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Entrepreneurship development programme notes

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Entrepreneurship development programme notes

  1. 1. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 1 UNIT 1 –ENTREPRENEURSHIP DEVELOPMENT INTRODUCTION TO ENTREPRENEUR Entrepreneur is a person who undertakes a business venture by combining the resources for production of goods and services and selling them to earn a profit. Entrepreneur is a person who has already started an enterprise or is in the process of starting an enterprise. “Entrepreneur is one who ORGANISES, MANAGES, and ASSUMES THE RISK of a business enterprise”. Entrepreneur is an action oriented highly motivated individual with a strong desire to be the successful who take risks to achieve goal.  Entrepreneur is an individual responsible for the operation of a business including,  Choice of the product  Mobilization of resources  Decision  Prices  Market  Employment of labour  Extending or reducing the scope of his business. Definition:  According to Webster’s……… “An Entrepreneur is defined as an individual who forecasts future demand for the product or services and arranges business enterprise to respond to their demand”  According to J B Say …….“Entrepreneur is an economic agent to unities all the means of production”
  2. 2. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 2  According to David McClleland : “An entrepreneur is a person with a high need for achievement. He is energetic and a moderate risk taker”. ENTREPRENEURSHIP  Entrepreneurship is the activity performed by an entrepreneur to organize and run an enterprise (Business). ENTREPRENEURSHIP=Entrepreneur + Enterprise  Entrepreneur is generally to be the owner, manager of an enterprise.  Entrepreneurship is the activity of an entrepreneur which includes all the activities performed from the inception stage of an enterprise till its death.  Entrepreneurship is a person-oriented task where the entrepreneur creates a small world of his own and becomes the master of his own business universe.  Entrepreneurship is a creative activity. It is the ability to create and build something from practically nothing. It is a knack of sensing opportunity where others see chaos, contradiction and confusion. Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks and derive benefits by setting up a venture. It comprises of numerous activities involved in conception, creation and running an enterprise. Definition….  According to J.A Schumpeter , “Entrepreneurship is a creative activity , the entrepreneur being an innovator who introduces something new into the economy , a new method of production not yet tested by experience in the branch of manufacture concerned ,a product with which customers are not familiar , a new source of raw materials and other similar innovation”.  According to Peter Drucker
  3. 3. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 3 “Entrepreneurship is defined as ‘a systematic innovation, which consists in the purposeful and organized search for changes, and it is the systematic analysis of the opportunities such changes might offer for economic and social innovation.’  According to A.H Cole “Entrepreneurship is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or organize a profit oriented business unit for the production for distribution of economic goods and services.” ENTREPRENUER VS ENTREPRENEURSHIP Entrepreneur Entrepreneurship Refers to a person Refers to a process Visualizer Vision Organizer Organization Innovator Innovation Technician Technology Initiator Initiative Decision Maker Decision Planner Planning Leader Leadership Motivator Motivation Programmer Action Communicator Communication Administrator Administration
  4. 4. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 4 7 key Qualities of Entrepreneur  Inner Drive to succeed Entrepreneurs are driven to succeed and expand their business. They see the bigger picture and are often very ambitious. Entrepreneurs set massive goals for themselves and stay committed to achieving them regardless of the obstacles that get in the way.  Strong Belief in themselves Successful entrepreneurs have a healthy opinion of them-selves and have often have a strong and assertive personality. They are focused and determined to achieve them.  Search for New Ideas and innovation All entrepreneurs have a passionate desire to do things better and to improve their products or service .They are constantly looking for ways to improve .They are creative, innovative and resourceful.  Openness to change Entrepreneurs know the importance of keeping on top of their industry and the only to being a number one is to evolve and change with the times. They are up to date with the latest technology or service technique and are always ready to change if they see a new opportunity arise.  Competitive by Nature
