This is part of a course that I taught at the Bangalore University last spring - on Entrepreneurial Management. Decks EM04_01 -4 are on starting a small scale industry and on pre-startup processes for small scale industries in India

1. Management
04_1 – Starting a small industry
Suhas Dutta

2. Syllabus coverage
• To understand what constitutes a business opportunity,
scanning the environment for opportunities, evaluation of
alternatives and selection based on personal competencies.
• An overview of the steps involved in starting a business
venture – location, clearances and permits required,
formalities, licensing and registration procedures
• Assessment of the market for the proposed project
• To understand the importance of financial, technical and social
feasibility of the project.
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3. Government’s objectives for SSI sector
• To become a key player in the Indian economy in fostering
entrepreneurship, creating employment opportunities,
increasing industrial production and accelerating the process of
sustainable development.
• And the SSI sector to:
oUse modern technology to maintain quality and increase productivity
oIntroduce new product lines to garner a higher share in exports
oIntegrate with the medium and large enterprises
oPromote entrepreneurship, stress will be on human resources and
development at grass root level
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4. Setting up a small industry
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5. Project selection phases
The objective of the process is to:
• Select those products, processes
or systems in an organization
where the value and cost ratio is
low and where analysis will lead
to increased benefits
• Generate alternative methods for
providing necessary functions
• Prepare and present a report
containing recommendation
along with benefits
• Perform all other actions required
to put the proposal into effect
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Project Selection
Information
Creative
Evaluation
Recommendation
Implementation
Follow up

6. Process for setting up a small scale industry
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Industry
Selection
Viability /
Feasibility
Arranging know-
how
Prepare project
report
Selection /
Procurement of
premises
Apply to DI for
NOC, registration
and power
allotment
Apply for
Financing – fixed
assets, working
capital, export
finance
Apply to local body
for NOC and
permissions
Apply for Raw
materialQuota
Apply for power
connection
Place orders for
machinery
Recruit staff
Install machinery
Connect
machinery
Procure raw
materials
Trial run

7. Process for setting up a small scale industry (contd.)
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Trial run
Corrective
measures
Production
Record maintenance
Product
standardization
Quality control
Productivity
SalesRaw material
purchase
Recycle
realizations
Sales realization
Pay creditors
Profits
Dividends
Plough back

8. Before becoming an entrepreneur…
• Fully conversant with the product line
• Adequate shop floor experience to guide floor personnel
• Familiar with raw materials, specifications, quality assurance
and prices
• Account keeping, maintain stores, prepare balance sheet etc
• Marketing channels, distribution network, agency practices
• Packaging, logistics
• Quality assurance
• Taxation, policies, laws, regulations, bureaucracy
• Incentives, subsidies
• Stress, high pressure, perseverance
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9. Legalities, regulations
Licenses Registration Infrastructure
• No formal permission
required from State
of Central Govt. to
start SSI
• No license required
for <100 workers and
<10 lakhs fixed assets.
• Suggested
registration for
companies with >10
employees.
• Copy of application to
be sent to Director of
Small Industries
Service Institute.
• Registration is helpful
later for soliciting
finance, setting up
infrastructure etc.
• Approach Director of
Industries, or SISI for
provision of built up
space in industrial
estate.
• After initial clearance
from State Director of
Industries,
Municipality or
Panchayat issues a
No Objection
Certificate.
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10. Set up
Machinery Raw Materials Finance
• Can be provided by
National Small Industries
Corporation (NSIC), as
hire-purchase.
• NSIC looks for
entrepreneurship,
motivation, competence
etc.
• Entrepreneur needs to
enlist with NSIC, and
send along registration
certificate and report of
the Director of
Industries.
• Raw materials are
classified as:
o Components and
spares
o Non-ferrous
materials
o Iron and steel
o Chemicals
• Foreign exchange
maybe provided along
with grants for priority
industries.
• Used for
• Machinery
• Raw materials
• Working funds
• State director for
Industries and State
Financial Corporations
provide funds based on
supporting documents:
• Project report
• Copy of registration
• Cash flow statement
• Stock statement
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11. Operations
Marketing Incentives
• The Government Purchase
Scheme provides the
government as the largest
single buyer of SSI products.
• Features
• Enlist with NSIC
• Receive tenders free of cost
• No security deposit required
to participate in tenders
• Price preference up to 15%
with larger industries
considered
• Seek the help of SISI or
Director of Industries
• Small Industries
Development Organization
(SIDO) coordinates policies
and provides extension
services and technical
consultancy
• NSIC provides support
with machinery
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12. Support
Industrial Management,
Consultancy, andTraining
Backward Areas Development
• SIDO offers consultancy in –
technical, managerial,
marketing, QC, production,
labour laws, solving problems
etc.
• Available through panel of
experts and in 264 notified
backward areas
• Machinery on hire-purchase
• Government stores purchase
• Sub Contracting Exchanges
• Export promotion through Export Credit
and Guarantee Corporation (ECGC)
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13. Who to approach for what
Area Organization
Selection of Industry Small Industries Service Institute
India Investment Centre
Ministry of Industrial Development
Registration Director of Industries
Small Industries Service Institute
Factory Accommodation Director of Industries (state)
Machinery Small Industries Service Institute
National Small Industries Corporation
State Small Industries Corporations
Chief Controller of Imports and Exports
Raw Materials Development Commissioner, Small Scale Industries Organization
Director of Industries
State Small Industries Corporations
Chief Controller of Imports and Exports
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14. Who to approach for what
Area Organization
Finance Small Industries Development Bank of India
State Financial Corporation
State Director of Industries
Commercial Banks
Small Industries Service Institutes
Technical Know-how Small Industries Service Institutes
National Small Industries Corporation
Council of Scientific and Industrial Research
Productivity Councils
Small Industry ExtensionTraining Institute
Standardization
Marketing
Inventions
Miscellaneous Problems
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15. Selection of types of
organisation
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16. Factors to determine type of organisation
• Type of business
• Selection of industry and area of operation
• Scope of operations, volume of business
• Amount of capital funds required
• Possibility of raising funds
• Costs and procedures and relative freedom from govt.
regulations
• Comparative tax advantage
• Size of risk
• Continuity of the enterprise
• Degree of direct control and adaptability of administration

17. Ownership types for SSIs
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Small Scale
Industries
Private Public
Individual Collective
Sole
Proprietorship
Partnership
Joint Stock
Company
Cooperative
Limited Unlimited

18. Organizational structures
Line Organizations
• “…is characterized by direct lines of
authority flowing from the top to the
bottom of the organisational
hierarchy and lines of responsibility
flowing in an opposite but equally
direct manner.”
Functional Organizations
• The simplest type of
departmental categorization
which consists of grouping of
similar activities into major
departments.
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19. Line organizations
Advantages
• Simple to form and easy to operate
• Executives enjoy decision making
powers
• Systematic organizational structure
• Balance between authority,
responsibility and accountability
• Easy maintenance of discipline
• Easy and quick communication
Disadvantages
• Can become autocratic
• Suffers from lack of specialization
• Overload of responsibility
• Hampers initiative
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20. Functional organization
Advantages
• Promotes better division of labour
• Ensures proper communication
• Offers good scope of specialization
• Promotes co-ordinated work
• Ensures systematic organization
Disadvantages
• Unity of command absent
• Tendency towards over-
specialization
• Difficult to pinpoint responsibility
• Costly
• No continuity of authority
• Lower potency of developing
managers for promotion
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21. Incentives and
subsidies
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22. Introduction
• Incentives
o Encourages productivity; motivational force
o Includes concessions, subsidies and bounties
• Subsidy
o Single lump-sum provided to cover cost
• Bounty
o Bonus or financial aid to help it compete with
other units in country or in a foreign market
o To motivate for setting up new venture in
larger interest of the nation or society
Incentives Subsidies
Bounties
Concessions

23. Incentives
• Need for incentives
oCorrect regional imbalances in development
oPromote entrepreneurship by removing economic constraints
oProvide competitive strength, survival and growth
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Incentives
Motivational
Force
Stimulant
Entrepreneurial
Spirit
NewVentures Modernisation Diversification
Efficient
Management

24. Objectives of Incentives
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Entrepreneurship
Development
Regional
Development
Provide
Competitive
Strength
Motivation
Stimulus to
industry and
business

