Chapter-01

INTRODUCTION TO
MANAGEMENT
 MANAGEMENT
Management is the attainment of organizational goals in an
effective and efficient manner through planning, organizing,
staffing, directing and controlling organizational resources.

Organizational resources include men(human beings),

money, machines and materials.

Louis E Boone & David L Kurtz- The use of people and

other resources to accomplish objectives.

Mary Parker Follet- the act of getting things done through

people.

Frederick Taylor defines Management as the art of

knowing what you want to do in the best and cheapest way.
 Characteristics
Management is a distinct process
Management is an organized activity
Management aims at the accomplishment of predetermined
objectives
Management is both a science and an art
Management is a group activity
Management principles are universal in nature
Management integrates human and other resources
 Concept of management-Raymond G. Leon
Management by Communication
Management by Systems
Management by Results
Management by Participation
Management by Motivation
Management by Exception
Management by Objectives
 Management by Objectives
Steps in MBO

To establish long-term and short-tem organizational goals

To establish long-term and short-term objectives for each
manager, clarifying the key performance standards
Periodic review of performance
Encouraging managers to accept responsibility

Benefits of MBO

The need for planning will be recognized

It provides for objectives and accountability for performance
It encourages participative management
It helps in job enrichment
It provides for a good feedback system
 FEATURES
Management involves five functions
These functions are organized to achieve organizational goals.
Management involves effective and efficient use of resources

FUNCTIONS OF MANAGEMENT
PLANNING
ORGANIZING
STAFFING
DIRECTING
CONTROLLING
 PLANNING
• Planning is determining the objectives and formulating the
methods to achieve them. It is more simply said than done.
A job well planned is half done. During planning one needs
to ask oneself the following:
• What am I trying to accomplish i.e. what is my objective?
• What resources do I have and do I need to accomplish the
same?
• What are the methods and means to achieve the
objectives?
• Is this the optimal path?
 Types of Planning
• Purposes or missions: Long term, easy to remember
• Objectives-It is the ultimate goal towards which the activities
of the organization are directed
• Strategies-general program of action and deployment of
resources
• Policies-general statement or understanding which guide or
channel thinking in decision making
• Procedures-states a series of related steps or tasks to be
performed in a sequential way
• Rules-prescribes a course of action and explicitly states what
is to be done
• Programs-comprehensive plan that includes future use of
different resources
• Budgets-statement of expected results expressed in
numerical terms
 Principles of Planning
Take Time to Plan
Planning can be Top to Down or Bottom to Top
Involve and Communicate with all those Concerned
Plans must be Flexible and Dynamic
Evaluate and Revise
 Steps in Planning
1. Determining the goals or objectives for the entire
organization.
2. Making assumptions on various elements of the
environment.
3. To decide the planning period.
4. Examine alternative courses of actions.
5. Evaluating the alternatives.
6. Real point of decision making
7. To make derivative plans.
 Types of Managerial Decisions
Programmed
Non programmed.
Mechanistic-It is one that is routine and repetitive in nature
Analytical-It involves a problem with a larger number of
decision variables
Judgmental-It involves a problem with a limited number of
decision variables, but the outcomes of decision alternatives
are unknown
Adaptive-It involves a problem with a large number of
decision variables, where outcomes are not predictable
 Process of Organizing
Determine what is to be done/ Division of Work:
Assign Tasks: Departmentalization:
Link Departments: Hierarchy Development:
Decide how much Authority to Designate/ Authority,
Responsibility and Delegation:
Decide the Levels at which Decisions are to be made /
Centralization vs. Decentralization:
Decide how to Achieve Coordination:
 Techniques for achieving coordination
Coordination by Rules or Procedures
Coordination by Targets or Goals:
Coordination through the Hierarchy
Coordination through Departmentalization
Using a Staff Assistant for Coordination:
Using a Liaison for Coordination:
Using a Committee for Coordination
Using Independent Integrators for Coordination:
Coordination through Mutual Adjustment:
 STAFFING
Definition 1
Selecting and training individuals for specific job functions, and
charging them with the associated responsibilities.

Definition 2
Number of employed personnel in an organization or program.
Also called workforce.
 DIRECTING/LEADING
Provides positive and dynamic leadership
Provides maximum opportunities
Provides proper motivation of personnel
Ability to command people
 CONTROLLING CONCEPTS
Feed Forward Control-Control that attempts to identify and
prevent deviations before they occur is called feed forward
control, sometimes called preliminary or preventive control.

Concurrent Control-Control that monitors ongoing

employee activities during their progress, to ensure they are
consistent with quality standards, is called concurrent control.

Feedback Control-In this case, the control takes place after

the action. Sometimes called post-action or output control
 Steps in the Control Process
Establish Standards of Performance
Measure Actual Performance
Compare Performance to Standards:
Take Corrective Action
 Principles of Effective Control
Effective controls are timely.
Control standards should encourage compliance.
Setting effective standards is important
Use management by exception.
Employees should get fast feedback on performance.
Do not over rely on control reports.
Fit the amount of control to the task.
 MANAGERIAL SKILLS

HUMAN CONCEPTUAL

TECHNI
CAL
 MANAGERIAL SKILLS
Technical skills: A persons’ knowledge and ability to make
effective use of any process or technique constitutes his
technical skills.
For eg: Engineer, accountant, data entry operator, lawyer,
doctor etc.
Human Skills: An individuals’ ability to cooperate with other
members of the organization and work effectively in
teams.
For eg: Interpersonal relationships, solving people’s problem
and acceptance of other employees.
Conceptual Skills: Ability of an individual to analyze
complex situations and to rationally process and interpret
available information.
For eg: Idea generation and analytical process of
information.
 MANAGER’S ROLES
Interpersonal role
Informational role
Decisional role
 INTERPERSONAL ROLE
Figurehead- ethical guidelines and the principles of behavior
employees are to follow in their dealings with customers and
suppliers

Leader- give direct commands and orders to subordinates

and make decisions

Liaison-coordinate between different departments and

establish alliances between different organizations
 INFORMATIONAL ROLE
Monitor- evaluate the performance of managers in different
functions

Disseminator-communicate to employees the organization’s

vision and purpose

Spokesperson- give a speech to inform the local community

about the organization’s future intentions
 DECISIONAL ROLE
Entrepreneur- commit organization resources to develop
innovative goods and services

Disturbance handler- to take corrective action to deal with

unexpected problems facing the organization from the
external as well as internal environment

Resource allocator- allocate existing resources among

different functions and departments

Negotiator- work with suppliers, distributors and labor unions

 TYPES OF MANAGERS
FIRST-LINE MANAGERS- often called supervisors stand at
the base of the managerial hierarchy

MIDDLE MANAGERS- heads of various departments and

organize human and other resources to achieve
organizational goals

TOP MANAGERS- set organizational goals, strategies to

implement them and make decisions
 WHAT MAKE MANAGERS SUCCESSFUL?

Hard work
Smart work
Patience
Out of box thinking
Reading and acquiring knowledge
Ethical consciousness
Collaborative relationship
Perseverance
 Chapter-02

Basics of
Entrepreneurship
 What Is Entrepreneurship?
 Entrepreneurship is  the  process  of  designing, 
launching  and  running  a  new business,  which  is 
often initially a small business. 

  The  people  who  create  these  businesses  are 

called entrepreneurs.

 The capacity and willingness to develop, organize 
and manage a business venture along with any of 
its  risks  in  order  to  make  a  profit  is  k/a 
Entrepreneurship.   

  Entrepreneurial  spirit  is  characterized  by 

innovation and risk-taking
Concept of Entrepreneurship
A  person  who  tries  to  create  something  new,  organizes 
production  and  undertake  risk  and  handles  economic 
uncertainty involves in enterprise is an entrepreneur.
Innovation: 

Doing something new or something different .
Entrepreneurs  are  looking  for  doing  something  new  or 
different  and  unique  to  meet  the  requirements  of 
customers. 
They may or may not be inventors of new  products or 
methods  of  production,  they  may  use  existing 
invention in different ways  (Innovators). 
Josheph  A.  Schumpeter,  “  Theory  of  Economic 
Developemt”. Innovation in entrepreneurs. 
Concept of Entrepreneurship
Risk bearing: 

Starting a new enterprise or doing something new 
and innovative is always risky. 
The  enterprise  may  earn  profit  or  incur  losses 
because  of  many  factors  like  increasing 
competition,  changes  in  customer  preferences 
and shortage of raw materials and so on. 
An  entrepreneur,  therefore,  needs  to  be  bold 
enough  to  assume  the  risk  involved  in  the 
enterprise. 
Entrepreneur should be risk taker.
“Fall seven times, stand up eight”
 Characteristics of Successful
Entrepreneurs
Hard work
Desire for high achievement
Highly optimistic
Independence
Foresight
Good organizer
Innovative
Perseverance
Team spirit
 The charms of becoming an
entrepreneur
 Opportunity to create one’s own destiny
 Opportunity to make difference
 Opportunity to reach one’s full potential
 Opportunity to reap impressive profits
 Opportunity to contribute to society
 Opportunity to do what one enjoys
 The Entrepreneurial decision
Process
The Present status

Reasons for changing the present status

Desire for change from the present status to

become entrepreneur

Possibilities to become an entrepreneur

An Entrepreneur
 Functions of Entrepreneurs
According to Peter Kilby (1971), there are thirteen
functions to be performed by the entrepreneur
• Perception of market opportunities
• Gaining command over scarce resources
• Purchasing inputs
• Marketing the products
• Dealing with officials
• Managing human resources within the enterprise
• Managing customer and supplier relations
• Managing finance
• Managing production
• Acquiring and overseeing assembly of the factory
• Industrial engineering
• Upgrading process and product
• Introducing new production techniques and products
 BASIS FOR
ENTREPRENEUR MANAGER
COMPARISON
Meaning Entrepreneur refers to a Manager is an individual
person who creates an who takes the
enterprise, by taking responsibility of
financial risk in order to controlling and
get profit. administering the
organization.

