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1. Disturbed Childhood
A child may be continuously rejected by parents, friends & others. All dominate
him. So he needs a relief. He may destroy himself by depression or became very
creative & enterprising. He want to dominate and achieve something. Organization
becomes a sours to achieve this. So he starts his own enterprise.

2. Rejected Group
Entrepreneurs emerge as a group, when
The group is not recognized in the society
- Contract with important social networks are denied.

3. Religion & Culture
Some religion & cultural values encourage money making, status & risk taking
while others may discourage these.

Following religion & cultural groups are enterprising
- Marwarrs parsees, Jain, Chettiars in India
- Protestants in UK & US
- Samurai in Japan
- Yoruba in Nigeria
- Kikuyu in Kenya

4. Age of Entry
- 2/3 of entrepreneurs start enterprise before 25th age. But it differs among
- Kamma community start earlier
- Kapu & Brahmin start the enterprise in young age.
- Vysya start in old age with experience.

5. Family background
- If family members have political influence, or in high status jobs, one can
become entrepreneur


- Youngsters in joint family may get moral & financial support.
- In-laws may make one as a partner or help him to start one’s own business.

6. Education
- Technically educated persons may start manufacturing units with some
managerial training.
- Arts/Commerce/uneducated people can start service sector/trading center/
low-technology units.

7. Experience
- 25% entrepreneurs are inexperienced. They start after technical &
managerial training.
- 32% prefer the same line of business.
- 40% prefer different line of business.

8. Type of ownership
- 55% prefer sole proprefership concern
- 25% prefer partnership concern
- 20% prefer private limited
- 5% prefer public limited concern

9. Location
- 60% prefer backward areas for subsides & concessions. Govt provide built
in industrial estate with shed and infrastructure facilities.
- 40% prefer developed areas for convenience.

10. Environment
Environmental factors like Govt policy, political stability, peace within & between
the countries, cost of import, competition, infrastructure, financial support by banks &
financial institutions, etc, influence the emergence of entrepreneurs.



1. Basic infrastructure
Good road, seaway, communication facility, water, power encourages entreps.
These provided by the Govt. This speeds up production & trade. This reduces cost of
production. In rural & backward areas such facilities are not provided.

2. Capital
- Rigid norms of banks & financial institutions. (Risk free projects & existing
units are preferred due to the following problems).
- High rate of interest
- Low capital market (share / debenture / bond) awareness.
- High import cost of technology
- Rigid foreign exchange regulations
- Slow apply of raw materials & price fluctuations increases working capital
- Govt. should provide financial assistance or act as guarantor in raising loans.

3. Raw material
- Right quantity, quality of raw materials at reasonable price are not available
near the industry.
- Govt should supply scarce materials in time or it may provide suppliers
- Raw material import should be liberalized
- Govt. should encourage R&D and wide network of distribution centers.

4. Labour
- Graduates are not willing to join in the avialable jobs due to status, salary or
they prefer only selected jobs. (ie. unemployability)
- Shortage of skilled labours. Now Govt. initiates technical, electrical,
management education. But knowledge works are available more than manual

- Manual works are immobile due to language, culture & sentiment. Less
contact between employer and manual job seekers. Because they don’t watch
advertisement. Govt & private employment services are increasing the contact.


plastic replaces wood & steel. . Eg. incentive. Inventions/ideas can be protected by intellectual property rights. TOM is implemented for error free work. Some companies have training & development cells. Customer’s needs are not on time & 100% of time. . low priced products of large manufacturers destroys small manufactures. It affects health. chemical factories. It enables small-scale production at the cost of a large scale production. export promotions. Developed countries may not give their technology to India. quality of product are improved. . Eg. 4 . Pager to cell. React to the environmental changes through technological change. Radop tp tramsistor. It encourages private investments in all other sectors. So modernisation is a must. High quality. Flexible manufacturing system produces different component in different quantities. . . Business process Re engineering is adopted to eliminate unwanted process. . . 7. New technology destroys existing product. . Tax is improperly spent . provides subsidy. . Process innovations are important like product innovations. Technology . Product can be protected by patent rights. 6.. Substitute products destroys existing products. saves small scale units by reserving certain industries for SSI. R & D investments are increased US Du’pont patented its invention in 1990. Importing technology takes long duration (1 year to get import license). distribution. 5. Ceramic components for engine. cement industry. Atomic reactors. Aerodynamically designed body. etc. fiber body. . . Political environment . man power. : Rising petrol price forced automobile manufactures towards fuel economy technology. Competition . Due to high election expenses politicians exploit companies by granting or denying policy measures. production process. Public oppose technology. Process like. Quality of workers have to be improved. Xerox machine destroyed carbon papers. Govt control only core sector. redesigned tyres for road grip. .

customs clearance  Preproduction & production Stage: Working capital provision. National VAT around 12% may be introduced. after long delay & corruption. IDR act. E.  Marketing regulations : Adulteration act. civil aviation. port modernization (sedhu samudram projects) are some examples. . 8. Consumer Protection act. EPZ (Export promotion zones). Capacity utilization of industries is only 70%. Foreign investments are encouraged. Registration of ST. 5 . Export promotion measures are done. burns. Tax reforms – Corporated tax may be reduced . has liberalized investment limits in telecom. etc.. . Economic growth is determined by market forces . patent right. . Economic Environment . Legal measures are simplified & speeded up.F. loan  Machine procurement & installation stage : Import license. Govt. Large unit license is granted. cement.S. SSI License is granted in 6 months. consumer protection act.)  Construction Stage : Allotment of land. CST.I.. etc.. power. Capital market reforms. . . Industrial growth 7% per annum . . P. insurance sectors for foreigners. are given below  Formations Stage of Unit : Companies act. Interest rates are deregulated . FERA  Personnel regulations : Factories act (wage. Control measures of Govt.

Public Companies Large scale manufacturing and commercial undertakings. and professionals like attorney. laundries. FORMS OF OWNERSHIP (i) Proprietorship Small trading and service enterprises like retail stores. workshops. departmental stores. suitable suitable for capital suitable small business for medium medium scale for large scale suitability size business operations 7. catering to local markets. confectioners. etc. involving limited risks and the use of personal knowledge and skills. hire-purchase firms. Comparative evaluation of different forms of business ownership Basis of Sole Private Pubic Limited Partnership Comparison Proprietorship Company Company 1. like wholesalers. full Unlimited. Unanimous Board Board decision. no Easy. bakeries. dry-cleaners and dyers and other enterprises requiring small capital. tailoring and draper shops. specialisation 6 . consultants. no decision. Sharing of All to the owner As per On the basis of On the basis of profits agreement shares held shares held 8. architects. iii. Very large capacity & suitable for capital. lawyers. joint Limited Limited Members risk and several. Partnerships and Private Companies Medium sized service and trading concerns.. Formation Easiest. Membership One man show Minimum : 2 Minimum : 2 Minimum : 7 Single Maximum : 10 Maximum : 50 Maximum : No membership in banking and limit 20 in others 4. like chain stores. some Very difficult legal forma agreement legal formalities several legal required formalities 2. Also. small manufacturing firms requiring simple techniques and processes. Management Quick decision. Registration Not necessary Optional Compulsory Compulsory 3. hair-dressing and beauty saloons. requiring heavy investment. Financial Limited Capital Pooling of Large capital. risk shared 6. Legal status No separate No separate Separate legal Separate legal legal existence legal existence entity entity 5. transporters. hotels. etc. restaurants. decisions. Liability of Unlimited. ii. specialised talents and complex processes of production and distribution. only an Difficult. chartered accountants.

audit or reports audit or reports audit and audit and reports reports compulsory compulsory 10. Perpetual Perpetual continuity fully dependent may be existence existence on the owner disolved by death.Transferability At will With mutual Restricted as Freely of interest consent Articles of transferable Association 12. specialisation. State Practically Very little. Winding up At will At will Under the Act Under the Act 15. flat income. life Less table. Business Perfect Secrets limited Secrets shared Secrets shared Secrecy Secrecy No to partners. Stability or Unstable. Considerable Excessive. Tax Burden Low at small Low at small Low at medium Low at high level of income. & exemption 11. falt rate progressive rate. flexibility operations privileges. together Basis of Sole Private Pubic Limited Partnership Comparison Proprietorship Company Company 9. 1956 Companies Act. full sufficient limited flexibility and flexibility of flexibility flexibility. no regulation none. with public. between ownership lie in management ownership and ownership and the same lies where control go management hands ownership is. 1932 Act. Governing General law The The Under the Act Act Partnership Companies The Act. double rate. income. level of level of level of progressive income. no by members. etc of a partner. 1956 7 . and control specialisation. insolvency. double rate taxation taxation 13. limited greater divorce management & specialisation. 14.


As explained earlier, a business enterprise can be organised into several forms.
Every form of organisation has its own merits and demerits. A businessman has to
keep in view these merits and demerits while selecting an appropriate form of
organisation. The choice has to be made both at the time of setting up a new enterprise
and at the time of expansion and growth of an existing concern.
At the time of launching a new business enterprise, the choice of the form of
ownership is dictated by several factors as given below :
1. Nature of business – Service, trade, manufacturing.
2. Scale of operations – Volume of business (large, medium, small) and size of
the market area (local, national, international) served.
3. Degree of direct control desired by owners.
4. Amount of capital required initially and for expansion.
5. Degree of risk and liability and the willingness of owners to assume personal
liability for debts of business.
6. Division of profits among the owners.
7. Length of life desired by the business.
8. Relative freedom from government regulations (flexibility of operations).
9. Scope and plan of internal organisation.
10. Comparative tax liability

It must be noted that these factors are interrelated and interdependent. For
instance, the amount of capital required and the degree of risk involved depend upon
the nature and volume of business operations. The degree of control and the division of
profits are both related to risk and liability. Therefore, an entrepreneur division of profits
are both related to risk and liability. Therefore, an entrepreneur should not consider
these factors in isolation. The interrelationship between these factors should be duly
considered. The impact of each one of these factors on the choice of a suitable form of
ownership is described as follows.

