8,500 8,500
3. Air Conditioner 2 22,500 45,000
4. Tables 4 1,200 4,800
5. Chairs 30 600 18,000
6. Executive Chairs 2 1,500 3,000
7. Telephone
Connection
2 1,500 3,000
8. Sign Board 2 5,000 10,000
9. Fixture Lumpsum — 30,000
10. Decoration n — 30,000
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Total (?) 3,37,300
B. TOTAL STAFF REQUIRED FOR THE PROJECT
S.No. Designation Nos. Salary p.m. Total p.m.
1. Centre Manager 1 Self —
2. Computer Faculty 2 5,000 10,000
3. C.A. Faculty 1 10,000 10,000
4. Counsellor 1 4,000 4,000
5. Peon 2 1,500 3,000
Total (Rs) 27,000
C. ESTIMATED OTHER MONTHLY COST
S.No. Nature of Cost Amount per
Month
Amount per
Annum
1. Marketing 4,500 1,80,000
2. Electricity 5,000 60,000
3. Telephone 7,000 84,000
4. General Expenses 12,000 24,000
5. Rent 10,000 1,20,000
6. Printing Stationery 5,000 6,000
7. Travelling Conveyance 1,500 18,000
Total (Rs) 45,000 4,92,000
D. FDfED ASSETS SCHEDULE DEPRECIATION
S.No. Designation Op. Value Depreciation Clo Balances
1. Computers 1,85,000 46,250 1,38,750
2. Printer 8,500 2,125 6,375
3. A.C. 45,000 11,250 33,750
4. Tables 4,800 1,200 3,600
5. Chairs 18,000 4,500 13,500
6. Executive Chairs 3,000 750 2,250
7. Telephone Connections 3,000 750 1
2,250
8. Fixtures 30,000 7,500 22,500
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9. Signboard 10,000 2,500 7,500
10. Decoration 30,000 7,500 22,500
Total (Rs) 3,37,300 84,325 2,52,375
E. TOTAL FINANCE REQUIRED & INTEREST THEREON
Description One Month's W.C.
Salary 27,000
Other Fixed Costs 41,000
Total (?) 68,000
Description Yearly W.C. Required
Long-term 3,30,000
Cash Credit 68,000
Total Finance Required 3,98,000
Rate of Interest Estimated (12%) p.a. 47,760
F. CAPITAL REQUIREMENT AND FINANCE REQUIREMENT
Initial Fixed Assets Required Initial Franchisee Fees to be paid Initial Legal
Expenses to be incurred (Esti.) Initial Deposit to Landlord
Total Fixed Capital required
Rounded off Proprietor's Contribution Term Loan required from Bank
G. CALCULATION OF BREAK EVEN POINT (B.E.P.)
Let us Consider : 1 unit = 4 J.G. Students + 1 Non-J.G. Student Total Contribution at
62.50% Capacity Level i.e. from 30 unit Contribution/unit (14,38,500/30 unit) Total
Fixed Cost p.a.
BEP (in unit) (Total Fixed Cost/Contribution per Unit)
i.e. 7,48,085/47,950 Therefore, it can be said that to achieve the BEP, number of
students required : J.G. (20 x 4) Non-J.G. (20 x 1)
("80 + 20
PROJECTION
3,37,300 2,50,000 12,000 30,000 6,29,300 6,30^000 3,00,000 3,30,000 6,30,000
14,38,500 47,950 9,48,085
20
Therefore, Capacity Utilisation Level (at'BEP)
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H. REVENUE ESTIMATION
Capacity at 100% Level
J.G. Students (240/5 x 4) Non-J.G. Students (240/5) Total No. of Students
Capacity Utilisation 62.50% 93.75% 100%
Admission P.M. (J.G.) 10 15 16
Total Admission P.A. (J.G.) 120 180 192
(i) Total Collection P.A. from J.G.
(I)
18,00,000 27,45,000 29,28,000
(ii) From Non-J.G. (II) 2,25,000 3,37,500 3,60,000
(iii) Total Collection p.a. (I + II) = III 20,55,000 30,82,500 32,88,000
Less : Variable Costs
(iv) Royalty @ 25% (III x 25%) 5,13,750 7,70,625 8,22,000
(v) Books & Materials (III x 5%) 1,02,750 1,54,125 1,64,400
(vi) Total Variable Cost (IV + V) 6,16,500 9,24,750 9,86,400
(vii) Contribution Total (III - VI) 14,38,500 21,57,750 23,01,600
(viii) Less : Total Fixed Cost 9,48,085 9,48,085 9,48,085
(ix) Net Profit Before Tax (VII -
VIII)
4,30,415 12,07,665 13,53,515
# Average Collection per Student per Month from J.G. Students
(30,500/12) 2,541.67
# Average Collection per Student per Month from Non-J.G Students
(15,000/12) 1,250.00
With 1: 1 facility 60 minutes classes from 8 am to 8 pm. 12 batches of 10 students
each in a day can be easily accommodated (this may be considered as 100%
capacity). Though the same can be expanded in future. In other words, total 240
students may be taken as 100% capacity.
I. CASH FLOW
Project cash generation from operation (taking cash collection received as 75% at
the amount receivable)
Capacity Level 62.50% 93.75% 100%
Cash Collected from Students 15,41,250 23,11,875 24,66,000
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Less : Total Expenses :
Variable Expenses (list VI of H) 6,16,500 9,24,750 9,86,400
Fixed Expenses (Less Depreciation) 8,63,760 8,63,760 8,63,760
Net Cash Generation from Operation 60,990 5,23,365 6,15,840
J. ESTIMATED TOTAL FIXED COSTS PER ANNUM
Salary p.a. (as per schedule 27,000 x
12)
3,24,000
Other Fixed Cost (as per schedule C) 4,92,000
Depreciation (as per list D) 84,325
Interest on Bank Loan (as per list E) 47,760
Total (Rs) 9,48,085
K. PROJECTED PROFITABILITY STATEMENTS
INCOME At 62.5%
Level
At 93.75%
Level
At 100%
Level
Collection from Students Total
Income (A)
20,55,000
20,55,000
30,82,500
30,82,500
32,88,000
32,88,000
EXPENSES
Royalty (Variables Cost) 5,13,750 7,70,625 8,22,000
Book & Material (Variable Cost) 1,02,750 1,54,125 1,64,400
Salary 3,24,000 3,24,000 3,24,000
Marketing 1,80,000 1,80,000 1,80,000
Electricity 60,000 60,000 60,000
Telephone 84,000 84,000 84,000
General Expenses 24,000 24,000 24,000
Rent 1,20,000 1,20,000 1,20,000
Printing Stationery 6,000 6,000 6,000
Travelling Conveyance 18,000 18,000 18,000
Depreciation 84,325 84,325 84,325
Interest on Bank Loan 47,760 47,760 47,760
Franchises Fees W/o (2,50,000x1/5) 50,000 50,000 50,000
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Initial Legal Expenses - W/o 2,400 2,400 2,400
Total Expenses (B) 16,16,985 19,25,235 19,86,885
Net Profit (A - B) 4,38,015 11,57,265 13,01,115
N.P. Ratio (in percentage) 21.31 37.54 39.57
Projected Balance Sheet (1 st year at 62.5% Level)
Sources of Funds : Amount (Rs)
Capital Account (WN)* 7,38,015
Term Loan 2,20,000
Cash Credit 68,000
Total (Rs) 10,26,015
Application of Fund : Amount (Rs)
Fixed Assets 2,52,975
Fees Receivable 5,13,750
Deposit with BCC (Advance for franchises) 2,00,000
Initial Legal Exp. 9,600
Initial Deposit to Landlord (Rent) 30,000
Cash in Hand 19,690
Total (Rs) 10,26,015
W.N. Break-up of Capital Balance :
Initial Capital Introduction 3,00,000
Add : Net Profit (at 62.50% level) 4,38,015
Total (Rs) 7,38,015
This Sample Project Report has been prepared by K.K. Singh (Singh Commerce
Classes), Hazipur.
