V-SEMESTER BBA

ENTREPRENEURIAL MANAGEMENT 2019

SECTION-A
Answer any five sub-questions. Each sub-question carries two marks.
1.
a) Mention any four types of entrepreneurs.
 Innovative entrepreneur
 Imitative entrepreneur or Adoptive
 Fabian entrepreneur
 Drone entrepreneur

b) Mention any two characteristics of a small scale industry.

 Ownership: Ownership of small-scale unit is with one individual in sole
proprietorship or it can be with a few individuals in partnership.
 Resources: Small scale units use local or indigenous resources and
as such can be located anywhere subject to the availability of these
resources like labour and raw materials.

c) Mention any four limitations of a sole-proprietorship.

 Personal financial liability
 Wide range of management and operational responsibilities
 Difficulty in raising capital
 Lack of continuity

d) What is meant by technical feasibility of a project?

A technical feasibility study assesses the details of how you intend to deliver a
product or service to customers. Think materials, labour, transportation, where
your business will be located, and the technology that will be necessary to bring
all this together.
Or
Technical feasibility – lays out details on how a good or service will be delivered,
which includes transportation, business location, technology needed, materials
and labour.

e) Expand. SISI, SIDBI

SISI- Small Industries Services Institute.
SIDBI- Small Industries Development Bank of India.

f) Mention any two essential qualities of an entrepreneur.

Full of determination.
Risk Taking.
Innovative
 g) Mention any two factors influencing entrepreneurship.
Economic Factors
 Capital
 Labor
 Raw Materials
 Market
 Infrastructure
Social Factors
 Caste Factor
 Family Background
 Education
 Attitude of the Society
 Cultural Value

SECTION-B
Answer any three questions. Each question carries 6 marks.

2. Explain any six functions of an entrepreneur.

FUNCTIONS OF ENTREPRENEUR: The functions of an entrepreneur are co-
ordination of the business management of the enterprise, risk- taking, controlling the
enterprise, innovation for change, motivation and other related activities.
1. Assumption of Risk: An entrepreneur, by definition, is risk taker and not risk
shirker. He is always prepared for assuming losses that may arise on account of
new ideas and projects undertaken by him. This willingness to take risks allows an
entrepreneur to take initiatives in doing new things and marching ahead in his
efforts. Entrepreneurship involves the following types of risks.
a) Financial Risk: The entrepreneurship has to invest money in the enterprise
on the expectation of getting in return sufficient profits along with the
investment. He may get attractive income or he may get only limited income.
Sometimes he may incur losses.
b) Personal Risk: Starting a new venture uses much of the entrepreneur’s
energy and time .He or she has to sacrifice the pleasures attached to family
and social life.
c) Career Risk: This risk may be caused by a number of reasons such as
leaving a successful career to start a new business or the potential of failure
causing damage to professional reputation.
d) Psychological Risk: Psychological risk is the mental agonies an
entrepreneur bears while organizing and running a business venturesome
entrepreneurs who have suffered financial catastrophes have been unable
to bounce back
e) Health and Safety Risk: This risk involves how a business functions. It is
the duty of the businessperson to provide the right environment to its
employees so that they do not have to face any kind of health hazard. There
 are employee and labor laws that clearly highlight the rules regarding
everything from having a canteen to a bathroom etc. If a company fails to
practice this then it may lead to injured workforce that may trigger a lawsuit
for the company.
2. Business Decisions: The entrepreneur has to decide the nature and type of
goods to be produced. He effects suitable changes in the size of the business, its
location, techniques of production and does everything that is needed for the
development of his business.
3. Development of Management Skills: The work of an entrepreneur involves the
use of managerial skills, which he develops while planning, organizing, staffing,
directing, controlling and coordinating the activities of business. His managerial
skills get further strengthened when he engages himself in establishing equilibrium
between his organization and its environment. However, when the size of business
grows considerably, an entrepreneur can employ professional managers for the
effective management of business operations.
4. Innovation: An entrepreneur is basically an innovator who tries to develop new
technology, products, markets, etc. Innovation may involve doing new things or
doing existing things differently. An entrepreneur uses his creative faculties to do
new things and exploit opportunities in the market. He does not believe in status
quo and is always in search of change. Drone entrepreneurs are characterized by
a refusal to adopt opportunities to make changes in production formulae even at
the cost of severely reduced returns. They can suffer loss but are not ready to
make changes in their existing production methods. When competition increases,
they are pushed out of the market as it becomes uneconomical for them to exist
and operate in a competitive market.
5. Research: An entrepreneur is a practical dreamer and does a lot of ground-work
before taking a leap in his ventures. In other words, an entrepreneur finalizes an
idea only after considering a variety of options, analyzing their strengths and
weaknesses by applying analytical techniques, testing their applicability,
supplementing them with empirical findings, and then choosing the best alternative.
It is then that he applies his ideas in practice. The selection of an idea, thus,
involves the application of research methodology by an entrepreneur.
6. Overcoming Resistance to Change: New innovations are generally opposed by
people because it makes them change their existing behavior patterns. An
entrepreneur always first tries new ideas at his level. It is only after the successful
implementation of these ideas that an entrepreneur makes these ideas available
to others for their benefit. In this manner, an entrepreneur paves the way for the
acceptance of his ideas by others. This is a reflection of his will power, enthusiasm
and energy, which helps him in overcoming the society’s resistance to change.
7. Catalyst of Economic Development: An entrepreneur plays an important role in
accelerating the pace of economic development of a country by discovering new
uses of available resources and maximizing their utilization. To better appreciate
the concept of an entrepreneur, it is desirable to distinguish him from an
entrepreneur and promoter.
8. Division of Income: The next major function of the entrepreneur is to make
necessary arrangement for the division of total income among the different factors
of production employed by him. Even if there is a loss in the business, he is to pay
rent, interest, wages and other contractual incomes out of the realized sale
proceeds.
9. Organizing Resources: Organizing entails identifying those resources that are
required to transform a particular idea into reality. The resources include human
and nonhuman resources. Organizing in entrepreneurship will increase
productivity, promote new ventures, distribute and supervise work and
responsibility, and will remove barriers to work. Entrepreneurship, thus, is the
taping tool fur assuming indigenous skills and resources for the productive
purpose.
10. Social Responsibility: Entrepreneurship with its innovative technology somehow
promotes human efforts. It restarts closed industries with innovative managerial
strategies and techniques It also motivates new entrepreneurs and attracts them
to engage into an entrepreneurial venture. Entrepreneurship provides new
products or ideas that give momentum and diversity into society. Therefore,
entrepreneurship performs social responsibility that protects the welfare, benefit
and economic gain of the society. It also promotes the community standard by
providing jobs and amenities.

