5 Main Types of Organisational

Structure
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The types are: 1. Line Organization 2. Line and Staff

Organization 3. Functional Organization 4. Project
Organization 5. Matrix Organization

Type # 1. Line Organisation:

Line organisation is the simplest and oldest form of organisation

structure. It is called as military or departmental or scalar type of
organization. Under this system, authority flows directly and vertically
from the top of the managerial hierarchy ‘down to different levels of
managers and subordinates and down to the operative level of
workers.

Line organisation clearly identifies authority, responsibility and

accountability at each level. The personnel in Line organization are
directly involved in achieving the objectives of the organization.

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The line organisation structure is given below:

Advantages of Line Organization:

a. The line organization structure is very simple to understand and

simple to operate.

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b. Communication is fast and easy and feedback can be acted upon

faster.

c. Responsibility is fixed and unified at each level and authority and

accountability are clear-cut, hence each individual knows to whom he
is responsible and who is or in truth responsible to him.

d. Since it is especially useful when the company is small in size, it

provides for greater control and discipline in the organization.

e. It makes rapid decisions and effective coordination possible. So it is

economic and effective.

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f. The people in line type of organization get to know each other better
and tend to feel close to each other.

g. The system is capable of adjusting itself to changing conditions for

the simple reason that each executive has sole responsibility in his
own sphere.

Disadvantages of Line Organization:

a. It is a rigid and inflexible form of organization.

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b. There is a tendency for line authority to become dictatorial.

c. It overloads the executive with pressing activities so that long-range

planning and policy formulation are often neglected.,

d. There is no provision for specialists and specialization, which is

essential for growth and optimisation.

e. Different departments may be much interested in their self-

interests, rather than overall organizational interests and welfare.

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f. It is likely to encourage nepotism.

g. It does not provide any means by which a good worker may be

rewarded and a bad one punished.

Type # 2. Line and Staff Organization:

This type of organization structure is in large enterprises. The

functional specialists are added to the line in line and staff
organization. Mere, staff is basically advisory in nature and usually
does not possess any command authority over line managers. Allen
has defined line and staff organization as follows.
“Line functions are those which have direct responsibility for
accomplishing the objectives of the enterprises and staff refers to
those elements of the organization that help the line to work most
effectively in accomplishing the primary objectives of the enterprises.”

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In the line and staff organisation, staffs assist the line managers in
their duties in order to achieve the high performance. So, in an
organization which has the production of textiles, the production
manger, marketing manager and the finance manager may be treated
as line executives, and the department headed by them may be called
line departments

On the other hand, the personnel manager who deal with the
recruitment, training and placement of workers, the quality control
manager who ensure the quality of products and the public relations
manager are the executives who perform staff functions.

Here, it is better to see the type of staff, which may be in an

organization.

Type of Staff:

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The staff organizations mentioned above all has in common the fact
that they are auxiliary to the main functions of the business. There are,
however, different types of staff.

The three main divisions may be listed as:

1. Personal Staff.

2. Specialized Staff.

3. General Staff.
1. Personal Staff:

Personal staff consists of a personal assistant or adviser attached to

the line executive at any level. His main function is to aid and advise
the line executive as also to perform any other work assigned to him.

In business, the personal staffs is typified by the private secretary, who

may keep the executive’s personal check book, buy his Christmas
presents and arrange his appointments. General or business
executives are given personal staff assistants on the same theory. Their
time is too valuable to be spent in handling the details of daily living.

2. Specialised Staff:

The specialised staff have expert knowledge in the specific fields. The
specialised staff are those that handle the specialised functions. For
example, accounting, personnel, engineering and research. It is now
impossible for one man to familiarise himself with all the various
specialities needed in the modern large business.

Hence the general or the company president, and perhaps

the department head, is provided with experts in each Field
to counsel him on the various specialise staff could serve in
any of the following capacities:

a. Advisory Capacity.

b. Service Capacity.

c. Control Capacity.

a. Advisory Capacity:

Its purpose is to render specialised advice and assistance to

management while needed. Some typical areas covered by advisory
staff is legal, public relations and economic development areas.

b. Service Capacity:
This group provides a service, which is useful to the organisation as a
whole and not to any specific division or function. An example would
be the personnel department serving the enterprises by procuring and
training the needed personnel for all departments. Other areas of
service include research and development, purchasing, statistical
analysis, insurance problems etc.

c. Control Capacity:

This includes quality control staff that may have the authority to
control the quality and enforce standards.

3. General Staff:

Any decision that cuts across departmental lines must be made by the
Chief Executive. It cannot be delegated to the head of a specialised
staff group or to a line department head, since other department heads
will naturally resent interference in their department heads will
naturally resent interference in their department by someone who is in
no way their superior.

A typical case would be a change in the organisation structure of the

company as a whole: the combination of two departments under a
single head, for example or the organisation of a new top-level
department.

It is with these functional that cannot be delegated that the general

staff personnel can provide assistance and save the time of the top
man. True, the chief cannot delegate any one of these functions to a
general staff person, but he can often delegate parts of each of them.

The title of the general staff person is most often “assistance to” the
company president, or other executive.

A staff member may serve as a coach, diagnostician, policy planner,

coordinator, trainer, strategist etc.

A line and staff organisation chart is given below:

Advantages of Line and Staff Organisation:

a. Line officers can concentrate mainly on the doing function as the

work of planning and investigation is performed by the staff.
Specialisation provides for experts advice and efficiency in
management.

b. Since the organisation comprises line and staff functions, decisions

can be taken easily.

c. The staff officers supply complete factual data to the line officers
covering activity within and without their own units. This will help to
greater co-ordination.

d. It provides an adequate opportunity for the advancement of

workers.

e. The staff services provides a training ground for the different

positions.

f. Adequate organisation a balance among the various activities can be

attained easily.
g. The system is flexible for new activities may be undertaken by the
staff without forcing early adjustments of line arrangements.

h. Staff specialists are conceptually oriented towards looking ahead

and have the time to do programme and strategic planning and
analyse the possible effects of expected future events.

Disadvantages of Line and Staff Organisation:

a. Confusion and conflict may arise between line and staff. Because the
allocation of authority and responsibility is not clear and members of
the lower levels may be confused by various line orders and staff
advices.

b. Staff generally advise to the lines, but line decides and acts.
Therefore the staffs often feel powerless.

c. Too much reliance on staff officers may not be beneficial to the

business because line officials may lose much of their judgment and
imitative.

d. Normally, staff employees have specialised knowledge and expert.

Line makes the final decisions, even though staff give their
suggestions. Staff officers, therefore, may be resented.

e. Staff officers are much educated so their ideas may be more

theoretical and academic rather than practical.

f. Although expert advice is available it reaches the workers through

the managers. Here it is liable to create a greater deal of
misunderstanding and misinterpretation.

g. Since staff specialists demand higher payments, it is expensive.

h. The staff are unable to carry out its plan or recommendations

because of lack of authority. So they become ineffective sometimes, it
will make them careless and indifferent towards their jobs.
i. Since the line are performed, with the advise provided by the staff, if
things go right then the staff takes the credit and if things go wrong
then the line get the blame for it.

Type # 3. Functional Organisation:

The functional organisation was evolved by F.W. Taylor while he was

working as a foreman. He suggested eight foremen, four in factory and
four in planning division as under.

Factory Division:

(i) The gang boss,

(ii) The speed boss,

(iii) The inspector, and

(iv) The maintenance or repair boss.

Planning Division:

(i) Route Clerk,

(ii) Instruction card clerk,

(iii) Time and cost clerk, and

(iv) The shop disciplinarian.

He evolved his functional organisation system, which consists in “so

dividing the work of management that each man, from the assistant
superintendent down, shall have as few functions as possible to
perform.”

According to Terry, “Functional organisation refers to the organisation

which is divided into a number of functions such as finance,
production, sales, personnel, office and research and development and
each of functions are performed by an expert”. Line authority, staff
authority and functional authority as a third type of authority are in
this type of organisation.

Features of Functional Organisation:

a. Each worker receives instructions not only from one superior, but
also from a group of specialists.

b. Three types of authority relationships are in the functional

organisation such as line authority, staff authority and functional
authority.

c. Staff specialists are given the authority to decide and do things in a

limited way.

d. The scope of the work is kept limited but the area of authority is left
unlimited.

e. There is a grouping of activities of the enterprise into certain major

functional departments.

Advantages of Functional Organisation:

a. Each manager is an expert in his field. He has to perform a limited

number of functions. So complete specialisation will be in functional
organisation.

b. The greater degree of specialisation leads the improvement in the

quality of product.

c. Since the job requirements are definite and tangible, organisation

can achieve the intensive utilisation of the principle of specialisation of
labour at the managerial level.

d. Specialisation will lead for mass production and standardisation.

e. Since experts get sufficient time for creative thinking, planning and
supervision are made efficient.
f. It increases the work satisfaction for specialists who presumably do
what they like to do.

Disadvantages of Functional Organisation:

a. Since there is no direct boss or controller of the workers, co-

ordination is hard to achieve.

b. Since workers are under different bosses, discipline is hard to

achieve. As results there will be low morale on the part of the workers.

c. The non-supervisory employees are uncertain as to whom they

should turn for advice and aid when problem call for analysis.

d. Due to that control is divided, action cannot be taken immediately.

e. Since there will be many foreman of equal rank in the same

department, the conflicts of leadership may arise.

f. It reduces the opportunities for the training of all-round executives

to assume further leadership in the firm.

Type # 4. Project Organisation:

This organisational structure are temporarily formed for specific
projects for a specific period of time, for the project of achieving the
goal of developing new product, the specialists from different
functional departments such as production, engineering, quality
control, marketing research etc., will be drawn to work together. These
specialists go back to their respective duties as soon as the project is
completed.

Really, the project organisation is set-up with the object of overcoming

the major weakness of the functional organisation, such as absence of
unity of command, delay in decision-making, and lack of coordination.

The project organization chart may be shown as follows:

Advantages of Project Organisation:

a. It is a remarkable illustration of relationship between environment,

strategy and structure.

b. The grouping of activities on the basis of each project results in

introduction of new authority patterns.

c. Since the specialists from different departments is drawn to work

together under the project organisation it helps to coordination.

d. It makes for meaningful control and fixation of individual

responsibility.
Disadvantages of Project Organisation:

a. The uncertainty may be attributed to the diverse backgrounds of the

professional who are deputed to the project.

b. The project manager finds it difficult to motivate and control the

staff in a traditional way in the absence of well-defined areas of
responsibility lines of communication and criteria to judge
performance.

c. Delay in completion of the project may occur.

d. Effective project management may also be hindered by the top

management who may not be wholly are of the problems at the project
centre.

Type # 5. Matrix Organisation:

According to Stanley Davis and Paul Lawrence matrix organisation is

“any organisation that employs a multiple command system that
includes not only the multiple command structure, but also related
support mechanism and an associated organisational culture and
behaviour pattern.”

A matrix organisation, also referred to as the “multiple command

system” has two chains of command. One chain of command is
functional in which the flow of authority is vertical.

The second chain is horizontal depicted by a project team, which is led

by the project, or group manager who is an expert in his team’s
assigned area of specialisation.

Since the matrix structure integrates the efforts of functional and

project authority, the vertical and horizontal lines of authority are
combination of the authority flows both down and across. The matrix
form of organisation is given below.
Advantages of Matrix Organisation:

1. Since there is both vertical and horizontal communication it

increases the coordination and this coordination leads to greater and
more effective control over operations.

2. Since the matrix organisation is handling a number of projects,

available resources will be used fully.

3. It focuses the organisational resources on the specified projects,

thus enabling better planning and control.

4. It is highly flexible as regards adherence to rules, procedures etc.

Here experience is the best guide to establishing rules and procedures.
 5. As any department or division has to harness its effort towards
accomplishment of a single project, employees are effectively
motivated.

Disadvantages of Matrix Organisation:

1. Since, there is more than one supervisor for each worker, it causes
confusion and conflicts and reduce effective control.

2. There is continuous communication both vertically as well

horizontally, which increases paper work and costs.

3. It is difficult to achieve a balance below on the projects technical

and administrative aspects.

the following are the problems faced

by Small Scale Industries:
 Poor capacity utilization. ...
 Incompetent management. ...
 Inadequate Finance. ...
 Raw material shortages. ...
 Lack of marketing support. ...
 Problem of working capital. ...
 Problems in Export. ...
 Lack of technology up-gradation.

Project report

A Project Report is a document which provides details on the overall

picture of the proposed business. The project report gives an account of
the project proposal to ascertain the prospects of the proposed
plan/activity.
 Project Report – Meaning, Contents
Project Report is a written document relating to any investment. It
contains data on the basis of which the project has been appraised and
found feasible. It consists of information on economic, technical,
financial, managerial and production aspects. It enables the
entrepreneur to know the inputs and helps him to obtain loans from
banks or financial Institutions.
The project report contains detailed information about Land and
buildings required, Manufacturing Capacity per annum, Manufacturing
Process, Machinery & equipment along with their prices and
specifications, Requirements of raw materials, Requirements of Power
& Water, Manpower needs, Marketing Cost of the project, production,
financial analyses and economic viability of the project.

CONTENTS OF A PROJECT REPORT

Following are the contents of a project report.

1. General Information
A project report must provide information about the details of the
industry to which the project belongs to. It must give information about
the past experience, present status, problems and future prospects of
the industry. It must give information about the product to be
manufactured and the reasons for selecting the product if the proposed
business is a manufacturing unit. It must spell out the demand for the
product in the local, national and the global market. It should clearly
identify the alternatives of business and should clarify the reasons for
starting the business.
2. Executive Summary
A project report must state the objectives of the business and the
methods through which the business can attain success. The overall
picture of the business with regard to capital, operations, methods of
functioning and execution of the business must be stated in the project
report. It must mention the assumptions and the risks generally
involved in the business.

3. Organization Summary
The project report should indicate the organization structure and
pattern proposed for the unit. It must state whether the ownership is
based on sole proprietorship, partnership or joint stock company. It
must provide information about the bio data of the promoters including
financial soundness. The name, address, age qualification and
experience of the proprietors or promoters of the proposed business
must be stated in the project report.
4. Project Description
A brief description of the project must be stated and must give details
about the following:

 Location of the site,

 Raw material requirements,
 Target of production,
 Area required for the workshed,
 Power requirements,
 Fuel requirements,
 Water requirements,
 Employment requirements of skilled and unskilled labour,
 Technology selected for the project,
 Production process,
 Projected production volumes, unit prices,
 Pollution treatment plants required.
If the business is service oriented, then it must state the type of services
rendered to customers. It should state the method of providing service
to customers in detail.
5. Marketing Plan
The project report must clearly state the total expected demand for the
product. It must state the price at which the product can be sold in the
market. It must also mention the strategies to be employed to capture
the market. If any, after sale service is provided that must also be stated
in the project. It must describe the mode of distribution of the product
from the production unit to the market. Project report must state the
following:

 Type of customers,
 Target markets,
 Nature of market,
 Market segmentation,
 Future prospects of the market,
 Sales objectives,
 Marketing Cost of the project,
 Market share of proposed venture,
 Demand for the product in the local, national and the global
market,
 It must indicate potential users of products and distribution
channels to be used for distributing the product.
6. Capital Structure and operating cost
The project report must describe the total capital requirements of the
project. It must state the source of finance, it must also indicate the
extent of owners funds and borrowed funds. Working capital
requirements must be stated and the source of supply should also be
indicated in the project. Estimate of total project cost, must be broken
down into land, construction of buildings and civil works, plant and
machinery, miscellaneous fixed assets, preliminary and preoperative
expenses and working capital.
Proposed financial structure of venture must indicate the expected
sources and terms of equity and debt financing. This section must also
spell out the operating cost
7. Management Plan
The project report should state the following.

a. Business experience of the promoters of the business,

 b. Details about the management team,
c. Duties and responsibilities of team members,
d. Current personnel needs of the organization,
e. Methods of managing the business,
f. Plans for hiring and training personnel,
g. Programmes and policies of the management.
8. Financial Aspects
In order to judge the profitability of the business a projected profit and
loss account and balance sheet must be presented in the project report.
It must show the estimated sales revenue, cost of production, gross
profit and net profit likely to be earned by the proposed unit. In addition
to the above, a projected balance sheet, cash flow statement and funds
flow statement must be prepared every year and at least for a period of
3 to 5 years.
The income statement and cash flow projections should include a three-
year summary, detail by month for the first year, and detail by quarter
for the second and third years. Break even point and rate of return on
investment must be stated in the project report. The accounting system
and the inventory control system will be used is generally addressed in
this section of the project report. The project report must state whether
the business is financially and economically viable.

9. Technical Aspects
Project report provides information about the technology and technical
aspects of a project. It covers information on Technology selected for
the project, Production process, capacity of machinery, pollution
control plants etc.