1. Nature of Business


The nature of business has an important bearing on the choice of the form of
ownership. Business providing direct services, e.g., small retailers, hair-dressing
saloons, tailors, restaurants, etc., and professional services, e.g., doctors, lawyers, etc.,
depend for their success upon personal attention to customers and the personal
knowledge or skill of the owner and are, therefore, generally organised as proprietary
concerns. Business activities requiring pooling of skills and funds, e.g., wholesale trade,
accounting firms, tax consultants, stock brokers, etc., are better organised as
partnerships. Manufacturing organisations of large size are more commonly set up as
private and public companies.

2. Size and area of operations
Large scale enterprises catering to national and international market can be
organised more successfully as private or public companies. The reason is that large –
sized enterprises require large financial and managerial resources which are beyond the
capacity of a single person or a few partners. On the other hand, small and medium
scale firms are generally set up a partnership and proprietorship. Small scale
enterprises like generally hair-dressers, bakeries, laundries, workshops, etc. cater to a
limited market and require small capital. The risk and liability are not heavy and the
management problems can easily be handled by the owner himself. Therefore, the
owner likes to be his own master by organising as a sole proprietor. He can maintain
fact-to-face relationship with his customers which is important in small service
enterprises like painters, decorators, repair shops, beauty parlours, etc. Medium-sized
enterprises and professional firms, e.g., health clinics, chartered accountants, etc. are
predominantly partnerships. They pool their capital and expertise to operate on a larger
scale and to avail of the benefits of specialisation. Large scale enterprises and
enterprises involving heavy risks, e.g., engineering firms, departmental stores, five star
hotels, chain stores, etc., are normally organised as companies. These enterprises
require huge capital, heavy risks and expert managers. Proprietary and partnership
forms are unable to provide these resources. The company form is, therefore, best
suited to large scale enterprises. Similarly, where the area of operations is widespread
(national or international), company ownership is appropriate. But if the area of
operations is confined to a particular locality, sole proprietorship or partnership will be a
more suitable choice.

3. Degree of Control Desired
A person who desires direct control of business prefers proprietorship rather
than the company because there is a separation of ownership and management in the


latter case. In case the owner is not interested in direct personal control but in large
scale operation, it would be desirable to adopt the company form of ownership.

4. Amount of Capital Required
The funds required for the establishment and operation of a business have an
important impact on the choice. Enterprises requiring heavy investment, i.e., iron and
steel plants, etc., should be organised as joint stock companies. A partnership has to
be converted into a company when it grows beyond the capacity and resources of a few
persons. Requirements of growth and expansion should also be considered in making
the choice. There is maximum scope for expansion in case of a public company.
Where the funds required initially are small and scope for expansion in case of public
company. Where the funds required initially are small and scope for expansion is not
desired, proprietorship or partnership is a better choice.

5. Degree of risk and liability
The volume of risk and the willingness of owners to bear it, is an important
consideration. A single individual may have large financial resources sufficient for a
medium scale enterprise but due to unlimited personal liability he may not like to
organise as a proprietor or a partnership. Due to limited liability an and a large number
of shareholders, there is maximum diffusion of risk in a public company. But an
enterprising individual not afraid of unlimited liability may go in for sole proprietorship.

6. Division of Surplus
A sole trader receives all the profits of his business but be also bears all the
risks. If a person is ready to bear unlimited personal liability and desires maximum
share of profits, proprietorship and partnership are preferable to company form of

7. Duration of Business
Temporary and a hoe ventures can be organised as proprietorships and
partnerships as they are easy to form and dissolve. But they lack continuity and
stability. Enterprises of a permanent nature can be better organised as joint stock
companies and co-operative because they enjoy perpetual succession. A business
requiring a long period for establishment and constitution should be organised as a
corporate body.

8. Government regulation and control


11 . If the expected volume of profit is very high it may be profitable to start a company. i.. Small businesses using simple processes of production and distribution can be managed effectively as proprietorships and partnerships. motivations is very high in proprietorships and partnerships. On the other hand. Due to identity of ownership and management. Flexibility of Operations Business which require a high degree of administrative flexibility should better be organised as proprietorships or partnerships. the rate of tax remains the same irrespective of the volume of taxable income. Managerial Requirement Organisational and administrative requirements depend upon the size and nature of business. Flexibility of operations is linked with the internal organisation of a business. techniques and procedures require professional management. on the other hand. Such motivation is lacking in a company due to separation of ownership from management. Tax burden Various forms of ownership are taxed differently under the Income-tax Act in India. 10. 9. 11. The internal organisation of sole proprietorship and partnership is much more simple and less elaborate than the internal organisation of a joint stock company. Companies and co-operatives are.e. Such enterprises can be managed efficiently only as joint stock companies. Proprietorships and partnerships are subject to little regulation and control by the Government. But this face is not very important and it can be helpful in making the choice only when all other factors are unable to indicate a clear-cut choice. Moreover. subject to several restrictions and have to undergo several legal formalities. the objectives and powers of a company cannot be changed easily or without legal formalities. giant enterprises involving the use of complex. A company is taxed at a uniform rate.

Emerging Technologies Commercial exploitation of indigenous or imported technologies is another source of project idea. Later “Nirma” entered to satisfy the lower strata of the market. 1. Imports and Exports The Government of India is now encouraging exports. The acceptance of “SINTEX” water tanks is another example. can get idea of new product from the following sources. For example mini steel plants have been started. it remained as an unexploited invention. Till Xerox Corporation adopted the idea in 1960. using steel scrap which was endproduct large steel plants. “Surf” catered to the upper segment of the market. there is now a shift towards ready-made garments. One best example is Xerox. End / by Product End products and by products can throw light on new project ideas. 3. Unsatisfied Demand The Success of “Maggi” noodles is an example of unsatisfied demand for fast foods. AVT group of companies are successfully exporting tissue culture plants. using molasses which was a by – product in sugar industry. 12 . possessing consumer durables on hire-purchase basis. etc. There is now great scope for import substitution and export of various items. SOURCES OF PRODUCT / PROJECT IDEA An entrep. 2. For example. Social and Economic Trends Social and economic status of people always change and offer vast opportunities. 4. 5. Liquor industries are started.

eg : Imported mixies were not suitable to the ingredients used in India. Machinery and tools for the small scale units. can revitalize and turn a sick unit into a profitable one. Revival of Sick Units A dynamic entrepreneur. 13 . State and district level fairs. So Mathur manufactured “Sumeet” mixie to suit Indian conditions. 9.6. Chance Factors An entrepreneur may come across a chance factor which may trun out to be a good project idea. Trade and Professional Journals Trade and professional journals / magazines are also sources of ideas. Thus he become a great entrep. and ancilliary products required by the major industries are displayed at the national. 8. component required by various industrial units belonging to a particular trade. These journals/magazines give information relating to products manufactured and spares. Satya Prakash Mathur’s wife complained to him about the non-suitability of imported mixies. Trade Fairs Trade fairs are organized by Industries Department of the Central and State Governments and Trade Organizations. 7. Dynamic entrepreneur can get lots of ideas by visiting these fairs.

competitors market shares. 2. cost. Machines 14 . CHOOSING A PRODUCT/PROJECT (OR) PREFEASIBILITY STUDY Before choosing or product / project its feasibility be studied on the following points. For example. A study of the cost structure under raw materials. the price of Maruti Vehicles increased due to increase in the value of Japanese yen. administrative expenses. Potential Market Existing and potential demand in the domestic and export markets. Availability Resources The project should be suitable with the financial and human resources available with the entrep. If raw materials are imported. selling. 1. 6. consumption trends. Availability of Raw Materials The availability and the cost of obtaining raw materials are also important factors. direct expenses. 3. should be before choosing a product. nature of competition. 4. Cost of the Project Revenew should be more than the cost of the project to earn reasonable profit. 5. availability of substitutes. barriers and the possibility of entry of substitutes and technological developments in the product etc. Projects which are beyond the capacity of the entrepreneur are bound to fail. Suitability with Government Regulations The project should not violate government regulations entrep must consider Government’s policy regarding investments and reservation of certain categories of items for the small scale units. factory overheads. labour cost. the cost of materials change due to exchange rate of currency.