25. Types of incentives
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Incentives
Technical Financial Subsidy Tax
Machinery Consultancy Cash
Interest free
loans
Transport Interest
IncomeTax SalesTax Excise Duty

26. Incentives strategy
• Subsidy for purchase of know how
• Entrepreneur training
• Developed land
• Factory shed
• Machinery
• Seed capital
• Central investment subsidy
• State investment subsidy
• Tax exemption
• Establishment grant
• Stamp duty
The Assistance Program
• Technical assistance through
industrial extension service
• For obtaining raw materials
• Cash assistance
• Supply of machinery on hire-
purchase
• Marketing assistance
• Rural industries projects
• Seed capital assistance
• Concessional financial assistance
• Pollution control
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READ UP on
Subsidy Schemes
in your books

27. Advantages and disadvantages
• Motivational force
• Encouragement to startup in backward
areas
• Industrial uniformity across regions
• Develop new entrepreneurs
• Increase in ability of entrepreneurs
• Reduce overall problems for SSI
entrepreneurs
• Often misused
• Scope of favouritism and corruption
• Potential unethical business
practices
• Financial drain on the exchequer
• Real objectives are seldom achieved
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28. Incentives and facilities to exporters
• Duty drawback
• Duty exemption schemes
• Excise rebate
• Marketing development assistance
• Supply of raw materials
• Export oriented units /export processing zones
• Export houses, trading houses and star trading houses
• Export promotion capital goods scheme
• Foreign currency accounts
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READ UP on
State Based
Incentives in your
books

29. Exploring export
possibilities
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30. Components and growth of SSI products exports
0
10000
20000
30000
40000
50000
60000
1947 1957 1967 1977 1987 1997 1999 2000
Exports
Exports
• The main components of exports of
products manufactured in SSIs are:
o Khadi and handloom
o Handicrafts including gems & jewellery
o Processed food
o Garments
o Engineering goods
o Projects exports
o Computers
o Consultancy exports
• The government is trying to achieve
a 20%YOY growth on SSI exports

31. Export thrust areas
• Knitwear and hosiery
• Brassware and brass locks
• Heavy machinery, engineering products,
tools
• Handloom, silk, weaving
• Coir, leather
• Sports goods
• Marine products
• Pottery
• Safety matches
• Chemicals
• Scientific instruments, engine pumps
Ludhiana
Machine tools
Rs. 75 Cr
• Lack of Infrastructure
and
• Waste disposal
Surat
Diamonds
Rs. 4,000 Cr
• Direct international
access
• Poor roads
Moradabad
Brassware
Rs. 800 Cr
• No direct access to
ports
• Inadequate telecom
Tirupur
Knitwear
Rs. 2,400 Cr
• Lack of water
• Power shortage
Vishakhapatnam
Marine Products
Rs. 638.39 Cr
• Lack of storage
• Inadequate container
facilities
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32. Export promotion measures
• Measures to:
oStrengthen export production
oEncourage capacity expansion
oAugment bargaining power
oEncourage entry of products to
new markets
oImprove inherent competitive
strength
• Some of the export
promotion measures are:
oExport promotion of capital
goods
oDuty exemption
oAdvance license
oAdvance release orders
oExport import policies
oTrade finance
oAir cargo complexes
oElectronics data interchange
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33. Key areas for an export oriented SSI
• Quality control
• Marketing
• Infrastructure set up
oVarious government agencies
• Problem areas
oAvailability of raw materials
oQuality control
oMarketing facilities
• Prospects
oEmployment
• Export management
oPlanning
oOrganization
oBuilding a team
oExecutive action
oManagement control
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34. Further readings / viewings
• http://www.iitk.ac.in/siic/html/startingbusiness/Business3.html
• http://www.brainreactions.net/brainstorms/2222
• http://business.gov.in/starting_business/small_scale_unit.php
• http://smallb.in/%20/thinking-starting-business/big-list-
business-ideas-small-business
• http://www.authorstream.com/Presentation/rallu-619634-steps-
to-start-small-scale-industry/
https://www.youtube.com/watch?v=S5kCVq8YazY
https://www.youtube.com/watch?v=FMhfpOS5RbM
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