Focus Business startup Ongoing operations

Primary Achievement Power

motivation
Approach to task Informal Formal

Status Owner Employee

Reward Profit Salary

Decision making Intuitive Calculative

Driving force Creativity and Innovation Preserving status quo

Risk orientation Risk taker Risk averse

 BASIS FOR
ENTREPRENEUR INTRAPRENEUR
COMPARISON
Meaning Entrepreneur refers to a Intrapreneur refers to an
person who set up his employee of the
own business with a new organization who is in
idea or concept. charge of undertaking
innovations in product,
service, process etc.
Approach Intuitive Restorative
Resources Uses own resources. Use resources provided
by the company.
Capital Raised by him. Financed by the
company.
Enterprise Newly established An existing one
Dependency Independent Dependent
Risk Borne by the Taken by the company.
entrepreneur himself.
Works for Creating a leading Change and renew the
position in the market. existing organizational
system and culture.
Types of Entrepreneurs
 A. CLARENCE DANHOF CLASSIFICATION:
• 1. INNOVATIVE:
Innovative  entrepreneur  is  one  who  assembles 
and  synthesis    information  and  introduces  new 
combinations of factors of  production.
 They  are  characterized  by  the  smell  of 

innovativeness.
 These  entrepreneurs  sense  the opportunities  for  

introduction  new  ideas,  new  technology,  new 

markets and  creating new organizations.
 Innovative  entrepreneurs  are  very  much  helpful 

for  their    country  because  they  bring  about  a 

transformation in life  style.
 2. IMITATIVE/ ADOPTIVE:
 Also known as adoptive entrepreneur.
 He simply adopts successful innovation introduced 

by other  innovators.
 These  entrepreneurs  imitate  the  existing  entrepreneurs 

and setup  their enterprise in the same manner. Instead 
of  innovating,  they    just  imitate  the  technology  and 
methods innovated by others.
 These entrepreneurs are very helpful in less developed 

countries  as they contribute significantly in the growth 
of  enterprise  and    entrepreneurial  culture  in  these 
countries.
 Further  by  adopting  the  technology,  which  is  already 

tested,  they    generate  ample  employment  avenues  for 

the  youth  and  therefore    they  are  treated  as  agent  of 
economic development.
 3. FABIAN:
 The Fabian entrepreneur is timid and cautious.

 He imitates other innovations only if he is certain 

that failure to  do so may damage his business.
 They are very much skeptical in their approach in 

adopting  or    innovating  new  technology  in  their 

enterprise.  They  are  not    adaptable  to  the 
changing environment. They love to remain in  the 
existing  business  with  the  age-old  techniques  of 
production.
 They only adopt the new technology when they 

realize  that    failure  to  adopt  will  lead  to  loss  or 
collapse of the enterprise
 4. DRONE:
 These entrepreneurs are conservative or orthodox in 
outlook.  They never like to get rid of their traditional 
business and  traditional machinery or systems of the 
business.
 They  always  feel  comfortable  with  their  old  fashioned 

technology    of  production  even  though  the  environment 

as  well  as  the  society    have  undergone  considerable 
changes.
 Thus, drone entrepreneurs refuse to adopt the changes. 

They are   laggards  as they continue to operate in  their 

traditional way and  resist changes.
 His  entrepreneurial  activity  may  be  restricted  to  just 

one or two  innovations. They refuse to adopt changes 
in production even at  the risk of reduced returns.
 B. ARTHUR H. COLE
CLASSIFICATION:
1. Empirical:
• He  is  an  entrepreneur  hardly  introduces  anything   
revolutionary and follows the principle of rule of thumb.

2. Rational:
• The  rational  entrepreneur  is  well  informed  about    the 
general  economic  conditions  and  introduces    changes 
which look more revolutionary.

3. Cognitive:
• Cognitive entrepreneur is well  informed, draws upon the 

advice and services of  experts and introduces changes 
that reflect  complete break from the existing scheme of  
enterprise.
 C. CLASSIFICATION BASED ON
THE SCALE OFENTERPRISE:
 1.  SMALL  SCALE:  This  classification  is  especially 
popular  in  the    underdeveloped  countries.  Small 
entrepreneurs  do  not  posses    the  necessary  talents 
and  resources  to  initiate  large  scale    production  and 
introduce revolutionary technological changes.

 2.  LARGE  SCALE:  In  the  developed  countries  most   

entrepreneurs  deal  with  large  scale  enterprises.  They 
posses the  financial and necessary enterprise to initiate 
and introduce new  technical changes. The result is the 
developed  countries  are able   to  sustain and  develop a 
high level of technical progress.
 D. Based on the type of Business
Trading  Entrepreneur:  Undertakes  trading 
activities. They serve as the middlemen 
Manufacturing  Entrepreneur:  Manufacture 
Products. Raw materials to finished goods.
Agricultural  Entrepreneur:  Agriculture  and  other 
allied activities . 

E. Based on Use of Technology

Technical  Entrepreneur:  Science  and  Technology 
based enterprise
Non  Technical  Entrepreneur:  Not  using 
technology.  Uses  alternative  and  imitative 
methods.  
 F. Based on Ownership

Private entrepreneur: Individual person is a owner  of 
that enterprise. 
State/Public:  When  trading  or  industrial  venture  is 
undertaken by the state or the government. 
Joint  entrepreneur:  When  private  entrepreneur  and 
the government jointly run a business  enterprise.   

G. Based on the size of enterprise

Small Scale Entrepreneur: Investment upto 1  crore 
Medium  Scale  Entrepreneur:  Investment  between  1 
crore and 5 crore
Large  Scale  Entrepreneur:  Investment  more  than  5 
crore 
 Other Classification
 In recent years, some new classifications have been made
• regarding entrepreneurs, which are discussed further.
1. SOLO OPERATORS:
•These entrepreneurs prefer to set up their business  
individually.  They  introduce  their  own  capital,  intellect 
and  business acumen to run the enterprise successfully 
They    operate  their  business  mainly  in  the  form  of 
proprietorship  type of concern.

2. ACTIVE PARTNERS:
•Entrepreneurs  of  this  type  jointly  put  their  efforts 
to    build  enterprise  pooling  together  their  own  resources. 
They    actively  participate  in  managing  the  daily  routine  of 
the    business  concern.  As  such,  the  business  houses  or 
the  firms    which  are  managed  by  the  active  partners 
become more  successful in their operation.
 Other Classification (Cont…)
3.Inventors:  These  entrepreneurs  primarily  involve 
themselves  in    Research  and  Development  (R  and  D) 
activities.  They  are    creative  in  character  and  feel  happy  in 
inventing  new  products,    technologies  and  methods  of 
production

4. CHALLENGERS:
Entrepreneurs  of  this  type  take  challenges  to  establish   
business venture as mark of achievement. They keep on  
improving  their  standard  and  face  boldly  the  odds  and   
adversities that come in their way. They use their business  
acumen  and  talent  to  convert  the  odds  into  opportunities   
thereby  making  profit.  According  to  them,  if  there  is  no   
challenge in life, there is no charm in life. Challenges make 
  them  bold,  and  thus,  they  never  hesitate  to  plunge 
themselves  into uncertainties for earning profit.
 Other Classification (Cont…)
5. LIFE TIMERS:
These entrepreneurs believe that  business is the 
part  and  parcel  of  their  life.  They  take    up  the 
business  to  reunite  successfully  as  a  matter    of 
ego  satisfaction.  They  have  a  strong  desire  for   
taking  personal  responsibility.  Family  enterprises   
which thrive due to high personal skill are included 
 under this category.

6. Social Entrepreneurs: 
Individuals  with  innovative  solution  to  society’s 
most pressing and daunting problems .
 Chapter-03

Entrepreneurship
Development
 Role of Entrepreneurship in Economic
Development
 Promotes Capital Formation:
Entrepreneurs promote capital formation by mobilizing the idle
savings of public. They employ their own as well as borrowed
resources for setting up their enterprises. Such type of
entrepreneurial activities leads to value addition and creation of
wealth, which is very essential for the industrial and economic
development of the country.
 Creates Large-Scale Employment Opportunities:
Entrepreneurs provide immediate large-scale employment to
the unemployed which is a chronic problem of underdeveloped
nations. With the setting up of more and more units by
entrepreneurs, both on small and large-scale numerous job
opportunities are created for others. As time passes, these
enterprises grow, providing direct and indirect employment
opportunities to many more. In this way, entrepreneurs play an
effective role in reducing the problem of unemployment in the
country which in turn clears the path towards economic
development of the nation.
 Promotes Balanced Regional Development:
Entrepreneurs help to remove regional disparities through
setting up of industries in less developed and backward
areas. The growth of industries and business in these areas
lead to a large number of public benefits like road transport,
health, education, entertainment, etc. Setting up of more
industries leads to more development of backward regions and
thereby promotes balanced regional development.
Reduces Concentration of Economic Power:
Economic power is the natural outcome of industrial and
business activity. Industrial development normally leads to
concentration of economic power in the hands of a few
individuals which results in the growth of monopolies. In
order to redress this problem a large number of
entrepreneurs need to be developed, which will help reduce
the concentration of economic power amongst the population
 Wealth Creation and Distribution:
It stimulates equitable redistribution of wealth and income in
the interest of the country to more people and geographic
areas, thus giving benefit to larger sections of the society.
Entrepreneurial activities also generate more activities and
give a multiplier effect in the economy
 Increasing Gross National Product and Per Capita
Income:
Entrepreneurs are always on the lookout for opportunities.
They explore and exploit opportunities, encourage effective
resource mobilization of capital and skill, bring in new
products and services and develop markets for growth of the
economy. In this way, they help increasing gross national
product as well as per capita income of the people in a
country. Increase in gross national product and per capita
income of the people in a country, is a sign of economic
growth.
 Improvement in the Standard of Living:
Increase in the standard of living of the people is a
characteristic feature of economic development of the
country. Entrepreneurs play a key role in increasing the
standard of living of the people by adopting latest
innovations in the production of wide variety of goods and
services in large scale that too at a lower cost. This enables
the people to avail better quality goods at lower prices
which results in the improvement of their standard of living.
 Promotes Country's Export Trade:
Entrepreneurs help in promoting a country's export-trade,
which is an important ingredient of economic development.
They produce goods and services in large scale for the
purpose earning huge amount of foreign exchange from
export in order to combat the import dues requirement.
Hence import substitution and export promotion ensure
economic independence and development.
 Induces Backward and Forward Linkages:
Entrepreneurs like to work in an environment of change and
try to maximize profits by innovation. When an enterprise is
established in accordance with the changing technology, it
induces backward and forward linkages which stimulate the
process of economic development in the country.
 Facilitates Overall Development:
Entrepreneurs act as catalytic agent for change which
results in chain reaction. Once an enterprise is established,
the process of industrialization is set in motion. This unit will
generate demand for various types of units required by it
and there will be so many other units which require the
output of this unit. This leads to overall development of an
area due to increase in demand and setting up of more and
more units. In this way, the entrepreneurs multiply their
entrepreneurial activities, thus creating an environment of
enthusiasm and conveying an impetus for overall
development of the area.
 Training and
Entrepreneurship
Development
Programmes in India
 Importance of Training
 Ensures availability of skilled manpower at all management
levels
 Enhancing abilities, potential among entrepreneurs
 Increase efficiency
 Maintain and enhance product quality
 Minimise wastages in production process

 Minimise accidents on the job

 Reduce fatigue and increase speed of work
 Standardisation in industry and internal processes
 Methods of Training
 Individual instruction