3. Explain any six problems faced by small scale industries.

PROBLEMS FACED BY SSI’s
 Poor capacity utilization: In many of the Small Scale Industries, the capacity
utilization is not even 50% of the installed capacity. Nearly half of the machinery
remains idle. Capital is unnecessarily locked up and idle machinery also occupies
space and needs to be serviced resulting in increased costs.
 Incompetent management: Many Small Scale Industries are run in an
incompetent manner by poorly qualified entrepreneurs without much skill or
experience. Very little thought has gone into matters such as demand,
production level and techniques, financial availability, plant location, future
prospects etc.
 Inadequate Finance: Many Small Scale Industries face the problem of
scarcity of funds. They are not able to access the domestic capital market to raise
resources. They are also not able to tap foreign markets by issuing ADR’s
(American Depository Receipts) GDR’s (Global Depository Receipts) etc.
because of their small capital base.
 Raw material shortages: Raw materials are not available at the required
quantity and quality. Since demand for raw materials is more than the supply, the
prices of raw materials are quite high which pushes up the cost. Scarcity of raw
materials results in idle capacity, low production, inability to meet demand and loss
of customers.
 Lack of marketing support: Small Scale Industries lack market knowledge
with regard to competitors, consumer preferences, market trends. Since their
 production volume is small and cannot meet demand for large quantities their
market is very restricted. Now with the process of liberalization and
globalization they are facing competition from local industries as well as
foreign competitors who sell better quality products at lower prices.
 Problem of working capital: Many Small Scale Industries face the problem
of inadequate working capital. Due to lack of market knowledge their
production exceeds demand, and capital gets locked in unsold stock. They
do not have enough funds to meet operational expenses and run the business.
 Problems in Export: They lack knowledge about the export procedures,
demand patterns, product preferences, international currency rates and foreign
buyer behaviour Small Scale Industries are not able to penetrate foreign markets
because of their poor quality and lack of cost competitiveness. In countries like
Taiwan, Japan etc. products produced by Small Scale Industries are exported to
many foreign countries. But in India not much thought and focus has gone into
improving the export competitiveness of Small Scale Industries.
 Lack of technology up-gradation: Many Small Scale Industries still use primitive,
outdated technology leading to poor quality and low productivity. They do not
have adequate funds, skills or resources to engage in research and
development to develop new technologies.
 Multiplicity of labour laws: One of the merits of Small-Scale Industries are
that they are labour intensive and can provide employment to a large number of
people. But the multiplicity of labour laws, need to maintain several records
(PF, ESI, and Muster Rolls etc.), fines and penalties for minor violations etc.
place Small Scale Industries at a great disadvantage.
 Inability to meet environmental standards: The government lays
down strict environmental standards and Courts have ordered closure of polluting
industries. Small Scale Industries which are already facing shortage of funds to
carry out their business are not able to spend huge sums on erecting chimneys,
setting up effluent treatment plants etc.
 Delayed payments: Small Scale Industries buy raw materials on cash but due to
the intense competition have to sell their products on credit. Buying on cash and
selling on credit it places a great strain on finances. The greater problem is
payments are delayed, sometimes even by 6 months to one year. It is not
only the private sector but even government departments are equally guilty.
 Poor industrial relations: Many Small Scale Industries are not able to
match the pay and benefits offered by large enterprises, because their revenues
and profitability are low and also uncertain. This leads to labor problems.
Employees fight for higher wages and benefits which the SSI is not able to provide.
This may lead to strikes, resulting in damage to property in case of violence
by employees, production losses etc.
 Strain on government finances: Marketing of products manufactured by Small
Scale Industries is a problem area. The government has to provide high subsidies
to promote sales of products produced by Khadi and Village Industries. This places
a great strain on government finances.
 Widespread sickness: Sickness among Small Scale Industries is widespread.
Sickness is not detected in the initial stages and large amount of funds are locked
in them. Nearly two and a half lakh SSI units are sick and as on 2001 and nearly
Rs. five thousand five hundred crores of bank funds are locked in them.
 Government interference: Small Scale Industries have to maintain a number of
records and there are endless government inspections. A lot of time, money
and effort is wasted in complying with various inspections and records
verification. This prevents Small Scale Industries from fully concentrating on their
business activities