PROJECT REPORT-II
PROJECT REPORT FOR THE SCHOOL
Opening of a Public School Nirmal Public School
34, Gupta Foundation, Boring Road, Patna 2729550 (Office), 2729551 (School)
Constitution of the firm
Qualifications
Family Background
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Proposed Location
Name and Address of Bank
Name of the Service Name of the Unit Address Telephone No. Name and Address
of the
Promoters : Sanjay Gupta and Ajay Gupta 321, Kankarbagh, Patna. Proprietory
(1) M. Com., M. Phil, (2) B. E. (Mechanical), M.B.A. Good support and well-settled
39, Boring Road, Patna State Bank of India, Main Branch, Patna.
INTRODUCTION OF THE PROJECT
This project is about my dream project i.e., Nirmal Public School. Here our main
aim is to provide the best education to the children at minimum possible rates. Here
we will mainly emphasise on the lower income group of population who cannot
afford the higher education because it is too costly in other schools. We will not only
provide them education but also make them a complete individual by providing the
extra facilities of sports.
In the first year our focus is to just build 12 rooms on the ground floor with extra
nursery hall and the practical laboratories. With the open ground of 25,000 sq. Ft for
the children to play we plan to create the proper atmosphere for education and then
as the time will pass we will increase our project according to scope.
SCOPE OF THE PROJECT
The scope for this project is very wide and bright because there is no such school in
that area and most of the people are from middle income group. They cannot afford
costly education. So, our scope will be very good. As our main aim will be to
provide the education with all kinds of advance technology at a very affordable rate
which approximately be arounc ? 500 so that even middle class people could afford
proper education.
MARKETABILITY
The marketability of this project should be very good because we willingly acce: the
project because every one wants good education for his children. Our school will be
having the capacity of 1,300 students at time we expect around 600 to 2,000 students
in ou: school.
TECHNICAL FEASIBILITY_
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Process Flow Chart
Select the Location
Purchase the land
Plan a Project
Get Permission from Govt. Office_
Education Department
Get Affiliated from CBSE
Construct the Premises
Appoint the Staff
Start Admission
Start the Venture
EXPLANATION
First, we shall select a location suitable for the educational environment, away from
the local crowd and purchase the land. Then, we shall plan the project after
surveying all the positive and negative points of the area. Next, we shall workout the
scanned information and make a model to evaluate the things. Thereafter, we shall
get permission from the government and then the premises shall be constructed. We
shall get the school affiliated from CBSE and simultaneously staff required shall be
recruited. Soon after it is done, the process of admission shall take place. Thus, the
venture will start.
Second, Process which will be done from outside : None.
Third, Specification : No Specifications.
Fourth, Components to be purchased from outside : None.
Fifth, Installed Capacity :
The installed capacity of the school is to afford 1,000 to 1,200 students value ? 1,200
x ? 500 = ? 6,00,000 per month
Sixth, Proposed capacity to be utilized.
The proposed capacity of the school is 1,000 students at a time. Value ? 1,000 x ?
500 -? 5,00,000 per month A. FIXED CAPITAL
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Land = 35,000 sq. ft. Value = 60/sq. ft. (60 x 35,000) Total value = 21,00,000
Building Area = 8,000 sq. ft. (owned) Value = 375/sq. ft. Total value = (375 x
8,000) = 30,00,000
(1) Machinery & Equipment
Name of
Equipment
No. Price + Sale tax
(3%)
Total Name of Supplier
Computer 10 25,000 2,50,000 HCL Computer
Close circuit
cameras
16 5,000 80,000 New Electronics
Hooter 1 3,600 3,600 Delhi Plaza
Filtration Plant 1 74,000 74,000 Marked Limited
Audio Visual Screen 1 1,80,000 1,80,000 Global Marketing
Total 29 5,87,600
(2) Testing Equipments—None
(3) Electrification and Installation Charges—Total Cost
(4) Cost of Working Table & Furniture.
Rs 61,700
(5) Cost of Office Equipments Telephone Fax
Computer
Air Conditioners
Stationery
Intercome
Printers
Pre-operative. Expenses Electricity connection =
Getting permission =
Water connection =
2,000.00 10,000.00 40,000.00 75,000.00 30,000.00
5,000.00 20,000.00 1,82,000.00
7,000.00 75,000.00 5,000.00 87,000,00
(25,000 x 3) (2500 x 2)
(7)
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Total Non-recurring Expenses = 62,80,300
B. WORKING CAPITAL (PER MONTH)
(1) Staff and Labour
Classes Rate (?) Quantities Total Rs
Nursery 400 per set 80 32,000
KG (I & II) 1,000 per set 80 80,000
Senior
Classes
1,200 per set 125 1,50,000
Total 2,62,000
Staff Designation No. Salary Total
Technical 1 3,000 3,000
Office 3 4,000 12,000
Sales 1 5,000 5,000
Others Teachers 6 5,000 30,000
Salaries PM Bus Driver 8 4,000 12,000
Total 62,000
Land & Building of Cold Storage & Resedential house of Mr. Arun Kumar
INTRODUCTION
This techno-economic feasibility report relates to the cold storage being established
in the name and style of M/s XYZ Cold Storage Pvt Ltd. It is constituted on
1/4/2008.
Our country is predominantly agriadtural based country and has been able to
perfectly build up an agricultural structure that has received worldwide attention.
The agriculture sector has undergone transformation from traditional to modernized
practices with ever-larger export potential. The scope of cold storage in potato
growing belt is very large. The cultivation of agriculture produce especially of
potatoes is increasing day by day. Since potatoes are grown and cultivated for a
certain period of time and consumed through out the year, it becomes necessary to
preserve the excess crop for non-cultivation period for consumption.
The installed capacity of cold storage of two chambers is 58604.26 qtl. of potatoes.
Looking to the positive demand supply equation in that area the directors have
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decided to undergo construction of Cold Storage unit having the installed capacity of
storing 58604.26 qtls. of potatoes. The project as per analysis given in the report
seems to be technically feasible & economically viable.
THE DIRECTORS
The company was constituted on 1/4/2000 with the following directors :
Name of the Directors Residential Address
The identification of the project has also been done by them keeping in view the
existing/ potential demand for cold storage in the area which falls in the potato
growing belt. With the satisfactory track record of the directors the management for
the proposed activity may be considered satisfactory.
ADMINISTRATION
While the overall working of the cold storage will be supervised by the directors,
suitable skilled/unskilled staff will be inducted for the venture. The unit will employ
refrigeration engineer. The work will be conducted under his responsibility for
achieving targets, cost control, quality control, plant performance and its
maintenance. He will be assisted by the two machine operators and there will be few
more staff members for accounts, supervision and other activities of the units.
TECHNICAL SPECIFICATION & CAPACITY
The proposed cold storage construction is being undertaken for the preservation of
potatoes and other perishable products. The proposed chambers of cold storage are
expected to preserve 58604.26 Qtls. of potatoes per annum utility using single shift
operation per day & 235 working days in year.
The details of proposed chamber is given below :
1st Chamber : 24.91 x 22.975 x 16.00 cum
2nd Chamber : 24.91 x 22.975 x 16.00 cum
Total capacity in cubic metres is 18313.83 cubic metres.