 Group instruction

 Lecture method

 Demonstration method

 Written instruction method

 Conference

 Meetings
 Training – Course contents
 Introduction to entrepreneurship

 Motivation training

 Essentials of management

 Fundamentals of project feasibility study

 Organizing the business

 Plant visit
 EDP
 Designed with an aim of encouraging self employment

 Imparts training and motivates potential and existing

entrepreneurs to start new business or diversify and
expand the existing one

 Helps employment and wealth creation among educated

unemployed youth

 Well equipped to face risks and challenges as an

entrepreneur

 Government needs considerable human and material

resource, importance to detailed planning &
implementation
 Phases of EDP
 Select area from existing government policy
guidelines/socio-economic reports

 Techno-economic survey of the selected area; feasibility

study

 Identify potential and existing entrepreneurs interested in

starting new business/expansion/diversification

 Training

 Follow up and consultancy services

 EDP Cycle
 Stimulatory Role

1. Registration of unit
2. Arranging finance
3. Providing land, shed, power, water etc.
4. Guidance for selecting and obtaining machinery
5. Supply of scarce raw materials.
6. Getting licenses / import licenses
7. Providing common facilities
8. Granting tax relief or other subsidy
9. Offering management consultancy
10. Help marketing product
 EDP Cycle (Cont…)
 Support Role

1. Entrepreneurial education.
2. Planned publicity for entrepreneurial opportunities.
3. Identification of potential entrepreneurs through scientific
methods.
4. Motivational training to new entrepreneurs.
5. Help and guide in selecting products and preparing project
reports.
6. Making available techno-economic information and product
profits.
7. Evolving locally suitable new products and processes.
8. Availability of local agencies with trained personnel for
entrepreneurial counseling and promotions.
9. Organizing entrepreneurial forum.
 EDP Cycle (Cont…)
 Sustaining Role

1. Help modernization
2. Help diversification/expansion / substitute production.
3. Additional financing for full capacity utilization
4. Deferring repayment/interest.
5. Diagnostic industrial extension/consultancy source.
6. Production units/ legislation/policy change
7. Product reservation / creating new avenues for marketing
8. Quality testing and improving services
9. Need - based common facilities centre
 Selection of entrepreneurs for EDP
 The programme is well publicized and promoted to attract
maximum applications for screening

 Selection of top 25 to 30 applicants only

 Applications screened for:

o Demographics and socio cultural data – age,

education, work exp, financial resources, type of
business etc
o Motivation factors – pull factors, source of
encouragement, credibility, endurance,
concreteness of plans

o Psychological test results- traits like risk taking,

need for achievement
 Pre requisites of EDP
 Selection of entrepreneurs

 Inputs for EDP

 Support system

 Follow up
Organizations providing
EDP
 Entrepreneurship Development Institute of India
(EDII)
 Develops programmes for entrepreneurial training and
development
 Develops innovative training techniques for trainers

 Focused attention on women entrepreneurs with first such

EDP in 1988
 EDP for rural entrepreneurship development in U.P and
Orissa
 Famous for organizing camps on entrepreneurship

 Conducted EDP in Sri Lanka, Nepal, Ghana, Kenya etc

 National Institute for entrepreneurship and Small
Business Development (NIESBUD)
 Established by Government of India in 1983

 An apex body for coordination and supervision on activities

of various institutes engaged in entrepreneurial
development
 Helps evolution of EDP, model syllabi, effective
training strategies, methodology, manuals and tools

 Activities undertaken:

 Organize and conduct training programmes

 Coordinate training activities of various
agencies/institutes
 Provide affiliation to such institutes
 Hold examinations and confer certificates to trainers and
trainees
 Micro, Small & Medium Enterprises Development
Commission (MSME DC)
 Three months part time evening courses in management

 4-6 weeks part time courses in intensive training in functional areas

(marketing, finance)
 Special courses in quality control, HR, production
planning, product development etc
 Mobile workshops imparting training on correct usage of tools and
equipment

 Helps with preparation of plant layouts

 Helps individual firms on specific problems faced

 Runs EDP in collaboration with financial institutes, directorate of

industries

 Gives on the job training on shop floor (carpentry, electrical devices)

 Sends its officials/trainers to organizations to update their knowledge

 National Small Industries Corporation (NSIC)
 Provides apprenticeship for 2 years

 Training supervisory staff of SSI up to 2 years

 Training to engineers up to 2 years

 Training workmen for 12 months

 Training to set up own venture

 Advice on machinery and components

 Production of technologically advanced machines

 National Alliance of Young Entrepreneurs (NAYE)
 Contribution in encouraging women entrepreneurship

 Set up women’s wing in 1975

 This wing assists women in:

 Getting better access to resources, infrastructure, markets

 Identify investment opportunities
 Attending to problems of individual industries
 Sponsor participation in trade fairs, exhibitions, conferences
 Organize seminars, training programmes, workshops
 Chapter-04

ENTREPRENEURIAL
BEHAVIOUR AND
MOTIVATION
 Motivation
Entrepreneurial behavior is the result of entrepreneurial
motivation.
Motivation has been derived from the word ‘motive’ which
implies the inner state of mind that activates, provokes and
directs our behavior towards the goal.
Motivation is a process that motivates a person into action
and induces him to follow the course of action till the goals
are finally achieved.
To motivate means to provide motive, to impel people to
action, and to create incentives to work.
“Motivation is the work a manager performs to inspire,
encourage, and impel people to take required action” – Lewis
Allen
“The act of stimulating someone or oneself to get a
desired course of action”
 Motivation (Cont…)
According to Bernard and Steener, “ A motive is an inner state
that energies, activates or moves and that directs behavior
towards goals”.

Nature of Motivation.

 Internal feeling of an individual.

 These feelings prompt him to work more.

 Energies towards productive action.

 Motivation is linked to satisfaction.

 An individual is motivated in totality.

Importance of Motivation

High Satisfaction and Morale

Increased productivity

Contribution to organizational
goals

Congenial work environment

Reduced absenteeism and

turnover
Acceptance of organizational
change
 Types of Motivation
Positive Motivation:
 Results in willing co-operation of workers by tempting them
towards rewards or incentives.

Negative Motivation:
 Creates fear amongst workers by threatening them with
demotions, pay cuts, lay offs, etc.

Importance of Motivation:

 Improves morale of employees.

 Lower labor turnover.
 Improves goodwill of organization.
 Creates cordial industrial relations.
 Changes are more easily accepted by employees.
 Motivating Factors

( A ) Internal Factors:
Educational Background.
Occupational Experience.
Desire to do work independently.
Desire to branch out to manufacturing.
Family Background.

( B ) External Factors:
Assistance from Government.
Assistance from financial institutions.
Availability of technology.
Availability of raw material.
Demand of the particular product.
P
u
Fi
ct
n
a
iv
y
a
Incentives
it
a
n
ciAn incentive is something that stimulates a person to get it by
ny
dli
al
n engaging in desired behavior.
al
In
lo
k
c
we
e
da
nt
in
n
iv
c
e
e
s
nt
s
iv
e
s
 Motivational Theories
• MacGregor’s Theory X and Theory Y

• Herzberg’s Motivation–Hygiene Theory

• Maslow’s Hierarchy of Needs

• The Goal Setting Theory

• Reinforcement Theory

• Equity Theory

• Expectancy Theory
MacGregor’s Theory X and Theory Y
• Classifies human nature into two categories
• Motivational strategy is contingent upon which category
the person is classified in
• Theory is flawed because most people fall somewhere in
between
Theory X Personality Theory Y Personality
• Negative view • Positive
• Pessimist • Primarily optimistic
• Little ambition • High level of ambition
• Generally dislikes
work
• Enjoys working
• Avoids responsibility • Seeks out
• Needs constant responsibility
supervision • Needs little
supervision
 Herzberg’s Motivation-Hygiene
Theory
• 2 factors influence individual motivation:
– Motivators:
• Increase job satisfaction
• Increase motivation
– Hygiene:
• Eliminate job dissatisfaction
• Fail to motivate
 Herzberg’s Motivation-Hygiene Theory
(Cont...)
 Motivators
Hygiene Factors
• Work itself
• Recognitions • Company policies and administration
• Responsibility • Salary
• Achievement
• Working conditions
• Growth
• Advancement • Relationship with supervisors
• Relationships with peers
• Relationships with subordinates
• Security
• Status
 Maslow’s Hierarchy of Needs
• People are motivated by need
• There are levels of needs that motivate
• Once a level is satisfied, the level is no longer a motivator
• Theory is flawed because once you reach the top, there is
nothing left to act as a motivator
 The Goal-Setting Theory
• Employees set goals and are motivated by the reward and/or
recognition that accompanies the achievement
• MBO

• TQM
• Employees are more likely to achieve goals they helped to set.
 Reinforcement Theory
• Behavior is a function of its own consequences
• Behavior is influenced by external factors
• “Reinforcers”
• Focuses on action
• Positive reinforcement
 Equity Theory
• Exchange of individual contributions for rewards

• 3 variables:

• The inputs an individual perceives she/he is contributing

• The outcome (rewards) an individual perceives she/he is

receiving
• The way in which an individual’s inputs and outcomes
compare to the inputs and outputs of another
 Expectancy Theory
• People will put out effort equivalent to the perceived
rewards
• Steps:
– Personal effort leads to personal
achievement
– Organizational rewards
– Individual goals
( B ) McClelland’s Three Need Model
Need for achievement:
Drive to excel, advance and grow.
Desire to achieve something with own efforts.
Need for Power:
Drive to influence others and situations.
Desire to influence and dominate others through use of
authority.
Need for Affiliation:
Drive for friendly and close interpersonal relationships.
Desire to establish and maintain friendly relationship with
others.
People possess the above needs in varying degrees and
these needs may be simultaneously acting on an individual.
In case of entrepreneurs the need for achievement is more
dominating.
( C ) Alderfer’s ERG Theory
• ERG: Existence, Relatedness and Growth Theory.

Existence Needs:
 Includes basic needs and safety needs.

Relatedness Needs:
 Needs are satisfied by personal relations and social
interactions.

Growth Needs:
 Includes self actualization needs.

 For the proper development of entrepreneurship,

relatedness and growth needs are more important.
 Entrepreneurial Traits or Competencies

Initiative
Looking for Opportunity
Persistence
Information Seeker
Quality Consciousness
Commitment to work
Commitment to Efficiency
Proper Planning
Self Confidence
Assertive
Persuasive
Effective Monitoring
Employees Welfare
Effective strategist
 Developing Entrepreneurial
Competences

Gaining first hand knowledge about competencies.

Competency Recognition.

Self Assessment.

Comparing of Competencies.

Developing of Competencies and feedback.

