1

UNIT-I
ENTREPRENEURIAL COMPETENCY

The word ‗entrepreneur‘ has been taken from the French language ‗entreprendre‘
where it cradled literally means ―between-taker‖ and ―go-between‖ i.e., ―to undertake‘ and
meant to designate an organizer of musical or other entertainments. The Oxford English
Dictionary (in 1987) also defined entrepreneur in a similar way as ―the director or manager of
a public musical institution, one who ‗gets up‘ entertainment, especially musical
performance‖
Entrepreneur as Risk-Bearer
Richard Cantillon, an Irishman living in France, was the first who introduced the term
‗entrepreneur‘ and his unique risk-bearing function in economics in the early 18 th century.
He defined entrepreneur as an agent who buys factors of production at certain prices in order
to combine them in to a product with a view to selling it at uncertain prices in future
(Cantillon 1971:2). He illustrated a farmer who pays out contractual incomes which are
‗certain‘ to the landlords and labourers and sells at prices that are ‗uncertain‘. He further
states that so do merchants also who make certain payments in expectation of uncertain
receipts. Thus, they too are essentially ‗risk-bearing‘ agents of production.
Entrepreneur as Organizer or Coordinator
According to Say, an entrepreneur is one who combines the land of one, the labour of
another and the capital of yet another, and thus, produces a product. By selling the produce
in the market he pays interest on capital, rent on land, wages to labourers and what remains in
his/her profit.
Entrepreneur as Innovator
"Joseph A. Schumpeter (1934: 103), for the first time in 1934, assigned a crucial role
of ‗innovation‘. to the entrepreneur in his magnum opus ―Theory of Economic Development.‘
Schumpeter considered economic development as a discrete dynamic change brought by
entrepreneur by instituting new combinations of factors of production which he called
‗innovation‘. In other words, entrepreneur is, according to Schumpeter, a ‗creative
destructor‘ who creates or causes a dynamic disequilibrium in the economy by taking
innovation to commercialization by embedding it in an environment where it did not exist
previously. The ‗innovation‘, i.e. introduction of new combination of factors of production,
according to him, may occur in any one of the following five forms:
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(i) Introduction of a new product;

(ii) Introduction of a new method of production;
(iii) Opening of a new market;
(iv) Discovery of a new source of supply of raw materials; and
(v) Carrying out of the new form of organization of any industry.

Characteristics of Successful Entrepreneurs:

If we go through the business history of India, we come across the names of some

persons who have emerged as successful entrepreneurs like (Late) Dhiru Bhai Ambani of

Reliance Industries Ltd., Azim Premji of Wipro, Narayan Murthy of Infosys Technologies

Ltd., Kiran Mazumdar-Shaw of The Bio-con India Group, Verghese Kurien of Gujarat

Cooperative Milk Marketing Federation popularly known for utterly butterly delicious

―Amul‖, Deepak S. Parekh of HDFC and many more. The entrepreneurial profiles of these

business/industry men are found quite fascinating. They are a study in sharp contrasts. How?

Some are highly educated; others are high school / college dropouts. Some are inheritors,

others are self-made. Some topped their chosen field in their thirties; others did not approach

the starting line until their fifties. Thus, there is no typical entrepreneur as such.

Then, the question arises is: What makes an entrepreneur successful? Whether they

had anything in common? The scanning of their personalities shows that there are certain

commonalities called characteristics found in them.

The principal ones are listed below:

1. Hard Work:
Willingness to work hard distinguishes a successful entrepreneur from unsuccessful

one. Most of the successful entrepreneurs work hard endlessly, especially in the beginning

and the same becomes their habit for their whole life. While delivering the Convocation

Speech at the Entrepreneurship Development Institute of India, Ahmedabad on Saturday,

17th September, 2005, the well-known entrepreneur Shri Hari Shankar Singhania exhorted

the budding entrepreneurs that ―I have always followed the dictum that success comes only
with 10% inspiration and 90% perspiration. There is no substitute for hard work. One must
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have a focus to achieve his /her Vision. Nobody gets a clean slate to write on and has to start

with the dirty slate he gets. If one waits for ideal situation, the time will never come.‖

2. Desire for High Achievement:

The entrepreneurs have a strong desire to achieve high goals in business. This high

achievement motive strengthens them to surmount the obstacles, suppress anxieties, repair

misfortunes, and devise expedients and set up and run a successful business (McClelland

1961). Sunil Mittal of Bharati Telecom presents an excellent example of need for high

achievement.

His entry into mobile sector with Airtel brand in 1995 has made him really hit the spot

light in the mobile technology in the country. His mantra is: ―One achieves in proportion to
what one sets and negotiates.‖

3. Highly Optimistic:
The successful entrepreneurs have a positive approach toward things. They do not get

disturbed by the present problems faced by them. They become optimistic for future that the

situations will become favourable to business in future. In 1914, Thomas A. Adison, at the

age of 67, lost his factory to fire. It had very little insurance. No longer a young man, Edison

watched his lifetime effort go up in smoke and said: ―There is great value in disaster. All our

mistakes are burnt up. Thank God we can start anew.‖ In spite of such devastating disaster,

three weeks after, he invented the Phonograph. What an optimistic or positive attitude!

4. Independence:
One of the common qualities of the successful entrepreneurs has been that they do not

like to be guided by others and to follow their rules. They resist to be pigeonholed. They like

to be independent in the matters of their business.

5. Foresight:
The entrepreneurs have a good foresight to know about future business environment.

In other words, they well visualize the likely changes to take place in market, consumer

attitude and taste, technological developments, etc. and take necessary and timely actions

accordingly.
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6. Good Organiser:
Various resources required for production are owned by different owners. Then, it is

the ability of the entrepreneur who brings together all required resources for setting up an

enterprise and then produces goods.

7. Innovative:
Production is meant to meet the customers‘ requirements. In view of the changing

requirements of the customers from time to time, the entrepreneurs initiate research and

innovative activities to produce goods to satisfy the customers‘ changing requirements and

demands for the products. The research centers/ institutes established by Tata, Birla,

Kirloskar, etc., are examples of the innovative activities taken by the entrepreneurs in our
country.

8. Perseverance:
One of the qualities of successful entrepreneurs is that they possess and exhibit

tremendous perseverance in their pursuits. They do not give up their effort even if they fail.

They undergo lots and lots of failures, but do not become disheartened. Instead, they take

failure as learning experience and make more dedicated and serious effort on the next time.

And, ultimately become successful. Example of Sunil Mittal, given earlier under ‗Desire for

High Achievement‘, is an example of entrepreneurial perseverance also.

9. Team Spirit:
The word ‗Team‘ refers to: T for Together, E for Everyone, A for Achieves and M for

More. Team results in synergy. Successful entrepreneurs build teams and work with

teammates. In simple words, team is a group of individuals who work in a face-to-face

relationship to achieve a common goal. They share collective accountability for the outcome

of the team‘s effort. Working in teams creates synergy and achieves success in its endeavors.

While appreciating the role of team spirit in success, Henry Ford‘s apt view seems worth

citing: ―Bringing people together is beginning, keeping people together is progress, and

working with people is success.‖

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Azim Premji’s Ten Golden Rules for a successful Entrepreneur

1. Dare to Dream:
People wonder if having unrealistic dreams is foolish. My reply: dreams can never be

realistic or safe. If they were, they would not be dreams. But one must have strategies to

execute dreams and slog to transform them into reality.

2. Set Clear Goals:

Define what you stand for as early as possible and do not compromise for any reason.

You can‘t enjoy the fruits of success if you have to argue with your own conscience.

3. Never Loose Your Zest and Curiosity for Learning:

I personally spend ten hours a week on reading, or I find myself quickly outdated.

4. Strive for Excellence:

In the world of tomorrow, and with globalization, just being good is not good enough.

One needs to excel in whatever one does.

5. Build Self- Confidence:

Remember, no one can make you feel inferior without your consent.

6. Learn to Work in Teams:

The challenges ahead are so complex that no individual will be able to face them

alone. Team work results in effort and, in turn, more and better results.

7. Take Care of Yourself:

The stress a young person faces today while beginning his career is the same as what

the last generation faced at the time of retirement. Along with alternates, physical fitness is

also important. I jog daily.

8. Persevere:
It can make miracles happen.

9. Have a Broader Social Vision:

While earning is important, we must use the same for the larger good of the society.

10. Never Let Success Go to Your Head:

For whatever we achieve is with the help of other factors and people outside us. The

moment we become ignorant, we become vulnerable to making bad judgments.

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FUNCTIONS OF ENTREPRENEURS

In practice, an entrepreneur does perform all the functions necessary right from the

genesis of business idea upto the establishment of an enterprise. According to Peter Kilby

(1971), there are thirteen functions to be performed by the Entrepreneur to establish and run

his/her enterprise:

1. Perception of market opportunity

2. Gaining command over scarce resources

3. Purchasing inputs

4. Marketing the products

5. Dealing with officials

6. Managing human resources within the enterprise

7. Managing customer and supplier relations

8. Managing finance

9. Managing production

10. Acquiring and overseeing assembly of the factory

11. Industrial engineering

12. Upgrading process and product

13. Introducing new production techniques and products

All these functions can be listed in the following sequential order:

 Business idea generation and selection of the best suitable business idea.

 Determination of the business objectives

 Product analysis and market research.

 Determination of form of ownership/ organization

 Completion of promotional formalities

 Raising necessary funds.

 Procuring machine and material.

 Recruitment of men.

 Undertaking the business operations.

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For the convenience of better understanding, the various functions performed by

entrepreneurs are broadly classified into four categories as mentioned below.

 Entrepreneurial Functions

 Managerial Functions

 Promotional Functions

 Commercial Functions

Entrepreneurial Functions
The major entrepreneurial functions include risk bearing, organising, and innovation.

Managerial Functions
In simple words, management is getting things working with an through others.
Different experts have defined term management differently. According to Henri Fayol

(1949) who is considered the father of ‗principles of management,‘ ―management is to

forecast, to plan, to organize, to command, to co-ordinate, and to control.‖ In the opinion of

George Terry (1953), ―management is a distinct process consisting of planning, organizing,

actuating, and controlling performance to determine and accomplish the objectives by the use

of people and resources.‖ The significance of management function lies in the fact that

enterprises with excellent facilities and quality resources have floundered and fizzled out due

to either no management or poor management and enterprises with good management but

with poor facilities and resources have flourished and performed exceedingly well. In small-

scale enterprises, the entrepreneur who is the owner of the enterprise also, has to perform the

management functions as well. The management functions performed by entrepreneur are

classified into the following five types:

1. Planning

2. Organizing

3. Staffing

4. Directing

5. Controlling
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A brief description of each of these follows in seriatim:

1. Planning:
In common parlance, planning is pre-determined course of action to accomplish the

set objectives. In other words, planning is today‘s projection for tomorrow‘s activity.

Planning pervades in all aspects of business. An entrepreneur has to make decisions as to

what is to be done, how it is to be done, when it is to be done, where it is to be done, by

whom it is to be done and so on. The importance of planning lies in the fact that it ensures the

smooth and effective completion and running of a business enterprise. Absence of planning

causes confusion which, in turn, affects the smooth performance of job whatsoever it may be.

How? The following anecdote beautifully demonstrates it:

This is a story about four people named Everybody, Somebody, Anybody and

Nobody. There was an important job to be done. Everybody was sure that somebody would

do it. Anybody could have done it, but nobody did it. Somebody got angry about that because

it was Everybody‘s job. Everybody thought anybody could do it, but nobody realized that

everybody would not do it. It ended up that everybody blamed somebody when nobody did

what anybody could have done.

2. Organising:
The organizing function of an entrepreneur refers to bringing together the men,

material, machine, money, etc. to execute the plans. The entrepreneur assembles and

organizes the above mentioned different organs of an enterprise in such a way that these

combinedly start functioning as one, i.e., enterprise. Thus, organizing function of an

entrepreneur ultimately provides a mechanism for purposive, integrated and co-operative

action by many people in a joint and organized effort to implement a business plan.

3. Staffing:
Staffing involves human resource planning and human resource management. Thus,

staffing function of an entrepreneur includes preparing inventory of personnel available,

requirement of personnel, sources of manpower recruitment, their selection, remuneration,

training and development and periodic appraisal of personnel working in the enterprise.

Business history is replete with evidences that it is basically the staff, i.e., personnel working
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in the organization that makes all the difference. While appreciating the role of personnel in

the success of an organization, L. F. Urwick had remarked that, ―business houses are made or

broken in the long-run not by markets or capital, patents or equipments, but by men.‖ Andrew

Carniege‘s view that ―Take my people and leave my factory, soon grass will grow on the

floor. Take my factory and leave my people, soon we shall build a better factory‖ also

underlines the significance of people or staffing in the making of an organization. However,

staffing function is as crucial for the success of a business enterprise is equally complex as

well.

4. Directing:
The functions like planning, organizing, and staffing are merely preparations for
setting up a business enterprise. The directing function of entrepreneur actually starts the

setting up of enterprise. Under the directing function, the entrepreneur guides, counsels,

teaches, stimulates and activates his/ her employees to work efficiently to accomplish the set

objectives.

Thus, directing function of entrepreneur concerns the total manner in which an

entrepreneur influences the actions of his / her employees/ workers. It is the final action of an

entrepreneur in making his / her employees actually act after all preparations have been

completed.

5. Controlling:
Controlling is the last management function performed by the entrepreneur. In simple

words, controlling means to see whether the activities have been performed in conformity

with the plans or not. Thus, controlling is comparison of actual performance with the target or

standard performance and identification of variation between the two, if any, and taking

corrective measures so that the target is accomplished.

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TYPES OF ENTREPRENEURS
In fact, there is no typical entrepreneur. Entrepreneurs are classified into different

types based on different classifications as mentioned below:

Based on the Type of Business

1. Trading Entrepreneur:
As the name itself suggests, the trading entrepreneur undertake the trading activities.

They procure the finished products from the manufacturers and sell these to the customers

directly or through a retailer. These serve as the middlemen as wholesalers, dealers, and

retailers between the manufacturers and customers.

2. Manufacturing Entrepreneur:
The manufacturing entrepreneurs manufacture products. They identify the needs of

the customers and, then, explore the resources and technology to be used to manufacture the

products to satisfy the customers‘ needs. In other words, the manufacturing entrepreneurs

convert raw materials into finished products.

3. Agricultural Entrepreneur:
The entrepreneurs who undertake agricultural pursuits are called agricultural

entrepreneurs. They cover a wide spectrum of agricultural activities like cultivation,

marketing of agricultural produce, irrigation, mechanization, and technology.

Based on the Use of Technology:

1. Technical Entrepreneur: The entrepreneurs who establish and run science and

technology-based industries are called ‗technical entrepreneurs.‘ Speaking alternatively, these

are the entrepreneurs who make use of science and technology in their enterprises.

Expectedly, they use new and innovative methods of production in their enterprises.

2. Non-Technical Entrepreneur: Based on the use of technology, the entrepreneurs who

are not technical entrepreneurs are non-technical entrepreneurs. The forte of their enterprises

is not science and technology. They are concerned with the use of alternative and imitative

methods of marketing and distribution strategies to make their business survive and thrive in

the competitive market.

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Based on Ownership
1. Private Entrepreneur: A private entrepreneur is one who as an individual sets up a

business enterprise. He / she it‘s the sole owner of the enterprise and bears the entire risk

involved in it.

2. State Entrepreneur: When the trading or industrial venture is undertaken by the

State or the Government, it is called ‗state entrepreneur.‘

3. Joint Entrepreneurs: When a private entrepreneur and the Government jointly run a

business enterprise, it is called ‗joint entrepreneurs.‘

Based on Gender:
1. Men Entrepreneurs: When business enterprises are owned, managed, and
controlled by men, these are called ‗men entrepreneurs.‘

2. Women Entrepreneurs: Women entrepreneurs are defined as the enterprises owned and

controlled by a woman or women having a minimum financial interest of 51 per cent of the

capital and giving at least 51 per cent of employment generated in the enterprises to women.

Based on the Size of Enterprise:

1. Small-Scale Entrepreneur: An entrepreneur who has made investment in

plant and machinery up to Rs 1.00 crore is called ‗small-scale entrepreneur.‘

2. Medium-Scale Entrepreneur: The entrepreneur who has made investment in plant and

machinery above Rs 1.00 crore but below Rs 5.00 crore is called ‗medium-scale

entrepreneur.‘

3. Large-Scale entrepreneur: The entrepreneur who has made investment in

plant and machinery more than Rs 5.00 crore is called ‗large-scale entrepreneur.‘
Based on Clarence Danhof Classification:
Clarence Danhof (1949), on the basis of his study of the American Agriculture, classified

entrepreneurs in the manner that at the initial stage of economic development, entrepreneurs

have less initiative and drive and as economic development proceeds, they become more

innovating and enthusiastic.

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Based on this, he classified entrepreneurs into four types:

These are discussed in seriatim:

1. Innovating Entrepreneurs: Innovating entrepreneurs are one who introduce

new goods, inaugurate new method of production, discover new market and reorganise the

enterprise. It is important to note that such entrepreneurs can work only when a certain level

of development is already achieved, and people look forward to change and improvement.

2. Imitative Entrepreneurs: These are characterised by readiness to adopt successful

innovations inaugurated by innovating entrepreneurs. Imitative entrepreneurs do not innovate

the changes themselves, they only imitate techniques and technology innovated by others.

Such types of entrepreneurs are particularly suitable for the underdeveloped regions for
bringing a mushroom drive of imitation of new combinations of factors of production already

available in developed regions.

3. Fabian Entrepreneurs: Fabian entrepreneurs are characterised by very great caution

and skepticism in experimenting any change in their enterprises. They imitate only when it

becomes perfectly clear that failure to do so would result in a loss of the relative position in

the enterprise.

4. Drone Entrepreneurs: These are characterised by a refusal to adopt opportunities to

make changes in production formulae even at the cost of severely reduced returns relative to

other like producers. Such entrepreneurs may even suffer from losses but they are not ready

to make changes in their existing production methods.

Following are some more types of entrepreneurs listed by some other behavioural

scientists:

1. Solo Operators: These are the entrepreneurs who essentially work alone and, if needed

at all, employ a few employees. In the beginning, most of the entrepreneurs start their

enterprises like them.

2. Active Partners: Active partners are those entrepreneurs who start/ carry on an

enterprise as a joint venture. It is important that all of them actively participate in the

operations of the business. Entrepreneurs who only contribute funds to the enterprise but do

not actively participate in business activity are called simply ‗partners‘.

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3. Inventors: Such entrepreneurs with their competence and inventiveness invent

new products. Their basic interest lies in research and innovative activities.

4. Challengers: These are the entrepreneurs who plunge into industry because of the

challenges it presents. When one challenge seems to be met, they begin to look for new

challenges.

5. Buyers: These are those entrepreneurs who do not like to bear much risk. Hence, in

order to reduce risk involved in setting up a new enterprise, they like to buy the ongoing one.

6. Life-Timers: These entrepreneurs take business as an integral part to their life.

Usually, the family enterprise and businesses which mainly depend on exercise of personal

skill fall in this type/category of entrepreneurs.

DISTINCTION BETWEEN AN ENTREPRENEUR AND A MANAGER

Sometimes, the two terms, namely, an entrepreneur and a manager are considered as

synonym, i.e., meaning the same. In fact, the two terms are two economic concepts meaning

two different meanings. The major points of distinction between the two are presented in

following.