Therefore storage capacity : 18313.83 cubic metres x 3.20 = 58604.26 qtls.
The rationale for setting up of the chambers is that of location advantage, positi
demand/supply position.
PROCESSING
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The cold storage will utilize ammonia gas refrigeration process system. The unit -
operation will be carried out as follows :
(a) Potatoes will be brought in the cold storage premises. The potato bags thereaftV
will be transferred manually to the chamber.
(b) Cold storage will constitute of small enclosures, arranged on RCC columns and
beams. The chamber will be well insulated by the thermacol to protect transmission
of he; from outside.
(c)Refrigeration of cold storage space will be effected by ammonia refrigeration
plant.
The chamber is pre-cooled upto 40F before loading. Thereafter constant temperature
between 34F & 36F is maintained. The temperature is physically checked at an
interval of 4 hours from technical standpoint, effective cooling maintenance &
requisite temperature in the cold storage is crucial. As a result requisite compressors
and proper insulation is being put in place.
RAW MATERIALS
Main raw materials required to run cold storage are as follows :
(a) Water
(b) Ammonia Gas
(c) Compressor Oil
Water shall be supplied from submersible pump already installed at site. Ammonia
Gas and Compressor Oil will be purchased from local market and it is available at
competitive price in open market.
ELECTRIC LOAD
175 KVA electric load application has been moved to Power Corporation by the
directors of the company.
NATIONAL AGRICULTURE BANK AND RURAL DEVELOPMENT
SUBSIDY FROM NABARD
Capital investment subsidy for the construction/modernization of cold storage is
applicable since 01.04.1999. The subsidy is available upto 25% of total cost of
project restricted upto 50.00 lacs per project. After submission of papers by bank to
NABARD, 50% of 25% of total cost of project will be disbursed. The remaining
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balance of subsidy 12.5% will be disbursed by NABARD after completion of unit
and inspection by Joint Monitoring Committee.
COST OF PROJECT AND MEANS OF FINANCE
(A) Cost of Project: The total cost of project works out to Rs 317.8 which includes
tin following:
1. Land—Purchased : The land has already purchased for Rs 4.50 lacs.
2. Building— Rs 207.00 lacs : The total cost of the building as per the detailed
estimate of the engineer (enclosed) is Rs 207.00 lacs.
3. Plant and Machinery— Rs 71.00 lacs : The plant & machinery is to be purchase:
from the indigenous manufacturers. The detailed description of the proposed new
machir and its quantity is shown in separate Annexure as per quotation supplied by
manufacturer-suppliers.
4. Misc. Fixed Assets— Rs 1.00 lacs : A sum of Rs 1.00 lacs has been provided
under this head to meet out the expenses of Office Furniture, Equipments etc.
5. Electricity Security— Rs 2.82.00 lacs : A sum of Rs 2.82.00 lacs has been
provided under this head to meet out the expenses of electricity security etc.
INTEREST DURING CONSTRUCTION PERIOD
6. IDCP— Rs 12.38 lacs : The interest during construction period has been added to
the cost of assets and preliminary expenses on the time basis and the IDCP added to
the cost of assets has been proportionated in the cost of building and the plant &
machinery on the cost basis.
7. Preliminary and Pre-operative Expenses— Rs 7.69 lacs : A sum of? 7.69 lacs
has been provided under this head to meet out the preliminary and pre-operative
expenses and the proportionated amount for IDCP.
8. Margin Money for Working Capital: Rs 23.79 lacs : A sum of Rs 23.79 lacs
has been provided to meet out Margin money for Working Capital.
(B) Means of Finance :
1. Equity Share Capital— Rs 50.00 lacs : The authorised share capital of the
company is Rs 25.00 lacs divided into 2,50,000 equity shares of Rs 10.00 each to be
issued at a premium of Rs 10.00 each.
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2. Bank Finance— Rs 177.00 lacs : The company requires the total term loan of Rs
177.00 lacs which includes Rs 124.2 lacs towards building construction at 40%
margin and Rs 52.8 lacs on plant and machinery at 25% margin which are required
to be purchased before the commencement of the operations of the cold storage.
Further, the unit also proposes the working capital limit of Rs 72.00 lacs for advance
to farmers. The remaining contribution shall be made by the directors in the form of
capital and usecured loan from friends and relatives.
3. Unsecured Loan—Rs 90.80 lacs : The company will borrow Rs 90.80 lacs from
the friend and relatives. The unsecured loan will not be withdrawn during currency
period of Bank Loan.
IMPLEMENTATION SCHEDULE
The land has already been purchased by the company.
SCOPE OF COLD STORAGE
The geological structure and fertility of soil and climatic conditions of the area is
such that it is best suited for the cultivation of potatoes and this aspect may be better
judged by experiencing the facts that during the last season only, the cultivation was
so high that the existing cold storage units in the area were unable to store it with
their existing capacity. Thus there is a huge gap between crop of potato and
preservation capacity of potato.
The sandy soil of the area is suitable for potato cultivation. Due to the shortage of
storage capacity in the area, the farmers have to go far away places for storage of
potatoes. Thus there is ample of potential for more cold storage units in that area.
The scope of the project coupled with fine business background of the directors will
provide an edge to the entire operations of the unit. Hence, we conclude that there
will be no problem of market for this unit.
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MOBILIZING RESOURCES FOR START-UP, ACCOMMODATION AND
UTILITIES, PRELIMINARY CONTRACTS, CONTRACT MANAGEMENT,
BASIC START-UP PROBLEMS
MOBILIZATION OF RESOURCES Concept and Meaning
Mobilization of resource can be referred to all those activities that are involved in
maximizing the existing resources and also securing new and additional resources.
Resource mobilization is also known as "New Business Development". Before
commencing the study of Mobilization of Resources, it is very important to
understand the meaning of "Resources".
Resources refer to that medium which is essential for the culmination of the project.
In the absence of resources the establishment of any project is confined to be a
matter of conjecture. The resources exist everywhere in one or the other form.
Therefore any entrepreneur who aspires to set up a project cannot prosper unless one
manages the required sources. These resources at that time are in fluid and chaotic
stage. By identifying these resources an entrepreneur needs to organise them in a
useful manner.
Resource mobilization is an important activity for the growth of innovative
entrepreneurship. It ensures the continuation of one's organization's service
provision to clients, supports organizational sustainability and allows for
improvement and scale up of products and services the organisation presently
provides. The laws of supply and demand explain the flow of resources to and from
the movements, and that individual actions are accounted for by rational choice
theory.
ROLE OF ENTREPRENEUR IN MOBILIZING RESOURCES
The success of any entrepreneur is attributed to his sensibility that how he identifies
and explores his resources that could prove to be the most useful ones to get his
goals. While mobilising the resources he must ensure that they be in the right
direction.
In this context he needs to take care of the following :
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(1) Need of Resources : First of all an entrepreneur must determine the kinds of
resources which are required. In view of his needs the resources are to be identified
and selected.
(2) Identification of Resources : After having determined the resources the
entrepreneur needs to identify these resources and plans how to secure and ensure
their availability ?
(3) Study of Difficulties : It is not that easy to avail of the resources. What kind of
difficulties are to be negotiated for procuring the identified resources. This aspect
needs a careful prior consideration so as it becomes convenient to move ahead.
(4) Contact with Suppliers: In every resource viz. land, machine, capital, labour
etc, there is an owner in terms of an individual or of some organisation. As such, an
enterpreneur, to ensure a supply of the resources has to contact with the concerned
suppliers.