4. Explain any six factors affecting product selection.

Product or Service Selection: This is the first & most important step in setting up a
small enterprise. Because, the further prospects, actions & efforts in setting up the
small enterprise & commencing its commercial activities successfully depend on this
decision. A product is anything that can be offered to a marker for acquisition,
use or consumption.
Factors to Consider in Product Selection
1) Product Acceptance: This factor is used in selecting products in
entrepreneurship is very important. The level of acceptance a product gains in
the market place is tied to how successful such product(s) will fare. Therefore,
careful thought should be given to how a product is accepted. However, the
only way to know how well a product is accepted in the marketplace is by first
conducting a research.
2) The Future of the Product: This forms an important aspect of the process of
product selection in entrepreneurship. The future of the product contributes
significantly to how well the product fares. Hence, important answers need to
be given to questions on the level of demand for the product, the acceptance
of the product at the price fixed for it, how feasible the product is and if there
are any margins for meaningful profits.
3) Supply-gap: The size of the unsatisfied market demand which constitute a
source of business opportunity will dictate, to a great extent the need to select
a particular product. The product with the highest chances of success as
reflected in its demand will be selected. In essence, there must be existing
obvious demand for the selected product.
4) Fund: The size of the funds that can be mobilized is another important factor.
Adequate fund is needed to develop, produce, promote, sell and distribute the
product selected.
5) Availability of Raw Materials and Access to Raw Materials: Different
products require different raw materials. The source quality and quantity of the
raw materials needed are factors to be seriously considered, Are the raw
materials available in sufficient quantities? Where are the sources of raw
materials located? Are they accessible? Could they be sources locally or
 imported? Satisfactory answers should be provided to these and many other
relevant questions.
6) Technical Implications: The production process for the product needs to be
considered. There is need to know the technical implications of the selected
product on the existing production line, available technology and even the
labour force. The choice of a particular product may require either acquisition
of the machineries or refurbishing of the old ones. The product itself must be
technically satisfactory and acceptable to the user.
7) Profitability/Marketability: Most often, the product that has the highest profit
potential is often selected. However, a product may be selected on the basis of
its ability to utilize idle capacity or complement the sale of the existing products.
The product must be marketable.
8) Availability of Qualified Personnel: Qualified personnel to handle the
production and marketing of the product must be available. The cost of
producing the product must be kept to the minimum by reducing wastages. This
is achievable through competent hands.
9) Government Policies: This is quite often an uncontrollable factor. The focuses
of government policies can significantly influence the selection of product. For
instance, a package of incentives from government for a product with 100%
local input contents can change the direction of the business’s R & D and hence
the product selected.
10) Pricing Strategy: Before a product is being selected in entrepreneurship, the
pricing of such a product needs to be fully analyzed. Certain products, desirable
as they may be, do not allow for profitability, as the cost of production may be
high. Therefore, a pricing strategy that focuses on the profit potential of the
product will go a long way in improving the product’s performance.

5. Explain any six components of a business plan.

 Executive Summary: Your executive summary should appear first in your
business plan. It should summarize what you expect your business to
accomplish. Since it’s meant to highlight what you intend to discuss in the rest
of the plan, the Small Business Administration suggests that you write this
section last.
 A good executive summary is compelling. It reveals the company’s mission
statement, along with a short description of its products and services. It might
also be a good idea to briefly explain why you’re starting your company and
include details about your experience in the industry you’re entering.
 Company Description: The next section that should appear in your business
plan is a company description. It’s best to include key information about your
business, your goals and the customers you plan to serve.
 Your company description should also discuss how your business will stand out
from others in the industry and how the products and services you’re providing
will be helpful to your target audience.
 Market Analysis: Ideally, your market analysis will show that you know the ins
and outs of the industry and the specific market you’re planning to enter. In that
section, you’ll need to use data and statistics to talk about where the market
has been, where it’s expected to go and how your company will fit into it. In
addition, you’ll have to provide details about the consumers you’ll be marketing
to, such as their income levels.
 Competitive Analysis: A good business plan will present a clear comparison
of your business to your direct and indirect competitors. You’ll need to show
that you know their strengths and weaknesses and you know how your
business will stack up. If there are any issues that could prevent you from
jumping into the market, like high upfront costs, it’s best to say so. This
information will go in your market analysis section.
 Description of Management and Organization: Following your market
analysis, your business plan will outline the way that your organization will be
set up. You’ll introduce your company managers and summarize their skills and
primary job responsibilities. If you want to, you can create a diagram that maps
out your chain of command.
 Breakdown of Your Products and Services: If you didn’t incorporate enough
facts about your products and services into your company description (since
that section is meant to be an overview), it might be a good idea to include extra
information about them in a separate section. Whoever’s reading this portion of
your business plan should know exactly what you’re planning to create and sell,
how long your products are supposed to last and how they’ll meet an existing
need? It’s a good idea to mention your suppliers, too. If you know how much
it’ll cost to make your products and how much money you’re hoping to bring in,
those are great details to add. You’ll need to list anything related to patents and
copyright concerns as well.
 Marketing Plan: In your business plan, it’s important to describe how you
intend to get your products and services in front of potential clients. That’s what
marketing is all about. As you pinpoint the steps you’re going to take to promote
your products, you’ll need to mention the budget you’ll need to implement your
strategies.
 Sales Strategy: How will you sell the products you’re building? That’s the most
important question you’ll answer when you discuss your sales strategy. It’s best
to be as specific as possible. It’s a good idea to throw in the number of sales
reps you’re planning to hire and how you’ll go about finding them and bringing
them on board. You can also include sales targets.
 Request for Funding: If you need funding, you can devote an entire section to
talking about the amount of money you need and how you plan to use the
capital you’re trying to raise. If you’ll need extra cash in a year or two to
complete a certain project, that’s something that’s important to disclose.
 Financial Projections: In the final section of your business plan, you’ll reveal
the financial goals and expectations that you’ve set based on market research.
You’ll report your anticipated revenue for the first 12 months and your annual
 projected earnings for the second, third, fourth and fifth years of business. If
you’re trying to apply for a personal loan or a small business loan, you can
always add an appendix or another section that provides additional financial or
background information.