(b) Price structure of different brands. the management must decide whether to move on to the next stage or not. import substitute. (a) Major manufacturers. should be favourable. innovativeness) (d) Market features and practices – credit facility. Some companies use “the Concept of Testing Method” for screening. Ideas may originate from sources outside the company or from within the company New ideas may also come from unexpected sources. The consumer can also suggest new ideas. (g) Training of technical staff requirements. The purpose is to get an idea of the eventual reaction of the product. In this method. should be favourable. (d) Repair and maintenance facilities. should be favourable. and positioning. In each stage. (d) Purchasing power (e) Preference for durability. Marketing and Distribution (a) Marketing strategy. commission. 1. (c) Outstanding features of product/service (Advantage over competitions. 15 . The following are the six stages involved in the product development. But the particular source is not so important as the company’s system for stimulating new ideas and their acknowledgment and reviving them promptly. (c) Comparative features. They should be screened and all unworkable ideas should be deleted. service. (f) Performance guarantees by supplies. Screening of Ideas All new ideas cannot be converted into products as it requires heavy capital investments. 2. superior design. 8. economy. (e) Business terms. stocks. Only most feasible and promising one should be selected for further processing. Consumer Behaviour Existing brand loyalty (b) Consumption pattern. here and abroad. (f) Consumer characteristics of different regions. consumer response to a description or picture is measured even before the product is actually produced. STAGES IN NEW PRODUCT DEVELOPMENT When a new product is introduced it passes through various stages. minimum order. 7. manufacturer’s standing. reputation. warehouse facilities etc. (c) Motivation to buy new product. distribution channels. availability of spares. (h) Machinery delivery schedules etc. quality up gradation. etc. (b) Advertising. Idea Search New products are born from ideas. (e) After sale service. longer guaranty warranty. incentives.

market tests. Establish a programme to develop the product. 4. At this point. Only in this stage. Product Development Until this stage. Commercialisation Full scale production and marketing programmes are planned and then the product is launched. Laboratory tests and other technical evaluations necessary to determine the production feasibility of the product are made. the management should perform the following : 1. an attempt is made to predict the economic consequences of the product for the company as a whole. Once the product is born and enters into its life cycle. the management must take a final decision regarding whether to market a particular product or not. the management has complete control over the product. Upto this point. Test marketing is generally done for consumer goods rather than for industrial goods. the management has little control over it. Business Analysis In this stage. In these stages of evolution. they are least expensive. Only during this stage. the new product idea is expanded into a concrete business proposal. the first three stages are the critical ones. the existence of the product is entirely the critical. However. 6. Assign responsibility for further study of the product 4.3. 5. The subsequent three stages are also very important because they swallow a sizable revenue of the company. Reasons for Failure of a Product 16 . Estimate market demand and product profitability 3. Pilot models of the product are produced in small quantities with certain specifications. the idea in paper is converted into a physical product. Only external environmental factors began to control the product. Identify product features 2. in-use-tests and other commercial experiments in limited geographic areas are conducted to ascertain the feasibility of a full scale marketing programme. Market Testing During this stage. During this stage. In this stage. design and production factors may have to be readjusted as a result of test findings.

2. inability to determine the buying motives and habits and misjudgements as to what products the market wanted. products that are too complicated. Product Deficiencies Poor quality and performance. Lack of Effective Marketing Effort Failure to provide sufficient follow up measures. It is estimated that more than 95 percent of the new products have failed. products that are too complicated. It is estimated that more than 95 percent of the new products have failed. Product Deficiencies Poor quality and performance. Lack of Effective Marketing Effort Failure to provide sufficient follow up measures. Failure is a relative term. 4. They are as follows 1. come under this category. and especially products that did not offer any significant advantage over competing items already in the market etc. Higher Costs than Anticipated 17 . Inadequate Market Analysis Over-estimating potential sales of the new product. and especially products that did not offer any significant advantage over competing items already in the market etc. Inadequate Market Analysis Over-estimation potential sales of the new product. the factors responsible for the product failures can be grouped under seven heads.. the factors responsible for the product failures can be grouped under seven heads. Failure is a relative term. 3. Any product which does not live upto the expectations of the consumers are bound to fall. come under this category. inability to determine the buying motives and habits and misjudgements as to what products the market wanted/ 2. failure to train marketing firm. They are as follows 1. According to William Stanton. failure to train marketing personnel for new products and new markets etc. According to William Stanton.. Introduction of a new product is the most risky job of a marketing firm. 3. Any product which does not live upto the expectations of the consumers are bound to fail.

This led to higher prices which in turn led to lower sales volume than anticipated. 6. manufacturers try out their mew products with selected customers. etc. Improper Timing of Introduction The product should be introduced in appropriate time. In practice. In case of Industrial goods. Test marketing involves introduction of a new product into one or more test market areas which are carefully chosen. Interpretation and arriving at correct and valid conclusions are most vital in test marketing. TEST MARKETING Test marketing is generally adopted by the producers of consumer products only. Test market areas should be fairly representative as far as possible. Before conducting test marketing. in which case shall gain an unanticipated share of the market. This will in turn lead to poor sales which in turn will result in product failure. test marketing is used to find out the feasibility of launching the product on a full-scale on the national market. To make it successful. 5. test marketing should be carefully planned and efficiently executed. (ii) To determine media mix. Competitive Strength or Action The competitors may copy a genuine innovation with speed and ease and the market shall also become overcrowded. It is undertaken to find out in advance whether the product could be launched successfully on the national scale. Technical or Production Problems In the initial stages. Objectives of Test Marketing The objectives of test marketing can be summarised as follows : (i) To forecast sales volume. whether price and sitribution strategies should also be tested and how the data collected are to be interpreted. the decisions regarding the following are to be taken by the company-length of time the test has to be conducted. the type of information to be collected. The competitors. sales channels. 18 . the product to be tested. Too late entry or premature market entry shall always lead to failure of the product. the company is not in a position to produce sufficient quantities to meet the market demand.

2. IV. Improving the product based on the results of test marketing before launching the product in the market. III. etc. many towns are to be selected for the purpose of test marketing which may consume of lot of time and investment. Choosing the most representative area is also very difficult. competitors may enter the market with their products by imitating the product so tested. mix. Demerits of Test Marketing 1. even now many producers of consumer goods undertake test marketing since it provides them some valuable clues as to market behaviour Merits of Test Marketing Test marketing helps the marketing manager in – 1. Though most of the above mentioned difficulties are experienced by the producers. It Involves huge money and effort. mix. The expenses of test marketing is fairly large and involves huge investments to conduct the market test for a single product. pricing. most of the businessmen consider test marketing as of uncertain value. Forecasting sales volume. (v) To select a new product from among a number of possibilities. 4. However. etc. such guarantee can’t be offered. 2. etc. 3. Forecasting sales volume. Determining distribution channel. time available for test market is of generally small. (iv) To locate and correct the product fault. Hence. There is a time gap between the time when it is tested and it is launched. Such a huge investment can be justified. I. Evaluating the market plan completely. distribution. (iii) To evaluate complete marketing plan including advertising. It Determining distribution channel. sales. Difficulties of Test Marketing The following difficulties are generally pointed out in the case of test marketing. 3. if test marketing results guarantee success for the launching of the product of the national market. II. In a vast country like ours. In case of certain products subject to frequent fashion changes. 19 . In the mean time.

Improving the product based on the results of test marketing before launching the product in the market. Duration of the test should be determined after having considered the faction like product’s average repurchase period. Duration It means the period for which test marketing shall be carried out. Collecting Necessary Information Once the duration is fixed. 2. Before and after study method. the next step is collecting the necessary information with regard to the consumer behaviour. 4. They are as under : 1. nature of goods. Launching the Product After having carried out the test marketing as described above. It should be selected carefully after considering the fact that whether the cities so selected represents the entire nation. If the sales are very excellent. 4. Selecting the Cities It involves the selection of cities where test marketing is to be applied. Methods of Test Marketing There are many methods of test marketing. Procedure of Test Marketing 1. distribution channels etc. But if the sales are not very excellent. While determining the number of markets. Consumer Panel method 2. Store – audit method 3. necessary modifications should be made in the product to improve the same and then product should be introduced into the market commercially. we can launch the product in the market. Determining the Number of Markets This is the first step in test marketing. 5. and 4. Playback audit method 20 . nature of the competition and cost of conducting the test marketing etc. they marketer should assure that whether it is the representative of all kinds of customers and whether the cost of test will be within the controllable limits. 3. conclusions are to be drawn. nature of consumers.

utility. The opinions of consumer panels are collected. the information regarding the competition it has to face from the competitors’ products and how effectively it can counter it. The store-audit method will also provide the company. The ‘before’ phase tries to find out the attitude of the consumers towards the products. 2. This method is useful in test marketing. ease of handling and so on. this method 21 . In its most simple form. The ‘after’ phase of data collection will normally be closely similar to the earlier measurements in terms of questions asked to the consumers and the information sought. This will furnish the company a reliable indication about the product acceptability in the market since its salesmen will furnish dependable data. 4. Before and-After Study Method This study method involves two phases of testing and collecting the relevant statistical data.1. Store – audit Method The field salesmen select a few representative retail stores and visit them in the morning and the evening to find out the rate of sales from the inventories of the products. Consumer Panel Method In this method. However. durability. This is a common method of test marketing but the main difficulty is about the real and correct opinion of the consumer panels. from experience it is found that consumer panel method offers valuable clues to the manufactures about the marketability of their products. The products are given to them and are requested to use them. It will thus be possible to estimate the product effectiveness and whether the product should be launched nationally. The store-audit method can provide what is called “continuous audit” of the rate of turnover of goods by visiting the retail stores everyday. quality. tabulated and conclusions are drawn. It is a means to measure the impact of such training effect. small panel of selected customers are prepared from among the representative members of different groups of consumers. It may also try to find out whether the consumers are aware of the product. The test is complete when any difference between the two phases of the survey are analysed in terms of statistical significance. The members of the panels are then requested to give their frank opinion about the product as to its various aspects such as price. 3. Playback Audit Method This method is used to find out the effectiveness of sales training. The consumers from all class of citizens are selected to form a panel.