(5) Quality and Timing of Resources : Which resource of what quantity and within a
specified time span, will be required ? An entrepreneur has to determine these
factors.
POINTS WORTH CONSIDERING WHILE MANAGING RESOURCES
Need of
Resourc
es
Identificati
on of
Resources
Study of
Difficulti
es
Contact
with
Suppliers
Quality
and
Timing
of
Resource
s
Quality
and Cost
of
Resources
Financial
Arrangeme
nt for
Purchasing
Resources
(6) Quality and Cost of Resources : An entrepreneur while managing resources must
take care of the quality against the cost. He must ensure that the quality is desirable
or not.
(7) Financial Arrangement for Purchasing Resources: Finally, the entrepreneur is to
see to it that how the resources will be purchased. Will he be able to arrange
finances for that?
KINDS OF RESOURCES AND THEIR ORIGIN
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To run a project several resources are required. The resources like land, capital,
labour, raw-material, machines, equipment, water, electricity, safety and
transportation have to be obtained. The needs of the resources remain in constant
flux according to the size and nature of the organisation. The important resources are
explained underneath :
(A) Physical Resources : These resources comprise land, location, machines, inst-
ruments, equipments and raw material etc. The following elements have their
maximum impact on the resources :
(i) Location of land, the size and its cost.
(ii) The transport facility to access to the land, ambience of location, machines,
instruments and equipments, their availability, their quality, cost, technique and time
span for supply are important for consideration.
(hi) The conditions for installing machinery, and its repairs etc.
(iv) Short and long term costs and replacement facility.
(v) The need of trained and experienced workforce for, operating the machines.
(vi) Basic amenities, viz., water, electricity, transport etc.
(vii) Effect on environment.
(viii) Availability of raw material, the quality, cost, supplier, time taken in supply
and terms of purchase, etc.
Keeping in mind the aforementioned points the physical resources should be
procured. Some degree of caution must be exercised because a substantial
investment is involved in purchasing the resources and a considerable capital is
required. Once a wrong selection is made, it can put a question mark on the future of
enterprise. Therefore, at the time of purchase the cost of physical resource is a
subject of serious consideration and also in terms of its utility. If an old machine is
available at a lesser cost it may not be preferred since it would cost dearly in the
long run.
(B) Technical Resources: Technical resources refer to certain innovative techniques
which must be used in present perspective. This technique is related to production
process, information, communication, operation of machine, etc. The modern and
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innovative techniques in terms of use minimise the cost of production, whereas at
the same time it leads to the improvised version of the product.
The following factors considerably effect this resource :
(i) An entrepreneur is supposed to be well-versed in technical know-how or he must
seek knowledge from expertise.
(ii) In the event of designing a product, its utility must be thought about.
(hi) This is also to be seen that what kind of technician is required for which
machine, is he available ?
(iv) Which technique will be adequate for each process of production ?
(v) Which technique, how far will be suitable in quality control operation ?
(vi) What is the cost of technique need and utility ?
(C) Human Resources : All the available resources are of little use unless mobilised
by the human resources. As such, human resources is the most operative and active
one. An entrepreneur of course is the captain of his project but cannot perform each
activity by himself. He has to depend on other human resources. Many workers are
needed for operating a project. For this various categories of employees are recruited
as per requirement on the basis of their abilities and qualifications, etc. Therefore,
human resources are comprised of managers, technicians, skilled and non-skilled
employees. Without their joint endeavour and coordination a project cannot be run
successfully.
Following are the factors to influence these resources :
(i) Determine the strength of employees according to the nature of project.
(ii) Appointment of skilled workers is done according to the work .
(hi) Distribution or allotment of assignment is done on the basis of qualifications and
abilities of the workers.
(iv) An appropriate environment and adequate working conditions are provided to
the employees.
(v) Employees are encouraged and motivated for good performance.
(vi) Employees ought to be adequately rewarded for better performance.
(vii) They should be imparted training from time to time.
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(viii) To boost the employees morale, their participation and the share in the
management should be ensured.
The success or failure of any organisation is attributive to a good management of the
human resources. Therefore an entrepreneur must exercise caution in organising and
managing human resources.
(D) Financial Resources : Every kind of resource has an important role to play at its
own without which the operation of any project is an inconceivable presumption but
the financial resources are indispensable and have their distinct significance. Since
it's like a magnet which attracts other resources to his side. Right since the inception
to the final stage of operation and at every step in his side process, the finance is
needed and acts like a life blood that keeps the process get-going. In both cases of
fixed and working capital, finance is the need. Fixed capital is needed to purchase
land, building, instruments and machinery/equipments, etc., whereas the working
capital is needed for operating the project and for meeting the day-to-day
requirement.
Following factors influence the financial resources :
(i) If the nature of business is commercial the small capital will do and if it is a
manufacturing unit, much more capital is needed.
(ii) Larger the project, higher the capital, smaller the project, lesser the capital—is
needed.
(iii) If the business is labour-oriented, lesser capital and if it is technically-oriented,
higher capital is needed.
(iv) If the scope of purchase on credit in business is there, lesser finances would be
sufficient and if not higher finances are required.
Any entrepreneur meets the financial requirement from his personal pocket or from
loan. Loan can be obtained from banks or other financial institutions with or without
guarantor. If the organisation is in form of a company, finance can be procured by
means of floating shares or debentures.
In the financial matters, the entrepreneur is required to be specific and more careful
because in the event of paucity or surplus of finance, both can prove fatal, as such
financial resources must stay balanced.
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ACCOMMODATION AND UTILITIES Industrial Accommodation
Industrial accommodation is perceived as environmental stimulant for
entrepreneurial initiation. One not only gets accommodation in industrial estate but
also a host of infrastructure and other facilities and automatic access to variety of
fiscal incentives in the form of sales/ income, tax exemption, capital subsidy, etc.
The factor of industrial accomodation is seen as strongest stimulant of industrial
entrepreneurship. It is often observed that those already in business, corner facilities
and incentives for entrepreneurship despite proclaimed focus on the "New
entrepreneurs"
Availability of industrial space for technically qualified persons meant that the
industrial estate programme could attract professionals into the domain of industrial
entrepreneurship.
On the basis of the research in respect to the availability of industrial
accommodation is the relative better access for the entrepreneurs coming from
successively higher economic background.
Financial Accommodation
Financial Accommodation is a loan advanced to facilitiate the borrower where the
lender receives no consideration in form of interest or fees in return.
These loans are often accomparied by accommodation bills which guarantee that a
third party compensates the lender in case the borrower is unable to repay. Small
business loans may not be easy to come by with poor credit. For some, managing a
small business is their main source of living income. In such cases there are
programmes available for small business owners and entrepreneurs to help them
improve their credit worthiness. In other words it is also known as Accommodation
Loan, where credit agreement means an agreement whereby a creditor grants or
promises to grant to a consumer for remuneration, credit in the form of a deferred
payment, loan or other similar financial accommodation. Utilities of
Entrepreneurship
The utilities of entrepreneurship or self-employment can be explained as follows :
1. To Increase National Production : Almost all the developing nations of the
world have same history— long foreign rule, recent political independence and
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efforts for economic independence. In this process, majority are facing problem of
import substitution, consumer production services and increasing export production
for increasing national production.