 Chapter-05

Entrepreneurial
Opportunity
Identification and
Selection
 Identification of Business Opportunity: Idea
Generation and Opportunity!
Opportunity means a good chance or a favorable situation
to do something offered by circumstances.
In the same way, business opportunity means a good or
favorable change available to run a specific business in a
given environment at a given point of time.
The term ‘opportunity’ also covers a product or project.
The Government of India’s “Look East Policy” through North
East is an example of ‘opportunity’ to do business in items
like tea, handicrafts, herbals, turmeric, etc.
Situation I
Having completed their
Master of Business
Administration (MBA),
Mrinmoy and Chandan
met after about six
months. The two were
conversing with each
other about who is doing
what. Mrinmoy is
running his business of
travel agency and
Chandan is still searching
for a job. Mrinmoy
suggests Chandan to start
some business. Observe
and read the market
scenario and produce
what the consumers
actually want.
Situation II
On completion of his engineering
degree, Tridip got a job in Assam
State Transport Corporation. He
was the in-charge of the purchase
department. Having worked in the
purchase department for over ten
years, he had gained good idea
about which components have
more demand and who are the
buyers of these parts in bulk. He,
therefore, thought good prospects
of manufacturing of some of the
components having good demand
in bulk.
 Major Aspects of Entrepreneurship
1.The identification of market opportunity and the generation
of a business idea (product or service) to address the
opportunity.

2. The gathering and commitment of resources in the face of

risk to pursue the opportunity

3. The creation of an operating business organization to

implement the opportunity- motivated business idea
 OPPORTUNITY RECOGNITION

What is an opportunity?

How do you recognize opportunities?

How do you screen opportunities?

What is a business concept?

 The Entrepreneurial Process
Decide to go into business of own self

Assess your potential

Find an appropriate product or service idea

Buy a business Start a new business Acquire a franchise

Conduct a feasibility study

Technical feasibility Market acceptability Financial viability

Organize your business structure and legal requirements

Protect your idea

Arrange the necessary financing

Develop a
comprehensive business plan
What is Your Entrepreneurial Potential?

Realistically assess your potential for

an Entrepreneurial Career

Understand the Understand the

personal demands the Evaluate Conduct a
attributes entrepreneurial your managerial personal
important for role will make on skills financial
success in a you and your assessment
business of your family
own

Develop a Develop a
personal personal
balance sheet budget

Assess your strengths and

weaknesses that will affect your ability
to achieve your entrepreneurial goals
 Searching for Ideas

Search for a product or service

idea

From your From From a

From
previous casual deliberate
hobbies
employment observation search

Product
Magazines Trade shows Government Use
licensing
and other and agencies creative
information
publications conventions and
services
departments thinking

Evaluate the possible alternatives

Determine your preferences

 How to Select the Right Opportunity
Step 1:Identify Your Business and Personal Goals
Step 2:Research Your Favourite Industries
Step 3:Identify Promising Industry Segments
Step 4: Identify Problem Areas and Brainstorm Solutions

Step 5:Compare Possible Solutions with Your Objectives

and Opportunities in the Marketplace

Step 6:Focus on the Most Promising Opportunities

 Characteristics of the “IDEAL” Business
 Requires no/less investment
 Has a recognized, measurable market

 A perceived need for the product or service

 A dependable source of supply for the required inputs

 Requires no/less labor force

 Provides good gross margin

 Buyers purchase frequently

Receives favorable tax treatment

Has a receptive, established distribution system
Has great publicity value
No technical obsolescence
No physical perishability
Impervious to weather conditions
Possesses some proprietary rights
 Market Issues
• What products or services are you selling?

• To whom do you sell?

• Does someone represent you or distribute

your products or services?
• How do you promote sales?
• How do you price your output?

• What do customers expect?

 Focus for Successful Marketing
 4 P’s of Marketing Mix

 NPD (New Product Development)

 USP (Unique Selling Proposition)

 Push Vs Pull Strategy

 STP-Segmentation, Targeting, Positioning

 Push strategy
 A push promotional strategy involves taking the product
directly to the customer via whatever means, ensuring the
customer is aware of your brand at the point of purchase.
 “Taking the product to the customer”
Examples of push tactics
• Trade show promotions to encourage retailer demand
• Direct selling to customers in showrooms or face to face
• Negotiation with retailers to stock your product
• Efficient supply chain allowing retailers an efficient supply
• Packaging design to encourage purchase
• Point of sale displays
 Pull strategy
 A pull strategy involves motivating customers to
seek out your brand in an active process.
 “Getting the customer to come to you”
Examples of pull tactics
• Advertising and mass media promotion
• Word of mouth referrals
• Customer relationship management
• Sales promotions and discounts
 Sources of Financing

How will you finance your business?

Loans and
Credit from Government
Personal savings mortgages from
suppliers assistance
banks, credit
programs
unions and others

LBO Equity capital

from private Leasing
sources

Local
Friends and Prepare loan or grant
professionals and
request package
angel investors
neighbours

Venture
Employees
capitalists
 Strategic Planning For Small
Business
Strength, Weakness, Opportunities and Threat
(SWOT) Analysis
• Using the SWOT analysis, an entrepreneur can identify
attractive and favourable business opportunities that
match his/her strengths.
Macro environment
Analysis
Selection of Business
Opportunities

Business Model
Business Identification
 Chapter-06

SWOT Analysis
 What Is A SWOT Analysis?

SWOT analysis looks at your strengths and weaknesses, and

the opportunities and threats your business faces.
 What Does A SWOT
Evaluate?

Strengths Weaknesses

Internal & External

Internal & Personal
Personal

Opportunities Threats

External & Positive External & Negative

[
3
 STRENGTHS
Characteristics of the business or a team that give it an advantage
over others in the industry.

Positive tangible and intangible attributes, internal to an

organization.

Beneficial aspects of the organization or the capabilities of an

organization, process capabilities, financial resources, products and
services, customer goodwill and brand loyalty.

Examples - Abundant financial resources, Well-known brand name,

Economies of scale, Lower costs [raw materials or processes], Superior
management talent, Better marketing skills, Good distribution skills,
Committed employees
 WEAKNESSES
Characteristics that place the firm at a disadvantage relative to others.
Detract the organization from its ability to attain the core goal and
influence its growth.

Weaknesses are the factors which do not meet the standards we feel
they should meet.

However, weaknesses are controllable. They must be minimized and

eliminated.
Examples - Limited financial resources, Weak spending on R & D, Very
narrow product line, Limited distribution, Higher costs, Out-of- date
products / technology, Weak market image, Poor marketing skills,
Limited management skills, Under- trained employees.
 OPPORTUNITIES
Chances to make greater profits in the environment - External
attractive factors that represent the reason for an organization to exist
& develop.

Arise when an organization can take benefit of conditions in its

environment to plan and execute strategies that enable it to become
more profitable.

Organization should be careful and recognize the opportunities and

grasp them whenever they arise.

Examples - Rapid market growth, Rival firms are complacent, Changing

customer needs/tastes, New uses for product discovered, Economic
boom, Government deregulation, Sales decline for a substitute
product .
 THREATS
 External elements in the environment that could cause trouble
for the business – External factors, beyond an organization’s
control.

 Arise when conditions in external environment jeopardize the

reliability and profitability of the organization’s business.

 Compound the vulnerability when they relate to the

weaknesses. Threats are uncontrollable. When a threat comes,
the stability and survival can be at stake.

 Examples - Entry of foreign competitors, Introduction of new

substitute products, Product life cycle in decline, Changing
customer needs/tastes, Rival firms adopt new strategies,
Increased government regulation, Economic downturn.
 Who needs SWOT Analysis?

• When the team has not met

its targets
2 • Customer service can be better
• Launching a new business unit
to pursue a new business
• New team leader is appointed

Business
Unit
Job Compan
Holder
• When supervisor has issues y
with work output • When revenue, cost &
expense targets are not being
1 • Assigned to a new job
• New financial year – fresh 3 achieved
targets • Market share is declining
• Job holder seeks to • Industry conditions are
improve performance on unfavorable
the job • Launching a new business
venture
 Who needs SWOT Analysis?
SWOT Analysis is
also required for /
during... Changing
Jobs
Product
Launch
Decision Making

Personal Development Planning

Competito
r
Evaluation

Product
Evaluation
Strategic
Planning
B
r
a
 How to conduct SWOT Analysis?

1. Analyse Internal & 2. Perform SWOT 3. Prepare Action

External Environment Analysis & Plans
Document
 How to conduct SWOT Analysis?

1. Analyse Internal & External Environment

.
 2. Perform SWOT Analysis &
Document
• Establish the objectives - Purpose of conducting a SWOT may be
wide / narrow, general / specific
• Select contributors -Expert opinion may be required for SWOT
• Allocate research & information gathering tasks - Background
preparation can be carried out in two stages – Exploratory and
Detailed. Information on Strengths & Weaknesses
• Create a workshop environment - Encourage an atmosphere
conducive to the free flow of information
• List Strengths, Weaknesses, Opportunities, & threats
• Evaluate listed ideas against Objectives - With the lists
compiled, sort and group facts and ideas in relation to the
objectives.
• Carry your findings forward - Make sure that the SWOT analysis
is used in subsequent planning. Revisit your findings at suitable
time intervals.
 3. Prepare Action Plan
Once the SWOT analysis has been completed, mark
each point with:

Things that MUST be addressed immediately

Things that can be handled now

Things that should be researched further

Things that should be planned for the future

FORMULATING THE CONCEPT OF THE
BUSINESS
1. Resource Analysis

Resources Weakness

Strengths Money
Materials
Machines
Methods
Manpower
Management
Moment (time)
 The Resource Analysis where strengths
and weaknesses are identified, indicates
what the firm is capable of doing at the start
of the business.