10. Project Implementation

Every proposed business unit must draw a time table for the project. It
must indicate the time within the activities involved in establishing the
enterprise can be completed. Implementation schemes show the
timetable envisaged for project preparation and completion.

11. Social responsibility

The proposed units draws inputs from the society. Hence its
contribution to the society in the form of employment, income, exports
and infrastructure. The output of the business must be indicated in the
project report.

What Is Inventory Management?

Inventory management refers to the process of ordering, storing, and using a
company's inventory. These include the management of raw materials,
components, and finished products, as well as warehousing and processing such
items.

For companies with complex supply chains and manufacturing processes,

balancing the risks of inventory gluts and shortages is especially difficult. To
achieve these balances, firms have developed two major methods for inventory
management: just-in-time and materials requirement planning: just-in-time (JIT)
and materials requirement planning (MRP).

Some firms like financial services firms do not have physical inventory and so
must rely on service process management.

Inventory Management

How Inventory Management Works

A company's inventory is one of its most valuable assets. In retail, manufacturing,
food service, and other inventory-intensive sectors, a company's inputs and
finished products are the core of its business. A shortage of inventory when and
where it's needed can be extremely detrimental.

At the same time, inventory can be thought of as a liability (if not in an accounting
sense). A large inventory carries the risk of spoilage, theft, damage, or shifts in
demand. Inventory must be insured, and if it is not sold in time it may have to be
disposed of at clearance prices—or simply destroyed.

For these reasons, inventory management is important for businesses of any

size. Knowing when to restock certain items, what amounts to purchase or
produce, what price to pay—as well as when to sell and at what price—can
easily become complex decisions. Small businesses will often keep track of stock
manually and determine the reorder points and quantities using Excel formulas.
Larger businesses will use specialized enterprise resource planning (ERP)
software. The largest corporations use highly customized software as a service
(SaaS) applications.
Appropriate inventory management strategies vary depending on the industry. An
oil depot is able to store large amounts of inventory for extended periods of time,
allowing it to wait for demand to pick up. While storing oil is expensive and
risky—a fire in the UK in 2005 led to millions of pounds in damage and fines—
there is no risk that the inventory will spoil or go out of style. For businesses
dealing in perishable goods or products for which demand is extremely time-
sensitive—2019 calendars or fast-fashion items, for example—sitting on
inventory is not an option, and misjudging the timing or quantities of orders can
be costly.

KEY TAKEAWAYS

 Inventory management refers to the process of ordering, storing, and using

a company's inventory. These include the management of raw materials,
components, and finished products as well as warehousing and processing
such items.
 For companies with complex supply chains and manufacturing processes,
balancing the risks of inventory gluts and shortages is especially difficult.
 To achieve these balances, firms have developed two major methods for
inventory management: just-in-time and materials requirement planning:
just-in-time (JIT) and materials requirement planning (MRP).
Inventory Accounting
Inventory represents a current asset since a company typically intends to sell its
finished goods within a short amount of time, typically a year. Inventory has to be
physically counted or measured before it can be put on a balance sheet.
Companies typically maintain sophisticated inventory management systems
capable of tracking real-time inventory levels. Inventory is accounted for using
one of three methods: first-in-first-out (FIFO) costing; last-in-first-out (LIFO)
costing; or weighted-average costing.

An inventory account typically consists of four separate categories:

1. Raw materials
2. Work in process
3. Finished goods
4. Merchandise

Raw materials represent various materials a company purchases for its

production process. These materials must undergo significant work before a
company can transform them into a finished good ready for sale.

Works-in-process represent raw materials in the process of being transformed

into a finished product. Finished goods are completed products readily available
for sale to a company's customers. Merchandise represents finished goods a
company buys from a supplier for future resale.

Inventory Management Methods

Depending on the type of business or product being analyzed, a company will
use various inventory management methods. Some of these management
methods include just-in-time (JIT) manufacturing, materials requirement planning
(MRP), economic order quantity (EOQ), and days sales of inventory (DSI).

Just-in-Time Management
Just-in-time (JIT) manufacturing originated in Japan in the 1960s and 1970s;
Toyota Motor Corp. (TM) contributed the most to its development. The method
allows companies to save significant amounts of money and reduce waste by
keeping only the inventory they need to produce and sell products. This
approach reduces storage and insurance costs, as well as the cost of liquidating
or discarding excess inventory.

JIT inventory management can be risky. If demand unexpectedly spikes, the

manufacturer may not be able to source the inventory it needs to meet that
demand, damaging its reputation with customers and driving business toward
competitors. Even the smallest delays can be problematic; if a key input does not
arrive "just in time," a bottleneck can result.

Materials Requirement Planning

The materials requirement planning (MRP) inventory management method is
sales-forecast dependent, meaning that manufacturers must have accurate sales
records to enable accurate planning of inventory needs and to communicate
those needs with materials suppliers in a timely manner. For example, a ski
manufacturer using an MRP inventory system might ensure that materials such
as plastic, fiberglass, wood, and aluminum are in stock based on forecasted
orders. Inability to accurately forecast sales and plan inventory acquisitions
results in a manufacturer's inability to fulfill orders.

Economic Order Quantity

The economic order quantity (EOQ) model is used in inventory management by
calculating the number of units a company should add to its inventory with each
batch order to reduce the total costs of its inventory while assuming constant
consumer demand. The costs of inventory in the model include holding and setup
costs.

The EOQ model seeks to ensure that the right amount of inventory is ordered per
batch so a company does not have to make orders too frequently and there is not
an excess of inventory sitting on hand. It assumes that there is a trade-off
between inventory holding costs and inventory setup costs, and total inventory
costs are minimized when both setup costs and holding costs are minimized.

Days Sales of Inventory

Days sales of inventory (DSI) is a financial ratio that indicates the average time in
days that a company takes to turn its inventory, including goods that are a work
in progress, into sales.

DSI is also known as the average age of inventory, days inventory outstanding
(DIO), days in inventory (DII), days sales in inventory or days inventory and is
interpreted in multiple ways. Indicating the liquidity of the inventory, the figure
represents how many days a company’s current stock of inventory will last.
Generally, a lower DSI is preferred as it indicates a shorter duration to clear off
the inventory, though the average DSI varies from one industry to another.

Qualitative Analysis of Inventory

There are other methods used to analyze a company's inventory. If a company
frequently switches its method of inventory accounting without reasonable
justification, it is likely its management is trying to paint a brighter picture of its
business than what is true. The SEC requires public companies to disclose LIFO
reserve that can make inventories under LIFO costing comparable to FIFO
costing.

Frequent inventory write-offs can indicate a company's issues with selling its
finished goods or inventory obsolescence. This can also raise red flags with a
company's ability to stay competitive and manufacture products that appeal to
consumers going forward.

FINANCING – SMALL BUSINESS PERSPECTIVE

If we look at investor perspective, research suggests that small businesses fail at a
higher rate than big businesses, thus default risk is also high. This is the reason that
small businesses have less access to credit than larger companies because lending to
a small business is riskier and more expensive than lending to larger companies.
Additionally, evaluating small companies is difficult and not very cost effective as its
data is not as easily accessible as large companies.
In spite of all the hurdles, there are many financing options available to small
companies. Let’s look at some of the financing options and deal with the problem of
‘How to Finance a Small Business?’
SOURCES OF FINANCE FOR A SMALL BUSINESSES
Following are some of the financing methods that small businesses can use:
OWN CAPITAL / SAVINGS
Number one & the easiest source of finance for a small business is one’s own savings. At any stage of
business, when a business is in need of capital, an entrepreneur can tap into his personal assets such as
– stocks, mutual funds, real estate or jewelry – to raise money. He can either sell the assets to raise
money or take a loan on any of the assets. Entrepreneurs can invest such personal capital in their
business as equity capital, or they can give loans to their own company.
FAMILY & FRIENDS
Parents, sibling, extended relatives & friends who have excess cash to lend may be
willing to finance your business. They may lend the money to the business in the form of
a loan or may be willing to take an equity stake in the company.

BANKS
Banks have a special department dedicated to providing loans to small companies. To
get a loan from a bank, companies have to qualify for bank’s minimum criteria. Every
bank has its own criteria with regards to earning potential, annual turnover, credit
scores, etc. There are many types of loans that banks offer such as working
capital loans, term loans, loan against property, etc. Companies can choose the type of
loans as per their requirement.
SMALL BUSINESS LOANS
Each country has certain banks or institutions dedicated to providing loans only to small
businesses, an example of such institute in India is SIDBI, in the USA there is SBA. The
main target of these institutions is to lend money to small businesses who have not
been able to obtain financing on reasonable terms through normal lending channels.
These entities usually give money as loans only.
PERSONAL LOANS
If a company is unable to get a business loan, the entrepreneur might consider getting a
personal loan & using it in their business. The entrepreneur must have a good credit
history for raising a personal loan. We can get a personal loan by mortgaging home,
jewelry, etc.

TRADE CREDIT
Some small businesses might have suppliers willing to sell on credit. Such credit may
range anywhere from one month to three months. This is a very good method for small
companies to fulfill short-term funding needs. This is an inexpensive method of finance
for any small business.
PRIVATE EQUITY FIRMS
Private equity is a type of equity capital that is not listed on any stock exchange. These
firms raise funds from investors. It then invests these funds to buy capital of promising
startups & small businesses. The drawback of such finance is that the private equity
firms will acquire a controlling position or substantial minority position in a company and
then look to maximize the value of their investment. Thus, the entrepreneur might not
have sole control over the business decisions, which may lead to conflict.

VENTURE CAPITAL FIRMS

Venture capital firms are a type of private equity firms, but venture capitalist provides
funds to only those companies who are in the early stages of their business cycles.
These are emerging small companies with high growth potential. Venture capital firms
invest in emerging companies in exchange for equity, or an ownership stake. Small
start-up firms may receive series of rounds of financing from venture capital firms.
CROWDFUNDING
Crowdfunding is a relatively new method when we consider sources of finance. It is a
method of raising funds by borrowing a small amount of money from a large group of
people. A typical example of crowdfunding is proposing people to invest US$ 10, and
even if 1000 people invest, the company can raise US$ 10,000. Such financing is
usually done for a particular project. The benefit of crowdfunding is that small company
can make flexible proposals as per their requirement. They can offer equity against the
money or take the money on loan; they can offer simple interest payments as against
compound interest like most regular loans.

Financial Institutions Supporting Small

Scale Industries in India: SFCs, ICICI Bank,
SIDBI, IFCI, IDBI, SIDF, TCOs and a Few Others
Financial Institution # 1. State Finance Corporations (SFCs):
These institutions extend term loans for the purchase of land,
construction of factory premises and purchase of machinery and
equipment for the setting up of new industries or for expansion and
modernization of the existing ones. SFCs generally prescribe a margin
of 25 per cent and allow an initial holiday of two years for the loan
repayment (this period can be increased to five years in backward
districts).
ADVERTISEMENTS:

National Small Industries Corporation (NSIC) and State Small

Industries Corporations (SSICs) provide machinery on hire-purchase
basis to small scale and ancillary industries, the value of which would
not exceed Rs. 60 lakhs and Rs. 75 lakhs, respectively inclusive of the
value of machinery and equipment already installed.
The payment for the machinery and equipment is made directly to the
suppliers. The hire-purchase value is generally recovered in 13 half-
yearly installments and a rebate of 2 per cent is given if the
installments are paid on or before the due date. While NSIC supplies
both imported and indigenous machinery. However, SSICs supply
only indigenous machinery.
Financial Institution # 2. Commercial Banks:
These mostly provide short term and, in some cases, medium term
financial assistance to small scale units. Short term credit facilities are
granted for working capital requirements like those for raw materials,
goods-in-process, finished products, bills receivables, and book debts.
Medium term loans are granted for the acquisition of land,
construction of factory premises, purchase of machinery and
equipment, and operative expenses. These loans are generally granted
for periods ranging from five to seven years. Banks also establish
letters of credit on behalf of their clients favouring suppliers of raw
material/machinery (both Indian and foreign) which extend the
bankers assurance for payment and thus help their delivery.
ADVERTISEMENTS:

Certain transactions, particularly those in contracts of sale to

Government departments, may require guarantees being issued in lieu
of security/earnest money deposits for release of advance money,
supply of raw materials for processing, full payment of bills on
assurance of performance, etc. Commercial banks also issue such
guarantees.
Financial Institution # 3. Small Industries Development
Bank of India (SIDBI):
The Small Industries Development Bank of India—the apex bank for
small scale industries—extends assistance to SSI units through various
schemes.
The activities of SIDBI are as follows:
i. Refinancing of loans and advance extended by the primary lending
institutions to industrial concerns in the small scale sector and also
providing resource support to them;
ADVERTISEMENTS:

ii. Discounting and rediscounting of bills arising from sale of

machinery to, or manufactured by, industrial concerns in the small
scale sector;
iii. Extension of seed capital/soft loan assistance under National
Equity Fund, Mahila Udyam Nidhi, and Seed Capital Schemes through
specified lending agencies;
iv. Granting direct assistance as well as refinancing of loans extended
by primary lending institutions for financing export of products
manufactured by industrial concerns in the small scale sector;
v. Providing services like factoring, leasing, etc., to industrial concerns
in the small scale sector;
ADVERTISEMENTS:

vi. Extending financial support to State Small Industries Development

Corporations for providing scarce raw materials to small scale units
and marketing their end-products ;
vii. Extending financial support to National Small Industries
Corporation for providing leasing, hire-purchase, and marketing
support to SSI units.
The Immediate thrust of SIDBI is on the following activities:
i. Initiating steps for technological up gradation and modernization of
existing units;
ADVERTISEMENTS:

ii. Expanding the channels for marketing the products of SSI sector in
domestic and overseas markets;
iii. Promotion of employment-oriented industries especially in semi-
urban areas to create more employment opportunities and thereby
checking migration of population to urban and cosmopolitan areas.
The financial assistance of SIDBI to the small scale units scattered
throughout the country is channelized through the existing credit
delivery mechanism comprising State Financial Corporations, State
Industrial Development Corporations, Commercial Banks,
Cooperative Banks, and Regional Rural Banks which have a vast
network of branches in the country.
The various schemes of financial assistance for SSI units are
listed as follows:
ADVERTISEMENTS:

(1) Refinance scheme for industrial loans for small and village
industries
(2) Composite loan scheme
(3) Scheme for Scheduled Caste/Scheduled Tribe and Physically
Handicapped entrepreneurs
(4) National Equity Fund Scheme
(5) Special scheme of assistance to ex-servicemen
(6) Seed Capital Scheme
(7) Single Window Scheme
(8) Scheme for women entrepreneurs
(9) Mahjila Udyam Nidhi Scheme
(10) Refinance scheme for quality control
(11) Schemes of incentives for exports
(12) Equipment Refinance Scheme
(13) Refinance scheme for Modernization of Small Scale Industries
(14) Assistance to Small Road Transport Operators
(15) Refinance scheme for Rehabilitation of Small Scale Industries
(16) Foreign Currency Refinance Scheme
(17) Refinance Scheme under ADB Line of Credit
(18) Refinance scheme for setting up industrial estates
(19) Bills Rediscounting Scheme.
Single Window Scheme:
The new tiny and SSI units whose project cost does not exceed Rs. 20
lakh and requirements of working capital is up to Rs. 10 lakh are
eligible for working capital assistance under the Single Window
Scheme of SIDBI.
Sanction and Disbursement of Loan:
Once a project is finalized, the promoters have to submit an
application to the financial institution/bank for
consideration of term loan along with the following
documents:
(i) Project report
(ii) Partnership deed/memorandum and articles of association
(iii) Quotations of plant/machinery
(iv) Possession receipt for land
(v) Income-tax assessment order of partners/directors
(vi) Proposed building plan
(vii) Architect’s estimates for building
(viii) Balance sheet and profit and loss account for previous three
years for firms held by promoters.
After the institution has satisfied itself about the authenticity of the
documents and the related facts, it sanctions the loan. On receipt of
the sanction letter, the promoters have to signify their acceptance of
the various terms and conditions of loans. The term loan is then
released in suitable tranches depending on progress made by the
entrepreneur.
Pre-Disbursement Formalities:
For the pre-disbursement formalities the following
documents need to be submitted:
1. Chartered Account’s certificates for expenditure incurred on project
and the means of finance and for capital structure of the company
2. Architect’s certificate for money spent on building
3. An approved building plant
4. Insurance policy for plant, building, and machinery
5. Income-tax clearance for mortgage of factory
6. Execution of mortgage.
Repayment of Loans:
Banks and financial institutions are extremely cautious while selecting
prospective borrowers (entrepreneurs) and ascertaining their credit
worthiness before sanctioning loans.
The owner of a small scale enterprise is permitted to repay the loan
amount on installment basis spread over a period of 8 to 10 years,
taking into account the cash generation and profitability aspects of the
project. The quantum of installments should be in consonance with
the expected flow of income to the entrepreneur and should not
exceed 50 per cent on the incremental income accruing to the
borrower.
Normally banks and financial institutions insist on repayment of the
loan amount along with interest charges by the borrower as per the
repayment schedule formulated in respect of the project. The
moratorium period normally permitted for repaying the installments
of the principal amount varies from 12 months to 24 months from the
date of the release of the first tranche loan.
Before fixing the moratorium period, the entrepreneur should impress
upon the banker the actual gestation period involved in respect of his
project before commencing repayments. Banks and financial
institutions normally permit enhancement of the repayment holiday
only in exceptional cases.
Comprehensive Promotion Structure of MSME Sector:
The Government of India established comprehensive structure to
promote the micro, small and medium scale industries in the country.
By focusing SIDBI as the centre of activities in promoting this sector,
number of other institutions too were established to promote this
sector directly and indirectly.
Problems of Financial Institutions in Lending to Small Scale
Industries:
Although it is the small entrepreneurs who face problems in getting
adequate funds, financial institutions too face problems while
providing loans to small entrepreneurs. This is because there is always
a gap between the expected financial requirements of the
entrepreneurs and actual amount of funds sanctioned or released by
the financial institutions.
The entrepreneurs on their part feel that the problem lies with the
financial institutions, which point out that many a time the borrowers
are not well versed with the financial aspects of small industry.
Some of the common problems faced by financial
institutions while disbursing loans are as follows:
i. The small entrepreneurs do not have perfect knowledge about the
financial aspects of the small industry.
ii. The small entrepreneur is not involved in preparing the project and
estimation of financial requirements,
iii. Financial assessment of the project does not reflect the real picture
of the project.
iv. The small entrepreneurs do not provide full information to
substantiate their claims for required funds for the project.
v. Most of the small entrepreneurs are not able to bring good projects
for financial assistance.
vi. The small entrepreneurs underestimate the banks while expecting
loans.
vii. The small entrepreneurs take a lot of time from the idea stage to
project preparation to submitting the project to the bank. During this
time estimates and the actual requirements undergo a lot of change,
which may not reflect real costs of the projects.
Stock Exchange for Small and Medium Enterprises:
In view of the limited financial accessibility for small enterprises, on 5
November 2008, the SEBI came out with a framework for recognition
and supervision of Stock Exchanges/ platform of stock exchanges for
small and medium enterprises. This is mainly to have dedicated stock
exchanges for the small and medium enterprises sector.
Stock exchanges can be set up after obtaining due recognition under
the Securities Contracts (Regulation) Act, 1956. As per SEBI, even the
existing exchanges too can set up a platform for the SME Sector with a
different set of rules, regulations, and bye laws. In other words,
regulator wanted specific set of prescribed norms for the operations
related while dealing in scrips of small and medium enterprises.
Credit Rating and Micro, Small, and Medium Enterprises:
In the changed global economic environment, enough opportunities
and many more challenges emerged before micro and small
enterprises in India. To take the advantage of benefits, they have to
face problems and obligations to improve their competence in terms of
technology, management, and financial strength.
Therefore, there is a need to create awareness amongst micro and
small enterprises about the strengths and weaknesses to the extent
possible to assess themselves. For all these issues, small and medium
scale enterprises unfortunately have limited access to institutional
finance.
The simple reason is that institutions are reluctant to finance them
because of more risky proposition. To supplement the existing policy
framework to finance this sector, the Government of India came out
with a credit rating system.
It is expected that the rating scheme would encourage micro and small
enterprise sector in improving its contribution to the economy by way
of increasing their productivity, since a good rating would enhance
their acceptability in the market and also make access to credit quicker
and cheaper and thus help in economizing the cost of credit.
The number of SMEs applying for the rating scheme is increasing
because the Government is subsidizing the cost of the rating. The
credit rating scheme of the Government for micro and small
enterprises (MSEs) is steadily working. NSIC is the nodal agency for
implementing the scheme.
The units rating shall be a combination of performance and
creditworthiness of the unit. The Rating Agencies should be
empanelled with NSIC Head Office. According to the National Small
Industries Corporation (NSIC), in the first half of the fiscal 2009,
about 3,487 enterprises availed themselves of the scheme.
For the whole of 2008-09 fiscal, 5,011 enterprises had got themselves
rated. Credit disbursement too increased at a steady pace, as banks are
more willing to lend to enterprises that have been evaluated on a
standardized basis by independent agencies. Credit Analysis and
Research Ltd. (CARE), CRISIL, ICRA, Dun and Bradstreet (D&B), etc.,
are actively involved in rating small and medium enterprises.
As of today, all loans above Rs. 10 crore will need to be rated. Rating
agencies typically charge between Rs. 50,000 and Rs. 2 lakh for rating
a small-scale unit that has bank limits of between Rs. 10 crore and Rs.
20 crore. It is expected that the RBI would bring down the threshold
exposure for rating to Rs. 5 crore.
When that happens, the demand for rating the enterprises would be
substantially higher. For small entrepreneurs, it is too costly to go for
rating. For rating agencies this is not at all viable. However, small and
medium entrepreneurs are willing to get rated their enterprises
because they get 75 per cent rating fee subsidy from the Government
of India.
The Government subsidy is only for the first year. The entrepreneurs
come back and spend their own money, show that companies are
seeing benefit in these schemes. Since, it is in the nascent stage, there
are enough doubts and optimism about the same. Some financial
institutions say that the quality of work done by the rating agencies is
doubtful.
Some rating agencies say their rating help the entrepreneurs to get
more financial help from the banks. Again the role of stock brokers in
supporting the idea of a separate exchange for small and medium
enterprises.

Financial Institutions Supporting and Assisting Small Scale

Industries in India – Industrial Finance Corporation of
India, Small Industries Development Fund and a Few Others
In order to meet the financial needs of small-scale industries, the
Government has created a network of financial and developmental
institutions.
These institutions may be classified as follows:
1. All India Financial Institutions:
(i) Industrial Finance Corporation of India (IFCI),
(ii) Industrial Credit and Investment Corporation of India (ICICI),
(iii) Industrial Development Bank of India (IDBI),
(iv) Export Import Bank of India (Exim Bank),
(v) National Small Industries Corporation (NSIC), and
(vi) Small Industries Development Bank of India (SIDBI).
2. State Level Institutions:
(i) State Financial Corporations (SFCs),
(ii) State Industrial Development Corporations (SIDCs), and
(iii) State Small Industries Development Corporations (SSIDCCs).
These institutions provide both fixed capital and working capital
finance. In addition, they provide refinance assistance for
rehabilitation of sick small units and modernisation of small scale
industries.

1. Industrial Finance Corporation of India (IFCI):

IFCI was set up as a statutory corporation in July 1948. With effect
from July 1, 1993 it has been converted into a company.
Objects:
The purpose of the IFCI is “to make medium and long-term credits
more readily available to industrial concerns in India, particularly in
circumstances where normal banking accommodation is inappropriate
or recourse to capital issue methods is impracticable.” The corporation
provides financial assistance for the setting up of new ventures as well
as for the modernisation and expansion of existing enterprises. The
IFCI gives priority to dispersal of industry, development of backward
areas, growth of industries in the co-operative sector, etc.
It pays special attention to the following types of projects:
(i) Projects located in backward regions,
(ii) Projects promoted by new entrepreneurs and technocrats,
(iii) Projects based on indigenous technology,
(iv) Projects having potential for exports and import substitution,
(v) Projects likely to meet growing demand for essential commodities,
(vi) Projects that provide machinery, fertilisers, pesticides and other
inputs for agriculture.
Forms of Assistance:
IFCI provides financial assistance in the forms of loans, guarantees,
underwriting, direct subscription to shares and debentures, etc. It also
offers equipment leasing, buyers’ and suppliers’ credit, finance to
leasing and hire-purchase firms and merchant banking services.
Criteria for Assistance:
While granting assistance, the IFCI takes into consideration the
following factors – (i) importance of the industry, (ii) feasibility of the
project, (iii) demand and supply of the product, (iv) availability of raw
materials and technical know-how, (v) cost of the project, (vi)
resources of the concern, (vii) managerial competence and experience,
and (viii) security offered.
Progress and Review:
There has been a spectacular rise in the financial assistance provided
to small- scale units and new entrepreneurs. IFCI generally finances
up to half of the total cost of setting up/ modernisation/expansion of
an industrial unit.
Despite impressive performance, IFCI has been criticised on
the following grounds:
(i) IFCI has favoured large and well-established concerns to the
disadvantage of small-scale units and new entrepreneurs.
(ii) There are long delays in the sanctions and disbursement of
assistance.
(iii) IFCI has failed to exercise effective control over the defaulting
borrowers.
2. Industrial Credit and Investment Corporation of India
(ICICI Bank):
ICICI was set up as a public limited company on January 5, 1955.
Objects:
To – (i) assist in the promotion, expansion and modernisation of
industrial enterprises in the private sector; (ii) encourage and promote
the participation of private capital, both Indian and foreign, in such
enterprises; and (iii) encourage and promote private ownership of
industrial investment and expansion of investment markets.
Forms of Assistance:
ICICI provides assistance in the form of loans, guarantees, direct
subscription to shares and debentures, sponsoring and underwriting
issues, making funds available for reinvestment, securing and
furnishing technical and managerial advice. It also provides
equipment leasing, suppliers’ credit, merchant banking and venture
capital services.
Eligibility for Assistance:
ICICI provides assistance to companies in private sector and joint
sector. It can also assist co-operative societies. It is authorised to
provide foreign currency loans to proprietary and partnership firms.
Ordinarily assistance exceeding Rs. 5 lakh is provided. Loans are given
for buying capital assets. ICICI helps in the promotion of new
enterprises as well as in the expansion and modernisation of existing
concerns.
Criteria for Assistance:
While granting assistance, ICICI takes into account the basic
soundness of the project, competence and experience of management,
sources of finance and contribution of the promoters, nature of
security, reasonableness of cost estimates, repaying capacity of the
borrower, etc.
Progress and Review:
Over the years, ICICI has emerged as the leading supplier of foreign
currency loans and as a pioneer in the field of underwriting. However,
it is not a significant source of finance for small-scale industries. It is
now more a commercial bank than a development financial
institution.
3. Industrial Development Bank of India (IDBI):
IDBI was set up on July 1, 1964 as an apex institution in the field of
industrial finance.
Objectives:
The objectives of the IDBI are to – (i) co-ordinate, regulate and
supervise the activities of all financial institutions providing term
finance to industry; (ii) enlarge the usefulness of these institutions by
supplementing their resources and by widening the scope of their
assistance; (iii) provide direct finance to industry to bridge the gap
between demand and supply of long-term and medium-term finance
of industrial concerns in both public and private sectors; (iv) locate
and fill up gaps in the industrial structure of the country; (v) adopt
and enforce a system of priorities so as to diversify and speed up the
process of industrial growth.
The Bank has been conceived of as a development agency that will
ultimately be concerned with all questions or problems relating to
industrial finance in the country.
IDBI provides assistance to small-scale units indirectly through its
refinance and bills rediscounting schemes. It is not possible for IDBI
to reach large number of small industrial units scattered all over the
country directly. Therefore, IDBI provides refinance of loans granted
by banks and State financial Corporations to small-scale units.
Refinance Assistance:
IDBI replenishes the loans provided by commercial banks, co-
operative banks, regional rural banks, SFCs, SIDCs, SIICs to small
Scale sector. IDBT has imposed selling on rates of interest to be
charged by primary lenders so that the benefit goes ultimately to the
borrowing units.
Some of the important details of the scheme are as follows:
(i) Promoter’s contribution normally varies from 10% to 22.5%.
(ii) Refinance is provided at concessional rates of interest in respect of
loans to specified types of borrowers.
(iii) The period of repayment is fixed by the lending institution after
taking into account profitability and debt servicing capacity of the
assisted units, suspect to a maximum of 10 years.
(iv) A debt equity ratio up to 3:1 is permitted except for projects
involving seed/special capital assistance wherein a ratio of 2:1 is
applicable.
(v) A rebate of 0.5 per cent is allowed to small industries which obtain
ISI mark for all their products.
(vi) Refinance is also provided for rehabilitation of sick units.
Rehabilitation assistance might include margin money for additional
working capital, payment of statutory liabilities, cash losses during
nursing, margin capital expenditure for restarting the units towards
viability.
(vii) Refinance for modernisation is provided to help small units to
improve/update technology with a view to improve productivity and
quality.
Automatic Refinance Scheme:
The objective of this scheme is to avoid delays in the flow of finance to
small-scale industries. Loans up to Rs. 7.5 lakh are fully refinanced
and assistance is sanctioned within days. Under the scheme
concessional interest rate is charged from SC/ST, women, and
physically handicapped entrepreneurs up to Rs. 50,000.
No minimum promoter contribution is insisted upon from such
entrepreneurs. A new scheme to subsidies the cost of training for
women entrepreneurs and consultancy services, up to the stage of
implementation has been launched.
Composite Loan Scheme:
Since January, 1979 the automatic refinance scheme also covers
composite loans given to artisans, small and cottage industries in
villages and small towns with a population not exceeding 5,00,000.
Loans up to Rs. 50,000 are given under this scheme. The loan can be
utilised for equipment finance or working capital or both. Loan is
provided at a concessional rate of 10% in backward areas and 12% in
other areas. No margin contribution on the part of the beneficiary is
required.
Single Window Scheme:
This scheme is designed to provide working capital assistance to
small- scale units. New small-scale and tiny units with project cost up
to Rs. 5 lakh and working capital requirement up to Rs. 2-5 lakh are
eligible under the scheme. Both term loan and working capital has to
be sanctioned by a single institution.
Seed Capital Scheme:
The scheme aims at assisting new entrepreneurs who lack adequate
resources of their own to set up small-scale units. The assistance is
given in the form of interest-free soft loans to proprietary and
partnership firms up to Rs. 15 lakh. The assistance is repayable over a
period of 10 years with a moratorium of 5 years. The scheme is
operated through SFCs and SIDCs.
Special Scheme for Ex-Servicemen:
Under this scheme, ex-Servicemen (including widows of ex-
Servicemen) and disabled service personnel are provided assistance by
IDBI in collaboration with Director General of Resettlement. They are
provided equity support to the extent of Rs. 1, 80,000 per project for
starting small-scale units. Projects costing up to Rs. 12 lakh are eligible
for assistance.
The promoter is required to contribute at least 10% of the project cost.
A nominal interest at the rate of 1 per cent is charged. The assistance is
repayable within a period of 10 years, including an initial moratorium
of 5 years.
In case of transport operators the repayment period is 5 years
including grace period of 3 years.
4. Small Industries Development Fund (SIDF):
In May, 1986 the IDBI created this fund. The objective was to step up
the flow of assistance to small-scale sector and to provide a focal point
for coordinating at the apex level the availability of financial and non-
financial assistance from various organisations. The fund was used to
provide refinance, seed capital assistance, direct assistance to NSIC,
bills rediscounting, and support to promotional and extension
services. The Fund was transferred to SIDBI.
National Equity Fund:
This scheme was launched in August 1987 to provide equity support to
small and tiny units.
The eligibility conditions under the scheme are as follows:
(i) The project should be a new and for manufacture, preservation or
processing of goods or an existing unit which has become sick.
(ii) The project should be located in a village or town with a population
of not more than 5 lakh (15 lakh in case of sick units).
(iii) The capital cost of the project should not exceed Rs. 5 lakh.
(iv) The unit should have SSI registration with Directorate of
Industries.
The assistance is given in the form of a loan to meet the gap in equity
after taking into account the promoter’s contribution which must at
least be 10 per cent of the total cost.
The scheme is now administered by SIDBI.
Bills Rediscounting Scheme:
Under the scheme, suppliers of indigenous machinery can discount
their bills and promissory notes with banks and other financial
institutions. These can in turn avail of rediscount facilities from the
IDBI. This facility is available for purchase of machinery for
modernisation, expansion and diversification. An advance or down
payment of 15% (10% in case of commercial vehicles and textile
machinery) is generally insisted upon.
Credit Guarantee Scheme:
IDBI provides guarantees to banks and other financial institutions for
loans made to small-scale units. The guarantee extends to 75 per cent
of the amount in default or the amount guaranteed whichever is lower.
IDBI also provides assistance to NSIC for the supply of machinery on
hire-purchase basis.
Export Finance:
IDBI operates three schemes to encourage exports from
small-scale sector:
(a) Refinancing of medium term export credit granted by approved
banks
(b) Direct credit to exporters
(c) Overseas buyers’ credit.
Small Industries Development Bank of India (SIDBI):
In view of the increasing need for financial assistance to small-scale
industries, a specialised financial institution exclusively for the small-
scale sector became necessary. Accordingly, the SIDBI was set up as a
subsidiary of the IDBI. It commenced operations on April 2, 1990.
SIDBI took over the Small Industries Development Fund and the
National Equity Fund set up earlier in IDBI.
SIDBI has been assigned the role of apex financial institution for the
promotion, financing and development of small-scale sector and for
coordinating the activities of other institutions engaged in providing
assistance to small scale units.
The main functions of SIDBI are as follows:
(a) Refinancing of term loans granted by SFCs, SIDCs/banks and
other eligible financial institutions;
(b) Direct discounting and rediscounting of bills arising out of sale of
machinery/capital equipment by small-scale manufacturers on
deferred credit and rediscounting of short- term trade bills arising out
of sale of products of the small-scale sector;
(c) Providing assistance for development of marketing infrastructure,
creating new marketing channels for the products of small-scale units
in domestic and foreign markets;
(d) Direct assistance for development of industrial estates/areas with
requisite infrastructural facilities;
(e) Resource support to National Small Industries Corporation and
State Small Industries Development Corporations for their raw
material supply and marketing of products as well as their hire-
purchase and leasing activities;
(f) Extending technical and related support services;
(g) Providing equity type of assistance to special target groups like new
promoters, women and ex-servicemen under national Equity Fund,
Mahila Udyam Nidhi and Self Employment Scheme for Ex-
Servicemen;
(h) Providing resource support for the promotion of factoring
companies, to mitigate the difficulties faced by small-scale units on
account of delayed payment;
(i) Direct assistance to help widen the supply base of small-scale
ancillary units and encouraging the existing units to undertake
technology up gradation/modernisation for improving the quality and
competitiveness of their products;
(j) Promoting employment-oriented industries in semi-urban areas so
as to check unhealthy migration to urban areas.
SIDBI has done commendable work to assist the small-scale sector. A
special scheme for acquisition of computers and accessories was
introduced in 1991-92 to improve productivity and operational
efficiency of small-scale units. SIDBI introduced two new schemes
during 1992-93; equipment finance scheme for providing direct
finance to existing well-run small-scale units taking up technology up
gradation/modernisation and refinance for resettlement of voluntarily
retired workers of NTC.
The other new scheme launched was venture capital fund exclusively
for small- scale units, with an initial corpus of Rs. 10 crores. It enrolled
itself as an institutional member of the OTC Exchange of India
(OTCEI). SIDBI also provides financial support to National Small
Industries Corporation for providing leasing, hire-purchase and
marketing support to the industrial units in the small-scale sector.
There has been a continuous increase in the assistance provided by
SIDBI to the small-scale sector.
5. National Small Industries Corporation:
NSIC provides finance to small scale units by way of supply of
machinery on hire-purchase basis. The corporation takes upon itself
the entire purchase responsibility beginning from locating competent
suppliers to delivery of machines. Minimum assistance provided is Rs.
25,000 and an entrepreneur is required to pay 30% earnest money.
Special concessions are given to tiny units, units in backwards areas,
technocrats, SC/ST, physically handicapped and ex-Servicemen.
6. National Bank for Agriculture and Rural Development
(NABARD):
NABARD provides industrial finance byway of refinance for artisans,
village and cottage industries and other allied activities. It provides
accommodation to State Co-operative banks for financing apex
regional weaver’s societies in marketing or working capital for
procurement of cloth. Refinance facility is also provided for financing
working capital requirements of wire making co-operatives in Kerala.
NABARD provides refinance to financial institutions under the
Integrated Rural Development Programme (IRDP). It also provides
refinance to banks against their term lending for semi-agricultural
activities comprising cultivation, rearing of cocoons and purchase of
appliances. NABARD also has a Soft Loan Assistance Fund Scheme to
provide margin money to the prospective entrepreneurs.
7. State Financial Corporations (SFCs):
IFCI caters largely to the needs of large-scale and medium-scale
enterprises. To cater to the needs of small scale industries, the State
Finance Corporations Act, 1951 was passed. Under this Act, a financial
Corporation has been set up in every State and Union Territory.
Forms of Assistance:
SFCs provide assistance in the following forms:
(a) Advancing long-term and medium-term loans to small-scale and
medium-scale units organized as proprietorships, partnerships,
companies and co-operative societies.
(b) Guaranteeing loans raised by small-scale units in the capital
market.
(c) Guaranteeing deferred payments.
(d) Underwriting the issues of shares, debentures and bonds of
industrial concerns.
(e) Subscribing to debentures of industrial concerns.
(f) Operating refinance schemes of IDBI.
(g) Disbursing loans as agents of State Governments.
Limits of Assistance:
The maximum assistance is Rs. 30 lakh for proprietorships and
partnerships and 60 lakh for companies and co-operative societies.
Industrial undertakings with a paid up capital plus fee reserves of
more them Rs. 1 crore are not eligible for assistance. The assistance is
generally repayable within a period of 10 years. Small-Scale units
located in backward areas are provided assistance at a concessional
rate of interest.
SFCs operate special schemes for women entrepreneurs, ex-
Servicemen, SC/ST entrepreneurs, handicapped entrepreneurs, road
transport operators, hotels, tourism, hospitals and nursing homes.
Under the Composite Loan Scheme both term loan and working
capital is provided.
SFCs assistance has two noteworthy features. First, assistance to units
located in backward areas has been increasing rapidly and accounts
for more than 40 per cent of the total assistance. Secondly, the share
of small-scale units in the total assistance has increased steeply to 90%
per cent.