Launching the Product on the Market After conducting the test marketing. Producer – Agent – User 4. 4.S – Retailer – Cons. Product – Agent – Retailer – Cons 5. if the result is positive and encouraging. The investment runs into millions of rupees. Producer – Agent – ID – User 22 . competition and the availability of funds. involves actually visiting retail shops to make take purchases to test the salesman’s selling efforts. If the launching in the initial market becomes successful as expected. Thus the company will enter the entire national market in phases. The rate of expension will depend upon a number of factors like initial sales. Producer – Agent – W. SELECTING CHANNEL OF DISTRIBUTION Distribution – act of carrying goods or services from the producer to consumer. Producer – Industrial User 2. Such a policy is followed by the company in order to minimise losses by failure in a particular market. the time comes for the company to decide whether or not to go ahead with actual launching of the product commercially. The commercialisation of the product involves huge capital investment both in the factory and in the marketing of the product. Channels of Consumer Goods 1. Producer – retailer – Consumer 3. huge capital is required for advertising and promotional purposes. This strategy is called the “roll-out” policy. Channels of Distribution : A path through which product moves from a producer to the ultimate consumers or industrial users”. then the company enters into other more promising and contiguous areas. Product – Wholesaler – Retailer – Cons. Producer – Industrial distributor – User 3. Producer – Consumer 2. As the the investment required is an enormous amount of capital. thus gradually encompassing the whole national market. Besides production. only large corporations which can afford such investment can undertake the nation wide launching of the new product. In launching a new product. Channels of Industrial Goods 1. advertising and sale spromotion them selves will consume lakhs of rupees.

Channels of Agricultural Commodities 1. 2. short channel is preferred. Environmental Characteristics When economic conditions are depressed. Intensive Distribution – If product / service is frequently bought by many consumers. Bulkey. Producer – It inerrant merchant – W. b. 3. New products approach retailers directly to induce sales. Company Characteristic Financially sound companies appoint their own salesman – Direct channel When company wants to more control short channel. large sized. free entry for new producers – Long Channel. 3.S – Retailer – Cons. Exclusive Distribution – Occasionally bought by few consumers. c. frequent buy longer otherwise short. technically complicated products short channel. Producer – Consumer 2. 4. 6.S – Government procurement agency – Roller flour mills – Fair price shop – Cons.S – Miller – Retailer – Cons. when multi tax on sales is imposed. Frequently purchased goods (FMCG) all distribution channels.S – Cons. Product Characteristics Perishable goods or fashion goods short channel. 6. Prod – Primary W. Customer Characteristics Customers are Geographically dispersed. Prod – Primary W. Selective Distribution – Occasionally bought by the consumers. FACTORS INFLUENCING DISTRIBUTION CHANNEL 1. Distribution Policy a. 5. 4. Prod – Primary W S – S W S – Retailer – Cons. Supply Characteristics Few producers with huge resource. Many produces with limited resources. Rigid entry for new producers – short channel. 23 . Producer – Village shop keeper – W. 5.

FINANCIAL MGT Types of Accounts  Personal  Real  Nominal 1. Books of Original Entry  Cash Book  Purchases Book  Sales Book  Returns Book  Journal Advantages  Division of Work  Efficiency  Time saving  Facility in Checking 2. Ledger  Used for posting the transactions  Permanent Record of all transactions  Dedit & Credit Balance 24 .

Trial Balance  Statement showing the debit & credit balances separately  Two sides must be equal  Date of preparation is a must Advantages  Arithmetical Accuracy  Locating Errors  Helps in Preparation of Final A/C 4. Final Accounts  Trading Account  Profit & Loss Account  Balance Sheet Process Transactions Journal Ledger Trial Balance Balance Sheet 25 .3.

Methods of Recruitment . motivating and retaining personnel in a organisation. 1. How many of what kind? . Selection 26 . Indirect method . What should be their background. education and experience? . What should be their compensation package and career opening? 2. training. Internal Recruitment . Recruitment It is the process of searching for prospective employees and stimulating them to apply for the job in the orgn. What kind of man power needed? . Direct method . External Recruitment 3. Man Power Planning (MPP) MPP answers the following questions : . HUMAN RESOURCE MANAGEMENT – HRM HRM is the systematic approach to the problem of selecting. Third party Generally recuitment is of two types .

Training Need for Training  New Environment  Lack of trained personnel  Advancements in technology  Faulty methods  Prevention of accidents  Career Development Training Methods On the Job Off the Job Position Rotation Special Course & Lectures Special Projects Conferences Selective Reading Case studies Apprentice ship Brain storming Experience. Orientation / Induction Orientation or Induction refers to the activities involved in introducing the new employees to the orgn. rules and regulations.” Selection Steps 1. Reference 4. Medical check up 7. a its policies procedure. coculy. In general it is known as welcoming the new employee to the organization. Screening 3. Interview 6. Role playing Games 27 . understudy Simulation Multiple mgmt/. 5. Appointment / Placement 4. Application Blank 2. the most suitable for the current as well as for the future position. Test 5. Koontz – “Process of choosing from among the candidates from with in the organization or from the outside.

Proper layout is essential for efficient Manufacturing at low cost. etc. transfers. within the factory building. Factors influencing Location Raw Material Market Man Power Infrastructure Ecology and Environment Local Laws and Regulation 2. grievance handling. 5. are some of the function which comes under the human Resource Management. A good layout will offer following benefits. . Optimum utilisation of flour space . performance appraisal. Motivation (Compensation) Types of Rewards .Negative motivation – Demotion Apart from the above. Effective super vision and control .Intrinsic & Extrinsic Rewards .Performance based & membership based . career planning. Plant Layout It refers to the arrangements of physical facilities such as machinery. furniture. Optimum investment in plant & building Types of Layout a) Product Layout Raw material enters the production process at one end and come out as finished 28 . etc.Positive motivation – promotion . PRODUCTION / OPERATINGS MGT 1. equipment.Financial & Non financial . Economy in material handling . Increase in Productivity .

Inventory Inventory means the Goods held by a firm for eventual sale a) Raw materials These are goods which have not yet been committed to production at all. . Inspection . Quality Control Charts . Goods are produced according to customer specification. It is to minimise time and cost. regular control over raw material..  Scheduling : Determining the time required to perform each operation of different jobs. b) Work in Progress 29 .  Follow up : Continous monitoring is required to perform each operation of different jobs. Eg. Suitable for mass production b) Process Layout Machines of similar type are arranged together at one place . Tailoring 3. Production Design : (Production Planning & Control) It involves  Estimating : Raw material and other outputs needed are estimated on the basic of production volume. Acceptance Sampling 5. Flexible and adaptable to change.  Loading : The total volume of work is allocated among various men & machines on the basis of work capacities.  Routing : The path along which raw materials during the process of production. Quality Control To maintain quality. Methods of Quality Control . production process finished product are essential. 4. Statistical Quality Control .

(iii) To Achieve efficient production Holding adequate inventory protects against shortage of raw materials. It decreases if the quantity purchased per order increases.Completed Product awaiting for sale. These are goods which have been committed to production has not yet been completed thereon. 2. Ordering Cost – Cost of placing order. Carrying Cost – Cost of keeping items in stock. This decision depends on . c) Finished Goods . TECHNIQUES OF INVENTORY MANAGEMENT Inventory Control is a system which ensure supply of required quantity and quality of inventory at the required time without unnecessary investment in inventory. Catagory A – Costless items of Inventory Catagory B – Less costly items Catagory C – Least costly items 30 . EOQ minimises both costs. if a firm places a few large orders instead of several small orders. . (ii) To Reduce ordering cost Cost of placing orders can be reduced. It is classified into 3 categories. ABC analysis It is the technique of exercising selective control over inventory. Need for Inventory It is necessary to hold some inventory so that production and sales can continue uninterrupted. 1. (i) To Avoid loss of Sales Goods are not available when demanded by customer. Economic order Quantity (EOQ) Decision in inventory MGMT is how much quantity should be ordered and how many times in a year.

GROWTH STRATEGY Strategy means a deliberate and well planned course of action designed to achieve specific objectives. Mkt Penetration It increases the sales of existing product in the existing markets for eg. Growth Strategy It defined as a strategic plan formulated & implemented to expand the operations of a business firm. 31 . Titan Company now recently announced a scheme as exchange offer. Internal growth implies to increase in scale of operations without joining hands with other firms. Expansion Diversification → Internal Growth Mergers Subcontracting → External Growth Joint Venture Expansion Expansion and diversification are in the form of internal growth. LML launched a scheme of exchanging old scooter for new to increase its sales. The main strategy for growth are as follows.

finance. For eg ITC Ltd. Eg. It has four types  Horizontal Integration  Vertical Integration  Concentric Integration  Conglomerate Integration Horizontal Integration In this type of diversification a company adds up same type of products at the same level of production or marketing process. Spark Ceramics India Ltd took over Neyveli Ceramics & Refractories Ltd.Mkt Development It involves exploring new markets for existing products. Problem in Expansion  Technology often necessary to upgrade technology. Limitation of Expansion  Sometimes Growth will take show. paper & deep sea fishing. Two or more competing firms are brought together under single ownership. agri – business . Air cell & Hutch. This approach is called as diversification.: Reliance Product Development It implies developing new or modified products for sale in the existing markets for eg LG recently launched a 5 categories as toothpaste. Advantages of Expansion  It provides economics of large scale operation. Both the companies are sanitary would tiles.  Expansion can be done by his own funds. soap.  It is not always possible to grow in the present product market. It is a process of entry into a field of business which is new to an enterprise several companies business houses both in private & public sectors have adopted it. shampoo.  Risk : It involves additional risk. originally agaretle company but it has diversified in to hotel.  Marketing Expansion is possible & profitable only when increasing the output.  It face better competition in the market. Vertical Integration 32 . daspers etc. for eg. DIVERSIFICATION The firm introduce or add a new products or markets to its existing business line.

