UNIT 5: SUPPORT TO ENTREPRENEURS

Sickness In Small Business -Concept

According to the new definition, a small scale unit will be termed
sick if 50 per cent of the net worth is eroded in an accounting year
on account of accumulated losses even though the unit has been
in production for two years.

Corporate company's failure is major problem of developed

. countries as well as developing counties in the world.

Failures are increasing day by day because of growing

competition and the changing economic, political, social, cultural,
legal and global environment.
 Sickness In Small Business -Concept

The important signals of sickness are:

• Decline in capacity utilization

• Irregularity in maintaining bank account
• Non-submission of the data to bank financial institutions
• Inventories in excessive quantities
• Frequent break down in plant/equipments
• Decline in technical deficiency
• Decline in the quality of the products/services
• Shortage of liquid funds for short-term financial obligations
• Default in the payment of statutory dues
• Frequent turnover of personnel in the industries.
 Sickness In Small Business -Concept

Some of the important symptoms are:

• Deteriorating financial ratio

• Delay in the audit of annual account
• Persisting shortage of cash flow
• Continuous tumble in the price of the shares
• Delay in the payment of statutory dues
• Widespread use of creative accounting
• Frequent request for loans
• Morale degration of the employees
• Desperation amongst the top and middle managerial level.
 Sickness In Small Business -Magnitude

The companies' number is increasing in India every year.

With the increasing number of companies, sickness in industries

also flowed by it.

In this lecture we tried to mention the thing to combat sickness

problem in India.

It includes the concept of types of sickness, reasons, adverse

effect of sickness along with preventives measure which is
provided by the Government in India.

Industrial sickness, due to the above mentioned

consequences, is regarded as a social problem in
India.
 Sickness In Small Business -Causes

Some of the common causes leading to failing health of small

units are discussed as follows:

• Problems in Production
• Lack of Orders
• Lack of Raw Materials
• Cash Crunch
• Increased Cost of Raw Material
• Increased Overhead Costs
 Sickness In Small Business - Consequences
The main consequences of enterprises sickness are:

1. Emergence of industrial unrest

2. Wastage of resources
3. Loss of tax payers revenues
4. Financial loss to banks/financial institutions
5. Loss of employment opportunities
6. Adverse effect on prospective entrepreneurs
7. Hardship to the public
8. Market fluctuation.

In a nutshell, whatever may be the reasons of sickness, the

consequences are always same viz. loss of
employment/production, economy hardship, chronic
unemployment and shortage of goods. Thus, “industrial sickness
is a blot on the country’s economy”.
 Corrective Measures – Business Incubators
Helping the Industrial Sick Units By Providing Concessions And
Incentives!
In order to help the sick units to regain their health and revive
them, many concessions and incentives have been given to these
units, which are discussed below.
• Banks Initiatives
• Government Policy
• Board for Industrial and Financial Reconstruction (BIFR)
 Government Policy For Small Scale Enterprises
• Development and management of industrial estates

• Suspension/deferment of Sales Tax

• Power subsidies

• Capital investment subsidies for new units set up in a

particular district

• Seed Capital/Margin Money Assistance Scheme

• Priority in allotment of power connection, water connection.

• Consultancy and technical support

Entrepreneurial Initiatives in India- “Government and Non
Government Support”
 Top 6 Strategies for the Growth of Small-Scale
Enterprise

1. Expansion

2. Diversification

3. Joint Venture

4. Mergers and Acquisitions

5. Sub-Contracting and

6. Franchising.
 Expansion
Expansion is one of the forms of internal growth of
business. It means enlargement or increase in the same line
of activity.

There are three common forms of business expansion.

• Expansion through Market Penetration Example: The scheme

for exchanging an old scooter for new one introduced by LML,

• Expansion through Market Development

• Expansion through Product Development and/or

Modification Example: Introduction of plastic bottles for selling
refined oil in addition to lose sales
 Diversification
In simple terms, diversification may be defined as a process of
adding more products/markets/services to the existing one.

This is necessary because, according to product ‘lifecycle

concept’, every product has a definite life period.

Example: In the private sectors, Kelvinator India Limited which

was originally a refrigerator manufacturer diversified its product
line into mopeds.

Similarly, Larsen and Toubro (L&T), an engineering company,

diversified into cement.
LIC’s diversification into mutual funds and SBI’s merchant
banking are the examples of diversification adopted by the public
sector in India.
Joint venture
 Mergers and Acquisitions

Merger and acquisition are yet other forms of external growth

strategy.

Merger means a combination of two or more existing enterprises

into one.

For the enterprise which acquires another, it is called

‘acquisition.’

For the enterprise which is acquired, it is called ‘merger.’

Thus, merger and acquisition are the two sides of the same coin.
 Sub-Contracting

Sub-contracting system is a mutually beneficial commercial

relationship between the two companies.

This is known as Ancilliarization in India and more generally as

‘sub-contracting.’

In practice, large-scale industries also not produce all goods on

their own; instead they rely on small-scale enterprises called sub-
contractors for a great deal of production.