Financial Institutions Supporting and Assisting Small Scale

Industries in India – 25 Top Financial Institutions Supporting
Small Scale Industries in India
1. Central Government Stores Purchase Programme:
The Government is the single largest buyer of a variety of goods from
the small scale sector. With a view to increasing the share of purchases
from the small scale sector, the Central Government Stores Purchase
Programme was launched in 1955-56. The Programme is operated by
the Director-General of Supplies and Disposals (DGS&D) for which
the National Small Industries Corporation (NSIC) provides liaison
services.
The Central Government Stores Purchase Programme provided an
outlet for the products of industrial units in the country. Under the
programme, DGS&D is responsible for arranging the purchase and
delivery of all the stores required by the Central Government, except
certain specified items excluded from the scope of this department.
2. SIDO and Marketing Assistance to Small Scale Industries:
The Small Industries Development Organization (SIDO) continues to
be the nerve centre of the small industry development programme in
the country. Although the actual marketing of small industry products
remains outside its scope, SIDO’s work with regard to indirect
marketing assistance to small scale units is akin to that of a friend,
philosopher, and guide – it is the only institution which regularly
collects and assimilates a wealth of useful statistics about small scale
industries through a series of surveys and studies.
This includes industry outlook reports; industry prospect sheets; area
surveys; and market surveys. In fact, the report on various surveys
undertaken by the economic investigation division of the organization
is the only source of organized market information available to small
scale units. SIDO, through its network of Small Industries Service
Institutes (SISIs), provides consultancy and training services in
marketing management.
3. National Small Industries Corporation:
In line with the fast changing scenario of the small scale sector in the
context of liberalization, National Small Industries Corporation
(NSIC) has been reorienting its strategies for developing competitive
ability in small scale units. In sharp contrast to specialized financial
institutions, NSIC offers an integrated package of financial services of
long range interest to the small scale sector.
In view of the importance of NSIC at the national level and the
significant initiatives it has taken in the post liberalization period, it is
planned to highlight the innovative approaches adopted by the
corporation in the recent years, as part of the review of the working of
the corporation for the 1991-97 period.
Contribution of innovative changes introduced in recent years is still
small quantitatively, but the focus is on the direction of helping
existing small scale units to strengthen their efforts at technological up
gradation, adoption of new processes and technologies, diversification
and improvement of R & D capabilities apart from export orientation.
The sequence of review is given here – changing role and 40
anniversary celebrations, software technology park, Techmart India,
Udyog expo, technology transfer centre, strategic alliance of NSIC,
CSIR, and APCTT for technology acquisition and modernization,
technology up gradation and new technologies developed,
international cooperation and project exports, product exports,
industrial design centre, financial services scheme, enterprise building
programme, hire purchase, equipment leasing and modernization, raw
material assistance, marketing support programme, government
stores purchase programme, review of operations and recognition
gained by the corporation from various quarters.
The National Small Industries Corporation Ltd. (NSIC) was
established by the Union Ministry of Industry in 1955 to promote, aid,
and foster the growth of small scale industries in the country. NSIC
continues to remain in the forefront of industrial development
throughout the country with its multifaceted programmes and projects
to assist the SSI sector.
On 19 April, 1995, NSIC celebrated its 40th anniversary. As the small
scale sector continues to be an important instrument for enterprise
building, dispersal of industries and employment generation, NSIC
continues to perform its assigned role successfully in this endeavour.
Due to the changed industrial scenario and gradual globalization of
the economy, small scale sector has to face stiff competition as the
insulated and protected market conditions are no longer likely to be
available. To enable SSI sector to meet this challenge, NSIC has been
reorienting its policies and programmes. The NSIC is committed to
strengthen the SSI sector to play a dominant role in the post
liberalization period.
4. Small Industries Development Bank of India (SIDBI):
The Small Industries Development Bank of India (SIDBI), set up as a
wholly owned subsidiary of the Industrial Development Bank of India
(IDBI) in 1990, is the principal development financial institution. It
co-ordinates the functions of other institutions engaged in similar
activities.
SIDBI’s activities include refinancing of term loans granted by SFCs/
SIDCs, commercial banks and other eligible financial institutions and
direct discounting/ rediscounting of bills arising out of sale of
machinery/capital equipment/components by manufacturers in the
small scale sector. It also provides term loans and equipment finance
to existing well-run small scale units taking up technology up
gradation/modernization.
SIDBI provides pre-shipment credit in foreign currency to SSIs, direct
equity investment in SSIs, and financial assistance to enable well-run
export-oriented units to acquire ISO 9000 series certification. Besides
it provides assistance for infrastructure development, creation of
marketing channels, and development of industrial areas.
Under schemes like seed capital, National Equity Fund (NEF), Mahila
Udyam Nidhi (MUN), Self-employment Schemes for Ex-servicemen
(SEMFEX), Self-employment Scheme under Prime Minister’s Rozgar
Yojana (PMRY), Micro-Credit Scheme (MCS), and Rural Industries
Programme (RIP), SIDBI provides equity type assistance to special
target groups like new promoters, women, ex-servicemen, etc.
The extent of refinance on loans under these schemes has been
increased from 75 per cent to 100 per cent in respect of term loan and
working capital components. It also provides short term working
capital loans, venture capital support, and different forms of resource
support to banks and other institutions, support for credit rating,
quality certification, and vendor development.
Technical and related support services are also provided to the small
scale sector. Promotional and developmental activities of SIDBI have
increased manifold in recent years.
5. Industrial Development Bank of India:
The Industrial Development Bank of India (IDBI) was established on 1
July, 1964 as an Apex National Development Bank in the field of
industrial finance in India. For the first 12 years it functioned as a
wholly owned subsidiary of the Reserve Bank of India. Subsequently,
as a result of an increase in its activities and its diverse
responsibilities, a legislation was enacted in 1975 for reconstituting
IDBI as a wholly owned undertaking of the Union Government.
6. Technical Consultancy Organisations (TCOs):
National financial institutions IDBI, IFCI and ICICI have promoted
state Technical Consultancy Organisation (TCOs) to facilitate
availability of consultancy services and counselling to small scale
entrepreneurs in particular for preparation of techno-economic
feasibility reports, market survey, modernization, and diversification
programmes, revival of sick units and preparing applications for
financial institutions and banks. TCOs provide these services at
reasonable rates.
TCOs also operate special schemes subsidizing the costs of
preparing techno-economic feasibility report declared by
institutions like IFCI as given below:
i. Schemes facilitating modernization of tiny small scale and ancillary
units.
ii. Schemes to control pollution impact of small scale units.
iii. Schemes to aid women entrepreneurs
Subsidy ranging from 50 per cent to 75 per cent of the TCOs fees
subject to certain ceilings is provided by IFCI to TCOs for passing it on
to the beneficiary units. The schemes facilitate small scale and
ancillary units to put together modernization packages and adopt
improved and updated technology and methods of production.
Small scale and medium scale units with project cost up to Rs. 3 crore
are also aided in devising measures for control of air, water, or soil
pollution suited to their specific industrial activities to conform to the
regulations imposed by bodies such as – Pollution Control Boards.
Over 16 TCOs are currently functioning in different parts of the
country.
7. Small Industry Development Corporations:
Small Industry Development Corporations were set up in most states
to promote the small scale industrial units.
They perform the following functions:
i. Distribution of raw materials
ii. Provide marketing assistance
iii. Operate industrial estates and develop industrial plots
iv. Supply machinery on hire-purchase basis
v. Manage units taken over by the government
vi. Grant financial assistance.
Almost all the corporations now in operation undertake all these
functions. Basically they procure and distribute raw materials, provide
marketing support and supply machinery under hire-purchase
arrangements.
The Andhra Pradesh Small Scale Industries Development Corporation
has pioneered support to technocrats and craftsmen through hire-
purchase industrial estates and provision of equity finance on joint
venture basis.
8. Industrial Estates:
The programme of establishing industrial estates started in 1955 with
the objective of encouraging and promoting small scale industries in
India. Industrial estates provide built- in factory sheds, power and
water facilities, roads, godowns, common facility services and
workshops.
Other facilities are subsidy on rent for factory accommodation,
allotment of sheds on hire-purchase basis or outright sale,
concessional tariff for water and power supply, transport subsidy, etc.
These facilities are exclusive of general facilities available to small
scale industries.
Precisely, an industrial estate is a group of factories, constructed on an
economic scale in suitable sites with facilities of water, transport,
electricity, steam, bank, post office, canteen, watch and ward, and
first-aid; and provided with special arrangements for technical
guidance and common service facilities.
9. Trade Development Authority:
The Trade Development Authority (TDA) was established in 1970 as
an autonomous non-profit society to assist export promotion. Since, it
is a non-profit organization; it does not participate in direct
commercial transactions but plays the role of a catalyst. The emphasis
of TDA is on specific products, specific exporters, specific markets,
and specific buyers, following the concept of selectivity.
TDA’s assistance to small scale sector is in the form of technical
guidance through product adaptation and product development,
import of samples, trade fairs, buyers-sellers meets, etc. In addition,
TDA undertakes maker studies on its range of products in selected
markets. TDA also compiles and brings out country bulletins
conveying information generally required by exporters.
10. State Trading Corporation of India:
State Trading Corporation (STC), a fully Government-owned
organization, is India’s premier international trading house. The STC
assists the small scale industries in organizing themselves into viable
groups to develop a reliable supply base for increasing their exports.
In addition, STC assists in upgrading the quality of their products,
technical expertise, supply of equipment, and machinery at low
interest rates. STC also introduced a few innovations aimed at specific
product group export expansions through promotion of small
manufacturers’ consortia and even common brand names.
11. Export Consortia:
Export Consortia formation was introduced in 1981 for providing
strength to potential small scale units which might otherwise not be
able to consider exporting their products. An export consortium of
small industries can be formed by ten or more small scale units
coming together under a common umbrella for developing exports of
selected items/ products manufactured by them.
Individual units do not have to worry about the problems from
combined or centralized operations. The consortia provides a focal
point for organizing export marketing efforts of member units,
negotiate and obtain orders, establish distribution channels, and
organize common programmes for market and sales promotion.
Government of India extends all the facilities available to export
houses to consortia of small units also which satisfy criteria relating to
export performance membership and organization.
12. National Federation of Industrial Cooperatives:
The National Federation of Industrial Cooperatives Ltd. was
established in 1966 to function as a catalyst for the promotion and
strengthening of industrial cooperatives and to act as an apex agency
to help industrial cooperatives market the product of their member
cooperative societies.
NFIC’s marketing assistance role can be broadly
summarized in the following points:
i. Opening branches, establishing godowns, and sales depots;
ii. Undertaking publicity programmes to promote salability of the
products of members;
iii. Organizing/participating in exhibitions;
iv. Establishing liaison with prospective customers both within and
outside the country;
v. Conducting/commissioning market research/surveys and studies
and disseminating market information to its members.
13. Indian Institute of Foreign Trade (IIFT):
Indian Institute of Foreign Trade established in 1963 as an
autonomous organization to promote small industry exports. During
the last 25 years, the Indian Institute of Foreign Trade has been
rendering valuable service to the cause of international trade in the
field of both training and research; it has taken special interest in
organizing research studies and publication of interest to the small
scale sector.
Its recent innovative services like the preparation of film documentary
a success story of a small manufacturer-exporter-training kits/packs
to facilitate standard training practices for in-service personnel are of
great value to both small-manufacturer-exporters and Indian
institutions engaged in training of export marketing professional.
Export Credit Guarantee Corporation (ECGC) is an export promotion
company that works under the command of the Department of
Commerce, Ministry of Commerce 6c Industry, and Government of
India. This organization is under the management of Board of
Directors. The board consists of representatives of the Reserve Bank of
India, Government, insurance, banking, and exporting community.
In terms of coverage of national exports, Export Credit Guarantee
Corporation is the fifth leading credit insurer across the globe. ECGC
offers covers of credit risk insurance to the exporters. It also provides
assurance to the financial institutions for the benefit of the exporters
For investing in the joint ventures abroad it offers overseas investment
insurance to the companies of India. The investment is done in the
form of loan or equity.
Export Credit Guarantee Corporation of India Ltd. helps the exporters
in various ways.
Some of them include:
i. Offering insurance protection to exporters against payment risks
ii. Making it easy to obtain export finance from banks/financial
institutions
iii. Providing information on credit-worthiness of overseas buyers
iv. Assisting exporters in recovering bad debts
v. Offering assistance in export-related actions
vi. Making information available on different countries with its own
credit ratings.
Export credit insurance is necessary to avoid the risk factors of the
exporters. It protects the exporters from the risks of payment and
facilitates them to inflate their abroad trade with no fear of loss.
Export Credit Guarantee Corporation of India Ltd. offers various
services and products to the people.
There are several credit insurance policies, guarantees to banks, and
special schemes as well. Standard policies, small exporters’ policy,
buyer exposure policy, software project policy, IT- enabled services,
construction work policy, and service policy are some of the credit
insurance policies offered.
14. Export Promotion Councils:
Export Promotion Councils are an important source for locating
foreign importers by providing products and prospective countries
where goods can be exported. Small scale units can register with the
respective export promotion councils by paying a registration fee at a
substantially lower rate than applicable for units in the large scale
sector.
Export Promotion Councils, TDA, and IIFT are regularly engaged in
collection of data through various surveys and bridging the
information and communication gap pertaining to overseas demand,
price trends, consumer preference, change in design and fashion,
competitions, tender and trade enquires, etc.
15. Export-Import Bank:
EXIM Bank was established in January 1982 with a view to providing
financial assistance to exporters and importers and functioning as a
nodal body for coordinating the work of the institutions engaged in
financing export-import of goods and services with a view to
promoting the country’s international trade.
The powers of Exim bank are summarized in the following
points:
i. Grant loans and advances to commercial banks or other eligible