  5. 5. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 5 Successful entrepreneurs thrive on competition .The only way to reach their goals and live up to their self-imposed high standards is to compete with other successful businesses.  Highly Motivated and Energetic Entrepreneurs are always on the move, full of energy and highly motivated. They are driven to succeed and have an abundance of self-motivation. The high standard and ambition of many entrepreneurs demand that they have to be motivated!  Accepting of constructive criticism and rejection Innovative entrepreneurs are often at the forefront of their industry. They readjust their path if the criticism is constructive and useful to their overall plan. Also the best entrepreneurs know that the rejection and obstacles are a part of any leading business and they deal with them appropriately. SOME MORE CHARACTERISTICS / QUALITY OF AN ENTREPRENEUR 1. Desire to Excel: The entrepreneur should always engage in competitions with self-imposed standards with himself to beat his last best performance. According to Mc Clelland, this high achievement motive strengthened him to overcome the obstacles, suppress anxieties and repair misfortunes. The entrepreneur must have a strong desire to be a winner. 2. Hard Work: Entrepreneurs who successfully build new enterprises possess an intense level of strong determination and willingness to work hard. They possess a capacity to work for long hours and in spurts of several days with less than normal amount of sleep. 3. Self Confidence: Entrepreneurs must have confidence and belief in themselves to achieve their desired objectives. They strongly believe that they can beat anyone in the field. 4. Initiative:
  6. 6. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 6 An entrepreneur must have initiative seeking personal responsibility for actions and use the available resources for optimisation of objectives. They take full credit for the success and assume full responsibility for the failure of the enterprise. 5. Moderate Risk-Taker: An entrepreneur must be a moderate risk taker and learn from failures. The successful entrepreneurs are neither high risk takers, nor gamblers. They work in between the two extremes. They take moderate challenging risk to attain moderate returns which are influenced within their abilities and decisions. 6. Motivation: An entrepreneur should have a strong motivation towards the achievement of a task and must be able to get things done by others. He should be a person who likes working with people and has skills in dealing with them. 7. Optimistic: Entrepreneurs do not believe that the success or failure of a new business venture depends mostly upon luck or fate or external uncontrollable factors. They are highly optimistic about the success of the enterprises. They use positive knowledge to support their thinking. They always look at the brighter side of the situation. 8. Analytical Ability: Entrepreneur must be realistic in their approach. They should not be affected by the personal likes and dislikes. At the time of crisis, they must select experts rather than their friends and relatives to solve the problems. They must analyse the problem in detail before taking any decisions. 9. Mental Ability: Mental ability refers to the inner strength of an entrepreneur which helps him to reach his goal. It is that ability which helps him to quickly respond to difficult situation. It consists of intelligence and creative thinking of an entrepreneur. 10. Communication Ability: An entrepreneur must be good with the art of communication. It is that skill through which both the sender and receiver understand each other and are being understood. Entrepreneurs are required in many situations to influence customers, employees, suppliers, creditors, and government and make them think in his way and act accordingly. An entrepreneur who can effectively communicate and convince the above people will be more likely to succeed than the entrepreneur who does not. 11. Flexibility:
  7. 7. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 7 Entrepreneurs should be flexible in their decisions in the sense that they should not be very rigid in the decision making process. If the situation demands a change in the decision that will be beneficial to the enterprise, then after analysing the pros and cons of the decision, the entrepreneur should revise or modify or change the decisions. 12. Independence: Successful entrepreneurs do not like to be guided by others. They prefer to work in an environment free from interference. They like to be independent in the matters of decision making of their own business. 15. Leadership: An entrepreneur must have an ability to lead so that he can induce the people to work with confidence and zeal. It is an aid to authority and helps in better utilization of manpower. 16. Good Human Relations Ability: Entrepreneurs must have the abilities to maintain and establish good relations with customers, employees, suppliers, financiers and other people related with the business to run it effectively and efficiently. An entrepreneur who maintains good human relations is much more likely to succeed in his business than the individual who does not practice such relations. FUNCTIONS OF ENTREPRENEUR i. Entrepreneurial functions consisting of organization building, risk taking and innovation. ii. Promotional functions consisting of discovery of idea, detailed investigation; assembling of requirements and financing the proposition. iii. Managerial functions consisting of planning, organizing staffing, directing, coordinating and controlling. iv. Commercial functions representing production, finance marketing, accounting and personnel.