Bases of Entrepreneur Manager

Difference

1. Motive The main motive of an entrepreneur But, the main motive of a

is to start a venture by setting up an manager is to render his services

enterprise. He understands the in an enterprise already set up by

venture for his personal gratification someone else i.e., entrepreneur.

2. Status An entrepreneur is the owner of the A manager is the servant in the

enterprise. enterprise owned by the

entrepreneur.

3. Risk Bearing An entrepreneur being the owner of A manager as a servant does not

the enterprise assumes all risks and bear any risk involved in the
uncertainty involved in run-ning the enterprise.
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enterprise.

4. Rewards The reward an entrepreneur gets for A manager gets salary as reward

bearing risks involved in the for the services rendered by him

enterprise is profit which is highly in the enterprise. Salary of a

uncertain. manager is certain and fixed.

5. Innovation Entrepreneur himself thinks over But, what a manager does is

what and how to produce goods to simply to execute the plans

meet the changing demands of the prepared by the entrepreneur.

customers. Hence, he acts as an Thus, a manager simply

innovator also called a ‗change translates the entrepreneur‘s ideas

agent‘ into practice.

6. Qualifications An entrepreneur needs to possess On the contrary, a manager needs

qualities and qualifications like high to possess distinct qualifications

achievement motive, origi-nality in in terms of sound knowledge in

thinking, foresight, risk -bearing management theory and practice.

ability and so on.

After going through the above points of distinctions, it is clear that an entrepreneur

differs from a manager. At times, an entrepreneur can be a manager also, but a manager

cannot be an entrepreneur. After all, an entrepreneur is an owner, but a manager is a servant.

INTRAPRENEUR
Of late, a new breed of entrepreneurs is coming to the fore in large industrial

organisations. They are called ‗intrapreneurs‘. They emerge from within the confines of an

existing enterprise. According to Gifford Pinchot (1985), ―Intrapreneur is an entrepreneur

within an already established organization.‖ In big organisations, the top executives are

encouraged to catch hold of new ideas and then convert these into products through research

and development activities within the framework of organisation. The concept of

Intrapreneurship has become very popular in developed countries like America. It is found
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that an increasing number of intrapreneurs is leaving their jobs in big organisations and is

starting their own enterprises. Many of such intrapreneurs have become exceedingly

successful in their ventures. What is more that they are causing a threat to the organisations

they left? Such intrapreneurs breed to the innovative entrepreneurs who inaugurate new

products.

Difference between Entrepreneur and Intrapreneur:

Having understood the meanings of entrepreneur and intrapreneur, now the two can

easily be distinguished from each other on the following bases:

Bases of Entrepreneur Intrapreneur

Difference

1. Dependency An entrepreneur is independent But, an intrapreneur is dependent

in his operations. on the entrepreneur, i.e., the owner.

2. Raising of An entrepreneur himself raises Funds are not raised by the

Funds funds required for the enterprise. intrapreneur.

3. Risk Entrepreneur bears the risk An intrapreneur does not fully bear

involved in the business. the risk involved in the enterprise.

4. Operation An entrepreneur operates from On the contrary, an intrapreneur

out-side. operates from within the

organisation itself.

CONCEPT OF ENTREPRENEURSHIP
Like other economic concepts, entrepreneurship has been a subject of much debate

and discussions. It is an elusive concept. Hence, it is defined differently by different people.

While some call entrepreneurship as ‗risk-bearing‘, others view it ‗innovating‘ and yet others

consider it ‗thrill-seeking‘. Let us consider some important definitions of entrepreneurship

that will help us understand what entrepreneurship actually is all about.

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In the opinion of A. H. Cole, ―Entrepreneurship is the purposeful activity of an

individual or a group of associated individuals, undertaken to initiate, maintain or aggrandize

profit by production or distribution of economic goods and services‖.

According to Joseph A. Schumpeter (1939), ―Entrepreneurship is based on purposeful

and systematic innovation. It includes not only the independent businessman but also

company directors and managers who actually carry out innovative functions.‖

Innovation and risk-bearing are regarded as the two basic elements involved in

entrepreneurship.

Innovation: Innovation, i.e., doing something new or something different is a necessary

condition to be called a person as an entrepreneur. The entrepreneurs are constantly on the

look out to do something different and unique to meet the changing requirements of

customers. They may or may not be inventors of new products or new methods of production,

but they possess the ability to foresee the possibility of making use of the inventions for their

enterprises. Let some facts speak.

Risk-Bearing: Starting a new enterprise always involves risk and trying for doing

something new and different is also risky. The reason is not difficult to seek. The enterprise

may earn profits or incur losses because of various factors like increasing competition,

changes in customer preferences, and shortage of raw material and so on. An entrepreneur,

therefore, needs to be bold enough to assume the risk involved in the enterprise. In fact, he or

she needs to be a risk-taker, not risk avoider. His risk-bearing ability enables him even if he

fails in one time or one venture to persist on and on which ultimately helps him succeed. The
Japanese proverb applies to him: ―Fall seven times, stand up eight. ‖

Relationship between Entrepreneur and Entrepreneurship:

Entrepreneur Entrepreneurship

Person Process

Organiser Organisation

Innovator Innovation

Risk-bearer Risk-bearing
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Motivator Motivation

Creator Creation

Visualiser Vision

Leader Leadership

Imitator Imitation

Thus, it is clear from above that entrepreneurship is concerned with the performance

and coordination of the entrepreneurial functions. Then, this also means that entrepreneur

precedes entrepreneurship.

GROWTH OF ENTREPRENEURSHIP IN INDIA

That a proper understanding of the growth of entrepreneurship of any country would

involve within the context of the economic history of the particular country becomes the

subject matter of this section. The growth of entrepreneurship in India is, therefore,

presented in two sections, viz. Entrepreneurship during pre – independence and post –

independence.

Entrepreneurship during Pre - independence

The evolution of the Indian entrepreneurship can be traced back to even as early as

Rigveda, when metal handicrafts existed in the society (Rao 1969:10). This would bring the

point home that handicrafts entrepreneurship in India was as old as the human civilization

itself, and was nurtured by the craftsmen as a part of their duty towards the society. Before

India came into contact with the West, people were organised in a particular type of

economic and social system of the village community. Then, the village community featured

the economic scene in India. The Indian towns were mostly religious and aloof from the

general life of the country. The elaborated caste based diversion of workers consisted of

farmers, artisans and religious priests (the Brahmins). The majority of the artisans were

treated as village servants. Such compact system of village community effectively protecting

village artisans from the onslaughts of external competition was one of the important
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contributing factors to the absence of localisation of industry in ancient India. [Deshpande

1984:63].

Evidently, organised industrial activity was observable among the Indian artisans in a

few recognisable products in the cities of Banaras, Allahabad, Gaya, Puri, Mirzapur which

were established on their river basins.

Entrepreneurship during Post-Independence

After taking a long sigh of political relief in 1947, the Government of India tried to

spell out the priorities to devise a scheme for achieving balanced growth. For this purpose,

the Government came forward with the first Industrial Policy, 1948 which was revised from

time to time (Kuchhal 1963). The Government in her various industrial policy statements
identified the responsibility of the State to promote, assist and develop industries in the

national interest. It also explicitly recognised the vital role of the private sector in

accelerating industrial development and, for this; enough field was reserved for the private

sector. The Government took three important measures in her industrial resolutions:

(i) To maintain a proper distribution of economic power between private and

public sector.

(ii) To encourage the tempo of industrialisation by spreading entrepreneurship

from the existing centers to other cities, towns and villages.

(iii)To disseminate the entrepreneurship acumen concentrated in a few dominant

communities to a large number of industrially potential people of varied social

strata (Malenbaum 1962).

To achieve these adumbrated objectives, the Government accorded emphasis on

development of small-scale industries in the country. Particularly since the Third Five Year

Plan, the Government started to provide various incentives and concessions in the form of

capital, technical know-how, markets and land to the potential entrepreneurs to establish

industries in the industrially potential areas to remove the regional imbalances in

development. This was, indeed, a major step taken by the Government to initiate interested

people of varied social strata to enter the small-scale manufacturing field. Several institutions

like Directorate of Industries, Financial Corporations, Small-Scale Industries Corporations

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and Small Industries Service Institute were also established by the Government to facilitate

the new entrepreneurs in setting up their enterprises. Expectedly, small- scale units emerged

very rapidly in India witnessing a tremendous increase in their number from 121,619 in 1966

to 190,727 in 1970 registering an increase of 17,000 units per year during the period under

reference.

The recapitulation of review of literature regarding entrepreneurial growth in India,

thus, leads us to conclude that prior to 1850; the manufacturing entrepreneurship was

negligible lying dormant mainly in artisans. The artisan entrepreneurship could not develop

mainly due to inadequate infrastructure and lukewarm attitude of the colonial political

structure to the entrepreneurial function. The East India Company, the Managing Agency
Houses, and various socio-political movements like Swadeshi campaign provided, one way

or the other, proper seedbed for the emergence of the manufacturing entrepreneurship in India

from 1850 onwards.

The wave of entrepreneurial growth gained sufficient momentum after the Second

World War. Since then the entrepreneurs have increased rapidly in numbers in the country.

Particularly, since the Third Five Year Plan, small entrepreneurs have experienced

tremendous increase in their numbers. But, they lacked entrepreneurial ability, however. The

fact remains that even the small entrepreneurship continued to be dominated in business

communities though at some places new groups of entrepreneurs too emerged. Also, there are

examples that some entrepreneurs grew from small to medium-scale and from medium to

large-scale manufacturing units during the period. The family entrepreneurship units (family

business) like Tata, Birla, Mafatlal, Dalmia, Kirloskar and others grew beyond the normally

expected size and also established new frontiers in business in this period. Notwithstanding,

all this happened without the diversification of the entrepreneurial base so far as its socio-

economic ramification is concerned.

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ROLEOF ENTREPRENEURSHIP IN ECONOMIC DEVELOPMENT

The word development is used in so many ways that its precise connotation is often

baffling. Nevertheless, economic development essentially means a process of upward change

whereby the real per capita income of a country increases over a long period of time. Then, a

simple but meaningful question arises: what causes economic development? This question

has absorbed the attention of scholars of socio-economic change for decades. In this section,

we shall attempt to shed light on an important aspect of that larger question, i.e. the

phenomenon of entrepreneurship. The one major issue we shall address here is: what is the

significance of entrepreneurship for economic development? Does it add an important

independent influence to that of other factors widely agreed to promote economic

development of a country like India?

Adam Smith, the foremost classical economist, assigned no significance to entrepreneurial

role in economic development in his monumental work‘ An Enquiry into the Nature and Causes of the

Wealth of Nations‘, published in 1776. Smith extolled the rate of capital formation as an important

determinant of economic development.

The problem of economic development was ergo largely the ability of the people to

save more and invest more in any country. According to him, ability to save is governed by

improvement in productivity to the increase in the dexterity of every worker due to division

of labour. Smith regarded every person as the best judge of his own interest who should be

left to pursue his own advantage. According to him, each individual is led by an ‗invisible

hand‘ in pursuing his/her interest. He always advocated the policy of laissez-faire in

economic affairs.

In his theory of economic development, David Ricardo identified only three factors of

production, namely, machinery, capital and labour, among whom the entire produce is

distributed as rent, profit and wages respectively. Ricardo appreciated the virtues of profit in

capital accumulation. According to him, profit leads to saving of wealth which ultimately

goes to capital formation.

Thus, in both the classical theories of economic development, there is no room for

entrepreneurship. And, economic development seems to be automatic and self-regulated.

 21

Thus, the attitude of classical economists was very cold towards the role of entrepreneurship

in economic development. They took the attitude: ―the firm is shadowy entity and

entrepreneur even shadower or at least is shady when he is not shadowy.(Boulding 1960)‖

The economic history of the presently developed countries, for example, America,

Russia and Japan tends to support the fact that the economy is an effect for which

entrepreneurship is the cause. The crucial role played by the entrepreneurs in the

development of the Western countries has made the people of underdeveloped countries too

much conscious of the significance of entrepreneurship for economic development. Now,

people have begun to realize that for achieving the goal of economic development, it is

necessary to increase entrepreneurship both qualitatively and quantitatively in the country. It

is only active and enthusiastic entrepreneurs who fully explore the potentialities of the

country‘s available resources – labour, technology and capital. Schumpeter (1934) visualised

the entrepreneur as the key figure in economic development because of his role in introducing

innovations. Parson and Smelser (1956) described entrepreneurship as one of the two

necessary conditions for economic development, the other being the increased output of

capital. Harbison (1965) includes entrepreneurs among the prime movers of innovations, and

Sayigh (1962) simply describes entrepreneurship as a necessary dynamic force. It is also

opined that development does not occur spontaneously as a natural consequence when

economic conditions are in some sense ‗right‘: a catalyst or agent is always needed, and this

requires an entrepreneurial ability. It is this ability that he perceives opportunities which

either others do no see or care about. Essentially, the entrepreneur searches for change, sees

need and then brings together the manpower, material and capital required to respond the

opportunity what he sees. Akio Morita, the President of Sony who adopted the company‘s

products to create Walkman Personal Stereo and India‘s Gulshan Kumar of T-Series who

skimmed the audio-cassette starved vast Indian market are the clearest examples of such able

entrepreneurs.

The role of entrepreneurship in economic development varies from economy to

economy depending upon its material resources, industrial climate and the responsiveness of

the political system to the entrepreneurial function. The entrepreneurs contribute more in
 22

favourable opportunity conditions than in the economies with relatively less favourable

opportunity conditions.

Viewed from the opportunity conditions point of view, the underdeveloped regions,

due to the paucity of funds, lack of skilled labour and non-existence of minimum social and

economic overheads, are less conducive to the emergence particularly of innovative

entrepreneurs. In such regions, entrepreneurship does not emerge out of industrial

background with well developed institutions to support and encourage it. Therefore,

entrepreneurs in such regions may not be an ―innovator‖ but an ―imitator‖ who would copy

the innovations introduced by the ―innovative‖ entrepreneurs of the developed regions

(Brozen 1954-55). In these areas, according to McClelland‘s (1961) concept of personality

aspect of entrepreneurship, some people with high achievement motivation come forward to

behave in an entrepreneurial way to change the stationary inertia, as they would not be

satisfied with the present status that they have in the society.

Under the conditions of paucity of funds and the problem of imperfect market in

underdeveloped regions, the entrepreneurs are bound to launch their enterprises on a small-

scale. As imitation requires lesser funds than innovation, it is realized that such regions

should have more imitative entrepreneurs. And, it is also felt that imitation of innovations

introduced in developed regions on a massive scale can bring about rapid economic

development in underdeveloped regions also. But, it does not mean that such imitation

requires in any way lesser ability on the part of entrepreneurs. In this regard, Berna opines:

―It involves often what has aptly been called ‗subjective innovation‘, that is, the ability to do

things which have not been done before by the particular industrialists, even though unknown

to him, the problem may have been solved in the same way by the others.‖ These imitative

entrepreneurs constitute the main spring of development of underdeveloped regions.

Further, India which itself is an underdeveloped country aims at decentralized

industrial structure to militate the regional imbalances in levels of economic development,

small-scale entrepreneurship in such industrial structure plays an important role to achieve

balanced regional development. It is unequivocally believed that small-scale industries

provide immediate large- scale employment, ensure a more equitable distribution of national
 23

income and also facilitate an effective resource mobilization of capital and skill which might

otherwise remain unutilized. Lastly, the establishment of Entrepreneurship Development

Institutes and alike by the Indian Government during the last decades is a good testimony to

her strong realisation about the premium mobile role of entrepreneurship plays in economic

development of the country. The important role that entrepreneurship plays in the economic

development of an economy can now be put in a more systematic and orderly manner as

follows:

1. Entrepreneurship promotes capital formation by mobilising the idle saving of the

public.

2. It provides immediate large-scale employment. Thus, it helps reduce the

unemployment problem in the country, i.e., the root of all socio-economic problems.

3. It promotes balanced regional development.

4. It helps reduce the concentration of economic power.

5. It stimulates the equitable redistribution of wealth, income and even political power in

the interest of the country.

6. It encourages effective resource mobilisation of capital and skill which might

otherwise remain unutilized and idle.

7. It also induces backward and forward linkages which stimulate the process of

economic development in the country.

8. Last but no means the least; it also promotes country‘s export trade i.e., an important

ingredient to economic development.

Thus, it is clear that entrepreneurship serves as a catalyst of economic development.

On the whole, the role of entrepreneurship in economic development of a country can best be

put as ―an economy is the effect for which entrepreneurship is the cause‖

MEANING OF ENTREPRENEURIAL COMPETENCY

The word competency was originated from the word ‗competence‘. Hence, an

understanding of the meaning of the word ‗competence‘ will help us understand the meaning

the word ‗competency‘. In simple terms, a competence is an underlying characteristic of a

 24

person which leads to his/her effective or superior performance in a job (Boyatzis: 1982).

Hogg (1993:21-26) has defined competency as ―competencies are the characteristics of a

manager that lead to the demonstration of skill s and abilities, which result in effective

performance within an occupational area.‖ United Nations Industrial Development

Corporation (UNIDO) has defined competency as ―a set of skills, related knowledge and

attributes that allow an individual to perform a task or an activity within a specific function or

job‖.

A more detailed definition synthesized from the suggestions of several experts in

human resource development who attended a conference on competencies in Johannesburg in

1995 is as: ―a cluster of related knowledge, skills and attitudes that affects a major part of
one‘s job (a role or responsibility), that correlates with performance on job, that can be

measured against well accepted standards and that can be improved via training and

development (Perry 1996: 48-56).‖ In ultimate analysis, a job competence is a good

combination of one‘s underlying characteristics such as one‘s knowledge, skill, motive, etc.

which one uses to perform a given job well. It is important to mention that the existence of

these underlying characterizes may be unconscious aspects of the person. Now,

entrepreneurial competencies can be safely defined as the underlying characteristics

possessed by an entrepreneur that result in his/her superior performance.

Difference Between Competence and Competency

Often a question is asked: Are competence and competency the same or different?

Some dictionaries have represented the two interchangeably, i.e. meaning the same.

However, the meanings of competence and competency are not the same, but they mean two

different meanings. (McClelland 1973). Difference between competence and competency as

follows:

Competence Competency

1. Skill-based Behaviour-based

2. Standard attained Manner of behaviour

3. What is measured How the standard is achieved

 25

It becomes clear from the above that competence describes what people can do while

competency focuses on how they do it. In other words, the former means a skill and the

standard of performance reached, while the latter refers to the behaviour by which it is

achieved. It implies that there is an interface between the two, i.e. the competent application

of a skill is likely to make one act in a competent manner and vice versa.

The difference between competence and competency can be better understood by

knowing and understanding their components.

1. Knowledge

2. Skill

3. Motive
These are explained with the help of the driving test analogy.

Knowledge: In simple terms, knowledge means collection and retention of

information in one‘s mind. Knowledge is necessary for performing a task but not sufficient.

For example, a person by reading understands the meaning of driving a car. The person can

describe how to drive a car. But, mere description will not enable the listener to drive a car

unless something more than knowledge is there. That is precisely the reason we see in real

life that people, or say, entrepreneurs possessing merely the entrepreneurial knowledge have

miserably failed while actually performing the task. What this suggests is that one also needs

to have skills to use or translate the knowledge into action or practice.

