AN EVALUATION OF ENTREPRENEURIAL STRATEGIES AGAINST GLOBALISATION WITH SPECIAL

REFERENCE TO M/S SESHASAYEE PAPER & BOARDS LTD

A Dissertation Submitted to MADURAI KAMARAJ UNIVERSITY in partial fulfilment of the requirements

for the award of the MASTER OF PHILOSOPHY IN ENTREPRENEURSHIP

Degree of

By.

A. ARIVALAGAN, B.E., (Hons), M.Sc.(Engg.), M.B.A.,

Enrolment No.: A2A6103001 Registration No.: A2A6103001

Under the guidance and supervision of

Mr. P. SIVAKUMAR, M.A, N.BA, M.Phil.,

DIRECTORATE OF DISTANCE EDUCATION MADURAI KAMARAJ UNIVERSITY MADURAI

JUNE 2003

ACKNOWLEDGEMENT

It gives me great pleasure to acknowledge the permission guidance, advice and help extended by
various persons. take this opportunity to convey my respect and sincer heart-full thanks to Mr. N
GOPALARATNAM to th Chairman and Managing Director of M/S Seshasayee Paper Boards Ltd, Cauvery
RS (PO), Erode for the kind permissio help and advises given for the completion of this resear work.

I convey my respect, sincere and heart-full thanks Professor Dr. S VADIVELU, Ph.D. Co-ordinator, Head
the Department of Entrepreneurship, Directorate of Dista Education, Madurai Kamaraj University,
Madurai for initial guidance and encouragement for this research wor regard his advice in selecting the
research topic as valua and thank him for approval of the research topic.

I could complete my research work with the great help provided by my guide. Hence, I express my
profound sense of gratitude for my guide Mr. P SIVAKUMAR, M.A, M.B.A, M.Phil. Lecturer. Department
of Management Studies, K.S.R. College of Technology, Thiruchengode for his valuable guidance and
encouragement through out the project. I Thank Mrs. A. MALATHI, M.A, who had given a moral support
in doing this research work.

A ARIVALAGAN

CONTENTS

PAGE NO.

CHAPTER-1

INTRODUCTION

1.1

Back ground

1.2

Research problem
2

1.3

Objective of the research

14

Significance of the research

1.5

Hypothesis

1.6

Methodology

56

1.7
Limitations

CHAPTER-2

EVALUATION OF ENTREPRENEURIAL STRATEGIES

2.1

Concept of Entrepreneurship

2.2

Corporate Entrepreneurship

2.3

Entrepreneurial strategies

10

2.4

Evaluation of Entrepreneurial strategies

12

CHAPTER-3

INDIAN PAPER INDUSTRY

17

17

3.1

Paper Industry Global Scenario

3.2

Status of the Indian Paper Industry

20

22

3.3

Challenges before the Indian Paper Industry

CHAPTER-4
CASE STUDY - Seshasayee Paper & Boards Ltd (SPB)

30

4.1

History of SPB

30

4.2

Impact of government Policies on SPB

31

33

4.3

SPB's Products

Manufacturing Facilities

4.4

4.5

Managerial Practices
8 36

4.6

Marketing Practices

8 38

4.7

9 43

Exports

Productivity

44

45

4.8

4.9

4.10
Technology up-gradation

9 48

Raw Material Scenario

Environmental Protection & Conservation

9 49

4.11

Energy Conservation

2 52

4.12

55

4.13

Water Conservation

Human Resources Development

88 58

58
4.14

4.15

Care for Community.

CHAPTER-5

EVALUATION OF ENTREPRENEURIAL

STRATEGIES FOR SPB

69 59

5.1

Growth Strategy

5.2

5.3

Export Strategy

Technology Strategy

88852 59
62

64

5.4

Resource Use efficiency

67

5.5

Market Strategy

74

79

5.6

Managerial strategy

Entrepreneurial Value Addition

22 84

5.7

CHAPTER-6
CONCLUSIONS

90

6.1

Findings

90

6.2

94

Suggestions

95

REFERENCES.

CHAPTER 1 INTRODUCTION

1.1 BACK GROUND

Before the introduction of globalisation in 1991, Indian Industry was we protected by the policies of the
Indian Government. In fact the period before 199 can be called as "protected era". With the advent of
liberalisation and the integration of Indian economy, the "globalisation era" had started in 1991 in th
Indian economy. Indian industry has to face many challenges during th "globalisation era".
The nature and degree of challenges faced by the Indian Industrial organisation depends nature of the
product or service, nature of the market, age of the plan level of technology used, systems and
managerial tools adopted, etc. Th globalisation has put the Indian Industries in to turmoil. Many
industrial units the can not with stand the blow had been closed. Hence, survival is the key issue f Indian
industrial units. Those who survived in the last 10 to 12 years hav adopted many strategies against
globalisation.