financial institutions by way of refinance of export-import loans.
ii. Underwriting security issues of any company engaged in export or
import.
iii. Accept, collect, discount, rediscount, purchase, sell or negotiate
within or outside India, bills or promissory notes relating to export or
import.
iv. Open, grant, issue, and confirm letters of credit and collect bills and
other documents thereunder.
v. Undertake development and merchant banking activities related to
export-oriented units.
vi. Provide investment finance to Indian exporters for equity
participation in joint ventures abroad.
vii. Other activities related to foreign trade like buying, selling, or
dealing in foreign exchange.
Through its innovative packages of financial assistance it has
successfully promoted Indian exports. It has established an Export
Development Fund for the purpose of research, training, survey, and
market intelligence in connection with the country’s international
trade.
EXIM Banks export financing schemes comprise of the
following:
i. Direct financial assistance to Indian exporters to enable them to
extend term credit to overseas importers of eligible Indian goods.
ii. Pre-shipment credit to Indian exporters to enable them to buy raw
materials to facilitate production for export.
iii. Lines of credit facility to enable overseas financial institutions,
foreign governments, etc. to lend term-loans to foreign importers to
finance import of Indian goods.
iv. Refinance of export credit to commercial banks authorized to deal
in foreign exchange,
v. Export bills rediscounting scheme of the bank enables commercial
banks in India to fund post shipment export credit to Indian
exporters.
In 1984, EXIM introduced a new financial programme to support
deemed exports in India. Deemed exports occur in case of specified
transactions within India which result in foreign exchange earning or
savings of foreign exchange. For example, supplies made by Indian
manufacturers to units in Free Trade Zones and 100 per cent export
units qualify as deemed exports. The Bank offers deferred credit at an
internationally competitive rate to eligible deemed exports either
through the supplier or directly to the buyer.
16. Industrial Reconstruction Bank of India (IRBI):
Industrial Reconstruction Bank of India (IRBI) was established in 1971
to tackle the problems of industrial sickness especially in the small
scale sector arising out of rapid industrialization of the economy. In
1986 the corporation reconstituted as the Industrial Reconstruction
Bank of India.
IRBI acts as a principal credit and reconstruction agency for industrial
revival and coordinates work of other institutions engaged in similar
work. IRBI undertakes revival of sick units by modernization,
expansion reorganization, diversification or rationalization of
industries.
IRBI’s primary responsibility is to provide financial and technical
assistance and guidance to sick industrial units which are not in a
position to get assistance from normal banking channels. It grants
reconstruction loans and guarantees on soft terms. Assistance may be
in the form of term-loans, equipment leasing, hire-purchase, line of
credit to small scale units, and promotional financing.
An equipment leasing scheme was introduced in 1982 so that
industrial units could replace and acquire necessary capital equipment
on lease basis spread over a number of years. IRBI extends financial
assistance up to Rs. 5 lakh to sick small scale units whose individual
requirements are Rs. 10 lakh or less under its lien of credit scheme
which operates through State level institutions.
17. Industrial Finance Corporation of India (IFCI):
Industrial Finance Corporation of India (IFCI) is the first national
level Development Bank set up in 1948, soon after Independence by an
Act of Parliament with the objective of providing medium and long
term finance to eligible industrial concerns in the country.
IFCI’s activities may be broadly classified into:
i. Project Financing Operations and
ii. Promotional Activities.
i. Project Financing Operations:
Project Financing Operations benefit medium-large and large sized
industrial projects organized in co-operative or corporate sector. IFCI
provides support measures to improve productivity of human and
material resources and accelerate the process of industrialization.
As part of its promotional activities, it participates with IDBI and
ICICI to provide a range of services.
IFCI has also its own promotional schemes with the
following objectives:
(a) Fill in gaps in promotion and growth of industries in rural, tiny,
and small scale sector.
(b) Provide needed guidance in modernization, market surveys,
marketing assistance, quality control, etc., and also in identification,
formulation, implementation, and operation of industrial projects in
rural, tiny, and small/medium scale sectors.
(c) Improve productivity of material and human resources.
ii. Promotional Schemes:
These are broadly sub-divided into the following three
categories:
a. Consultancy Fee Subsidy Schemes:
Subsidy under these schemes is routed through technical consultancy.
Subsidy is available for following specific purposes under
distinct schemes:
(1) Scheme of subsidy for meeting cost of feasibility studies to small
entrepreneurs in rural, cottage, tiny and small scale sector,
(2) Scheme of subsidy for promotion of ancillary and small scale
industries,
(3) Scheme of subsidy to new entrepreneurs for meeting cost of
market research/surveys.
(4) Scheme of subsidy for providing marketing assistance to small
scale units.
(5) Scheme of subsidy for revival of sick units in tiny and small scale
sectors,
(6) Subsidy scheme for implementing modernization programme of
small scale sector.
(7) Scheme of subsidy for control of pollution in small and medium
scale units.
b. Interests’ Subsidy Schemes:
Subsidy is available for following specific purposes under
distinct schemes:
(1) Interest subsidy for Self-Development and Self-employment of
Unemployed Young Persons.
(2) Scheme of interest subsidy to women entrepreneurs,
(3) Interest subsidy for encouraging adoption of indigenous
technology.
(4) Scheme of interest subsidy for encouraging quality control
measures in the small scale sector.
c. Assistance Schemes:
These include:
Schemes of assistance for encouraging quality control measures in
small scale sector.
18. Industrial Credit and Investment Corporation of India
Limited (ICICI):
ICICI as a development bank set up in 1955 to encourage and assist
industrial development and investment in India at the initiative of
World Bank, Government of India, and representatives of industry.
(ICICI Bank was established in 1994 for banking operations.)
Its main objectives are as follows:
i. To encourage and assist industrial investment in the private sector.
ii. To provide scarce foreign currency loans.
iii. Encourage and promote expansion of capital markets.
Forms of Assistance:
i. Underwriting of public and private issues of securities
ii. Direct subscription
iii. Rupee loans repayable over a maximum of 15 years
iv. Foreign currency loans for importing capital equipment and
technology
v. Guaranteeing payments for credits given by Indian and foreign
sources
vi. Credit facilities to indigenous manufacturers for promoting sale of
industrial equipment on deferred payment
vii. Equipment leasing facility
viii. Merchant banking services
ix. Project counselling for non-resident Indians.
In addition to direct finance, ICICI offers a variety of services intended
to promote industrial development.
Some of them are as follows:
a. Export development
b. Leasing
c. Project promotion
d. Backward area development
e. Rural development
f. Entrepreneurship Development Institute of India
g. Financing of Industrial Export Products under IBRD Act.
19. Export Credit Guarantee Corporation (ECGC):
With a view to enabling the small scale sector to participate to a
greater extent in the export activities of the country, the Export Credit
Guarantee Corporation provides special facilities to small scale
exporters by offering a higher percentage of cover and procedural
relaxations under its policies and programmers.
The ECGC offers guarantees to financial institutions against
commercial risk and political risks involved in exporting the products
to enable the exporters to obtain finance at pre-shipment and post-
shipment stages.
20. Marketing Development Assistance (MDA):
The marketing development assistance is administered by a
committee under the chairmanship of the union commerce
secretary and is utilized for the following purposes:
i. Product promotion/commodity development to cover expenditure
on Cash Compensatory Support (CCS) for various export products as
well as transport subsidy on goods for export purposes;
ii. Cash Compensatory Support for deemed exports, supplementary
CCS in lien for duty drawbacks for deemed exports;
iii. Export credit facilities to pay subsidy of 1.5 per cent towards
interest charges on export finance provided by the banks to exporters
(this scheme is administered by RBI, Mumbai);
iv. To protect exporters against exchange fluctuations on deferred
payments up to 15 years;
v. To pay grant-in-aid to export promotion councils;
vi. To pay grant-in-aid to approved organizations, export houses,
consultancy organizations and individual exporters, and undertake the
following –
a. Market research, commodity research, area survey, etc.
b. Export publicity and dissemination of information;
c. Trade delegations and study teams;
d. Participation in trade fairs and exhibitions;
e. Establishment of office and branches in countries abroad;
f. Research and development schemes, etc;
g. Any other scheme that would promote the development of market
for Indian goods abroad.
The grants to Export Promotion Councils on their administrative
expenditure are given at a uniform rate of 60 per cent and grants to
them on their export promotional expenditure range from 25 per cent
to 60 per cent depending upon the nature of promotional activity.
21. Andhra Pradesh State Trading Corporation (APSTC):
Established in 1970, APSTC has been helping the skilled artisans with
facilities for marketing their products within and outside the country.
Its main objectives and functions include the following:
i. Promotion of exports from the state.
ii. Import of various-materials required by the industry particularly in
the small scale sector in the state.
iii. Undertake internal trading in selected goods identified from time
to time.
The corporation has various emporia and showrooms in various places
such as – New Delhi, Rajamundry, Vijayawada, Visakhapatnam,
Hyderabad, Tirupati, Warangal, and Anantapur for the marketing of
goods manufactured by small entrepreneurs The corporation, a
registered Export House, has also been engaged in the export of
various items, viz., handlooms, engineering goods, chemicals, forest
products, etc.
It also serves as a term lending institution in the state, which provides
adequate and timely financial assistance to entrepreneurs in order to
promote industrial development in the state. The Corporation
sanctions loans on the security of primary as well as collateral security.
A brochure containing the check list as to the various papers required
for completion of legal formalities for securing the loan sanctioned by
the Corporation is brought for the convenience of the entrepreneurs.
After receipt of the sanction letter, the entrepreneur has to complete
the legal formalities securing the loan sanctioned as stipulated in the
sanction letter. After completion of legal formalities, funds will be
released as per eligibility.
Andhra Pradesh State Financial Corporation (APSFC) also extends
financial assistance for setting up industrial units in small and
medium scale sector, and service enterprises in the state. The
Corporation extends finance basically through two products – term
loans and working capital term loans.
22. Entrepreneurship Development Institute of India:
The Entrepreneurship Development Institute of India (EDII) is a
national organization promoted by All India Financial Institutions
such as – IDBI, ICICI, IFCI, and SBI and actively supported by the
government of Gujarat. Established in 1983, EDII has been actively
accelerating entrepreneurship development activities in the country.
Its main task now is to ensure the effectiveness of entrepreneurship
development programmes designed by it.
Acting as a national resource centre of expertize and know-how, EDII
has taken EDPs to less developed states and remote backward areas
where the need to identify indigenous expertize, to locate and develop
entrepreneurs is not available. EDII has stepped into fill the gap. The
catalytic and supportive roles of EDII for the nation-wide coverage of
EDP awareness as also the design of its programmes with innovations
have met with considerable appreciation.
23. Integrated Rural Development Programme (IRDP):
In spite of planned intervention and poverty alleviation measures
taken by the Government, the problem of rural poverty and
unemployment is increasing day by day. Keeping with this in view, the
Government introduced a new programme called the Integrated Rural
Development Programme (IRDP) aimed at solving the twin problems
of poverty and unemployment to a large extent.
The principal objectives of IRDP are elimination of unemployment
and underemployment and eradication of poverty. While substantial
additional employment opportunities can be created through
agriculture and allied programmes, it may be realized that the primary
sector alone may not be able to cope with the burning problem of
unemployment.
As such under IRDP special attention has been paid on the
development of secondary and tertiary sectors so as to generate
employment opportunities for rural masses. In this context, village
and small scale industry is such a sector, which if developed and given
proper attention can solve the problem of rural unemployment to a
great extent. Realizing these facts the Government included the
development of village and small industries under IRDP.
Under the programme, the planning strategy for the rural industries
sector aims at providing reasonable income to rural artisans and
substantial increase in employment opportunities. Measures have to
be taken to improve the income of existing artisans, and the same time
new artisans and entrepreneurs have to be brought into the fold of
self- employed people.
This calls for an integration of the welfare-oriented schemes with the
planning process that may be drawn up after taking the resource
endowments of the area into account. IRDP has already been extended
to cover all the blocks in the country.
24. Seed Capital:
To bridge the gap in financial resources of professional promoters,
seed capital assistance is provided up to 20 per cent of the cost of a
project of Rs. 2 lakh whichever is less to small/medium scale units.
Seed capital scheme assistance up to Rs. 15 lakh is provided to eligible
entrepreneurs whose requirement exceeds Rs. 2 lakh.
In case of proprietorship and partnership concerns it is in the form of
loan at the nominal rate of one per cent for medium and large scale
products. If the project’s cost ranges from Rs. 20 lakh to Rs. 200
lakhs, seed capital assistance is a big way of subscription to equity
preference shares in case of public limited companies, and preference
shall be in case of private limited companies. Irrespective of the
constitution of the unit, this assistance is available in the form of soft
loan.
25. District Industries Centre:
The concept of District Industries Centres was developed during the
Janata Government in 1977. DICs provide a focal point at the district
level for promotion of small, tiny, village, and cottage industries,
widely spread in rural and semi-urban areas.
They aim at providing all essential services and all possible practical
support at pre-investment, investment, and post-investment stages of
enterprise development. The main thrust of this programme is on the
develop ment of such industrial units in rural areas and small
towns for creation of large employment opportunities.
The DICs function as the nodal agencies for providing requisite
support services to village and small entrepreneurs under a single
roof. They cover all aspects like availability of resources, supply of
machin ery and equipment, and raw materials, effective arrangement
of credit facilities, market assistance and quality control, research and
training.

What is Management Education

1.

Is one discipline of higher education by which students are taught to be business leaders, directors,
managers, executives, and administrators. Learn more in: Professional Integrity for Educational Quality in
Management Sciences

2.

The act or process of imparting or acquiring knowledge to develop the members of the executive or
administration of an organization or business, managers or employers collectively, or train in the
techniques, practice, or science of managing, controlling or dealing, in the skillful or resourceful use of
materials, time, etc. Learn more in: Augmenting Research Competencies for Management Graduates

3.

Management education is one discipline of Higher education by which students are taught to be
business leaders, managers and administrators. It focuses on process of imparting or acquiring
knowledge to develop the members of the executive or administration of an organization or business,
managers or employers collectively, or train in the techniques, practice, or science of managing,
controlling or dealing, in the skillful or resourceful use of materials and time. Learn more in: Classroom
Behavior Among Management Students in the Higher Education of India: An Exploratory Study

4.