6. Explain any six financial incentives available to small scale industries.

 Differential Rate of Interest Scheme: Under the differential Rate of Interest (FRI)
Scheme, loans up to Rs. 6,500, as term loans and Rs. 1,500 as working capital are
provided by the commercial banks to the weaker sections at a concessional rate
of interest of 4% per annum. This scheme was introduced in 1972 with a view to
increase the credit flow to the weaker sections at a concessional rate of interest of
4% per annum. This scheme was introduced in 1972 with a view to increase the
credit flow to the weaker sections for various productive purposes. The eligible
borrowers under the scheme are identified in relation to income concept, i.e., Rs.
2000 per family per annum in rural areas and Rs. 3000 per family per annum in
urban areas.
 Composite Loan Scheme: The composite Loan Scheme (CLS) was introduced
in 1978 with a view to meet the entire financial requirements of artisans, village
and cottage industries where the total credit requirements for equipment finance
and working capital do not exceed Rs. 25,000. This limit has now been raised to
Rs. 50,000. In respect of projects sponsored by SC/ST entrepreneurs, the
requirement of minimum contribution (presently at 5% of the project cost) has been
totally waived. The ceiling on the population of the village/town, where the unit is
located has been raised from 50,000 to 5 lakhs. The loan is payable in 7 to 10
years or even more with a moratorium of 12 to 18 months for payment of interest
and principal. The maximum rate of interest chargeable for such loans is 10% for
the units located in specified backward areas and 12% for those located in other
areas. The loans under the scheme are available both from the Commercial Banks
and State Financial Corporations.
 Margin Money Scheme for Tiny Sector: To provide margin money assistance to
the tiny units, the Margin Money Scheme was introduced by the Govt. of India in
1977. Under this scheme assistance is provided to the small-scale unit whose
investment in plant and machinery does not exceed Rs. 2 lakhs and are in village
and towns with a population of less than 50,000. The extent of assistance in the
form of margin is limited to 10% of the total investment, comprising fixed capital
investment, pre-operative expenses and three months working capital
requirements, or Rs. 20,000 whichever is less. In case entrepreneurs belong to
scheduled castes/scheduled tribes, assistance is admissible up to 15% of the total
investment or Rs. 30,000 whichever is less. The scheme is operated by the state
Govt. through District Industries Centers.
 Special Capital Scheme of IDBI: The Industrial Development Bank of India (IDBI)
is operating a special capital scheme for extending equity type of assistance to
such entrepreneurs who possess the necessary skill and experience but do not
 have adequate financial resources to set up projects, primarily in the small-scale
and tiny sectors. The special capital assistance extended in the form of equity
and/or soft loan represents the gap between the minimum promoter’s contribution
expected by SHOCKS and the amount the promoter is able to bring in. the
maximum assistance admissible under the scheme is 20% of the project cost or
Rs. 4 lakhs, whichever is less. The assistance is interest free and carries only a
service charge of 1% per annum. Moratorium up to 3 years is allowed for payment
of interest and up to 5 years for payment of installments. The scheme is operated
by the IDBI through the State Financial Corporations.
 Seed Capital Scheme: The scheme was introduced by the IDBI in 1976 with a
view to assist the new entrepreneurs who do not have adequate resources of their
own to set up industrial project in the small and medium sectors with project cost
not exceeding Rs. 3 crores. Seed capital up to Rs. 15 lakhs are made available to
proprietary and partner-ship firms in the form of interest free soft loans. In case of
private limited companies, the assistance is available in the form of subscription to
1% cumulative redeemable preference shares; while in the case of public limited
companies, it will cover subscription to 1% cumulative redeemable preference
shares or both. Soft loan assistance is normally payable over a period of 10 years
with a moratorium of 5 years.
 Equity Fund Scheme: Under this scheme, the State Bank of India (SBI) provides
interest free assistance to the small entrepreneurs for meeting the equity gap in
the project. The assistance provided under the scheme varies between Rs. 5000
to 50,000. The actual amount of assistance admissible is the difference between
25% of the total project cost and the capital available with the entrepreneur.
Moratorium of 5 to 7 years is allowed for repay-ment of the amount. Thereafter, it
is to be repaid over a period of 5 to 7 years through monthly/quarterly/half-yearly
installments.
 Soft Loan Scheme for Modernization: Under this scheme, IDBI provides
financial assistance to the units in selected industries to overcome the backlog of
modernization /renovation/replacement of plant and machinery to improve their
productivity and competitiveness. The assistance under the scheme is need-based
and as such no minimum or maximum limit for individual loans has been
prescribed. The maximum rate interest chargeable by credit institutions on such
assistance is 11.5% per annum. The scheme is operated by the IDBI in
collaboration with industrial credit and Investment Corporation of India (ICIC). IDBI
provides 100% refinance on loans for modernization sanctioned by SFCs/SIDCs
and 75% in the case of banks. Loans up to Rs. 5 lakhs are covered under the
Automatic Refinance Scheme.
 Bill Rediscounting Scheme: Bill Rediscounting Scheme was introduced by the
IDBI in 1965 with two-fold objectives, viz., to help the manufacturers of indigenous
machinery and equipment to push the sales of their products by offering deferred
payment facilities to the prospective purchaser-user and to enable the purchaser-
user of the machinery to utilize the machinery acquired and repay its cost over
several years. Bill/promissory notes drawn in favor of or by the machinery
 manufacturers are discounted by them with their bankers who in turn rediscount
the same with IDBI. There is no restriction of minimum amount of transaction in the
case of small-scale units. To ensure larger flow of assistance to small scale-sector,
IDBI have introduced special concessional rates of discount/rediscount for
purchaser-users as well as seller-manufacturers in this sector. Banks have been
allowed a higher spread of 1.4% per annum as against normal 1.25% per annum
between their discounting rates and IDBI’s corresponding rediscounting rates so
as to encourage them to cater more effectively to this sector.
 Margin Money Scheme for Revival of Sick Units: The scheme was introduced
by the government of India in 1982 with a view to help the state Govts. In the revival
of sick small-scale units. Under this scheme, matching assistance is provided to
the state governments who want to operate the scheme. Margin money to the
extent of a minimum of Rs. 1,000 and a maximum of Rs. 20,000 is sanctioned to
sick small-scale units in the form of loans by the state government in the
recommendation of the state level co-ordination committee for sick units.
 Scheme for Rehabilitation of Sick Units: The small-scale units which have been
assisted by SFCs/SIDCs and are classified as sick are eligible for assistance under
the scheme. The extent of relief depends upon the merits of individual cases. The
rehabilitation assistance may, interlace, cover margin money for additional term
loan and working capital, working capital term loan, payment of statutory liabilities,
cash losses that may incur during the nursing programme, overdue installments
agree to be refunded into a separate term loan, apart from the minimum capital
expenditure required for restarting the unit on viable level, the scheme is operated
by the IOBI through SFCs/STDCs.
 Credit Guarantee Scheme: With a view to encourage banks and financial
institutions to grant loans to small-scale industries, the Govt. of India had
introduced a Credit Guarantee Scheme operated by the Reserve Bank of India.
This scheme has been replaced by the small loans (small-scale industries)
Guarantee Scheme 1981 of the insurance and Credit Guarantee Corporation with
effect from 1st April 1981. Under the scheme guarantees are extended to
borrowers engaged in small-scale industrial activities and also in respect of credit
facilities granted to organizations assisting workers, artisans and other self-
employed persons engaged in industrial activities. The extent of the amount to be
covered by the guarantee varies from 50% to 90%. The claim liability per borrower
under the scheme is not to exceed Rs. 10 lakhs, irrespective of the number of
financial institutions from which he might have borrowed.
 Technical consultancy services: The Small Industries Development
Organization, through its network of service and branch institutes, provides
technical consultancy services to SSI units. In order to provide the necessary
technical input to rural industries, a Council for Advancement of Rural Technology
was set up in October, 1982.
 Machinery on hire purchase basis: The National Small Industries Corporation
(NSIC) arranges supply of machinery on hire purchase basis to SSI units, including
ancillaries located in backward areas which qualify for investment subsidy. The
 rate of interest charged in respect of technically qualified persons and
entrepreneurs coming from backward areas are less than the amount charged to
others. The earnest money payable by technically qualified persons and
entrepreneurs from backward areas is 10% as against 15% in other cases.
 Credit Linked Capital Subsidy Scheme for Technology Up gradation
(CLCSS): Up gradation of the procedure and the corresponding plant and
equipment is essential to enable SMEs to lessen the cost of generation and remain
cost competitive in the worldwide market. To enable SMEs to thrive in global trade
markets, the Ministry of Small Scale Industries (SSI) runs a scheme for technology
up gradation of Small Scale Industries. Known as the Credit Linked Capital Subsidy
Scheme (CLCSS), it goes for encouraging technology up gradation by giving the
forthright capital subsidy of 15% to SSI units for credit benefited by them for the
modernization of their plant and machinery.