This research is undertaken to investigate whether these strategies a entrepreneurial in nature and such
strategies are evaluated for M/s Seshasaye Paper and Boards Limited, Cauvery RS (PO), Erode 638007 as
a case study.

ERATIONAL NORMS AND

UNOLOGY FOR

1.2

RESEARCH PROBLEM

This research addresses the answers to the following questions.

What challenges are faced by Indian Paper Industry in the wake of

globalisation of the Indian Economy?

What entrepreneurial strategies are adopted by a typical Indian Paper

Manufacturing organisation during globalisation?

间 When such strategies are adopted, did they together resulted in improvin the: "Entrepreneurial value
addition" during the "globalisation era" compared to the "protected era" in a typical Indian Paper Mill.
1.3

OBJECTIVE OF THE RESEARCH

The first objective of this study is to understand the challenges faced by th Indian Industry during
globalisation, and determine entrepreneurial strategie adopted by a typical Paper Mill. This is a
longitudinal study. The second objectiv is to evaluate the "entrepreneurial value addition" of a firm over
a period of tim So far researchers have studied impact of entrepreneurial strategies of man firms at a
particular point of time. They have not studied the impact of th entrepreneurial strategies in the same
firm over a period of time and none them have evaluated the "entrepreneurial value addition" due to
suc entrepreneurial strategies. Hence this research attempt to fill this gap.

1.4

SIGNIFICANCE OF THE RESEARCH

In the wake of globalisation, it is important for the Indian Industries to know how to survive and
compete in the market against globalisation. Hence this study is more significant given the current
industrial situation in the Indian economy.

1.5 HYPOTHESIS

"Entrepreneurial strategy" is a strategy that is new to the firm and that results in new combination of
resources leading to creation of value to the firm. "Entrepreneurial Value addition" (EVA) is defined as
equal to {Income-Excise duty-Operating Expenses- Depreciation).

In the Indian Paper Industry, "globalisation" started in 1990-91 when Government of India lowered the
effective import duty of paper from 164% in 1990-91 to 131% in 1991-92. The period 1991-92 to 2001-
02 (11 years) is defined as the period of "globalisation era" and the period 1980-81 to 1990-91 (11 years)
is defined as the period of "protected era". To sustain and competitive in the "globalisation era firms
need to implement entrepreneurial strategies. As a result of the implementation of these
entrepreneurial strategies a firm's performance should be better in the "globalisation era" than that
achieved during the "protected era".. Hence the following hypothesis (also alternative hypothesis) are
proposed for a typical Indian Paper Mill:
Null Hypothesis H10: There is no difference in terms of sales during the "globalisation era" and the
"protected era".

Alternate Hypothesis H₁a: The sale during the "globalisation era" is more than that during the "protected
era".

Null Hypothesis H20: There is no difference in percentage of export, during the "globalisation era" and
"protected era".

Alternate Hypothesis H2: The percentage of exports, is more during the "globalisation era" than that
during the "protected era". Null Hypothesis H30: There is no difference in Fixed Assets, during the

"globalisation era" and during the "protected era".

Alternate Hypothesis Hзa: Fixed assets, during the "globalisation era" is higher

than that during the "protected era".

Null Hypothesis H40: There is no difference in specific consumption of inputs (raw material and energy)
between "protected era" and during "globalisation era" Alternate Hypothesis Haa: The specific
consumption of inputs (raw material and energy) is lower during the "globalisation era" compared to
"Protected era". Null Hypothesis Hso: There is no difference between the marketing practices

between "protected era" and during the "globalisation era" Alternate Hypothesis Hsa: New innovative
marketing practices are adopted

during the "globalisation era" compared to "Protected era".

Null Hypothesis H60: There is no difference between the managerial practices between "protected era"
and during the "globalisation era"
Alternate Hypothesis Hea New innovative managerial practices are adopted

during the "globalisation era" compared to "Protected era". Null Hypothesis H70: There is no difference
in terms of Entrepreneurial Value

Addition, during the "globalisation era" and during the "protected era".

Alternate

Hypothesis

Hr

Entrepreneurial

value

addition

"globalisation era" is higher than that during the "protected era".

during

the

1.6
METHODOLOGY

Research Design

"Descriptive Research Design" is followed in this research work. The research involves description of the
situations that existed during the "protected era (1980-81 to 1990-91) and the "globalisation era" (1991-
92 to 2001-02). The basic design techniques used are questionnaire survey and secondary data.