In all business and organizations regardless of size including private, not for profit, public and mixed
ownership this is the act of getting people together to accomplish desired goals and objectives using
available resources efficiently and effectively following ethical guidelines, striving to create integrity and
sustainable organizations caring for their communities as much as possible Learn more in: Innovative
Methods of Teaching Integrity and Ethics in Management Education

5.

An academic discipline of imparting or acquiring knowledge to develop the members of the executive or
administration of an organization or business, managers or employers collectively, or train in the
techniques, practice, or science of managing, controlling or dealing, in the skillful or resourceful use of
materials, time, etc. Learn more in: Development and Implementation of Integrated Quality Management
Framework in Management Education

6.

The act or process of imparting or acquiring knowledge to develop the members of the executive or
administration of an organization or business, managers or employers collectively, or train in the
techniques, practice, or science of managing, controlling or dealing, in the skillful or resourceful use of
 materials, time, etc. Learn more in: Student Competence: Approach to Study and Research in Virtual and
Real Educational Environment

What will a business education give me?

Management education offers all necessary tools to equip one with the necessary
techniques of successfully handling various business and management related issues.
Basic tools which will enable you to make contributions to global economy.

Besides providing the basic management capabilities it also provides :-

 The ability to use the contingency approach to solving business problems.

 Combining the best parts of several solutions into a unique and better solution.
 Having a global perspective
 Working with and learning from others

WORKING CAPITAL MANAGEMENT DEFINITION

The term ‘working capital management’ primarily refers to the efforts of the management
towards effective management of current assets and current liabilities. Working capital is nothing
but the difference between the current assets and current liabilities. In other words, an efficient
working capital management means ensuring sufficient liquidity in the business to be able to
satisfy short-term expenses and debts.
In a broader view, ‘working capital management’ includes working capital financing apart from
managing the current assets and liabilities. That adds the responsibility for arranging the working
capital at the lowest possible cost and utilizing the capital cost-effectively.
OBJECTIVES OF WORKING CAPITAL MANAGEMENT
The primary objectives of working capital management include the following:

 Smooth Operating Cycle: The key objective of working capital management is to ensure a smooth
operating cycle. It means the cycle should never stop for the lack of liquidity whether it is for buying raw
material, salaries, tax payments etc.
 Lowest Working Capital: For achieving the smooth operating cycle, it is also important to keep the
requirement of working capital at the lowest. This may be achieved by favorable credit terms with
accounts payable and receivables both, faster production cycle, effective inventory management etc.
 Minimize Rate of Interest or Cost of Capital: It is important to understand that the interest cost of
capital is one of the major costs in any firm. The management of the firm should negotiate well with the
financial institutions, select the right mode of finance, maintain optimal capital structure etc.
 Optimal Return on Current Asset Investment: In many businesses, you have a liquidity crunch at one
point of time and excess liquidity at another. This happens mostly with seasonal industries. At the time
of excess liquidity, the management should have good short-term investment avenues to take benefit of
the idle funds.
For a detailed understanding, you may consider referring, Objectives of Working Capital
Management.
 IMPORTANCE OF EFFECTIVE WORKING CAPITAL MANAGEMENT
Although the importance of working capital is unquestionable in any type of business. Working
capital management is a day to day activity, unlike capital budgeting decisions. Most
importantly, inefficiencies at any levels of management have an impact on the working capital
and its management. Following are the main points that signify why it is important to take the
management of working capital seriously.
 Ensures Higher Return on Capital
 Improvement in Credit Profile & Solvency
 Increased Profitability
 Better Liquidity
 Business Value Appreciation
 Most Suitable Financing Terms
 Interruption Free Production
 Readiness for Shocks and Peak Demand
 Advantage over Competitors
 Production and Operations Management
Production (or Operations) management is an umbrella term which
encompasses a gamut of ideas within the jingoistic managerial circles, mostly
exemplified by the varied literal definitions of these terms based on the source.
But we’ll confine ourselves to straightforward (and understandable) definition
to answer the basic question – ‘What is operations management?‘

Definition:
Production / Operations Management is defined as the process which
transforms the inputs/resources of an organization into final goods (or
services) through a set of defined, controlled and repeatable policies.
By policies, we refer to the rules that add value to the final output. The value
added can be in different dimensions, but the industrial set-up is mostly
concerned with the duo of quality and throughput.

Difference between Production and

Operations Management
Production and operations management are more similar than different: if
manufacturing products is a prime concern then it is called production
management, whereas management of services is somewhat broader in scope
and called operations management (because manufacturing services sounds
absurd, right?).
The line between products-based and services-based organizations is blurring
rapidly as well— car manufactures need to service their cars and the retailers
manufacture their own brand labels.
We will be referring to them jointly as POM from here on in this article, for the
benefit and convenience of all the parties involved.
What is Marketing Management – Introduction
In considering how the individual selling unit in the marketing system
operates, we will investigate the question- What is marketing
management? Some readers will be students who intend to be in
marketing management, others already are marketing managers, and
still others may be in related activities that bear on marketing
management in either a managerial or a regulative capacity.
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To meet all their needs our main objective is to develop a structure, a

“theory”, of managerial marketing around which they can organize
their reading and experience in order to arrive at a better
understanding of it.
This understanding can serve two objectives. First, it will help them
obtain new insights from the experiences they will be acquiring on the
job in the future. Inevitably they will develop from experience some
such structure to serve this crucial need anyway, so they can profit
from new experience and new knowledge. To acquire such a structure
from experience alone, however, is a slow and often uncertain process.
Formal education can help them to speed this up so they grow in
marketing skill much faster.
Second, understanding of marketing management will permit a better
grasp of the role of marketing in economic development, which many
countries are so earnestly seeking. This structure is culture- free and
can be applied to any environment. In general, study of marketing
management leads to a better evaluation of marketing activity in terms
of its performance in meeting the consumer’s needs.
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Marketing management is the process of decision making, planning,

and controlling the marketing aspects of a company in terms of the
marketing concept, somewhere within the marketing system. Before
proceeding to examine some of the details of this process, comments
on two aspects will be helpful background.
The marketing concept is simple in principle but often very difficult, if
not impossible, to fully implement. Adam Smith’s comment cited
above is most consistent with it. The concept is that a company can
more effectively serve its own objectives if it will integrate the various
aspects of its marketing activities explicitly so as to meet the
preferences of its customers.
To one unfamiliar with company practice the need for implementing
the concept and the capacity to do it would seem to be so obvious as
not to merit discussion.
This process of marketing management takes place “somewhere”
within the marketing system. Having seen the marketing system
portrayed, you know that “somewhere” can be within any of the many,
many companies—manufacturing, wholesaling and retailing—that
make it up. Marketing management is practiced in every one of them.
Assume, to simplify, that we are concerned only with the man-
ufacturing level in a direct sense because the manager we are
considering occupies a marketing management position there.
What is the nature of each of the three elements making up the
marketing management process – decision making, planning, and
control?

What is Marketing Management – Definition: Provided by

Institute of Marketing Management and Philip Kotler
Traditionally, markets were viewed as a place for exchange of goods
and services between sellers and buyers to the mutual benefit of both.
Today, marketing is exchange of values between the seller and the
buyer. Value implies worth related to the goods and services being
exchanged. The buyer will be ready to pay for the goods if they have
some value for him.
Marketing is the business function that controls the level and
composition of demand in the market. It deals with creating and
maintaining demand for goods and services of the organization.
Marketing management is “planning, organising, controlling and
implementing of marketing programmes, policies, strategies and
tactics designed to create and satisfy the demand for the firms’
product offerings or services as a means of generating an acceptable
profit.”
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It deals with creating and regulating the demand and providing goods
to customers for which they are willing to pay a price worth their
value.
Marketing Management performs all managerial functions in the field
of marketing. Marketing Management identifies market opportunities
and comes out with appropriate strategies for exploring those
opportunities profitably. It has to implement marketing programme
and evaluate continuously the effectiveness of marketing-mix. It has to
remove the deficiencies observed in the actual execution of marketing
plans, policies, and procedures. It looks after the marketing system of
the enterprise.
Institute of Marketing Management, England, has defined Marketing
Management as “Marketing Management is the creative management
function which promotes trade and employment by assessing
consumer needs and initiating research and development to meet
them. It co-ordinates the resources of production and distribution of
goods and services, determines and directs the total efforts required to
sell profitably to ultimate user”.
According to Philip Kotler, “Marketing Management is the art and
science of choosing target markets and building profitable relationship
with them. Marketing management is a process involving analysis,
planning, implementing and control and it covers goods, services,
ideas and the goal is to produce satisfaction to the parties involved”.
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From the above definitions, we can conclude that Marketing

Management is the process of management of marketing programmes
for accomplishing organizational goals and objectives.
Marketing Management Involves:
1. The setting of marketing goals and objectives,
2. Developing the marketing plan,
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3. Organising the marketing function,

4. Putting the marketing plan into action and
5. Controlling the marketing programme.
Marketing Management is both a science as well as an art. Those
responsible for marketing should have good understanding of the
various concepts and practices in marketing, communication, and
analytical skills and ability to maintain effective relationship with
customers, which will enable them to plan and execute marketing
plans.
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Continuous practice in the areas of personal selling, sales promotion,
advertising, etc. would enable them to become artists. Scientific and
artistic aspects of marketing would influence each other, leading to a
new generation of marketing managers.

What is Marketing Management – Concept

This concept advocates that a manufacturer should begin his task with
the consumer focus. He has to primarily study the consumer and
understand the needs, desires, requirements and conveniences of the
latter. A manufacturer should design a new product or improve an
existing one strictly keeping in mind the needs, desires etc. of the
consumer. The product should exactly satisfy the consumer.
Therefore, a manufacturer should design and manufacture a product
which will be accepted by the consumer rather than the one which can
be manufactured by him easily. A consumer is basically fastidious and
fickle minded. This makes that task of understanding the consumer
and designing an appropriate product much more difficult, however
this is the only way a manufacturer can succeed in a competitive
market.
Selling should be preceded by customer study, marketing research and
product development. The entire focus should be on the consumer and
his needs.
“There will always, one can assume, be need for some selling. But the
aim of marketing is to make selling superfluous. The aim of marketing
is to know and understand the consumer so well that that the product
or service fits him and sells itself. Ideally marketing should result in a
customer who is ready to buy. All that should be needed then is to
make the product or service available” – Peter Drucker.
This concept is also called customer orientation.
The marketing concept which is also called the modern marketing
concept as practised by most of the firms in the present situation is
actually a combination of all the other concepts. The modern
marketing concept consists of an integrated effort on the part of the
marketer to identify the consumer needs and satisfy them through
appropriately designed products and for this task use all the marketing
techniques related to product, selling, market study, consumer
behavior, product designing, pricing etc.
“The Marketing concept is a customer orientation backed by
integrated marketing aimed at generating customer satisfaction as the
key to satisfying organizational goals”. – Philip Kotler
“Modern marketing concept is a corporate state of mind that insists on
the integration and co-ordination of all marketing functions which in
turn are welded with the other corporate functions for the basic
objective of producing maximum long range corporate profits.” -
Felton
The following are the features of marketing concept
(modern marketing concept, integrated marketing concept,
customer orientation):
i. Focus on customer needs – The needs of the consumer are studied
and these become the basis of all product related activities such as
designing, pricing, distribution, packaging etc.
ii. Providing consumer satisfaction – Every organization aims at
providing maximum consumer satisfaction by understanding his
needs and designing an appropriate product. The success of an
organization is directly related to the consumer satisfaction it
provides.
iii. Integrated Marketing Management – Marketing management is
only a part of the total managerial functions of an organization such as
finance management, production management, human resources
management etc. All these functions are integrated in order to provide
maximum satisfaction to the consumer. Thus all the functional areas
of an organization are integrated.
iv. Achieving organizational goals – Modern marketing states that an
organization must aim at maximizing consumer satisfaction and in the
process enable itself to achieve its goals such as growth, market share
and reasonable amount of profit or return on investment.
v. Innovation – Innovation is an important tool to provide consumer
satisfaction. Innovative methods must be used to understand the
consumer, design an appropriate product and offer it to the consumer.
What is Marketing Management – Features: Managerial
Process, Consumer Centric, Research Analysis, Planning and
Development and a Few Others
1. Managerial Process:
Marketing management is a managerial process involving planning,
organising, decision making, forecasting, directing, coordinating and
controlling. Stanley Vance defines management as the process of
decision making and controlling. Every aspect of marketing, starting
with identifying the consumer’s need and wants, identifying the
targeted customer, product planning, development, pricing,
promotion, distribution process requires planning, decision making,
coordination and controlling.
2. Consumer Centric:
All marketing activities are consumer centric. The consumers are the
king. Marketing activities are based on the premise of “make what the
market wants”. The principal objective of marketing is to create new
customers and to retain current customer. Marketing management
performs the task of converting the potential customers into actual
customer.
This is possible through satisfaction of customer’s needs and wants by
delivering them, appropriate goods and services according to their
needs and wants, at right time and through convenient channel.
3. Research Analysis:
The basis function of marketing is identification of consumer’s needs
and wants .This requires continuous and systematic collection of data,
analysis and reporting of data relevant to marketing activities. This
helps the management to understand consumer’s needs, wants,
preferences and behaviour of the consumer towards firm’s marketing
mix strategies. This helps in forecasting and planning future course of
action.
4. Planning and Development:
Marketing involves planning and development of goods and services.
Organizations make a continuous endeavour towards planning,
development and innovation of product and services so as to meet the
changing demand, taste and preferences of the consumers.
5. Building Marketing Framework:
Marketing activities are not just selling and distribution of ownership
of goods and services from the producer to the ultimate consumer. But
it involves a series of activities like research analysis, production,
development and innovation, advertisement and promotion pricing
decision, selling and distribution, customer relationship and after
sales service.
All these functional areas of marketing must be effectively planned,
organised and built effectively to achieve best results. Marketing
structure depends upon the size of the enterprise, geographical
coverage of the operation, number of product lines, nature of product,
size of customers.
6. Organizational Objectives:
All marketing activities are based on overall organisational objectives.
The marketer bridges the gap between overall organisational
objectives of achieving high profit and maximization of sales and
consumer’s interest of satisfying needs.
7. Promotional and Communication Process:
The ultimate objective of a firm is to maximise sales volume and
profit. This can be achieved through promotion and communication
about the goods and services. This function of marketing management
enables the firm to provide information about the product to the
customers.
8. Controlling of Activities:
Marketing management performs the function of controlling of
marketing activities. Marketing management evaluates the
effectiveness of marketing activities, to judge the efficiency of
marketing personnel and the plans. This process involves measuring
the actual performance with the standard and identifying the
deviations and taking corrective actions.
What is Marketing Management – Importance: Analysing
Market Opportunities, Determination of Target Market,
Planning and Decision Making and a Few More
Marketing management smoothen the process of exchange of
ownership of goods and services from seller to the buyer.
1. Analysing Market Opportunities:
Marketing management collects and analyses information related to
consumer’s needs, wants and demands, competitor’s marketing
strategies, changing market trends and preferences. This helps to
identify market opportunities.
2. Determination of Target Market:
Marketing management helps to identify the target market that the
organization wishes to offer its product.
3. Planning and Decision Making:
Marketing management helps to prepare future course of action.
Planning relates to product introduction, diversification. Decision
making regarding pricing, selection of promotional mix, selection of
distribution channel is taken by the marketing management.
4. Creation of Customer:
Consumers determine the future of the market .Therefore providing
the best product to the consumer according to their preference is the
important task of marketing. Marketing management helps in creation
of new customers and retention of current customers.
5. Helps in Increasing Profit:
Marketing caters to the varied and unlimited needs of consumers.
Marketing management helps to increase profit and sales volume. This
is achieved by expansion of market and increasing customers.
6. Improvement in Quality of Life:
Marketing management aims at providing innovative product and
services to the customers. Marketers continuously strive to
incorporate new technology and mechanism in their product to
provide more satisfaction to customers than before. This improves
quality of life and makes life of consumers easier than before.
7. Employment Opportunities:
Marketing process is a combination of different activities like research
work to assess the marketing environment, product planning and
development, promotion, distribution of product to customers and
after sales service. Marketing process requires researcher, production
engineer, different distribution intermediaries, sales personnel also
creates employment opportunities in advertisement section. Thus
marketing management opened up different employment avenues
thus creating employment opportunities.