To save valuable currency, the substitute for imports is necessary. But in developing
nations the demand for consumer goods and services increases only when overall
development takes place. This demand can be fulfilled only by increasing consumer
production and services. Since no country is self-sufficient in all goods and
requirements and therefore cannot develop of its own. For speedy and permanent
development of a nation it has to enter into foreign trade for which foreign currency
is needed and the only way to earn foreign exchange is to produce for exporting for
which more and more self-employed entrepreneurs are required. Thus :
2. Employment: Self-employment is probably the only solution to the ever
increasing unemployment problem. This problem cannot be eradicated just by the
policy of wage employment. In reality, through self-employment unemployed can be
made to stand on their own feet. Keeping this thing in mind, labour ministry has
asked for suggestions to increase self-employment and to open self-employment
training and motivation centres in various employment exchanges at district level.
3. To Reduce Monopoly: A common evil in developing nations is prevailing
monopoly in business and industrial sectors. Due to lack of entrepreneurs and
political reasons, monopolistic tendencies take place. The planned efforts to
inculcate the will to establish own enterprise, i.e., self-employment play a great role
in reducing or ending monopoly. By establishing small scale enterprises many
people get engaged in producing goods and services which are otherwise produced
by a handful of business houses.
4. Reinvestment of Earning: An outsider establishing an enterprise in a particular
area does not generally, reinvests the entire profits in the same industry or area and
as a result the process of transfer of local resources carries on. The development of
the area also does not take place at a speed which otherwise would have taken place
if the local people establish their own enterprises. Therefore, the local youth should
be encouraged to adopt self-employment and establish industries in their own areas,
so that the earnings are reinvested in their own areas :
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5. Balanced Regional Development': Public utility services are directly related to
industrial and business activities, e.g., roads, transport, communication, health,
recreation, etc. Since the industrial activities are confined to a few areas of the
country, the development also takes place in those areas only, which results in
imbalanced social and economic growth. In developing countries this is a common
problem. For example, in India more than 50% of industrial units were limited to
only 6 cities upto 1970, that's why these cities are comparatively more developed.
Other examples of unbalanced regional development are Bankok in Thailand,
Manila in Philippines, Seol in South Korea, etc.
By putting efforts to develop self-employment or entrepreneurship in local
population, entrepreneurs in different areas will be developed, since most of the
people especially small entrepreneurs prefer to establish business in their own areas.
Thus, they help in balanced regional development in all parts of the country.
6. Decentralisation of Economic Power: Two types of powers have dominated the
world, i.e., physical and economic. In initial time physical forces dominated the
world but in modern times economic power dominates the scene.
Economic power is a result of industrial and commercial activities. When the
industrial and commercial activities do not take place in a planned manner, the
economic power is concentrated in the few hands only, which has adverse effects on
social and political conditions, particularly in developing countries. The only
solution to this problem is providing self-employment opportunities to unemployed
youth. Thus, there is a need to launch a mass movement of entrepreneurial
development in the country.
7. Self Sufficient Society : A self-sufficient society can be formed by productivity
revolution and capital formation, which is only possible because of economic
activities. The productivity and capital formation takes place only because of
entrepreneurship. Self-employed entrepreneur contributes a lot in export promotion
and import substitution by increasing production.
8. Maximum Utilisation of Human Resources : Educated youths have skills and
energies which is wasted because of dependence of this class on jobs. At the peak of
these youth, when they are jobless, they get involved in unproductive or anti-social
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activities, which proves to be suicidal. In a nutshell, it can be said that a nation's
valuable human resource is lost. Self-employment and entrepreneurship provides
best opportunities for utilization of his skills and energies. Entrepreneurship is a
challenging and creative task which requires additional energies, which only a youth
possesses. It increases self- confidence among youth, which in developing nations
are lacking.
9. Poverty Eradication : In countries like India, poverty and starvation is a curse.
Millions of people are living below poverty line. The only way to poverty
eradication is development of entrepreneurship and self-employment.
Entrepreneurship development helps in growth of industries which creates
employment opportunities. The problem of poverty can be solved only by providing
more and more employment which is possible only through entrepreneurship.
10. Achievement of Plan Objectives : As per our Five-year Plans, the basis for
achievement of our economic objectives is self-employment. That is why our
government has been laying special emphasis on creation of self-employment
opportunities in five-year plans.
11. Development of Handicrafts : The survival and development of handicrafts is
possible only when the people engaged in this field are given financial and other
incentives in self-employment programme. Self-employment is the only source of
living for these people. This also helps in preserving a country's cultural heritage,
traditions and skills.
12. National and Social Importance : Self-employment benefits a nation in the sense
that it creates the feeling of regional dissatisfaction. It helps in attaining equal
regional development and interdependency on each other. This gives strength to
national integration. Nation becomes self-sufficient and dependence on other
countries reduces, resulting an increase in national income.
13. Promotes Capital Formation : Self-employment activities develop industry and
business, expand productive activities and the number of new enterprises increases.
With a number of commercial activities and services, Wealth and Capital formation
is promoted. The income, savings and profits are reinvested in new industries which
again leads to capital formation.
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14. Contribution for Execution of Government Policies : The government can
successfully implement its policies through self-employment. The policies and
programmes for technical research and development, and integrated development
can be undertaken through self-employment.
15. Creation of Industrial Environment : The entrepreneurs entering in self-
employment contribute a lot in creating industrial environment in a country. They
set an example for others also who are motivated to establish enterprises after seeing
their personal and industrial success, and the process continues. This way, self-
employment builds an environment for economic development of a country.
16. Development of Managerial Capacities : Self-employment and entrepreneur-ship
develop various managerial capacities in the entrepreneurs, like planning, decision-
making and business management. In addition to this, self-employment develops the
personality by developing many qualities like leadership, decision-making ability,
self, confidence, patience, farsightedness, tolerance in the entrepreneurs. These
qualities develop the capacities of entrepreneurship and risk-taking.
17. Development of Infrastructural Facilities : With the development of self-
employment, industries develop and as a result basic infrastructural facilities like
roads, electricity, water, training institutes, banks, communication also develop.
18. Role in Complementing and Supplementing Economic Growth : Economic
growth is a continuous process and passes through various stages, be it a developed
economy or developing economy. It is a universal and never ending process. Even
the most advanced nations like U.K., Japan, Germany, USA had to pass through this
process. No business and industry can develop overnight, it has to pass through a
long process of economic growth. Entrepreneurship plays a key role in
complimenting and supplementing economic growth of a country. Thus,
entrepreneurial development is a pre-requisite for economic development and
growth.
In the early days of development it was felt that state should play the most important
role in the development of business and industry. Government was considered as the
most important agency for complimenting and supplementing economic growth.
However, the latest economic policy of disinvesment and open market economy and
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disinvestment of public sector units has made the government realise that it should
only concentrate on purely government functions like defence, social security and
administrative on and the business and industry should be left to market forces for
private entrepreneurs.
A large number of industries which were reserved for public sector are opened to
private sector, e.g., electricity generation, petro-chemical industries, national high
ways, bridge construction, telecommunications, education, public transport, etc.
Taking for example, telecommunication as a result of privatisation a number of
national and international players have emerged in the field (Airtel, Motorola, Idea,
Reliance, etc.) which have complemented government's efforts to provide
telecommunication services across the country.
Moreover, entrepreneurs are also supplementing government's efforts in other
sectors also. For example, it is the primary duty of the government to provide
education to all. However, in order to supplement government's efforts in the field of
education a large number of private entrepreneurs have established educational
institutions right from primary education to technical and professional education,
such as engineering, medicine, hospitality management, hotel management, etc.
Thus, it is clear that entrepreneurs play a vital role in complimenting and
supplementing economic growth in a country. The main hinderance in the path of
complimenting and supplementing economic growth is lack of entrepreneurs. C.W.
Cook states that "Entrepreneurship constructs a bridge between productive resources
of a country and customers."
19. Role in Social Stability: Entrepreneurs play an important role in bringing social
stability. It is rightly gaid, "Man is a social animal." An entrepreneur is also a social
animal and thus he is influenced by social environment and can influence social
environment. Social values, forms, behaviour, beliefs, traditions and concept, etc.,
play a vital role in the formation of entrepreneur's tendencies.
The last three centuries, i.e., 18th, 19th and 20th centuries have witnessed
unprecedented social changes. The pace of social change was slow in 18th century,
it was faster in 19th century and fastest during 20th century. The industrial
revolution changed the industrial, economic and social scenario. Further, the new
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industrial policy of 1991 changed the entire economic scenario as rapid economic
development took place after this. Production which was confined to our local limits
became international in character, i.e., goods were not produced at the place of
consumption but were produced in that country which possessed vast resources and
were to be consumed in several countries of the world. The policy of liberalisation,
privatisation and globalisation has given further boost to economic development of
the country. The country is heading towards developed economy at a fast rate.
However, it has given rise to concentration of economic power in a few hands only.
There is not much improvement in the condition of poor. The social life is becoming
worse day-by-day. The social life has been adversely affected and the country is
proceeding towards social instability. It is the entrepreneur who can bring social
stability in the country by establishing new small enterprises and checking
concentration of economic power and overall economic development of a country.
Whatever economic and social changes and stability have taken place in the country,
it is only because of entrepreneurial development. Employment avenues have
increased because of technical and professional education and regional economic
development has been encouraged. Urbanisation and industrialisation has broken the
barriers of cost based business identity which has encouraged social stability. The
old concept of self-interest and self-profit based business is becoming impractical.
Present conditions demand for an entrepreneur who is socially conscious and who is
not concerned about the progress of others. The entrepreneur today is fully
conscious about social effects of his economic activities. Entrepreneurship can
develop new employment, new goods, new business and new values in the society.
In developing nations entrepreneurship is a socially desired behaviour which is
based on social objectives and not just on individual objective.
Thus, we can conclude by saying that entrepreneurship is the basic element in the
social and economic development of a country. Entrepreneur works for the welfare
of a large section of the society. His projects, policies and decisions are based on
social inferos ts. He creates conditions of development in society and builds a strong
base for social change.
BASIC START-UP PROBLEMS
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On having explored a creative enterprising idea and prior to translating it into an
actuality a daring entrepreneur ought to evaluate all the implicit difficulties,
challenges and rewards in an enterprise. In other words, in order to become an
entrepreneur, he is supposed to consider the following two questions :
(a) Am I an entrepreneur ? Do I have the characteristics in terms of education,
ability, psychology and aspiration etc. which are indispensable for being an
entrepreneur ? and
(b) Are the potential rewards commensurate with the risks ?
The various aspects of these two questions should be considered in detail. (1)
Consideration of Risks : An entrepreneur is expected to analyse the implicit risks
involved in establishing an enterprise in the following manners :
(a) Financial Risks : Before establishing any enterprise the evaluation of financial
risks is of paramount importance. The entrepreneur has to do a lot of brain works in
terms of financial arrangement from various resources in order to ensure an adequate
sum of money. It otherwise becomes impossible to get a return on the investment if
the enterprise is not finally undertaken.
(b) Personal Risks: An analysis of personal risks is also imperative. The reason
being that the involvement of the cooperation and contribution of the family
members, social friends and several others is also sought whose reactions excluding
those of the self must be 315 SBPD Publications Entrepreneurship
anticipated. The personal financial risks to some extent may be overcome or limited
but the energy, dedication and financial investment and the social status of yours has
to put at risk. No escape from such liabilities is possible and difficult to estimete all
its effects.
(c) Career Risks : These risks refer to the conditions of abandoning some
profession or job and undertake the setting up of an enterprise and in case of fiasco,
returning to the earlier pre-occupation involves a great deal of challenge and risk.
After an interval in some of the professions, return becomes greatly difficult. As
such, risking one's earlier profession ever remains an impossible and daunting
process.
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(2) Rewards : The outcome of a successful entrepreneur is both in terms of
monetary and non-monetary gains. Not only the financial gain but the energy and
efforts invested in the inception of an enterprise, the entrepreneur reaps the
advantage with a sense of gratification. Besides the financial success, the social
image, the social contribution and professional satisfaction and the acquisition of a
new social status is important than the profitability.
PRELIMINARY CONTRACT
Definition and Concept
"A preliminary contract is a contract formed during contract negotiation, before, en-
tering into the detailed contract for the delivery of goods and services."
Preliminary contracts, such as heads of agreement and letters of intent, are often
used in commercial transactions, and increasingly by commonwealth agencies,
statutory authorities and government-owned corporations. If they are drafted and
used appropriately, they can maximise outcomes and value for money on complex
and strategically important projects. Government agencies enter into a myriad of
contractual arrangements to buy goods and services and to implement programs.
Significant procurement processes generally begin with the issue of a request for
tender to industry, followed by tender evaluation activities and detailed negotiations
with a preferred supplier selected from the evaluation process. The final agreement
or contract may be, for example, an outsourcing contract, a services contract, a
capital equipment acquisition contract or a joint-venture agreement.
Types of Preliminary Contract
Types of preliminary contract often'used in commercial contract negotiations are :
Heads of Agreement : A document outlining the key principles and terms for a
commercial arrangement.
Letter of Intent : A document indicating a present intention of the parties to enter
into a detailed, final contract at a later date. A letter of intent may be used on time-
critical projects to allow a preferred supplier to begin specified activities with a long
lead time.
Preliminary Services Contract: A contract for preliminary design or development
activities, prototype development or consultancy services can be used to accelerate a
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project or to achieve a higher degree of technical certainty before committing to a
formal, long-term contract.
There are common types of preliminary contracts that are not intended to be legally
binding, such as a memorandum of understanding or a letter of comfort. These sorts
of agreements should clearly state that they are not intended to create legal
obligations between parties. A typical example is a memorandum of understanding
between Commonwealth agencies, setting out the framework, services and
responsibilities for interagency projects or service-delivery arrangements. Another
type is the letter of comfort, which is often requested but not commonly used by the
Commonwealth, and is generally discouraged, because of the risk of it being held to
be legal binding.
SIGNIFICANCE OF PRELIMINARY CONTRACT Preliminary Contracts
can help the Parties
• Achieve urgent objectives for example, in relation to natural disasters, service-
delivery arrangements or significant policy initiatives by enabling the key terms of
an arrangement to be agreed upfront.
• Establish a commercial framework for complex arrangement, by outlining the
framework, key parameters and timing for complex arrangements requiring the
negotation of multiple transaction documents, or for collaborative projects that
involve implementing multifaceted policy intitiatives (for example, joint projects of
the federal and state and territory governments).
• Reduce risk, by providing for the development of key contract plans/schedules, or
the conduct to risk-reduction activities, to obtain further certainty before committing
to a final, long-term contract in relation to complex, technology-based projects.
• However, preliminary contracts should be used carefully, as they may also give
rise to disadvantages and risks. In particular, it is often more efficient to prepare the
final, formal document in the first place, and disputes can arise over the
interpretation of general provisions that do not deal with the key contingencies, risks
and liabilities in the same detail as a final agreement. It is also important to
remember that government agencies need to comply with the Commonwealth's
financial management framework in approving preliminary contracts and any
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associated spending proposals. Key points to be addressed in preliminary contracts.
There are no usual terms for a preliminary contracts, and the contents of the
agreement will depend on the specific arrangement and whether the parties envisage
subsequently entering into a formal contact. As with all contracts, the key is to use in
clear, plain English to outline the framework and key principles for the project and
the responsibilities of all parties, and to allocate project risks.
TERMS AND CONDITIONS OF PRELIMINARY CONTRACT Preliminary
contracts commonly include the following terms :
• A statement about whether the parties intend the document to be legally binding.
• An agreement to negotiate in good faith and use reasonable or best endeavours to
undertake contractual obligations while noting that an agreement to enter into a
contract is generally not considered enforceable.
• A sunset date detailing when the preliminary contracts expires.
• Requirements about confidentiality and making public statements.
• Whether, on entering into a final contracts, any work performed under the
preliminary contracts will be treated as though it had been performed under the final,
detailed agreement.
• The consequences when the preliminary contracts expires or is terminated—for
example, will the preliminary contracts automatically terminate when a final
contract is entered into by the parties? Can the parties walk away from negotiations
at any time without any costs?
• Where initial work is to be performed by the preferred supplier under the
preliminary contracts, the work should be carefully scoped, and limits should be
included on the amount payable under the agreement.
NECESSARY DOCUMENTS FOR PRELIMINARY CONTRACT
WITH VENDORS
The names and addresses of the purchaser and the vendor;
• The description of the apartment (its addresses and cadastral designation);
• The identification (if needed) of the private parking and storage portions, and their
cadastral description;
• The purchase price offered and, if applicable, the terms of payments :
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• The superficial area of the private portions;
• The identification and the ID number (if applicable) of the parking and storage
space (s) allocated as (a) common portion(s) for restricted use;
• The agreed price and, if applicable, the terms of payment;
• The amount(s) of any deposit (s);
• Your intent or not to obtain a hypothecary loan to finance the purchase, along with
the particulars of such financing;
• Any movable property or items included in the purchase price (for example :
appliances, curtains and light fixtures);
• The rented devices or apparatus;
• Any conditions suspending the contract;
• The date of taking possession of the unit;
• The date scheduled for the signing of the deed of sale;
• The name of the notary before which the deed of sale is to be signed;
• The term of enforceability of the preliminary contract, meaning the date and the
precise hour after which it will become null and void;
• The signature of both parties.
SAMPLE FORMAT OF PRELIMINARY CONTRACT WITH VENDORS Event
Vendor Concession Contract.
The parties to this contract are.................(hereafter "Host") and...............hereafter
'Vendor").
Whereas, Host is hosting an Event known as..................... to occur at............... on
MM/DD/YYYY, beginning at HH; MM am/pm, and has the right to license
concessions to vend at and during the Event, and
Whereas, Vendor desires to vend................... at and during said Event, and
Whereas, Vendor has paid Host the sum of $X for a license to vend at and during
said Event,
Now, therefore, the parties agree as follows :
1. Vendor shall have access to the location agreed upon by the parties no less than X
hours before the Event's commencement for the purpose of setting up Vendor's
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vending station, goods, and other things necessary and reasonable to vending at the
location.
2. Vendor shall not vend any goods or services other than those described herein at
and during the Event without the Host's written consent.
3. Vendor's vending station shall be no larger than X x X feet or taller than X feet;
shall be clean and orderly; and shall comply with all applicable laws and regulations.
4. Vendor's staff may announce the availability of the goods to be vended only while
they are within the confines of the vendor's location.
5. Vendor's staff shall be clothed and groomed in a clean, neat fashion and shall
'conduct themselves in an orderly fashion.
6. No loud music, noise, or sound amplification devices shall be used by vendor's
staff at the location.
7. Vendor shall have access to the location for up to X hours after the Event's
conclusion at HH : MM to dismantle and remove all things brought to the location
by Vendor. Vendor shall leave the location clean of trash and substantially in the
condition it was before Vendor occupied it.
8. Vendor hereby agrees to indemnify and hold harmless the Host against any
damages or claims that may arise in connection with Vendor's presence at the Event
and Vendor's activities of any kind.
In witness to their agreement to the terms of this contract, the parties affix their
signatures below :
Host, signature & date Vendor, signature & date
Address ................................................ Address ...............................................
City, state, ZIP ................................... City, state, ZIP ....................................
This contract is tagged with these keywords : vendor, vending, vendor contract.
NECESSARY DOCUMENTS FOR PRELIMINARY CONTRACT WITH
BANKS
Dear customers, required documents for low interest loan from CCB are specified by
the property type and the loan purpose. The bank loan officer will help you identify
which of the listed documents are necessary for your loan.
Documents Concerning the Customer
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Request for an overdraft loan secured by mortgage.
Copies of ID cards of the debtor and his wife/her husband;
Copies of ID cards of the property owner (s) subject to collateral.
Declaration on connections under the Banks Act.
Certificate of tax debts/lack of tax debts issued by the Territorial Tax Directorate for
the buyer and his wife/her husband or for all property owners on the grounds of
Article 87, Paragraph 6 of TIPC;
For customers who don't have card account in the respective branch—Request for
the insurance of a debit card.
Documents concerning the property
• For old or completed new buildings—a title deed or other property title;
• Certificate from the Registry Agency for the lack of estate encumbrances subject to
collateral as well as for the lack of registered claims and/or injections on the
properties by third parties; Certificate from the Bailiff Office within the District
Court for the lack of taken executive actions against the properties;
• Valuation by a bank valuation officer or a valuator with whom the bank has signed
an agreement;
• Tax valuation of the property subject to collateral-only for a loan for the purchase
of a property;
• Subsequent certificate for estate encumbrances issued by the Registry Agency,
certifying the registered first in rank mortgages (legal or contract mortgage) to the
benefit of CCB AD and the lack of registered prior mortgages;
• For buildings in a phase of rough construction-a protocol for construction line and
construction level with certification of elevation "ridge" (roof)-protocol of findings
issued by the municipal (district) administration certifying the completion of the
building in rough construction; title deed for the established construction right;
construction permission; approved investment (architectural) project; marriage
certificate (if the loan applicants-buyers are husband and wife and will acquire the
property as a conjugal properly);
❖ Properties plots certified by the technical service of the municipality in cases
where there is an adjoining terrain to the property;
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❖ Preliminary purchase contract (containing the seller's agreement that part of the
price will be paid by the means of a bank loan) if there is such loan.
❖ Depending on the loan purpose, the Bank requires also the following documents.
In case of loan for the purchase, substitution or division of a real estate :
❖ Title deed for the purchase of a real estate;
❖ Order and a purchase contract (substitution) in case of a real estate which is a
state or municipal property;
Contract for a voluntary division/court decision on division;
❖ For construction (addition to a building, raising an additional story,
reconstruction) and completion works of houses and villas :
❖ Document certifying property or acquired construction right on the ground or on
the building where the construction will take place;
❖ Approved investment project and construction permission;
❖ Protocol for construction line and level;
❖ Quantity and value account for the construction and installation works
guaranteeing the final completion of the property, contract (s) for the assignment to
construction company, brigade or separate individuals of the repair works (excluding
the cases when tne construction and repair works will be done with private works of
the loan applicant or his relatives) :
❖ For improvements of the real estates (repairs and other similar activities) :
❖ Quantity and value account for the future construction and repair works (to be
prepared by the construction company or by the customer);
❖ Contract for hiring of a company or individuals for the performance of the repair
works (excluding the cases when the construction and repair works will be done
with private works of the loan applicant or his relatives);
❖ For loans for refinancing;
❖ Written document from the bank-creditor for the debts under a purpose loan
expressly stating; bank account, bank code, holder, debt residual (exact amount
necessary for the final debt repayment), size of the due fees for preliminary
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repayment, property type and location/properties mortgaged as collateral to the debt,
as well as the loan contract signed with the other bank.
CONTRACT MANAGEMENT
Definition and Concept
"Contract management is defined as the management of contracts made with
vendor? customers, partners, or employees." Contract management includes the
negotiation of terms and conditions in contracts and ensuring compliance with the
terms and conditions, as well as documenting and agreeing on any changes or
amendments that may arise during its implementation or execution. In other words
contract management can be summarised as the process of systemically and
efficiently managing contract creation, execution and analysis for the purpose of
maximizing financial and operational performance and minimizing risk.
Employment letters, sales invoices, purchase orders and utility contracts comes
under the category of common commercial contracts. Complex contracts come into
play for construction projects, highly regulated goods or service, technically
specified goods or services, intellectual property agreements outsourcing and
international trade. The contract management software to aid administration among
multiple parties is used for larger contracts.
Contract
A contract is a written or oral legally-binding agreement between the parties
identified in the agreement to fulfill the terms and conditions outlined in the
agreement. A prerequisite requirement for the enforcement of a contract, amongst
other things, is the condition that the parties to the contract accept the terms of the
claimed contract. Historically, this was most commonly achieved through signature
or performance, but in many jurisdictions— especially with the advance of
electronic commerce—the forms of acceptance have expanded to include various
forms of electronic signature.
Types of Contract
Contracts can be of many types, e.g., sales contracts (including leases), purchasing
contracts, partnership agreements, trade agreements, and intellectual property
agreements.
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A sales contract is a contract between a company (the seller) and a customer where
the company agrees to sell products and/or services and the customer in return is
obligated to pay for the product/services bought.
A purchasing contractus a contract between a company (the buyer) and a supplier
who is promising to sell products and/or services within agreed terms and
conditions. The company (buyer) in return is obligated to acknowledge the goods/ or
service and pay for liability created.
A partnership agreement may be a contract which formally establishes the terms of a
partnership between two legal entities such that they regard each other as 'partner.-'
in a commercial arrangement. However, such expressions may also be merely a
mean- to reflect the desire of the contracting parties to act 'as if both are in a
partnership with common goals.
Therefore, it might not be the common law arrangement of a partnership which by
definition creates fiduciary duties and which also has 'joint and several' liabilities.
Areas of Contract Management
The business-standard contract management model, as employed by many
organizations typically exercises purview over the following business disciplines :
• Authoring and negotiation
• Baseline management
• Commitment management
• Communication management
• Contract visibility and awareness
• Document management
• Growth (for Sales-side contracts)
• Contract compliance/governance.
Criteria of Contract Management
Creation : Whilst many companies work from standard contracts, they do have to be
created in the first place and they often need to be changed as negotiations progress.
Negotiation : Of the contracts to ensure that, the best possible contract is available
to both parties.
Adherence : To the contracts and all of Its sections and aims.
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Service Level Agreements : Service Level Agreement (SLA) and Key Performance
Indicators (KPI) are set to manage the day-to-day performance of the vendor.
Managing Changes: This is required as the relationship changes and problems
arise.
Documenting : Any changes that may have been agreed.
Analyzing : The benefits that accrue or may be available from the contract.
Contract Management Manual
A contract management manual is published by an organization either internally or
externally to explain how it manages its contracts. Most of the contract
managements are published for internal use and for all potential vendors to view.
The existence of contract manual is essential regardless of its briefness as in the case
of a small business or large, and complex as in the case of a government
organisation.
A typical Contract Management Manual consists of following fundamental sections :
Executive Summary : This simply states in one or two pages what the manual
covers. This is very useful for one's immediate boss and top management as they
have no time to go through all the details of the manual.
Introduction : This includes an introduction to the company. The benefits of using
the manual. An overview of the process. Reviewers that are responsible for
maintaining the vendor contract management process.
Aims : This section includes the central aim of the contract management department
and mentions that contractual risk is minimized. That continual improvements are
required from the contractual relationship. That acceptable and agreeable monitoring
is in place. That Best Value is sought after. That services are provided by the vendor
in accordance with their contracts. That quality services and products are provided in
a timely manner. That the financial implications of any failure to perform are been
taken into consideration and appropriate action taken. That financial penalties are
raised against the vendor for any failure to deliver as per the contractual obligations.
Service Delivery Management: This will be quite a lengthy section of the contract
management manual that describes how the company will ensure that the vendor
service is being delivered correctly and to the.required quality. It includes
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descriptions of such processes as : Establishing Service Level Agreements (SLA's).
Measuring vendor performance against their SLA's, Measuring vendor performance
against their contractual obligations. Measuring the delivery performance against
required time frames. Measuring the products and services provided against the
required quality standards.
Contract Administration : This section would detail the contractual governance
activities and will probably be the longest section of the contract management
manual.
Relationship Management: This section would describe how the relationship
between the vendor and the business would be managed with the aim of keeping all
communication open and tension free.
Managing Change : This would include detailing how the following changes "ill bp
managed : Non-compliance with the contractual obligations. Non-performance
against the Service Level Agreements. Force Majeure. Mutually agreed changes to
the contract. Under or over delivery. Fiscal difficulties including bankruptcy.
Adding Suppliers : This section is not always included, but will detail how extra
suppliers are chosen.
Adding Contracts: This section details how a new contract or service level
agreements is set up.
Appendices : This would include acknowledgments and definitions as well as an
expansion on any standard documentation.
A contract management manual may be just for internal use, most are published for
all potential vendors to view. Any contract management manual can be brief as in
the case of a small business or large and complex as in the case of a government
organization but there must always be a manual in existence.
Sample Vendor Contracts
The following are fundamental sections of vendor contracts :
The Parties to the Contract : The contract starts by setting out the two people or
companies involved. Sometimes they are given a "known as" name for ease of
reading the contract.
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Definitions : There then follows some definitions of the terms used. This is so that
everyone understands what is being referred to if the term is used.
Statement of Work : This is the most detailed part of any sample vendor contracts
and is where the work to be undertaken is defined. If products are being delivered
then they are listed and defined in this section of the contract.
To make it easier to read, each part of the work or product is listed separately either
in a numbered list or under a separate section number.
Documentation or Reports : This section lists the documentation to be produced
and in the format to be followed. When products are to be delivered this will usually
be the invoices and delivery notes. When services are to be provided it could be the
reports to be produced as well as invoices etc.
Staffing : This section is used when services are to be delivered and defines the
ski]1: levels and sometimes the names of the staff to be used on the projects.
Responsibilities: This section details the responsibilities of the parties to the
contract. This is particularly important in a service contract. In a product contract it
may talk about such matters as who unloads the products and who stores them
within the warehouse.
Payments : Any of sample vendor contracts includes this important part. It details
such matters as : Prices per product or service. Under what conditions payments will
be made. This includes deposits, mid contract payments and final payments. Regular
payment cycles will be included in vendor contracts only. Financial penalties for late
or poor delivery.
Quality Measurements : Mbst contracts include some method of measuring the
quality of the services or products to be delivered.
Privacy, Copyrights, Non-Disclosure etc.: All the above are included as standard so
that each company's confidentiality and copyrights are preserved.
Force Majeure : This is information about the processes to deal with the unforeseen
calamities.
Other Legal Clauses : Such information as.: Ownership of the products and when it
happens. Non-assignment of the contract. Indemnification from harm. Negligence
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terms. Taxes due. Insurance required. Country and State for purposes of the
governing laws. Legal relationship.
Signatures : Perhaps the most important part of any of the sample vendor contracts.
Signatures from both parties that are dated, mean that both parties have agreed to the
sample vendor contracts in their entirely.