SECTION-C
Answer any three questions. Each question carries 14 marks.

7. Explain any seven advantages and seven disadvantages of being an

entrepreneur.
An entrepreneur is a person who has possession of a new enterprise, venture or
idea and assumes significant accountability for the inherent risks and the outcome.

Advantages of being an Entrepreneur

 Generation of employment: When any person start the business then it is
very helpful to generate the employment opportunity for the employee. It is very
helpful for the economic development of the country. It is very helpful to remove
the poverty from the country.
 Increase in per capita income: when the business is increased day by day
then income of the business is also increased. When income is increased then
per capita income is also increased. How per capita income is calculated: Per
capita income = Total income / population
 Helpful in capital information: Entrepreneur uses the money in a proper way.
In other words, we can say that proper utilization of funds. When people invest
in his company then it also gives proper returns.
 Balance regional development: Every entrepreneur start the business in a
small scale. It is the main advantages of the entrepreneur balance regional
development. When person the business in backward area or poor people area
then backward area also developed. And maintain balanced growth, and
employment.
 Providing self-reliance/ self-sufficient: In case of Entrepreneur, we will
describe about the self-sufficient. He is not depending on the other person. He
can't delegate all the power to the subordinate. He is always understandable.
He is the power to take all the decision himself.
  It gives a great amount of freedom: If you are working for a boss and a
company, you need to meet all their requirements and only have very little
freedom on the job. On the other hand, if you start your own business, you will
be able to make your own demands and set your own schedule. You dictate
everything you do, giving you a level of freedom that you will not see when you
are employed.
 It can be exciting: Entrepreneurship can be very exciting, with many
entrepreneurs considering their ventures highly enjoyable. Every day will be
filled with new opportunities to challenge your determination, skills and abilities.
 It allows you to set your own earnings: Of course, you will be the one setting
your own wage and making investments when you own the business. The work
that you do would be for something you own, which can be a huge advantage
compared to when you are working as an employee for a certain company.
 It offers flexibility: As an entrepreneur, you can schedule your work hours
around other commitments, including quality time you would spend with your
family.
 Qualities of management: The management must have a minimum quality to
success otherwise it would fall.