Godrej.s EDII to assist state level EDP agencies.  Banks. bankers. & Invest Corp. Conglomerate Diversification When a firm enter into business which is unrelated to its existing business in both technology as well as in marketing. teaches recommend the candidates. marketing or both it is called as concentric diversification. In Technology side Nestle has added Tomato Ketchup Maggi Noodles to it range of baty food.  In 1985 Central Govt. FIs (IDBI. IFCI. For eg. HMT.  First EDP in 1970 by Gujarat Ind. In this type of growth strategy new product or services are added which are complementary to the existing product or service line. Cottage. Allwyn. It involves backward or forward integration from the product. Several Indian Companies have adopted this stratogy eg :. Concentric Diversification When a firm enter unto some business which is related with its present business in terms of technology.ITC. Target Groups  Unemployed technical graduates  Unemployed commerce/arts graduates  Employed & experienced graduates  Ex-service man  SC / ST  Women Publicity  Rural Area – Social workers. EDP – ENTREPRENEURIAL DEVELOPMENT PROGRAMME  To create employment  For a balanced industrial growth (SSI.  Urban Area – Ads / Campus / Mail 33 . SFC etc) & SSI development institutes are doing EDP.

Cost  Rs. 3000 to 4000 per head. Legal – Few Lecture More excercise.  Part time – Min. interview. self confidence. achievement motive. caste. 34 .  Selection Criteria – Age.  Sponsored by Bank / FI / EDIs Number of Participations  30 Candidates per programme  If less uneconomical  If more uncomfortable Training Methodology  Motivation – Achievement. reserved ind. stress tolerance. Mrkt. Experience.  Factory visit  Inplant training  Starting the industry  Follow-up Inputs  Govt. Education.  Incl. etc. opportunities in that area. subsidy. GD Duration  Full time – Min. family.  Forms of org-sole prop/partner/pvt Ltd/public ltd. policy on SSI – Investment limit. concessions. 1½ mths.. decision making in new situation. by Games. G. influencing skill.Selection  Selection board – Industrialist. academics.K. backward areas. assets.  Licensing / Registration procedures  Product selection. psychologist.  Application screening. 6 mths. Roles playing  Technical – Prod. HR. Fin. written test.

 Letters  Supply informations periodically. Break even analysis. STEP[Science and Technical Entrep Park]. etc. case law. help.  Commercial / economic viability – Demand. infrastructure. Project Preparation  Technical feasibility – Machines.  IDBI provides Promoter seed capital IFCI provide risk capital through RCF[Risk Capital Foundation]. production planning. labour law. INSTITUTIONS / SUPPORTING ORGANISATIONS FOR ENTREPRENEURIAL DEVELOPMENT 1) Financial Institution  IDBI. change after the program.  Promote many TCO[Technical Consultancy Organisation]. raw materials location.  Managerial aspects – a/c books & records keeping. capital.  Follow up register with problems & solutions. sales revenue. conduct EDP and provide for assistance. man power. IFCI. other sources subsidy. play back period. ICICI. EDII[Entrep Development Institute of India].  Project implementation schedule. cost of production.  Refer history of entrep (candidate) – His test score.  Financing the project – Promotor’s share. profit cash flow. competition. working capital. NSTEDB[National Science and Technology Enterpreneur Development Bank]. Follow – up  Follow up upto 1½ years of starting the unit . Commercial Bank 35 . his academic & experience etc. inventory control. 2. performance in pray.  Visit the unit counsell.

 Bank of Baroda  Started Entrep Banking Cell. Indian Bank. Bank of India.  Has Multiservice Agency at Mumbai to provide project reports and information on rawmaterials and market. It Also Trains The EDP trainner and assist the state level EDP Agency. which is a policy maker. Provide this type of Services. Project Preparations.  Interest free loan up to 25% of project cost which is the minimum promoter contribution. NSIC [National Small Industry Corporation]  Started in 1955 by ministry of industry 36 .  It is secretary for National Enterp Development Board [NEDB].  Developed EDP training Methodlogy to assist EDP Training Institutes. 5.  Offer Term loans. Institutional Building.  Helps to get government Approval.  Provides Training for new activities or activities not supported by any other institutes. Economic and Market study. Canara Bank. Training. EDII (Enterp Development Institute of India]  Sponsored by all India Financial Institution and Gujarat Government in 1983/  Conducts Research. 4.  Organises National/International Entrep Forums to generate Ideas for policy Making.  Functions as a Merchant Bank. SBI  100% Finance to technically qualified or trained Entrep. NIESBUD [National Institute of Enterp and Small Business Development]  Set up in 1983 by ministry of industry to affliat and coordinate enterp institutes in India.  Arranges Inplant Training. Foreign Currency Loans. 3. Followup Services. Grinlays Bank Etc.  Punjab National Bank  Conducts Technical.

Machinery.  It Guides on investment opportunity in India and suitable Indian partners to foreigners. Raw Material. Cottage.  Construct Industrial Estate  Creates Prototype Production-cum-training Center  It promotes SSI as ancillary units of large units. 6.  Promote liberal terms of Credit at resonable Intrest Village. Product Development. NAYE [National Alliance of Young Entrep]  Mostly banks help NAYE to promote young entrep. Loans.  Advises the Government on development of SSIs. 10. Modernisation. SIDO [Small Industry Development Organisation]  It is a Subordinate of Department of SSI 37 .  100% Finance for deserving Candidate. Marketing Services. 9. Consultation/ 7. etc.  Offers Machine On Hire Purchase.  Offers Rawmaterials through its Depots. NPC [National Productivity Council]  It Provides Data bank on investment opportunity. IIC [Indian Investment Center]  Promotes joint ventures between India and foreign entrep. SSIB [Small Scale Industry Board]  Created in 1954 by the Government to coordinate various central and state level EDIs and SSIs Government Department. 8.  Informs Government about the expectation of foreign Entrep to promote Foreign entrep.  Repayment Holiday during gestation period. Union bank in tamilnadu. consumption pattern.  It provides Government Purchase Order. Dena bank in Chennai helps.  Lends upto 2 Lakhs for single entrep and 3 lakhs for joint entrep.  If offers Post Investment Service Like Productivity Improvement Through Trainning Employees. Tiny Industry.

Layout Planning etc.  Modernisation Study Report  Project Profiles  Testing Facilities at concessional Rate  Spare Capacity of SSIs are informed to Large Industry.  Develop Ancillary Units. 38 . SIPCOT [Small Industries Promotion Corporation of Tamilnadu  SIPCOT & TIIC jointly provides loan under IDBI refinance scheme. 12.  Provides General Information and Training 11.  Trains Rural Worker and Managers.  Helps and Procure Scarce Rawmaterials. Machine Selection. SIDCO [Small Industry Development Corporation]  Provide Plots/Sheds in Industry Estate on Hire-Purchase / Rent.  Provides Technical Service-Production Planning.  Subsidies.  Develop Industrial Estate.  Marketing Assistance.  Offers Trade and Market Informations Through Survey. Finance to Rehabilations Sick Units. Khadi board.  SIPCOT has newly made and provides project profiles for many products.  Encourages Local Production of Imported Goods.  Coordinate State Government SSI policy and Programmes.  Frame National Policy on SSI. It enables Entrep to choose a product.  Reserve Industry for SSI. TIIC provides upto 30 lakhs for limited company. upto 15 lakhs for Propertary/Patients SIPCOT provides the balance of loan if it excee for limited. Interest Free Loan.  Provide Government Purchase order to Small Units. SISI [Small Industry Service Institute]  Provides Technical Consultancy.  Controls all SSIs except those controlled by special board like coir board.  Marketing Assistance 13.

 Deferred Payment guarantee Commission.5%. Non Backward Areas 20% of the project cost.  SIPCOT volantarily approaches Potential and existing Entrep for regular guidance without being invited.  Personal Guarantee of All or any of the Promoters or Directors.  Implementation Procedure of Selected Projects in Particular areas are available with SIPCOT.25 to 50% for Medium Units. backward areas 17. 15.  Identifies Potential Entrep.  Condition for Loan  Rate of Interest varies from 10% to 14%. 39 . The Plans of National level and State Level Institutions [NSIDCO. SIPCOT etc] are Implemented Through DIC in Each District. TIIC [Tamilnadu Industrial Investment Corporation]  Eligibility For Finance Assistance  Limited Company with Capital of 1 Lakhs to 1 Crores. Loan Amount and Entrep.  25% Security Margin on Fixed Asset Loan For Small Units.  Project Cost upto 3 Crores. Whichever is Less.5% for Backward Areas 1.  Total Assitance of above Three should not exist 65 Lakhs Per Industry.  Deferred Payment Guarantee upto 30 Lakhs. For Technical Entrep 15%. 14. DIC [District Industries Center]  It is a District Level Institution.  Underwriting Commission 2. The Rate depends on type of Industry.25%  Minimum Promoters Contributions.  Underwritting upto 25 Lakhs or 25% of Issued Capital. 2% per Annum.  25% on Deffered Payment Guarantee amount by Cash Deposit is Insisted.  Loan should be Repaid in 8 to 10 Half yearly Installments.  Quantum of Assistance  Loan up to 30 Lakhs. SIDCO.  Repayment Holiday of 1 to 2 years is considered.