The strengths identify distinctive

competencies of the company which can
work to its advantage.
FORMULATING THE CONCEPT OF THE
BUSINESS
2. Environmental Analysis

The Environmental Analysis gives an

indication whether the business can survive
or not.
 Identifying Opportunities & Threats in the
Environment
•Socio-Cultural Technological & Technical Economic
•Natural Political Peace & Order
•Population Trends Government Program Global
Environment
 SOCIO-
CULTURAL
Opportunity Threats

People have People have

develop the develop the
of eating habit in of eating habit in
fast-
food restaurants. fast-
food restaurants.
Many of these Many of these
establishments establishments
serve ham & serve ham &
bacon and other bacon and other
processed meat. processed meat.
TECHNOLOGICAL & TECHNICAL
Opportunity Threats

The new
technology can
cure ham in
three days.
ECONOMIC
Opportunity Threats

The purchasing power

of population has
lowered because of
the peso devaluation
and high cost of oil,
thus reducing the
number of people who
buy ham and bacon.
NATURAL
Opportunity Threats

Hoof and mouth

disease can threaten
the supply of raw
materials.
POLITICAL
Opportunity Threats

Political instability
can the
affect
economy.
PEACE & ORDER
Opportunity Threats

In general, there is .
peace and order
in the place of
business.
POPULATION TRENDS
Opportunity Threats

The population is
increasing. More
people mean more
consumers who
need food.
GOVERNMENT PROGRAM
Opportunity Threats

The government is
providing to
assistance The
MSMEs.
may be ablecompany
to avail of
this assistance in the
form
of
financing, technical &
marketing.
GLOBAL ENVIRONMENT
Opportunity Threats

If there is a
of local pork, it is
shortage
possible to import
raw
materials
other countries. from
FORMULATING THE CONCEPT OF THE
BUSINESS
3. Personal Values Analysis

-represent your philosophy, guiding

principles, outlook and aspirations for your
business (non-monetary values)
 SWOT Analysis Worksheet for an
RSM
Strengths:
• Has management experience in driving results and promotions
• Very good selling skills & analytical abilities
• College degree & recent new hire
• Speaks two or more languages
SWOT Analysis
Weaknesses: I
• Dresses too casually N
• Perceived as Career not important / unmotivated
• Books and Bag not organized T Their Their
• Lacks professionalism in the business Strengths Weaknesses
Opportunities: E
• Possible Fast Track candidate
• Instruct on how to improve communication skills R
• ASM career opportunities if skills continue to be tutored
N
• International management opportunities
Threats: A
• Has no previous outside marketing/sales experience
• Has limited Excel, Word, PowerPoint, or e-mail skills L
• Large territory requires overnights and extensive driving
• Competitive job markets – career vs money $
Private Personal Issues (not a criteria): E
• Retirement Age
• Member of Rotary Club X
Opportunities Threats
• Has small children at in their Career in their
T
• Prior medical conditions or issues
home Field Career
Field
E [28]
 SWOT Analysis Worksheet
STRENGTHS: WEAKNESSES:
What do they do well? What could they improve?
What do others see as their strengths? Where do they have fewer resources than
others?

OPPORTUNITIES: THREATS:
What trends could they benefit from? What trends could harm them?
How could they turn a strength into an What is the competition
opportunity? doing?
What threats expose their
weaknesses?

[17]
SWOT analysis of a Restaurant
SWOT analysis of a business firm
SWOT Analysis of small start-up consultancy firm
Strengths
• We are able to respond very quickly as we have no red
tape, and no need for higher management approval.
• We are able to give really good customer care, as the
current small amount of work means we have plenty of
time to devote to customers.
• Our lead consultant has a strong reputation in the
market.
• We can change direction quickly if we find that our
marketing is not working.
• We have low overheads, so we can offer good value to
customers.
Weaknesses
• Our company has little market presence or reputation.
• We have a small staff, with a shallow skills base in many
areas.
• We are vulnerable to vital staff being sick or leaving.
Opportunities
• Our business sector is expanding, with many future
opportunities for success.
• Local government wants to encourage local businesses.
• Our competitors may be slow to adopt new
technologies.
Threats
• Developments in technology may change this market
beyond our ability to adapt.
• A small change in the focus of a large competitor might
wipe out any market position we achieve.
• As a result of their analysis, the consultancy may decide
to specialize in rapid response, good value services to
local businesses and local government.
• Marketing would be in selected local publications to get
the greatest possible market presence for a set
advertising budget, and the consultancy should keep
up-to-date with changes in technology where possible.
 Chapter- 7

KEY AREAS FOR ASSESSING THE

FEASIBILITY OF A NEW VENTURE
KEY AREAS FOR ASSESSING THE FEASIBILITY OF A NEW VENTURE
COMPREHENSIVE FEASIBILITY APPROACH
Technical Feasibility
The evaluation of a new-venture idea should start with identifying the
technical requirements and the technical feasibility for producing a product
or service that will satisfy the expectations of potential customers. The most
important of these are:
 Functional design of the product and attractiveness in appearance.
 Flexibility, permitting ready modification of the external features of the
product to meet the changing customer demands or technological and
competitive changes. Adaptability to newer changes is an essential
criterion for the success of the product.
 Quality of the ingredients from which the product is made.
 Reliability, ensuring performance as expected under normal operating
conditions.
 Product safety, posing no potential dangers under normal operating
conditions to the customers.
 Reasonable utility-an acceptable rate of obsolescence. લુપ્ત થતું તે થત થતું તે ત થતું તે
 Ease and low cost of maintenance.
 Standardization which meets the regional standards and which are good
for the public health.
SPECIFIC ACTIVITIES OF FEASIBILITY ANALYSIS
Technical Market Financial Analysis of Competitive
Feasibility Feasibility Feasibility Organizational Analysis
Analysis Analysis Analysis Capabilities
• Standard • Market • Required • Personnel • Existing
quality potential financial requirements competitors
specifications • Market resources • Required skill • Size, financial
• Technical planning • Available levels of resources,
requirements Issue financial potential market
• Product resources employees entrenchment
development • Managerial • Potential
• Product requirements reaction of
testing • Determination competitors to
• Plant location of individual newcomer
responsibilities • Potential new
competitors
• Scope for
future
expansion
ASPECTS OF PROJECT PREPARATION AND ANALYSIS:

3
2

4 6

5
 1 TECHNICAL ASPECTS
• The technical analysis concerns the project inputs (supplies) and
outputs (production) of real goods and services.
• The technical analysis will examine the possible technical
relations in a proposed livestock project:
 the climate in the region of the project and their potential for
livestock production,
 the availability of water, both natural (rainfall, and its
distribution) and supplied (the possibilities for developing
irrigation with its associated drainage works);
 the livestock species suited to the area; the production
supplies and their availability;
 the potential and desirability of mechanization; and
 diseases prevalent in the area and the kinds of vaccination
that will be needed.
 possibilities for further expansion.
• The technical analysis will also examine the marketing and
storage facilities
• Good technical staffs are essential for this work;
2 INSTITUTIONAL - ORGANIZATIONAL -
MANAGERIAL ASPECTS

• A whole range of issues in project preparation revolves

around the overlapping institutional, organizational and
managerial aspects of projects, which clearly have an
important affect on project implementation.

• The organizational proposals should be examined to see

that the project is manageable. The analyst must examine
the ability of the available staff to judge whether they can
administer such large-scale activities such as dairy
processing unit, integrated poultry complex (feed mill,
hatchery, layers unit and processing), etc. When
managerial skills are limited, provision may have to be
made for training.
 3SOCIAL ASPECTS

There is a greater need for analysts to consider the social

patterns and practices of the clientele a project will serve.
The project should not affect the local sentiments of the
region. Cattle rearing for beef marketing, pork production,
sales tanneries, etc. are some of the examples. If the social
aspect is not taken care of, the project may face severe
opposition from the local people, which could reduced the
profitability of the project. Though the project may be
technically and economically feasible, it could not be
processed, if it affects the local people sentiments or their
livelihood.
4 COMMERCIAL ASPECTS
On the output side, careful analysis of the expected market
for the project’s production is essential to ensure that
- there will be an effective demand at a remunerative price.
- Where will the products be sold?
- Is the market large enough to absorb the new production
without affecting the price?
- If the price is likely to be affected, by how much?
- Is the product meant for domestic consumption or for export?
- Does the proposed project produce the grade or quality that
the market demands?
If the demand is not estimated or forecasted accurately, it
may end in over production or missed sale opportunities
 5 Financial aspects
The financial aspects of project preparation and analysis
encompass the financial effects of a proposed project on
each of its various participants. In livestock projects, the
participants include farmers, private sector firms, public
corporations, project agencies, and perhaps the national
treasury.
The farm budget becomes the basis for shaping the credit
terms to be made available. The analyst must judge whether
farmers will need loans to finance on-farm investment (and if
so, what is the margin money the farmers should invest from
their own resources) or to meet some production costs, and
whether seasonal short-term credit should be provided for
working capital to finance inputs and pay for hired labor. In
long term projects , the analyst should judge whether the
farmers have adequate capacity to lead their life till the
returns are expected or any special financial arrangements
need to be created.
 6 Economic aspects
The economic aspects of project preparation and analysis
require a determination of the likelihood that a proposed
project will contribute significantly to the development of the
farm economy and total economy and whether it justifies
using the scarce resources it required. The point of view
taken in the economic analysis is that of the society as a
whole. The financial and economic analyses are thus
complementary-the financial analysis takes the viewpoint of
the individual participants and the economic analysis that of
the society.
 Chapter-08

INTERNATIONAL TRADE
IN AGRICULTURE
 Trade
Trade include trade in goods, services or capital
transfers and foreign investments.

Official trade statistics measure the level, month-

over-month and year-over-year changes in total
trades, exports and imports.

Balance of trade: Difference between the value of

exports and imports. (Export – Import).
Cartel: An association of firms that attempts to
regulate industry output and price through mutual
agreement.
Most favoured nation: A most favored nation
(MFN) clause is a level of status given to one country
by another and enforced by the World Trade
Organization. A country grants this clause to
 Trade
Quantitative restrictions: Specific limits on the
quantity or value of goods that can be imported (or
exported) during a specific time period. Context: An
example is an import quota, where a quantitative
restriction on the level of imports is imposed by a
country.

Tariff duty: A tax imposed on imported goods and

services

Tariffs are used to restrict trade, as they increase the

price of imported goods and services, making them
more expensive to consumers. A specific tariff is
levied as a fixed fee based on the type of item (e.g.,
1,000 Rs. on any car).
 Trade
Tariff quotas:Tariff quotas may be distinguished from import
quotas. A tariff quota permits the import of a certain quantity of a
commodity duty-free or at a lower duty rate, while quantities
exceeding the quota are subject to a higher duty rate. An import
quota, on the other hand, restricts imports absolutely.

Dumping: Dumping, in reference to international trade, is the export

by a country or company of a product at a price that is lower in the
foreign market than the price charged in the domestic market.

Anti-dumping: Anti-dumping duty is a protectionist tariff that a

domestic government imposes on foreign imports that it believes are
priced below fair market value. Dumping is a process where a
company exports a product at a price lower than the price it normally
charges on its own home market.
 Marketing
Marketing is about identifying and meeting
human and social needs profitably.

“Marketing is an organizational function

and a set of processes for creating,
communicating, and delivering value to
customers and for managing customer
relationships in ways that benefit the
organization and its stakeholders.”

“ Marketing management is the art and science

of choosing target markets and getting,
keeping, and growing customers through
creating, delivering, and communicating superior
 Agricultural Marketing
In developing countries like India
Agricultural Marketing was not considered as
important as agri. production. More
emphasis has been given to production in
policies and strategies of Agriculture.

Agricultural marketing is equal important as

agri. Production.

According to National Commission on

Agriculture (1976), it is not enough to
produce a crop or an animal product, it must
be satisfactorily marketed.
Agricultural Marketing (Cont…)
Agricultural Marketing: “It comprising of
all activities involved in supply of farm inputs
to the farmers and movement of agricultural
products from the farms to the consumers.”
It includes 2 major subsystem viz., product
Marketing and Input(factor) marketing.