Skill: Skill is the ability to demonstrate a system and sequence of behaviour which

results in something observable, something that one can see. A person with planning ability,

i.e., skill can properly identify the sequence of action to be performed to drive the car.

Nonetheless, while knowledge of driving a car could be acquired by reading, talking or so on,

skill to actually drive a car can be acquired by practice i.e., driving car on a number of times.

This means both knowledge and skill are required to perform a task like driving a car.

Motive: In simple terms, motive is an urge to achieve one‘s goal what McClelland

terms ‗Achievement Motivation‘. This continuous concern of goal achievement directs a

person to perform better and better. Coming back to the same example of driving a car, one‘s

urge to drive car in the best manner helps him constantly practice driving car.
 26

Thus, in order to perform a task like establishing and running an industrial unit

effectively and successfully, a person called entrepreneur needs to possess a set of

knowledge, skill and motive which could be together labeled as his / her ‗entrepreneurial

competencies.‘

Now, an analysis of above meanings and definitions of competencies reveals the

following salient characteristics of entrepreneurial competencies:

 Entrepreneurial competencies are the characteristics of entrepreneurs.

 Entrepreneurial competencies lead to the demonstration of entrepreneurial

skills and abilities.

 Entrepreneurial competencies must lead to effective and superior performance

of entrepreneurs.

Knowledge and skill constituents of competency tend to be visible and relatively on

the surface characteristics of the people and for that matter, entrepreneurs also. As regards

motives or attitudes as constituents of competencies, these are more hidden, ‗deeper‘ and

central to one‘s personality.

COMPETENCY = COMPETENCE + COMMITMENT

 Competence = Knowledge x Skills

 Commitment = One‘s deep attachment or devotion with passion and faith or

belief of a person on the job.

 27

Competence Characteristics Commitment Characteristics

 Technical knowledge  Self confidence

 Functional Information  Self motivation

 Business knowledge  Honesty and integrity

 Communication skills  Determination

 Interpersonal skills  Positive attitude

 Leadership skills  Winning attitude

 Team building skills  Learn from mistakes

 Decision making skills  Perseverance

 Time management skills  Enterprising

 Result oriented

MAJOR ENTREPRENEURIAL COMPETENCIES

However, there prevails a controversy on what is takes to be a successful

entrepreneur. Earlier, people used to believe that entrepreneurs are born not made. In other

words, persons with business family background could become successful entrepreneurs.

Subsequently, the sharpened knowledge of entrepreneurial competencies over the last four

decades made people to believe that entrepreneurs are made not born. According to this view,

persons possessing Proper knowledge and skill acquired through education and experience

can become successful entrepreneurs (Klemp 1980)

In view of above controversy in order to understand clearly what it takes to be a

succesful entrepreneur, research institutions and behavioural scientists, through their research

studies, have tried to resolve the controversy on what makes a successful entrepreneur. Here,

we are presenting the findings of the representative institutional and individual research

studies on entrepreneurial competencies.

Entrepreneurship Development Institute of India (EDI) Study

Entrepreneurship Development Institute of India (EDI), Ahmedabad conducted a
research study to identify what makes an entrepreneur successful. The study was conducted

under the guidance of Professor David C. McClelland, a well known behavioural scientist in
 28

three countries-India, Malawi and Equator. The outcome of the study has been identification

of a set of entrepreneurial competencies or characteristics that result in superior performance.

The major finding of the study was that the possession of competencies is necessary for

superior performance. This was cross culturally valid.

Following is a list of major competencies identified by the study that lead-to superior

performance of the entrepreneurs:

1. Initiative: It is entrepreneur who initiates a business activity. He does things

before being asked by events.

2. Looking for opportunities: He looks for an opportunity and takes appropriate

actions as and when arise.

3. Persistence: He follows the Japanese Proverb ―Fall seven times; stand up eight‖.

He makes repeated efforts to overcome obstacles that get in the way of reaching

goals.

4. Information seeker: Takes individual research and consults experts to get

information to help reach the goal.

5. Quality Conscious: He has always strong urge to excel to beat the existing

standard.

6. Committed to Work: Does every sacrifice to get the task completed.

7. Efficiency Seeker: Makes always tenacious efforts to get the task completed with

in minimum costs and time.

8. Proper Planning: Formulates realistic and proper plans and then executes

rigorously to accomplish the task.

9. Problem Solver: Always tries to find out ways and means to tide over the

difficult times.

10. Self – Confidence: A strong believer in his strength and abilities

11. Assertive: Good in asserting his issues with others for the cause of his enterprise.

12. Persuasive: Able to successfully persuade people to do what he actually wants

from them.
 29

13. Efficient Monitor: Personally supervises the work so that it is done as per the

standards laid down.

14. Employees’ Well Wisher: Has great concern and also takes necessary measures

to improve the welfare of the employees working in his enterprise. Treats

employees as a factor of production having emotions and feelings.

15. Effective Strategist: Introduces the most effective strategies to effect employees

to achieve the enterprise goals whatsoever it may be.

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UNIT-II
ENTREPRENEURIAL ENVIRONMENT

DEFINITION OF BUSINESS ENVIRONMENT

―Business environment is the aggregate of all conditions, events and influencing that

surrounds and development‖ – Keith Davis

―The environment of a company as the pattern of all external influences that affect its

life and development‖ – Andrews.

COMPONENTS OF ENTREPRENEURIAL ENVIRONMENT:

It has two components:

1. Internal Environment

2. External Environment

(A) INTERNAL ENVIRONMENT

It includes 5 M‘s i.e. man, material, money, machinery and management, usually

within the control of business. Business can make changes in these factors according to the

change in the functioning of enterprise

(B) EXTERNAL ENVIRONMENT:

Those factors which are beyond the control of business enterprise are included in

external environment. These factors are: Government and Legal factors, Geo-Physical

Factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of two

Types:

1. Micro/Operating Environment

2. Macro/General Environment

(i) MICRO/OPERATING ENVIRONMENT:

The environment which is close to business and affects its capacity to work is known

as Micro or Operating Environment. It consists of Suppliers, Customers, Market

Intermediaries, Competitors and Public.

 31

(1) Suppliers
They are the persons who supply raw material and required components to the

company. They must be reliable and business must have multiple suppliers i.e. they should

not depend upon only one supplier.

(2) Customers
Customers are regarded as the king of the market. Success of every business depends

upon the level of their customer‘s satisfaction.

Types of Customers:

(i) Wholesalers

(ii) Retailers
(iii) Industries

(iv) Government and Other Institutions

(v) Foreigners

(3) Market Intermediaries

They work as a link between business and final consumers. Types:

(i) Middleman

(ii) Marketing Agencies

(iii) Financial Intermediaries

(iv) Physical Intermediaries

(4) Competitors
Every move of the competitors affects the business. Business has to adjust itself

according to the strategies of the Competitors.

(5) Public
Any group who has actual interest in business enterprise is termed as public e.g.

media and local public. They may be the users or nonusers of the product.
 32

(II) MACRO/GENERAL ENVIRONMENT:

It includes factors that create opportunities and threats to business units. Following

are the elements of Macro Environment:

(1) Economic Environment

It is very complex and dynamic in nature that keeps on changing with the

change in policies or political situations. It has the following elements:

(i) Economic Conditions of Public

(ii) Availability of economic resources

(iii) Economic Policies of the country

(iv) Economic system

(v) Labour policies

(vi) Trade policies

(vii) Tariff policies

(viii) Interactive

(ix) Subsidies

(x) Other economic factors: Infrastructural Facilities, Banking, Insurance

companies, money markets, capital markets etc.

(2) Non-Economic Environment

Following are included in non-economic environment:-

(i) Political Environment

It affects different business units extensively.

Components:

(a) Political Belief of Government

(b) Political Strength of the Country

(c) Relation with other countries

(d) Defense and Military Policies

(e) Centre State Relationship in the Country

(f) Thinking Opposition Parties towards Business Unit

 33

(ii) Socio-Cultural Environment

Influence exercised by social and cultural factors, not within the control of business,

is known as Socio-Cultural Environment.

These factors include: attitude of people to work, family system, caste system,

religion, education, marriage etc.

Components of Socio-Cultural environment

 Social structure

 Social values

 Social conventions

 Customer‘s opinions
 Labour motives

 Family background

 Caste system

 Social sanctions

 Religious background

 Kith and kin

 Social mobility

 Social status

 Social marginality

 Social values

 Social responsibility

 Social cost-benefit analysis

(iii) Technological Environment

A systematic application of scientific knowledge to practical task is known as

technology. Every day there has been vast changes in products, services, lifestyles and living

conditions, these changes must be analysed by every business unit and should adapt these

changes.
 34

Components of technological environment

 Better utilization

 Increase in competition

 Risk efficiency

 Improvement in productivity

 Improvement in profitability

(iv) Natural Environment

It includes natural resources, weather, climatic conditions, port facilities,

topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for

these factors before choosing the location for their business.

(v) Demographic Environment

It is a study of perspective of population i.e. its size, standard of living, growth rate,

age-sex composition, family size, income level (upper level, middle level and lower level),

education level etc. Every business unit must see these features of population and recognize

their various need and produce accordingly.

(vi) International Environment

It is particularly important for industries directly depending on import or exports.

The factors that affect the business are:

 Globalization

 Liberalization

 foreign business policies

 Cultural exchange.

 Development of multinational corporations

 GATT/WTO

 International capital market

 35

NATURE OF BUSINESS ENVIRONMENT

 Independence

 Dynamic nature

 Unlimited effect

 Uncontrollable factors

 Media of social change

 Uncertainties

 Restrictions

 Danger of social changes

 External forces
 Inter-relatedness

 Complexity

CHARACTERISTICS OF BUSINESS ENVIRONMENT

1. Business environment is compound in nature

2. Business environment is constantly changing process

3. Business environment is different for different business units.

4. It has both long term and short term impact

5. Unlimited influence of external environment factors

6. It is very uncertain

7. Inter-related components

8. It includes both internal and external environment.

FACTORS AFFECTING BUSINESS ENVIRONMENT

(a) Lack of cash flow

(b) Changing government policies

(c) Changing economic policies

(d) Varying labour and raw material cost

(e) Tough competitors

(f) Accounting and taxes

 36

(g) Natural disaster

(h) Customer‘s need and demand

(i) New opportunities and threats

(j) Stability

(k) Aggressiveness

(l) Team orientation

(m) People orientation

(n) Outcome orientation

(o) Innovation and risk taking

(p) Attention to details

(q) Organization of machinery and equipment

(r) Technological capacity

(s) Organizational culture,

(t) Management systems,

(u) Financial management

(v) Employee morale

PHASES OF EDPS
1) Pre-training Phase

a) Selection of entrepreneurs

b) Arrangement of infrastructure

c) Tie-up of guest faculty for the training purpose. Like that

2) Training Phase
a) Purpose of training is to develop, need for achievement‖

b) Role play as like entrepreneur

3) Post-training Phases
a) Follow-up

b) Review the pre-training work

c) Review the process of training programmes and

d) Review past training approach

 37

ROLE OF FAMILY AND SOCIETY IN ENTREPRENURIAL DEVELOPMENT

Family and society holds the vital role for the entrepreneurial development. It plays an

important role for making an entrepreneur so that to build entrepreneurial talents which

results in an enterprise. These aspects are mentioned below:

1. Quality

2. Export to various countries

3. Manufacturing of high quality

4. Examples jewelry, cotton textiles, silks materials, fine arts, handicraft etc.,

5. Funds

6. Example family based small scale industries

7. Opportunities

8. High level of education

9. Social interaction

10. Good health

11. Hard working

12. Measurable targets

13. Analytical abilities

14. Emotionally stable

15. Young ones

Others:
16. Family affects the perceived quality

17. Financial background

18. Occupational background

19. Social impact on decision making

20. Support in choosing entrepreneurship career

 38

ENTREPRENEURIAL DEVELOPMENT TRAINING

The program of training in entrepreneurship development is to develop

motivation of potential entrepreneurs, help them in taking up suitable enterprises and

activities, enable potential entrepreneurs-building skills. The motivational inputs include

psychological games, tests, goal setting exercise and role play.

 Entrepreneurial personality

 Self study

 Self concept

 Values

 Self employment ventures

 Market survey

 Motivation and skills

OBJECTIVES OF ENTREPRENEURIAL TRAINING

(a) Self employment

(b) Promote and development of SME

(c) Potential entrepreneurs

(d) Stimulate new ventures

(e) Opportunities for rural areas

(f) Local consumption and exports

(g) Upgrade managerial skills

(h) Flexible objectives

(i) Risk taking

(j) Strategic decisions

(k) Build leadership qualities

(l) Communication

(m) Broad vision

(n) Suitable environment

(o) Quick decision

(p) Integration and cooperation

 39

(q) Accept industrial democracy

(r) Truthfulness, honesty and compliance

METHODS OF ENTREPRENEURIAL TRAINING

(i) Individual instruction

(ii) Group instruction

(iii) Lecture methods

(iv) Demonstration methods

(v) Written instructional methods

(vi) Conference

(vii) Meetings

OTHER SUPPORT ORGANIZATIONAL SERVICES (ESOS)

1. Financial assistance

2. Technical assistance

3. Promotional assistance

4. Marketing assistance

1. Financial assistance
Finance is a blood of any organization. Any enterprise runs successfully which needs

finance. So every entrepreneur required relative amount of finance to initiate his/her business.

According to this Government takes several steps to solve financial problem through

providing financial assistance to entrepreneurs.

(a) Long term financial assistance

(b) Medium term financial assistance

(c) Short term financial assistance

1. Technical assistance
There are number of government organizations as well as NGOs who conduct EDPs and

MDPs. These MDPs and EDPs are conducted by MSMEs, NIESBUD, NSIC, IIE, NISIET,

entrepreneurship development institutes and other state government development agencies.

1.SISI 2.DIC 3.IDBI

 40

2. Promotional assistance
Government of India accords the higher performance to development of MSME by

framing and implementing suitable policies and promotional schemes.

(a) Providing loans

(b) Providing lands

(c) Providing premises

(d) Subsidies

(e) Concessions

(f) Special schemes

(g) Incentives schemes

3. Marketing assistance
There are government and non-governmental specialized agencies which provides

marketing assistance.

1. Export promotion schemes

2. Conduct exhibition

CENTRAL AND STATE GOVERNMENT INDUSTRIAL POLICIES AND

REGULATIONS:
(a) Planning

(b) Draw policy

(c) Determining policy

(d) Strategies

(e) Incentives

(f) Financial inducement

(g) Subsides

(h) Economic growth

PROMOTIONAL SCHEMES PROVIDED BY GOVERNMENT

 Tax holiday

 Depreciation

 Rehabilitation allowance
 41

 Investment allowance

 Expenditure on scientific research

 Amortization of certain preliminary expenses

 Tax concession

 Concession on backward areas

 Expenditure on acquisition of patents and copy right

 Profits from business of publication of books

 MODVAT and small scale industries

FINANCIAL SUPPORT PROVIDED BY GOVERNMENT

 Financial incentives
 Fiscal incentives

 General incentives

 Special incentives/backward

 Reservation of items for exclusive manufacture in SSI

INCENTIVES TO ENTREPRENEURS
Incentives to non-resident Indians

Special incentives for women

Interest free loans

Exemption from property tax

Incentives to NRIs

Exemption from income tax

Interest free sales tax loans

Sales tax exemptions

Land and building at concessional rates

Price preference to SSI units

Exemption from stamp duty

Provision for seed capital

Allotment of developed constructed sheds

Allotment of controlled or subsidized raw materials

 42

Concession water

Special facilities for import of raw materials

Taxation benefits

Excise concessions

SUBSIDES
 State subsidies

 Interest subsidies

 State transport subsidies

 Subsidy for technical know how

 State capital investment subsidy

 Sales tax concessions

 Grants

 Export and import subsidies

 Capital investment subsidies

 Subsidies for power generation

 Subsidies for buying test equipment

 Subsidy for industrial housing

 Subsidy for technical assistance

 Subsidy for cost of market studies

 Subsidy for consultancy services

 Subsidy for quality standards

 Subsidy for reports

 Feasibility studies

THE ROLE OF GOVERNMENT IN SUPPORTING ENTREPRENEURSHIP

Small and Mediumsized Enterprises (SMEs) in market economies are the engine of

economic development. Owing to their private ownership, entrepreneurial spirit, their

flexibility and adaptability as well as their potential to react to challenges and changing
 43

environments, SMEs contribute to sustainable growth and employment generation in a

significant manner.

SMEs have strategic importance for each national economy due a wide range of

reasons. Logically, the government shows such an interest in supporting entrepreneurship and

SMEs. There is no simpler way to create new job positions, increasing GDP and rising

standard of population than supporting entrepreneurship and encouraging and supporting

people who dare to start their own business.

Every surviving and successful business means new jobs and growth of GDP

Therefore, designing a comprehensive, coherent and consistent approach of Council

of Ministers and entity governments to entrepreneurship and SMEs in the form of

government support strategy to entrepreneurship and SMEs is an absolute priority. A

comprehensive government approach to entrepreneurship and SMEs would provide for a full

coordination of activities of numerous governmental institutions (chambers of commerce,

employment bureaus, etc.) and NGOs dealing with entrepreneurship and SMEs.

With no pretension of defining the role of government in supporting entrepreneurship

and SMEs, we believe that apart from designing a comprehensive entrepreneurship and

SMEs strategy, the development of national SME support institutions and networks is one of

key condition for success. There are no doubts that governments should create different types

of support institutions.

 To provide information on regulations, standards, taxation, customs duties,

marketing issues;

 To advise on business planning, marketing and accountancy, quality control and

assurance;

 To create incubator units providing the space and infrastructure for business

beginners and innovative companies, and helping them to solve technological

problems, and to search for know-how and promote innovation; and

i) To help in looking for partners. In order to stimulate entrepreneurship and

improve the business environment for small enterprises.

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Training:
Basic training differs from product to product but will necessary involve sharpening

of entrepreneurial skills. Need based technical training is provided by the Govt & State Govt.

technical Institutions. There are a number of Government organisations as well as NGOs

who conduct EDPs and MDPs. These EDPs and MDPs and are conducted by MSME‘s.

NIESBUD, NSIC, IIE, NISIET, Entrepreneurship Development Institutes and other state

government development agencies.

Marketing Assistance There are Governmental and non-governmental specified

agencies which provide marketing assistance. Besides promotion of MSME products through

exhibitions, NSIC directly market the MSME produce in the domestic and overseas market.
NSIC also manages a single point registration scheme for manufactures for Govt. purchase.

Units registered under this scheme get the benefits of free tender document and exemption

from earnest money deposit and performance guarantee.

Promotional Schemes
Government accords the highest preference to development of MSME by framing and

implementing suitable policies and promotional schemes. Besides providing developed land

and sheds to the entrepreneurs on actual cost basis with appropriate infrastructure, special

schemes have been designed for specific purposes like quality up gradation, common

facilities, entrepreneurship development and consultancy services at nominal charges

Government of India has been executing the incentive scheme for providing

reimbursement of charges for acquiring ISO 9000 certification to the extent of 75% of the

cost subject to a maximum of Rs.75,000/- in each case. ISO 9000 is a mechanism to facilitate

adoption of consistent management practices and production technique as decided by the

entrepreneur himself. This facilitates achievement of desired level of quality while keeping

check on production process and management of the enterprise.