 DIC recommends SSIs to NSIC to sell the products through govt.  Provides interest subsidy for engineers.  Provides Loan To Acquire Land And Buildings or Recommands to other Financial Institutions For such Loans. 25 lacs for tiny sector. 10% in 3rd year are provided for rural units.and recommands to the financial Agency. aged between 18 to 35 years can avail a loan upto 25000 from banks to start a business. Issue Quota Cards to Get Scarce Raw Materials From the materials.  Issues Provisional SSI Registration Certificate with Validity for one Year. It is Essential to get the financial Assistance and scarce Raw Materials. Investment Limits – (one) cr for SSI.  Guides in Project Selection. Priority in allocation of scarce raw materials 40 . This Certificate is Essential to Approach Financial Agency.  Recommand to Supplier of Raw Materials.  Issues Certificate to joint chief controller of imports and exports for theimport of machinery and raw materials. 20% in 2nd year. 16.  DRDA trains rural entreps under IRDP training scheme (Industrial rural development programme)  Self employment for unemployed educated youth(minimum SSLC). purchase programme.  Interest free sales tax loan upto 8% of the units fixed assets provided in rural areas.  To Get the Speedy Power Connection request TNEB in the District Advisory Committee Meeting Held by the Collector. INDUSTRIAL POLICIES & REGULATIONS SSI POLICY OF 1991 1.  DIC recommends SSIs to SIDCO for general mardeting assistance.  After the Commencement of Productions. TCO (Technical consultancy organisation  Industrial potential survey  Preparation / evaluation of project profiles  Conducts EDP  Technical and administrative assistance  Assist in technical upgradation and modernisation Revives sick units CENTRAL GOVT. Final SSI Registration Certificate is issued by DIC.  Sanctions Margin Money Payable to Other Finance Agency to buy Plant and Machinary [upto 25000].  Subsidy of 1/3 of project cost subject to a maximum of 3000 is provided to rural artisand and handicrafts by DRDA (District rural development authority) with DICs recommendation.  Power tariff concession upto 30% in 1st year. 2.

9. – 10% of investment. 409 items should be bought only from SSIs. upto 15 lacs. 3. c) Liberal loan SFC grants loan to buy fixed assets upto 30 lacs for ltd. fire etc. Factoring service through SIDBI to overcome the delayed payment problem. is given 15 new generation entrepreneurs. 7. Service sectors are treated as tiny sectors. & upto 15 lacs for others at low margin. Co-ops. Transport subsidy 50% of transport cost of raw materials & finished goods are subsidised for industries located in Jammu & Kashmir. upto 25 lacs. For C category dist. can deduct 60% of allowable deduction from the tax due. Co. Rehabilitation allowance through tax Units affected by flood. low interest & long repayment period. cyclones. Subsidy for indegenous technology When the technology invented in Govt. universities. 3. Seed Capital Loan Interest free seed capital loan upto 15 lacs repayable in 5 yrs. agencies. 4. upto 5 lacs per year is subsidised. 4. For B category dist.P. Single window loan for projects upto 20 lacs. & North Eastern Regions. Technology development cell & Export development cell in SIDO. labs. b) Investment Subsidy For A category dist. Marketing assistance through NSK. – 15% of investment. TAMIL NADU STATE GOVT. INCENTIVES 1. B & C categories.. 5. 10. INDUSTRIAL POLICIES & REGULATIONS 1. Himachal Pradesh. Backward area incentives a) 247 districts are declared as backward dist. These are divided into A. 8. CENTRAL GOVT. are used to produce essential products. 2. 6. 837 sectors are reserved fro SSIs. Subsidy for selected industries 41 . upto 10 lacs. interest due to IFCI during the first 5 yrs. 5. Hill districts of U. – 25% of investment. Support from National Equity Fund for projects upto 10 lacs.

7. Export oriented gold jewellery makers. automobile ancillary units. 300 per yr. not exceeding Rs. whichever is lower. for Rs. Madras. 90% in the 5th year. Concessional power tariff a) High Tension power tariff is subsidised 66% in the first three years. 80% in the 4th year. etc are done in DIC itself. 30% in II yr. and deferred upto 14 yrs. Interest free sales tax loan Units outside 8 Km. of Madurai. & power sanctions. DIC’s single window clearance service Spot clearance of building plan approval. based on the units investment value. Concession in water royalty New units in backward areas can draw water from public sources for the first 6 yrs. upto 5 lacs is subsidised. Market study subsidy 75% of the cost of market study conducted by ITCOT. Power generation subsidy 15% of the generator cost. 3 cr. 20% in II yrs. b) Low Tension power tariff is subsidised 40% in Iyr. Pioneer industry subsidy Pioneer industry in each area is eligible for a capital subsidy of Rs. 40% of the cost will be converted into loan. Sales tax waiver & deferral Sales tax is waived upto 7 yrs. Salem can avail this loan upto 20% of fixed assets or 20 lacs whichever is less. diamond processing units are eligible for a subsidy of 10% on fixed assets or Rs. pollution control regulations. Coimbatore. 25 lacs. 3.15. 10. 6. as water royally. 4. 8. 2. upto a ceiling of 10 lacs. 5. 9. Trichy. PROJECT REPORT Definition 42 .000 for every regularly employed worker.20. Drug units. Project report subsidy SIPCOT provides project reports at 10% of the project preparation cost.000 is subsidised for new projects exceeding Rs.

Manufacturing Process . After sales service . Marketing Factors . Physical infrastructre-Raw material. List of Machinery and Equipment . Utilities  Power  Fuel  Water . Market Potential  Demand and supply position  Price expected to be Realized . Communication System . Quality Control / Testing and Inspection . skilled labour . The following are broad heads under which complete information on Relevant Aspects should be included in the project report. A project report can be defined as a well evolved course of action devised to achieve the specified objective within a specified period of time. Product details 2. Marketing strategy . Bio-data of promoters . Transport Facilities . Research and Development 3. Site (Plants Location) . Technology Selected . Industry profile . Constitution and organisation . Balancing of Plant . Pollution Control . Seasonality Factor 43 . Project Description . Capacity of the Plant . 1. General Information .

Plant and Machinery . Other Financial Aspects (Estimated) : .. Ancillarisation . Profit & Loss Account . Exports . tool etc. Cash flow statement . Transportation 4. . Assessment of Working Capital Requirements The estimated working capital requirement should be shown along the total cost of the project. Plant Layout A copy of plant layout can also be furnished in the project report. Employment Generation . Import substitution . Break-even Analysis 7. Capital Costs and Sources of Finance . Balance sheet . Other miscellaneous assets like furniture/fixtures. Contingency cushion against price rise/unforeseen expenses . vehicles. Economic and Social Variables . Preliminary and preoperative expenses. PROJECT APPRAISAL I) TECHNICAL APPRAISAL Plant Capacity 44 . Margin for working capital 5. . 6. Development of the Area 8. Local Resource utilization . Land and Building . Installation costs .

Quantity & quality of the output should be easily modified. product mix and raw materials. Foreign Exchange Effect Exporting units increases the inflow of foreign currency Import substitution units reduces the outflow of foreign currency. Plant Layout & Design If should ensure ease of operation. The plant should not pollute the location by smoke. Capacity depends on product specification. effluent. In a textile mill. Such projects are preferred. By Product Recovery In a caustic soda plant recovery of chlorine and hydrogen improve profitability than a plant without recovering this. Integration An integrated textile mill with cotton as a starting material is more profitable than an unintegrated mill producing fabric from grey cloth. Location Ideal location is close to buyers and suppliers with good infrastructure. II) ECONOMIC APPRAISAL Employment Effect Direct and indirect employments of skilled & unskilled employees created by the project is assessed. transport jobs) of the project. Instability of there factors in power. Flexible Production Stand – by equipments help maintain uninterrupted production. capacity varies with the composition of yarn of different counts. noise and machine vibration. Sugar mill’s capacity depends on the sugar content of the cane so the plant capacity should be calculated. maintenance and capacity of expansion. water & agri produce will affect the output. So integrated projects are preferred. Indirect employment means the employment on input side (suppliers & service provides) and output side (sales. distribution. quality and price of the inputs should be stable. So projects with by-product recovery are prefered. 45 . Direct employment refers the employment within the project. Inputs Availability.

000 = + 2 +. : Investment = 18.00..000 5.70 .a.70 .  Investment – Annual cash flow.70..  Cost of capital if interest rate may be the discount rate Eg. Pay Back Period  It measures the number of years required to recover the investment.e. [Road.00.000 at 12% interest Annual cash for 5 years = 5.00.12 ) (1 +12 ) 5 46 . transport. + (I +r ) 1 ( I +r ) ( I +r ) 5 Net Present Value (NPV)  A project is accepted if the discounted future cash inflow exceeds the investment.  i..70 .000 5. school etc. This affects long term income of the society.  Projects with short pay back period is preferred.70 . Internal Rate of Return (IRR)  It is the rate of return on discounted future cash in flows.000 18.000 p.54..000 Annual cash in flow for 5 years = 5. power. + = 20. hospital.70.] This improves long term income of the society.000 Present value of cash inflow = 5 + . But some projects by polluting the environment affects public health and reduces the fertility of land.  The project break evens if the cost of capital = IRR  The project is profitable if the cost of capital < IRR Eg.70 .Social Benefit Some projects develops the infrastructure in its area.. 5. III) FINANCIAL APPRAISAL Simple rate of return  It is the ratio of expected net profit to the initial investment. housing. water. Investment = 18..000 5.700 (1 +. Net Profit / Investment  The rate should be more than the cost of capital.000 5.