Disadvantages of being an Entrepreneur

 Lack of viable concept: It means lack of proper concept. Sometime person
start the business it can't run properly with the reason of lack of viable/proper
concept. It can be suffered loss. So, this is the main disadvantages of the
entrepreneur. When person start the business then always skilled labor in every
entrepreneur.
 Lack of marketing knowledge: Marketing knowledge is very necessary for
every entrepreneur. When person know about the marketing then it can be
produced the goods acc. to the customer satisfaction. He can also know about
the price. How to gain profit in the market.
 Lack of business knowledge: When person start the business then it is very
necessary to knowledge about the business. When he is failure to convenience
to the customer about the business then it is very difficult to maintain the
business for a long time.
 Social Stigma: For every entrepreneur popularity is not necessary but quality
of the product is also preferred in business. So, every businessman produced
those which goods which are best in quality, quantity, rate, etc. that people can
fulfill all the daily needs in a easiest way.
 Monopoly and protection: during the time of the liberalization, people are not
free to innovate anything but now at that time of the items free/ provide
monopoly. People can think about a new technology.
 Time: A major disadvantage to entrepreneurship is that amount of time that you
have to dedicate to start your own business. Being an entrepreneur is not easy
and all and having success as a business owner takes a level of time
commitment that many are not willing to make.
  No Guarantees of Success: Entrepreneurship can allow you to make your
dreams come true in a way that traditional employment often does not allow,
but you will have to make some sacrifices along the way to make this happen.
It is also important to realize that success as an entrepreneur is not guaranteed.
 It can be difficult to compete with other businesses: It is very important for
an entrepreneur to stay competitive. This means that you have to differentiate
your business from others in your niche in order to build a solid customer base
and, finally, become profitable.
 It does not guarantee 100% success: Entrepreneurship would make your
dreams come true, which does not often happen with traditional employment,
but you need to make some sacrifices to make it happen. You should know that
this type of venture does not guarantee 100% success.
 It comes with unpredictable work schedules: One major drawback of being
an entrepreneur is that more work and longer hours will be required from you
than being an employee.

8. Explain the different patterns of ownership of a small scale industry and also
two advantages and two disadvantages of each pattern.

Types of ownership
o SINGLE OWNERSHIP (INDIVIDUAL OR SOLE PROPRIETORSHIP)
o PARTNERSHIP
o JOINT STOCK COMPANIES
o CORPORATIONS
o COOPERATIVES
o STATE OR CENTRAL GOVERNMENT OWNED ENTERPRISES.

1) SINGLE OWNERSHIP: One man owns this type of business. The business man
invests capital, employs labour and machines. For example. Retail-shops.
Workshops etc. The single owner invests, maintains and controls the entire
business. Hence all gains or loss from business goes to him. It should be noted
that he is fully liable for all the debts associated with the business. This type of
ownership is easy to establish and simple to run with a minimum of legal
restrictions. A sole proprietorship occurs when someone does business activities
but doesn’t register as another kind of business. There is no separate business
entity, meaning there is no distinction between the business owner’s personal and
professional assets and liabilities. Sole proprietorships are simple, easy to start,
and one of the most common types of business ownership. They are a good option
for someone starting a low-risk business on a trial basis. Also, no additional
taxation! However, because there is no formal separation, the business owner will
become personally liable for any obligation the business might have.
2) PARTNERSHIP: A Partnership is a business with two or more individuals owns
and manages the business. Partners share the unlimited liabilities of the business
and operate the business together. There are three classification of partnerships:
general partnership (partner divide responsibility, liability and profit or loss
according to their agreement), limited partnership (in additional at least one general
partner, there are one or more limited partner who have limited liability to the extent
of their investment), and limited liability partnership (all of the partners have limited
liability of the business debts; it has no general partners).
 Partnership has been defined by the Indian partnership act 1932 as the
relationship between persons who have agreed to share profit of a business
concern carried on by all or any one of them acting for all.
 When 2 and up to 20 persons in the case of non - banking business and up to
10 in case of banking business enter into a contract to carry on a business
allowed by law, with the object of making profit, a partnership is said to be
formed.
EXAMPLE: HINDUSTAN PETROLEUM: HPCL is a Government of India
Enterprise and Fortune 500 company. HPCL has about 20% market share among
national oil companies and strong infrastructure base with annual turnover of $ 317
billion. Joint venture partner in South Asia LPG: South Asia LPG is joint venture of
HPCL and Total Gas & Power India (TGPI). SALPG has a set up a Cavern in
Vishakhapatnam which is the first of its kind in South East Asia. The underground
rock mined LPG Cavern is the largest single point LPG

3) JOINT STOCK COMPANY: A joint stock company is an Association of individuals,

called shareholders, who join together for profit and agree to supply capital divided
into shares that are transferable for carrying on a specific business. Death,
insolvency, disablement or lunacy of the shareholders does not affect the joint
stock company. A joint stock company consists of more than twenty persons for
carrying any business other than the banking business. EX: Flip kart, Ola, Snap
deal
 Advantages of Joint Stock Companies:
 A huge sum of money can be raised.
 It associates limited liability with it.
 Shares are transferable.
Disadvantages of Joint Stock Companies:
 A good deal of legal formalities is required for the formation of a joint stock
company.
 Company is managed by big shareholders only.
 High paid officials manage the whole shows; they cannot have as high interests
in the company as the proprietors can have.
 People can commit frauds with the company.

4) CORPORATIONS: A corporation is very similar to a joint stock company. They are

brought into existence by state or central government by special law of the country
defining the powers, functions and forms of management and relationship to other
government departments. Corporations are fully owned by the Government and
are financially self-supporting .Chief executive members of the board are
nominated by the government. Corporations are formed due to the changed
industrial policy of India in April 1948. The manufacture of arms and ammunitions,
atomic energy, railway services post and telegraph, iron and steel production,
aircraft manufacturing ship building etc. have fully come under Government control
and ownership.
Types of Corporations
 Government departments: Railways, defense, post and telegraph,
Dooradarshan etc.
 Public Corporations: LIC of India, state power corporations, Indian airlines,
State Road transport corporations etc.
 Government companies. HMT, BHEL, Hindustan Steel Etc.