Unit of Analysis

The unit of analysis is a firm. M/s Seshasayee Paper and Boards Limited (SPB) located at Cauvery RS
(PO), in Nammakal District of Tamilnadu State is the unit selected for the analysis.

Data Collection

The data for the study were collected from SPB's annual reports from the year 1980-81 to 2001-02,
discussion with Head of the departments of Production, Engineering, Purchase, Marketing, Cost
Accounts and other sections of SPB, reports submitted to various governmental organisations by SPB,
various departmental reports of SPB, Project Department, ISO reports, and personnel interview with
marketing managerial staff and Head of the various sections.

Period of Study

The Period of the study is from 1980-81 to 2001-02 i.e. 22 years.

Data Analysis Tools

Tabulations, charts, t test and chi-square test are used for the analysis of data collected.

Sampling Methods

For the case study, M/s Seshasayee Paper and Boards is selected as the author is experienced in this
company since 1981. Judgement sampling is used for
obtaining responses for the two questionnaires used in this research work.

1.7 LIMITATIONS

The scope of this study is limited to a typical large and old Indian Paper- manufacturing organisation.
Hence, it is limited to a firm or unit level. The accuracy of data dependent upon the measurement
devices used in the plant at the time of measurement. Accounts department derived some of the data
from the measured data. The correctness of the method of calculations by them was not verified due to
voluminous work involved. The responses to the questionnaires are taken from the managers and staff
of the marketing and factory operation departments/sections. Such answers to the questions depend
upon the knowledge, educational qualification and experience of the respondents in understanding the
content of the questions.

CHAPTER 2

EVALUATION OF ENTREPRENEURIAL STRATEGIES

2.1

CONCEPTS OF ENTREPRENEURSHIP

The distinguishing factors of entrepreneurship are innovation, high achievement. organisation building,
managerial skill and leadership. According to Joseph Schumpeter "entrepreneurship" is essentially a
"creative activity". entrepreneur is one who innovates and creates new combinations or enterprise
(Gupta et all, 1992) to initiate and accelerate the process of economic development. Innovation may
assume the forms such as introduction of new goods, introduction of new methods of production,
opening of new markets, conquest of new sources of raw material, carrying of new organisations of any
industry. An

According to Peter Drucker (Gupta et all, 1992), an entrepreneur is the one who always searches for
change, respond to it, and exploits it as an opportunity. He innovates and creates some thing that has a
use with economic value. Further Drucker said that successful entrepreneur creates new values or
increase values of what already exists. He converts materials in to resources or combine existing
resources in a new or more productive configuration.
7

In a study on conducted for determining the characteristics of entrepreneurs in the Tamilnadu State of
India (Gupta et all, 1992), the following conclusions are arrived at.

(1) Entrepreneurs are alert to new opportunities, able to adjust to changing

conditions and willing to assume risks involved in change.

(ii) He is interested in advancing technologically and is improving the

quality of his product.

(ii) He is interested in expanding the scale of his operation and he reinvests earnings to this end.

2.2

CORPORATE ENTREPRENEURSHIP

Corporate entrepreneurship is the process where by an existing organisation carrying out new
combinations such as development of a product, process, market, technology, organisational form, or
source or supply into a commercially usable form that is new to the organisation but is not new to the
market place. (Pramodita Sharma 1996)

Corporate Entrepreneurial behaviour (also called corporate venturing or intrapreneurship) has been
practised in existing organisations for the purpose of profitability (Zahera 1991), strategic renewal (Guth
& Ginsberg, 1990) fostering innovativeness (Baden-Fuller 1995) gaining knowledge for future revenue
streams (McGrath, Venkatraman & Macmillan, 1994), and international success (Brickenshaw, 1997).
The concept of corporate entrepreneurship has been evolving over the last twenty-five years (Peterson
& Berger, 1971, Hill & Hlavacek, 1972, Hanan 1976, and Quinn, 1979). Sathe (1989) defined it as a
process of organisational renewal. Other researchers have conceptised as embodying entrepreneurial
efforts that require organisational sanctions and resource commitments for the purpose of carrying out
innovative activities in the form of product, process and organisational innovations (Schollhammer 1982,
Burgelman, 1984, Kanter 1985, Alterowitz, 1968, Jennings & Young 1990), Damanpour (1991) pointed
out that corporate innovation includes the generation, development and implementation of new ideas
or behaviours, An innovation can be a new product, or service, an administrative system or a new plan
or program pertaining to organisation, in this context, corporate entrepreneurship centres on re-
energising and enhancing the ability of a firm to acquire innovative skills and capabilities.