Producer Middlemen Consumers

The role of marketing now starts right from

the time of decision what to produce, which
variety to produce and how to prepare the
product for marketing rather than limiting to
when, where and whom to sell.
 Differences in Marketing of
Agricultural and Manufactured Goods
Special characteristics of the agricultural
sector

1. Perishability of the product

2. Seasonality of Production
3. Bulkiness of products
4. Variation in quality of products
5. Irregular supply of agricultural products
6. Small size of holdings and scattered
production
7. Processing
 WORLD TRADE ORGANISATION (WTO)
WTO is an -International body to supervise and
encourage International trade.

The Uruguay Round of trade talks concluded in

1994 resulted in setting up of the World Trade
Organization (WTO) to take over the functioning
of GATT for encouraging multilateral trade in
goods and services.

The WTO began functioning on 1st January,

1995.
 AGREEMENT ON AGRICULTURE (AoA)
The provisions under AoA can be understood to
consist of five broad groups:

(i) Market Access Commitment

(ii) Reduction Commitment for Aggregate Measure of
Support (AMS)
(iii) Reduction Commitment for Export Subsidy
(iv) Sanitary and Phyto-Sanitary Measures (SPS)
(v) Trade Related Intellectual Property Rights (TRIPS)
 Market Access
Market Access The provisions under market access
commitment include the following:

(a) Tariffication of all non-tariff barriers (like

converting quantitative restrictions to import duty)
(b) Reduction of all tariffs in a time bound
framework as follows:

Countries Period Reduction %

• Developed 6 years 36
• Developing 10 years 24
• Less Developed 0
• Those with BPO problem 0
 DOMESTIC SUPPORT
Aggregate Measurement of Support (AMS)
Product Specific
Non-Product Specific
De Minimis Provisions

Three Categories of Domestic Support

“Green Box” Measures
“Blue Box” Measures
“Amber Box” Measures
 DOMESTIC SUPPORT
Green Box measures include all publically funded
government programmes which do not provide price
support to producers.
• For example, research, pest and disease control,
marketing and promotion services, infrastructure,
public stock holding, payments under environment
programmes etc. These measures are considered
least trade distorting and hence are exempt from
reduction.
Blue Box measures refer to direct payments under
production limiting programmes, which are also not
subject to reduction commitments.
Amber Box measures include product specific support
as well as non-product specific support extended to the
farm sector. These are subject to reduction above the
 EXPORT SUBSIDY
• Prohibited
• Otherwise subject to reduction commitments

Value of Subsidy
By 36% over 6 years for developed
countries
By 24% over 10 years for developing
countries
No reduction for least developed
countries

Quantity of Export
By 21% over 6 years for developed
countries
by 14% over 10 years for developing
countries
 Standards and safety
A separate agreement on food safety and
animal and plant health standards
(the Sanitary and Phytosanitary
Measures Agreement or SPS) sets out the
basic rules.

It allows countries to set their own

standards. But it also says regulations must
be based on science. They should be applied
only to the extent necessary to protect
human, animal or plant life or health. And
they should not arbitrarily or unjustifiably
discriminate between countries where
identical or similar conditions prevail.
 Technical regulations and standards
• Technical regulations and standards are important, but
they vary from country to country. Having too many
different standards makes life difficult for producers and
exporters. If the standards are set arbitrarily, they could
be used as an excuse for protectionism. Standards can
become obstacles to trade. But they are also necessary
for a range of reasons, from environmental protection,
safety, national security to consumer information.
• The Technical Barriers to Trade Agreement
(TBT) tries to ensure that regulations, standards, testing
and certification procedures do not create unnecessary
obstacles.
 TRIPS
Intellectual property rights (IPR) refers to the
general term for the assignment of property rights
through patents, copyrights and trademarks.
These property rights allow the holder to exercise
a monopoly on the use of the item for a specified
period.

COPYRIGHTS
the exclusive and assignable legal right, given to
the originator for a fixed number of years, to print,
publish, perform, film, or record literary, artistic, or
musical material.

TRADE MARK
a symbol, word, or words legally registered or
 TRIPS
Geographical indication (GI) is a sign used on
products that have a specific geographical origin and
possess qualities or a reputation that are due to that
origin. In order to function as a GI, a sign must identify
a product as originating in a given place.
INDUSTRIAL DESING: Industrial design (ID) is the
professional service of creating and developing
concepts and specifications that optimize the function,
value and appearance of products and systems for the
mutual benefit of both user and manufacturer.
PATENTS :A patent is a government document that
proves that an invention is yours and yours alone. ...
Patent also refers to leather that has a very shiny
finish. The process for making leather look like this
was once patented, but since patents do not last
forever, the process is now available for anyone to
 TRIPS
Geographical indication (GI) is a sign used on
products that have a specific geographical origin and
possess qualities or a reputation that are due to that
origin. In order to function as a GI, a sign must identify
a product as originating in a given place.
INDUSTRIAL DESING: Industrial design (ID) is the
professional service of creating and developing
concepts and specifications that optimize the function,
value and appearance of products and systems for the
mutual benefit of both user and manufacturer.
PATENTS :A patent is a government document that
proves that an invention is yours and yours alone. ...
Patent also refers to leather that has a very shiny
finish. The process for making leather look like this
was once patented, but since patents do not last
forever, the process is now available for anyone to
 INTRODUCTION

OF

FINANCIAL MANAGEMENT
 Meaning of Finance
Finance is called “The science of money”. It studies the principles and the methods of

obtaining control of money from those who have saved it, and of administering it by

those into whose control it passes. Finance is the process of conversion of accumulated

funds to productive use.

Howard and Uptron in his book Introduction to Business Finance defined,

“as that administrative area or set of administrative function in an organization
which relate with the arrangement of cash and credit so that the organization may
have the means to carry out its objectives as satisfactorily as possible”.
Types of Finance
 Meaning of Financial Management:
Financial Management means planning, organizing, directing and
controlling the financial activities such as procurement and utilization of
funds of the enterprise. It means applying general management
principles to financial resources of the enterprise.
According to Hoagland:
“Financial Management is concerned mainly with such matters as, how a
business corporation raises its finance and how it makes use of it.”
According to Soloman:
“Financial Management is concerned with the efficient use of an
important economic resource namely, capital fund”
Key decisions of Financial Management:
Investment decisions –
includes investment in fixed assets (called as capital budgeting).Investment in current assets
are also a part of investment decisions called as working capital decisions.

Financial decisions –
They relate to the raising of finance from various resources which will depend upon
decision on type of source, period of financing, cost of financing and the returns thereby.

Dividend decision –
The finance manager has to take decision with regards to the net profit distribution.
Net profits are generally divided into two:
1. Dividend for share holders
2. Retain profit

Working Capital Decision

 5 “A”
A = Anticipation of Fund
A = Acquisition of Fund
A = Application of Fund
A = Appropriation of Earning
A = Assessment and Control Financial Function
Organisation of Financial management Function
 Function of Finance Department
 Financial Planning
 To Determine the Asset- Management Policy
 To Determine the Requirements of Finance and External and Internal Sources
of Finance
 Negotiation for Obtaining Funds
 Distribution of Net Profit
 Supervision over Cash Receipts and Cash Disbursement
Godhra
 To Keep Record of Cash
 Time to time tally Cash and Bank Balance
 Supervision of Bills
 Safeguarding Valuable Papers
 Insurance Policies
 Record Keeping
 To Prepare Report
 Accounting Process

Financial Transaction

To Determine the double effect of the transaction after

deciding the types of accounts,

To record the transaction in journal or subsidiary books

To find out balance of each account after posting

Trial balance

Annual Accounts(including effect of adjustments)

 Importance to Financial Statements

1. Importance to Management

2. Importance to the Shareholders

3. Importance to Lenders/Creditors

4. Importance to Labour

5. Importance to the Public

6. Importance to National Economy

 Trading Account
• Meaning:
Trading account is prepared for an accounting period to find the trading
results or gross margin of the business i.e., the amount of gross profit the
concern has made from buying and selling during the accounting period.

• Meaning of Gross profit :

The difference between the sales and cost of sales is gross profit.

• Cost of Sales = Opening Stock+ Purchase and Purchase related

Expenses – Closing Stock
OR
• Cost of Sales = Sales- Gross profit
Trading account of Shri XYZ for the year ending on……….
 Profit and Loss Account
• Definition :

In the words of Prof. Carter “Profit and loss account is an account into which
all gains and losses are collected in order to ascertain the excess of gains over
the losses or vice versa.”

• Preparation of Profit and Loss Account :

Profit and loss account starts with gross profit brought down from trading
account on the credit side. (If gross loss, on the debit side). All the indirect
expenses are debited and all the revenue incomes are credited to the profit and
loss account and then net profit or loss is calculated. If incomes or credit is
more, than the expenses or debit, the difference is net profit. On the other
hand if the expenses or debit side is more, the difference is net loss.
 Debit side:
I ) Gross Loss:
Gross loss of trading account is shown on the debit side of profit and loss account.

II) Office and Administrative Expenses:

The expenses which are incurred for the administration of the business like…salary,
electricity, rent and taxes, miscellaneous exp, stationary, printing, audit fee, insurance
premium, Legal charges etc.,

III)Selling and distribution expenses:

The expenses which are incurred for selling and supplying the goods to the customers
are Selling and distribution expenses. Like… Salary and Commission of sales men, bad
debts, Provision for bad debts, show room expenses, carriage outward, discount
allowed, delivery van expenses,Advertistmet expenese.etc.,

IV) Financial expenses:

The expenses which are incurred for satisfying the need of money of the business are
financial expenses. Like…interest on capital,interst on bank overdraft, interest on
loan,etc.,
v) Other expenses or losses:
Other than administration, selling and financial expenses are other
expenses like … depreciation, loss due to fire, loss due to theft.
loss on sales of assets.

VI) Net loss:

If the total of debit side is higher than the credit side so the net
Loss will come.
 Credit side
I) Gross profit:
Gross profit is the first item appearing on the credit side of profit
and loss account.

II) Other revenue:

Revenue other than sales are shown on the credit side of the P&L
A/c. like… Interest, Dividend, discount received, apprentice
premium(training charges),Sale of scrap, interest on drawings,etc

III) Net profit :

If total of credit side is higher than the debit side at that time net
profit will come.
 Trading and Profit and Loss Account/Income Statement
For the year ended 31st March 2016-----
Income From Sales:

Sales ------

Less: Sales returns ------

Net Sales ------

Cost of Goods Sold:

Merchandise is stock on 1st January (Opening Stock) ------

Purchases ------

Less: Purchases returns ------

Net purchases ------

Cost of goods available for sale ------

Less: merchandise in stock on 31st December (Closing Stock) ------

Cost of goods sold ------

GROSS PROFIT ------

Operating Expenses:

Selling Expenses:

Sales salaries ------

Advertising expenses ------

Insurance expense - selling ------

Store supplies expenses ------

Sundry selling expenses ------

Total selling expenses ------

General Expenses:

Office salaries ------

Taxes ------

Insurance expenses general ------

Office supplies expenses ------

Sundry general expenses ------

Total general expenses ------

Financial Expenses:

Interest on Loan ------

Total operating expenses ------

Net profit from operations ------

Other Income:

Rent income ------

NET PROFIT ------

 Balance sheet
Meaning :
The Balance sheet comprises of lists of assets, liabilities and
capital fund on a given date. It presents the financial position of
a concern as revealed by the accounting records.

