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Small and Medium-sized Enterprises

By Aaftab Ullah

Week 1-2

 The cottage industry or small scale industry may be defined to be an enterprise or series of operations carried out only by a workman skilled in the craft on his own responsibility, the  finished  products  of  which  he  markets  himself.  He works  in his  own home with his  own  tools  and materials and provides his own labor. These workers are mostly hand labors and having personal skills with little or no aid from modern  technology  and  machinery  they  work  in accordance with the traditional technique.

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Small business or Cottage Industry

1: No mechanical power and no hired labor.2: No mechanical power and hired labor fewer than 10 persons.

3: No mechanical power but hired labor of over 10 persons.4: Mechanical power under 10 bhp but no hired labor.5:3 and 4 are treated here as small industries.6: Mechanical power under 10bhp and hired labor 7: Mechanical power over 10bhp and hired labor.Here 6 and 5 were considered as the medium size industries

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In USA  the  small  industry was defined as  “a business qualifies a small  if  does  not  dominates  its  industry  and  less  than  100 employees”

In  the  United  Kingdom  small  firms  were  defined  in  1969  as “entities having less than 200 employees. It should be run by its owner and should have a relatively small share of its market”.

In France,Less than 10 employees (very small enterprise)10 to 40 employees (small enterprises)50 to 500 employees (medium enterprises).Over 500 employees (large enterprises) 

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a  business  with  an  investment  in  productive  assets  (  not including  land  and  building)  ranging  between  2  to  40 million and employing between 10 to 99 workers. 

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Small and Medium Enterprise

Definition:

SMALL: Between 10 to 35 employees and productive 

assets ranging 2 to 20 million,MEDIUM:

between 36 to 99 employees and productive assets range of 20 to 40 million.

The word Entrepreneur (ahn’tra pra nur) is French and, literally translated, means “between-taker” or go-between.”

“A person who creates a new business, by seeing an opportunity, assuming the risk for achieving profit and growth”.

An organizer who combines various factors of production to produce a viable project. 

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Entrepreneur

Young entrepreneursWomen entrepreneursMinority entrepreneursImmigrant entrepreneursPart time entrepreneursHome-based entrepreneursFamily businessSolopreneursCorporate dropoutsSocial entrepreneursRetiring entrepreneurs

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Kinds of Entrepreneurs

Sub-kindsOpportunity EntrepreneurNecessity entrepreneur

Desire for responsibilityPrefer moderate riskDesire for immediate feedbackHigh level of energyFuture orientedConfidence in their ability to succeedOrganizing skills

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Features of an entrepreneur

Entrepreneurship is process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risk, and receiving the resulting rewards of monetary and personal satisfaction and independence.

Entrepreneurship is process of creating something new and assuming the risks and rewards.

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Definition of Entrepreneurship

1. To create your own destiny2. To earn more profits3. To contribute to society and be recognize for your

efforts4. To enjoy and have fun

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Benefits of entrepreneurship

1. Uncertainty of income2. Risk of loosing your entire investment3. Long hours and hard work4. Low quality of life until the business gets established5. High level of stress-mental burden6. Entire responsibility7. Discouragement

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Drawbacks of entrepreneurship

Due to the following reasons a person can become an entrepreneur:1. When a person is graduated2. When a person is retired3. When a person is fired4. When a person likes to start a business5. Previous business experience6. When it is desirable and possible to become an entrepreneur.

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The entrepreneurial decision process

Starting a new venture is both desirable and possible.1. DesirableThe perception that starting a new company is desirable results from an individual’s culture, sub-culture, family, teachers and peers.

2. PossibleFormal education and previous business experience give a potential entrepreneur the skills needed to form and manage a new enterprise.

Having a strong marketing knowledge will help you to start a new venture and then arrange the finance.

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The entrepreneurial decision process(Cont…)

1. Life style start up

That  business which  is  owned by  an  entrepreneur,  his  family  or  a  small group of  partners,  having  less  amount of  revenue,  small  number of employees and having very slow rate of growth. This type of firm may grow  after  several  years  to  30  or  40  employees.  The  savings  per annum may range to 2 million.

Examples, the businesses owned by family members one after another.single store retail, restaurants, lawyers etc.

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Types of start up

2. Foundation companies A type of company formed under research and development that usually does not go public. This firm can grow in five to fifteen years from 40 to 400 employees, 10 to 20 million growth of profit.

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Types of start up

3. High-Potential Venture

A venture has high growth potential and therefore receives great  investor interest. The company may start out  like a  foundation company, but  its growth  is  far  more  rapid.  After  five  to  ten  years  the  company  could employ around 500 employees. These firms are also called gazelles and are most important for the economic development of an area.

Examples, Microsoft, Google, Etisalat, Dell Computers, Pepsi Co., Coca…(Microsoft April 4, 1975,employees 94000, $72.93billion)(Google- began March 1996, incorporated August 19,2004, employees 53861)(Dell-revenues 56.94billion-111300employees)

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Types of start up, Cont…

1. Creates Large-Scale Employment OpportunitiesPeople will get jobs if new businesses are formed. Job for

the owner as well as for other people.2. Promotes Balanced Regional DevelopmentWhen an area is less developed, if new businesses are

started there, people will get jobs, products or services, means of transportations, electricity, gas etc. So areas of the country will develop equally.

3. Increasing Gross National Product and Per Capita Income

GNP is the value of all finished goods and services produced during one year by the nationals of a country.

PCI dividing national income by the population of a country.

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Role of entrepreneur in the economic development

4. Wealth Creation and DistributionWith the help of 4 things we create a product or service.

Land, labor, capital and organization. Land-------------- RentLabor------------- WagesCapital------------ InterestOrganization/Entrepreneur------------Profit So, if a company earns revenue, for example, 1000. it is

distributed among the four factors of production.E.g, Rent—100, wages—100, interest—100 and profit after

other expenses—500.

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Role of entrepreneur in the economic development

5.Reduces Concentration of Economic PowerIf new businesses are not started, few companies will

manufacture products or provide services which will create monopoly.

6. Improvement in the Standard of LivingPeople having jobs, having wages, purchasing power,

fulfill their needs and wants……… improved living standards.  

7. Creating innovation An entrepreneur is a person who always look for changes.

apart from combining the factors of production, he also introduces new ideas.

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Role of entrepreneur in the economic development

Week 1-2

7. Promotes Country's Export TradeManufacturing quality goods, can be sold out in the

foreign market.8. Promotes Capital FormationCapital formation means increase in the outputs of

country. Or transfer of savigns from individuals or households to the business sector; directly through investments or indirectly through bank deposits which are loaned out to firms.

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Role of entrepreneur in the economic development

Week 1-2

End of course of week 1-2

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The entrepreneurial process involves finding evaluating, and developing an opportunity.

Phase 1: Identifying and Evaluating the OpportunityMost good business opportunities result from an

entrepreneur being alert to possibilities. Some sources are often fruitful, including consumers and business associates. Channel members of the distribution system-retailers, wholesalers or manufacturer’s reps-are also helpful. Technically-oriented individuals often identify business opportunities when working on other projects.

Example: Google began in March 1996 as a research project by Larry Page and Sergey Brin, Ph.D. students at Stanford working on the Stanford Digital Library Project (SDLP)

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ENTREPRENEURIAL PROCESS

Each opportunity must be carefully screened and evaluated. This is the most critical element of the entrepreneurial process.

a. The evaluation process involves looking atb. The creation and length of the opportunityc. Its valued. Its risks and return.e. It’s fit with the skills and goals of the entrepreneurf. Its differential advantage in its competitive environment

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ENTREPRENEURIAL PROCESS

Phase 2: Develop a Business Plan

A good business plan must be developed in order to exploit the opportunity defined. A good business plan is important in developing the opportunity and in determining the resources required, obtaining those resources and successfully managing the venture.

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ENTREPRENEURIAL PROCESS

Phase 3: determine the resources requiredAn entrepreneur must identify the required resources for the

new venture. He should identify first the urgent resources. Sources of finance should also be identified to make arrangements.

Phase 4: Manage the Enterprise.The entrepreneur must employ these resources through

implementation of the business plan. This involves implementing a management structure, as well as identifying a control system.

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ENTREPRENEURIAL PROCESS

1. Strategic orientationEntrepreneurs go quick towards the opportunity.

Management will think about, have meetings.The time may have passed. The opportunity may have availed

by others.

2. Commitment to opportunityThe entrepreneurs definitely start the new business.

The management may be lazy.

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Entrepreneurial and traditional Management decision making

3. Commitment to resourcesIn traditional management all the funds are first pooled. But in

entrepreneurship the funds are brought in stages.

4. Control of resourcesIn entrepreneurship resources are normally rented and not

owned. But in traditional management they are mostly owned.

5. Organizational structureNarrow in entrepreneurship and wide in traditional

management Rent (not Own) Required Resources; Use only when

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