What is Marketing Management – Functions: Assessing the

Marketing Opportunities, Planning the Marketing Activities,
Organising the Marketing Activities and a Few Others
Marketing is related to markets and therefore marketing management
calls for integration of the various elements of market. It has the task
of organising these elements into an effective operating system so that
it can serve both customer and business enterprise effectively.
Various functions of marketing management are:
1. Assessing the Marketing Opportunities:
Determination of marketing objectives and assessment of the
marketing opportunities for the firm, is an important function of
marketing management. The constantly changing market conditions
and opportunities make it imperative for the marketing management
to come out with planned progammes to meet the challenges, and reap
the opportunities.
2. Planning the Marketing Activities:
Planning is an important managerial function. Planning of marketing
activities is a crucial task and involves numerous steps. It involves
planning effective strategies to achieve the desired marketing
objectives. It is concerned with formulation of policies relating to
product, price, channels of distribution, promotional measures,
forecast of target sales etc. Planning provides the basis for an effective
marketing for the enterprise.
3. Organising the Marketing Activities:
Another significant function of marketing is organising it implies
determination of various activities to be performed and assigning
these activities to right person, so that marketing objectives are
achieved. In the light of the changing concept of marketing, it is
necessary that the organisation structure is flexible and
accommodative. This will help in better interaction between
organisation and environment.
4. Co-Ordinating Different Activities of Enterprise:
Even the best of planning will not be rewarding if there is improper
coordination between different activities of the organisation.
Marketing involves various activities and these are inter-related and
interdependent. Product decisions, pricing strategies, channel
structure research activities all require proper coordination. Only then
the objectives can be achieved.
5. Directing and Motivating the Employee:
A good direction is a must for effective performance of marketing
functions. Direction helps in rightful performance of the work.
Different leadership style are practised to guide the subordinates. A
leader directs his subordinates and ensures through effective
supervision, that the performance is as per planned specification. At
the same time, it is necessary that employers are properly motivated.
Motivation not only helps in better performance by the employee but
also holds him back to the organisation for longer periods.
These days organisations are very serious as far as their motivation
policies are concerned. New ways of motivation are being introduced
so that the employee gives his best of services.
6. Evaluating and Controlling Marketing Efforts:
In order to have a profitable venture, marketing manager must on a
continuous basis, evaluate the marketing efforts. This will help him in
knowing the deficiencies if any, which can be corrected beforehand
only and proper adjustments can be made with the changing
environment. Controlling is a managerial function concerned with
comparison of actual performance with the standard performance and
locating the shortcomings if any, finally corrective measures are taken
to overcome the shortcomings.

What is Marketing Management – Process

Marketing Management process involves the following:
1. Managerial marketing process starts with the determination of
mission and goals of the entire enterprise and then defines the
marketing objectives to be accomplished.
2. Evaluate corporate capabilities on the basis of our strengths and
weaknesses.
3. Determine marketing opportunities which have to be capitalised.
We have to identify and evaluate unsatisfied and potential customers’
needs and desires. Market segmentation will enable us to select target
markets on which we can concentrate our efforts. Marketing
opportunities are influenced by marketing environment, competition,
government policies, mass-media, consumerism, public opinion,
distribution structure, etc.
4. Once the company has full information regarding marketing
opportunities, they can formulate marketing strategies in the form of
dynamic action-oriented formal plans to achieve mission, goal, and
objectives. A strategy is a pattern of purposes and policies, a planned
course of action in pursuit of clearly stated objectives in the face of
limited resources, and intelligent competition.
Marketing strategy points out the level, mix, and allocation of
marketing efforts in marketing action plans. The company has
appropriate marketing-mix for each target market. The marketing-mix
is expected to sell more than competitors.
5. Marketing action plans or programmes are to be implemented
through proper communication, coordination as well as motivation of
marketing personnel.
6. Performance according to plan is duly assured by effective
marketing control. An effective control system is essential to measure
and evaluate the actual results of the marketing strategy. The results
are evaluated against our desired objectives. Feedback of evaluation
enables marketing management to revise, adopt, or modify goals and
objectives and replan on the basis of feedback of evaluation.
7. Marketing process is on-going or dynamic and it must adapt itself to
the ever-changing environmental needs.
Notes:
1. Marketing programme starts from the product concept and it does
not end until customer wants are adequately satisfied.
2. Profitable sales over the long-run and repeat-purchase by customers
are vital to success in marketing.
3. Marketing research and marketing information service alone can act
as effective tool in all decisions of Marketing Management
4. Marketing policies cover marketing analysis and research, product
analysis, marketing channels, personal selling, sales promotion and
advertising, pricing and non-price competition.

What is Marketing Management – Scope: Marketing Research,

Determination of Objectives, Planning Marketing Activities,
Pricing of Product and a Few Others
Marketing management, like all other areas of management comprises
of the function of planning, organising, directing coordinating and
controlling.
1. Marketing research:
Marketing research involves identification of needs, wants taste and
preferences of the targeted customer. Marketing management
conducts a continuous analysis of consumer’s behaviour towards
firm’s marketing mix strategies, business environment; competitor’s
marketing strategies in order to plan effectively the marketing
activities of future.
2. Determination of Objectives:
Marketing management performs the task of setting marketing
objectives. The marketing objectives are set in accordance with the
overall organisational objectives of profit maximization. Marketing
objectives relates to attracting new customers, retention of current
customer, expansion of customer base, introduction of new product,
improvement of old product and so on. Marketing management aims
at maximising the customer’s value by providing high satisfaction to
the customers.
3. Planning Marketing Activities:
Planning involves determining the future course of action. Planning
helps in accomplishment of objectives in a systematic manner.
Planning of marketing activities relates to determining product line
strategies, planning for product diversification, advertisement and
promotional activities, planning related to selling and distribution
process.
Planning may be conducted on short term, medium term and long
term basis depending upon the requirements. Plans should be flexible
so as to adjust with the changing business environment.
4. Product Planning and Development:
Product is the basic element of marketing. Products are goods or
services that are offered to the customer for satisfying their needs and
wants. Products are customer oriented and offered to the customer’s
as per their requirement and preferences. Product planning involves
new product development, product innovation, product diversification
plan.
5. Pricing of Product:
Pricing is a complex function of marketing management. In most of
the cases prices form the decision making criterion for purchase
decision. Pricing decisions are based on cost of the manufacturing and
distribution of product, competitor’s pricing strategies, customer’s
willingness to pay for the product, customer’s perception about the
product.
6. Promotion:
Promotion and advertisement are essential in order to maximise sales.
Promotion and advertisement is essential to provide information to
the customers about the product, to attract new customers, to provide
reminder to customers about the product and to continue purchase, to
provide information about product improvement or introduction of
new brand. Marketing management develops new techniques and
tools for promotion of their product.
7. Distribution:
Distribution process facilitates easy availability of goods and services
to the customers at right time and at right and convenient location.
Selection of distribution channel depends upon the nature of the
product, price of the product, availability of intermediaries for
distribution and cost involved in the distribution process.
8. Evaluation and Controlling of Marketing Activities:
Marketing management performs the task of evaluation and
controlling of the marketing activities. Evaluation enables
identification of effectiveness of marketing plans and actions.

What is Marketing Management – Marketing Mix: Product Mix,

Pricing Mix and Promotion Mix
The marketing manager makes marketing plans within the framework
of controllable and non-controllable variables. The non-controllable
variables are social, technological, political, cultural and legal factors
which affect the marketing strategies. Controllable factors are the
product, price, promotion and channels of distribution. Marketing mix
is the combination of four controllable variables that make a
successful marketing programme.
(a) Product Mix:
It deals with physical attributes of the product and the benefits
associated with use of that product. Ownership of the product gives a
sense of pride and satisfaction to the consumer and, therefore, the
product should be properly designed, coloured and packed.
(b) Pricing Mix:
Pricing is an important decision made by the marketing manager.
While pricing a product, managers consider factors such as costs, legal
framework, prices charged by competitors and the prices that
consumers are ready to pay. Managers must price the product to
recover the costs and earn a reasonable return on capital. This ensures
long-run survival and growth of the enterprise.
(c) Promotion Mix:
It refers to firm’s communication with the consumers regarding the
product. It motivates them to buy the goods.
Sales can be promoted in three ways:
(i) Advertisement:
It presents the product details to consumers through media. It is a
non-personal means of communication.
(ii) Personal Selling:
The seller directly contacts the buyer and convinces him to buy the
goods and services.
(iii) Sales Promotion:
It supplements advertisement and personal selling as a means of
promoting sales. It increases sales by holding contests, lotteries etc.
Different combinations of sales promotion techniques can be used at a
point of time.
(d) Channel Mix:
After the product is designed, priced and advertised, it arouses
consumers’ interest to buy it. The channel mix identifies the path or
the route through which goods are transferred from sellers to buyers.
The seller may sell directly to the buyer or through intermediation of
wholesalers and retailers. More than one channel of distribution can
be adopted at the same time; for example, a wholesaler can sell
through retailers and also directly to consumers.
The channel mix not only selects a channel of distribution, it also
maintains it to ensure consistency in the selling practices followed by
the sales people.

What is Marketing Management – Marketing Decision Making:

Product Variation, Marketing Channels, Prices and Promotion
The manager makes decisions about things he can control—the
controllable. In very general terms, what does he decide? Roughly, he
decides the kind of a product to produce, the kind of a distribution
system to use, the price to charge, advertising messages and media,
and the salesmen’s message to customers on whom they call.
In making these decisions he learns from experience to use an
operating principle which simplifies his task and avoids substantial
frustration. It might be called the “law” of marketing management,
like other rules of behaviour such as Aristotle’s Golden Mean and the
Golden Rule.
This “law” of marketing management states- Since some things are
controllable and others are not, separate the controllable from the
uncontrollable and don’t waste your time and energy trying to change
the uncontrollable. Rather attempt to understand it so you can adapt
the controllable to the uncontrollable in such a way as to satisfy your
company’s needs as effectively as possible. The application of this law
is an art in which analytic tools from science can aid.
As suggested by the discussion of the marketing system, there is a
complex of more or less uncontrollable forces operating on the
manager. These can be summarized, as in the outer hexagon of Figure
6, as competition, demand, non-marketing cost, structure of
distribution, public policy, and company organization. Underlying
these are, of course, the much more fundamental forces of techno-
logical, social, political, and economic change. While over the long
term these factors will share the nature of the uncontrollable forces,
the manager is forced by such aspects as convenience and lack of
adequate data to concern himself mainly with the immediate
uncontrollable item.

The inside pentagon of Figure 6 portrays the controllable elements,

the ones about which the marketing manager can decide. The art of
marketing management is the effective adaptation of these elements to
the uncontrollable in the marketing environment so as to optimize the
company’s welfare. This optimum welfare can be thought of as the
maximum area attainable in the inner pentagon within the constraints
of its environment, the outer hexagon.
With Figure 6 for perspective, we will first examine each of the
controllables.
These relate to:
(1) Product or service variation,
(2) Selection and management of marketing channels for distributing
the product,
(3) Setting prices, and
(4) Fixing and allocating the promotional budget to advertising and
selling.
(1) Product Variation:
A company’s modification of the nature of its offering is achieved
through product and service decisions which are essentially of two
types. Some decisions are concerned with change of an existing
product to conform more nearly to the demands of the market. These
changes may be superficial or fundamental (for example, the use of a
new package as opposed to a revolutionary redesign of the product).
Other decisions concern dropping or adding an item to the product
line. These decisions of product change and change in product line are
common, since few companies in the United States produce a single
product. They are also serious decisions for most firms. A marketing
manager must be constantly on the alert to exploit new-product
opportunities and to avoid continuing an unprofitable item.
(2) Marketing Channels:
All companies must choose the set of channels they think will be most
effective. The possibilities, as we have seen, are almost unlimited.
Selecting the correct channel requires careful analysis, particularly
since the decision usually involves a heavy investment of time by
managers and salesmen and goes far in fixing the rest of the marketing
plan for some time into the future.
The spatial aspects of the structure of distribution, for example, the
geographical concentration of buyers in each market, will make a great
difference in determining the best set of channels for a particular
situation.
(3) Prices:
Prices must be set. Competitors’ prices typically establish significant
limits to the range of choice, but there is usually some discretion.
There are many pricing problems. Not only must a number of
products be priced, but if a marketing channel other than direct-to-
user is employed, consideration must often be given to the prices set at
each level of the marketing channel. Finally, some buyers may receive
a different price (or discount as it is usually called), based on such
factors as the quantity they purchase.
(4) Promotion:
Most companies must use some type of promotional effort. The
function of both types of promotion—advertising and personal
selling—is to provide potential buyers with information about the
product—its quality, its availability, and its price. A salesman may well
perform other functions, such as delivery and repair, but, to simplify
he will be viewed here as a conveyer and receiver of information.
Thus advertising and personal selling are alternative methods of
performing the function of conveying information, but a particular
blend of the two may be more effective than either of them alone. In
many companies promotion decision require much of the marketing
manager’s time.
Advertising is concerned with deciding how much advertising to use,
what media to use (newspapers, radio, television, direct mail,
billboard, car cards, point-of-purchase display, etc.,); the frequency
with which the advertisements will appear (daily, weekly, monthly,
etc.,); and the message to be employed (this involves the artwork and
copy prepared for printed media and the commercials prepared for
radio and television. Personal selling deals with the selection,
supervision, and training of salesmen; the allocation of salesmen to
territories; and the evaluation of salesmen.
“Promotion” is also often used in the trade literature in a restricts
sense of special pricing arrangements to retailers and consumers.
The uncontrollable or environmental elements that the decision maker
must adapt to, as shown in the outer hexagon of Figure 6, are not
uncontrollable in an absolute sense. Instead they can best be viewed as
controllable, but only at a cost.
They are:
(i) Demand,
(ii) Competition,
(iii) Non marketing costs,
(iv) Structure of distribution,
(v) Public policy, and
(vi) Company organization.