Current Ratio  Indicates projects ability to meet short – term obligations.  Distribution – Distribution cost. purchase scheme.. Equity Ratio  Indicates projects ability to meet long term obligation Longtermde bt / equity  Debt. 47 . IV) MARKET ANALYSIS  Market Potential  Unfilled potential  Number and strength of the present and potential competitors. If these are favourable the project may be selected. compulsory purchase schemes.  Seasonal fluctuations in sales. Debt.  Trends in earning.  Current ratio = Current assets / Current liabilities  Current assets should be 1 ½ times of current liability (ration 1 :5 :1). So the project is acceptable. The present value exceeds the investment.  70% BEP means 70% of the products should be sold to avoid loss. equity ratio = shareholde requity  Debt. could be upto four time the equity (4:1) Debt. life style. spending.  Existing and future substitutes. mode of transport. ware house etc. distributers cooperation.  Govt. price. support through reserving for SSI’s govt. Break even pint (BEP)  Indicates how much should be sold to avoid a loss. Coverage Ratio  Indicates the ability to repay principle & unit regularly Ratio = operating profit (Principle + Interest)  It is good if the operating profit is twice the principle + interest.  Project with low BEP is good.

Preference Shares  Dividend is fixed.  Repayment is burden for the co.  Secured / unsecured / convertible options 48 . CAPITAL Capital decision involves  Total amount (capitalisation)  Composition (Fixed + working – capital structuring)  Sources  Procedure of rising capital FIXED CAPITAL Factors influencing fixed capital need  Nature of business – Manufacturing Assembling ↔Trading  Size of business – Large ↑. loose the sales Sources Equity Shares  Repayment on liquidation only  Dividend is optional  Capital gain for share holders. small  Technology – Modern / Imported  Sub – Contracting provision  Economy – Growing .↑ for future expansion.  Interest is treated as expense benefit for the co.  Priority in repayment of capital while liquisdation  Redeemable / convertible options Debentures  Assured repayment & fixed interest Less risky than equity shares. Avoid  Over Capitalisation – investing more than the need Reduce profitability.  Under capitalisation – investing less. compulsory & on priority basis.

.Short term assets required for daily operations .  Owners margin money/security is insisted.  Cost of raising capital is low Repayment not compelled during gestation period  Total loan can be returned at any time.Permanent w. 49 .a.Deposits  Like unsecured debentures Term Loans  Repayable within 25 years with interest in installment  Minimum interest 10.  Cost of raising capital is low. is procurd whenever needed. Bank bl.75% p. Deferred Credit (or purchase)  Fixed assets are brought on credit basis.  Supplier demands margin money & bank guarantee.  Cost with interest is paid in installments. Reserves & Surplus  Retained profit after divident. in backward area WORKING CAPITAL .  A/c receivable.  Repayment not compelled during  Total loan can be returned at any time.c.Variable w. Subsiding & Concessional loans by govt. share premium are used por modernisation & expansion.  Advances paid .c. should be maintained at any time.Components of working capital (current asserts)  Inventories (Raw / Finished / work in progress)  Cash.

Inter – corporate deposit  Deposit made by one co. accept collection risk. securities) Public Deposits  Borrow upto 10% of share capital + reserves for Deposits > 3 mths.Customer’s advance .Credit purchase .Bank Credit  Unsecured loans – Cash credit.Cr. LEASE FINANCE . stock.  WC .  WC . ..  Borrow upto 25% of share capital + reserves for Deposit for 6 months to 5 yrs.Pledging – Giving a/c receivable as collateral security for loan.Factoring – Selling a/c a/c .Cr. . over profit  Secured loans – Bills.Inventing Policy . inst.Sales Policy . 50 .  Brought by individuals / banks / FI / Insurance  Company must have high credit rating .Private Loans . From Share holders / buyers / suppliers / Traders . Fixed assets are acquired through lease finance. .Purchase Policy . with another co.Commercial Paper  Promote maturing in 3 to 270 days.  Call deposits – lender can withdraw with 3 day notice  3 mths / 6 mths deposits.Factors influencing working capital need . Fin.More  WC Sources of WC .

HIRE PURCHASE . Lesser as a asset owner enjoys depriciation & its tax benefit. lease. equity capital. Lesser buys asset as metioned by the lessee and leaves it with him for use/ . is not needed  During the capital market boom  Low Equity Increases EPS  Favourable dest-reserve ration brings flexibility CRITERIA FOR CHOOSING FINANCE AGENCY 51 . In ‘financial lease’ the lease agreement is permanent. structure means the composition of different sources of funds like debenture. Hirer can return the goods at any time & cancell the agreement. Debt – equity ratio from 2:1 to 5:1 is preferred . The approval of public issue & collection of full amount. Capital provided for high risk & high rewarding projects. CAPITAL STRUCTURE PLANNING .) . Lessee pays rents (instead of principal + interest) . BRIDGE FINANCE .. In ‘sale & lease book’ type a firm sells its asset to the lessor and lease it back. . Rent is treated as expense. More equity is preferred  by risky business  when more control over the co. It is a supporting finance provided between the sanction of loan & its disbursement. etc. Hire uses the asset for rent (principal + int. . IFCI’s Technology Development & Infrastructure corp. . . . In operating lease the agreement can be cancelled by either party lessor with maintains service the asset. . In case of public issue upto 75% of the under written amount is given initially. VENTURE CAPITAL . Hirer becomes the asset owner after paying the last installment. . . So lessee enjoys tax benefit. loans. . Can-Bank Fin. services are venture capitalists. Cap.

Filling the application  Post balance sheets  Projected Financial statement  List of required  List of mortgageble assets margin money are enclosed. Plant & Machinery 4. Pre-operative expenses 8. in lakhs) 1. Technical fee/ royalty 5. Interest rate . Follow up  The case is referred to small service Institute or director of industries for techno economic report. . Scale of assistance .  If rejected additional information / documents are produduced. SSIC .. Other assets 6. Machinery 3. Forms with terms of loan are available at headquarters and district officers of NSIC. Preliminary expenses 7. Disposal  Full / reduced loan is sanctioned or rejected.  Deficiency in the report is to be rectified lending agencies queries are to be answered . . Documentation & disbursment Borrower signs the document and receives the loan. Land 2. Provision for contingencies 52 . BUDGETING PROJECT PROPOSAL A) Cost of the Project COST OF THE PROJECT (Rs. Banks branch managers supply forms & discuss . Margin LOAN PROCEDURE . Duration of repayment .

guarantee charges etc up to stage of reaching commercial production. quarters for staff. godowns wall. working expenses. promotion expenses. 6. 4. 7. legal changes for conveyancing. expenses on training of regular staff in initial stages. sewerage etc. sales for advance and registration. 2. Preliminary expenses Legal expenses. Land Land cost should include the purchase price of land. Other fixed assets Furniture and equipment. required for raising if a capital of the company. In case of imported machinery. E & Phone. Technical fee/ Royalty Fees paid to consultant. trucks. Cost should also include architects fee. 9. 3. Pre-operative expenses Factory advance. electrical installation etc. Canteen. Provision for contingencies 53 . 5. amount of import cluty payable should be properly estimated and provided for.. Reputation of consultants demand fees from 5 to 10% of cost of project. Cars. 8. cost of levelling and laying roads and cost of putting up ferce and gates. expenses for traising personell. brokerage commission etc. Building Adequate prov should be made for factory building. Plant & machinery Cost of all items till the machinery is installed in the factory. guest house. R or d expenses. interest on borrowing. and foreign collaborators. Margin for working capital Total 1.

A list of different sources of finance is given in the following table. Public deposits 4. 2. Reserves and Surplus They represent internal accrual in case of an existing concern. in lakhs) 1. Subsidy Total 1. Margin for working capital Normally. Share Capital The ration of equity to preference shares should not be less that 3:1. Provision of 10% to 20% is normal.e. 54 . Preference shares should not exceed 25% of total shares capital. Adequate cushion is provided to absorb unforeseen expenses and also increase in prices due to inflation and levying of additional taxes. Borrowings from Banks 6. 9. B) Means of Financing After determining the cot of the project. Deferred payments 8. Share Capital 2. Means of Financing (Rs. Loans/deposits from Directors 7. Their composition should be examined to ascertain whether they will be readil y awaitable is the form of cash when required to meet expenses. the next step is to arrange for finance to meet the cost. i. Reserves and Surplus 3. Borrowings from financial institutions 5. 25% of total current assets of the unit is expected to be financed out of long term sources and hence this amount is included here.

Borrowings from Financial Institutions This is the single source of long term finance for industries. e) Interest should include interest both on working capital advances and on term loan. Period covered by the statement will include initial construction period and continue till full repayment of term loan available. Deferred Payments Plant and machinery may be purchased or imported on defense I payment terms. 7.3. 5. Short-daked referred payments are not considered suitable because the capacity to repay immediately is very less in such projects. a) Capacity utilization is realistic. It will be low in initial years and gradually increase in next few years and reach optimum level at a later stage. b) Increase in cost due to inflation is not taken into account. 6. d) Depreciation provided for should confirm to the provisions of Income tax Act. They case the financing problem of the unit. Loans/deposits from Directors The terms on which funds are received should be examined to see that they are not likely to cause urchins strain to the concern financially. Subsidy This scheme of central Govt. 55 . 4. Where the increase is definitely known it is accounted for. c) Items like power and Fuel will depend upon capacity of machinery installed. Public deposits The amount of public deposit a company can accumulate would depend upon its reputation in the market. C) Cost of Production and Profitability Repayment of term loans is out of earning of unit. is in operation in districts identified as backward by central Government. Finance may be provided by a single institution or jointly by many institutions.