5) Cooperative: A cooperative is a private business owned and operated by the

same people that use its products and or services. The purpose of a cooperative
is to fulfill the needs of the people running it. The profits are distributed among the
people working within the cooperative, also known as user-owners. There is
typically an elected board that runs the cooperative, and members can buy shares
to be a part of decision-making processes. Examples: Karnataka Milk Federation
(KMF), Indian Farmers Fertilizer Cooperative Limited, Amul.
6. Public Sector: Concept of Public Sector:
A public enterprise is one that is: (1) Owned by the state, (2) Managed by the
state, or (3) Owned and managed by the state.
The sector of public enterprises is popularly known as the Public Sector. Public
enterprises are controlled and operated by the Government either solely or in
association with private enterprises. Public enterprises are controlled and operated
by the Government to produce and supply goods and services required by the
society. Ultimate control of public enterprises remains with the state and the stale
runs it with a service motto.
Merits of Public Sector:
(1) Public sector helps in the growth of those industries which require huge amount
of capital and which cannot flourish under the private sector.
(2) Public sector helps in the implementation of the economic plans and enables
them to reach the target of achievement within a prescribed period by taking
initiative in- the establishment of industries of its own accord.
Demerits of Public Sector:
(1) Public sector can rarely attain the efficiency of a private enterprise; wastage
and inefficiency can seldom be reduced to a minimum.
(2) Due to heavy administrative expenses, state enterprises are mostly run at a
loss leading to additional burden of taxation on the people.

9. Explain any ten factors affecting selection of a location of a small scale

industry.
The factors that are to be considered while selecting a suitable location can be
discussed under the following two heads:
1) ACCESS TO RAW MATERIAL INFLUENCE LOCATION OF AN INDUSTRY: The
nature of raw material required for the proposed product is of great importance.
But it is not necessary that all the firms should be located nearer to the sources of
supply of raw materials, in order to minimize the transport costs. The influence of
raw materials on selecting the type of location depends on the size of raw materials
required.
2) ACCESS TO MARKET INFLUENCE LOCATION OF AN INDUSTRY: Another
important factor which entrepreneur must take into account is access to the market.
If the plant is located nearer to the market, the entrepreneur can determine the
trends of the market and adjust his production activities accordingly.
3) AVAILABILITY OF LABOUR INFLUENCE LOCATION OF AN INDUSTRY: The
availability of right type of labour at favorable wages is an important factor that
influences the selection of plant location. Labour that is required by the industries
 is of skilled labour and / or unskilled labour. The influence of labour on location
depends on the ratio of labour cost to the total cost of production, which is called
“Labour Cost Index” by Weber. But modern economists disagree with Weber. At
present availability of labour is not likely to prevent a region or a site, which has
great natural advantages for starting an industry because labour can be obtained
from other regions.
4) PROXIMITY OF CHEAP FUEL AND POWER INFLUENCE INDUSTRY
LOCATION: Nearness to cheap power and fuel is another decisive factor in
industrial location. Power is essentially needed for running an industry. Water, coal,
oil, gas and electricity are the chief sources of power. The industries, which require
very large quantities of coal, are generally located near the coalmines because
coal loses its weight completely. However the development of electric and diesel
power has reduced the importance of coal. Thereby the locational distribution of
industries has considerably changed.
5) TRANSPORT FACILITY INFLUENCE LOCATION OF INDUSTRY: The facilities
for transport available at a particular location and the cost of transportation are also
of great importance. Nearness to sources of materials and proximity to market
rarely coincide. In case of industries the transportation is required for two purposes
viz.
6) AVAILABILITY OF FINANCIAL SERVICES INFLUENCE INDUSTRY
LOCATION: An important factor, which influences the location of the plant, is the
availability of financial facilities. Adequate finance is required for the purpose of
carrying out the business activities successfully. But capital being more and more
mobile, now-a-days location of an industry may not be rigidly influenced by
availability of finance in an area. Finance can be brought from other areas to locate
the industries in a region otherwise deemed suitable.
7) CLIMATE FACTORS INFLUENCE LOCATION OF INDUSTRY: Suitable climate
is an additional factor influencing the location of industrial firms. Some of the most
important climate factors that are to be considered are the level of ground,
topography of the region, drainage facilities, water facilities, disposal of waste
product etc. For example, in case of cotton textile industry, humid climate provides
an additional advantage. Therefore Mumbai in Maharashtra, Coimbatore in Tamil
Nadu and Manchester in London with humid climate are suitable for cotton textile
units. The topography of a region leads to a reduction in the transportation cost.
So it must also be taken into consideration. Similarly, if the steady supply of water
is required for any manufacturing process, such industry must be located where
water is abundantly available.
8) POLITICAL STABILITY INFLUENCE LOCATION OF INDUSTRY: Political
stability also exerts considerable influence in selecting the location of industries.
The lack of political stability of the State will adversely affect the industries located
there. Further, he must also see whether the labour market is not under the control
of trade unions. In fact, many industries are moving-from West Bengal and Kerala
only due to the adverse trade union activities prevailing in those states.
9) SPECIAL CONCESSIONS AND BENEFITS INFLUENCE INDUSTRY
LOCATION: Various assistance given by the Government in order to encourage
the industrialists to set up their industries in certain areas also play an important
role while selecting the location of industries. For example, establishment of units
in backward areas. Further, most of the State Governments in India are offering
various incentives for the rapid industrialization of that State by encouraging the
setting up of industrial units. These incentive include subsidies, tax concession,
transportation facilities, financial assistance etc.
10) PERSONAL FACTORS INFLUENCE LOCATION OF INDUSTRY: Sometimes
locations are the result of personal factors. An entrepreneur may have personal
preference towards certain localities. Such personal preferences may be of a love
for the hometown, a desire to develop his native area etc. For instance, Mr. Ford
started the manufacture of motorcars in his hometown i.e. Detroit. But this kind of
location is generally rare.