What is Marketing Management – Orientation: Production,

Product, Selling, Marketing and Societal Marketing Orientation
Marketing is all about interacting with markets, notwithstanding
whether it is for profit or for non-profit. Firms such as Hindustan
Unilever Limited (HUL) and Procter & Gamble (P&G) operate in
consumer markets whereas Schneider Electric and Larsen & Toubro
(L&T) are business to business marketers.
Humans have various ideas as to how life should be conducted. Some
kind of philosophical core governs behaviours setting up moral and
ethical boundaries. It is this philosophical idea that sets apart right
from wrong and what is acceptable and what is not.
The absence of a strong philosophical core is likely to render a person
inconsistent and confused. In a similar vein, organizations need
philosophy to guide their thinking and behaviour. Organizations can
be distinguished in terms of their corporate mindset or business
orientation.
The orientation, in case of a person, influences his or her fundamental
attitude, belief, feeling, and action with respect to a particular subject
or issue, whereas an organization’s interaction with its market in
terms of extended responses is influenced by its governing philosophy
or orientation.
This implies that an organization can choose to conduct its business or
marketing activity in different ways. Five different philosophies or
concepts have been distinguished, namely production concept,
product concept, selling concept, marketing concept, and societal
marketing concept.
The ideas contained in these concepts give rise to different cultures in
terms of how business is conducted with consumers. These concepts
suggest that there are different ways to achieve organizational goals.
i. Production Orientation:
Production concept is probably the oldest business governing idea,
which dates back to the period of short supply of goods. Earlier when
demand exceeded supply, there was no incentive for the firms to factor
in consumers into their operation. A business that is run on
production oriented philosophy works with markets with the belief
that product availability and affordability are key determinants of
consumer buying.
This assumption creates strategic orientation that a firm should focus
on while making the product available and affordable. The availability
and affordability imperative brings two functions, namely distribution
and production, at the centre of marketing strategy.
Accordingly, the first management task is to find an efficient
distribution strategy that ensures product availability so that
consumers can buy products with ease. Second, work on the
production systems to bring down cost so that more consumers could
buy them. The cost reduction creates affordability and thereby
expands market.
The production concept was common to firms during the early period
of industrialization when different products were born. Ford in its
early times practised production concept where the company sought to
bring down car prices so that it could attract a large number of
customers.
Ford’s Model T was among the early cars that was manufactured on an
assembly line, which reduced the car’s production cost by efficiencies
in production processes. Production concept could still hold true in
industries where consumer buying is predominantly done on the basis
of price (they do not attach importance to non-price differentiation)
and ease of buying.
Such a situation is often seen in commodity markets such as sand,
cement, and iron ore. Mergers and acquisitions in the field of
commodities such as cement, aluminium, and steel are guided by a
motive to create large production systems that become instrumental in
driving the cost of production down through economies of scale and
experience curve effects.
ii. Product Orientation:
Businesses operate in a dynamic environment. Two of the important
marketplace forces are consumers and competition. With the passage
of time the consumer and competitive conditions evolved. As
participating firms in a market went up so did the product availability.
The markets gradually shifted from excess demand to surplus supply.
In this new evolved scenario, the old mantra of availability and
affordability became ineffective. The ideas enshrined in production
concept gradually got diffused across different firms rendering
participating firms similar in their marketing approach.
This called for revisiting the business orientation and discovering
something new which would allow firms to deal with the emerged
scenario effectively. The key ideas of availability and affordability were
found to be necessary but not sufficient to succeed. This led to a
change in business orientation and product concept came into
existence. The product concept shifted the focus to product quality,
thus stating that ‘the consumer would favour products with the
highest quality at a given price’.
The product concept is based on the belief that consumers are
motivated to buy those products that offer most quality. This
proposition changed the marketing focus to developing better
products and improving them over time. Prima facie this concept
makes good sense. People do look for better quality products and
services.
This concept created a kind of product obsession wherein production
managers sought to concentrate on quality improvement and built
better product than ever before. However, soon this blind faith in the
power of product quality exposed its fallacy. The belief that a better
product is always bought by consumers actually turned out to be
wrong.
Ralph Waldo Emerson wrote, ‘If a man can write a better book, preach
a better sermon, or make a better mouse-trap than his neighbour,
though he build his house in the woods, the world will make a beaten
path to his door’.
This statement probably inspired the product concept, which lays
absolute faith in the power of quality so much so that it blinds its
followers to the reality. For many marketing companies product
orientation turns out to be a trap. The advice given by Emerson that if
you build a better mouse-trap the world would make a beaten path to
your door wrongly shifts marketing focus from consumer to product.
What guarantees that a better mouse-trap will always get sold?
Suppose somebody manages to invent an excellent quality mouse-
trap, does it mean that people would flock at his door to take it? The
answer is no, unless they face the menace of mice. People are not
interested in products, rather they want a solution to their problems.
The better mouse-trap is a fallacy that may wrongly orient an
organization into believing that people buy products when instead
they buy solutions of their problems.
The product concept ignores the role of other marketing activities.
People are unlikely to throng to buy a superior quality product
automatically. The creation of superior quality product cannot be a ‘be
all’ strategy. Even if a good quality product has been created for people
to make a beaten path to firm’s door, many other enabling things will
have to be done to make that happen.
First, people who could buy the product must be made aware and be
informed about its superiority. Second, the product needs to be
attractively designed, packaged, priced, and made available so that
consumers can see, touch, and feel and become willing to buy it.
iii. Selling Orientation:
As time progressed several industries witnessed expansion of
production capacity. This intensified competition and put pressure on
firms to offer better quality products. It tilted the marketing situation
in favour of the buyers. Reluctance was observed on the part of the
buyer to respond promptly to marketed products and services.
The failure of earlier ideas in getting consumer response caused
managers to rethink what they thought to be the key to doing business.
This search led to the discovery of selling concept. The selling concept
reposed faith in the power of persuasion. The followers of selling
orientation have the belief that ‘it is a belief that consumers will not
purchase or purchase enough of an organization’s product unless their
interest is stimulated and they are persuaded to buy.’
The selling concept starts with an assumption that consumers are
indifferent or reluctant to marketed products or services. This is
especially true for things that are perceived to be inessential. Several
products and services such as insurance and preventive health check-
ups face consumer resistance because they are perceived to be
unnecessary.
Two categories of products can be distinguished, namely bought
products and sold products. Bought products are the ones consumers
are self-motivated to buy for their perceived importance and interest
(e.g., cosmetics and spectacles), whereas sold products are the ones
consumers are unlikely to buy on their own.
It is for this indifference and reluctance that the sold products are
pushed or offloaded on to buyers by putting in selling efforts. People
rarely buy insurance and maintenance contract out of their self-
motivation.
The sales orientation lays stress on overcoming consumer resistance
through information, persuasion, and often hard selling. Selling is
based on the premise that a consumer can be manipulated and cajoled
into buying what is being sold. It reposes great faith in the power of
salesmanship and advertising.
Consumers can be either psyched out or lured into giving a favourable
response. It is not uncommon to come across aggressive pushy
salesmen in trades such as car dealerships, insurance, credit cards,
real estate, fund raisers, and grocery stores. The selling orientation
exclusively focuses attention on ways to push the product across with
little or no regard for consumer interest. A practitioner of selling is
guided by his own self-interest rather than the interest of the buyer.
The selling concept can have disastrous consequences in the long
term. A customer can be lured into buying by the power of persuasion
or aggression only once but not repeatedly. The customers victimized
by the power of seller aggression become dissatisfied and vent their
anger by spreading negative word- of-mouth publicity.
The negative publicity influences future sales by turning potential
customers into non-customers. This can erode future business
opportunities. Selling approach can yield successful outcomes in
situations when an organization enjoys unending supply of customers
and it does not have to depend upon repeat sales.
This orientation is practised by sellers at the railway stations and
places of tourist attraction. Their survival does not depend on repeat
business from the same customer.
iv. Marketing Orientation:
Selling orientation is likely to be ineffective when an organization has
to depend upon repeat business. The constraint of repeat business
changes the marketing paradigm in favour of the customer. It becomes
a legitimate concern of businesses to discover what actually is critical
to get the customers to keep coming back.
The new reality of competitive intensification and market saturation
led to the discovery of marketing concept in 1950s that placed the
customer at the centre of the marketing universe. The earlier
philosophies were centred on something that belonged inside the firm
such as product, technology, production, or sales effort.
The marketing concept reversed the inside-out approach to outside-in
approach, which implied that the business of an organization is not
dictated by insiders or managers rather is dependent on outsiders or
customers. The marketing concept believes that
‘It is fundamental for the organization to determine the needs and
wants of target customers and develop and deliver satisfaction better
than competitors.’
The marketing concept holds customer satisfaction as the key to
achieving organizational goals. The dominant business logic according
to marketing concept is that an organization depends upon customers
for its survival. It is the customers who open up revenue streams.
Revenue is not found inside an organization rather it resides outside,
in the customer’s pocket. Customer is the source of revenue. The only
way to get customers to open their wallet is to offer those satisfying
products and services. Therefore, customer satisfaction becomes the
first precondition to do business in a competitive scenario. Customers
do not patronize a dissatisfying organization if they have an option.
Let us consider how a customer chooses a product such as a toothpaste
or a mobile phone. The choice is generally based on a subtle or
elaborate calculation as to which out of the available brands offers the
best satisfaction. Therefore, customer satisfaction is an essential
starting point for doing business in the current business environment.
Marketing concept was initially met with a lot of resistance by
managers because it sought to create a power shift from managers to
customers. The earlier belief that decisions like what to produce, how
to produce, how to sell, and where to distribute were the prerogative of
people inside the organization and customer’s role was confined to
‘take it or leave it’.
In the absence of choice, customers were forced into compliance or
subordination by organizations. Marketing concept makes customer
supreme and seeks to achieve organizational goals through customer
satisfaction. Profit goals will only be achieved if customers willingly
accept product or services.
Getting the customer to do business with the firm is supreme and that
is likely to happen only when managers give up their ego and work
with subordinates as a team to target customers. Marketing ensures
that all decisions are taken for customer satisfaction.
The essence of marketing concept is that the business of an
organization is not what managers want it to be rather what customers
want it to be. Customers are the ultimate arbiters who decide whether
the decisions taken in an organization are correct or not. In marketing,
a product or service represents condensation of all decisions taken by
managers.
These are put to test at the point of purchase. For instance, in compact
detergent market Surf competes with Ariel; these brands essentially
represent the condensation of decisions made by their respective
managers, which include decisions regarding colour, quality,
packaging, price, brand name, form, communication and availability.
The correctness of these decisions is determined not by managers who
take them rather customers. A positive customer response affirms that
the managers’ decisions regarding that particular brand were right. A
situation where the managers claim correctness of their decisions but
the customer does not respond favourably is not possible. A decision is
right only if it creates a satisfied customer.
Marketing concept introduced a paradigm shift that the whole
business has to be seen from the point of its final result, that is,
customer’s point of view. The marketing concept is put into practice by
shifting the focus of value creation process to market or customers.
The processes are- (i) choice of the market (e.g., Apple operates in
mobile handset market), (ii) selection of the target customer group
(e.g., Apple does not cater to all customers in mobile handset market
rather it targets the premium ones), (iii) determination of what
customers in the target group need and want or what constitutes the
concept of satisfaction (e.g., Apple understands what its target
customers want in terms of usage ease, product touch and feel,
instrument looks, and communication eco system), (iv) develop
products or services in response to customer needs and wants (e.g.,
Apple devices like iPhone 6 is an outcome of product development in
consonance with customer expectations), (v) plan how the product or
service in question offers better satisfaction than competition (e.g.,
Apple devices score over its competitors in a number of customer
significant ways such as aesthetics, appeal, and imagery).
Marketing concept offers a pragmatic solution as to how to survive in a
competitive situation by putting customer at the centre of the business
universe and singularly committing to create customer satisfaction the
marketing concept can inadvertently jeopardize societal interest.
v. Societal Marketing Orientation:
The marketing concept adopts a narrow perspective of exchange as a
transaction that happens between an organization and customer. It
dictates that determining a customer’s needs and wants and delivering
desired satisfactions is the key to achieve organization goals. There are
two problems with this limited perspective.
The marketing concept legitimizes every product and services if it
creates customer satisfaction. This means if a customer group
demands hard drugs or firearms selling the same then becomes
justified. Therefore, this logic ignores larger societal effects of such
business.
From social perspective, drugs are undesirable because their use
causes addiction with a host of personal and family ramifications.
Marketing of firearms without adequate checks may promote crime
and killings.
Some of the products that have attracted criticism for their
undesirable social effects include fast food (e.g., hamburgers and fries)
and high calories laden drinks for causing poor health; tobacco,
alcohol drinks, and cigarette for causing addiction; plastic containers
and bottles for causing environmental degradation; high pollution and
gas guzzling SUVs for causing pollution; fur and rare animal skin as
well as exotic meat for threatening animal welfare; mining for causing
ecological disturbance; blood diamonds for human rights violation;
gambling services for causing addiction and insolvency; and
prostitution for causing exploitation.
Societal marketing originated after it was realized that what is good for
an individual customer or a select group may not be good for society.
This concept seeks to insert societal interest in the marketing concept
so that customer satisfaction does not compromise societal well-being
in the long run.
The societal marketing concept holds that the ‘key to achieving
organization goals is in determining customer needs and wants and
delivering satisfaction better than competitors in a manner that it
preserves or enhances long term well-being of consumer and society’.
Marketing concept takes an individualistic perspective to business
with a complete disregard for society. On the other hand, societal
concept introduces the concept of what economists call ‘externality’.
One of the categories of goods in economics is ‘demerit goods’. These
goods refer to the goods whose consumption results in incurring of
costs by those who actually do not consume them.
For instance, people who get addicted to drugs become a cost burden
to either their family or the state. Smoking is a major cause of a variety
of health problems, which requires expensive treatment. Societal
marketing concept introduces an element of conscience into
marketing and urges organizations to factor in the social effects of
their actions.
 WHAT IS TOTAL QUALITY
MANAGEMENT (TQM)?
Quality Glossary Definition: Total quality management

A core definition of total quality management (TQM) describes a management approach to long-term
success through customer satisfaction. In a TQM effort, all members of an organization participate in
improving processes, products, services, and the culture in which they work.

PRIMARY ELEMENTS OF TQM

TQM can be summarized as a management system for a customer-focused organization that
involves all employees in continual improvement. It uses strategy, data, and effective
communications to integrate the quality discipline into the culture and activities of the organization.
Many of these concepts are present in modern quality management systems, the successor to TQM.
Here are the 8 principles of total quality management:

1. Customer-focused: The customer ultimately determines the level of quality. No matter what an
organization does to foster quality improvement—training employees, integrating quality into the
design process, or upgrading computers or software—the customer determines whether the
efforts were worthwhile.
2. Total employee involvement: All employees participate in working toward common goals. Total
employee commitment can only be obtained after fear has been driven from the workplace,
when empowerment has occurred, and when management has provided the proper environment.
High-performance work systems integrate continuous improvement efforts with normal business
operations. Self-managed work teams are one form of empowerment.
3. Process-centered: A fundamental part of TQM is a focus on process thinking. A process is a
series of steps that take inputs from suppliers (internal or external) and transforms them into
outputs that are delivered to customers (internal or external). The steps required to carry out the
process are defined, and performance measures are continuously monitored in order to detect
unexpected variation.
4. Integrated system: Although an organization may consist of many different functional specialties
often organized into vertically structured departments, it is the horizontal processes
interconnecting these functions that are the focus of TQM.
 Micro-processes add up to larger processes, and all processes aggregate into the business
processes required for defining and implementing strategy. Everyone must understand the vision,
mission, and guiding principles as well as the quality policies, objectives, and critical processes of
the organization. Business performance must be monitored and communicated continuously.
 An integrated business system may be modeled after the Baldrige Award criteria and/or
incorporate the ISO 9000 standards. Every organization has a unique work culture, and it is
virtually impossible to achieve excellence in its products and services unless a good quality
culture has been fostered. Thus, an integrated system connects business improvement elements
in an attempt to continually improve and exceed the expectations of customers, employees, and
other stakeholders.
5. Strategic and systematic approach: A critical part of the management of quality is the strategic
and systematic approach to achieving an organization’s vision, mission, and goals. This process,
called strategic planning or strategic management, includes the formulation of a strategic plan that
integrates quality as a core component.
6. Continual improvement: A large aspect of TQM is continual process improvement. Continual
improvement drives an organization to be both analytical and creative in finding ways to become
more competitive and more effective at meeting stakeholder expectations.
7. Fact-based decision making: In order to know how well an organization is performing, data on
performance measures are necessary. TQM requires that an organization continually collect and
analyze data in order to improve decision making accuracy, achieve consensus, and allow
prediction based on past history.
8. Communications: During times of organizational change, as well as part of day-to-day operation,
effective communications plays a large part in maintaining morale and in motivating employees at
all levels. Communications involve strategies, method, and timeliness.

What Is Total Quality Management (TQM)?

Total quality management (TQM) is the continual process of detecting and
reducing or eliminating errors in manufacturing, streamlining supply chain
management, improving the customer experience, and ensuring that employees
are up to speed with training. Total quality management aims to hold all parties
involved in the production process accountable for the overall quality of the final
product or service.
Merger vs. Takeover: An Overview
In a general sense, mergers and takeovers (or acquisitions) are very similar
corporate actions. They combine two previously separate firms into a single legal
entity. Significant operational advantages can be obtained when two firms are
combined and, in fact, the goal of most mergers and acquisitions is to improve
company performance and shareholder value over the long-term.

The motivation to pursue a merger or acquisition can be considerable; a

company that combines itself with another can experience boosted economies of
scale, greater sales revenue and market share in its market, broadened
diversification, and increased tax efficiency. However, the underlying business
rationale and financing methodology for mergers and takeovers are substantially
different.

Merger
A merger involves the mutual decision of two companies to combine and become
one entity; it can be seen as a decision made by two "equals." The combined
business, through structural and operational advantages secured by the merger,
can cut costs and increase profits, boosting shareholder values for both groups
of shareholders. A typical merger, in other words, involves two relatively equal
companies which combine to become one legal entity with the goal of producing
a company that is worth more than the sum of its parts.

In a merger of two corporations, the shareholders usually have their shares in the
old company exchanged for an equal number of shares in the merged entity.
For example, back in 1998, American automaker Chrysler Corp. merged with
German automaker Daimler Benz to form DaimlerChrysler. This has all the
makings of a merger of equals, as the chairmen in both organizations became
joint leaders in the new organization. The merger was thought to be quite
beneficial to both companies, as it gave Chrysler an opportunity to reach more
European markets, and Daimler Benz would gain a greater presence in North
America.

Takeover
A takeover, or acquisition, on the other hand, is characterized by the purchase of
a smaller company by a much larger one. This combination of "unequals" can
produce the same benefits as a merger, but it does not necessarily have to be a
mutual decision. A larger company can initiate a hostile takeover of a smaller
firm, which essentially amounts to buying the company in the face of resistance
from the smaller company's management. Unlike in a merger, in an acquisition,
the acquiring firm usually offers a cash price per share to the target firm's
shareholders, or the acquiring firm's shares to the shareholders of the target firm,
according to a specified conversion ratio. Either way, the purchasing company
essentially finances the purchase of the target company, buying it outright for
its shareholders.

An example of an acquisition would be how the Walt Disney Corporation bought

Pixar Animation Studios in 2006. In this case, the takeover was friendly, as
Pixar's shareholders all approved the decision to be acquired.

Target companies can employ a number of tactics to defend themselves against

an unwanted hostile takeover, such as including covenants in their bond issues
that force early debt repayment at premium prices if the firm is taken over.

KEY TAKEAWAYS

 Mergers and takeovers (or acquisitions) are very similar corporate actions.
 A merger involves the mutual decision of two companies to combine and
become one entity; it can be seen as a decision made by two "equals."
 A takeover, or acquisition, is usually the purchase of a smaller company by
a larger one. It can produce the same benefits as a merger, but it doesn't
have to be a mutual decision.