It is expected that the ratio should be around 2:1. The company is generating funds to the extent of 56 . COST OF PRODUCTION AND PROFITABILITY Year I II II IV V Capacity Utilizations Sales i) volume ii) Value Cost of production Raw materials Direct Wages Power and Final Consumable Stores Regards and maintenance Rent. It means that for repayment of every one rupee towards interest and instalment of term loan. taxes etc. Other expenses Total Profit less taxation Profit Debt service Coverage Ratio = Net Pr ofit After taxes +Depreciati on +Interest on term loans Instalment of term loans +Interest on term Loans The average of the ratio over than years is calculated.

two rupees. Company should be is a comfortable position to repay the loan. Gianting reduction in profit. 57 . due to inforces circumstances.

. CASH FLOW STATEMENT Year I II II IV V Sources of Funds Net profit before taxes with interest added back but before depreciation and investment allowance reserve Increase in share capital Increase in long term borrowings Increases in short term borrowings Depreciation provision Invetment allowance reserve Others Total Application of funds Fixed assets and capital expenditure Increase in current assets Repayment of term loan Repayment of short term borrowing. Increase in other asset Interest on borrowings Other expenses Total Opening balance of cash Surplus/deficit between sources and applications of fund Closing balance of cash ASSESSMENT OF WORKING CAPITAL . . IN PROCESS AT ANY ONE TIME MONTHS FINISHED GOODS AT COST WEEKS/MONTHS RECEIVABLES/REPRESENTING CREDIT SALES ONE MONTHS MANUFACTURING AND ADMN EXPENSES TOTAL WORKING CAPITAL REQUIREMENTS LESS CREDIT AVAILABLE ON PURCHASE AND AOWANCE PAYMENTS REC WORKING CAPITAL IN BUSINESS OR LIQUID SURPLUS 58 . MONTHS RAW MATERIAL REQUIREMENTS WEEKS/MONTHS CONSUMABLE STORES AND SPARES WEEKS STOCK.

incurs cash for one year and it likely to continue to incur cash losses for current year as well as the following year. Financial Institutions) “According to Reserve Bank of India. . SIGNALS AND SYMPTOMS OF IND SICKNESS PROCESS OF I. Closure of the unit for a period of more than six months. Basically a sick unit is one which is not healthy. Cumulative losses each capital and reserves. . Imbalance in financial structure.S. “According to the Dept.” . Investors. Industrial Units Functional areas Generating Profits Initial abberation in Tending towards functional areas sickness Functional areas incures continues Industrial Units cash Functional areas Tending towards becomes in sickness efficient 59 . a Sick Unit is one which. Capital utilization is below 50% in compasion with highest capital utilized.” . SICKNESS IN SMALL SCALE INDUSTRIES Definition of Sickness . . . Commissioner SSI. Different views on sickness (Workers.

. A sick unit is viable when  It would be in a position after giving a package of concessions. Magnitude of I-S . (iv) Degradation of employees (v) Despination among the team. (ii) Lack of adequate Demand for the product (iii) Natural calamities like drought. (iv) Inadequate availability of essential inputs. External Causes (i) Cases in Indi policies of Govt.  Duration of seven years will be given for the repayment obligations. etc. Unfortunately nine out or ten sick small locate units are non-viable . Internal Causes (i) Lack of Good mgmt (in Funel Areas) (ii) Poor implementation (Improper planning) (iii) Labour trouble (iv) Technical / operational problems [choices of technly] (v) Marketing problems 60 .Signals of SS (i) Decline is capacity utilisation (ii) Shortage or Liquid funds (iii) Inventories in excessive Quantity (iv) Frequent Breakdowns & equipments (v) Frequent turnover of Personal Synttonis of I. (v) Shortage of finance. from time to time. floods. Incidence or sickness is higher in the Industrially backward states. (ii) Continues tumble in prices of shares (iii) Delay & Default in the payment of statutory dues.W (i) Persisting shortage of cash. Causes of Industrial Sickness It can be classified into eastern causes and Internal Courses.

. Govt. marketability. Harm to Investment I-S create Great Lots to Invstrs & entrepreneurs Er’s are discouraged & trustrated. 6. Loss of Public Revenue . gets a sixeable proportion of its revenue by way of taxes levied on Industrial units. and other forms of unrest. 4. 3. The programme should also taks care or mgl efficiency. Having taken a decision to rehabilitee sick unit the programme should be finalised quickly and implemented speedily. The shortage of tax revenue due to Industrial Units ultimately affects various programmes of social and economic depart or the country. Improper Rehabilitation programmes have to be changed and improved. 5. Identification and detection of sickness in earlier stage. The Banks and financial institutions should periodically review the account of SSI’s. Financial Loss Banks & Financial institutions Loss of Employment Widospread unemployment in country Industrial unrest Strikes. : Saraswathi wollen mills pvt. EDP programmes have to be conducted periodically. power and raw material. 2. Eg. Ltd. BIFR should open a separate division to deal with sickness in small scale industries. Consequences of Industrial Sickness Is lead to several healthful effects. REMEDIAL MEASURES 1. 61 .

2. (8) (ii) What are the objectives of Entrepreneurs Development Programs? (8) 12.A. 6. What are the major aspects generally to be considered in the process of project appraisal? 7. State the factors that motivate people to go into business. (i) Explain the essential qualities needed for a successful entrepreneurs. List out the methods of project appraisal used to appraise a proposed proposal.B. M. List out any four problems faced by small-scale industries in India. Mention the methods of training imparted to entrepreneurs in India. (a) (i) List out and explain the different classification of entrepreneurs. How do you select a suitable channel of distribution? 8. 5. What are the common errors made by the entrepreneurs in project formulation? 9. DEGREE EXAMINATION. List the various factors determining the working capital requirements. 10. APRIL/MAY 2005 Third Semester Elective BA 048 – ENTREPRENEURSHIP DEVELOPMENT Time: Three hours Maximum : 100 marks Answer ALL questions PART A – (10 x 2 = 20 marks) 1. Mention the different features of an entrepreneurship. PART B – (5 X 16 = 80 marks) 11. (16) 62 . 4. Give the importance of project monitoring and control. (8) (ii) List out and explain the tools and techniques of marketing control. 3. (8) Or (b) What are the various factors affecting the entrepreneurial growth? Explain.

(a) How will you carryout project planning? Explain in detail. (16) Or (b) What are the salient features of new small-scale enterprise policy in India? Explain?. (16) (b) List out and explain the guidelines formulated by our planning commission for formulating a project report. How would you solve your working capital requirements? Explain. Explain. (a) What are the causes of sickness in small scale industries and explain the measures for avoiding sickness? (16) (b) (i) Name the different organizations assisting small scale industries. (4) (ii) Assuming that you are an entrepreneur planning to set up an establishment catering to every day provisions need of a large housing complex. (12) 63 . (16) 15. (16) 14.13. (a) How are project classified? Describe the stages involved in the identification and selection of projects.

. ‘Entrepreneurship Development’.Chand and Company Limited. Tata McGraw-Hill Publishing Company Ltd. 2. 64 . Analysis.Khanka. Saravanavel. New Delhi. ‘Entrepreneurial Development’. UNIT V : MANAGEMENT OF SMALL BUSINESS 5 Monitoring and Evaluation of Business . 2001.C. P. UNIT III: BUSINESS PLAN PREPARATION 12 Sources of Product for Business .Budgeting Project Profile Preparation . REFERENCES: 1.Preventing Sickness and Rehabilitation of Business Units. EDII. New Delhi.International Business. S.). Implementation and Reviews’. 1998.Market and Channel Selection .Criteria for Selection of Product .Jain (ed. New Delhi. Manila and Centre for Research and Industrial Staff Performance. P. ‘Entrepreneurship’.Product Launching. 1999.S. ‘Entrepreneurial Development’. Ess Pee kay Publishing House. Chennai -1997. Total 45 periods TEXT BOOKS: 1. Tata McGraw Hill. Prasama Chandra.Entrepreneurship Development Training and Other Support Organisational Services . Projects – ‘Planning. New Delhi.BA1734 ENTREPRENEURSHIP DEVELOPMENT 3 0 0 100 UNIT I: ENTREPRENEURAL COMPETENCE 6 Entrepreneurship concept – Entrepreneurship as a Career – Entrepreneur – Personality Characteristics of Successful. UNIT II: ENTREPRENEURAL ENVIRONMENT 12 Business Environment .Ownership . Hisrich. ‘Handbook for New Entrepreneurs’.Central and State Government Industrial Policies and Regulations . Selection. S.Matching Entrepreneur with the Project . Tata McGraw-Hill Publishing Company Limited 1996. 3.Role of Family and Society . Entrepreneur – Knowledge and Skills Required for an Entrepreneur. 2001. 2. Bhopal. Staff College for Technical Education.Effective Management of small Business.Capital . UNIT IV: LAUNCHING OF SMALL BUSINESS 10 Finance and Human Resource Mobilization Operations Planning . Oxford University Press. 3.Feasibility Report Preparation and Evaluation Criteria.Prefeasibility Study .Growth Strategies .