Zahera (1991) pointed out that corporate entrepreneurship activities aimed at creating new business in
established firms through product and process innovations and market developments. These are aimed
at improving company's competitive position and financial performance. Many researchers have
continued to taut the importance of corporate entrepreneurship as a growth strategy for established
organisation and an effective means for achieving competitive advantage (Pinchott 1985, Zahra 1991,
Kuratko 1993, Merrifield 1993).

Some specific examples of precipitating events in the corporate entrepreneurship process could include
a change in company management, a merger or acquisition, a competitor's move to increase market
share, development of new technologies, change in consumer demand, and economic changes.

23 ENTREPRENEURIAL STRATEGIES

Entrepreneurial process is defined as the "change that makes on ident commercialisation. A business
that wants to innovate, wants to have a chance to succeed and prosper in a time of rapid change, has to
build entrepreneuria management into its own system. It has to adopt policies that create throug entire
organisation the desire to innovate and the habits of entrepreneurship and innovation. To be a
successful entrepreneur, the existing business, large or small has to be managed as an entrepreneurial
business.

In the broadest sense all activities undertaken in an organisation under any type of change or
transformation can be considered to be part of organisational strategy. Research indicates number of
strategic options available to organisation including diversification (Palepu 1985, Davis & Duhaime 1992,
Markides 1995, Hitt, Hoskisson & Kim 1997) acquisition (Hitt, Hoskisson & Ireland 1990, 1994) rightsizing
(Hitt Keats, Harback & Nixen 1984) turnaround (robbins & pearce, 1991) and innovation (Dougherty &
Hardy 1996, Lawless & Anderson 1996, Klein & Sorra 1996).

Miller and Friesen (1982) developed a corporate entrepreneurial model, which applies to firms that
innovate boldly and regularly while taking considerable risks in their product market strategies.
Organisations facing a rapidly changing. faster-paced competitive environment needs to formulate an
entrepreneurial strategy (Lumpkin & Dess 1996). This is a strategy of engaging in product market
innovation, undertaking somewhat risky ventures, and seeking a
10

proactive approach towards innovation to excel over competitors. Entrepreneurial strategy will
determine future direction of the organisation.

"Entrepreneurial" means doing things in a new and better way. The types of changes introduced by the
entrepreneur, as per Paul H. Wilken (1979), are

. Initial expansion - original production of goods

. Subsequent expansion - subsequent change in the amount of good

produced

. Factor innovation - increase in supply or productivity factors

⚫ Financial - Procurement of capital from new source or in new form

⚫ Labour - Procurement of labour from new source or of new type, up- gradation of existing labour

• Material - Procurement of old material from new source or new material

• Production innovation - Changes in production process

• Technological - Use of new production techniques

• Organisational Change of form or structure of relationships among people

⚫ Market Innovations - Changes in the size or composition of the market

• Product - Production of new goods or change in quality or cost of existing

goods

• Market - Discovery of a new market

Activities relating to innovative behaviour include (Johan Wiklund, 1999, Miller 1983, Schumpeter 1934)
new market segments, new geographic market, new

11

practices, changes of product lines, development of new product o

wel as establishment of new organisational forms. EVALUATION OF ENTREPRENEURIAL STRATEGIES

There are some basic criteria used to evaluate the entrepreneurial performance. When factors of
external environment interact with organisation, then the spanisation has to respond creatively and act
in an innovative way (Zara and Nel 1998). Thus established organisations seeking to refocus or transform
themselves through entrepreneurial behaviours and actions are finding the challenges daunting but the
outcomes are productive. Barringer and Bledorn (1909) suggested that increasingly entrepreneurial
attitudes and behaviours are necessary for firms of all sizes to prosper and flourish in competitive
environment.

Entrepreneurial profits are the surplus over interest and rent due to successful introduction of
technological, commercial and organisational improvements. Researchers have been sceptical to use
objective indicators for the measurement of a firm's entrepreneurial performance. Per Mattila (2001)
measures performance in a subjective way by considering twelve dimensions namely sales growth rate,
market share, cash flow, operating profit, profit margin, return on investment, new product
development, new market development, personnel development, research and development, levels of
costs and political/public affairs.

Michael F Spivey & Jeffrey J Macmillan focused on relationship total shareholder return and various non-
market accounting and economic performance measures.

12
They defined stock return as share holder return measured as the total % return over the last year
including price appreciation (depreciation) and any payment of dividends. They used profitability
measures such as Earnings per share measured as adjusted income available for share holders divided
by diluted weighted average shares outstanding). Return on Equity (income available to common share
holders divided by average common equity), Return on Invested Capital (income after taxes divided by
the average total long term debt, other Jong term liabilities and share holders equity expressed as %).
Return on assets(income after taxes divided by average total assets in %), Asset utilisation (revenues
divided total assets), Net profit margin (income after taxes divided by total revenues in %), Economic
value added (measured as the (adjusted net income available to share holders - (cost of equity capital
(CE) x book value of equity capital)) divided by number of shares outstanding. Cooper, Gimenon -
Gascon & Woo (1994) found that capital availability predicted performance.

Researchers advocate growth as the most appropriate performance measure in small firms (Brown
1996, Chandler & Hanks 1993). It is argued that growth is a more accurate and easily accessible
performance indicator than accenting measures and hence superior to indicators of financial measures.
An alternative view is that performance is multidimensional in nature and that it is advantageous to
integrate different dimensions of performance in empirical studies (E.g. Cameron 1978, Lumpkin & Dess
1996). It is possible to regard financial performance and growth as different aspects of performance,
each revealing important and unique information.

13

The extent to which performance along one dimension is reflected in the other is an empirical question
that can and should be tested. It seems more reasonable to ask the question if firms that grow also
perform well financially than a priori stating that growing firms perform well because performance was
defined this way. The degree of correspondence between growth and financial performance determine
to what extent they are related.

Four indicators of growth were utilised by a researcher (Johan Wiklund, 1999). They are sales growth,
employment growth, sales growth compared to competitors and market value growth compared to
competitors. Hoy, McDougall & Dsouza (1992) stress that sales growth is the best growth measure since
it reflects both short and long term changes in the firm, is easily obtainable, and that entrepreneurs
most often measures growth through sales of the firm. Operational performance & Entrepreneurial
Strategy

Operational performance relates to company's capabilities in managing its core value of producing
activities. The management of the value chain inputs - manufacturing product mix - market is the key
element in this capability. Entrepreneurial strategy such as innovation introduced by the firm can affect
any component or part of the value chain. The market and competition can also affect the value chain.
Therefore in order to relate "entrepreneurial strategy and "operational performance", it is necessary to
understand what these terms would mean in operational context.

Literature indicate that "Entrepreneurial Strategy of innovation" occurs when any or combination of the
following happens:

14

⚫ There is an innovation in the production process. This can happen because of reduced usage of raw
material or substitution of materials, installation of more productive machinery, up-gradation of existing
machinery, reorganised routing of work, lower labour costs, or because of some combinations of these
changes. This type of innovation affect cost side or inputt side of the activities of the company.

.There is a change in scale of operation or capacity of the production due to expansion or up-gradation
of existing production technology.

Innovation in management practices such as introduction of ISO 9001

practices, ISO 14001 practices, etc.

⚫ Innovation in production technology resulting in replacement of obsolete technology of the

production process with the modern technology or addition of new technology

"Entrepreneurial Value Addition" & its Measurement

Profit after Tax (PAT), normally expressed as a percentage of sales and various variants using PAT are the
most commonly used measures of operational performance of the company. For relating operational
performance to entrepreneurial strategy of innovation this may not be appropriate. This is because of
PAT is affected by a number of factors such as debt-equity ratio, which have no direct link with the
entrepreneurial strategy of innovation. A more appropriate measure would be value addition measure.
Net Vale Added (NVA) is more appropriate measure of the effects of entrepreneurial strategy. Net Value
Added is simply the Gross Value Added (GVA) less depreciation. Gross Value Added is the difference
between sales revenue (net of excise duty and excis cess) and cost of bought out items and services.
Cost of bought out items an services include the operating expenses (other than employee benefits). It
ma be argued that Net value Added is a better measure of performance than GV because depreciation
measures the use of fixed assets usually bought from outside the firm.
Over a long-term period, the employee cost also changes. The employee's salar and wages paid are
indicative of how effectively the organisation uses its labou force (labour productivity). Net Value Added
less the employee cost, determines what money is left out for other commitment's such as future
investments interest payments, on loans, dividend payments, income taxes and surplus to general
reserve.

Hence a term "Entrepreneurial Value addition" (EVA) is defined as follows: Entrepreneurial Value
Addition (EVA) = {Income - Excise Duty - Expenses-Depreciation}

EVA is a measure of how well firms managed to add value by adopting entrepreneurial strategies. If this
EVA is divided by income to normalise for inflation over time, it is possible to capture the result of the
entrepreneurial ability of the company. Thus another derived term called "Entrepreneurial
Performance" which is defined as the ratio of "Entrepreneurial Value Addition to Total Income" is used
in this research. EVA captures the combined effect of various entrepreneurial strategies such innovation
in process, product. market, employees and methods.

16