10. Explain any six pitfalls in preparing a business plan and techniques of
avoiding the same.
 Having Unrealistic Growth Projections: Specifically, they will concentrate on the
projected Income Statement or Profit & Loss. The fact that numbers are projected
does not mean that those figures can be included without due rigor or process.
They need to be credible, defensible and consistent.
 Not Acknowledging Your Weaknesses: To be a successful small business
owner, you must know that it's impossible to do everything on your own. An
impactful business plan will have a strategy for dealing with weaknesses.
 Overestimation of revenues: Another key element of the plan will relate to the
size and value of the opportunity. Hence the general interpretation of sales
forecasts is that they will be optimistic but not excessively optimistic.
 No clear objective: What is the main purpose of the plan? If it is to seek
investment in the business, it is important to clearly describe the investment
opportunity. As mentioned previously there is a tendency amongst entrepreneurs
to focus myopically on ‘the product ‘or ‘the idea ‘.
 Rushing the output: The plan needs to be right the first time and the content
needs to be accurate, clear and also without spelling or grammatical mistakes.
 Attaching Your Business Vision to Dated Technology or Declining Markets:
When spelling out in your business plan the opportunity you see for a product or
service, you can't just have a sense that the idea will have legs in the real world.
 Hiding the plan from your team: sharing the overall goals (and measurement
process) with your team is important to build collaboration, encourage
brainstorming, and can boost team spirit
 Confusing cash with profits: because there is a huge difference between the
two, it’s important to remember that profits are an accounting concept (cash is
money in the bank); waiting for customers to pay you can damage your financial
situation since you don’t pay your bills with profits
 Diluting your priorities: when writing a plan, be sure to stress a few priorities (no
more than three or four) because it’s easy for people to understand; if you touch
on many different priorities, it could cause confusion
 Acknowledging Your Competitors, but Not Analyzing Them: It's common for
new business owners to say, "We have no competitors," in hopes of appearing to
be unique, but it's far more impressive to simply list your competitors as
considerations when surveying the market.
.
11. Explain any seven causes of industrial sickness.

Industrial Sickness Definition: According to RBI:- “A sick unit is that which has
incurred a cash loss for one year and is likely to continue incurring losses for
the current year as well as in the following year and the unit has an imbalance
in its financial structure.”
Causes of industrial sickness
1) INADEQUACY OF WORKING CAPITAL: Some units turn out sick due to
inadequacy of working capital. There may exists delay in sanction of working
capital by financial institutions. Industrial units find it difficult to meet out day to
day operations due to the time gap between sanction of term loan and working
capital needs. Shortage of Working Capital is one of the main reasons for
sickness.
2) NON-AVAILABILITY OF CREDIT: Sickness in SSI sector may be attributed to
non-availability of credit. Delay in getting loans may result in stoppage of work
or lead to production loss. Low production may lead to reduced sales which in
turn may lead to financial loss.
3) POOR AND OBSOLETE TECHNOLOGY: Some industrial units use
technology which is outdated. Out dated technology may affect the quantity and
quality of production. This results in production loss and reduces demand for
the goods.
4) NON AVAILABILITY OF RAW MATERIAL: Some units may require raw
material which are scarcely available. Sometimes, the raw material required by
the unit may not be available in abundance. Hence, this affects the production
and the sales of the goods. If the raw material is not abundantly available, then
the industrial units have to spend a large amount of money to buy them. This
may result in financial loss.
5) MARKETING PROBLEMS: Sometimes, the industrial units may not know as
to how to create demand for the products. Lack of marketing knowledge may
result in less demand for the goods. Similarly, there may be less demand for
the goods produced by the SSI due to competition or change in the taste of the
buyers. For example, lot of units producing dyes and ceramics have been found
sick in Gujarat and Tirupur.
6) ERRATIC POWER SUPPLY: Shortage in power supply affects the industries.
This results in delay in production of goods and leads to financial losses.
7) LABOUR PROBLEMS: The relationship between the employer and the
employees may not be cordial. Some of the labour problems such as strike, lay
off, lock out may lead to industrial sickness.
8) POOR MANAGEMENT: The entrepreneur must be a good planner, organizer
and a manager. If the Industrial Unit promoters lack managerial skills, then it
may lead to several problems.
9) INADEQUATE ATTENTION TO R&D: Industries have to allocate a part of
money in research and development to survive and compete with competitors.
Failure to focus on the above may lead to industrial sickness
10) DIVERSION OF RESOURCES: If the employer utilizes the funds obtained for
the business for any personal purposes, then diversion of funds will lead to
industrial sickness. The funds used for personal purposes cannot be
regenerated and hence it may result in delay in payment of loans or financial
crisis for the borrower of the loan.
11) GLOBALIZATION: Small scale industrial units may find it very difficult to
compete with large scale industries and foreign competitors. Inability of the
units to face growing competition due to liberalization and globalization may
lead to industrial sickness.
12) DISPUTE AMONG PARTNERS: There may arise dispute between the
partners or family members running the unit. This results in stoppage of work
and leads to industrial sickness.
13) OVERAMBITIOUS PROJECTS: The project may not be technically feasible,
such an overambitious project is one of the reasons for industrial sickness