Assets = Capital + Liabilities

Balance sheet may be called a ‘statement of equality’ ,in which

equality is established by representing values of assets on one
side and values of liabilities and owners' funds on the other side.
ANALYSIS and INTERPRETATION
OF
FINANCIAL STATEMENTS
• Analysis = Arrangement of necessary data
(Classification of the necessary data)

• Interpretation = Reason

• Financial Statement = Which indicate position

and performance of the org.like
1.Balance sheet
2.Income statement
3.Cash flow statement
 Financial Statement Analysis
Who analyzes financial statements?
– Internal users
– External users
Tools of Management Accounting
Horizontal Analysis
Vertical Analysis
Ratio Analysis
Funds flow statement analysis
Cash flow statement analysis
Budget and budgetary control
CVP (cost –volume profit ) analysis
EVA (Economic Value Added)
MVA(Multi Variate Analysis)
Ratio Analysis
Ratio can be expressed as :
i) Percentage say, gross profit ratio is 25% of sales [calculated
by dividing gross profit (Rs. 10,000) by sales (Rs. 40,000)
and multiplying by 100];

ii) Proportion say, current ratio is 2:1 [calculated by dividing

current assets (Rs. 20,000) by current liabilities (Rs.10,000)];

iii) Fraction say, net profit is one-tenth of sales [calculated by

dividing net profit (Rs.4,000) by sales (Rs.40,000)];
iv) Times say, inventory turnover ratio is 5 times [calculated by
dividing sales (Rs.40,000) by average inventory (Rs.8,000)].
This classification further grouped in to:
1. Liquidity Ratios
2. Profitability Ratios
3. Turnover Ratios
4. Solvency Ratios
5. Over all Profitability Ratios
 Liquidity Ratios
Liquidity Ratios are also termed as Short-Term Solvency Ratios. The term
liquidity means the extent of quick convertibility of assets in to money for
paying obligation of short-term nature.

Accordingly, liquidity ratios are useful in obtaining an indication of a firm's

ability to meet its current liabilities, but it does not reveal how effectively the
cash resources can be managed. To measure the liquidity of a firm, the
following ratios are commonly used:

1. Current Ratio.
2. Quick Ratio (or) Acid Test (or) Liquid Ratio.
3. Absolute Liquid Ratio (or) Cash Position Ratio.
 Current Ratio

• Current Ratio establishes the relationship between current

Assets and current Liabilities. It attempts to measure the
ability of a firm to meet its current obligations. In order to
compute this ratio, the following formula
The ideal current ratio is 2: 1
Example of Current Ratio
Quick Ratio (or) Acid Test (or) Liquid Ratio
• Quick Ratio also termed as Acid Test or Liquid Ratio. It is supplementary to the
current ratio. The acid test ratio is a more severe and stringent test of a firm's
ability to pay its short-term obligations 'as and when they become due.
Quick Ratio establishes the relationship between the quick assets and current
liabilities. In order to compute this ratio, the below presented formula is used :
The ideal Quick Ratio is 1:1
Example of Liquid Ratio
 Absolute Liquid Ratio
• Absolute Liquid Ratio is also called as Cash Position Ratio (or) Over Due
Liability Ratio. This ratio established the relationship between the
absolute liquid assets and current liabilities. Absolute Liquid Assets
include cash in hand, cash at bank, and marketable securities or
temporary investments. The optimum value for this ratio should be one,
i.e., 1: 2. It indicates that 50% worth absolute liquid assets are considered
adequate to pay the 100% worth current liabilities in time.
Example of Absolute Liquid Ratio
 LEVERAGE RATIO
• Leverage ratios measure the overall debt load of a company and
compare it with the assets or equity. This shows how much of the
company assets belong to the shareholders rather than creditors.
• When shareholders own a majority of the assets, the company is
said to be less leveraged.
• When creditors own a majority of the assets, the company is
considered highly leveraged.
• All of these measurements are important for investors to understand
how risky the capital structure of a company and if it is worth
investing in.
 Some of the important ratios

(1) Debt - Equity Ratio

(2) Proprietary Ratio

(3) Capital Gearing Ratio

(4) Debt Service Ratio or Interest Coverage Ratio

 Debt Equity Ratio
This ratio also termed as External - Internal Equity Ratio. This
ratio is calculated to ascertain the firm's obligations to
creditors in relation to funds invested by the owners. The
ideal Debt Equity Ratio is 1:1. This ratio also indicates all
external liabilities to owner recorded claims. It may be
calculated as
 Proprietary Ratio

Proprietary Ratio is also known as Capital Ratio or Net Worth to Total

Asset Ratio. This is one of the variant of Debt-Equity Ratio. The term
proprietary fund is called Net Worth. This ratio shows the relationship
between shareholders' fund and total assets. It may be calculated as :
It shows extend of owners fund utilised in financing assets
 Capital Gearing Ratio
This ratio also called as Capitalization or Leverage Ratio. This is one of the
Solvency Ratios. The term capital gearing refers to describe the relationship
between fixed interest and/or fixed dividend bearing securities and the equity
shareholders' fund. It can be calculated as shown below:

A high capital gearing ratio indicates a company is having large funds bearing fixed
interest and/or fixed dividend as compared to equity share capital. A low capital
gearing ratio represents preference share capital and other fixed interest bearing loans
are less than equity share capital.
Shows Proportion of fixed charge (dividend or interest) bearing capital to equity
funds, the extend of advantage or leverage enjoyed by equity share holders
 Debt Service Ratio
Debt Service Ratio is also termed as Interest Coverage Ratio or
Fixed Charges Cover Ratio. This ratio establishes the relationship
between the amount of net profit before deduction of interest and tax
and the fixed interest charges. It is used as a yardstick for the
lenders to know the business concern will be able to pay its
interest periodically. Debt Service Ratio is calculated with the help
of the following formula :
 Turnover Ratio

Turnover Ratios may be also termed as Efficiency Ratios or

Performance Ratios or Activity Ratios. Turnover Ratios
highlight the different aspect of financial statement to satisfy the
requirements of different parties interested in the business. It also
indicates the effectiveness with which different assets are
vitalized in a business. Turnover means the number of times
assets are converted or turned over into sales. The activity
ratios indicate the rate at which different assets are turned
over.
1. Inventory Ratio or Stock Turnover Ratio (Stock Velocity)

2. Debtor's Turnover Ratio or Receivable Turnover Ratio (Debtor's

Velocity)

2 A. Debtor's Collection Period Ratio

3. Creditor's Turnover Ratio or Payable Turnover Ratio (Creditor's

Velocity)

3 A. Debt Payment Period Ratio

4. Working Capital Turnover Ratio

5. Fixed Assets Turnover Ratio

6. Capital Turnover Ratio.

 Undiscounted and Discounted measures
• Undiscounted Method
1.PBP
2.ARR

• Discounted Method
1.NPV
2.PI
3.IRR
1
• Payback period is the time duration required
to recoup the investment committed to a
project.
• The NPV is the difference between the present value
of future cash inflows and the present value of the
initial outlay, discounted at the firm’s cost of capital.
Calculate NPV for a Project X initially costing Rs. 250000. It has
10% cost of capital. It generates following cash flows:
 Profitability Index (PI)
Profitability Index (PI) or Benefit-cost ratio (B/C) is similar to
the NPV approach. PI approach measures the present value of
returns per rupee invested. It is observed in shortcoming of
NPV that, being an absolute measure, it is not a reliable
method to evaluate projects requiring different initial
investments. The PI method provides solution to this kind of
problem.
 Internal Rate of Return (IRR)

• Internal rate of return (IRR) is the discount rate at which the

net present value of an investment becomes zero. In other
words, IRR is the discount rate which equates the present
value of the future cash flows of an investment with the initial
investment.
 Sensitivity Analysis

• Sensitivity analysis helps a business estimate what will happen to the

project if the assumptions and estimates turn out to be unreliable.

Sensitivity analysis involves changing the assumptions or estimates in

a calculation to see the impact on the project's finances.

• In this way, it prepares the business's managers in case the project

doesn't generate the expected results, so they can better analyze the

project before making an investment.

For example In capital budgeting calculations, sensitivity analysis changes

one assumption or estimate at a time to see how the results change. For

example, a business may expect to earn Rs.500, Rs.1,000 and Rs.1,000 in

the first three years of a project.

If the business makes an initial investment of $2,500, it will recoup its

expenses in three years.

However, the project may perform better than expected, generating

Rs.2,000 yearly in its second and third year.

The business will then break even in two years.

Topic 1: Joint Venture

A joint venture (JV) is a business entity created by two or more parties, generally
characterized by shared ownership, shared returns and risks, and shared governance.

Companies typically pursue joint ventures for following reasons: to access a new market,
particularly emerging markets; to gain scale efficiencies by combining assets and operations;
to share risk for major investments or projects; or to access skills and capabilities.

Examples of joint venture are Maruti Suzuki, Hero Honda, ICICI Lombard, Iffco Tokio

TYPES OF JOINT VENTURE

One option is to agree to co-operate with another business in a limited and specific way.
For example, a small business with an exciting new product might want to sell it through a
larger company's distribution network. The two partners could agree to a contract setting out
the terms and conditions of how this would work.

Alternatively, you might want to set up a separate joint venture business, possibly a new
company, to handle a particular contract. A joint venture company like this can be a very
flexible option. The partners each own shares in the company and agree on how it should be
managed.

In some circumstances, other options may work better than a business corporation. For
example, you could form a business partnership. You might even decide to completely
merge your two businesses.

To help you decide what form of joint venture is best for you, you should consider whether
you want to be involved in managing it. You should also think about what might happen if
the venture goes wrong and how much risk you are prepared to accept.

It's worth taking legal advice to help identify your best option. The way you set up your joint
venture affects how you run it and how any profits are shared and taxed. It also affects your
liability if the venture goes wrong. You need a clear legal agreement setting out how the joint
venture will work and how any income will be shared. See the page in this guide on how to
create a joint venture agreement.

JOINT VENTURE - BENEFITS AND RISKS

Businesses of any size can use joint ventures to strengthen long-term relationships or to
collaborate on short-term projects.

