Professional Documents
Culture Documents
Unit Iii-2
Unit Iii-2
Identifying business opportunities and planning for business service & production.
Business promotion – process – facilities and incentives; Creating entrepreneurial
venture, Business Planning Process, Environmental analysis – Search and
Scanning; Identifying Problems Opportunities, Defining Business idea – Product,
location & ownership; Stages in starting the new venture. Case study.
Meaning of Project:
“A project has a distinct mission that is designed to achieve and a clear
termination point, the achievement of the mission.” - Newman, Summer and
Warren.
“ Project is the whole complex of activities involved in using resources to gain
benefits.” - Gillinger.
“ A project is an organized unit dedicated to the attainment of a goal – the
successful completion of a project, on time, within a budget, in conformance
with pre-determined program specifications.” Encyclopaedia of Management.
PROJECT SELECTION:
Project selection consists of two basic parts;
(i) Project Identification
(ii) Project Selection.
Project Identification: Project selection starts with the generation of a product
idea. In order to select the most promising project, the entrepreneur needs to
generate a few ideas about the possible projects he can undertake. The project
can be determined from any one or many of the following sources;
(i) Knowledge of potential customers needs.
(ii) Watching the emerging trends in demands for certain products.
(iii) Scope for producing substitute products.
(iv) Going through professional magazines catering to specific fields.
(v) Success stories of known entrepreneurs, friends or relatives.
(vi) Visits to Fairs and Exhibitions displaying new products and services.
(vii) Meeting Government agencies.
(viii) Ideas from knowledgeable persons.
(ix) Knowledge from Government bodies.
(x) From a new product introduced by competitors.
(xi) Market characteristics: Look for unfulfilled demand of various
products and services.
(xii) Imports & Exports: The Govt of India encourages exports and various
EXIM policies encourage entrepreneurs to think about new options.
(xiii) Emerging new technology: Commercial explorations and indigenous
or imported technologies and know-how are another source of
project idea.
(xiv) Social and Economic trends: Social and economic trends of people
are often dynamic in nature and offer wide opportunities. An
entrepreneur should observe such changes. Now there is a shift
towards readymade garments and western outfits.
(xv) Changes in consumption pattern: Changes in consumption pattern in
home and foreign countries also lead to good enterprises.
(xvi) Revival of sick units: A sick unit often gives ample investment
opportunities in the hands of a dynamic entrepreneur.
I. Preliminary Evaluation:
As soon as the entrepreneur has selected his product, he has to evaluate
the business opportunities involved. The criteria for evaluation are;
1. Is opportunity compatible with the promoter: The entrepreneur must
confirm that the project undertaken should be compatible with men,
machine, material, money and the market available at his disposal.
Projects beyond the capacity of the entrepreneur are bound to fail.
2. Compatibility with Govt. rules and regulations: Govt. rules and
regulations should not be violated. The entrepreneur must take into
account all rules and regulations regarding investment, licenses,
reservation of items for certain categories, etc.
3. Easy availability of raw material: Cost and availability of raw
materials should be considered carefully. Scarcity of raw material will
cause delay in production process.
4. Potential market: Potential market, nature of competition,
competitors, availability of substitutes, barriers and the possibility of
entry of further substitutes and technological developments taking
place in the industry are all to be considered.
5. Cost of the project: The cost of the project should be reasonable in
the sense that a desired profit margin should be realized from the
competitive price.
6. Inherent risk in the product: The inherent/natural risk involved in the
product should also be analyzed. Change in demand, technological
development, competitions, seasonal variations should be assessed
before working on a project.
Project is a well evolved work plan designed to achieve specific objectives within a
specified period of time. The process of establishing an enterprise starts with
project or product identification. Project identification is done by generating some
project ideas. Each of these project ideas is then evaluated with the help of a tool
called “SWOT” analysis. Thus the idea found most suitable on the basis of the
analysis is finally selected to convert into an enterprise.
The following points should also be kept in mind while deciding upon the product
to be chosen.
1. Potential demand for the product in the market.
2. Estimated volume of demand for the product or service.
3. Assess and estimate about potential competitors.
4. Study the scope for future demands.
5. Infrastructure facilities required such as power, electricity, transportation,
etc
6. Current status of technology and scientific development in the field.
7. Availability of raw material and required labour and skill in for the product.
8. Govt. policies, legislations. Controls.
9. Environmental factor.
10.Degree of profitability for the product.
11.Locational advantages of the product.
12.Availability of ancillary units or small scale industries that require this
product. This increases marketability.
13.Availability of skilled and unskilled labour.
4. Consumer behavior:
a. Motivate buyers to buy new products.
b. Analyse the buyers’ purchase power.
c. Analyse the consumption pattern.
d. Understand the preference pattern, durability, service.
e. Understand the consumers’ characteristics of different region,
etc.
1. (a) Raw material availability: The entrepreneur must search for locate a
leading supplier of the raw material that he needs.
2. Equipment availability:
(a) Major manufacturers of equipment in the country as well as abroad should
be identified.
(b) Compare the features of all the equipments.
(c) Study the price structure and availability of spare parts of each brand.
(d) Keep in mind the Guarantee and warranty of the equipments.
(e) Assess the requirement of technical and skilled personnel.
(f) Find out the delivery schedule of the machinery.
4. Consumer behaviour:
(a) Motivate buyers to buy your product.
(b) Analyse the buyers’ purchasing power.
(c) Analysis of consumption pattern to capture the major portion of the
market.
(d) Understand preferences, the durability, service required etc.
(i) Study people and their needs before starting any project.
(ii) Identify unsatisfied needs. Design your product to satisfy the customer
in a better way than your competitor does.
(iii) Try to understand how your product is being received by the customer.
(iv) Always look for newer and better ways of reaching your customer.
(v) Employers must be positive in their attitude towards the product and
ensure that the employees also have such a feeling about the product.
(vi) Take constant feedback and remove any sort of dissatisfaction.
(vii) Constant research and development of the product as well as the taste
of the customer is very helpful.
(viii) Keeping ahead of your competitor through commitment and innovation.
BUSINESS:
Business means the state of being busy. Business involves activities concerned
with the production of wealth. It is an organized and systematic human activity
involving production and purchase of goods and services with the object of selling
them at a profit.
CHARACTERISTICS OF BUSINESS:
4. Profit Motive: Profit making is the most powerful stimulus for doing
business.
1. Clear Objectives.
2. Planning
3. Sound organization
4. Research.
5. Finance
6. Proper plant location, layout and size.
7. Effective management.
8. Harmonious relationship with employees.
Scope of Business;
Every business involves risk. Therefore it is necessary to plan the business before
venturing in to it. At the very outset, a cost and benefits analysis has to be done in
order to judge the viability of the project. Business involves employment of
resources. There are methods of appraising projects. They are;
1. Economic Analysis.
2. Financial Analysis
3. Market Analysis
4. Technical Analysis
5. Managerial Analysis.
I. Economic Analysis: Under economic analysis, aspects that are highlighted are
requirement of raw material, level of capacity utilization, anticipated sales,
anticipated expenses and the probable profit. Business should always
envisage/foresee a clear margin of profit. The volume of profit will govern other
economic variables such as sales, purchase and other expenses. Demand for the
product also needs to be clearly spelled out at the very initial stage.
The location of the project or business also needs to be considered. Govt. policies
in this regard need to be taken into consideration. Govt. offers specific
concessions and incentives for setting up industries and business in notified
backward areas. Therefore, it has to be ascertained whether the proposed project
comes under this category or not and whether the Govt. has already decided and
specific location for this kind of enterprise.
Finance is one of the most important pre-requisites for establishing any business.
All other resources are facilitated by finance. Proper assessment of both fixed
capital as well as working capital requirement is to be made. Land, building, plan
and machinery are the common examples of fixed capital. All aspects of cost
such as remodeling, repair, maintenance and additions required are also to be
taken into consideration at the time of assessment.
Working capital means current expenditures or current liabilities. They are those
assets which can be converted into cash within a period of one week. Current
liabilities are those obligations that are required to be paid within one week.
Working capital is that amount of funds which is required for day to day
businessoperations. The assessment of working capital should be clearly provided
for as this is the money on which the day to day work runs. It is the blood line of
the company.
Before production starts, the entrepreneur has to have a fairly good idea of the
market for the product. He will have to anticipate who is likely to be his buyer and
in which area his product is most likely to be sold. It is necessary to know the
consumption pattern to have optimum profit. To find out the estimated
requirement, the commonly used methods are;
In this method, the opinion of the ultimate users ie., the customers is estimated.
It can be done either through the complete enumeration method, ie.,complete
survey or all customers, or by the sample survey method, ie., through selective
selection of a few customers.
Sample Survey: In this method only a small number out of the total
population is approached and data on their probable demand for the
product during the period under consideration is collected and
summed. The total demand of the sample customers is then blown
up to generate the total demand for the product.
Every product has its own life span. Initially, the product sells very slowly.
With the application of sales promotion strategies over a period of time,
the demand increases. In due course of time, the peak selling period is
reached. After that time, the sales begin to decline. The demand finally
dies altogether. This is precisely why firms go in for new products, one
after the other, to keep the firm alive. Thus the product cycle of a product
can be classified into the following;
1. Introduction
2. Growth.
3. Maturity
4. Saturation
5. Decline.
1 2 3 4 5
Product Life-Cycle.
1- Introduction
2- Growth
3- Maturity
4- Saturation
5- Decline
V. Management Competence:
OWNERSHIP STRUCTURES:
1. Proprietorship: These are also called sole trade organizations. These are
the oldest form of business ownership in India. The enterprise is owned and
controlled by one person. He spends all the money, takes all the risks, calls
all the shots and reaps all the profit. When necessary, he takes he help of
his family members, relatives or employ some employees.
This is the easiest kind of organization to form. It does no require legal
recognition and other attendant formalities. William R. Basset says “ The
one man control is the best in the world, if he is big enough to manage
everything.”
Main features:
Disadvantage:
1. Limited resources.
2. Limited ability
3. Unlimited liability
4. Limited life of enterprise form.
2. Partnership:
When persons come together , pool their resources, capital and skill
and organise a business, it is called a partnership. Partnership grows
essentially because of the limitations or disadvantages of proprietorship.
The India Partnership Act 1932 defines it as “ The relation between
persons who have agreed to share the profits of business carried on by all
or by any of them acting for all”. According to J.L. Hanson, “ a partnership is
a form of business organisation in which two or more persons up to a
maximum of twenty join together to undertake some form of business
activity”.
Advantages:
Disadvantage:
1. Unlimited liability.
2. Divided authority.
3. Lack of continuity.
4. Risk of implied authority. Decision made by one is binding on all.
3.Company:
A company is an artificial person being created by the law and has an existence
separate and apart from its owner. It has a distinctive name a common seal
and a perpetual succession of members. It can sue and be sued in its own
name.
The India Company Act, 1956 defines a joint company as a company limited by
shares having a permanent paid up or nominal share capital of fixed amount
divided into shares also on fixed amount, held and transferable as stock and
formed on the principles of having in its members only the holders of those
shares or stocks and no other persons.
Main merits:
Shares.
Applied for.
Sheet Companies.
Advantages:
1. Limited liabilities
2. Perpetual existence
3. Professional Management
4. Expansion potential
5. Transferability of shares
6. Diffusion of risk
Disadvantages:
1. Lack of secrecy
2. Legal restriction
3. Management mischiefs
4. Lack of personal interest.
5. Co-Operative:
Co-operative is another form of ownership of business. This form is based
on the philosophy of self-help and mutual help. A co-operative line of
action aims at rendering serving in place of earning profits . Co-operative
organization is an association of persons, usually of limited means, who
have voluntarily joined together to achieve a common economic and
democratically controlled business organization, making equitable
contributions to capital required and accepting a fair share of risks and
benefits of the undertaking.
Main features:
1. Voluntary organization
2. Democratic management
3. Service motive
4. Capital and return thermo
5. Government Control
6. Distribution of surplus.
Advantages:
1. Easy formation
2. Limited liability
3. Perpetual Existence
4. Social service
5. Open membership
6. Tax advantage
7. State Assistance
8. Democratic Management.
Disadvantages:
1. Lack of secrecy
2. Lack of business acumen
3. Lack of interest
4. Corruption
5. Lack of mutual interest.
SELECTION OF APPROPRIATE FORM OF OWNERSHIP:
The best form of ownership is that which helps an entrepreneur attain the
business objective decided upon. The following considerations are to be
kept in mind;