Concession on excise duty

MSME units with a turnover of Rs.1crore or less per year have been exempted from

payment of Excise Duty. Moreover there is a general scheme of excise exemption for MSME

brought out by the Ministry of Finance which covers most of the items. Under this, units
 45

having turnover of less than Rs.3 crores are eligible for concessional rate of Excise Duty.

Moreover, there is an exemption from Excise Duty for MSME units producing branded goods

in rural areas Credit Facility to MSME. Credit to micro, small and medium scale sector has

been covered under priority sector lending by banks. Small Industries Development Bank of

India (SIDBI) has been established as the apex institution for financing the MSME. Specific

schemes have been designed for implementation through SIDBI, SFCs, Scheduled Banks,

SIDCs and NSIC etc. Loans upto Rs. 5 lakhs are made available by the banks without

insisting on collaterals. Further Credit Guarantee Fund for micro, small and medium

enterprises has been set up to provide guarantee for loans to MSME up to Rs. 25 lakhs

extended by Commercial Banks and some Regional Rural Bank. The policies and schemes
for promotion of MSME being implemented by State Governments. All the State

Governments provide technical and other support services to small units through their

Directorates of Industries, and District Industries Centres. Although the details of the scheme

vary from state to state, the following are the common areas of support.

1. Development and management of industrial estates

2. Suspension/deferment of Sales Tax

3. Power subsidies

4. Capital investment subsidies for new units set up in a particular district

5. Seed Capital/Margin Money Assistance Scheme

6. Priority in allotment of power connection, water connection.

7. Consultancy and technical support

Government of India runs a scheme for giving National Awards to micro, small and

medium scale entrepreneurs providing quality products in 11 selected industry groups of

consumer interest. The winners are given trophy, certificate and a cash price of Rs. 25000/-

each.Government accords the highest preference to development of MSME by framing and

implementing suitable policies and promotional schemes like policies and promotional

schemes, providing incentives for quality upgradation, concession on excise duty and

provides technical supportive services. Thus government play supportive role in

development entrepreneurs.
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STATE GOVERNMENTS INCENTIVES FOR INVESTORS:

Many state governments are offering incentives to attract investment in their states.

Many state governments in India offer attractive incentive packages which include incentives

such as:

i) Land at subsidized prices or Industrial sheds to set up small scale industrial

unit.

ii) Tax concessions for a number of years. These may include exemption from

sales tax etc for a set period of time.

iii) Electric power supply at a reduced tariff

iv) Loans and subsideies at very attractive rates of interest

INCENTIVES FOR SETTING OF BUSINESS IN BACKWARD ARAS

The Government of India as several State Governments provides several benefits and

incentives to promote industrialization of background areas. Both the central and state

government share the cost of some of the incentives provided. The purposes of such

incentives are to development backward areas and increase employment for local inhabitants

of such areas.

The bulk of new industries prefer areas with an established infrastructure and this is

why incentives are offered to entice new ventures to start up in areas that need development.

Incentives offered depend on the specific area chosen.

Some of the incentives offered are:

Transportation subsidies to promote industries in areas that are not easilyaccessible,

like remote hilly areas.

 A subsidy of 50% to 90% on transportation costs is available under this scheme.

 A Subsidy at the rate of 15% of the investment amount in plant and machinery is

given under the capital investment subsidy scheme.

 A subsidy for interest relief is also provided at a rate of 3% for new industrial

units in some areas.

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While in the past setting up an industry in India was not an easy task because

of bureaucratic requirements that needed to be fulfilled. However both the central and state

governments have now made efforts to improve some things

Industrial Unit startup information for NRIs

For Non Resident Indians returning to India to start up industrial units. They will find

that there is plenty of talent available in India. Hiring the right kind of person can make

things quite easy to go through the maze of Indian regulations. While the government no

doubt is trying to bring out reforms to make things easier for foreign investors, the attitude of

some officials is difficult to change. Those who encounter problems should use the several

channels available now to report clerks use delaying tactics for personal gain. Returning
NRI's who can tolerate the initial adjustment setbacks in establishing themselves when they

return to India will ultimately find the rewards well worth the effort. India offers investors

tremendous opportunities and is presently one of the most sought locations for industrial

investment.

Loans available for starting Industrial venture in India

There are two main financial institutions available for loans for entrepreneurs on the

(federal/ all India level).

1.Industrial Development Bank of India(IDBI) 2.Industrial Finance Corporation of

India (IFCI) The Industrial Development Bank of India is the head institution in the area of

long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned

subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial

Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in

direct financing of the industrial activities. The objectives of the Industrial development bank

of India are to create a principal institution for long term finance, to coordinate the

institutions working in this field for planned development of industrial sector, to provide

technical and administrative support to the industries and to conduct research and

development activities for the benefit of industrial sector.

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On the State level finance is available loans can be availed from:

1. State Financial Corporation (SFC)

2. State Industrial Development Corporation (SIDC)

Criteria for Business Loans

 Technical assessment of project

 Experience of the entrepreneurs

 Financial & commercials practicality of the project

 Conformity to environmental laws

 Economic viability of the project

How to apply for business loans in India – Loan application procedure

 The first step is to submit a detailed project report (business plan) to the financial

institution to IDBI, IFCI or any other financial institution from where the loan

sanction is sought. In case a license is a requirement for the project, the license

should be provided with the project report

 The financial institution after scrutinizing the project report. If the financial institution

requires additional information or clarifications, they usually ask for this in a few days

of receipt of project report.

 Representative from the financial institution will arrange to inspect the site etc to

make certain the suitability of the project. At this stage discussions on various aspects

of the project are discussed and final project costs are calculated

 The financial institution gives its approval if they find the project feasible. Loans

provided for business ventures can be for equipment and fixed assets as well as

working capital

While there is no hard and fast rule that is revealed by financial institutions. I would

say that if a project is viable and the entrepreneur has approximately 25% of his own funds.

Then 75% can befinanced. In addition to this loans can be availed for working capital also.

In case you can provide proof of your expertise in the project there is always the

possibility that your loans may be sanctioned with a lesser amount of cash investment on

your part. Projects costing up to Rupees 5 crores can normally be financed on the state level.
 49

Financial institutions follow guidelines such as debt-equity ratio, entrepreneur‘s

contribution to the project etc when deciding on loans. It is not uncommon for applicants to

inflate their contributions in an attempt to invest the least amount of their own funds.

INTERNATIONAL BUSINESS
International business is a term used to collectively describe all commercial

transactions (private and governmental, sales, investments, logistics, and transportation) that

take place between two or more regions, countries and nations beyond their political

boundary. Usually, private companies undertake such transactions for profit; governments

undertake them for profit and for political reasons. It refers to all those business activities
which involve cross border transactions of goods, services, resources between two or more

nations. Transaction of economic resources include capital, skills, people etc. for

international productions of physical goods and services such as finance, banking, insurance,

construction etc.

A multinational enterprise (MNE) is a company that has a worldwide approach to

markets and production or one with operations in more than a country. An MNE is often

called multinational corporation (MNC) or transnational company (TNC). Well known

MNCs include fast food companies such as McDonald‘s and Yum Brands consumer

electronics companies like Samsung, LG and Sony, and energy companies such as

ExxonMobil, Shell and BP. Most of the largest corporations operate in multiple national

markets

Areas of study within this topic include differences in legal systems, political systems,

economic policy, language, accounting standards, labor standards, living standards,

environmental standards, local culture, corporate culture, foreign exchange market, tariffs,

import and export regulations, trade agreements, climate, education and many more topics.

Each of these factors requires significant changes in how individual business units operate

from one country to the next.

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The conduct of international operations depends on companies‘ objectives and the

means with which they carry them out. The operations affect and are affected by the physical

and societal factors and the competitive environment.

OBJECTIVES OF INTERNATIONAL TRADE

 Sales expansion

 Resource acquisition

 Risk minimization

 Integrate economies

 To offer new markets

 To facilitates interchange of ideas

 Service and capital across the world

 To facilitates mobility of factors of production

MODES OF INTERNATIONAL BUSINESS

 Importing and exporting

 Tourism and transportation

 Licensing and franchising

 Turnkey operations

 Management contracts

 Direct investment and

 Portfolio investments.

FUNCTIONS OF INTERNATIONAL BUSINESS

 Marketing

 Global manufacturing and supply chain management

 Accounting

 Finance

 Human resources

OVERLAYING ALTERNATIVES OF INTERNATIONAL BUSINESS

 Choice of countries

 Organization and control mechanisms

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FACTORS OF INTERNATIONAL BUSINESS

(a) physical and societal factors

 Political policies and legal practices

 Cultural factors

 Economics forces

 Geographical influences

(b) Competitive factors

 Major advantage in price, marketing, innovation, or other factors

 Number and comparative capabilities of competitors

 Competitive differences by company

 Local taxes

There has been growth in globalization in recent decades due to the following eight

factors:

 Technology is expanding, especially in transportation and communication

 Governments are removing international business restrictions

 Institutions provide services to ease the conduct of international business

 Consumers know about and want foreign goods and services.

 Competition has become more global

 Political relationships have improved among some major economic powers.

 Countries cooperate more on transnational issues

 Cross-national cooperation and agreements

IMPORTANCE OF INTERNATIONAL BUSINESS

The economic importance of international business is discussed below.

 Earn Foreign Exchange

 Optimum utilisation of resources

 Achieve its objectives

 To spread business risks

 improve organisation efficiency

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 to get benefits from government

 expand and diversity

 increase competitive capacity

1. Earn foreign exchange:

International business exports its goods and services all over the world. This helps to

earn valuable foreign exchange. This foreign exchange is used to pay for imports. Foreign

exchange helps to make the business more profitable and to strengthen the economy of its

country.

2. Optimum utilisation of resources:

International business makes optimum utilisation of resources. This is because it
produces goods on a very large scale for the international market. International business

utilises resources from all over the world. It uses the finance and technology of rich countries

and the raw materials and labour of the poor countries.

3. Achieve its objectives:

International business achieves its objectives easily and quickly. The main objective

of an international business is to earn high profits. This objective is achieved easily. This it

because it uses the best technology. It has the best employees and managers. It produces

high-quality goods. It sells these goods all over the world. All this results in high profits for

the international business.

4. To spread business risks:

International business spreads its business risk. This is because it does business all

over the world. So, a loss in one country can be balanced by a profit in another country. The

surplus goods in one country can be exported to another country. The surplus resources can

also be transferred to other countries. All this helps to minimise the business risks.

5. Improve organisation's efficiency:

International business has very high organisation efficiency. This is because without

efficiency, they will not be able to face the competition in the international market. So, they

use all the modern management techniques to improve their efficiency. They hire the most

qualified and experienced employees and managers. These people are trained regularly. They
 53

are highly motivated with very high salaries and other benefits such as international transfers,

promotions, etc. All this results in high organisational efficiency, i.e. low costs and high

returns.

6. Get benefits from Government:

International business brings a lot of foreign exchange for the country. Therefore, it

gets many benefits, facilities and concessions from the government. It gets many financial

and tax benefits from the government.

7. Expand and diversify:

International business can expand and diversify its activities. This is because it earns

very high profits. It also gets financial help from the government.

8. Increase competitive capacity:

International business produces high-quality goods at low cost. It spends a lot of

money on advertising all over the world. It uses superior technology, management

techniques, marketing techniques, etc. All this makes it more competitive. So, it can fight

competition from foreign companies.

9. Others
 Most companies are either international or compete with international companies

 Modes of operation may differ from those used domestically

 The best way of conducting business may differ by country

 An understanding helps you make better career decisions

 An understanding helps you decide what governmental policies to support.

 Maximum utilization of natural resources

 Stability in prices

 Encouragement to industrialization

 Benefits of large scale production

 Check on monopoly

 Earning of foreign exchange

 Establishment of international cooperation

 Less cost due to the use of modern technologies

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 Friend in difficulties

 Development of transport and communication

Managers in international business must understand social science disciplines and

how they affect all functional business fields.

Tom Travis, the managing partner of Sandler, Travis & Rosenberg, PA. and

international trade and customs consultant, uses the Six Tenets when giving advice on how to

globalize one‘s business.

INTERNATIONAL ENTREPRENEURSHIP
According to the communication from the commission ―implementing the community
Lisbon Programme: Implementing entrepreneurial mindsets through education and learning‖.

Entrepreneurship is a key competence for growth, employment and personal fulfillment and

is defined as ―individual‘s ability to turn ideas into action‖.

In line with this definition, entrepreneurship does not mean the ―ability to set up a

new business‖ but the ability to use a set of competence such as creativity, self confidence,

innovation and risk taking in order to transform ideas into action. It‘s in fact more a question

of ―mindset‖ ―behavioural and personal and social abilities/ attitudes‖.

Declining from the previous definition International entrepreneurship can be defined

as ―an Individual‘s ability to turn ideas into action in an international context‖.

According to the education and training 2010 work programme, entrepreurship is

considered as one of the eight key competences for lifelong learning, necessary for personal

fulfillment, social inclusion, active citizenship and employability.

NATURE OF INTERNATIONAL ENTREPRENEURSHIP

a. Involvement of two countries

b. Language differences

c. Government interventions

d. Differ from internal business

e. Many bases
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f. Comparative more risk

g. Payment in foreign currency

h. Involvement of commercial activities

IMPORTANCE OF INTERNATIONAL BUSINESS TO THE

ENTREPRENEURSHIP/ENTERPRISES
 Superior technical know-how

 Large size

 Economies of scale

 Lesser input cost

 More output
 Ability to access raw materials abroad

 Ability to change production outputs

 Scale economies in shipment, distribution and productions

 Brand image

 Goodwill/reputation advantages

 Access low cost financing

 Communication advantages

 Technology developments

 Managerial experience and expertise

 Risk diversification

INTERNATIONAL VERSUS DOMESTIC ENTREPRENEURSHIP

S.No. Domestic entrepreneurship International entrepreneurship

1 It is a international business strategy International business strategy

2 Internal currencies Internal currencies

3 Specified level of economic development Unlimited levels of economic

devleopment
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4 Political- legal environment-significant Different political – legal

environment

5 Limited market opportunities Wide market opportunities

6 Cultural environment – significant Different cultural environment

7 Technological environment – limited Wide technological environment

8 Restricted opportunities More opportunities

9 Restricted experience Different experience

10 Limited resources utilization Wide resources utilization

11 Scale of economies Large scale of economies

12 Government controls business activities International business regulations

13 Limited business opportunities Wide business opportunities

14 Limited market Two or more countries

15 Internal customers International customers

15 Limited resources and profits Large profits and more resources

Reasons for an entrepreneur to go international business

 Growth

 Profitability

 Pull factors

 Push factors

 Achieving economies of scale fairness of product

 Fairness of product

 Uniqueness of services

 Spreading R & D costs

 Access to imported inputs

 Marketing opportunities

 Business life cycle

 Risk spread
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 Exporters benefits

 Price differentials

 Large scale productions

 Incentive schemes

 Strategies in launch new products

 Speedy recovery from skimming strategies

RESTRICTED FORCES FOR AN ENTREPRENEUR TO GO INTERNATIONAL

BUSINESS
1. Market differences
2. Product category

3. Market mix

4. Local conditions

5. Traditional/history

6. Different market strategies

7. Image driven brands

8. Management myopia

9. Organisational culture

10. Integrate global vision

11. National controls/barriers to entry

FOREIGN DIRECT INVESTMENT

Foreign direct investment (FDI) is direct investment by a company in production

located in another country either by buying a company in the country or by expanding

operations of an existing business in the country. Foreign direct investment is done for many

reasons including to take advantage of cheaper wages in the country, special investment

privileges such as tax exemptions offered by the country as an incentive to gain tariff-free

access to the markets of the country or the region. Foreign direct investment is in contrast to
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portfolio investment which is a passive investment in the securities of another country such as

stocks and bonds.

As a part of the national accounts of a country FDI refers to the net inflows of

investment to acquire a lasting management interest (10 percent or more of voting stock) in

an enterprise operating in an economy other than that of the investor. It is the sum of equity

capital, other long-term capital, and short-term capital as shown the balance of payments. It

usually involves participation in management, joint venture, transfer of technology and

expertise. There are two types of FDI: inward foreign direct investment and outward foreign

direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign

direct investment", which is the cumulative number for a given period. Direct investment
excludes investment through purchase of shares. FDI is one example of international factor

movements.

Methods
The foreign direct investor may acquire voting power of an enterprise in an economy

through any of the following methods:

 By incorporating a wholly owned subsidiary or company

 By acquiring shares in an associated enterprise

 Through a merger or an acquisition of an unrelated enterprise

 Participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

 Low corporate tax and individual income tax rates

 Tax holidays

 Other types of tax concessions

 Preferential tariffs

 Special economic zones

 EPZ – Export Processing Zones

 Bonded Warehouses

 Maquiladoras

 Investment financial subsidies

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 Soft loan or loan guarantees

 Free land or land subsidies

 Relocation & expatriation

 Infrastructure subsidies

 R & D support

 Derogation from regulations (usually for very large projects)

FOREIGN DIRECT INVESTMENT IN INDIA

Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey

projected India as the second most important FDI destination (after china) for transnational
corporations during 2010-2012. As per the data, the sectors which attracted higher inflows

were services, telecommunication, construction activities and computer software and

hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI.

According to Ernst and Young, foreign direct investment in India in 2010 was $44.8 billion,

and in 2011 experienced an increase of 25% to $50.8 billion.

The world‘s largest retailer WalMart has termed India‘s decision to allow 51% FDI in

multi-brand retail as a ―first important step‖ and said it will study the finer details of the new

policy to determine the impact on its ability to do business in India. However this decision of

the government is currently under suspension due to opposition from multiple political

quarters.
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UNIT-III

BUSINESS PLAN PREPARATION

WHAT IS BUSINESS :
A business (also known as enterprise or firm) is an organization engaged in the trade

of goods, services, or both to consumers. Businesses are predominat in capitalist economies,

where most of them are privately owned and administered to earn profit to increase the

wealth of their owners. Businesses may also be not-for-profit or state-owned. A business

owned by multiple individuals may be referred to as a company, although that term also has a

more precise meaning

The etymology of "business" relates to the state of being busy either as an individual
or society as a whole, doing commercially viable and profitable work. The term "business"

has at least three usages, depending on the scope — the singular usage (above) to mean a

particular company or corporation, the generalized usage to refer to a particular market

sector, such as "the music business" and compound forms such as agribusiness, or the

broadest meaning to include all activity by the community of suppliers of goods and services.

However, the exact definition of business, like much else in the philosophy of business, is a

matter of debate and complexity of meanings.

SOURCES OF PRODUCT FOR BUSINESS

 Consumers

 Competitors

 Existing products

 Social values

 Needs and wants

 Intermediaries

 Channel of distribution

 Debtors

 Government

 Existing companies
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 Existing market

 Existing services

 Ideas

 Substitutions

 Middleman

 Suppliers

 Research and development

PRE FEASIBILITY STUDY (PFS)

Pre-feasibility studies are well researched yet generic due diligence reports that
facilitate potential entrepreneurs in project identification for investment.

A Pre-Feasibility study is broadly defined as preparatory studies required to enable

funders to have a successful feasibility study carried out for a particular investment

opportunity; this generally will comprise investment programming and packaging, initial

scoping and costing of identified investment projects, and priority-setting among identified

investment projects competing for scarce resources.

Typical outputs re descriptions of priority projects for which broad design choices

have been made, at a level of detail sufficient for a Terms of Reference for a feasibility study.

Another way to define PFS is ―a preliminary study undertaken to determine if it

would be worthwhile to proceed to the feasibility study stage‖. Hence, a PFS can determine

the scope of the probable following feasibility study whether;

(i) Is it worthwhile to proceed with the feasibility stage? And,

(ii) What would be the main objective(s) of the feasibility study?

NECESSITY AND OBJECTIVES OF PRE-FEASIBILITY STUDY

(i) Urban environmental

(ii) Climate change mitigation/adaptation

(iii) Urban poverty reduction, and

(iv) Good urban governance

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Thus, a PFS should always upfront emphasize the relevance the proposed

infrastructure has for one or more of these guiding principles.

PURPOSE OF PRE-FEASIBILITY STUDY

The main purpose of PFS is to ensure that there is a solid base for undertaking a

feasibility study and to further defining probable following investment projects. The PFS can

also be used to identify and highlight certain development issues and assist the cities and

local government to identify prioritized sectors to improve the urban situation.

SCOPE OF PRE-FEASIBILITY STUDY

The specific scope and tasks of a PFS will be determined as follows:

Generally a PFS undertaken under CDIA umbrella would include the following:
 a review of technical opinion and features for the potential project(s); brief

assessment of potential economic and social benefits;

 preliminary assessment of probable development impact objectives of the

project(s) in terms of urban environmental improvement, urban poverty

reduction, urban governance improvement and social and gender impacts;

 preliminary assessment of possible adverse environmental and social impacts

and how to mitigate by safeguards, flag these issues for the anticipated

feasibility study;

 preliminary estimates of project costs and of financial sustainability;

 recommend likely implementation and operation arrangements for the

potential project(s) including possible public-private partnership (PPP)

potential;

 undertake financial and/or economic analysis based on available information,

providing the basis for negotiation with potential financers;

 flagging of issues to be considered in detail in the ensuring Feasibility Study

including review of the process why the specific infrastructure has become a

priority.
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KEY STEPS TO UNDERTAKE PRE-FEASIBILITY STUDY

Depending on the nature of the PFS below are standard steps the study team should

take into consideration.

(a) Initial Consultations PriorDeparture to the Project Location

 Consult the CDIA nominated Core Management Team member who will supervise

the Consultants work, i.e. to ensure that the scope and expectations of the assignment

has been correctly understood;

 Study related programs and activities in the country to establish a sound

understanding of the urban development situation being addressed.

(b) Counterpart Consultations

Counterpart consultations should be seen as a key priority activity. The following

steps are recommended:

 Formally validate Steering Committee structure and counterpart contribution;

 Establish sound working relationship with the city counterpart to strive for efficient

team work and good cooperation ensuring that key institutions are at all times

engaged in the process of the assignment as equal partners;

 Thoroughly explain and inform the counterpart when and how many consultants will

be present in the city, especially if intermittent inputs are being used. Ideally this is

done by providing a tentative staffing schedule and work plan to the counterpart;

 Undertake field visits to locations of proposed activities to reach a full understanding

of the development issues;

 Together with the counterpart discuss and identify the key issues of the study and

agree on how to address those;

 Identify investments with the counterpart through participatory processes and in

partnership with citizens, civil society and private sector, which are pro-poor focus

and mitigate climate change.

(C) Undertaking the Assignment

 Jointly with the counterpart define the geographical scope of the study area;

 Review of previous studies on the referred development issues, if available;

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 Study the current development issues(e.g. urban planning, land use, urban transport,

solid waste, sewage water and drainage etc.) and design within the city;

 Assess the organizational and institutional issues in the provision of basic urban

services (e.g. systems, business processes, stakeholder analysis, internal/external

relationships and political economy);

 Identify possible solutions and measures to improve the urban management situation,

including new institutional delivery mechanisms for improved service provision;

 Identify alternative solutions including assessment of local financing capacity and the

likely need for external funding and support, including the role of the private sector;

 Make use of CDIA developed toolkits and guidelines, as appropriate;

 Recommend environmentally and socially responsible techniques and strategies for

urban infrastructure investment;

 Conduct preliminary assessment of probable development impact objectives of the

project(s) in terms of urban environmental improvement, urban poverty reduction,

urban governance improvement and social and gender impacts

PRE-FEASIBILITY STUDIES GUIDELINE

 Conduct preliminary assessment of possible adverse environmental and social impacts

and how to mitigate by safeguards, flag these issues for the anticipated Feasibility

Study;

 Conduct preliminary estimates of project costs and of financial sustainability;

 Recommend likely implementation and operation arrangements for the potential

project(s) including possible potential of public-private partnership(PPP);

 Flag issues to be considered in detail in the anticipated Feasibility Study including

review of the process why the specific urban infrastructure has become a priority;

 Undertake an initial assessment of major risks including political;

 Throughout the assignment hold regular meetings (besides steering committee

meetings) with relevant stakeholders in the counterpart institution and the city

administration to update on progress of the study and create ownership;

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 Throughout the assignment discuss with and inform potential funding partners of the

progress and likely need for future investments;

 If applicable, define issues to bead dressed in, and further need for data collection and

analysis for, a potential Feasibility Study.

 Preliminary data
(a) geographical device

(b) demographic device

(c) climate

(d) socio-economic device

(e) anticipation of demand

(f) existing markets

(g) market share

(h) availability of land

(i) availability of energy

(j) cost of energy

 Preparing the potential limits of the projects

(a) physical limits

(b) time limits

 identifying potential alternatives for the project work

 proposing different technologies

 estimates of the project cost

 identifying lacking information

 identifying of potential financial sources of the project

 character tics of the customers

 preparing a report

The main objectives of the Pre-feasibility studies prepared by SMEDA is to provide

information about investment opportunities to the small & medium enterprises (SMEs). A

typical pre-feasibility study provides:

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1. Comprehensive information for investment opportunity in a business

2. Specific information regarding different business areas like, marketing, technical,

industrial information etc. for the existing entrepreneurs to improve their existing

setup.

3. Project investment information and financial projections to support viability of the

business.

Ownership structure
 Proprietorship

 Partnership firm

 Company
 Co-operative society

Section of an appropriate form of ownership structure

 Nature of business – if business require pooling of capital and skill are generally

run as partnership

 Aras of operation – local operation require proprietorship. National and

international businesses require company ownership structure.

 Degree of control – direct control over business operation is required suitable

ownership may be proprietorship.

 Capital requirement – if capital requirement is more so it is better to choose

partnership firm.

 Duration of business – if business have a definite period of time it suitable for

proprietorship or partnership.

 Government regulation – if the owner not like much more government

involvement so he can choose partnership or proprietorship.

STEPS OR DIMENSIONS OF PRE-FEASIBILITY ANALYSIS

(i) Analysis of needs

(ii) Process work

(iii) Engineering and design

(iv) Cost estimates

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(v) Financial analysis

(vi) Projects impacts

(vii) Recommendations

(viii) Conclusions

TYPES OF PRE-FEASIBILITY STUDY

 Technical feasibility

 Managerial feasibility

 Economic feasibility

 Financial feasibility

 Cultural feasibility
 Political feasibility

 Environment feasibility

 Legal feasibility

PRODUCT SELECTION
1. A consumer‘s choice of a product or service.

2. The available products or services that a company offers a consumer. A business with

a wide array of available choices is considered to have a wide selection.

 Product

 Edition selection

 Package selection

CRITERIA FOR SELECTION OF PRODUCT

1. Technical knowledge

2. Availability of market

3. Financial strength

4. Position of competitions

5. Priority of products

6. Seasonal stability
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7. Restrictions on imports

8. Supply of raw materials

9. Availability of incentives and subsidies

10. Ancillary products

11. Locational advantages

12. Licensing system

13. Government policy

PRECAUSTIONS FOR PROJECT SELECTION

(a) Material availability

(b) Quick and easy production process

(c) Smooth flow of production process

(d) Demand of the product

(e) Supply of raw materials

(f) Selection of location

(g) Marketability

(h) Continuous supply of the product

(i) Growth prospects

(j) Suitable and acceptable markets

(k) Subsides

(l) Concession

(m) Easy availability of plant and machinery

(n) Nearest availability of raw materials

(o) Technological availability

(p) Financial availability

(q) Manpower requirements

(r) Power availability

(s) Pricing

(t) Profitability

(u) Global potentials

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BUSINESS PLAN PREPARATION

A business plan is a statement of a set of business goals, the reasons why they are

believed attainable, and the steps for reaching those goals. It may also contain background

information about the organization or team attempting to reach those goals.

Business plans may also target changes in perception and branding by the customer,

client, taxpayer, or larger community. When the existing business is to assume a major

change or when planning a new venture. A 3 to 5 year business plan is required, since

investors will look for their annual return in that timeframe.

Business plans are decision-making tools. There is no fixed content for a business

plan. Rather the content and format of the business plan is determined by the goals and
audience. A business plan represents all aspects of business planning process declaring

vision and strategy alongside sub-plans to cover marketing, finance, operations, human

resources as well as a legal plan, when required. A business plan in a summary of those

disciplinary plans.

For example, a business plan for a non-profit might discuss the fit between the

business plan and the organization‘s mission. Banks are quite concerned about defaults, so a

business plan for a bank loan will build a convincing case for the organization‘s ability to

repay the loan. Venture capitalists are primarily concerned about initial investment,

feasibility, and exit valuation. A business plan for a project requiring equity financing will

need to explain why current resources, upcoming growth opportunities, and sustainable

competitive advantage will lead to a high exit valuation.

Structure for a business plan

 Cover page and table of contents

 Executive summary

 Business description

 Business environment analysis

 industry background

 competitor analysis
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 market analysis

 marketing plan

 operations plan

 management summary

 financial plan

 attachments and milestones

OBJECTIVE OF A BUSINESS PLAN

(i) Positive decisions

(ii) Continuous supply of product

(iii) Vision
(iv) Goal setting

(v) Evaluate the prospects of business

(vi) Monitor the progress

(vii) Implementation of plans

(viii) Inspire the others to do the business financial sources

(ix) Loan facilities

(x) Market availability

(xi) Organizational goals

(xii) Operational feasibility

(xiii) Financial feasibility

(xiv) implementation of plans

(xv) Guide the entrepreneurs

(xvi) SWOT analysis

(xvii) Challenges

(xviii) Identify the business gap

(xix) To meet competitions and competitors

(xx) Future prospectus

(xxi) Forecasted growth

(xxii) Ownership arrangements

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TYPES BUSINESS PLANS

 Start up plans

 Internal plans

 Operational plans

 Strategic plans

 Growth plans

 Expansion plans

 New product plans

 Feasibility plans

BUSINESS OWNERSHIP

Introduction
The units which undertake these activities are known as business organisations. They

are also called business undertakings, enterprises, concerns or firms. We must look into the

formation, of such organisations in order to understand how to organise a business because

the right form of business organisation is largely responsible for the success of an enterprise.

In this lesson, we are going to study business organisations in detail.

Meaning
Business organisation refers to all necessary arrangement required to conduct a

business. It refers to all those steps that need to be undertaken for establishing relationship

between men, material, and machinery to carry on business efficiently for earning profits.

This may be called the process of organising. The arrangement which follows this process of

organising is called a business undertaking or organisation. A business undertaking can be

better understood by analysing its characteristics.

Characteristics of business organisation

1. Distinct ownership: The term ownership refers to the right of an individual or a

group of individuals to acquire legal title to assets are properties for the purpose of

running the business. A business firm may be owned by one individual or a group of

individuals jointly.
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2. Lawful business: Every business enterprise must undertake such business which is

lawful, that is, the business must not involve activities which are illegal.

3. Separate Status and Management : Every business undertaking is an independent

entity. It has its own assets and liabilities. It has its own way of functioning. The

profits earned or losses incurred by one firm cannot be accounted for by any other

firm.

4. Dealing in goods and services: Every business undertaking is engaged in the

production and/or distribution of goods or services in exchange of money.

5. Continuity of business operations: All business enterprise engage in operation on a

continuous basis. Any unit having just one single operation or transaction is not a
business unit.

6. Risk involvement: Business undertakings are always exposed to risk and uncertainty.

Business is influenced by future conditions which are unpredictable and uncertain.

This makes business decisions risky, thereby increasing the chances of loss arising out

of business.

FORMS OF BUSINESS ORGANISATION

While establishing a business the most important task is to select a proper form of

organisation. This is because the conduct of business, its control, acquisition of capital, extent

of risk, distribution of profit, legal formalities, etc. all depends on the form of organisation.

The most important forms of business organisation are as follows:

• Sole Proprietorship

• Joint Hindu Family Business

• Partnership

• Joint Stock Company

• Co-operative Society

FINANCING AND BUDGETING

In order to run and manage a company, funds are needed. Right from the promotional

stage up to end, finance played a vital role in a company‘s life. If the funds are adequate, the

business suffers and if the funds are not properly managed, the entire organization suffers.
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It is, therefore, necessary that correct estimates of the current and future need of

capital be made to have an optimum capital structure, which shall help the organization to run

the work smoothly and without any stress.

Capital structure means the combination of various sources of capital. It may

compromise up of equity, debt, preference share, general reserve, retained earnings, etc.

Capital structure = Debt + Equity

The capital structure is made up of debt and equity securities and refers to permanent

financing of a firm. It is composed of long – term debt, preference share capital and share

holders‘ funds.

A decision about the portion among equity share, preference shares and debentures
refers to the capital structure of an enterprise.

Definition of capital structure

According to Gestenberg, ―Capital structure of a company refers to the composition

or make-up of its capitalization and it includes all long-term capital resources i.e., loans,

reserves, shares and binds.‖

FACTORS AFFECTING CAPITAL STRUCTURE

 Internal factor

 External factor

 General factor

1. Internal factor
 Cost of capital

 Risk

 Dilution of value

 Acceptability

 Transformability

 Fluctuating needs

 Increasing owner‘s profit

 Surrender operational control

 Future flexibility
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2. External factor
 General level of business activity

 Level of interest rates

 Availability of funds in the monry market

 Tax policy on interest and dividends

3. General factor
 Size of business

 Character of capital requirements

 Growth of the firm

 Age of the firm

 Operational characteristics

 Continuity of earnings

 Marketable securities

 Government influences

 Corporate tax

DETERMINANTS OF CAPITAL STRUCTURE

 Trading on equity

 Cash flow ability to survive debt

 Legal requirements

 Financial leverage and trading on equity

 Growth and stability of sales

 Nature and size of firm

 Flexibility operating leverage

 EBIT/EPS analysis

 Cost of capital

 Cash flow analysis

 Control

 Marketability
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 Flotation costs

 Legal constraints

 Capital market conditions

 Assets structure

 Purpose of financing

 Period of finance

COMPONENTS / PATTERNS OF CAPITAL STRUCTURE

The capital structure of a new company may consist of any of the following forms:

 Equity share capital only

 Equity shares and Preference shares only

 Equity shares and Debentures only

 Equity shares, Preference shares and debentures

ASSUMPTIONS FOR THEORIES OF CAPITAL STRUCTURE

 There are only two sources of funds used by firm

 The firms total financing remains constant

 Investors have the same subjective probability distribution of expected future

operating earnings

 The dividend payment ratio is 100%

 EBIT are not expected to grow

 The firm‘s business risk is constant

 Perpetual life of the firm

 The firm‘s total assets are given and do not change

 The corporate taxes and personal taxes do not exist

RANGE OF PROFIT / POINT OF INDIFFERENCE

The earnings per share, equivalent point or point of indifferences refers to that earning

before interest and tax (EBIT), level at which EPS remains the same irrespective of different

alternatives of debt – equity mix.

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At this level of EBIT, the rate of return on capital employed is equal to the cost of

debt and this is known as break-even-level of EBIT for alternative financial plans.

TYPES OF CAPITAL STRUCTURE

(a) Simple capital structure

 Equity shares

 Preference shares

 Retained earnings

(b) Compound capital structure

 Equity shares

 Preference shares
 Debentures

 Retained earnings

(c) Complex capital structure

 Equity shares

 Preference shares

 Long term debt

 Public debt

 Debentures

 Retained earnings

ESSENTIAL FEATURES OF A SOUND CAPITAL MIX

 Maximum possible use of leverage

 The capital structure should be flexible

 To avoid undue financial risk

 The use of debt should be within the capacity of firm

 It should involve minimum possible risk of loss of capital

 It must avoid undue restrictions in agreement of debts.

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THEORIES OF CAPITAL STRUCTURE

In order to achieve the goal of identifying an optimum debt – equity mix, it is

necessary for the finance manager to be conversant with the basic theories underlying the

capital structure of corporate enterprises.

The decision about the financial structure is irrelevant as regards to maximization of

shareholders‘ wealth. The major approaches available for studying capital structure theories

are as under;

 Net income approach

 Net operating income approach

 Modigilani – miller approach

 Traditional approach

1. Net income approach (NI)

According to Durand, "the capital structure decision is relevant to the value of the

firm‖ according to this approach a firm can minimize the weighted average cost of capital

and increase in the value of the firm as well as market price of equity shares by using debt

financing to the maximum possible extend.

In other words, a change in capital structure leads to have a change in leverage and it

makes a change in the overall cost of capital as well as the total value of the firm.

According this approach, higher debt content in the capital structure will result in

decline in the overall or weighted average cost of the capital. This will cause increase in the

value of the firm and consequently increase in the value of equity shares of the company.

Reverse will happen in converse situation.

To prove the above theory, additionally the following three assumptions are made

 There is no tax

 Cost of debt is less than cost of equity.

 The use of debt does not create risk

The implication of the three assumptions underlying the NI approach is that as the

degree of leverage increases, the proportion of an inexpensive source of funds, i.e. debt in the

capital structure increases.

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As a result the weight average cost of capital tends to decline, leading to an increase

in the total value of the firm. Thus, with the cost of debt and cost of equity being constant,

the increased use of debt will magnify the shareholder‘s earnings and thereby, the market

value of the ordinary shares.

Financial leverage is, according to the NI approach, an important variable in the

capital structure decision of a firm. With a judicious mixture of debt and equity, a firm can

evolve an optimum capital structure which will be the one at which value of the firm is the

highest and the overall cost of capital is lowest. At that stage, the market price per share

would be maximum.

According to this approach, capital structure decision is relevant in the valuation of

the firm.

2. Net operating income approach

Net Operating Approach is just opposite of Net Income Approach. According to this

approach, the market value of the firm is not at all affected the capital structure changes. The

market value of the firm is ascertained by capitalizing the net operating income at the overall

cost of capital (K), which is considered to be constant. The market value of equity is

ascertained by deducting the market value of the debt from the market value of the firm.

3. Modigilani – miller approach

M & M approaches to the NOI approach, if taxes are ignored. However if corporate

tax are ignored. Therefore, if corporate taxes are assumed to exit, their hypothesis is similar

to NOI approach

PROJECT PROFILE PREPARATION

Defining a Project
Many people are not clear as to what an investment project really is, and this often

becomes apparent when moving from the needs identification and prioritization stage of

Module 1, to the project profile identification and assessment in this Module. As a result of

such confusion, ideas will often be presented which are not really projects and considerable

time can be wasted attempting to prepare profiles on the basis of these ideas. It is useful,
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therefore, for the field technician to sit with the group at the beginning of the profile stage

and ensure that they understand what an investment project is, and what it is not.

In broad terms an investment project can be defined as follows:

―The expenditure of resources in the present, in order to generate benefits in the future‖

The key elements of this definition are that resources (whether these be in the form of

money, land, labour or other assets) are used in this year but that the benefits come in future

years. If benefits are generated in the same year but not in the future (e.g. fertilizer to be

applied to a current crop), this is not an investment project, but rather the purchase of inputs

for current operations. Most investment projects generate a stream of benefits; that is to say, a

single investment now will result in benefits being produced each year for a number of years
into the future. It is also important to remember that the future benefits do not have to be

directly in cash earned, and may not even be in a form that is easy to define.

The benefits from building an access road to a village can be substantial, but they are

often difficult to define clearly, and may include such elements as:

(i) better access for local people to social services in the nearest town;

(ii) easier and cheaper delivery of inputs to the community;

(iii) easier shipment of products from the community to external markets;

(iv) establishment of new businesses in the community and;

(v) reduced outmigration of young people who no longer feel so isolated, and who

now have improved employment opportunities at home.

Not all results of an investment may be positive. In the example given above, the

access road may also result in faster deforestation around the community and increased

erosion on slopes crossed by the road. For this reason, the design of a project may need to

include measures to reduce these negative effects.

Under the definition given above, expenditures on education and training can be

classified as an investment project, as they involve dedicating resources now (to train a

person), and produces benefits in the future (as the person applies his or her training). While

this is theoretically correct, many financing agencies are reluctant to fund local investment

projects that are completely based on education and training. In part this is because it is
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difficult, if not impossible, to ensure that the person stays in the position of activity for which

he or she was trained. If they leave, the benefits of their training go to their new employer or

activity somewhere else, possibly in another country.

Secondly, it is much easier to monitor and control investment activity when physical

objects are involved. If the project is to build a greenhouse for flower production, for

example, it is relatively easy to check that the greenhouse has in fact been built. That is not to

say that training cannot comprise a part of an investment project - in fact it is often an

important element of many projects. However, in such a case training costs are just one

element in a larger investment.

What is a Project Profile

A project profile is a simplified described of an eventual project. In addition to

defining the purpose and ownership of the project, it presents a first estimate of the activities

involved and the total investment that will be required, as well as the annual operating costs

and, in the case of income generating projects, the annual income.

It is simplified in a number of sense; costs may still not be well defined, minor items

may be excluded, and assumptions as to be demand for the output of the investment, whether

it be a childcare facility, a bridge, or canned vegetables, are probably just that – assumptions.

PRINCIPLE STAGES IN THE PREPARATION OF PROJECT PROFILES

There are three principal stages in the preparation and use of investment profiles:

(a) The identification of possible investment projects;

(b) The definition and preparation of project profiles for those investments,

and;

(c) The use of those projects to undertake a preliminary assessment of the

project proposed. Each of these is discussed briefly below.

ELEMENTS OF THE PROJECT PROFILE

The project profile, as prepared with the applicants, consists of five parts. The last

part has two variations: one exclusively for income generating projects (5a); and the other for

non income generating projects (5b). With the exception of Part 1 (the Introduction) it is not

essential that the components be completed in the same order as presented. Many groups
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prefer to define the investment before tackling general costs or income, but this is not

required. An example layout for the components is presented in Annex 1 to this manual, and

can be used as a guide when drawing out the tables on a blackboard or large sheet of paper.

Background Information: This section provides general information about the

applicants, the location of the project and its characteristics, as well as a brief summary of the

objectives and justification for the investment, including the demand anticipated for the

product or service resulting from the project when operating. The purpose of Part 1 is to

allow anyone not familiar with the project to understand - preferably in no more than 1 page -

the background to the proposal. Agreement should be obtained from the applicants as to the

general purpose and characteristics of the eventual project as well as who would likely be
involved in its operation and management.

Investment: In this section the applicants are asked to list the various elements that

will have to be obtained (purchased or supplied by the group) for the investment to be

realized. For each item (except land - see Section 4 of this manual) it is also necessary to

estimate the average working life of the item and who is to provide it (loan, donation,

contribution of the community). A simple calculation is then made to determine the average

annual cost of each item.

Operating Costs and Income per Activity: This section describes income and costs

directly resulting from carrying out activities made possible by the project, and which change

according to the scale of activity (i.e. the greater the activity, the greater the costs and

income). If the project is a simple one, there may only be a single activity, for example the

grinding of grain (in the case of a local mill). However, in other cases there could be several

activities; for example a dairy plant may produce cheese, butter and yoghurt. The section is

primarily of relevance to income-generating projects, although there are some circumstances

where it may prove useful to list operating costs and even income for other types of projects

as well (e.g. where there is a user charge for a health clinic). To adequately complete this

section, it is necessary for the group to understand the concepts of production units, sales

units and production cycles, which are discussed further in Section 4 of this manual.
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General and Maintenance Costs: Some types of costs are not associated with the

scale of production, but are a consequence of the project in general. These may include such

expenses as: hiring a manager, nurse, or other employee; operating a vehicle; local land or

property taxes; or office expenses. They will also include the costs of maintaining (but not

replacing) equipment and other goods purchased or built at the investment stage - for

example maintaining an access road, or repairing fences used to protect a reforested area.

Preliminary Estimate of Viability (income generating projects only). This section

is used to perform the simple calculations required to make the preliminary estimate of

project viability. The key calculations are:

Annual Net Income: To determine if projected income is higher than direct and
general costs

Annual Net Income less Annual Investment Costs: To determine if annual net

income (above) is sufficient to also cover replacement of the investment as it reaches the end

of its useful life

Number of Years of Net Income Needed to Cover the Investment: To determine if

the annual net income is high enough to pay back the investment cost within a reasonable

period of time.

FEASIBILITY ANALYSIS
Definition of feasibility studies: A feasibility study looks at the viability of an idea

with an emphasis on identifying potential problems and attempts to answer one main

question: Will the idea work and should you proceed with it?

Before you begin writing your business plan you need to identify how, where, and to

whom you intend to sell a service or product. You also need to assess your competition and

figure out how much money you need to start your business and keep it running until it is

established.

Feasibility studies address things like where and how the business will operate. They

provide in-depth details about the business to determine if and how it can succeed, and serve

as a valuable tool for developing a winning business plan

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Why are feasibility studies so important?

The information you gather and present in your feasibility study will help you?

 List in detail all the things you need to make the business work;

 Identify logistical and other business-related problems and solutions;

 Develop marketing strategies to convince a bank or investor that your business is

worth considering as an investment; and

 Serve as a solid foundation for developing your business plan

Even if you have a great business idea you still have to find a cost-effective way to

market and sell your products and services. This is especially important for store-front retail
businesses where location could make or break your business.

For example, most commercial space leases place restrictions on businesses that can

have a dramatic impact on income. A lease may limit business hours/days, parking spaces,

restrict the product or service you can offer, and in some cases, even limit the number of

customers a business can receive each day.

THE COMPONENTS OF A FEASIBILITY STUDY

Description of the business: The product or services to be offered and how they will

be delivered.

Market feasibility: Includes a description of the industry, current market, anticipated

future market potential, competition, sales projections, potential buyers, etc.

Technical feasibility: details how you will deliver a product or service. (i.e.

materials, labor, transportation, where your business will be located, technology needed, etc.).

Financial feasibility: Projects how much start-up capital is needed, sources of capital,

returns on investment, etc.

Organizational feasibility: defines the legal and corporate structure of the business

(may also include professional background information about the founders and what skills

they can contribute to the business).

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FEASIBILITY REPORT PREPARATIONS

Since good planning is a pre-requisite for survival and success of any business, I‘ll

like to discuss how to write a good feasibility report with a good feasibility report format

today. Without proper planning, a business may head towards failure if corrective measures

are not taken in time. A feasibility report is simply a business plan. It is a detailed study that

examines the profitability, feasibility and effectiveness of a proposed investments

opportunity. The report, no matter how elaborate, should be prepared before one undertakes

any business or expands the existing one. Feasibility report can be prepared by the

prospective investor or consultancy firms who charge fees depending on the value of the

project and how elaborate is the proposed investment opportunity. Based on the feasibility
report, the entrepreneur can decide to accept or reject the project. If the project is viable and

acceptable, the entrepreneur has to estimate initial capital outlay and decide on where and

how to raise the funds.

THE USES OF FEASIBILITY REPORT

 To meet the stipulated requirements of financial institutions. For instance banks

and other financial institutions giving loans to start a business executives demands

for a feasibility report of the proposed investment.

 To provide the basic information for effective decision making with respect to the

proposed investment. By showing the market potentialities, technical and

financial implications of the proposed opportunities, the feasibility report enable

the entrepreneur to accept or reject the project.

 To assist the entrepreneur in developing future plans for the organization

 To serve as the basic for measuring the performance of the proposed business

COMPONENTS OF A FEASIBILITY REPORT

No two feasibility studies have identical components. However, there are certain

critical aspects that must be present in a good feasibility report.

Below are the feasibility report format.

A typical feasibility report format is as below:

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The nature of the business

Management

Teams

Financial and Economic Analysis and Marketing plan.

In other words, the major areas covered by a feasibility study can be divided into nine

major areas namely:

1. Introduction

2. Description of the business

3. Market consideration – A preliminary Evaluation

4. Management Team
5. Technical specifications and production plan

6. Marketing plans

7. Examination of the critical risks and problems

8. Financial and economic plans

9. Evaluation and conclusion

EVALUATING CRITERIA
a. Investment criteria

Non discounting criteria

 Pay-back period method

 Accounting rate of return

Discounting criteria

 Net present value

 Internal rate of return

 Profitability index

Non discounting criteria

1. Traditional methods
 Pay-back period method

 Pay-back profitability method

 Accounting rate of return or average rate of return method

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2. Modern method
 Net present value

 Profitability index

 Internal rate of return

PAY-BACK PERIOD METHOD

Pay – back period is also called ‗pay- out‘ or ‗pay – off period‘. Pay – back period is

the time required in which a project ‗pays for itself‘ through surplus cash flows. It is the

period within which investment in fixed assets or projects can be recovered.

In simple word, pay – back period is the period of time for the cost of projects to be
recovered from the additional cash flows of the project itself.

Computation of pay-back period

1. When cash inflows are equal

Initial cost of assets or initial

Pay-back period investment in projects

Annual cash inflows

2. When cash inflows are not equal

Investment
Pay-back period
Cash inflows

ADVANTAGES OF PAY-BACK PERIOD METHOD

 It is simple to understand

 Simple to operate

 Calculations costs low

 High risk of obsolescence

 It is simple to calculate

 It concentrate on recovery of investment

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 It takes cares uncertainty and risk

 Built-in features

 Loss through obsolescence is reduced

 Profit is determined

 It acts guideline for dividend policy

 Importance to liquidity

 Manage with lower funds

 It saves cost

DISADVANTAGES OF PAY-BACK PERIOD METHODS

 It neglects post-pay-back period returns
 Ignore cash flows

 Equal consideration to cash flow

 Ignore savings values

 It is not concerned with the length of a project

 It completely neglects the time vale of money

 Cash inflows are not recognized

 It does not make to use of cost of capital

 Method of capital recovery

 It is difficult to understand

 It is a subjective decision

 Investment in different assets is interrelated

 It does not calculate the profitability of the projects

 It is concerned with a short period of a project‘s life time

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UNIT-IV

LAUNCHING OF SMALL BUSINESS

Introduction
A small business, also called mom and pop store. It is privately owned and operated,

with a small number of employees and relatively low volume of sales. Small business are

normally privately owned corporations, partnerships, or sole proprietorships.

The legal definition of ―small‖ varies by country and by industry, ranging from 15

employees to 500 employees.

Small businesses can also be classified according to other methods such as; Sales,

assets, or net profits. Small businesses are common in many countries, depending on the
economic system in operation.

For example include: convenience stores, other small shops (such as a bakery or

delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest house,

photographers, small-scale manufacturing, and online business, such as web design and

programming etc.

BASIC QUESTIONS BEFORE SET THE SMALL BUSINESS

 Use our starting up assessment tool

 Is entrepreneurship for you?

 What are the small business size standards?

 Green Guide for New Businesses

 Conducting Market Research

 Preparing for an Emergency Can Determine Your Success

 Understand Your Market and Economic Conditions

 Finding a mentor or counselor

 Writing a business plan

 Establishing a business

 Preparing your finances

 Loans, grants & funding

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 Business law & regulations

 Marketing a new business

 Local resources

 Forms

ADVANTAGES OF SMALL BUSINESS

 A small business can be started at a very low cost and on a part-time basis.

 Small business is also well suited to internet marketing because it can easily serve

specialized niches, something that would have been more difficult prior to the internet

revolution which began in the late 1990s.

 Adapting to change is crucial in business and particularly small business; not being

tied to any bureaucratic inertia, it is typically easier to respond to the marketplace

quickly.

 Small business proprietors tend to be intimate with their customers and clients which

results in greater accountability and maturity. Independence is another advantage of

owning a small business.

 One survey of small business owners showed that 38% of those who left their jobs at

other companies said their main reason for leaving was that they wanted to be their

own bosses.

 Freedom to operate independently is a reward for small business owners. In addition,

many people desire to make their own decisions, take their own risks, and reap the

rewards of their efforts.

 Small business owners have the satisfaction of making their own decisions within the

constraints imposed by economic and other environmental factors. However,

entrepreneurs have to work very long hours and understand that ultimately their

customers are their bosses.

 Several organizations also provide help for the small business sector, such as the

Internal Revenue Service's Small Business and Self-Employed One-Stop Resource.

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PROBLEMS FACED BY SMALL BUSINESSES

 Small businesses often face a variety of problems related to their size.

 A frequent cause of bankruptcy is undercapitalization. This is often a result of poor

planning rather than economic conditions – it is common rule of thumb that the

entrepreneur should have access to a sum of money at least equal to the projected

revenue for the first five year of business in addition to this anticipated expenses.

 In addition to ensuring that the business has enough capital, the small business owner

must also be mindful of contribution margin (sales minus variable costs)

 To break even, the business must be able to reach a level of sales where the

contribution margin equals fixed costs. When they first start out, many small
business owners underprice their products to a point where even at their maximum

capacity, it would be impossible to break even.

 Cost controls or price increases often resolve this problem.

 Another problem for many small businesses is termed the ‗Entrepreneurial Myth‘ or

E-Myth. The mythic assumption is that an expert in a given technical field will also be

expert at running that kind of business. Additional business management skills are

needed to keep a business running smoothly.

 Still another problem for many small businesses is the capacity of much larger

businesses to influence or sometimes determine their changes for success.

FOLLOW THESE STEPS TO STARTING A BUSINESS

Starting a business involves planning, making key financial decisions and completing

a series of legal activities. These 10 easy steps can help you plan, prepare and manage your

business. Click on the links to learn more.

Step 1: Templates for Writing a Business Plan

Use these tools and resources to create a business plan. This written guide will

help you map out how you will start and run your business successfully.

Step 2: Get Business Assistance and Training

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Take advantage of free training and counseling services, from preparing a

business plan and securing financing, to expanding or relocating a business.

Step 3: Choose a Business Location

Get advice on how to select a customer-friendly location and comply with zoning

laws

Step 4: Finance Your Business

Find government backed loans, venture capital and research grants to help you get

started.

Step 5: Determine the Legal Structure of Your Business

Decide which form of ownership is best for you: sole proprietorship, partnership,
Limited Liability Company (LLC), corporation, S corporation, nonprofit or

cooperative.

Step 6: Register a Business Name ("Doing Business As")

Register your business name with your state government.

Step 7: Get a Tax Identification Number

Learn which tax identification number you'll need to obtain from the IRS and your

state revenue agency.

Step 8: Register for State and Local Taxes

Register with your state to obtain a tax identification number, workers'

compensation, unemployment and disability insurance.

Step 9: Obtain Business Licenses and Permits

Get a list of federal, state and local licenses and permits required for your

business.

Step 10: Understand Employer Responsibilities

Learn the legal steps you need to take to hire employees.
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STARTUP RESOURCES
There are a number of available programs to assist startups, micro businesses, and

underserved or disadvantaged groups. The following resources provide information to help

specialized audiences start their own businesses.

 Environmentally-Friendly ―Green‖ Business

 Home-Based business

 Online business

 Self employment

 Minority owned business

 Veteran owned business

 Women owned business

CHANNEL SELECTION
 Zero level channel

- Producer to consumer

 One level channel

- Producer-Retailer-consumer

 Two level channel

- Producer-Whole seller-Retailer

TYPES OF CHANNEL
The prime of object of production is its consumption. The movement of product from

producer to consumer is an important function of marketing. It is the obligation of the

producer to make goods available at right place, at right time right price and in right quantity.

The process of making goods available to the consumer needs effective channel of

distribution. Therefore, the path taken by the goods in its movement is termed as channel of

distribution. The goods may be sent to the consumer directly or indirectly through

middlemen. The channel of distribution may be classified as:

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SELLING THROUGH DIRECT CHANNELS

This is the oldest, shorter and the simple channel of distribution. The producer sells

the product directly without involvement of any middle man. The sale can be made door to

door through salesman, retail stores and direct mail. Certain industrial and consumer goods

such as clothes, shoes, books, hosiery goods, cosmetics, household appliances, electronic

goods etc., may be sold through direct contact. Perishable goods such as vegetable and fruits

can also be sold directly.

Methods of selling through direct channels

 Selling goods through own retail outlets.

 Selling goods through postal services.

 Selling goods through courier services.

 Selling goods against orders received, by telephone, email and fax is know as

telemarketing. This method is being used by Asian Sky Shop. The product is

delivered to the customer through producer‘s own vehicles, V.P.P. or courier

Suitability of selling through direct channels

 Costly industrial goods such as computer, aircraft, heavy machinery etc.

 Perishable gods like fruits, vegetables, eggs, butter, milk etc.

 Household appliances.

 If customers purchase large quantities.

 In case the number of suppliers is small.

Selling through indirect channel

According to this method of indirect selling, product is passed on to the customers
through intermediaries, known as wholesalers, retailers and agents. These channels may be as
under:

Producers -> Wholesalers -> Retailers -> Customer Two level Channel: It is

commonly used channel of distribution. It is also known as traditional or normal channel of

distribution. This channel is useful for small producers for small means. The channel is used

for consumer goods. The common practice is that the manufacturer sells goods in large
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quantity to wholesalers, who sell goods to retailers in small quantity. Finally goods are sold

to customers in pieces.

Producer -> Agent -> Retailer -> Consumer or Two level Channel: The common

practice in this two level channel is that the goods are sold to the agent in bulk. The agent

sells goods to retailer, who sells goods to customers in pieces. This channel is suitable where

the retailers are few and geographically centered. This channel is commonly used in textile,

machinery, equipment and agricultural products.

Producer -> Agent -> Wholesaler -> Retailer -> Customer or Three level
Channel: The common practice in this three level channel is that goods are sold by the

producer to the agent, who sells it to the wholesaler, who sells to the retailers who finally
sells goods to customers. This is the longest channel of distribution. This practice is useful,

when the producer wants to the relieved of the problem of distribution. This channel is

popularly used in textile.

Producer -> Retailer -> Customer or one level Channel: Under this channel the

producer sells goods to retailers, who sell the goods to customers. This channel is popular

with the departmental stores, chain stores and supermarkets etc., because these are large scale

retailers. Generally readymade garments, shoes home appliances and automobiles are sold
through this channel.

FACTORS INFLUENCING CHANNEL SELECTION

Market factors
An important market favor is ―buyer behaviour‖; how do buyer‘s want to purchase the

product? Do they refer to buy from retailers, locally, via mail order or perhaps over the

Internet? Another important factor is buyer needs for product information, installation and

servicing. Which channels are best served to provide the customer with the information they

need before buying? Does the product need specific technical assistance either to install or

service a product? Intermediaries are often best placed to provide servicing rather than the

original producer – for example in the case of motor cars.

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Producer factors
A key question is whether the producer has the resources to perform the functions of

the channel. For example a producer may not have the resources to recruit, train and equip a

sales team. If so, the only opinion may be to use agents and/or other distributors.

Producers may also feel that they do not possess the customer-based skills to

distribute their products. Many channel intermediaries focus heavily on the customer

interface as a way of creating competitive advantage and cementing the relationship with

their supplying producers.

Another factor is the extent to which producers want to maintain control over how, to

whom and at what price a product is sold. If a manufacturer sells via a retailer, they effective
lose control over the final consumer price, since the retailer sets the price and any relevant

discounts or promotional offers. Similarly, there is no guarantee for a producer that their

product/(s) are actually been stocked by the retailer. Direct distribution gives a producer

much more control over these issues.

Product factors
Large complex products are often supplied direct to customers (e.g. complex medical

equipment sold to hospitals). By contrast perishable products (such as frozen food, meat,

bread) require relatively short distribution channels - ideally suited to using intermediaries

such as retailers.

 Industrial consumer product

 Perishability unit value

 Style obsolescence

 Weight and technology

 Standardized products

 Purchase frequency

 Newness and market awareness

 Seasonality

 Product breadth
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PROBLEMS INVOLVED IN CHANNEL SELECTION

 Organization objectives – If company objective is to have mass appeal and

rapid market penetration.

 Type of product - Perishable products should have a short distribution

channel, FMCG goods should have a wide reaching, intensive distribution

channel.

 Nature and extent of market- Distribution to consumer market or industrial

comparable product- company may chose it's existing channel of distribution

for relative product.

 Buying habit of customers- Understanding consumer needs and criteria for

buying

 Channel Availability - Channels may not be available

 Competing goals

 Differing perceptions of reality

 Clashes over domains

PRODUCT LAUNCH

i. Distinct Proposition

Your product must offer true innovation; it must be something that people will
actually want. What is its value? The first step is really evaluating if the product occupies a

distinct niche.
ii. Attention Catching

No matter how innovative and productive the item is, it needs to garner attention in

order to be sold. Companies need to be focused on interest and recognition.

iii. Message Connection

When the consumer is at the shelves deciding what to buy, the product needs to be

able to market itself. Make your labeling/packaging create a kind of ―mission statement‖

which will have the consumer clear on what the product does.
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iv. Clear Concise Message

People will not want to take too long to read your product‘s label; therefore, you must

create and convey a message that is short, sweet, and to the point.
v. Need/Desire

Especially with people tightening their belts in a recession, it is of the utmost

importance for the product to serve a real consumer call for the product. Convenience, and

ease of use are some of the more important attributes of a successful product.
vi. Advantage

Explain why your product will continue to be different. In a store where a consumer

has multiple similar choices, the advantage needs to be as clear and enticing it can be.
vii. Credibility

Packaging, ads, and coupons can say virtually anything, but a consumer has to believe

what they are reading and the product is worth their money. Where does your credibility

come from? Do they trust your brand? Are consumers in your niche willing to trust a new

brand?
viii. Acceptable Downsides

Virtually every product has its downsides. Identify them, and make sure that you are

ahead of them before the consumer has to point them out to you, and make sure that the

downsides don‘t hinder the success of the product.

ix. Finding ability

The product can be the most innovative product the world has ever seen, but unless

the consumer can see it, they won‘t know. How visible will the product be? Who is your

audience and what is the best way to put your product in their line of sight?
x. Acceptable Costs

Similar to accepting downsides, the consumer must feel comfortable with the cost of

purchasing and using your product. The cost in this sense can be anything from the actual

retail price at which it is listed to the more obscure attributes like a calorie count, something

you would only find out after having to look for it.
xi. Product Delivery

After the consumer is exposed to, and even believes, your ad campaign and message,

the product must deliver on its promises. Companies need to take the time to make sure their

product will deliver results at least as well as the ads state.

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xii. Product Loyalty

Many companies can, and have, had a ―one-hit-wonder‖ product, but in order to

sustain the success of the product over a long period of time, companies need product loyalty.

Even if the product delivers on its promises in the beginning, complacency will allow your

competition to come back. Build loyalty to your product by continuing to stay ahead of the

competition and you will find that a new household name will be very familiar to you.

xiii. The Bottom Line:

Companies need to understand that all 12 steps weigh equally on their chances at a

successful launch. The age-old saying that you are only as good as your weakest link is true.

Even one risky area of the launch process can seriously detract form the value of the product.

The biggest advantage of the system is gaining a more accurate estimate of the product‘s

chances of success so companies can set action standards, like choosing only to launch a

product once it has achieved an overall probability of success higher than 65 percent.

FACTORS TO BE CONSIDERED IN PRODUCT LAUNCH

1. Acceptance by customers

2. Intermediaries

3. Distribution channel

4. Production capabilities

5. Promotional mix

6. Competition
7. Price

8. Breakeven point

9. Time requirements

10. Cost
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STRATEGIES FOR PRODUCT LAUNCH

a. Analysis

b. Plan

c. Staffing

d. Advertising

e. Post-launch analysis

PRODUCT LAUNCH PROCESS

1. Review current product launch process

Testing
Certification

Production and process

Forecasting

ERP set up

Vendor qualification

Product and service manuals

Package design

Marketing and advertising design

Marketing testing

Sales and distribution planning

Sales target

Service assurance

Logistics

Spares

2. Develop improved process

Current process

Process goals

Defined activities

Output process
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Responsibilities

Production review

Design review

3. Integrate organization:
integration

impediments

required changes

facilities team activities

4. Determine system integration

Product data management
Enterprise resources management

Product life cycle management

5. Develop plan templates

Ms word

Ms office

6. Improved tools
Training

7. Develop product launch plan

Draft plans

8. Modified process

BASIC ERROR DURING PRODUCT LAUNCH

a. Weak promotional strategy

b. Target marketing

c. Poor timing sense

d. Inaugurate too early

e. Substantial product

f. Inflexible set up

g. Lack of funding
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h. Over estimating results

i. Not delegating

j. Not suitable plan

k. Inadequate market research

l. Too much expenses

m. Not coming-up with early enough

n. Non-existent promoting plan

o. Irrelevant questions

p. Huge task
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UNIT-V
MANAGEMENT OF SMALL BUSINESS

The success of a small business relies on how the entrepreneurs manage and operate

the business. There are a lot of people starting a small business everyday, but because of the

lack of knowledge, they end up with an empty pocket. It is critical that one must consider

how the business should operate. As a business owner, you should have clear understanding

on your business plan and this should include your operational decisions in order to meet

your business goals and objectives.

When we say business operation, we are referring to a detailed analysis of how you

are going to provide your products and services in the marketplace. It is important that you

can identify the strength of your business so that you can work it out in the production stage

and be on a competitive edge. In your business plan strategy, you should clearly state your

operational approach. The operation stage relies on the people. You should create a business

structure so that you can easily identify the people who are qualified to do the job. Always

look at the qualifications of your people because the success of your business operation is in

their hands.

A successful business operation also relies on how well you manage your business.

You can‘t operate well if there‘s a lack of management. There are many challenges involved

in managing a business because this will include the totality of the business, meaning one

must have to check on every aspect of your business.

FEATURES OF SMALL BUSINESS

 Personal character

 Independent management

 Limited investment

 Simple technology

 Local area of operation

 Unorganized labour

 Social interest
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 Not form trade union

 Limited sources

 Does not mechanized

 Simple business structure

IMPORTANCE OF SMALL BUSINESS IN INDIAN ECONOMY

Small businesses are vital in today's economy because many of the revenue obtained

by the government are from business taxes. In addition, since we are currently in a Global

Financial Crisis which is affecting nearly everyone around the world, the existence of small

businesses can stimulate the economy and hopefully improve the economies all around the
world. Finally small businesses are important because it can provide more job opportunities

for people so that the unemployment rate is low.

In a developing country like India, the role and importance of small-scale industries is

very significant towards poverty eradication, employment generation, rural development and

creating regional balance in promotion and growth of various development activities.

It is estimated that this sector has been contributing about 40% of the gross value of

output produced in the manufacturing sector and the generation of employment by the small-

scale sector is more than five times to that of the large-scale sector.

This clearly shows the importance of small-scale industries in the economic

development of the country. The small-scale industry have been playing an important role in

the growth process of Indian economy since independence in spite of stiff competition from

the large sector and not very encouraging support from the government.

The following are some of the important role played by small-scale industries in

India.

1. Employment generation
The basic problem that is confronting the Indian economy is increasing pressure of

population on the land and the need to create massive employment opportunities. This

problem is solved to larger extent by small-scale industries because small- scale industries are

labour intensive in character. They generate huge number of employment opportunities.

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Employment generation by this sector has shown a phenomenal growth. It is a powerful tool

of job creation.

2. Mobilisation of resources and entrepreneurial skill:

Small-scale industries can mobilize a good amount of savings and entrepreneurial

skill from rural and semi-urban areas remain untouched from the clutches of large industries

and put them into productive use by investing in small-scale units. Small entrepreneurs also

improve social welfare of a country by harnessing dormant, previously overlooked talent.

Thus, a huge amount of latent resources ;re being mobilised by the small-scale sector

for the development of the economy.

3. Equitable distribution of income:

Small entrepreneurs stimulate a redistribution of wealth, income and political power

within societies in ways that are economically positive and without being politically

disruptive.

Thus small-scale industries ensures equitable distribution of income and wealth in the

Indian society which is largely characterised by more concentration of income and wealth in

the organised section keeping unorganised sector undeveloped. This is mainly due to the fact

that small industries are widespread as compared to large industries and are having large

employment potential.

4. Regional dispersal of industries:

There has been massive concentration of industries m a few large cities of different

states of Indian union. People migrate from rural and semi urban areas to these highly

developed centres in search of employment and sometimes to earn a better living which

ultimately leads to many evil consequences of over-crowding, pollution, creation of slums,

etc. This problem of Indian economy is better solved by small- scale industries which utilise

local resources and brings about dispersion of industries in the various parts of the country

thus promotes balanced regional development.

5. Provides opportunities for development of technology:

Small-scale industries have tremendous capacity to generate or absorb innovations.

They provide ample opportunities for the development of technology and technology in
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return, creates an environment conducive to the development of small units. The

entrepreneurs of small units play a strategic role in commercialising new inventions and

products. It also facilitates the transfer of technology from one to the other. As a result, the

economy reaps the benefit of improved technology.

6. Indigenisation:
Small-scale industries make better use of indigenous organisational and management

capabilities by drawing on a pool of entrepreneurial talent that is limited in the early stages of

economic development. They provide productive outlets for the enterprising independent

people. They also provide a seed bed for entrepreneurial talent and a testing round for new

ventures.

7. Promotes exports:
Small-scale industries have registered a phenomenal growth in export over the years.

The value of exports of products of small-scale industries has increased to Rs. 393 crores in

1973-74 to Rs. 71, 244 crores in 2002-03. This contributes about 35% India's total export.

Thus they help in increasing the country's foreign exchange reserves thereby reduces the

pressure on country's balance of payment.

8. Supports the growth of large industries:

The small-scale industries play an important role in assisting bigger industries and

projects so that the planned activity of development work is timely attended. They support

the growth of large industries by providing, components, accessories and semi finished goods

required by them. In fact, small industries can breath vitality into the life of large industries.

9. Better industrial relations:

Better industrial relations between the employer and employees helps in increasing

the efficiency of employees and reducing the frequency of industrial disputes. The loss of

production and man-days are comparatively less in small- scale industries. There is hardly

any strikes and lock out in these industries due to good employee-employer relationship.

Of course, increase in number of units, production, employment and exports of small-

scale industries over the years are considered essential for the economic growth and

development of the country. It is encouraging to mention that the small-scale enterprises

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accounts for 35% of the gross value of the output in the manufacturing sector, about 80% of

the total industrial employment and about 40% of total export of the country.

FUNCTIONS OF MANAGEMENT OR MANAGEMENT FUNCTIONS

Management consists of the functions given below. It is based on Henri Fayol‘s

thinking on the functions of management.

1. Planning: generating plans of action for immediate, short term, medium term and long

term periods.

2. Organizing: organizing the resources, particularly human resources, in the best possible

manner.
3. Staffing: positioning right people right jobs at right time.

4. Directing (includes leading, motivating, communicating and coordinating):

Communicate and coordinate with people to lead and enthuse them to work effectively

together to achieve the plans of the organization.

5. Controlling (includes review and monitoring): evaluating the progress against the plans

and making corrections either in plans or in execution.

Each of these functions is explained in some detail below.

1. Planning
 Planning is decision making process.

 It is making decisions on future course of actions.

 Planning involves taking decisions on vision, mission, values, objectives, strategies

and policies of an organization.

 Planning is done for immediate, short term, medium term and long term periods.

 It is a guideline for execution/implementation.

 It is a measure to check the effectiveness and efficiency of an organization.

2. Organizing
 Organizing involves determination and grouping of the activities.

 Designing organization structures and departmentation based on this grouping.

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 Defining the roles and responsibilities of the departments and of the job positions

within these departments.

 Defining relationships between departments and job positions.

 Defining authorities for departments and job positions.

3. Staffing
 It includes manpower or human resource planning.

 Staffing involves recruitment, selection, induction and positioning the people in the

organization.

 Decisions on remuneration packages are part of staffing.

 Training, retraining, development, mentoring and counseling are important aspects of

staffing.

 It also includes performance appraisals and designing and administering the motivational

packages.

4. Directing
 It is one of the most important functions of management to translate company‘s plans into

execution.

 It includes providing leadership to people so that they work willingly and enthusiastically.

 Directing people involves motivating them all the time to enthuse them to give their best.

 Communicating companies plans throughout the organization is an important directing

activity.

 It also means coordinating various people and their activities.

 Directing aims at achieving the best not just out of an individual but achieving the best

through the groups or teams of people through team building efforts.

5. Controlling
 It includes verifying the actual execution against the plans to ensure that execution is

being done in accordance with the plans.

 It measures actual performance against the plans.

 It sets standards or norms of performance.

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 It measures the effective and efficiency of execution against these standards and the

plans.

 It periodically reviews, evaluates and monitors the performance.

 If the gaps are found between execution levels and the plans, controlling function

involves suitable corrective actions to expedite the execution to match up with the plans

or in certain circumstances deciding to make modifications in the plans.

STRATEGY EVALUATION AND CHOICE

An environmental scan will highlight all pertinent aspects that affect an organization,

whether external or sector/industry-based. Such an occurrence will also uncover areas to

capitalize on, in addition to areas in which expansion may be unwise.

These options, once identified, have to be vetted and screened by an organization. In

addition to ascertaining the suitability, feasibility and acceptability of an option, the actual

modes of progress have to be determined. These pertain to:

THE BASIS OF COMPETITION

The basis of competition is the competitive advantage used or established by the

strategy. This advantage may derive from how an organization produces its products, how it

acts within a market relative to its competitors, or other aspects of the business. Specific

approaches may include:

 Differentiation, in which a multitude of market segments are served on a mass scale.

An example will include the array of products produced by Unilever, or Procter and

Gamble, as both forge many of the world's noted consumer brands serving a variety of

market segments.

 Cost-based, which often concerns economy pricing. An example would be dollar

stores in the United States.

 Market segmentation (or niche), in which products are tailored for the unique needs of

a niche market, as opposed to a mass market. An example is Aston Martin cars.

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(i) Mode of action

Measuring the effectiveness of the organizational strategy, it's extremely important to

conduct a SWOT analysis to figure out the internal strengths and weaknesses, and external

opportunities and threats of the entity in business. This may require taking certain

precautionary measures or even changing the entire strategy.

In corporate strategy, Johnson, Scholes and Whittington present a model in which

strategic options are evaluated against three key success criteria:

 Suitability; would it work?

 Feasibility; can it be made to work?

 Acceptability; will they work it?

(ii) Suitability
Suitability deals with the overall rationale of the strategy. The key point to consider is

whether the strategy would address the key strategic issues underlined by the organisation's

strategic position.

 Does it make economic sense?

 Would the organization obtain economies of scale or economies of scope?

 Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

 Ranking strategic options

 Decision trees

(iii) Feasibility
Feasibility is concerned with whether the resources required to implement the strategy

are available, can be developed or obtained. Resources include funding, people, time,

and information or cash flow in the market.

Tools that can be used to evaluate feasibility include:

 cash flow analysis and forecasting

 break-even analysis

 resource deployment analysis

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(iv) Acceptability
Acceptability is concerned with the expectations of the identified stakeholders

(mainly shareholders, employees and customers) with the expected performance outcomes,

which can be return, risk and stakeholder/stakeholders reactions.

 Return deals with the benefits expected by the stakeholders (financial and

non-financial). For example, shareholders would expect the increase of their

wealth, employees would expect improvement in their careers and customers

would expect better value for money.

 Risk deals with the probability and consequences of failure of a strategy

(financial and non-financial).

 Stakeholder reactions deals with anticipating the likely reaction of

stakeholders. Shareholders could oppose the issuing of new shares, employees

and unions could oppose outsourcing for fear of losing their jobs, customers

could have concerns over a merger with regards to quality and support.

Tools that can be used to evaluate acceptability include:

 what-if analysis

 stakeholder mapping

The direction of action

Strategic options may span a number of options, including:

 Growth-based (inspired by Igor Ansoff's matrix – market development,

product development, market penetration, diversification)

 Consolidation

 Divestment

 Harvesting

The exact option depends on the given resources of the firm, in addition to the nature

of products' performance in given industries. A generally well-performing organisation may

seek to harvest (,i.e. let a product die a natural death in the market) a product, if via portfolio

analysis it was performing poorly comparative to others in the market.

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Additionally, the exact means of implementing a strategy needs to be considered.

These points range from:

 Strategic alliances

 Capital Expenditures (CAPEX)

 Internal development (,i.e. utilising one's own strategic capability in a given

course of action)

 M&A (Mergers and Acquisitions)

The chosen option in this context is dependent on the strategic capabilities of a firm.

A company may opt for an acquisition (actually buying and absorbing a smaller firm), if it

meant speedy entry into a market or lack of time in internal development. A strategic alliance
(such as a network, consortium or joint venture) can leverage on mutual skills between

companies. Some countries, such as India and China, specifically state that FDI in their

countries should be executed via a strategic alliance arrangement.

MONITORING AND EVALUATION

Monitoring is the systematic collection and analysis of information as a project

progresses. It is aimed at improving the efficiency and effectiveness of a project in an

organization. It is based on targets set and activities planned during the planning phases of

work. It helps to keep the work on track, and can let management know when things are

going wrong.

What monitoring and evaluation have in common is that they are geared toward

learning from what you are doing and how you are doing it, by focusing on:

 Efficiency

 Effectiveness

 Impact

Efficiency tells you that the input into the work is appropriate in terms of the output.

This could be input in terms of money, time, staff, equipment and so on. When you run a

project and are concerned about its replicability or about going to scale then it is very

important to get the efficiency element right.Effectiveness is a measures of the extent to

which a developments programme or project achieve the specific objective it set.

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WHY DO MONITORING AND EVALUATION?

In many organizations, ―monitoring and evaluation‖ is something that that is seen as a

donor requirement rather than a management tool. Donors are certainly entitled to know

whether their money is being properly spent, and whether it is being well spent. But the

primary (most important) use of monitoring and evaluation should be for the organization or

project itself to see how it is doing against objectivities, whether it is having an impact,

whether it is working efficiently, and to learn how to do it better. Monitoring and evaluation

are both tools which help a project or organization know when plans are not working, and

when circumstances have changed.

Monitoring and evaluation can

 Help you identify problems and their causes

 Suggest possible solutions to problems

 Raise questions about assumptions and strategy

 Push you to reflect on where you are going and how you are getting there

 Provide you with information and insight

 Encourage you to act on the information and insight

 Increase the likelihood that you will make a positive development difference.

Monitoring consists
 Establishing indicators (See Glossary of Terms) of efficiency, effectiveness and

impact

 Setting up systems to collect information relating to these indicators; . Collecting

and recording the information

 Analyzing the information

 Using the information to inform day-to-day management.

 Monitoring is an internal function in any project or organization.

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Evaluation involves
 Looking at what the project or organisation intended to achieve?

 What difference did?

 It want to make?

 What impact did it want to make?

i. Assessing its progress towards what it wanted to achieve, its impact targets.

ii. Looking at the strategy of the project or organization.

iii. Did it have a strategy?

iv. Was it effective in following its strategy?

v. Did the strategy work? If not, why not?

vi. Looking at how it worked. Was there an efficient use of resources?

vii. What were the opportunity costs of the way it chose to work?

viii. How sustainable is the way in which the project or organization works?

ix. What are the implications for the various stakeholders in the way the

organization works? In an evaluation, we look at efficiency, effectiveness and

impact.

There are many different ways of doing an evaluation. Some of the more common

terms you may have come across are:

Self-evaluation: This involves an organization or project holding up a mirror to itself

and assessing how it is doing, as a way of learning and improving practice. It takes a very

self-reflective and honest organization to do this effectively, but it can be an important

learning experience.

Participatory evaluation: This is a form of internal evaluation. The intention is to

involve as many people with a direct stake in the work as possible. This may mean project

staff and beneficiaries working together on the evaluation. If an outsider is called in, it is to

act as a facilitator of the process, not an evaluator.

Rapid Participatory Appraisal: Originally used in rural areas, the same

methodology can, in fact, be applied in most communities. This is a qualitative (see Glossary

of Terms) way of doing evaluations. It is semi-structured and carried out by an

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interdisciplinary team over a short time. It is used as a starting point for understanding a local

situation and is a quick, cheap, useful way to gather information. It involves the use of

secondary (see Glossary of Terms) data review, direct observation, semi-structured

interviews, key informants, group interviews, games, diagrams, maps and calendars. In an

evaluation context, it allows one to get valuable input from those who are supposed to be

benefiting from the development work. It is flexible and interactive.

External evaluation: This is an evaluation done by a carefully chosen outsider or

outsider team.

Interactive evaluation: This involves a very active interaction between an outside

evaluator or evaluation team and the organisation or project being evaluated. Sometimes an
insider may be included in the evaluation team.

Advantages and Disadvantages Of Internal And External Evaluations Advantages of

Internal Evaluations:
1. The evaluators are very familiar with the work, the organisational culture and the aims

and objectives.

2. Sometimes people are more willing to speak to insiders than to outsiders.

3. An internal evaluation is very clearly a management tool, a way of self-correcting,

and much less threatening than an external evaluation. This may make it easier for

those involved to accept findings and criticisms.

4. An internal evaluation will cost less than an external evaluation.

DISADVANTAGE
1. The evaluation team may have a vested interest in reaching positive conclusions about

the work or organisation. For this reason, other stakeholders, such as donors, may

prefer an external evaluation.

2. The team may not be specifically skilled or trained in evaluation.

3. The evaluation will take up a considerable amount of organisational time – while it

may cost less than an external evaluation, the opportunity costs may be high.
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ADVANTAGES OF EXTERNAL EVALUATION

1. External evaluation (done by a team or person with no vested interest in the project).

The evaluation is likely to be more objective as the evaluators will have some distance

from the work.

2. The evaluators should have a range of evaluation skills and experience.

3. Sometimes people are more willing to speak to outsiders than to insiders.

4. Using an outside evaluator gives greater credibility to findings, particularly positive

findings.

DISADVANTAGES
1. Someone from outside the organization or project may not understand the culture or
even what the work is trying to achieve.

2. Those directly involved may feel threatened by outsiders and be less likely to talk

openly and cooperate in the process.

3. External evaluation can be very costly.

4. An external evaluator may misunderstand what you want from the evaluation and not

give you what you need.

INDUSTRIAL SICKNESS
By sick industrial companies (special provisions) act, 1985, sec 3(1)(0)
―Industrial company (being a company registered for not less than five years) which

has at the end of any financial year accumulated loss equal to or exceeding its entire net

worth and which has also suffered cash losses in such a financial year immediately preceding

such financial year‖.

By the companies (second amendment) act, 2002, Defines a sick company as one;
Which has accumulated losses in any financial year to 50 percent or more of its

average net worth during four years immediately preceding the financial year in question, or

Which has failed to repay its debts within any three consecutive quarters on demand for

repayment by its creditors.

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STAGES OF INDUSTRIAL SICKNESS-CRITERIA TO IDENTIFY INDUSTRIAL

SICKNESS
Continuous decline in gross output compared to the previous two financial years.

Delays in repayment of institutional loan, for more than 12 months. Erosion in the network to

the extent of 50 percent of the net worth during the previous accounting year.

Signals of industrial sickness

 Decline in Capacity Utilization

 Shortage of Liquid funds

 Inventories in excessive quantities

 Irregularity in maintaining the bank accounts

 Frequent break downs in plant & equipments

 Decline in the quality of products

 Frequent turnover of personnel

 Technical deficiency

CAUSES OF SICKNESS
 External causes

 Improper credit facilities

 Delay in advancing of funds

 Unfavorable investment climate

 Shortage of inputs

 Import restrictions on essential inputs

 Liberal licensing of projects

 Change in international marketing scene

 Excessive taxation policy of government

 Market recession
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 Internal cause

 Financial constraints

 Inappropriate financial structure

 Poor utilization of assets

 Inefficient working capital management

 Lack of proper costing and pricing

 Absence of financing, planning & budgeting

 Improper utilization or diversion of funds

 Consequences
 Huge financial losses to the banks & financial institutions
 Loss to employment opportunities

 Emergence of industrial unrest

 Adverse effect on perspective investors and entrepreneurs

 Wastages of scarce resources

 Loss of revenue to government

 Set-back to employment prospects

 Industrial unrest

SYMPTOMS FOR SICKNESS

1. Irregularity in cash credit accounts

2. Minimum capacity utilization

3. Elasticity of profits

4. Decrease in sales

5. High level of rejection of goods

6. Failure to pay statutory liabilities

7. Long duration of dues

8. Longer time period for sales credit

9. Availability of cash credit but refuse to pay it on time.

10. Failure to submit accounts records

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11. Decrease in working capital

12. Diversification of funds

13. Concentrating for other units

14. Regular change in management

GOVERNMENTAL MEASURES TO COMBAT INDUSTRIAL SICKNESS

 The Reserve Bank of India set up Tandon Committee, in 1975-guideline was laid

down governing the participation of banks in the management of various sick

industries.

 The RBI in 1979 conducted a study to identify the causes of sickness in 378 such
large industrial units.

 Further the government camp up with several industrial policies in order to revive the

sick units.

These policies were:

(i) Soft loan Scheme

It is introduced in 1976 to provide financial assistance to five selected industries

(jute, cotton, cement, textile and sugar) on concessional terms for modernization &

rehabilitation of their old machineries

 Was Being operated by the IDBI in collaboration with IFCI & ICICI.

 In 1984 this scheme was modified into soft loan scheme for modernization –all

categories of industries are eligible for financial assistance for up gradation of

process/technologies/product, export orientation/import substitution, energy

saving, anti-pollution measures and improvement in productivity.

(ii) Merger policy of 1977 –

 For merger of sick units with the healthy ones

 Healthy was allowed to carry forward and set off the accumulated losses &

unabsorbed depreciation of the sick unit against its own tax incidence.

 Sick units to be eligible for merger should have >100 employees & assets worth >50

lakh. Governmental measures to combat industrial sickness

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(iii) Policy guidelines on sick units-1978

 Made it clear that financial institutes should involve themselves in the management of

the sick units in which they have substantial stake by setting up group of professional

directors to look after the management of these units.

 These directors will be nominated to the board of the sick units and they will be

required to report to the financial institutes regularly regarding the various measures

required to be incorporated.

 Further the respective state government in collaboration with the financial institutes

should provide financial & managerial assistance for the restructuring and

rehabilitation of the sick units.

(iv) New strategy 1981-

 Aimed at preventing industrial sickness, quick rehabilitation, & early decisions

on the future of such units.

 Units employing >1000employees of having an investment of 9 crore or more

should be nationalised if The line of production is critical to the nation‟s economy

Its a mother unit with large ancillaries Its closure would cause dislocation and

unemployment of such a large number of people that allocation of alternative jobs

is not possible.

(v) Different committees and industrial sickness-

 Government has from time to time formulated several committees like the Standing

Committee On Industrial Sickness, State Level Inter-Institutional Committee,

Guidance Committee & others to examine the problems of growing industrial

Sickness.

vi. Legal framework-

(v) Various provisions for the revival of the sick industries were introduced like The

Relief Undertaking Act, Sec 72(a) Of The Income Tax Act, IRBI Act Of 1984,SICA

1985, and others.

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REHABILITATION PROGRAMME
a) Change management

b) Development of a suitable management information system

c) A settlement with the creditors for payment of their dues in a phased manner,

taking into account the expected cash generation as per viability study

d) Determination of the sources of additional funds needed to refinance.

e) Modernization of plant and equipment or expansion of an existing programme or

even diversification of the products being manufactured.

f) Concession or reliefs or assistance to be allowed by the state level corporation

,financial institutions and central government.

RECOMMENDATIONS:
I. A Financial reorganisation may involve some sacrifices by the creditors and

shareholders of the undertaking which can be in several forms:-

 Reduction of the par value of shares.

 Reduction in rates of interest.

 Postponement of maturity of debt.

 Conversion of debt into equity.

 Change in the nature of claim or obligation such as from secured to unsecured.

 Concession by the Government in the form of reduction or waiving of indirect

taxes, electricity dues etc.

II. Monitoring and nursing the sick units during infancy

III. Incentives should be provided to professional managers helping in reviving sick units

IV. Issuing guidelines on major aspects that affect the image of the company

V. Brain storm with a select group to get creative ideas for improvement

VI. Adopt better practices, right technology, better work culture and professional

management so that the sick industries can improve their health as well as the economy
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REMEDIAL MEASURES OF SICKNESS/PREVENTIVE MEASURES OF SICKNESS

(SSI)
a. Planning

b. Discover new market

c. Innovative product service

d. Net savvy

e. Encourage R & D for new product

f. Quality improvement

g. Cost reduction

h. Training professionalism in management

i. Update knowledge

j. Improved infrastructure

k. Modernization of plant

l. Frequent marketing arrangement

m. Prospective buyer

n. Continuous market research

o. Wide advertisement

p. Inventory control techniques.

NEED FOR REVIVAL/REHABILITATION PROGRAMME

1. Socio economic objectives

2. Vital to economy (project sector)

3. Socio economic illness

4. Dependent units

5. Look up happened from banks or financial institutions

VIABILITY STUDY FOR REHABILITATION PROPOSAL

(a) Technical appraisal

i. Manufacturing process
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ii. Cost

iii. Production capacity

iv. Balancing machinery

v. Competitive edge

vi. Operating efficiency

vii. Efficiency of operation

viii. Improve the output

(b) Commercial appraisal

i. Product design

ii. Better features

iii. Modification

iv. Test marketing

v. Profit margin

(c) Management appraisal

i. Good project

ii. Reduction in the manpower

iii. Professionalism

(d) Financial appraisal

i. Reduction in interest

ii. Short term loans to long term loans

iii. Funding of the overdues

iv. Offering reschedule of loans.

v. Sanction of additional loans

vi. Increasing of working capital.

(e) Monitoring of nursing program sign of incipient sickness

1. Result of overdraft

2. Huge outstanding

3. Irregular payment

4. Complaints from supplier

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5. False stock statement

6. Divert sales proceeds

7. Minus trend

8. Dishonor of cheques

9. Mismatch of production figures

10. Loss

11. Low demanding items

12. Long outstanding of bills

13. Non furniture of necessary documents

14. Misuse of funds.

15. Diverting receivables

RELIEF AND CONCESSION BY BANKS/FINANCIAL INSTITUTIONS UNDER

REHABILATION.
a. Term loans

b. Interest on cash credit

c. Unadjusted interest dues

d. Working capital term loan

e. Cash losses

f. Contingent loan assistance

g. Funds for start up expenses

h. Margin for working capital

i. Promoters contribution

EFFECTIVE TIME MANAGEMENT FOR SMALL BUSINESS OWNERS

As a small business owner, you probably wish you could find that magic formula that

allows you to pack more then 24 hours into a day. The never-ending list of things that need

your attention often means that our work-life balance suffers, or you feel that you never get
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up top of things. Applying these effective time-management tips and tools will help you to

use your work time more effectively and get more of the important stuff done.

 Track your time

 Eliminate time wasters

 Delegate appropriate tasks

 Get organized

 Draw up a prioritized ‗to do‘ list

 Work to your personal productive times

 Get the tools or help you need

(a) Track your time

Remember that tried and tested business adage: ―You can‘t manage what you don‘t

measure‖? Well, it applies to time management too. Without tracking your time, any attempt

at improving time management will be a hit and miss affair. If you don‘t track where and how

you spend your time, you‘ve got no way to measure your current time management, or means

to identify time wasters or tasks you could delegate.

Start by recording what you do each day and how long it takes you. This can be as

simple or tech-savvy as you like – ranging from rough notes scribbled on a weekly timesheet,

to an Excel spread sheet that will add up the minutes and hours for you. Alternatively, you

can harness technology to do this for you.

Before you write off this idea, deciding that the amount of additional time you‘ll

waste tracking your time is not worth the effort, at least try out one of a range of paid-for and

free time management tools that can help to make this task simpler. Some options include

Harvest or Toggl and most come with features that can be rolled out for overall staff time

management and integrated into your billing.

Although there are benefits to continuing to monitor and track how you use your

time, you don‘t have to. After a few weeks, you‘ll have a good indication of what you spend

most of your days, weeks and months doing. You might be surprised at the amount of time

that is lost in meetings, doing things you could delegate, or on things you do out of habit

rather than need.

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(b) Eliminate the time wasters

Armed with information about how you spend your time, you‘ll be better able to

eliminate unnecessary time wasters. Some common time wasters are:

 Monitoring social media

 Responding to emails

 Fielding telephone calls

 Drop-in visitors and sales people

 Meetings that go on longer than necessary

Jumping between tasks and reading and answering emails as they come in during the

day can reduce your productivity. Set aside time to check and answer emails rather than

letting them distract you from the task at hand.

Ask your staff to field telephone calls or take a message if you need uninterrupted

time to focus on a task. Train staff not to allow sales people in to see you without an

appointment to avoid wasting your time listening to a sales pitch for office flowers or

equipment you‘re not thinking of buying.

There are a number of other ways to eliminate, or manage, time wasters at work.

Don‘t have pop-up messages from social media accounts running while you‘re trying to get

work done. Appoint a staff member to monitor certain business functions with daily or
weekly reports, rather than spending hours a week doing this task yourself.

Run meetings to a tight timetable. Draw up an agenda and allow only a couple of

minutes (yes, literally a minute or two) for each item on the agenda to avoid meetings

becoming a social gathering and wasting the productive time of all those present.

(c) Delegate appropriate tasks

Have a close look at your current workload and see if there are suitable tasks you

could delegate to others. Can you delegate some simple accounting functions such as

managing petty cash and reconciliations? What about general correspondence, sales and

marketing tasks, product development, quality control, and more? Small businesses owners

are generally notorious for their reluctance to delegate in the belief that they do the job better.

However, delegation can free up your valuable time, allowing you to focus on growing your
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business rather than spending all your time focusing on the day-to-day running of your

business.

Draw up a list of tasks you could delegate and responsible staff who could take them

over. Most employees want to develop in their jobs and would value the opportunity for

added responsibility or the chance to learn new skills. Try not to fall into the trap of only

delegating the jobs you don‘t really like doing – you want to free up as much time as possible

to allow you to work more strategically and effectively and have time for that work–life

balance.

(d) Get organised

A little bit of time invested now in developing efficient systems for your business
will save you a lot of time in the long run. Whether it‘s time spent setting up a computerised

accounting system, or implementing a physical or virtual filing system so that you don‘t

waste time looking for paperwork or documents, setting up systems and getting organised can

save you a lot of money.

If your time tracking indicates you spend a lot of time answering basic sales

questions, you could, for example, save time by writing up some template responses that you

(or an employee) could personalize in response to queries. Similarly, adding an FAQ page to

your website could help to free up more of your time. Customer relationship management

software can also save a lot of time and effort.

If you‘re no longer so busy running from one problem to the next in your business,

you‘ll probably be able to identify a number of ways you can work smarter, rather than

harder - and find ways to increase staff productivity too.

(e) Draw up a prioritised ‘to do’ list

It‘s easy to get sucked into the problem of the day – or the problem of the hour, in

some businesses. This is where that ‗to do‘ list can help. A simple list of the tasks you need

or hope to accomplish, together with a deadline, will help to keep you focused.

Ranking them in order of priority will help to ensure the most important tasks get

done by deadline and that jobs don‘t fall off your radar and get forgotten. Ticking items off

your to-do list can be surprisingly motivating, too.

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(f) Work to your personal productive times

It makes sense to work when you work best. We all have different cycles and

preferences. If you‘re a morning person and full of oomph and drive at the crack of dawn, put

this time aside to tackle those big projects. Schedule more routine things or less creative tasks

for the afternoon when you‘re in your less-productive cycle. Avoid routine production

planning meetings during your most productive times.

If you‘re not a morning person, and don‘t really reach your form until after your

second cup of coffee, get those routine tasks out of the way first thing in the morning, and

then tackle the big projects, or schedule important meetings for when you‘ll be able to give it

your very best.

(g) Get the tools or help you need

If you expect your staff to work effectively and efficiently, you‘ll need to provide

them with the right tools to do the job. The same applies to you as the business owner. You

can‘t work efficiently if you don‘t have the tools or skills (whether training or personnel) to

do the job.

This does not give you justification to dash out to buy an iPad2 if you don‘t really

need it. However, it does mean you shouldn‘t limp along wasting hours to do a job, when an

investment in technology would mean you‘d be able to be far more productive.

It‘s usually false economy trying to make do with outdated technology. If you‘re not

sure about whether to invest in tools, software, training or staff, do a quick calculation of how

much time it will save you, and then compare this with how much it will cost. Assuming your

cash flow can accommodate the purchase, this cost-benefit analysis will quickly tell you

whether investing in the tools or help you need is a financially sound decision for your

business.