  8. 8. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 8 Enterprise Entrepreneur is a person who starts an enterprise. The process of creation is called Entrepreneurship. The entrepreneur is the actor and entrepreneurship is the act. The outcome of the actor and the act is called the enterprise. An enterprise is the Business organization that is formed and which provides goods and services, Creates jobs, contributes to national income, exports and overall economic Development. Difference between Entrepreneur and Manager “An entrepreneur could be a manager but a manager cannot be an entrepreneur”. An entrepreneur is intensely dedicated to develop business through constant innovation. He may employ a manager in order to perform some of his functions such as setting objectives, policies, rules etc. A manager cannot replace an entrepreneur in spite of performing the allotted duties because a manager has to work as per the guidelines laid down by the entrepreneur. Entrepreneur Manager An entrepreneur is involved with the start-up process A manager with running the business over a long period of time An entrepreneur assumes financial, material and psychological risks A manager does not have to bear risks An entrepreneur is driven by perception of opportunity A manager by the resources he currently possesses An entrepreneur initiates change A manager follows rules & procedures An entrepreneur is his own boss A manager is a hired employee An entrepreneur gets uncertain rewards A manager gets fixed rewards and Salary
  9. 9. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 9 ROLE OF ENTREPRENEURSHIP IN DEVELOPMENT OF ECONOMY Entrepreneurship is one of the most important inputs in the economic development of a country. Entrepreneur plays a pivotal role not only in the development of industrial sector of a country but also in the development of farm and service sector. The major roles played by an entrepreneur in the economic development of an economy are discussed as follows. (1) Promotes Capital Formation: Entrepreneurs promote capital formation by mobilizing the idle savings of public. They employ their own as well as borrowed resources for setting up their enterprises. Such type of entrepreneurial activities leads to value addition and creation of wealth, which is very essential for the industrial and economic development of the country. (2) Creates Large-Scale Employment Opportunities: Entrepreneurs provide immediate large-scale employment to the unemployed which is a chronic problem of underdeveloped nations. With the setting up of more and more units by entrepreneurs, both on small and large-scale numerous job opportunities are created for others. As time passes, these enterprises grow, providing direct and indirect employment opportunities to many more. In this way, entrepreneurs play an effective role in reducing the problem of unemployment in
  10. 10. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 10 the country which in turn clears the path towards economic development of the nation. (3) Promotes Balanced Regional Development: Entrepreneurs help to remove regional disparities through setting up of industries in less developed and backward areas. The growth of industries and business in these areas lead to a large number of public benefits like road transport, health, education, entertainment, etc. Setting up of more industries leads to more development of backward regions and thereby promotes balanced regional development. (4) Reduces Concentration of Economic Power: Economic power is the natural outcome of industrial and business activity. Industrial development normally leads to concentration of economic power in the hands of a few individuals which results in the growth of monopolies. In order to redress this problem a large number of entrepreneurs need to be developed, which will help reduce the concentration of economic power amongst the population. (5) Wealth Creation and Distribution: It stimulates equitable redistribution of wealth and income in the interest of the country to more people and geographic areas, thus giving benefit to larger sections of the society. Entrepreneurial activities also generate more activities and give a multiplier effect in the economy. (6) Increasing Gross National Product and Per Capita Income: Entrepreneurs are always on the lookout for opportunities. They explore and exploit opportunities, encourage effective resource mobilisation of capital and skill, bring in new products and services and develops markets for growth of the economy. In this way, they help increasing gross national product as well as per capita income of the people in a country. Increase in gross national product and per capita income of the people in a country, is a sign of economic growth. (6) Improvement in the Standard of Living: Increase in the standard of living of the people is a characteristic feature of economic development of the country. Entrepreneurs play a key role in increasing the standard of living of the people by adopting latest innovations in the production of wide variety of goods and services in large scale that too at a lower cost. This enables the people to avail better quality goods at lower prices which results in the improvement of their standard of living. (7) Promotes Country's Export Trade:
  11. 11. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 11 Entrepreneurs help in promoting a country's export-trade, which is an important ingredient of economic development. They produce goods and services in large scale for the purpose earning huge amount of foreign exchange from export in order to combat the import dues requirement. Hence import substitution and export promotion ensure economic independence and development. (8) Induces Backward and Forward Linkages: Entrepreneurs like to work in an environment of change and try to maximize profits by innovation. When an enterprise is established in accordance with the changing technology, it induces backward and forward linkages which stimulate the process of economic development in the country. (9) Facilitates Overall Development: Entrepreneurs act as catalytic agent for change which results in chain reaction. Once an enterprise is established, the process of industrialization is set in motion. This unit will generate demand for various types of units required by it and there will be so many other units which require the output of this unit. This leads to overall development of an area due to increase in demand and setting up of more and more units. In this way, the entrepreneurs multiply their entrepreneurial activities, thus creating an environment of enthusiasm and conveying an impetus for overall development of the area Diagram of characteristics of entrepreneurship Entrepreneurship Decision making Risk taking Innovation Organisation Skillful management Making enterprise a success
  12. 12. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 12 FACTORS FAVOURING ENTREPRENEURSHIP/ MOTIVATIONAL FACTORS OF ENTREPRENEURSHIP 1. Developed Infrastructure Facilities: Availability of infrastructure reduces the cost & efforts and improves viability of projects through higher profit margins. 2. Financial Assistance: Easy availability of cheap funds is vital for promoting entrepreneurship. 3. Protective and Promotional Policies: Most of the entrepreneurship projects start very small and have no resilience. They are extremely vulnerable to competitors, market, money markets, etc., for considerable time. Favorable Govt. policies shelter them from such vagaries. 4. Growth of Education: Science, Technology & Management – Growth of education is believed to be promoting entrepreneurship. However, there are enough examples to suggest otherwise. A very large proportion of first generation entrepreneurs are low educated. Take the case of Microsoft Chairman Mr Bill Gates or Reliance Founder Mr Dhirubhai Ambani. (We also have Mr Narayan Murthy and Mr Ajim Premji to balance this scale). On a wider spectrum, Kerala, the most literate state and West Bengal, another state high on literacy front, are least entrepreneurial states where as Punjab, with 5 rank from bottom was top on entrepreneurial charts. 5. Risk Taking Abilities: Risk taking ability is one of the pillars of entrepreneurial spirits. 6. Hunger for Success (Capitalistic View): Fire in the belly and dreams of riches is what drives most entrepreneurs on this risky path. Any person content with what he has would take the easier route of salaries job. 7. Environment/Culture Impact:
  13. 13. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 13 Entrepreneurship is contagious. Communities like Punjabis and Marwari’s are historically entrepreneurial. They are known for seeking and exploiting business opportunities in most remote areas. It is a culture that propels them. 8. Social Security: Social security acts as a safety net against failure of enterprise. Social security guarantees basic ‘roti, kapada aur makan’ in case of failure. Entrepreneurial spirit of United States is born partly out of this security. 9. Technical/Industrial Training Facilities: Industrial Training facilities on one hand generate skilled manpower so vitally required for setting up enterprises while on the other hand they are also nursery for future entrepreneurs. Among the educated entrepreneurs, a majority is product of technical institutes from IIT to ITI (Tier I to Tier III institutes). 10. Globalization: Globalization has provided another avenue for business. Many dare devils have taken a head– along plunge into this uncharted water and have written new success stories. INTRA-PRENEURSHIP Intra-preneurship is defined as entrepreneurship within an existing business set– up. That is to say – Intra-preneurship is corporate entrepreneurship. When a corporation indulges in entrepreneurial activities, like diversification into new businesses, it is called intra-preneurship. Intra-preneur is a manager who focuses on innovation and creativity; who brainstorms, dreams and puts ideas into profitable venture by operating within the organisational environment. It gives managers the freedom to try new ideas by employing firm’s resources in a unique way. CHARACTERISTICS OF AN INTRAPRENEUR An intrapreneur is not far removed from an entrepreneur. The major difference being that an entrepreneur risks his own money where as an intrapreneur works with his employer’s money. Thus, the risk level of an intrapreneur is considerably reduced. 1. Vision – It is the basis for successful venture. An Intra-preneur has ability to visualize from idea to implementation.
  14. 14. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 14 2. Motivation – Intra-preneur is generally self-motivated, but expect corporation reward and recognition. 3. Orientation – Intra-preneur is achievement oriented. 4. Risk Appetite – Intra-preneurs are moderate risk takers since risk acceptance depends on their skills. Wild risk takers are not affordable to corporate. INTRODUCTION TO SMALL SCALE INDUSTRIES  The Small Scale Sector is the natural habitat of entrepreneurs. Most entrepreneurs start small and then nurture their units into large industries. The SSI Sector provides an opportunity for them to hone their skills and talents, to experiment, to innovate and transform their ideas into goods and services needed by the society.  In most of the developing countries like India, Small Scale Industries (SSI) constitutes an important and crucial segment of the industrial sector. They play an important role in employment creation, resource utilisation and income generation and helping to promote changes in a gradual and phased manner.  They have been given an important place in the framework of Indian planning since beginning both for economic and ideological reasons.  Small scale enterprises are generally more labour intensive than larger organisations. As a matter of fact, small scale sector has now emerged as a dynamic and vibrant sector for the Indian economy in recent years. It has attracted so much attention not only from industrial planners and economists but also from sociologists, administrators and politicians. Industries can be classified into seven categories depending on their size;
  15. 15. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 15 The definition for small-scale industrial undertakings has changed over time. Initially they were classified into two categories- those using power with less than 50 employees and those not using power with the employee strength being more than 50 but less than 100. However, the capital resources invested on plant and machinery buildings have been the primary criteria to differentiate the small-scale industries from the large and medium scale industries. An industrial unit can be categorized as a small- scale unit if it fulfills the capital investment limit fixed by the Government of India for the small-scale sector. Definition “Investment in fixed assets like plants and equipment’s either held on ownership terms on lease or on hire purchase should not be more than Rs 10 million.” The different small-scale industries existing in the Faridkot District during 1992-93 are mentioned below: (1) Food Products – There were 1,160 units engaged in the production of food products. Out of these a large number of units were flour mills/atta chakies (703) and rice shellers (170). These units gave employment to 5,823 Khadi & village industries Large scale medium scale ancillary scale small scale tiny industry cottage INDUSTRIES
  16. 16. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 16 persons and produced goods worth Rs 8,953.30 lakhs. The fixed investment of these units was Rs 2,068.92 lakhs. (2) Beverages – There were 18 units engaged in the production beverages i.e. soda water. These units gave employment to 55 persons and produced goods worth Rs 8.30 lakhs. The fixed investment of these units was Rs 10.84 lakhs. (3) Textile and Dyeing– There were 20 units engaged in cotton textile, cotton carding and dyeing in the district. These were set up with capital investment of Rs 2,211 lakhs. These units gave employment to 70 persons and produced goods worth Rs 45.10 lakhs. (4) Hosiery– This is a pre-partition industry established at Moga in 1936. There were 245 units in the district engaged in this industry. These units produce hosiery goods like knitted woolen products, woolen pullovers, nylon strips, surgical bandages, etc. these units gave employment to 414 persons and produced goods worth Rs 131.20 lakhs. The fixed investment of these units was 86.67 lakhs. (5) Wood Products– There was 667 units engaged in the production of wooden furniture, boxes and pawas. Set up with a fixed investment of Rs 403.68 lakhs, these units gave employment to 1,874 persons and produced goods worth Rs 389.60 lakhs. OBJECTIVES OF SMALL SCALE INDUSTRIES The small scale sector can stimulate economic activity and is entrusted with the responsibility of realising the following objectives:- 1. To create more employment opportunities with less investment. 2. To remove economic backwardness of rural and less developed regions of the economy. 3. To reduce regional imbalances. 4. To mobilise and ensure optimum utilisation of unexploited resources of the country. 5. To improve standard of living of people. 6. To ensure equitable distribution of income and wealth. 7. To solve unemployment problem.
  17. 17. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 17 8. To attain self-reliance. 9. To adopt latest technology aimed at producing better quality products at lower costs. Characteristics of small scale industries Small-scale industries have certain unique features, which distinguish it from the Large-scale sector. Some of the salient characteristics of small-scale businesses are given below. 1. Personal Character: In most small businesses the owners themselves are Managers and so they can operate independently. They can give customized Service to their clients, which in many cases is their USP. 2. Flexibility: Since most small businesses are a one-man show they do not have to go through a hierarchy to get permissions to make changes. Small business can respond quickly to environmental trends. 3. Labour Intensive: Small businesses have tremendous capacity for Employment generation through their labour intensive techniques. Small businesses actually create more jobs than big businesses. This feature of a small-scale unit is of great significance in a country like India where the number of unemployed people is more. 4. Local Area of Operation: Small businesses are largely local in operation; however the market for its products may be local, regional or even international. 5. Short Gestation Period: The capital investment in the small sector is generally low and the time taken for production to commence is also less. As a result of short gestation period the units give quick returns and consequently the pace of economic development quickens. 6. Registration: small scale industries are registered under the local DIC (Direct Industries Centre) as per the rules of the state government where the SSI is located. No large number of formalities are required to start a SSI. 7. Size: There is limited amount of money and the volume of production is less, the size of a SSI is usually small.
  18. 18. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 18 8.Capital: The capital requirement is not much and is supplied by the owners but a large portion of capital is brought from banks and financial institution on term loan. Types of Small scale industries a. Resources based SSI b. Demand Based SSI c. Ancillary Based SSI d. Subsidiary SSI (Sub control type) e. Linkage Based SSI f. Export oriented SSI g. Technology Based SSI h. Preference Based SSI i. Policy Based SSI j. Competence based SSI Resources Based SSI: A large number of SSI are started because raw material are available in plenty, cheaply and easily. Entrepreneurs get tempted to start SSI to take advantage of the raw material and other resources available. Resources like natural resources, mineral resources, marine resources, human resources, agricultural resources, forest resources, industrial waste resources etc. A large number of such quantities of such material is lying scattered here and entrepreneurs collect these surplus resources and start industries based on that. Entrepreneurs are encouraged to start small scale industry to take advantage of the cheap locally available resources with the expectation of earning good profits. Demand Based SSI Whenever there is a good demand of a product, many entrepreneurs get tempted to start manufacturing of such or similar products by establishing industry, so that they can easily establish themselves in the market and earn good profits. SSI can be started to meet the growing demand of a product or to
  19. 19. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 19 fill up the existing demand supply gap. Entrepreneurs do not come forward to start SSI because of the difficulties in selling the product but in demand based, it is advantageous for any entrepreneur as production is easier than marketing. Industries which have been started with the aim of taking advantage of the demand are known as demand based SSI. They do not create demand but take advantage and when they see that there is a good demand of a product in comparison to supply; they make entry into the field. They need not to search buyers for the product as they are easily accepted by the consumers. This type of situation does not continue for a long time but by the time such situation arises the entrepreneur might have established them firmly in the market and developed the capabilities to withstand the demand fluctuation. ANCILLARY BASED A large number of SSI’s do not produce usable completed products but produce components, parts, assembling, sub-assembling, tooling or intermediate goods which are supplied to other industries for manufacturing of other useful articles. It may not be possible for an organization to produce all of its required components, parts, accessories, tools etc. so they have to depend on other source of supply from other industries and this can be met by the ancillary industries. When there is a scope to supply components, parts, etc. to another industry, a small scale entrepreneur may start a small scale industry to manufacture such items as per the specifications & design of the other industries .Such ancillary industries are independent units and largely depend on other industries for supply of their goods and services. A small percentage of their percentage may be sold in the open market directly to the consumers, but their main aim is to supply to other industries to manufacture other useful products. For e.g. Investment Ceilings for Small Scale Industries (2006)
  20. 20. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 20 Type of SSI unit Investment limit (1 million= 10 Lakhs) Remarks Small Scale Industry Rs 10 million Historical cost of plant & machinery Ancillary Rs 10 million At least 50% of its output should go to other industrial undertaking Tiny Enterprise Rs 2.5 million No location limits Service & Business Enterprise Rs 0.5 million No location limits Women Enterprise Rs. 10 million 51% equity holding by women Export Oriented Rs. 10 million Obligation to export 30% of production SUBSIDIARDY TYPE or SUB CONTROL TYPE SSI Many large scale manufacturer start SSI under the full control to manufacture small items or some of their products .All of their products are taken by the large industry and sold under their brand name. The SSI is created and managed directly or indirectly by the bigger industry but a different name .They are owned and controlled by the same management .They take advantage of the benefits, concessions and incentives available from the government due to the status of small scale industry. This type of SSIs is usually owned, controlled, financed and managed by some other industry or the control and management of such units may be vested in the hands of their family members or relatives. The entire production of the small industry may be sold to the bigger industry and for this there may be a tie up .This type of franchise may also be started to cater to the need of a large area or population, to produce goods at a lower cost and to take advantage of the liberal SSI policies. LINKAGE BASED SSI Small scale industry is started by an entrepreneur to procure the finished products of a large industry and use it as a raw material for production of further commodities. Eg. Many small scale industry established near to large scale industry (steel plant) in order to use the finished products of the plant to produce other products like stainless steel utensils, steel pipes, iron rods, different iron castings,fabrication items etc. Similarly the waste or scrap products of a bigger industry can be taken by a small entrepreneur to manufacture some useful articles. E.g. the molasses of sugar factory may be collected by another industry to produce liquor or the fly ash of thermal power plant may be used to manufacture etc.
  21. 21. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 21 Export oriented based SSI Some products have very high demand in other countries and they can be manufactured locally. Government gives many concessions, incentives and benefits to such units. Government also provides services like collecting, orders and supplying goods to those countries by collecting from the manufacturers. Due to these encouragements many persons get tempted to start export oriented SSI. Exports of products from the country to other country are responsible for earning huge amount of foreign exchange. Import substitute based SSI There are a large number of items being imported by the country from other countries. It is a cause of botheration for the government because ,it wants to reduce the dependence on other countries. There is lot of foreign currency outgo due to such imports. If such a product can be produced within the country they get special status by the govt. and a lot of incentives and concessions are allowed to such industries . Technology based SSI Changes in technology are very rapid as a result of which there is the development of new products, new processes, etc. Due to that better product, cost effective products and other innovative products are developed. An entrepreneur may start a SSI to take the advantage of the change in technology or development of new technology for production of any goods or services. Such entrepreneur start SSI only to provide the new products which have emerged out of new technologies. They do not see the demand or resources. The demand is automatically created when such new products come to the market. Preference based SSI Entrepreneur starts some type of industry only because of their likeness, affinity or preferences. They may not have knowledge, skill, talent and competence yet they want to start SSI to satisfy their want by starting such industries. They do not put much emphasis to the demand, resources etc. but aim to establish SSI on the products preferred .Most of the times the selection of SSI by an entrepreneur depends on the likeness, dislikeness, preferences, capabilities, skill, talent, etc. of the entrepreneur. Policies Based SSI Some entrepreneurs start SSI to take the advantage of the liberal governmental policies. Govt. also tries to promote certain categories of industries due to various reasons. So the policies of the government towards particular industry or industries at a particular place may be the main reason due to which many prospective entrepreneurs come up to start the SSI and as a result of that a large number of industries start. Competence Base SSI
  22. 22. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 22 Some of the entrepreneurs have competence, skill, knowledge, and experience in a particular business. Whenever they get chance, they prefer to start such an industry on which they are capable. Competence of the entrepreneur is the only force behind the starting of such an industry. Because of their workmanship and quality consciousness, they thrive and even grow high if right opportunity is available. STEPS TO START A SSI 1. Preliminary stage  Decision to become an entrepreneur and start an enterprise.  Developing entrepreneurial characteristics  Studying business environment  Meeting entrepreneurs, people, experts and others  Searching the opportunity. 2. Decision making Stage  Selecting business opportunities.  Consulting DIC, SISI, consultants, banks, licensing authorities.  Deciding the size, type, technology of the project  Deciding the location and survey site  Selection of exact site  Preparation of the project report  Studying the project from technical, financial, managerial and operational point of view.  Deciding the product 3. Planning stage  Application for acquisition of land or exact site.  Application for provisional registration  Application for No-objection certificate, assurance from bankers for finance.  Application for licenses, permission, clearances from state government, central government and from the local authorities.  Application for loans and arrangement of capital  Enquiry for plant and machineries etc.  Preparing plans of the factory buildings  Preparing plans for acquiring plants and machineries, tools and equipment’s, furniture and fittings etc.  Prepare the detailed project report
  23. 23. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 23 4. Implementation stage  Acquisition of land  Development of site  Construction of buildings and other infrastructure like road, affluent disposed etc.  Placing orders for plants and machineries, tools and equipment, furniture and fixtures etc.  Arranging electricity, water connection  Installation of plants and machineries and test running  Recruitment, selection, training and placement of manpower  Procurement of raw material and other materials  Finalise the marketing channel, distribution policy, percentage of margin and commission to the middleman etc.  Carry on trial production and test marketing 5. Managerial stage  Evaluate the field performance of product and examine the consumer’s response  Appoint dealer, wholesalers, agents, and arrange showrooms etc.  Carry on commercial production  Carry on advertising and marketing activities.  Distribution and selling  Managing the enterprise  Creation of external economies  Consolidating the marketing and selling network  Ensure growth and generate profits  Repayment of loan and interest.  Keep pace with the change in technology, change in taste, fashion of consumers, competition, and development of new product, new substitute or alternatives.  Carry on modernization, expansion, and diversification etc. ROLE OF SMALL SCALE INDUSTRIES IN DEVELOPMENT OF ECONOMY OR ROLE OF SSIS IN NATIONAL ECONOMY
  24. 24. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 24 1. Employment generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive in character. They generate huge number of employment opportunities. It is a powerful tool of job creation. 2. Mobilization of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas by investing in small-scale units. Thus, a huge amount of latent resources are being mobilized by the small-scale sector for the development of the economy. 3. Regional dispersal of industries: There has been massive concentration of industries in a few large cities of different states of Indian union. People migrate from rural and semi urban areas to these highly developed centers in search of employment and sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better solved by small- scale industries which utilize local resources and brings about dispersion of industries in the various parts of the country thus promotes balanced regional development. 5. Provides opportunities for development of technology: Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. The entrepreneurs of small units play a strategic role in commercializing new inventions and products. 6. Promotes exports: Small-scale industries have registered a phenomenal growth in export over the years. They help in increasing the country's foreign exchange reserves there by reduces the pressure on country's balance of payment. 8. Supports the growth of large industries: The small-scale industries play an important role in assisting bigger industries and projects so that the planned activity of development work is timely attended. They support the growth of large industries by providing- components, accessories and semi-finished goods required by them 9. Better industrial relations:
  25. 25. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 25 Better industrial relations between the employer and employees help in increasing the efficiency of employees and reducing the frequency of industrial disputes. There is hardly any strikes and lock out in these industries due to good employee- employer relationship. GOVERNMENT POLICIES FOR SSIS Government policies are flexible and changes from time to time, place to place and product to product. Different policies are applicable for different states as per the suitability of the states. The central government also announces various schemes for the benefit of the SSIs and aimed at achieving industrial growth. So the central and state government have their industrial policies for the promotion of small scale industries. Some industries are classified as priorities industries and Governments allow special subsidies on those SSIs. Other facilities include: (i) Sales tax exemptions. (ii) Sales tax concessions. (iii) Water tax concessions. (iv) Electricity duty exemption concession. (v) Marketing assistance. (vi) Price preference while supplying products to government organisation. (vii) Subsidy on expenses made on research and development . (viii) Subsidy on acquiring quality certificate like ISI marks, AG mark, ISO 9000 series, ISO 14000 series. (ix) Single window system of clearance. Policy Initiatives on SSI Sector
  26. 26. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 26 (i) 75 products are reserved for exclusive manufacture in the SSI sector consisting of chemicals and their products, leather and leather products, laboratory reagents etc. (ii) Selective enhancement of investment in plant and machinery from Rs 1 crore to Rs 5 crore carried out in respect of 13 items in stationery sector and 10 items in the drugs and pharmaceutical sector . (iii) The Union budget 2003–04 announced that banks would provide credit to the SSI sector within an interest rate band of 2 per cent above and below Prime Lending Rated (PLR). All public sector banks have adopted this norm. (iv) The composite loan limit for SSI units was enhanced from Rs 25 lakh to Rs 50 lakh. (v) The RBI announced that banks may enhance the limit of dispensation of collateral requirements for loans from the existing Rs 15 lakh to Rs 25 lakh on the basis of good track record and financial position of the units. (vi) The lower limit of Rs 5 lakh on loans covered under the Credit Guarantee Scheme has been removed. All loans up to Rs 25 lakh made eligible for guarantee cover under the Credit Guarantee Scheme. (vii) 417 SSI specialized bank branches made operational throughout the country. (viii) The final results of third All India Census of Small-scale Industries were released on January 17, 2004. (ix) In the first phase, 60 clusters were identified (July, 2003) for focused development, by including their credit requirements in the respective State Credit Plans. (x) Setting up of a Small and Medium Enterprises Fund (SMEF) of Rs 10,000 crore under SIDBI, to inter alia, address the problems of inadequacy of financial resources at highly competitive rates for small-scale sector. (xi) Laghu Uddyami Credit Card scheme liberalized with enhanced credit limit of Rs 10 lakh (up from Rs 2 lakh) for borrowers with satisfactory track records. Problems Faced by Small-scale Industries (i) Difficulty in obtaining credit from commercial banks because of their general inability to provide security. (ii) Absence of management expertise. Often managed by one person who performs a number of functions usually with no formal training. (iii) Difficulty in competing with imported products due to high production costs.
  27. 27. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 27 (iv) Difficulty in obtaining industrial land in towns and cities. The shortage of industrial land is giving rise to more and more backward operations. (v) Under capitalisation. (vi) Difficulty in identifying appropriate technology and technical assistance. (vii) Surveys of material and human resources of the countries are not available to identify the regions or areas for the development of small-scale and medium-scale industrial enterprises. (viii) Difficulty in identification of industrial projects for development. (ix) Poor Project preparation and evaluation. (x) Lack of Financial or credit support and investment promotion. (xi) Lack of consultancy and counselling services. (xii) Technology development and applications such as the designing of prototype machines for products identified according to country resources and requirements. (xiii) Inadequate Industrial training and skill formation. (xiv) Quality control and testing facilities. (xv) Inadequate Market promotion, both domestic and export. (xvi) Difficulties in Procurement of raw materials and equipment. ROLE OF NATIONAL AND STATE AGENCIES PROVIDING ASSISTANCE TO SSI Refer Book ENTREPRENEURSHIP DEVELOPMENT PROGRAMME Author B. Badhai PAGE NO. 2.17, 2.18 &2.19 LARGE SCALE INDUSTRIES Industries with a fixed asset of more than one hundred million rupees are called large scale industries. These could be manufacturing units or others which use both indigenous and imported technologies. They cater to both the local and foreign markets. Examples of large scale industries :- include fertilizer, cement, natural
  28. 28. Ms Sonam Kapil Lecturer MIT, MIET GROUP (UNIT 1 EDP Notes) Page 28 gas, coal, metal extraction, metal processing, petroleum, natural gas, mining, electrical, petrochemical, food processing units, tourism, banking, sugar, construction, automobile, communication equipment, cement, chemicals, earth movers, consumer durables (like television, refrigerators, etc), engineering products, vehicle assembly, beverages, gas and water; other fuels, agricultural processing, insurance and finance. With the opening up of the market and globalization, the effects on such industries has been mixed, some have gained by attracting foreign customers, foreign trade and technology, tie-ups, while others have lost out due to their inability to cope up with the open market competition.
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