A successful joint venture can offer:

 access to new markets and distribution networks

 increased capacity
 sharing of risks and costs with a partner
 access to greater resources, including specialised staff, technology and finance
  A joint venture can also be very flexible. For example, a joint venture can have a
limited life span and only cover part of what you do, thus limiting the commitment for
both parties and the business' exposure.
 Joint ventures are especially popular with businesses in the transport and travel
industries that operate in different countries.

The risks of joint ventures

Success in a joint venture depends on thorough research and analysis of aims and objectives.
This should be followed up with effective communication of the business plan to everyone
involved.

Partnering with another business can be complex. It takes time and effort to build the right
relationship. Problems are likely to arise if:

 the objectives of the venture are not 100 per cent clear and communicated to everyone
involved
 the partners have different objectives for the joint venture
 there is an imbalance in levels of expertise, investment or assets brought into the
venture by the different partners
 different cultures and management styles result in poor integration and cooperation
 the partners don't provide sufficient leadership and support in the early stages

Steps followed by companies or organization to be the part of joint venture

 Assess your readiness for a joint venture

 Plan your joint venture relationship
 Choosing the right joint venture partner
 Create a joint venture agreement
 Make your joint venture relationship work
 Ending a joint venture

JOINT VENTURE AGREEMENT

When you decide to create a joint venture, you should set out the terms and conditions in a
written agreement. This will help prevent any misunderstandings once the joint venture is up
and running.

A written agreement should cover:

 the structure of the joint venture, e.g. whether it will be a separate business in its own
right
 the objectives of the joint venture
 the financial contributions you will each make
 whether you will transfer any assets or employees to the joint venture
 ownership of intellectual property created by the joint venture
 management and control, e.g. respective responsibilities and processes to be followed
  how liabilities, profits and losses are shared
 how any disputes between the partners will be resolved
 an exit strategy - see the page in this guide on ending a joint venture

Other agreements, such as a confidentiality agreement to protect any commercial secrets you
disclose are also needed.

It is essential to get independent expert advice before any final decisions are taken.

Even with a well-planned agreement, there are still likely to be issues to resolve. For
example, you might need to agree who will continue to deal with a particular customer. Good
planning and a positive approach to negotiation will help you arrange a friendly separation.
This improves the chances that you can continue to trust each other and work together
afterwards. It can also raise your profile in the business community as a reliable and
productive partner.
Topic 2: Contract Farming

Agricultural production carried out according to an agreement between a buyer and farmers,
which establishes conditions for the production and marketing of farm products.

Contract farming (CF) is defined as forward agreements specifying the obligations of farmers
and buyers as partners in business.

Contract Farming is an understanding between farmers and processing units or marketing

firms for the production and supply of agricultural products under forward agreements,
frequently at predetermined prices.

Merits for farmers

• Provision of high quality inputs and production services

• Access to credit

• Guaranteed and fixed pricing structures

• Exposure to new technology and improvement in skills

• Regular crop monitoring and technical advice

• Create more employment

• Opportunity to diversify into new crops/markets

Demerits for farmers

• Market failure and production problems

• Inefficient management or marketing problems can mean that quotas are manipulated
so that not all contracted production is purchased

• Sponsoring companies may be unreliable or exploit a monopoly position

• The staff of sponsoring organizations may be corrupt, particularly in the allocation of

quotas

Merits for sponsors (companies)

• Contract farming with farmers is more politically acceptable

• Working with farmers overcomes land constraints

• Production is more reliable than open-market purchases and the sponsoring company
faces less risk by not being responsible for production

• More consistent quality can be obtained than if purchases were made on the open
market
Demerits for sponsors (companies)

• Social and cultural constraints may affect farmer’s ability to produce to manager’s
specifications

• Poor management and lack of consultation with farmers may lead to farmer discontent

• Farmers may sell outside the contract (extra-contractual marketing) thereby reducing
processing factory throughput

• Farmers may divert inputs supplied on credit to other purposes, thereby reducing
yields

Contract farming approach

 Need and plan for the targeted raw material

 Selection of geographic area

 Selection of contract farmers

 Signing of agreements with contract farmers

 Distribution of inputs

 Technical assistance + Monitoring of production

 Procurement of production

 Payment

 Storage and Shipment

 Processing

Models of Contract Farming

1. The centralized model

Involves a centralized processor and/or packer buying from a large number of small farmers

Is used for tree crops, annual crops, poultry, dairy. Products often require a high degree of
processing, such as tea or vegetables for canning or freezing

Is vertically coordinated, with quota allocation and tight quality control

Sponsors' involvement in production varies from minimal input provision to the opposite
extreme where the sponsor takes control of most production aspects
 2. The nucleus estate model

Is a variation of the centralized model where the sponsor also manages a central estate or
plantation

The central estate is usually used to guarantee throughput for the processing plant but is
sometimes used only for research or breeding purposes

Is often used with resettlement or transmigration schemes

Involves a significant provision of material and management inputs

3. The multipartite model

May involve a variety of organizations, frequently including statutory bodies

Can develop from the centralized or nucleus estate models, e.g. through the organization of
farmers into cooperatives or the involvement of a financial institution
 4. The informal model

Is characterized by individual entrepreneurs or small companies

Involves informal production contracts, usually on a seasonal basis

Often requires government support services such as research and extension

Involves greater risk of extra-contractual marketing

5. The intermediary model

Involves sponsor in subcontracting linkages with farmers to intermediaries

There is a danger that the sponsor loses control of production and quality as well as prices
received by farmers
Topic 3: Public Private Partnership

Public-private partnerships between a government agency and private-sector company can be

used to finance, build and operate projects, such as public transportation networks, parks and
convention centers. Financing a project through a public-private partnership can allow a
project to be completed sooner or make it a possibility in the first place.

For example, a city government might be heavily indebted, but a private enterprise might be
interested in funding the project's construction in exchange for receiving the operating profits
once the project is complete.

Public-private partnerships have contract periods of 25 to 30 years or longer. Financing

comes partly from the private sector but requires payments from the public sector and/or
users over the project's lifetime. The private partner participates in designing, completing,
implementing and funding the project, while the public partner focuses on defining and
monitoring compliance with the objectives. Risks are distributed between the public and
private partners according to the ability of each to assess, control and cope with them.

Payment for Public-Private Partnerships

Although public works and services may be paid for through a fee from the public authority's
revenue budget, such as with hospital projects, concessions may involve the right to direct
users' payments, as with toll highways. In cases such as shadow tolls for highways, payments
are based on actual usage of the service. In cases involving wastewater treatment, payment is
made with fees collected from users.

Benefits of Public-Private Partnerships

Private-sector technology and innovation help provide better public services through
improved operational efficiency. The public sector provides incentives for the private sector
to deliver projects on time and within budget. In addition, creating economic diversification
makes the country more competitive in facilitating its infrastructure base and boosting
associated construction, equipment, support services and other businesses.

Risks of Public-Private Partnerships

Physical infrastructure such as roads or railways involves construction risks. If the product is
not delivered on time, exceeds cost estimates or has technical defects, the private partner
typically bears the burden.

The private partner faces availability risk if it cannot provide the service promised. For
example, the company may not meet safety or other relevant quality standards when running
a prison, hospital or school.

Demand risk occurs when there are fewer users than expected for the service or
infrastructure, such as toll roads, bridges or tunnels. If the public partner agreed to pay a
minimum fee no matter the demand, that partner bears the risk.
Examples of Public-Private Partnerships

Public-private partnerships are typically found in transport infrastructure such as highways,

airports, railroads, bridges and tunnels. Municipal and environmental infrastructure includes
water and wastewater facilities. Public service accommodations include school buildings,
prisons, student dormitories and entertainment or sports facilities.

Models of PPP

Different models of PPP funding are characterized by which partner is responsible for
owning and maintaining assets at different stages of the project. Examples of PPP models
include:

 Design-Build (DB): The private-sector partner designs and builds the infrastructure to
meet the public-sector partner's specifications, often for a fixed price. The private-
sector partner assumes all risk.
 Operation & Maintenance Contract (O & M): The private-sector partner, under
contract, operates a publicly-owned asset for a specific period of time. The public
partner retains ownership of the assets.
 Design-Build-Finance-Operate (DBFO): The private-sector partner designs,
finances and constructs a new infrastructure component and operates/maintains it
under a long-term lease. The private-sector partner transfers the infrastructure
component to the public-sector partner when the lease is up.
 Build-Own-Operate (BOO): The private-sector partner finances, builds, owns and
operates the infrastructure component in perpetuity. The public-sector partner's
constraints are stated in the original agreement and through on-going regulatory
authority.
 Build-Own-Operate-Transfer (BOOT): The private-sector partner is granted
authorization to finance, design, build and operate an infrastructure component (and
to charge user fees) for a specific period of time, after which ownership is transferred
back to the public-sector partner.
 Buy-Build-Operate (BBO): This publicly-owned asset is legally transferred to a
private-sector partner for a designated period of time.
 Build-lease-operate-transfer (BLOT): The private-sector partner designs, finances
and builds a facility on leased public land. The private-sector partner operates the
facility for the duration of the land lease. When the lease expires, assets are
transferred to the public-sector partner.
 Operation License: The private-sector partner is granted a license or other
expression of legal permission to operate a public service, usually for a specified
term. (This model is often used in IT projects.)
 Finance Only: The private-sector partner, usually a financial services company,
funds the infrastructure component and charges the public-sector partner interest for
use of the funds.
Topic 4: Difference between Company (Proprietorship) and Partnership
Topic 5: Venture Capital

Venture capital means funds made available for startup firms and small businesses with
exceptional growth potential.

Venture capital is long term risk capital to finance high technology projects which involve
risk but at the same time has strong potential for growth.

The SEBI defined Venture Capital fund in its regulation 1996 as ‘a fund established in the
form of a company or trust which raises money through loans, donations, issue of securities
or units as the case may be & makes or proposes to make investments in accordance with the
regulations’.

FEATURES OF VENTURE CAPITAL

 Long term investment:

 Lack of liquidity:
 High risk return:
 Private equity:
 Wide scope:
 Equity participation

ADVANTAGES OF VENTURE CAPITAL

 Provide large sum of equity finance.

 Venture Capitalist is rewarded by business success & the capital gain.
 Able to bring wealth and expertise to your company
 The Venture Capitalist also has a wide network of contacts.
 Providing additional funds.

DISADVANTAGES OF VC

 Lengthy and complex process (needs detailed business plan, financial projections and
etc.)
 In the deal negotiation stage, you will have to pay for legal and accounting fees
 Investors become part owners of your business - founder loss of autonomy or control

Problems faced by VC

 Requirement of an experienced management team.

 Requirement of an above average rate of return on investment.
 Longer payback period.
 Uncertainty regarding the success of the product in the market.
 Questions regarding the infrastructure details of production.
 Skills and Training required.
 Time Period.
 Interference in Business: