Small Scale Industries and Entrepreneurial Development 9789350432747, 9788184889031

Citation preview

Small Scale Industries and Entrepreneurial Development

c.s. V. MURTHY B.sc., B.E., MIE, Chartered Engineer

Industrial Consultant, Visiting Faculty at Various Management Colleges, Bangalore

K~Jt GJfimalaya GFublishing GJIouse • Mumbai • Delhi • Bangalore • Hyderabad • Chennai • Bhubaneswar • Ernakulam • Nagpur • Pune • Ahemdabad • Lucknow • Indore

ISBN

: 978-81-8488-903-1

Contents Chapter 1

Entrepreneur and Entrepreneurship

1 - 39

• Definition • Other definitions for an 'Entrepreneur' • Chronological Events of an Entrepreneur • Small Entrepreneur • Functions of an Entrepreneur • True Entrepreneur and his Qualities • Schumpeter's View on Entrepreneur • Intrapreneurs • An Entrepreneur vis a vis Manager • Classification of Entrepreneurs • Other types of classifications of Entrepreneurs • Women Entrepreneurs • Types of Women Entrepreneurs • Problems of Women Entrepreneurs • Characteristics of small scale entrepreneurs • "Entrepreneurs are born and not made". Critically examine the statement • Entrepreneurial Guidance • The Role of Entrepreneur in Economic Development • Various views on 'Entrepreneur' • Rural Entrepreneurs • Common Entrepreneurial Traits • Factors that motivate people to become Entrepreneurs • Behavioural Pattern of Indian Entrepreneurs • Essential Qualities of Entrepreneurial Person • Enterprise • Difference between Entrepreneur and Enterprise • Characteristics of a Large Scale Enterprise • Significance of Entrepreneurial Support Systems in India • Traits of Successful Entrepreneur • What makes an Entrepreneur? • Technocrat Entrepreneur • Check List for a Small Scale Entrepreneur before Starting a Unit • Various Types of Organisations an Entrepreneur can form • 'Entrepreneur as a dreamer' • Training helps the Entrepreneurs to Perform Better • Entrepreneur with Heffalump • Socio-demographic Factors influencing the Birth of an Entrepreneur • Locational Mobility of Entrepreneurs Chapter 2

Entrepreneurship

40 - 51

• Definition • Other Definitions of Entrepreneurship • Concept of Entrepreneurship; Relationship between Entrepreneur, Entrepreneurship and Enterprise • Invention and Innovation • Entrepreneurial Culture • Problems of Developing Entrepreneurship in India • Innovator • Principles of Innovation • Peter F.Drucker's views on Entrepreneurship • Factors contributing to Entrepreneurship • Psychological and Sociological Theories of Entrepreneurship • Personal Characteristics • Environment and Attitudinal Factors influencing Entrepreneurship • Entrepreneurship slow growth in India • Role of Government in the promotion and development of Enterpreneurship Chapter 3

Entrepreneurial Development(ED) and Entrepreneurship Development Programmes (EDPs)

52 - 64

• Entrepreneurial Development(ED) • The objectives of Entrepreneurial Development • Need for Entrepreneurial Development • The Concept of Entrepreneurial Development • Entrepreurial Development Programme(EDP) • Main objectives of EDP • Various Entrepreneurship Development Institutions in India • Objective of EDP training • Various Entrepreneurship Development

Programmes (EDPs) conducted in India • Need for Entrepreneurial Development Programmes • Main Features of EDP • Operational Problems of EDP • Corridor Principle • Incubator • Personal Characteristics • Life Path Circumstances • Enterpreneurship Development Programme Phases.

Chapter 4 Small Scale Industries

65 - 130

• Definition of Small Scale Industrial Undertaking • Definition of Tiny Units • Definition of Village Industries • Definition of Cottage Industries • Definition of Service Establishments • Varicus Requirements for Starting an SSU • Classification of SSIs • Problems of the Small Industries and Policy Measures • Suggestions for Improvement • New Policy Governing SSIs in India • Industrial Policy Resolutions • Steps to be taken while Starting a Small Scale Industry • Process of Setting up a Small Scale Industry • Broad Policy Objectives of the Government towards Small Scale Sector • Rules, Regulations and Acts governing Small Scale Industry • Location of SSIs • Contributing Role of Small Scale Industries in Indian Economy • Articles of Association • Preliminary work relating to the Registration of a Company • Preliminary Considerations an Entrepreneur should keep in mind while Selecting a form of Organisation • Choice of a Suitable form of Organisation • Various phases of developing a SSU • Role of Khadi and Village Industries Commission (KVIC) • Rural Industry • Importance of Rural Industrialisation • Programme of Rural Industrialisation • Programme for rapid growth of Rural Industries • Comparison of a Small Scale Industry with a Medium/Large Scale Industry as well as Public Sector • Small is Beautiful • Legal Documents • Merits of Company as an Organisation • Memorandum of Association and its need • Small Industries face big Competition • Central Budget of 2002-2003 Allows a Big Package for Small Industries .. Plant Layout • Objectives of Plant Layout • Types of Layouts • Process Layout (Functional Layout) • Product layout or Straight line layout • Comparison between Product layout and Process layout • Advantages of Product Layout • Advantages of process layout • Fixed position layou. • Combined layout • Infrastructure Facilities required to set up 551 • Successive Industrial Policies of the Government has failed to develop and strengthen the SSIs in our Country • Employment Potential • Licensing Procedure

Chapter 5

Subsidies and Incentives

131 - 140

• Subsidies • Incentives • 'Bounty' • Needs of Subsidies and Incentives • Specific objectives in providing incentives and subsidies • Export Incentives • Measures taken by the Government (Central and State) for the promotion of Small Scale Industries • Incentives for development of Industries in Backward Areas • Tax holiday benefits to 551 • Incentives offered to Industrialists establishing their units in the Backward Districts of Karnataka • Districts declared by Central Government as Backward and eligible for Concessional Financial Incentives • Price Preference to 551

Chapter 6

Industrial Estates

141 - 148

• Definition • Objectives of Industrial Estates • Objectives of Establishing Industrial Estates in India • Types of Industrial Estates • Features of Industrial Estate • Advantages of Industrial Estates • Ancillary Industrial Undertaking • Rural Industrial Estates • Directorate of Industries & Commerce's Role in Ancillary Promotion

Chapter 7

Project Management

149 - 174

• Project Definition • Project Objectives • Project Features • What is Project Management • Marketing Research • Project Planning • Project Identification • Aspects of a Project • Criteria for selecting a particular project • Project Formulation • Network Techniques • Working Capital • Concept of Working Capital • Various sources of project ideas or business ideas • Project Report • Preparation of Project Report • Techno-Economic Feasibility Report • Feasibility Report • Difference between Detailed Project Report (DPR) and Feasibility Report • Project Feasibility Analysis • Social-Cost-BenefitAnalysis • A Control Chart (Gantt Chart) • Fixed and Flexible Budgeting

Chapter 8

Financial Institution

175 - 192

• Financial Institution • List of Financial institutions which finance to Entrepreneurs • Industrial Finance Corporation of India (IFCI) • Industrial Credit and Investment Corporation of India (ICICI) • Industrial Development Bank of India (IDBI) • Small Industries Development Bank of India (SIDBI) • Industrial Reconstruction Bank of India (lRBI) • Life Insurance Corporation of India (LIC) • General Insurance Corporation of India (GIC) • Unit Trust of India (UTI) • Commercial Banks • Other Financial Institutions • List of Financial Institutions in Karnataka • Basic Documents required by State Financial Corporation (SFC) for accepting the Loan Application forms at Branch Office • Types of Financial Institutions Available to SSls • Sources of Finance to Entrepreneurs • Analysis of Financial Ratios • What is Seed Capital? Who provides it? • Venture Capital • Estimating the Financial Needs of an SSU

Chapter 9

Industrial Sickness

193 - 203

• Introduction • Causes of Sickness • External causes for sickness • Effect of sickness on Economy • Symptoms of Industrial Sickness • Rehabilitation of Sick Units • Preventive Measures • Curative Measures • Signals of Sickness • Infant Mortality

Chapter 10

Institutional Assistance to Small Scale Industries

204 - 229

• Introduction • Need for Institutional Assistance • Institutional Support • Areas " of Assistance from the Institutions • Nodal Agency • Enterprise Development Centre

Chapter 11

Export Assistance

230 - 238

• Organisations in Karnataka helping the Entrepreneurs to Export SSls Products • Export Assistance to Small Scale Se.ctor (SSS) • Special Incentive Schemes by Government to boost Exports • Export Promotion Capital Goods Scheme (EPCG) • Assistance offered by State Government • 100% Export Oriented Unit • Export Houses • Star Trading Houses (STH)

Chapter 12

Training Facilities and Marketing Assistance to Entrepreneurs

239 - 243

• Why Training Needed? • Or~anisations offering training facilities to Entrepreneurs in Karnataka • Training in Tetlmical Trades • Marketing Assistance to Entrepreneurs in Karnataka

Chapter 13

Market Survey

244 - 254

• Definition of Market Survey • Role of Market Surveys • Conducting of Market Survey • Marketing Research • Difference between Marketing Research and Marketing Information System· Marketing Information System • Marketing Information • Sources of Information· Information Gathering Techniques • Marketing Problems faced by 551 • Sales Promotion • Business Opportunities for an Entrepreneur

Chapter 14

Organisational Structure of Small Scale Industries

255 - 260

• Introduction • Form of Organisation • Business Occupations • Definition of Organisation • Need for an Organisation • Advantages of Organisation • Types of Organisation • Basic Scientific Principles of Organisation • Functions of an Organisation • Line organisation and Functional Organisation

Chapter 15

ISO 9000 and Standardisation

261 - 278

• Introduction to 150:9000: 1994 • ISO 9000 is • ISO 9000 Series Standards • Benefits of ISO 9000 • The ISO Organisation • ISO 9000 Working • ISO 9000 Registration • Basic Requirements • ISO 9000-1994 Series of Standards (Only for information) • Problems Confronting the ISO Firms with regard to ISO 9000 • Problems faced by Indian Firms • ISO 9000:2000 Series of Standards (Latest) • ISO QOOO:2000 Quality Management System Requirement • ISO 9000 VS. TQM • Other Quality Systems • Definitions of Various Te~ms Used in Quality • Standardisation and its Advantages • Rore of BIS in the quality upgradation • Quality Control

Chapter 16

Electronic Commerce

278 - 300

• Introduction • Main Activities of Electronic Commerce • Definition of Electronic Commerce • Broad Goals of Electronic Commerce • Electronic Commerce Technical Components • Functions of Electronic Commerce • Status of Electronic Commerce • Prospects of Electronic Commerce • Significance of Electronic Commerce • Advantages of Electronic Commerce • Disadvantages of Electronic Commerce • Pre-requisites of Electronic. Commerce • Lessons from Electronic Commerce Evolution • Meaning of Electronic Commerce • Scope of Electronic Commerce • Communications and Collaborations • Users of Electronic Commerce • Electronic Commerce Systems • Technologies Used • Electronic Commerce Technical Architecture • Electronic Commerce Strategies • Two Faces of Electronic Commerce· Electronic Commerce Applications • Electronic Commerce and Electronic Business • Brief Understanding of Electronic Commerce • Foundation of Electronic Commerce • Electronic Commerce Goals Vis Business Goals • Electronic Commerce Vis Traditional Commerce • Major Segments of Electronic Commerce

Entrepreneur and Entrepreneurship

1.1 Definition An Entrepreneur is a person who combines capital and labour for the purpose of production. An Entrepreneur is an individual who creates a new enterprise. The Entrepreneur is the fourth factor and is the third factor of an enterprise. 1.2 Other Definitions for an 'Entrepreneur' (i) Oxford English Dictionary (1933) defines entrepreneur as "One who

undertakes an enterprise especially a contractor-acting as intermediary between capital and labour". The earlier definition (1897) given by the dictionary was "The director or manager of a public musical institution". (ii) Various definitions given by different experts are as under:

Experts

Francis A. Walker

Cantillion

J.B. Say

Definitions

He is the one who is endowed with more than average capacities in the task organising and coordinating the various factors of production. He should be a pioneer, a captain of industry. He is the agent who buys means of production at certain prices in order to combine them into a product that is going to sell at prices that are certain at the moment at which he commits himself to his costs. He is an important agent of production who gets together other factors of production. He is the economic agent who unites all means of production-the labour, the capital and he finds value of products which result from their

Small Scale Industries and Entrepreneur Development: 2

employment, reconstitution of the capital that he utilises, the interest and the rent which he pays as wen as profits belonging to himself. He advocated the use of this word in the sense of an John Stuart Mill organiser who was paid for his non-manual type of work. Joseph A. Schumpeter He is one, who: • • • •

Peter F. Drucker

William Diamond

Innovates Raises money Assembles inputs Sets the organisation going with his ability to identify such economic opportunities which others are not able to fulfil He is one who always (i) searches for change, (ii) responds to it and (iii) exploits it as an opportunity. Entrepreneurs innovate. According to Drucker, innovation is a specific instrument of entrepreneurs. He is a critical factor in economic development and an integral part of economic transformation.

1.3 Chronological Events of an Entrepreneur •

•

'Entrepreneur' word first appeared in French (when literally translated it means 'go between' or 'between-taker.'

In the middle ages, the term was used to refer to both an actor and an individual overseeing large projects. At that point the project manager entrepreneur was not expected to take any risks, but just to use the materials provided. • Men engaged in military expeditions were also referred to as an entrepreneur (Thomas C.Cochran) in 16th century. • Extended to Civil Engineering activities (construction of road, bridge, harbour etc.) in the 17th century. (Here, it carried the -notion of risk and was applied to individuals who entered into contractual arrangements to furnish goods or services for the government at a fixed price). • Later applied to architects. Hoselitz defined this term as bringing labour and material at a certain price and selling the resultant product at a contracted price. In the 18th century, it was defined by Cantillon R. as a person or dealer also who buys factors and services at a certain price and sells them at uncertain prices in the future. According to J.B.Say 'an entrepreneur is the economic agent who unites all means of production, the labour force of the one and the capital or land of the others and who finds in the value of the products which result from their employment, the reconstitution of the entire capital that he utilises and the value of the wages, the interest and the rent which he pays as well as profit belonging to

Entrepreneur and Entrepreneurship: 3

himself. In the words of Joseph A. Schumpeter, an entrepreneur is basically an innovator, and the innovator is one who introduces new combinations. He views the entrepreneur as one who tries new combinations and unexplored technologies. 1.4 Small Entrepreneur The entrepreneurs involved in running small scale units are generally termed as small entrepreneurs. It is evident that small entrepreneurs outnumber large entrepreneurs all over the world in every country. 1.5 Functions of an Entrepreneur Each of the experts on the subject of entrepreneurship have put the functions of an entrepreneur in their own way. Kilby identified thirteen functions; Arthur H. Cole has described them in six functions . Kilby's thirteen functions were made into four groups as : •

Exchange relationship

• •

Management control Political Administration

• Technology These functions/groups vary according to the size, type and setting up of an enterprise and could be augmented through training and education. Looking into the various functions classified by the above experts, we may come to the conclusion that the functions of an entrepreneur fall broadly into three categories as shown in Fig.l .l: • • • •

New process of production Introduction of new products Creation of new markets Discovery of new and better source of raw material • Creation of a better form of Industrial organisation

Capacity to: • Decide project • Raise Finance • Plan Production • Manage Enterprise • Earn Profit

Fig. 1.1 Function of an Entrepreneur

• Capacity to assume risk • Possessing Self Confidence

Small Scale Industries and Entrepreneur Development: 4

Following functions are to be performed by an entrepreneur: • •

Risk taking Business Decisions

•

Managerial functions

• Innovation ' An entrepreneur undertakes a venture, takes risk and earns profit. He, ""ill be having a strong motivation for success, self-confident in his entrepreneurial abilities, exploiting opportunities. The entrepreneur could be a planner in a socialist economy. Entrepreneurship is closely identified with private enterprise in a market economy.

1.6 True Entrepreneur and his Qualities True Entrepreneur is the one who performs his functions successfully to the extent to which he can. The performance can be assessed through: • • • • He

The nature of quality control Cordial relationship with labour Reduction in costs Profitability of the unit etc. also possesses the main qualities as shown in Fig. 1 above.

1. 7 Schumpeter's View on Entrepreneur. " As per Schumpeter, entrepreneur is basically an innovator who introduces new combinations. The forms of innovation are as given in Fig.1.2 below: New Product New method of production

t------- New Market New source of supply of raw materials New type of organisation

Fig. 1.2 Forms of Innovation 1.8 Intrapreneurs In large companies, we see a new breed of corporate entrepreneurs, who have entrepreneurial talents, who take initiative to develop a new idea for a product, service or process and work to bring their vision to fruition within the framework of the organisation. Companies should provide such entrepreneurial talents (persons) with adequate financial support and freedom to develop their business ideas. Those who do a good job for the company are to be rewarded with promotion and bonus. \

:f

Entrepreneur and Entrepreneurship: 5

Such extraordinary talent providers are also known as "Intracorporate Entrepreneurs" ,or "intrapreneurs." They serve as champions to others in the organisation. There is a threat by them, as they leave the organisations soon hoping to live still better. 1.9 An Entrepreneur vis-a-vis Manager Following table gives the difference: Table 1.1 Entrepreneur vis-a-vis Manager Factors

The Entrepreneur

l. Risk Taker

Yes (,() Profits (,() High (,() Yes (,()

No Salary Low No

No (,() Yes (in the case of sote P'Oprietorship)

Yes Yes (When he assumes risk)

2. Working for 3. Responsibility: ... For combination of inputs and production process ... Day to Day office work 4. Changes role sometimes

The Manager

1.10 Classification of Entrepreneurs Entrepreneurs are classified under four major heads as shown in Fig.1.3:

I Innovative Entrepreneur

I Entrepreneur I I

I

Imitating or Adoptive Entrepreneur

I

I

I

Fabian Entrepreneur

Drone Entrepreneur

Fig. 1.3 Classification of Entrepreneurs Innovative Entrepreneurs: As per Schumpeter, only the innovating persons are designated as entrepreneurs. The ordinary producers repeat the same production for years whereas innovators produce new goods in new ways and enter into new markets by undertaking new methods of organisation. Such people are found mostly in developed countries like USA, UK, Japan etc. Innovative entrepreneur is one who always looks at providing an opportunity for introducing a new technique of production process or a new commodity or a new market or arranges reorganisation. Schumpeter's concept of Entrepreneur was of this type. Peter EDrucker opines that the innovation has the following principles: •

Systematic and objective analysis of various opportunities, to explore the . possibilities of project ideas.

•

For effective innovation, it has to be simple and easy. Otherwise, decisions would be difficult.

Small Scale Industries and Entrepreneur Development: 6

• • • •

Complete, comprehensive trial of opportunities for better choice. Invention should be based on certain concepts. Innovation emerges from the deep and wide insight to problems. Innovation should result in a bundle of knowledge, a purposeful activity creating profitability of the market. Adoptive or Imitating Entrepreneurs: What these persons do is to just imitate the successful entrepreurs in techniques, technology innovated by others. Due to lack of funds, technology and technical skills, the entrepreneurs in developing nations would find it most convenient to imitate rather than to innovate and hence these persons imitate the successful innovators of developed nations. Further, Innovation takes more time. Fabian Entrepreneurs: These are traditionally bounded entrepreneurs who would always be cautious and they neither introduce new changes nor adopt new methods innovated by the most enterprising entrepreneurs. They are lazy, follow old customs, traditions, sentiments etc. Hence they are totally uninterested in taking risk and imitating successful entrepreneurs. Drone Entrepreneurs: These entrepreneurs never allow any change in their production and the style of functioning. They never explore opportunities nor are prepared to take any risk. They may even meet losses due to obsolete methods of production but do not change their production methods and continue to adopt traditional ways in the production proCE:sses. Also called as 'Laggards', who would be pushed out of the market when the product loses its marketability. 1.11 Other Types of Classifications of Entrepreneurs (i) This can be on the following basis:

• • • • • • •

According to the According to the According to the According to the According to the According to the According to the

type of business handled use of technology motivation growth stages of development area sex and age

• Miscellaneous (ii) Another type of classification is based on: • Institutional entrepreneurs • Entrepreneurs by Inheritance • . Technologist entrepreneurs • Forced entrepreneurs

Entrepreneur and Entrepreneurship: 7

Table 1.2 Classification of Entrepreneurs Type

Classification

Business

Business Entrepreneur Trading Entrepreneur Industrial Entrepreneur - Large-Small - Medium-Tiny

Technology

Technical Entrepreneur Non-technical Entrepreneur Professional Entrepreneur High Tech Entrepreneur Pure Entrepreneur Induced Entrepreneur Growth Entrepreneur First generation Entrepreneur Modern Entrepreneur Urban Entrepreneur Men Entrepreneur - Young, old, middle aged Professional Entrepreneurs Non-professional Entrepreneurs Modern Entrepreneurs Traditional Entrepreneurs Skilled Entrepreneurs Non-skilled Entrepreneurs Imitating Entrepreneurs ;

Motivation Growth Stages of Development Area Sex and Age Miscellaneous

Corporate Entrepreneur Agricultural Entrepreneur Plantation-DairyHorticultural-Forestry Retail Entrepreneur Service Entrepreneur Low Tech Entrepreneur

Motivated Entrepreneur Spontaneous Entrepreneur Super Growth Entrepreneur Classical Entrepreneur Rural Entrepreneur Women Entrepreneur - Young, old, middle aged Inherited Entrepreneurs Forced Entrepreneurs National Entrepreneurs International Entrepreneurs Bureaucratic Entrepreneurs Intrapreneur Entrepreneurs Immigrant Entrepreneurs

Some of the above are explained below briefly: (i) Business Entrepreneurs: These are the ones who conceive an idea for a new product/service and then cre,ate a business to materialise their idea into reality. (ii) Trading Entrepreneurs: These are the ones who take up trading activities and are not concerned with the manufacturing. (iii) Industrial Entrepreneurs: These are the ones who manufacture,

identify the potential needs of customers and tailor product or service to meet the marketing needs. (iv) Corporate Entrepreneurs: These are the ones who demonstrate their innovative skills in organising and managing a corporate undertaking. (v) Agricultural Entrepreneurs: These are the ones who undertake

agricultural activities as raising and marketing of crops, fertilisers and other inputs of agriculture. (vi) Technical Entrepreneurs: These are the ones who develop new and

improved quality of goods because of their craftsmanship. They concentrate more on production than marketing. (vii) Non-Technical Entrepreneurs: These are the ones who are not concerned with the technical aspects of the product. (viii} Professional Entrepreneurs: These are the ones who are interested in establishing a business but do not like to manage or operate, once

Small Scale Industries and Entrepreoeur Development : 8

(ix)

(x)

(xi) (xii)

(xiii)

(xiv)

(xv) (xvi)

(xvii)

(xviii)

(xix)

(xx)

(xxi)

established. They would like to Sell and start another venture with the sales proceeds. Pure Entrepreneurs: These are the ones who are interested in psychological and economic rewards (undertake these activities for personal satisfaction in work, ego, status). Induced Entrepreneurs: These are the ones who are induced to take up efltrepreneurial activities attracted by policy measures of the government providing assistance, incentives, concessions,infrastructural facilities offered etc. Motivated Entrepreneurs: These are the ones who are motivated by the desire for self fulfillment. Spontaneous Entrepreneurs: These are the ones who start their business out of their natural talents (initiative, boldness, confidence in their ability, strong conviction etc.). Growth and Super-Growth Entrepreneurs: Growth Entrepreneurs are those who necessarily take up a high growth industry whereas supergrowth entrepreneurs show enormous growth of performance in their venture. First Generation Entrepreneurs: These are the ones who start industrial units by means of innovative skills (combining different technologies to produce marketable products/services). Modern Entrepreneurs: These are the ones who undertake those ventures which go well along with the changing demand in the market. Classical Entrepreneurs: These are the ones who are concerned with customers and marketing needs through the development of a self supporting venture. Innovating Entrepreneurs: These are the ones who are characterised by aggressive assemblage of information and analysis of results, deriving from a novel combination of factors. Institutional Entrepreneurs: These are the ones who are created by the government through various financial and promotional institutions (a requirement in a developing nation). Inheritance Entrepreneurs: These are the ones where the family members inherit or in a usual way accept entrepreneurship as a vocation (down the ladder from the fathers, grand fathers, .... .fore fathers) Entrepreneurship spreads when the joint family breaks further. Technologist Entrepreneurs: These are the technical persons who start business and become technologist entrepreneurs. Government provides them fil'!ance and other resources to use their talents. Forced Entrepregeurs: These are the persons who are driven out from other vocations and are forced to start business to run their life.

Entrepreneur and Entrepreneurship: 9

1.12 Women Entrepreneurs

In the recent years, women have taken a bold step to come out of their traditional domestic occupation to take up jobs out of homes. Today, the entrepreneurial world is also open to the womenfolk. She is the child of middle class parents, at least one of whom is independently employed, she has a close relationship with her father and after obtaining an undergraduate, and subsequently a graduate degree in some area of liberal arts, marries, has children and starts her first significant entrepreneurial venture in the service area in her late 30s or early 40s. Her biggest problems at start up and later in the venture reflect a lack of business training and generally these problems are in the financial area. With education and training, women have gained confidence to do all work, which was a prerogative of man and do it excellently, rather better than men. Some of the outstanding leadership qualities of women entrepreneurs are: • Accept challenges • Adventurous • Ambitious • Conscious • Drive • Educatpd • Enthusiastic • Determination to the end • Hardwork • Keenness to learn • Patience • Experienced and imbibe • Intelligent • Industrious • Motivator • Skillful • Preserverence • Studious • Unquenchable optimism The basic problem a woman has is that she is a woman, weaker sex. Added to that, her twin responsibility she has, is towards family, society and work. If joint families break, many women do not have support of elders. They still suffer from male reservations about a woman's role and' capacity. Women in the rural ares are mostly engaged in low paid, back breaking agricultural activities or act as helpers in handicrafts. It is felt that if a skill is imparted to a girl, it is wasted because when she gets married, she takes away the skill with her. Social attitude keeps women away from it both in urban and rural areas. Even the government and licensing authorities ask women many a times a number of questions doubting their capacity of managing the business. For marketing, women have to be at the mercy of the middlemen who will eat away a big chunk of their profit. Though women entrepreneurs are sincere in maintaining the quality and time schedule, the tendency is always to ask questions pertaining to the quality of the product produced by them. 1.13 Types of Women Entrepreneurs

Acording to gender and age, the entrepreneurs are grouped as: • Men Entrepreneurs . • Women Entrepreneurs These are again subdivided into three classes: • • •

Young Old Middle aged

Small Scale Industries and Entrepreneur Development: 10

Hence women entrepreneurs are of three types: • •

Young Middle aged

•

Old Young Men Entrepreneur E - - - Old ............ Middle aged Entrepreneurs Young Women Entrepreneur

Eo--Old Middle aged

Flg. 1.4 Women Entrepreneurs

1.14 Problems of Women Entrepreneurs The problems of women entrepreneurs in India are: • Need for achievement, economic independence and autonomy are absent (held back by her own preconceived notions of her role in life) • • • • • •

No risk bearing capacity (as dependency is more) Lack of education (literacy percentage is only 18.5) Family involvement (cannot be avoided) Male dominated society (equal treatment still absent) Lack of information and experience liquidity and easy availability of finance (only 11 % of the total earnings are by women) Inadequate size of loans Lack of experience in formulating bankable projects Margin money requirement Insistence on collateral Time taken to process loans Tight repayment schedule Ignorance of banking procedure due to illiteracy Lack of marketing, accounting and management skills leading to failure of projects and consequent inability to pay loans.

In spite of women cells, the problem of getting loans and aids from banks still persists. Women face discrimination. People including bankers and government officials find it difficult to take women seriously as entrepreneurs.

Entrepreneur and Entrepreneurship: 11

1.15 Characteristics of Small Scale Entrepreneurs The characteristics of small scale entrepreneurs are as under:

• Young • Pleasing manners • Self made • Minimum basic • •

• • •

qualification/education Hard working Planned approach Flexible Determined Small turnover

• Meagre capital • Energetic/Zealous/Enthusiastic • Self confident • •

• • •

• •

Trained/experienced Dedicated Employ few people Entrepreneurial7eal Small area of operation Systematic Generally one product

1.16 "Entrepreneurs are born and not made". Critically Examine the Statement. Entrepreneurs are both born as well as made. If you consider the olden days, many of the family members, used to continue the family trade and further develop the same. Such inherited entrepreneurs formed a large part of the business world in India earlier. Eg. Vysyas, Marwaris, Banias, Sindhis etc. In the recent days, there is a wider encouragement given by the Governments, both state and central, to spread industrial development in all regions, without any heed to caste, creed or religion but on pure merits and real talents. Though fathers had agricultural business, sons have entered business and industry with the help of financial assistance given by the Governments. They cannot be considered as born entrepreneurs but are responsible for industrialisation countrywide. Many educated, young people on their own enter the field and willingly involve themselves in the sphere of industrial and entrepreneurial development. The above two paras show "Entrepreneurs are both born as well as made" . 1.17 Entrepreneurial Guidance Entrepreneurs generally have skills and talents to ove~come the problems. Entrepreneurial management deals with this. In most of the cases, entrepreneurs are supported by the Government or Technical Consultancy Organisations (TCOs) who build up skills and talents in the entrepreneurs, through a support system. TCOs provide a wide range of consultancy and guidance services to the prospective customers on: • •

Selection of project Development of project

• Financing of project • Promoting of project They give all help ih the earlier stages of the project to see that the entrepreneurs are cleared from initial teething problems. Such guidance termed as 'entrepreneurial guidance' is necessary for the new entrepreneurs.

Small Scale Industries and Entrepreneur Development : 12

1.18 The Role of Entrepreneur in Economic Development Though India is considered as one of the important industrialised nations, it is still categorised as an agricultural country, where agricultural activities predominate like any other developing country and majority of the population depends on agriculture for their livelihood. As everyone knows Industrialisation is a sine-quanon of economic progress and it is one of the important means to improve the economy and is the only remedy to economic backwardness. If we compare agriculture vis-a-vis industry, following points favour industry (Refer Table 1.4). The industrialisation is an effective inskument of growth and welfare. This depends on the entrepreneurial development, as the industrial entrepreneur is the backbone of the economy. Entrepreneurs are viewed as kingpins of business, not merely because they are willing to trade for a profit, but they are the right exploiters of available resources in the right manner at the right time, at the right place, using the right opportunity. Thus in the process they may create more goods, employment and growth of national income. Table 1.4 Industries Favouring Agriculture

-

Details/Factors

Agriculture

Industry

1. Share (%) in the world economy

Decreasing

Increasing

2. Growth

-

Causes demand for agricultural projects

3. Raw material

Provides to many industries

More agricultural goods developed

4. Electricity/power, exploitation of natural and forest resources, building network of transport and communication system in the country

-

Provides

5. Development in the sector

Not much

Better employment opportunities

Economists, sociologists, politicians, psychologists, all place the entrepreneur in a special position. They have their own views on entrepreneurs. Economists view him as an essential element in generating investment opportunities. Sociologists viewed him as a sensitive energizer in modernisation of societies. PsychologiSts examine him as an entrepreneurial man. The entrepreneur contributes to the economic development with the following services. • Schumpeter opines that the entrepreneur is a person who introduces new commodities in the market, new methods in the organisation, finds out new sources of raw materials for production and novel methods of marketing. • Entrepreneur is responsible for industrial development in the country by taking risk. He causes balanced industrial deveiopment all over the country.

Entrepreneur and Entrepreneurship: 13

•

He is responsible for equal distribution of income and wealth.

•

He provides vast employment opportunities to the society; solves the problem of unemployment and wider employment.

•

He is responsible for increase in the per capita income of the citizens; also increase in the standard of living of the people.

•

He produces a wide variety of consumer and industrial goods useful to the society. He helps in Foreign Exchange inflow (increase of export earnings).

• •

(The national income of the country is enhanced with increased production). • 1.19

He is responsible in creating competition and thereby providing the commodities at affordable prices. Various views on the 'Entrepreneur'

Various views are there on the term 'Entrepreneur', as well as on the "Supply of Entrepreneurship". In most of the cases, the oipinions are oriented towards following view points: • •

Psychological Sociological

• Economic. Different theorists who can be categorised as belonging to particular school of thought are as under: Table 1.5 Theorists Categorisation Psychological

• Schumpeter • McClelland • Hagen • Kunkel

Sociological

• • • • •

Max Weber Cochran Hoselitz Stokes Young

Economic

•

Papanek • Harris • Kizner

,

Social and psychological factors advocate that entrepreneurship is most likely to emerge: • •

Under a specific set of social conditions When a society has sufficient supply of persons with particular psychological characteristics. According to advocates of economic factors, economic growth and development and entrepreneurship will occur most likely in those situations, where economic conditions are most favourable. The main focus of the theories of the social scientists is as follows:

Small Scale Industries and Entrepreneur Development : 14

Table 1.6 Views by Various Theorists Theories

Views by Theorists

1. Psychological

Schum peter

Theories McClelland Hagen Kunkel 2. Sociological Theories

Weber Cochran Young

3. Economic Theories

Bert F.Hoselitz J.R.Harris G.F.Papanek Kirzner

Main Focus • Individual and his innovativeness • Need for achievement • Technological change through technical r:reativii1 of man • Psychic needs • Values and sociolgical variables • Environmental influence (Belief system • Cultural values • Social structure • Reactive groups • Solidarity • Culturally marginal groups • Economic incentives • Inner drives • Economic gains • Exploits when market is out of equilibrium

Psychological Theories: Joseph Schumpeter is the first major theorist to put the human agent at the center of the process of economic development. Schum peter posits a single constitutive entrepreneurial function "Innovation." The business leader, in Schumpeter's opinion, is engaged in non-entrepreneurial "managerial" activities. According to him, both interest and profit arise from progressive change and would not exist in static society. Change in turn is the work of innovative businessmen or entrepreneurs. The manager is an entrepreneur only while he was making a creative or innovative response. To Schumpeter, entrepreneurs are individ~ls motivated by a will to power and their special characteristics being: (i) an intuitional capacity to see things in a way which afterwards prove correct (ii) energy of will and mind to overcome fixed talents of thoughts and (iii) capacity to withstand social opposition. David McClelland's theory as set forth in "The Achieving Society" may be viewed as a further development of Weber's protestant ethic in which an intermediating psychological motive - the "need for achievement" is introduced. A person with a high need for achievement is usually found to have little interest in performing routine tasks or in situations of high risk. He shows keen interest in situations involving moderate risk where skill counts. He has a desire for responsibility and a desire for concrete measure of task performance. This need for achievement is inculcated through child rearing practices and family socialisation which stress standards of excellence, material warmth, self reliance training and low father dominance. McClelland derived his results from the characteristics of different individuals demonstrated during his experiments. McClelland differed with Weber who proposed ideological values produced entrepreneurial behaviour. According to McClelland, Ideological values influence the family socialisation patterns, which in turn produces the need for achievement and results in entrepreneurial behaviour. In McClellands theory, the emphasis was on two factors:

Entrepreneur and Entrepreneurship: 15

• Internal- Human values, Motives (lead man to exploit opportunities to take advantage of favourable trade conditions) • External- Economic growth

(favourable opportunities for trade and unusual natural resources)

McClelland challenges Weber's assumption that entrepreneurs are motivated by profit. In his view, had the entrepreneurs been motivated only by profit and money making, many of them would have stopped working as soon as they had made enough, without risking further entrepreneurial ventures. Hagen's "On the Theory of Social Change:How economic growth begins" shares a great degree of similarity with McClelland's, "The Achieving Society," Hagen's theory is a mediating psychological explanation. His creative personality is an individual characterised by a high need for achievement, order and autonomy. His view of economic development, does not lay any emphasis on the spread of market, capital, accumulation, the percentage of profitable opportunities and willingness to save. Economic development is seen almost exclusively as a process of technological change which is brought about by the technological creativitly of individuals in society. He views the entrepreneur as a creative problem-solver, interested in things in the practical and technological realm, and driven by a duty to achieve. Factors contributing to the development of entrepreneurship are: Fairly widespread creatively problem-solving ability and a tendency to use it. Postive attitudes towards manual and technical labour and the physical world, so that the individual can channelise his creative energies innovatively in the technology of production. John Kunkel's behavioural model is concerned with the overtly expressed activities of individuals and their relations to the previously and presently surrounding social structures and physical conditions. In contrast, Young's treatment of psychic needs and values is passive phenomena reflecting group level activity, Kunkel moves in the opposite direction reducing values and personality types to the behavioural patterns from which they are inferred. Behavioural patterns are determined by reinforcing an aversive stimulus present in the societal context, such rewards and punishments not being limited to the child rearing period. Hence, entrepreneurial behaviour is a function of the surrounding social structure both past and present and can be readily influenced by manipulable/economic and social incentives.

Sociological Theories The social theories of Schumpeter and Weber are similar in scope and theoretical conclusions. The common influence of Marx is found in both. They are of simple constructs in terms of the number of variables and articulation of casual sequences and interactions. The energised entrepreneur appears in the traditional economy and sets in motion a revolutionary process of creative destruction. The key to competitive success for Weber's entrepreneur is his innovation in a thorough going rationalisation of every aspect of his enterprise, similar to Schumpeter's scheme. In the Weberian system, the entrepreneurial energies are generated by religiOUS belief. According to Weber, the main factor contributing to the development of

Small Scale Industries and Entrepreneur Development: 16

entrepreneurship is the 'Protestant Ethic' emerged from the religious belief system of Calvinistic Puritanism." His theory suggests that the belief systems of HindUism, Buddhism, and Islam do not encourage entfepreneurship. This has been challenged by many sociologists. The key elements in Thomas Cochran's theory are: • Cultural values • Role expectations • Social sanctions The entrepreneur represents society's model personality. This model personality is moulded by child-rearing practices and schooling common to a given culture. The performance of a business man, according to him is influenced by three factors: • His own attitude towards his occupation • The role expectations held by sanctioning groups • The operational requirements of the job. The determinants for the first two factors are the society's values. Bert F. Hoselitz provides the importance of culturally marginal groups in promoting economic development. He hypothesises that marg~nal men, because of their ambiguous position from a cultural or social stand point, are peculiarly suited to make creative adjustment in situations of change and in the course of this adjustment process to develop genuine innovations in social behaviour. Young is mainly concerned with inter-group relations and his theory of. change is based on society's incorporation of reactive sub-groups. A group will become reactive when two conditions coincide; The group is experiencing low status recognition and denial of access to important social networks and it possesses a greater range of institutional resources than other groups in society at the same system level. The Economists' View J.R. Harris and G.F. Papanek are the main advocates of this theory. Economic incentives are the main drive for the entrepreneurial activities. In some cases, it is not so evident, but the persons' inner drives have always been associated with economic gains. Therefore, these incentives and gains are regarded as the sl,lfficient condition for the emergence of industrial entrepreneurship. According to Kirzner, the characteristic of the entrepreneur is that he is just likely to boe an individual as a businessman. The individual who recognises that the market for a good or a service is out of equilibrium, will exploit this position. Where there is excess demand for a good at a given price, an individual may purchase goods at the prevailing price and sell to those who are prepared to buy at the .. higher price.

1.20 Rural Entrepreneurs Definition

A rural entrepreneur is an enterpreneur who works in an industry in the rural area. They are mostly the first generation entrepreneurs.

Entrepreneur and Entrepreneurship: 17

Problems of Rural Entrepreneurs

Industrial development activities in India have been concentrated around a few metropolitan cities and big towns. As a result of this, the development of entrepreneurship in backward regions has been adopted as a basic strategy of economic planning. In these areas, the entrepreneurs who are mostly first generation entrepreneurs, face several problems such as: • • • • •

Lack of Finance Shortage of raw materials Lack of market coverage Lack of technical/managerial skills Improper project planning

• Shortage of power • Lack of transport/communication facilities • Lack of testing facilities etc. Entrepreneurship among rural people is lacking mainly due to: • Risk taking abilities • Lack of business experience • Lack of aptitude and necessary motivation • Buraucratic procedures involved in setting up of the units • Initial harassment and hardships • Ignorance of various facilities and incentives available These make them not to venture with any attempt to set up industries. Further, lack of infrastructural facilities is a big hurdle in the growth of industries in backward regions, which is a basic prerequisite and has been neglected. A dynamic organisational infrastructure to coordinate and activise entrepreneurial development is essential. Such an organisation can effectively handle the lacunae in the above mentioned areas. Several steps can be taken to promote entrepreneurship in backward areas. • Proper coordination between concerned authorities • Deploying a special cell and with adequate staff for selecting and guiding genuine investors. This staff must be honest, sincere and with motivating qualities • Proper guidance in preparing techno-economic viability report • Proper infrastructural facilities development • Planners and policy makers should make themselves familiar with the problems and priorities of the area • Snags in the institutional framework and various schemes of assistance should be removed • Emphasis on industries based on local resources • Monitoring the progress of assisted units till it stabilises.

Small Scale Industries and Entrepreneur Development: 18

An integrated and multidimensional approach is required for the growth of entrepreneurship in backward areas and for identifying opportunities. The necessary technology, finance and other assistance are to be provided. Government agencies and financial institutions often provide essential infrastructural facilities like land, power, raw materials and finance at concessional rates. Technical guidance, training, marketing assistance, subsidies, and tax exemptions available are made known to them. A lack of coordination among the different agencies like banks, state financial corporations and the government should be elemunated or reduced and the officers of various agencies who are not knowledgable and also the officers who harass in this area are to be replaced. 1.21 Common Entrepreneurial Traits

Many research studies have been conducted on this subject. McClelland points out in his book 'Achieving Society' that successful entrepreneurs are characterised by: • An unusual creativeness • A propensity to risk-taking • A strong need for achievement Following entrepreneurial traits are found which are of importance: •

Total commitment, determination and perseverance

• •

Drive to achieve and grow Opportunity and goal orientation

•

Taking initiative and personal responsibility

• • • • • •

Persistent problem-solving Realism and a sense of humour Seeking and using feedback Internal locus of control Calculated risk taking and risk seeking Low need for status and power

• Integrity and reliability. The trait approach to entrepreneurship is useful. By developing a profile of a successful entrepreneur, it becomes possible to spot and develop entrepreneurs. We do not know which traits are necessary for entrepreneurial success. Many traits used to describe entrepreneurs also apply to many managers. The trait approach lacks specificity and is not applicable in all cultures. Another difficulty is that traits listed are all positive. Thus, the trait approach is not fully satisfactory. According to James J.Berna, the foliowing are true qualities of a 'good entrepreneur. ' • An enterprising individual, energetic, resourceful, alert to new opportunities, able to adjust to changing conditions and willing to assume risks involved in a change.

Entrepreneur and Entrepreneurship: 19

•

Interested in advancing technologically and in improving the quality of his product.

•

Interested in expanding the scale of his operations and reinvests earnings to this end. These are the basic criteria which must be used in evaluating entrepreneurs' performance in an under developed country. They sum up "Spirit of Enterprise." 1.22 Factors that motivate people to become Entrepreneurs According to P.N.Shiuma, following are the factors coming under two main categories:

I Motivating Factors } I

I

External __ "

• Assistance from Government fFinancial Institutions • Availability of technology fraw material • Other factors (demand of the particular product, utilisation of excess money earned from contractual estate business, start manufacturing to facilitate trading business since the product is in short supply etc.)

Internal_

• Educational background • Occupational experience • Desire to work independently in manufacturing line • Desire to branch out to manufacturing • Family background

Fig. 1.5 Motivating Factors

The presence of internal factors is no doubt a necessary condition for entrepreneurial activity to take place. But entrepreneurial ideas cannot result without a propitious environment which provides support as shown in the external motivating factors, which serves as a spark in the lightening of the entrepreneurial idea. Technically/professionally qualified entrepreneurs considered educational qualification as the main motivating factor. Several technical qualified persons had established enterprises in the field of their specialisation. Such en4r"epreneurs were prompted by their qualifications or specialisation to undertake the industrial activity. Desire to work independently in manufacturing line came out as another motivating factor. Business experience provides confidence to the entrepreneurs to reduce the element of uncertainity on the demand of the product, technology, raw material etc. Further, traders/merchants generally have initial finances as required by the financial institutions as promoters' contributions. They are sensitive to market incentives, and used to take risk in their fields. Occupational experience of the entrepreneur and nature of enterprise promoted also suggests that occupational experience is an important motivating factor.

Small Scale Industries and Entrepreneur Development: 20

I Factors motivating I new entrepreneurs External •

I

Strong desire to work independently in life Knowledge(Technical) /Manufacturing experience Business experience

• •

Internal • • • • • • • • •

I

Financial assistance from institutions Sheds in Industrial Estates Machinery on hire purchase Government attitude towards helping new units Financial assistance from non-government sources Encouragement from big business Heavy demand Good profit margin Availability of sick units at a lesser price

Fig. 1.6 Factors Motivating New Entrepreneurs

1.23 Behavioural Pattern of Indian Entrepreneurs The Internal and External motivating factors have already been described in para 1.22. Among the external motivating factors, most of the entrepreneurs have felt that they would not have taken up the project but for assistance from financial institutions and also provision of infrastructural facilities by the Government. Availability of technology is also equally important. This has attracted many entrepreneurs. Technology availability can be from indigenous sources or through foreign collaborations. Vast majority of the new entrepreneurial class enter industry for the following main reasons: • •

Their strong desire to achieve something independently in life. To utilise their technical knowledge/manufacturing experience in similar 'or related line.

• Government/Institutional assistance availability. Entrepreneurial behaviour is a result of an interaction of individual factors and situational factors, of psychological factors, social factors and experiential factors. Individuals differ in their potentiality for entrepreneurship. Even a high degree of potential need not invariably result in entrepreneurial success. In view of this, factors of training, institutional support and other factors assume importance. Policy and programme planning may take this into account and the suitable measures to identify a right type of person, give him the right type of training, provide effective institutional support and also device suitable modes of evaluating the impact of such efforts. • Socio-economic background of an individual is responsible to a great extent for the habits and attitudes of the people and therefore, their perception • People with diverse backgrounds enter into different types of industry depending upon their habits and attitudes

Entrepreneur and EntrepreneurshIp: 21

Examples •

Men from agricultural background may prefer to start an industry with low technology and with modest capital requirements.

•

Family of professional men and skilled craftsmen may be attracted toward's complex production methods because they are already familiar with specialised knowledge. Agricultural and commerce people may like to set up large sized firms, because of their accumulated wealth whereas professionals and craftsmen may begin on a small scale and then expand. People from commerce may not be interested in entering industries with a long gestation period and/or involving complex technologies. They are predisposed to considerable financial risks. If we consider Indian history, only certain communities enter business since their forefathers were doing that kind of business. Setting up of cotton mills and textile mills by Parsees and Gujarathis. Setting up of traditional industries like textiles;jute, sugar etc. by people with mercantile background involving low risks and guaranteeing quick returns, with no complex technology.

•

Certain communities interested in the Jewellery industry. Entrepreneurs with a background in professions and handicrafts launched non-traditional industry involving complex technology, high risks and longer gestation periods and set up comparatively small sized firms. Agriculturists entered traditional industries .involving moderate risks and simple technology. Entrepreneur's need of self actualisation is manifested in the need for achievement which forces him to create something new. He • • • •

is a competitor creates new product create a new order creates a newer way of doing things

• creates a new standard • never satisfied with the present work, looks for more challenging jobs The behavioural pattern of such high achievers is: • He acts out of desire and not out of necessity • •

He is proactive but not reactive He never adapts himself to a situation, instead influences the environment to his liking

• • •

He will create demand for his product He feels himself attached to his activities He expects quick feedback of the results of his actions

Small Scale Industries and Entrepreneur Development : 22

•

• • • • • • •

Though he is a marathon runner and does not settle for a short race, he often operates from a high risk position as per outsiders, but it is a moderate risk according to him. He is very active professionally but lazy in his personal appearance. .. He is conscious about time, committed to work, efficiency and achievement. He can approach the top man in the organisation to get his job done. He is not a complaining child but a brooding 'little professor.' He accepts responsibility for his actions. He is hopeful about future. He sees opportunity in a crisis. He may not have a brilliant academic career, however, he is a voracious collector of information but not a 'bookish type.'

1.24 Essential Qualities of Entrepreneurial Person Following are the essential qualities:

7

1

15

8

12

11

Fig. 1.7 EssentIal Qualities oj Entrepreneurial Person legend:

1. Need to achieve (A strong desire to be a winner) 2. Perseverance (A quality of stick-to-it)

Entrepreneur and Entrepreneurship: 23

3. Moderate risk taker (A middle of the road strategy) 4. Ability to find and explore opportunity (Alert to take opportunity, to seize and convert it to advantage) 5. Analytical ability (Unaffected by personal likes/dislikes) 6. Using feedback (Important to know how you are doing) 7. Using uncertainty (Welcome tackling an unfamiliar/interesting situation) 8, Independence (Dislike for working for others) 9. Flexibility (Flexible in decisions) 10. 11. 12. 13.

Planner (Think ahead, plan future, make it true) Interpersonal skills (Comfortable while dealing with people at all levels) Motivator (Influencing others) Stress taker (Capable of working for long hours and tackling different problems) 14. Positive self concept (Aware of him) 15. Orientation to the future (Tend to think ahead) Four major decisions of entrepreneurship are:

to become an entrepreneur

Fig. 1.8 Four Major Decisions of Entrepreneurship

1.25 Enterprise It is an undertaking, which involves various activities and the willingness to take risks. It consists of people working together primarily for the purpose of making, selling and distributing a product or service. It is the basic unit of an organisation. It produces goods and services worth more than the resources used. Valuable resources like raw materials, power, labour etc. are used to produce the output. It is not an ad hoc effort to produce a single product or output but aims at a recurring and continuing effort to produce a stream of products. Every enterprise ends up with either net profit or loss.

Small Scale Induatrle. and Entrepreneur Development : 24

1.26

Difference between Entrepreneur and Enterprise

Both are interlinked. Enterprise being the offshoot of an entrepreneur and its success is from entrepreneur. Entrepreneur is the fourth factor of enterprise. The four factors of an enterprise are: • • • •

Land Labour Capital Entrepreneur

1.27 Characteristics of a Large Scale Enterprise • • • • • •• • • • • • • •

Large capital Large assets Engaged in diversified activities Promoted and professionally managed through employed persons Huge turnover/sales/profits Capital by large section of share holders Promotes and pushes goods in the market Trend setters Easy access to institutional finance Greater leverage for development Well acquainted with political and officialdom Create demand through various programmes Great visionaries

1.28 Significance of Entrepreneurial Support Systems in India

Basic Requirements

Support System

FI!l. 1.9 Signl/lcance of Entrepreneurial Support

Entrepreneur and Entrepreneurship: 25

Such support system should function till such time that a critical number of entrepreneurs are developed 1n the society. The type of support system required varies from entrepreneur to entrepreneur, particularly more so with small scale. An entrepreneur with engineering background needs a different support as compared to an entrepreneur with business background. Small entrepreneurs face several problems and are more vulnerable to failure. The types of problems faced are: • Management (lack of sound organisation, poor management of working capital) • • •

Marketing (severe competition, dependency on small number of buyers) Production (shortage of raw materials, power; low level of technology) Finance (inadequate, paucity of capital or non-productive expenditure of working funds) The support systems needed at different stages are: Selection and training - EDP - Intensive Apprentice training Preinvestment study - Market assessment - Testing of a product Operational stage - Finance, infrastructural facilities - production Post investment stage - Market strategies - Evaluation and ploughing back profits

1.29 Traits of Successful Entrepreneur Table 1.7 Traits of Successful Entrepreneur 1. High need for achievement o Strong desire to do something different from others. o Standard of excellence and success o High self-esteem 3. Risk taking o Takes calculated risks o Does not like to undertake tasks which are either very easy or impossible to achieve. o Undertakes tasks or makes decisions that involve a moderate probability of success and where he is sure that his efforts can influence the success. 5. Initiative and Independence o Takes initiative and does not wait for others to act first o Likes to lead rather than being led o Likes to act on his own rather than follow others' directions 7. High personal efficiency o Has a sense of effectiveness o Presents himself with ability to do things With higher degree of efficiency

2. Commitment and conviction o Fully commits himself to the project and rests only when achieved. o Leaves no effort to complete the task in time 4. Capacity to analyse Knows the need for information, its relevance, where and how to find it. o Has a thought process for diagnosing problems, conceiving and comparing alternative courses of actions and approaches in the direction to solve rather than to avoid. 6. Hopeful about future and search for environment o

o

Reasonably optimistic and tends to look to future with hope Tends to search the environment in order to seek answers to questions

o

Sets goal and plans his line of operations

o

Perceives opportunities

Note: (i) Only some of the important and essential ones have been listed above. (if) It is not necessary to have high degree of these traits but a fairly good combination of the above is sufficient. The level of degrees could be increased by motivation and proper training through EDPs.

Small Scale Industries and Entrepreneur Development : 26

Following are the qualities of a good entrepreneur: • High level of administration capability • •

Sound technical knowledge Capable of taking decisions correctly and qUickly

• Good at communication It is the possession of these scarce qualities that makes an entrepreneur have an advantage over others who lack these, for success. In addition, he should also be a generalist so that he can discharge his function without delegating it to others. He should have sufficient organisational skills to perform the organisational functions effectively and efficiently. To some extent, entrepreneurial qualities are innate (not all). Some can be improved or enhanced by training or experience. E.g. Analytical ability, computation skills etc. A successful entrepreneur should have: • Technical competence • Initiative • Good judgement • Intelligence • Leadership qualities • Creativeness • Self confidence • Energy • Attitude • Fairness • Honesty • Tactfulness, and • Emotional stability A successful entrepreneur today must be a practical industrial psychologist, well versed in guiding, developing and controlling the actions of his men to the expected direction. To be successful in entrepreneurial role, he should adopt such principles towards his employees which would help him in achieving the desired goals at the right time. These principles will not only help within the organisation but also outside the organisation i.e. with customers, suppliers and government officials. We have often seen that, brilliant students who have secured ranks from university shy away from becoming good entrepreneurs, because they will fail miserably in coping with human emotions. A successful entrepreneur is involved in: • Commercial potential of a product or service • Design of operating policies in marketing, production, product development and the organisational structure • Carrying out the whole set of activities of the business, with his high capacity for taking calculated risks and has faith in his own capabilities.

Entrepreneur and Entrepreneurship: 27

Some writers say that the functions of an entrepreneur are: • Coordination of the business management of the enterprise • Risk taking • Controlling the enterprise • Innovatiop for change • Motivation and other related activities The entrepreneurship exists in every field of economic endeavour (Business can be either as a manufacturer or as a distributor). Manufacturing activities as compared to distribution activities require a relatively high capital investment and higher entrepreneurial abilities.

Enterpreneur

Fig. 1.10 Entrepreneurial Functions Attributes of a successful enterpreneur are as given below: • He should be a technically qualified person • Have adequate shop floor experience to guide the machine operation in tool-setting techniques or die-maker on the specific needs of his machine tools • Be familiar with the raw materials, their specifications, quality, sources of availability, price sheet etc. • Have knowledge of marketing channels, distribution network, agency practices, transport intricacies and the economics of packaging • Know how to ensure the stipulated quality of his product • Know taxation principles and laws governing SSIs • Be willing to put up with bureaucratic regulations and insults and move with the situation • Know how to avail himself of the various benefits available for the SSI • Possess the following qualities-expertise, shrewedness, resourcefulness and perseverance (No substitute for hard work)

Small Scale Industries and Entrepreneur Development: 28

Have the guts to withstand the polluted climate in which he has to build his unit

1.30 What makes an Entrepreneur? Several things are needed in making of an entrepreneur. Individuals who show initiative; establish, maintain and expand new enterprises constitute the entrepreneurial class. Following have a bearing on the growth of entrepreneurship: (i) Socio-political and economic conclusions (Ii) Availability of industrial technology/knowhow (IIi) State of the art and culture of business and training (iv) Existence of markets for products and services (v) The incentives and facilities available for starting an industry and business A conducive environment is created through the policies and interest of the government in economic and industrial development.

1.31 Technocrat Entrepreneur These entrepreneurs have requisite qualification and experience, administration capability, flair and ability for decision making, computational and delegation skills, organisational skills, are good at communication, sound in technical knowledge. They will have more chances to succeed as compared to others who have negative aspects in the above basic qualities. It is the possession of these scarce qualities which makes them good entrepreneurs to stand high with many advantages. Such entrepreneurs can 'work themselves as generalists and can discharge their functions most effectively without delegation. Even if they delegate, they possess the skills to delegate and organise things in a better way.

1.32 Check List for a Small Sca·le Entrepreneur before Starting a Unit You find below a check list for small scale entrepreneurs who have to examine the same before starting a unit: • Is there any scope for your industry for development? • Enough demand for the items you manufacture? • Do you have experience in manufacturing-marketing etc.? • Have you studied the viability of your project? • Factory space availability (including future expansion)? in the industrial estate in the industrial area or in any other place • •

Is necessary licence obtained? Are the raw materials needed available locally or are they to be ·imported? If imported, formalities involved etc.

Entrepreneur and Entrepreneurship: 29

..

Are facilities available for: • Machines, Tools, Equipment, Quality Control etc. •

Necessary labour available? Skilled, Semiskilled?

•

Do you have the necessary technical background for the manufacture of various parts, Production Planning, Inspection and Quality Control, Assembly, Packaging, Material handling, Servicing and maintenance, Diversification etc.

•

Do you have the necessary finance? Through bank or financial institutions? Short term loans? Long term loans? Working capital? Have you any assets? bther sources for raising money.

•

Have you approached any of the institutions like: Directorate of Industries, DICs, SISI, NSIC, SIDCs, SSICs etc. for technical matters? State Financial Corporation, SIDBI etc. for financial help? Do you have adequate cash/bank arrangement to furnish the earnest money required by NSIC?

•

• • • •

What are your markets? Local, country-wide, Export. How do you market your products-through retailers, wholesalers, agents; export agencies (for exports)? Transportation facilities-Road, Rail, Ship? Communication facilities-telephone, computers, E-mail, EDI, Internet etc. Any courses attended by you to enrich your knowledge? Product design by whom? Your own design, from some company or through collaboration? If collaboration-Technical knowhow fees, Royalty/ Commission on Sales, Agreement and Government approval for the same.

1.33 Various Types of Organisations an Entrepreneur can form

The type of organisation is decided upon the complexities, nature of the product and size of the unit. Different types of organisations an entrepreneur can think of are: • Proprietorship • Partnership • Companies Sole Proprietorship: This is characterised by a single individual, starting has less venture, using his own skill and intelligence. All profits will go to the proprietor and he alone takes all the risk. The owner exercises personal skill on all the activities. There are no statutory regulations attached to sole proprietorship. A sole proprietorship will have • • • • .'

Limited capital Limited managerial skill Unlimited liability Uncertainty of continuity

Small Scale Industries and Entrepreneur Development : 30

Partnership: It is the relation between persons who agree to share profits of business, carried on by all or by any of them acting for all. The number of partners can be between 2 and 20. Profits are shared amongst the partners in an agreed proportion. As in case of proprietorship, the liabilities of partners are unlimited, which means creditor can realise dues from any or all the partners. Partnership deed, normally, is written indicating the nature of the firm and names of partners, amount of capital that each partner indicates to contribute and ratio of sharing profits and losses. Partnership will be advantageous when the size of business is relatively small and the risk involved is not high. Companies (I) Private Limited A private limited company is one, which by its Articles of Association, • Limits the number of its members to 50 excluding those who are employees or were its employees in the past • Prohibits an invitation to the pUblic for subscription to its shares and debentures • Restricts the transfer of its share • The minimum number of members required is two •

The minimum number of directors is two

(i1) Public Limited

Any company which is not a private limited company is a public limited company. The minimum number of members required to form a public limited company is 7 and there is no maximum limit. Here also the liability of members is limited to the extent of amount due on the shares, if any. In case of huge project outlay, public limited company is formed, the shares are offered to general public for subscription. 1.34 'Entrepreneur as a Dreamer' Good entrepreneurs are those who always identify the business and build the same effectively. After developing the business initially, they try to sieze opportunities for further growth. Setting up of business and finally achieving the success of the venture is always difficult. Only few can succeed. It is difficult to have success in todays uncertain economic circumstances. But the entrepreneur has no choice. He continuously dreams of all things possible and is determined to fend for himself because he is convinced that no one else will fend for him. He builds up qualities like administrative capability, flair and ability for decision making, computation skill, delegation skill, organisational skill. He is good at communication, has sound technical knowledge, achievement motivation etc. Entrepreneurship involves a few major decisions: • • • •

Decision to b~come an entrepreneur Identification and selection of an opportunity Business plan formulation and its implementation Entrepreneurial continuum

Table 1.8 Comparsion of Different Types of Organisations Factors

1. Operation by

2. Set ups 3. Run by 4. Hiring

5. Business carried on

6. Risk 7. Popular in 8. Money brought 9. Share

Proprietorship

Partnership

Companies

• Individual Eg. Majority of SSls Tiny sector units Low capital investment SSUs. • Atomistic primitive type and no organisational structure. • Owner with assistance of family members and close friends. - May hire one or two journeymen - Adjusts employment levels according to fluctuations in business • In a personal way, accounting casual, business and personal funds mingled. • Bears the entire loss and his personal assets may be affected. • Retailing, wholesaling, construction, real estate and traditional service. • Individually money or even property (may be also immovable). • Full share

Partners (embark upon a joint venture) Two persons minimum who are capable of entering into agreements (but not created with a minor, but limited to 20 persons as per section 11 of Companies Act, 1956 contravening the provisions of section 11 is an illegal association and is punishable with fine.

Seven or more persons where the company to be formed will be a private company (restricts the right to transfer its shares, limits the number of its members to fifty, prohibits any invitation to the public for subscription of shares in or debentures of the company

m ::I

Ii '0 Ii

.. ::I CD C DI ::I

As per the Companies Act, 1956, incorporation, is the act of conferring judicial personality on a group of associated persons.

a.

m ::I

Ii Ii

'0 ::I CD

c iil

::I'

ij"

Every partner is jointly and severaly liable for any loss and personal assets may be brought into pay business debts. Partners bring capital or even property (may be also immovable) Proportion to their share.

w ....

The capital of the company with which the company is to be

•

Factors

Proprietorship

10. Agreement between partners

Partnership

In India, partnership organisations are governed by the Indian Partnership Act, 1932. Section 4 of the act defined a partnership as "The relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all"; Conditions: Minimum 2 persons • Anagreement should be there between persons Persons should be legally competent To enter into a contract Persons should carry on some business (To run a charitable institute will not constitute a partnership) • Motive is to share profits Business carried on by all or any of them acting for al Contract between partners and the right during the subsistence of the partnership is to get share of profits from time to time as may be agreed upon. Partners are liable for the debts and liabilities of the firm; jointly liable for the sales tax and penalties due by the firm. It is not a matter of heritage status but purely one of contract, No heir of a deceased partner can Claim to have become a partner without the consent of others. No introduction of partners into a firm without the consent of all the existing partners. Jointly and severally responsible by every partner.

·

By the proprietor.

registered and the division thereof is into shares of a fixed amount. The subscribers shall not take less than one share and each subscriber shall write opposite to his name the number of shares he takes.

(/)

3 ~ (/)

g

i' Ei

·

..-.. .

·

-

·

II. Responsibility of business loss and personal assets

Companies

a. c

ii'

ID

:::J

a.

m :::J

i "C i:::J

..c CD

c

CD

~ 03

"C

CD :::J

Col

!\)

Entrepreneur and Entrepreneurship: 33

Hence, he dreams of venturing into complex projects. He dreams of new ideas and opportunities. He would like to have innovation for change. He would like to take calculated risks and has faith in his own capabilities. He would like to coordinate the business management of the enterprise without anybody's help and control the enterprise, motivate others. He would therefore dreams to be a successful entrepreneur by associating himself with many of the activities. An advantage in the private limited company is (that, the) liability of members is limited. Four Factors of an Enterprise are:

Fig. 1.11 Four Factors of an Enterprise Fourth Factor of Enterprise Is Entrepreneur 1.35 Training Helps the Entrepreneurs to Perform Better The definition of training is that it is the systematic instruction of people at all levels in new skills or attitudes. It is a scheme of instruction which is more or less formal and ongoing which is planned, systematic, consistent, pervasive and monitored to measure its effectiveness. The man who trains is a trainer and the man who is trained is a trainee. All individuals have a need for training. This is more so with the newly recruited people who need induction into the rationale and objectives of their jobs, and need to be trained in specific skills and routines. For learning there is no end. Hence, people at all levels undergo training. Even GMs, CEOs, Directors attend training programmes inspite of their busy schedule. The need of training entrepreneurs is more of a necessity. Very few individuals indeed do their jobs in an ideal way. Most of the people do it wrongly because of the wrong place, wrong staff. Many jobs that should be done are overlooked. Pressures created on the employees may be a reason for doing the jobs in the wrong way, incorrectly, with mistakes. A trained person will never commit mistakes. He will do his work properly. Objectives of Training are as under: The objectives of training are shown in the following Figure 1.12. The principles of training are,shown in the Figure 1.13.

Small-Scale Industries and Entrepreneur Development: 34

Impart basic knowledge Build necessary skills

Impart knowledge of marketing of goods

Assist Entrepreneur to function effectively

Objectives of Training Build up second line of workers

Expose entrepreneurs to the latest development

enterpreneurs

Fig. 1.12 Objectives of Training Training given in a proper atmosphere

Principles of .Training

practical training

Fig. 1.13 Principles of Training

At all levels

Entrepreneur and Entrepreneurship: 35

Importance of Training Enables o o

o o

o

o o

o o

Reduces

The avaiiabUity of skilled workers at all levels of management. Orders to perform the work more efficiently and precisely to maintain quality of products.

o

Employees to occupy higher position. New techniques can be easily adopted. Good relations between employees and management. The workers to work speedily The trained worker not to leave the company New techniques can be adbpted Standardisation can be adopted

o

o

o

o o

The number of accidents. Excessive scraps, defects and wastage in the production process. Fatigue. The supervision cost. Labour tum over. Spoilage

Increases o o o o

o

The potential ability of workers Performance improvement. The earning of employees. Speed of production (overtime work and payment avoided). Team spirit and team work.

Four factors that influence the development of entrepreneurship are: o

o o

Motivational Factors • Need for achivement - Personal efficiency - Coping capability Skills Knowledge

o o o o

o

o

o o

Socio political Economic Policies of the government

o

o o o

Financial Corporations Developmental agencies SSls Consultancy Organisations Voluntary Organisations

Family expectiations and pressures Risk taking Self reliance Value to work Value given to work

Fig. 1.14 Four Factors Influence Entrepreneurship It is evident that training is a significant input in influencing the above four components of entrepreneurship. As the aim of training is to achieve development and change through planned efforts, it plays a Significant role in entrepreneurship development (ED). Training for ED is required not only for potential or existing entrepreneurs, but also for different types of persons who are directly or indirectly involved in that process. They are: • • • • •

Policy makers Government executives (incharge of planning and implementation of EDP) Field personnel (likely to train and counsel, potential and existing entrepreneurs) Personnal working in the support systems Workers in the voluntary organisations.

1.36 Entrepreneur with Heffalump

Kilby used the word Heffalump and compared an entrepreneur with Heffalump. Heffalump is a large rare animal which was hunted by many individuals, but no one

Small Scale Industrle. and Entrepreneur Development: 38

succeeded in capturing this animal. All those persons who claim to have seen him describe differently its peculiarities and thus no common agreement exists in their description about this animal. A detailed note on the entrepreneur's functions in a developing economy was given by Kilby, which included some of the managerial functions also which can be delegated to subordinates for efficient performance. Kilby has divided 13 functions into 4 groups. In the strict sense, entrepreneur will perform the functions marked '.' shown in Agure 1.15. For others, he will employ experts. • Dealing with public bureaucracy • Management of human relations with the firm· • Management of customer and supplier relations • Acquiring and overseeing assembly of the factory • Industrial Engnieering • Upgrading process and product quality • Introduction of new production techniques and products

Entrepreneur function in a developing economy

• • Perception of market opportunities •• Gaining command over scarce resouces • Purchasing inputs • Marketing of the products and responding to competation

• Financial Management • Production Management

Fig. 1.15 Kilby's Classification oJ Entrepreneurs Functions

l.ii7 Soclo-demographlc Factors Influencing the Birth of an Entrepreneur The psychological theories by Joseph Schumpeter and David McClelland, Hagen, Kunkel and the sociological theories by Weber, Cochran, Young, Bert E Hoselitz and Economic theories by J.K. Harris and G.E Papanek, Kirznel are already explained in para 1.19. . Joseph A.Schumpeter, said that the 'social climate' is responsible for the emergence of entrepreneurs. This social climate refers to the political, socio psychological atmosphere within which the entrepreneurs must operate. An entrepreneur's ability lies in his capacity to mobilise the capital for effecting his proposals. Sound financial families may provide the situational context for the growth of entrepreneurs. Higher income and level of living facilitates the growth and development of entrepreneurial ability. In most of the entrepreneurs, the desire to make money, desire to work independently have encouraged the entrepreneurial abilities. Where there is a will there is a way. Similarly, even at the lower economic levels, the entrepreneur have disposed of jewels, land, buildings etc. and entered into business and industry. In India, the educational and technical qualifications, family background, demographic factors have played greater role in influencing entrepreneurship. Communities whose population is comparatively low in number (e.g., Chettiars, Baniyans, Marwaris, Vysyas etc.) and who are known for their enterprising nature, are living every where. After selecting appropriate businesses to their liking in their respective ancestral hereditary fields, they have flourished. The joint Hindu family system has promoted entrepreneurship by providing environment developing skills and building strong traditions and customs. The environment of the family prepares its members for certain types of business, profeSSion or occupation. Those born in rich business families 'with silver spoons' in their mouths have not

Entrepreneur and Entrepreneurship: 37

only an advantage of having seed capital for carrying out business, but also learning basic business skills by continuous interaction and contacts with parents, customers, employees, friends, relatives etc. The personality factors like age, marital status, religion and community influence entrepreneurship. The young age (25-35) is an encouraging factor to take up risk and do business.

1.38 Locational Mobility of Entrepreneurs The dictionary meaning of mobility means quality of being movable. This happens mostly in the case of rural enterpreneurs who would like to move from one place to another whenever an opportunity arises. The development of rural industrial increases the level of income in rural areas, and tends to break down the old self-sufficiency of the family and to lessen its cohesiveness, creating the pattern of leisure and work. Rural industrialisation should be looked upon not merely as way of containing the rural workers and stopping them from migrating to urban areas by providing them some kind of remunerative employment in the villages, but as a dynamic element in the process of raising the productivity and income levels of the workers in rural areas. The main characteristics of these industries are to develop local initiative, cooperation and spirit of self-reliance in the economy and at the same time, help in utilisation of the available manpower for processing locally available raw materials by adopting simple techniques. These are capable of offering employment opportunities at the place of residence to a large section of population. The village industries are an antidote to the widespread problems of disguised unemployment or under-employment. These decentrialised industries require less gestation period on the one hand and produce goods of common necessities on the other. These industries have the capacity to correct regional imbalances by initiating industrial activities on dispersed basis in the most neglected, backward ina~essible areas where perhaps large-scale sector is unable to penetrate. Being small, these activities can ensure maximum participation of workers in management thus ensuring a feeling of involvement which is so uncommon with the large-scale sector. 1. Bettt:::r livelihood 2. For better entertainment, amusements etc., 3. For good saving's 4. Children education.

The mobility also takes place for the following reasons: (I) In many cases, entrepreneurs leave their employers. Most people who start their own business have previously worked for another company. There are many reasons for a person to finally make the decision to break away and start his own business. Reasons are: • • • • • • •

They felt victimised by their employers. They did not want to have to justify their ideas to superiors. They did not fear failure but used it as a source of motivation. They were self confident and competitive. They enjoyed their businesses, so that work and pleasure blended together. They were individuals who thrived on risk and would begin new businesses when the oldones were profitable but thrill free. They were open to all kinds of new ideas.

8mall 8011e Inc:luatrlea and Entrepreneur Development: 38

•

They were reluctant to seek outside help, mainly because they truly enjoyed solving business problems themselves. • They were convinced that most people did not know what the hell they were doing. • They believed their businesses were unique and that no one else truly understood them. Rea.on. for leaving their employerl to .tart their own bu.lne•• In most of the cases, primary reasons are: • Independence, • Excitement Other reasons are: • A new Invention • Social responsibility Desire to build a legacy • • Ability to do It better than the boss Financial reward • • Challenge (II) New Venture Creatorl come from: • They start their business without first having worked for someone else. • Some would have worked. But they might have lost jobs because of layoffs, terminations, or forced early retirement or voluntary retirement schemes, corporate restructuring and mergers. Many of these people opt for a business of their own rather than for another job with a different company. (III) Immigrant Entrepreneur. Nearly 5% of Asians and 2% of Hispanics in the US are self employed. The chief reasons for Hispanic and Asian business success appears to be networking and community support. The most visible example of immigrant entrepreneurial success Is the Cuban community in Miami. The Cuban Immlgrat:lts did not come to US with large amounts of money or Influential local contacts, but they did come with a strong desire to share the fruits of a capitalist system. They started their own businesses, helped each other overcome obstacles and patronised each other's business. QUESTIONS Section A 1. 2. 3. 4. 5. 6. 7. S. 9. 10. 11. 12. 13. 14. 15. 16. 17. lS. 19. 20.

State the types of Entrepreneurs. (BU, BBM, ApriVMay 93)(Anl: para 1.10,1.11- pages 5-S) Who is Fabian Entrepreneur? (BU, BBM, April 96, Nov/Dec 2000)(Anl: paral.l0-page 6) Who Is an Entrepreneur? (BU, BBM, April 97, Nov 97)(Anl: para1.1,1.2-pages 1&2) Who are Intrapreneurs? (BU, BBM, April 97, 2003)(Anl:para1.S-pages 4,5) Mention the qualities of a true entrepreneur. (BU, BBM, April 97)(Anl:para 1.6,1.25-pages 4,25-27) Who il a technocrat entrepreneur? (BU, BBM, ApriVMay 99, Nov 99)(Anl:para1.31-page 2S) Who II an entrepreneur according to Schumpeter? (BU, BBM, Nov 96)(Anl:para 1.7-page 4) Who Is a small entrepreneur? What are the functions of an entrepreneur? , Kilby's thirteen functions of an entrepreneur were made into four groups. Mention them. Who Is a true entrepreneur? What are his qualities? What Is Schumpeter's view on the entrepreneur? Compare and contrast an entrepreneur with a manager. (BU, BBM,'Nov 9S)(Anl:para 1.9-page 5) What are the problems of women entrepreneurs In India? What do you mean by entrepreneurial guidance? Who are rural entrepreneurs? What Is an enterprise? What are the characteristics of a large scale enterprise? Who is an Innovative entrepreneur? Mention 6 types of entrepreneurs. (BU, BBM, Oct/Nov 95l(Anl:para 1.10 &1.11-pages 5-S)

Entrepreneur and Entrepreneurahlp : 38 21. Who Is a technocrat? (BU, BBM, April 2001, 2003)(Anl:para 1.31-page 28) 22. Mention the types of women entrepreneurs (BU, BBM, AprlVMay 99, 2003)(Anl:para 1.13-page 9,10) 23. Define sole trading concern. (BU, BBM, April 96)(Anl:para 1.33-page 29) 24. How do you make a choice of a sUitable organisation? 25. What do you mean by a single proprietor? Mention Its advantages and disadvantages. 26. What do you mean by partnership form? What are Its advantages and disadvantages? 27. What Is a corporate body? Mention the advantages and disadvantages? 28. Who are born entrepreneurs? (BU, BBM, Oct/Nov.2001)(Anl:para 1.16-page 11) 29. Mention any three entrepreneurial tralts.(BU, BBM, AprlVMay, 2003)(Anl:para 1.29-page 25)

Section B 1. What are the essential qualities or traits of successful entrepreneur? (BU, BBM, April/May 93, April 98)(Anl:para 1.24,1.29-pages 22,25,26,27) 2. Explain the soclo-demographlc factors InfluenCing the birth of the entrepreneur. (BU, BBM, April9p)(Anl:para 1.37-page 35.36) 3. Explain the motivational forces that Influence an entrepreneur. (BU, BBM, April 96)(Anl:para 1.22-page 18,19) 4. Mention the types of women entrepreneurs. What are the extra facilities given to women entrepreneurs In India. (BU, BBM, Nov 97)(Anl:para 1.l3,10.4-pages 9&10,203-209) 5. Explain briefly entrepreneurial traits. (BU, BBM, Nov 97)(Anl:para 1.29-page 25) 6. Distinguish between Entrepreneur and Entreprlse. (BU, BBM, April 98)(Anl:para 1.2, 1.26, 2.3-pages 1&2,23,39) 7. How are the entrepreneurs classified? Explain. 8. What are the characteristics of Small Scale Entrepreneurs? 9. Entrepreneurs are born and not made. Critically examine the statement. (BU, BBM, Oct/Nov.2001)(Anl:para l.16-page 11) 10. How did the word 'Entrepreneur' first appeared? Mention the events happened later on pertaining to this word. 11. What are the problems of rural entrepreneurs? 12. What are the attributes of a successful entrepreneur? 13. Write down a check list for a small scale entrepreneur to examine before starting a unit. (BU, BBM, Nov 98)(Anl:para 1.10-pagel 5&6) 14. Explain any four types of entrepreneurs. 15. Briefly discuss the Importance of entrepreneurs. (BU, BBM, AprIl2001)(Anl:para l.18-pages 11&12) 16. 'An Entrepreneur Is a dreamer.' Comment. (BU, BBM, AprIl2001)(Anl:para 1.34-pages 30&3) 17. Briefly discuss the characterstlcs and skills of an entrepreneur. (BU, BBM, Nov 99)(Anl:para 1.15,1.5-page 10,3&4) 18. Which are the four factors of an enterprise? Explain. 19. What do you understand by locatlonal mobility of entrepreneurs? Mention the factors InfluenCing locatlonal '!loblllty of entrepreneurs. (BU, BBM, AprlVMay, 2003)(Anl: para 1.38-page 37)

Section C 1. Discuss the Importance of an entrepreneur In developing economy, with special reference to (BU, BBM, April 95)(Anl:para l.18-pages 11&12) Indian conditions. 2. What makes an entrepreneur? What are the qualities of a good entrepreneur? (BU, BBM, Nov/Dec 2000)(Anl:para 1.29,l.24-page 4,22,23,25,26) 3. Discuss the various qualities of a true entrepreneur. (BU, BBM, Nov 96)(Anl:para 1.6,1.29-page 4,22,23,26,27) .4. Explain the motivational forces that Influence an entrepreneur. (BU, BBM, Nov 96)(Anl:para 1.22-page 19,20) 5. What Is the role of an entrepreneur In economic development? 6. Explain the various views on the entrepreneur. 7. What are the factors that motivate people to become entrepreneurs? 8. What are the behavioural pattern of Indian entrepreneurs? 9. What are the different types of organisations an entrepreneur can form? EXplain each one of them. 10. Why did Kilby compare the entrepreneur with Heffalump? 11. Training helps the entrepreneur to perform better: comment. 12. Explain the importance of training? 13. r>iscribe the characteristics and classification of entrepreneurs. (BU, BBM, April/May, 2003)(Anl:para 1.11, U5-pages 5-8,10)

Entrepreneurship

2.1. Definition Undertaking of an enterprise is entrepreneurship. Entrepreneurship is the function of seeking investment and production opportunity, organising an enterprise to undertake a new production process, raising capital, arranging labour and raw materials, finding a site, introducing a new technique and commodities, discovering new sources for the enterprise. The conceptual model of enterpreneurship, according to John Kao (Entrepreneurship, creativity and organization, Prentice' Hall, New Jersy, 1989, p.92) is as under:

Fig. 2.1 Conceptual Model of Entrepreneurship

Entrepreneurship: 41

2.2 Other Definitions of Entrepreneurship Various definitions given by different experts are as under: Experts Definitions of Entrepreneurship A.H. Cole It is the purposeful activity of an individual or a group of associated individuals, undertaken to initiate, maintain or aggrandise profit by production or distribution of economic goods and services. Jaffrey A. Tummons The ability to create and build something from practically nothing. A human creative activity, finding personal energy by initiating, building and achieving an enterprise or organisation rather than by just watching, analysing or describing one. It requires the ability to take calculated risks and to reduce the chance of failure. It is the ability to build a founding team to complement the entrepreneurs' skills and talents. Hagen Entrepreneurship is the function of seeking investment and production opportunity, organising an enterprise to undertake a new production process raising capital, hiring labour, arranging the supply of raw materials, finding site, introducing a new technique and commodities, discovering new sources of raw materials and selecting top managers of day to day operations of the enterprise. • •

Entrepreneurship Theory was evolved over more than two centuries. In Schumpeter's system, entrepreneurship is essentially a 'creative activity,' a phenomenon that comes under the wide aspect of leadership.

2.3 Concept of Entrepreneurship; Relationship between Entrepreneur, Entrepreneurship and Enterprise:

Entrepreneur

Enterprise

Person

Object

An individual also creates a new enterprise

Creating of new enterprise aimed at profit making

It is in the process of being created by an entrepreneur

Fig. 2.1 Concept of Entrepreneurship

2.4 Invention and Innovation Invention is different from innovation. According to Schumpeter, an invention is the discovery of new methods and new materials. An innovation is where one utilises inventions and discoveries in order to make new combinations and thus

Small Scale Industries and Entrepreneur Development : 42

produces newer and better goods, which gives him profit and satisfaction. The aim of research/invention is to produce knowledge, that of innovation to produce objects whic.h work and can be sold. Innovation is inspired by objectives and hence it is completely independent of research and not based on the same skills. The Innovator is the person who comes at the right moment on the scene to find the missing element in an invention which will make it eminently marketable. 2.5 Entrepreneurial Culture According to Stevenson, corporate culture may be classified into entrepreneurial cultures. Entrepreneurial culture, focuses on: • the emergence of new opportunities • the means of capitalising on them • the creation of the structure appropriate for pursuing them 2.6 Problems of Developing Entrepreneurship in India The problems of entrepreneurial development can be classified as: • • • •

Individual (He has to take initiative to decide on, start, manage his enterprise, needs approval of his kin group). Group (Along with the individual, it constitute the client system). Institutional (To stimulate the client system; may be governmental and autonomous agencies). Others (Provision of infrastructural facilities including finance and 'marketing). I

The table 2.1 gives the summary: Thus Innovation is highly important and is essential for development of entrepreneurship. 2.7 Innovator Innovation is the hallmark of entrepreneurship. The difference between Invention and Innovation has been explained in para 2.4 Who can be called an innovator? What are the principles of innovation? Innovative entrepreneur is one who always looks at providing an opportunity for introducing a new technique of production process or a new commodity or a new market or arranges reorganisation. Schumpeter's concept of an entrepreneur was of this type. Peter F. Drucker opines that the innovation has the following principles: • Systematic and objective analysis of various opportunities, to explore the possibilities of project ideas. • For effective innovation, it has to be simple and easy. Otherwise, decisions would be difficult. • Complete, comprehensive trial of opportunities for better choice. • Invention should be based on certain concepts. • Innovation emerges from the deep an~ wide insight to problems. • Innovation should result in a bundle of knowledge a purposeful activity creating profitability of the market. • The importance of innovation is found in the psychological theories put forth by Joseph Schumpeter (para 1.19).

Entrepreneurship: 43

Table 2.1 Comparlslon of different types of Entrepreneur.hlp Dolall. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10,

11. 12. 13. 14. 15, 16. 17, 18, 19. 20. 21. 22, 23, 24, 25, 26, 27,

Indluldual

Lack of motivation Shynen and Inhibition Ignoranci of opportunltlll Lack of requl.lte managerial .klll. and to managl (whlll Itartlng) Lack of Initial InVI.tmlnt Lack of familial and community ,upport Scared of thl tim. con.umlng and cumbenome procen (while e.tabU.hlng) Not .ure of .u.talned ,upport from the agencle. Lack of awarenen Traditional occupation. and proflnlon. preferred Apathy, IInll of fear and Inllcurlty toward. Govl..pon.ored ED programmes Lack of freedom to chooll and punue their choice

In.lllulional

Group

~

Olho"

~

~ ~ ~

~ ~ ~

~

Alternative avocation. Economically/politically weak Tradition bound and value. to conti nUl (familiar occupation.) Ignoranci of their own capability Prefer to be what thlY want to be Vagul and unreaU.tlc poUcle. StylI of working Overlapping and duplication of function. both at thl apex/operational level. Lack of Interagency coordination No requl.lte power. and authority to people Lack of knowledgl of technical knowhow (on the part of per.onnel) Lack of relevant training on the part of EDP plr.onnll No.of agencl .. on .Imllar ta.k Field level per.onnel'l commitment not honoured by their .uperlor. Lack of teamwork, Internal coordination

~ ~ ~ ~

(Powlr .way of the local eUte or dominant ca.te) ~ (Not thought of) ~ ~

~ ~

~

Bureaucratic ~ ~ ~ ~

~

Ve. Ve. Ve.

2.8 Principles of Innovation Peter Drucker's views on developing an innovative idea are as under: DOs

I. Purposeful investigation begins with the analysis of opportunities. All the sources of opportunities are to be analysed and studied. Search should be organised on a regular systematic basis, 2. Innovation is both conceptual and perceptual. Second is therefore to go out to look, to ask and to listen. It should be put into the market in the form people will accept. 3. Innovation must be simple and focussed. If it is not simple, it wont work It should be focussed on a speCific need that it satisfies.

DONTs

Don't try to be clever. Innovation should be handled by ordinary human beings. Anything too clever, (design or execution) Is bound to fail. Do not diversify and do not try to do too many things at once. Do not try to innovate for the future. Innovate for the present. Unless there is an Immediate application, innovation cannot be successful. Innovation is work, It requires knowledge and ingenuity. It makes great demands on diligence, persistence and commitment. If these are lacking, no amount of talent, Ingenuity or knowledge will be useful.

4. An effective Innovation must be small. 5. A successful Innovation should aim at leadership.

Innovations have to be close to the market, focussed on the market, Indeed market driven.

Small Scale Industries and Entrepreneur Development: 44

2.9 Peter F.Drucker's views on Entrepreneurship The definition of entrepreneur as viewed by Peter .F.Drucker is given in Chapter 1, para 1.2. Drucker stresses on systematic innovation which is necessary for entrepreneurship, which is nothing but the purposeful and organised search for changes and also analysis of various opportunities that would give more scope for socio-economic advantages. Systematic innovation means monitoring of the following opportunities: • Unanticipated success/failure • Incongruity

• •

• • •

Demographics New knowledge Industry and market structure Process need Perception change

If there is success, the entrepreneur opens up the new ways for successful innovation. If it is a failure, which is not uncommon in business, the entrepreneur has to go out and look around the situation for new opportunities, by investigating further and finding out the possibilities of developing new ideas. Incongruity is the difference between what is and what ought to be, considered as a symptom of opportunity to innovate. Demographics according to Drucker are the changes in population, its size, age structure, composition, employment, educational status, income levels which would have a major impact on the consumption pattern of the society. Changes in demographicS would bring more productive and defendable innovative opportunities for the entrepreneurs. The innovations based on new knowledge can remain for a longer period. Careful examination of several factors responsible for new knowledge, would result in opportunities for innovation. Exceptional opportunities result if there is any change in industry and market structure. Rapid growth of industries in an economy generates more options to people. Process need is an important source of innovative opportunity. To meet the ultimate demand of the customers, the existing processes may have to be altered here and there. The weakness existing in the product should be eliminated to bring a newly redesigned process to approach the market for success. When there is a perception change, innovation opportunities will be there. Time factor is the essence of changes in perception. 2.10 Factors contributing to Entrepreneurship It consists of multiple factors and this function is generated in a society by persons who: • •

Initiate Establish

Entrepreneurship: 45

• Maintain • Expand new enterprises Entrepreneurs grow because: •

To keep up the tradition of families and the society and to internalise certain values and norms.

•

Due to socio-political and economic policies of the Government (Growth is achieved in a significant way).

•

Effective functioning of the support systems like financial and commercial irstitutions, consultancy services. Four factors influencing the development of entrepreneurship. • • •

The individual Sociocultural tradition Support systems

•

Environment.

2.11 Psychological and Sociological Theories of Entrepreneurship The psycholgical, Sociological and Economic theories are as explained in para 1.19 of Chapter 1, pages 14,15. From the above theories, we can see that Schumpeter and McClelland have given primary importance to the individual. While Schumpeter has stressed innovativeness or creativity of the individual as an important determinant of entrepreneurship, McClelland stresses more the internal factors, specifically, 'the need for achievement.' Though not according to any importance to culture per se, however, he has dealt with one product of culture viz., the need for achievement, extensively. Weber has touched upon the belief system which is part and parcel of culture and which has a great influence in determining the individual's behaviour in every aspect of his life-be it religious, social or economic. In Weber's view, certain belief systems sanction economic endeavours, while others do not. Hagen views economic development as a process of technological change which is brought about by technological creativity of individuals in society. Granting the significance of psychic factors, Young lays greater emphasis on the nature of the groups, groups assistance and coordination. Like Weber and McClelland, Cochran also speaks in different terms, but explicitly, of cultural values and social structure (which include role expectations and social sanction) as playing a vital role in economic development. He identifies three important elements: • Individual attitudes towards economic activity • Social sanctions • Skills needed for the job (of a technical and social nature) While Young considers psychological factors and value system as passive, Kunkel argues that they do really matter and comes close to Cochran's view of social structure as contributing to entrepreneurship development. By and large, the underlying current and emphasis in all theories seems to be the man and his personality, influenced by the culture in a given society.

•

Small Scala Indu.trle. and Entrepreneur Development : 48

2.12 Perlonal Characterlltici

The question surrounding eilrepreneurship is to know whether entrepreneurs have personality traits and background experiences that set them apart from others. If found, an awareness of such characteristics makes it easier to determine which individuals would have the best chance of successfully launching new ventures. Psychologist David C. McClelland, who is the architect of 'Acquired Needs' theory argued that entrepreneurs tend to have a high need for achievement (nAch). Those individuals who have a high nAch, gravitate toward situations in which they can achieve results through their own efforts, pursue the following: • Moderately difficult goals • Receive relatively immediate feed back on how they are doing. Requlrementl of a luccellful Entrepreneurlhlp In a New Venture

A bus ness Is said to satlsty customers and Improve the market. Hence a market analysis Is required for testing a new venture. He should Identify, sellct area where he can make the best contribution to his business and leave other things to his colleagues

Cash flow forecast, sound cash management, capital planning, well planned financial system are essential

Succe •• ful Enterpreneunhlp

Enterpreneur needs independent objective advice from outside

Key activities for success and survival to be Identified and allocated among members. Obj'ectives and targets for the same should be set

FIg. 2.2 Successful EntrepreneurshIp RequIrements

2.13 Environment and Attitudinal Factorllnfluenclng Entrepreneurlhlp

The four factors that influence the development of entrepreneurship is given in the Fig. 1.13 The individual component of this (like motivational factors, skills etc.) which influence entrepreneurship is the prominent one which becomes part of attitudinal factors. Motivation factors have already bveen described in para No. 1.22 The environmental factors are: Socio-political, economic policies of the government and consequential encouragement generated and opportunities available in a society are the result of these policies. Though entrepreneurship is a function of all the four factors interacting and influencing each other, it may be noted that the three factors namely, the individual, the environment and the support systems directly influence entrepreneurship. The socialcultural media contributes through the individual. This has some relevance in evolving the training strategy for the development of entrepreneurship.

Entrepreneurship: 47

Environment for Entrepreneurship and Importance of Entrepreneurship In Economic Growth of a Country

The environment for entrepreneurship and attitudinal factors influencing entrepreneurship has been dealt in Fig. 1.3, para 1.23. Environment is one of the four factors that influence the development of enterpreneurship. The environmental factors may be grouped as: • Multitude of factors influence the entrepreneurship • By creating a social conducive environment, the entrepreneurship can be influenced • The factors like 'desire to do work independently', 'desire to make money' have influenced the entrepreneurs of a sample study considerably. • The external factors like government's liberal policy and assistance influence a person to take up industrial activity • The personality factors like age, marital status, religion and community generally influence entrepreneurship. The 'young age' (25 to 30 years) is an emerging factor to take up risk and do business. Marital status, caste and religion to which a person is affiliated serve as a contributory factor for entrepreneurial growth. The economic variables like profit, prior income, property, and level of living have contributed to the growth of entrepreneurship. The entrepreneurs' contact at higher social and governmental levels and availability of expert technical advice and guidance at all stages of development of industry have, contributed to entrepreneurial success. Experts and official contacts, natural help, political affiliation, social participation have resulted in entrepreneurial success. Economic development of any region is an outcome of purposeful human activity. One has to assume various roles in the development process such as: • An organiser of human capital, • Natural material resources, • Worker and consumer. He stands at the centre of the whole process of economic development Schumpeter has thought that economic development consists of 'employing resources in a different way', in doing a new combination of means of production. The entrepreneur locates ideas and pushes them into effect in the process of economic development. Bawmol says an entrepreneur is a Schumpeterian innovator and something more than a leader. He occupies a crucial place in the process of economic development. In the Schumpeterian model, entrepreneur is an innovator and the supply of 'innovative entrepreneurs' depends on the necessary social and economic overheads, which are very poor in backward regions, causing a short supply of entrepreneurs. Schumpeter says that economic growth depends on the rate of applied technical progress (innovation) and rate of technical progress in the economic field which in turn depends on the supply of entrepreneurs in the society. Thus entrepreneur becomes the agent of change in the society.

Small Scale Industries and Entrepreneur Development: 48

David McCleland explains the development of entrepreneurship in terms of human motivation to achieve or need for achievement (nAch). His hypothesis is that a society with generally high level of achievement will produce more energetic entrepreneurs, who, in turn, accelerate the process of economic development. In Indian context, the entrepreneur may not necessarily be an innovator, but an 'imitator', who would copy the organisation, technology, products of innovators from other developed regions. Max Weber has talked of the importance of entrepreneurship and expressed the view that creative and entrepreneurial energies are generated by the adoption of exogeneously supplied beliefs, which in turn produce intense efforts in occupational pursuits and accumulation of productive assets leading to the manufacture of goods and services. Entrepreneurs are a product of particular social conditions in which they live. It is the society which shapes the personality of individual entrepreneurs. John Kunkel believes that the behavioural pattern of individuals is important for development and such a pattern can be influenced by external stimulus so as to alter it in the manner we want it. Uke Weber, Cochran and Young underscore the importance of society in shaping the entrepreneurial personality and consider that ingredients in the emergence of entrepreneurs are cultural values, role expectations, social tensions and intergroup relations in society. The entrepreneurs are an important source of economic development. Hence, there must be a motivational training programme to develop entrepreneurs arid measures to be taken to modify the environment to stimulate entrepreneurial behaviour among individuals.

2.14 Entrepreneurship Slow Growth in India The growth of entrepreneurship is slow in India owing to the discouraging social factors such as: • • • • •

Unfavourable family background Lack of education Lack of aptitude and training Absence of individualistic spirit Lack of freedom to choose a job according to ability, influence of sex, caste, kinship, custom and family burden etc.

All these are due to the unfavourable socio-economic conditions and a tradition bound society. Similarly, retarding economic factors are: • • • •

Inadequate infrastructural facilities Shortage of capital and technical knowhow Lack of adeqate transport and communication facilities Absence of cheaper and regular supply of power and raw materials

The slow growth is more so in the case of women entrepreneurship etc due to: •

Lack of encouragement from the family and the society for taking entrepreneurship (Discouraging social factors)

Entrepreneurship: 49

•

Dual role of women (to work outside as well as to look after children) in the house

The growth in the rural areas is slower still. The environmental factors discouraging entrepreneurship are: •

Unstable state governments

•

Lack of security

•

Absence of ideal market conditions and business education

•

Corruption in administration

Enterpreneurship Stimulants • Increasing focus on capital formation • Ability to transform scientific and technical development • Supportive government programmes

• Availability of required training and inputs .. - • A collaborative relationship between business and research. • An endeavour to create an enviornment conducive to innovation

Retarding Economic Development • Restarding economic factors • Discouraging social factors

Environmental Factors (Explained in the earlier para) • Discouraging environmental factors

Rg. 2.3 Retarding Economic Development vis-a-vis Enterpreneurshfp Stimulants 2.15 Role of Government in the Promotion and Development of Enterpreneurship Entrepreneurship development is recognised as a key element of small industry promotion imparting skills and strengthening the management capabilities of small entrepreneurs. Besides, small enterprises by their very nature are not able to attract professionally qualified persons. Training is one of the important aspects which is considered as industrial extension services rendered by small industries development organisption through: •

Various small industries service institutes (SISIs)

.'

Branch SISIs

• Production centres The training courses arranged by 5100 are for upgrading the skills of workers of SSI as well as managerial capabilities of their management personnel. In the year 1996-97 (April to October 1996), 5100 conducted: (i) Skill development courses for workers - 88 (1400 persons) (ii) Management development courses - 50 (500 persons)

Between November to March 1997, the figures were 152 and 70 for 2100 and 1170 people, respectively.

Smln SClle Indu.trle. Ind Entrepreneur Development : 50

Management upgradation is needed periodically to update the knowledge and upgrade the skills to go in line with the changing economic and industrial environment. Small entrepreneurs find it difficult to cope up with the changes since they have no opportunity. They may be guided by the government institutions to attend their programmes. Small entrepreneurs often take big and multiple responsibilities in various functions like marketing, production, finance etc. Because of their limited finance they cannot retain professionally qualified persons. They may have to recruit fresh graduates in the respective disciplines and offer them orientation courses to enable them to build up their career as well as to obtain proper services from them which would be useful over a period of time. In this area, government institutions would be helpful for training. With the emergence of semi-urban and rural market as important segements of marketing, the services of SIDBI would be very useful since they have identified the growing need for launching special training programmes for persons endowed with good communication skills and acumen for salesmanship. Further SIDBI would also be useful in giving support, preserving and developing skills of artisans and craftsmen. These people are highly useful to the small industry as their contribution to the Indian handicrafts is substantial to export trade. SIDBI in close association with KVIC and DGDC arranges to train artisans and craftsmen. In addition to training artisans, SIDBI extends support to National Institute of Rural Development (NIRD) and National Institute of Small Industry Extension Training (NISIET) for training officials of KVIC with special focus on development orientation (Training to Trainers). SIDBI has considered it necessary to provide rural entrepreneurs in the context of the renewed policy thrust on rural development sponsored by the government. EDII has been commissioned to formulate rural EDPs. Lot of entrepreneurship development programmes and barefoot manager programmes are conducted regularly every year by the government. Training assistance is available from d=4ferent development agencies. Evaluation and reporting are the main objectives of the programme. Further there are institutions set up by Government as under: 1. National Entrepreneurship Development Board (NEDB); 2. National Institute of Small Industry Extension Training (NISIET), Hyderabad; NISIET conducts ITED programmes-International programmes, 3. NIESBUD, New Delhi; conducts gross root programmes; 4. Women entrepreneurs outreach programme-WEMTOP; 5. Small Enterprises Management Assistance-(SEMA); 6. Center for Development of Glass Industry, Firozabad to upgrade the technology for the manufacture of glasses; 7. KVIC; 8. Indian Institute of Entrepreneurship etc. Governments main objective is to promote and develop entrepreneurship in a big way to disperse industries, and to create employment opportunities. Entrepreneurship is the committee of the emerging economic scene in the world.

Entrepreneur.hlp : 51

QUESTIONS Section A 1. What is meant by entrepreneurship? (BU, BBM, Nov 94, Oct/Nov 95)(Ana:para 2.1-page 38) 2. State the attitudinal factors influencing entrepreneurship. (BU, BBM, Nov 94, April 95, Nov/Dec 2000)(Ana:para 2.13,2.14-page 44-47) 3. Define Entrepreneurship. (BU, BBM, April 95, Nov 96)(Ana:para 2.1-page 38) (April 95) 4. Mention the reasons for the slow growth of entrepreneurship in India. 5. Distinguish between Invention and Innovation. (BU, BBM, Oct/Nov 95)(Ana:para 2.4-page 39,40) 6. Mention the psychologicai factors of entrepreneurship. (BU, BBM, April 98)(Anl:para 2.11, 1.19-page 43,14) 7. What are the common entrepreneurial traits? 8. Write down a conceptual model for enterpreneurship. 9. What is the concept of enterpreneurship? 10. Show the relationship between entrepreneur, enterprise, and entrepreneurship with a sketch. 11. Explain entrepreneurial culture. (BU, BBM, April2001)(Ana:para 2.5-page 40) 12. Mention any three barriers to Entrepreneurship. (BU, BBM, April2001)(Anl:para 2.6-page 40) 13. Compare and contrast entrepreneur with entrepreneurship. (BU, BBM, Nov.98, April 95, Nov/Dec.2000)(Ana:para 1.1,1.2,2.2,2.3-pages 1&2,38,39)

Section 8 1. Discuss the importance of entrepreneurship in the context of small business opportunities. (BU, BBM, Nov 94)(Anl:para 2.13,13.11-pages 45,232) 2. Briefly discuss Peter Drucker's views on entrepreneurship. (BU, BBM, April 96, April2001)(Anl:para 2.9-page 42) 3. Discuss the factors Influencing entrepreneurship. (BU, BBM, April 97)(Ana:para 2.10-pages 42,43) 4. Explain the factors influencing entrepreneurship. (BU, BBM, ApriVMay 99)(Ana:para 2.10-pages 42,43) 5. What are the problems of developing entrepreneurship in India? (BU, BBM, Nov 96)(Ana:para 2.6-page 40) 6. Explain the principles of innovation. 7. What are Peter Drucker's views on developing an innovative idea? 8. What are the requirements of a successful entrepreneurship in a new venture? 9. Innovation is the hallmark of entrepreneurship-critically examine the above statement. (BU, BBM, April/May 2003)(Ana:para 2.7,2.8-pages 39,40)

Section C 1. Elaborate the Government Policy and measure towards promotion of entrepreneurship in India. (BU, BBM, Oct/Nov 95, AprlVMay 93)(Ana:para 2. 15,...pages 47,48) 2. Define entrepreneurship and give a brief account of the origin of the Entrepreneurlai concept. (BU, BBM, April 98)(Anl:para 2.1,2.2,2.3,1.3-pages 2,38,39) 3. Explain the environment for entrepreneurship and importance of entrepreneurship in economic growth of a country. 4. Explain the psychological and sociological theories of entrepreneurship. 5. Explain the concept and stimulants for "entrepreneurship. Also explain the entrepreneurial functions. (BU, BBM, Nov 99) (Ana:para 2.3,2.10,2.14-pages 39,42,47)

c~a

(/Three

Entrepreneurial Development (ED) and Entrepreneurship Development Programmes (EDPs)

3.1 Entrepreneurial Development (ED) Entrepreneurial Development is an organised and systematic development. It is regarded as:

• •

A tool of industrialisation A solution to employment problems

3.2 The objectives of Entrepreneurial Development

The objectives of entrepreneurial development are: (i) to motivate a person for entrepreneurial career and (ii) to make him capable of perceiving and exploiting successful opportunities for enterprises. Development of an entrepreneur means~ • • • •

Inculcating entrepreneurial traits into a person Imparting the required knowledge Developing the technical, financial, marketing and managerial skills Building the entrepreneurial attitude

Entrepreneurial Development and Entrepreneurship Development Programmes : 53

The process of entrepreneurial development involves: • Equipping a person with information used for enterprise building • Sharpening his entrepreneurial skills Entrepreneurship development is a policy matter for the Government. Developing entrepreneurs in the country, is a socio-economic objective of the Government. 3.3 Need for Entrepreneurial Development

Enterpreneurship development has received much attention from a long time. Though development of local enterpreneurship at all levels for setting up large, medium and small industries was mooted in the Industrial Policy Resolution of 1956, it was only with accentuation of the problem of the unemployment amongst the educated that self-employment and entrepreneurship development programmes came to receive serious attention in this country. Notable experiment in entrepreneurship development is through motivational training. Later, as self employment became the need of the day, the leading training institutes designed and conducted several entrepreneurship development programmes for several state governments for various categories of entrepreneurs - unemployed engineers, educated technicians, educated unemployed, high school drop-outs, artisans, retired defence personnel, women and others. 3.4 The Concept of Entrepreneurial Development

Entrepreneurnal Development is essentially an educational process and an endeavour in human resource development. It needs an environment as it cannot grow in vaccum. An entrepreneur can learn in this environment and discharge his functions. Stepanek identifies the following prerequisites for ED. • Intelligence • Motivation • Knowledge • Oppor.unity ED consists of four basic issues: • The availability of material resources • The selection of real entrepreneurs • Formation of industrial units • Policy formulation for the development of the region. All the above are closely related. Let us take an example. If the material resources are available in plenty, the issue that remains is of the type of industrial unit to exploit it by proper utilisation of raw material and marketing of the product. All depends on the specific policies to be adopted which continuously supervise the direction of the process of economic development of the region. Development of an entrepreneur involves inculcating entrepreneurial traits into a person, imparting the required knowledge, developing the technical, financial,

Small Scale Industries and Entrepreneur Development : 54

marketing and managerial skills and building the entrepreneurial attitude. The process of entrepreneurial development involves equipping a person with the information used for enterprise building and sharpening his entrepreneurial skills.

3.5 Entrepreneurial Development Programme (EDP) Entrepreneurial Development Programme is defined as a programme designed to help an individual in strengthening his entrepreneurial motive and in acquiring skills and capabilities necessary for playing his entrepreneurial role effectively. It is necessary to promote this understanding of motives and their impact on entrepreneurial values and behaviour for this purpose. EDP means a programme designed to help a person in strengthening his entrepreneurial motive and in acquiring skills and capabilities necessary for playing his entrepreneurial role effectively. It is necessary to promote his understanding of motives, motivation pattern, their impact on behaviour and entrepreneurial value. 3.6 Main Objectives of EDP The Industrial Service Institute (lSI) under the development of Industrial Promotion (DIP) launched the EDP to give substance to the government's policies of stimulation of economic growth, dispersing industries to rural areas and promoting the processing of local raw materials. The EDP was considered a part of the industrial development policy articulated in the present Five-Year National Economic and Social Development Plan. (a) The main objectives of an EDP are: • To identify potential engineers and train them. • To develop necessary knowledge and skills among the participants. • To impart basic managerial understanding. • To provide post-training assistance. (b) The basic objectives of EDP can be as under: • To strengthen their entrepreneurial quality/motivation. • To analyse environment related to small industry and small business. • To select projects/products. • To formulate projects. • To understand the process and procedure for setting up a small enterprise. • To acquire basic management skills. • To know and appreciate social responsibility and entrepreneurial discipline. .

3.7 Various Entrepreneurship Development Institutions in India These institutions are basically engaged in identification, selection and training of potential entrepreneurs. Further, they qre to be motivated to start their own industrial units.

Entrepreneurial Development and Entrepreneurship Development Programmes : 55

Entrepreneurial Development is a highly complex phenomenon. At the same time, it is highly important since the entrepreneurs playa vital role in the economic development of the country. It is not enough to develop entrepreneurs by only providing: • • •

Facilities Technical assistance Management training

• •

Consultancy Needed information about the industries

• Other services Hence it was concluded that the f!1ajor focal point should be: • Overlooked entreprenearial spirit • Entrepreneual characteristics of the people.to be developed Hence the introduction of the EDP package was started. The need for EDP is shown in para 3.10. EDP is of a recent origin in India though several private and government institutions are now engaged in conducting EDPs. Some of these are: • SIDO - Small Industries Development Organisation had established small industries extension and training institution (SIET) at Hyderabad in sixties. •

SISI - Small Industries Service Institute.

• •

SBI in 1978 introduced EDPs. Centre of Entrepreneurship Development (CED). Government established in 1979 and Gujarat EDP is the oldest and the longest operating programme in India.

•

EDII - Entrepreneurship Development Institute of India (Gujarat Government, SBI and All India financial institutions jointly set up this at Ahmedabad in 1983). This institute has been set up as an apex agency for creat.l"g the institutional infrastructure required for entrepreneurship development. It undertakes model training programmes, trains the trainers, conducts research and assists the state level agencies in planning, implementing and monitoring EDPs. National Institute of Entrepreneurship and small business development (NIESBUD) was set up in 1984 by the Government of India at Delhi. Indian Investment Centre (IIC) takes active interest in EDP through its Entrepreneurial Guidance Bureau (EGB). It conducts EDP in backward areas with close cooperation of State and Central agencies. Xavier Institute of Social Service, Ranchi, provides training to tiny village entrepreneurs particularly tribals and other backward people. Development Banking Centre, New Delhi provides course materials and training. It also conducts research on Entrepreneurial Development. Technical Consultancy Organisations (TCOs). The operational efficiency of entrepreneurs would improve from the high quality consultancy services

• •

• • •

Small Scale Industries and Entrepreneur Development : 56

provided by these organisations. There are more than 17 TCOs to provide industrial consultancy and training. These organisations provide a comprehensive package of services to small entrepreneurs. The main functions of TCOs are: Identification of industrial potential Preparation of project reports/feasibility studies, conduct preinvestiment studies Techno-economic surveys, market research Identify potential entrepreneurs and provide them with technical and managerial assistance. In order to accelerate the small industries development, Government at the Central and State levels have set up a number of: (i) Development agencies/institutions such as: • • • (ii) All

District Industries Centres (DICs) Small Industries Service Institutes (SISI) Small Industries Development Organisations etc. India Financial Institutions such as:

• IDBI • IFCI • ICICI The above have promoted/sponsored a number of technical consultancy organisations (TCOs) to assist small entrepreneurs in different ways. In 1986, the small industries development fund was set up in IDBI in order to assist small scale, village and cottage industries and tiny sector units in the rural areas. The Small Industri~s Development Bank of India (SIDBI) has been established to help SSUs. In addition to these institutions, there are: (iii) Agencies like: • National Science and Technology Entrepreneurship Board • Khadi and Village Industries Commission (KVIC) • Commercial Banks (SBI, Indian Bank, Punjab National Bank, Bank of Baroda, Bank of India, Syndicate Bank, Canara Bank, Grindlays Bank, Union Bank of India, United Bank, United Commercial Bank, UCO)

/

• EXIM Bank • Cooperative Banks The above will undertake promotional activities aiming at facilitating industrial development. (iv) In Karnataka, entrepreneurs can use the services of the following institutions: IDBI KFC TECSOK KVIC DICs SISls IFCI SIDBI KSSIDC EXIM Bank IRBI SIDOs ICICI KSIIDC Commercial Banks UTI Cooperative Banks NSIC LIC, GIC

Entrepreneurial Development and Entrepreneurship Development Programmes : 57

3.8 Objectives of EDP Training The sound training programme for entrepreneurship development should be able to help selected entrepreneurs to meet the basic objectives of entrepreneurship development as mentioned in the para 3.2. The expert group constituted by the NIESBUD(National Institute of Entrepreneurship and Small Business Development, New Delhi) accepted that it must be able to help selected entrepreneurs to meet the basic objectives as mentioned above. Small Industries Extension Training Institute, Hyderabad, SIET for the first time attempted to develop a person as entrepreneur through structural training. The main purpose of such EDPs is to widen the base of entrepreneurship by developing achievement motivation and entrepreneurial skills among the less privileged sections of society.

3.9 Various Entrepreneurship Development Programmes (EDPs) Conducted in India . EDPs endeavour to change, educate and equip a person to become a successful entrepreneur. The different types of EDP courses conducted by the SIDO for various categories of persons are: • • • •

EDPs among non engineers EDPs among self employment beneficiaries Technical training courses (for workers of SSI, prospective entrepreneurs) Industrial management course (only for SSIs, their managerial personnel, prospective entrepreneur group)

• •

EDPs among women entrepreneurs EDPs for rural artisans, students, weaker sections of the society, physically handicapped persons etc.

3.10 Need for Entrepreneurial Development Programmes The urge to achieve is one of the most significant variables connected with economic development. People with high need for achievement tend to be more successful entrepreneurs as compared to people who are with low need for achievement. The objectives of an entrepreneurial development programme (EDP) are categorised into two: • Short-term objectives • Long-term objectives.

Short Term Objectives These imply the objectives which are to be achieved immediately after the completion of the programme. The short-term objectives are: • Preparing a person mentally for the entrepreneurial venture • Making him competent to scan the environment and situation within the existing regulatory frame work • Help a participant in the fixation of his/her goal of life as entrepreneur as an objective in general.

Small Scale Industries and Entrepreneur Development : 58

Long-term objectives An entrepreneurial development programme seeks to equip the participants with all the skills required for the establishment and smooth running of business ventures. The ultimate objective is that the participant under training should establish his/her own venture. The objectives of an EDP are as follows: • To enlarge the supply of entrepreneurs for rapid industrial development • • •

To develop small and medium scale sector which is necessary To industrialise rural and backward regions To provide gainful employment to educated young men and women

• •

To diversify the sources of entrepreneurship and To improve the performance of small industries by developing managerial skills among small entrepreneurs.

3.11 Main Features of EDP An EDP consists of three phases or stages:

Phase 1

Phase 2

Basic or internal or pretraining

Training or Development

Post training or follow up

Fig. 3.1 Three Phases of EDP FollOWing functions are to be performed by an entrepreneur: • Risk taking • Business Decisions • Managerial functions • Innovation This has already been shown in Fig. 1.1. An entrepreneur undertakes a venture, takes risk and earns profit. He will have a strong motivation for success, self-confident in his entrepreneurial abilities and

Entrepreneurial Development and Entrepreneurship Development Programmes : 59

will exploit opportunities. The entrepreneur could be a planner in a socialist economy. Entrepreneurship is closely identified with private enterprise in a market economy.

3.12 Operational Problems of EDP The operational problems of EDP are many: • •

Inherent inability Inconsistent programme design

• Diverse opinions • Perpetual ambiguity • Lack of proper strategy (No clear-cut objective) • Low institutional commitment • Lack of clarity in approach • Absence of local support • Lack of creativity and commitment • Non-availability of inputs • Insufficient follow up • Absence of research facilities • Ill-planned training methodology The need of the hour is: • To develop genuine entrepreneurs to accelarate the process of industrialisation • To stimulate innovation and the entrepreneurial spirit to support the development of new ideas through new and mature enterprises

3.13 Corridor Principle Studies indicate that for setting a new venture, atleast one of the founders should have worked in a similar industry. His previous experience helps in the new venture, making the work much easier for others. We find smooth execution in the corridor principle if the above method is adopted. The corridor principle name has come because of the meaning of corridor as "passage way or open gallery communicating with separate chambers" . In a corridor carriage train, one can pass, going from one compartment to another, without having to leave the train. It is only after the venture is taken up by the individual, he will come across with many problems and opportunities, which he could not visualise earlier before the start. It is similar to that, only after entering the corridor carriage train, he can find out the links to other compartments. From outside they are not visible. Further, if one of the persons is fully aware of the likely problems in the venture and also the new opportunities for the same, these can be passed on to others from his experience and the corridor principle can be exploited. The corridor principle states that the process of beginning a new venture helps entrepreneurs visualise other opportunities that they could not envision or take advantage of until they start the initial venture. One implication of the corridor prinCiple is that individuals who begin their

Small Scale Industries and Entrepreneur Development: 60

Technical

Organisational Climate Style of Functioning

Organisational GoaVpolicy

Knowledge • Environmental opportunity • Enterprise • Technology

pressure

• Personnel efficiency • Coping Capability Skill

• Innovative ness Risk taking norms

Power Other industries enterprises

Material

Market

Flg.3.2 Emergence of Entrepreneurship entrepreneurial careers at an earlier age may be able to exploit the corridor principle better because of their potentially longer entrepreneurial career.

3.14 Incubator It is an organisation (in USA), whose purpose is to nurture new ventures in their very early stages by providing space (at a site housing other new ventures as well). It provides: •

Space

•

Stimulation

•

Support

•

A variety of basic services (all at reduced rates).

It refers to the organisation that an entrepreneur previously worked for, while 'hatching' the idea for a related new venture. The organisation usually unwillingly

Entrepreneurial Development and Entrepreneurship Development Programmes : 61

serves as an incubator. The idea is to help the new ventures during their first 2 or 3 years or so, until they have grown enough to 'hatch' and jo~n the normal business world. 50 incubators in the USA in 1984, grew upto 330 by 1989. The present figures are not known.

Personal Characteristics

Life Path Circumstances

" /

Perceptions of Desirability & Feasibility

....

New Venture

Environmental Factors

Fig. 3.3 Factors Influencing Entrepreneurship 3.15 Personal Characteristics The question surrounding entrepreneurship is to know whether entrepreneurs have personality traits and background experiences that set them apart from others. If found, an awareness of such characteristics makes it easier to determine which individuals would have the best chance of successfully launching new ventures. Psychologist David C. McClelland, who is the architect of 'Acquired Needs' Theory argued that entrepreneurs tend to have a high need for achievement (nAch). Those individuals who have a high nAch, gravitate toward situations in which they can achieve results through their own efforts, pursue the following: • •

Moderately difficult goals Receive relatively immediate feed back on how they are doing

3.16 Life Path Circumstances Several types of Individual circumstances known as 'Life path circumstances' seem to increase the probability that an individual will become an entrepreneur. The four major types are shown in the figure on the next page.

3.17 Enterpreneurship Development Programme Phases Phase 1 Basic/Initial/Pre Training Stage Includes activities and the preparations required to launch the entrepreneurs and initial motivation to them.

Small Scale Industries and Entrepreneur Development : 62

Unsatisfactory Work Environment Circumstances in an individual's job situation that impel that person to think about leaving and starting a new venture (strong dissatisfaction with the work or other aspects of the work environment; refusal of an employer to recognise the value of an innovative data etc.) Positive Pull Influencers

Negative Displacement or' Disruption Circumstances in a person's life situation to make major changes in life style. Major factors are: • being fired • reaching middle age • getting a divorce • emigrating from another country • becoming widowed Career Transition Point

Circumstances in which an individual These are individuals, such as mentors, is may be many between one type of investors, customers, or potential partners, career-related activity and another, who urge an individual to start a business. such as completing studies or a degree, The pull notion fits more into the category being discharged from military service, of pushing individuals towards the finishing a major project, having entrepreneurial life. The reason for the children leave home. push is that individuals are in situations that require them to take action or suffer negative consequences. r----:F:-a-v-ou....lr-a":""b":""le---. Environmental Conditions These deal with basic pre-requisites of running a business, such as: • adequate financing • technically skilled labour force • accessibility of suppliers • accessiblity of customers • availability of land or facilities • accessibility of transportation or new market, • availability of supporting services • presence of experienced entrepreneurs and incubator organisation, government, influences, proxmity of universities, attitude of the areas 'population' and using conditions.

Fig. 3.4 Life Path Circumstances

• • • • • • • • •

Provision of infrastructure for training Preparation of training syllabus Tie up of quest faculty Arrangement for inaguration of the programme Designing of tools and techniques for selecting the trainees Formation of selection committee Publicity campaign for the programme Development of application form Prepotential survey of environmental opportunities

Phase 2 Training or Development Phase Training programme is implemented to develop motivation and skills among the participants; the objective is to bring desirable changes in the behaviour of the trainees. The trainers have to judge how much, and how far the trainees have

Entrepreneurial Development and Entrepreneurship Development Programmes : 63

been trained in their entrepreneurial pursuits. A trainer should see the following changes in the behaviour of the participants: • Atlitudinally tuned very strongly towards his proposed project idea? • Motivated to plunge for entrepreneurial venture and risk expected of an entrepreneur? • Any change on his entrepreneurial outlook, role and skill? • How to behave like an entrepreneur? • Kind of entrepreneurial behaviour the trainee lacks? • Possess the knowledge of technology, resources and other related entrepreneurial knowledge? • Skillful in choosing the right project, mobilising the right resources at the right time? Phase 3 Post-training or Follow-up Phase There is an assessment to judge how far the objectives of the programme have been achieved? Monitoring and follow-up expose drawbacks in the earlier phases and suggest guidelines for training the future policy. Following can be reviewed in this phase: • • •

Infrastructural support Counselling and assistance in establishing new enterprise Developing the exist units QUESTIONS Section A

1. State the need for entrepreneurial development. (8U, 88M, April/May 95)(Ans:para 3.3-page 51) 2. What do you mean by Entrepreneurial Development Programmes? (8U, 88M, April 97)(Ans:para 3.5-page 52) 3. Mention any four technical institutions fostering Entrepreneurial Development. (8U, 88M, April 98, Nov. 98, April/May 99)(Ans:para 3.7-pages 52-54) 4. Mention any four associations fostering Entrepreneurial Development. (8U, 88M, April 98)(Ans:para 3.7-page 53) 5. What is the meaning of Entrepreneurial Development Programme? (8U, 88M, April 2001)(Ans:para 3.5-page 52) 6. Define Entrepreneurial Development. 7. What are the objectives of Entrepreneurial Development? 8. State the need for entrepreneurial development programme. 9. What are the short term and long term objectives of Enterpreneurial Development Programmes? 10. What are the main objectives of entrepreneurial development programme? 11. What is the objective of EDP training? 12. List out various entrepreneurship development institutions in India. 13. What are the operational problems of EDP? 14. What do you mean by the corridor principle? 15. Explain life path circumstances. 16. What is an Incubator? Explain.

Small Scale Industries and Entrepreneur Development : 64

Section B 1. Discuss the functions of technical consultancy organisations in entrepreneurial development. (BU, BBM, April 96)(Ans:para 3.7-pages 52-53) 2. Explain the role of technical consultancy organisation in entrepreneurial development in India. (BU, BBM, April 98)(Ans:para 3.7-pages 52-53) 3. What are the main features of entrepreneurial development programme. 4. Explain the emergence of entrepreneurship. 5. What are the objectives of EDP? Explain the need for training and development. (BU, BBM, Nov 98)(Ans:para 3.6,3.8,3.10, 3.16-page 52,54,55)

Section C 1. What is meant by Entrepreneurial Development? Discuss the need for entrepreneurial development programmes and outline the main features of such programmes. (BU, BBM, ApriVMay 93)(Ans:para 3.1,3.10,3.11-page 50,55,56) 2. What is EDP? What are its objectives?Explain the problems involved in EDPs conducted in India. (Ans:para 3.5,3.6,3,7,3,10,3,l1,3,12-page 49,52,54,56)

Clt~ (A:our

Small Scale Industries

4.1 Definition of Small Scale Industrial Undertaking An industrial undertaking is one in which the investment in fixed assets in plant and machinery, whether held on ownership or on lease or on hire purchase, does not exceed Rupees One crore-{Rs.3 crores earlier was reduced to Rs.1 crore) .

(Note: No small scale industrial undertaking referred to above shall be subsidiary of, or owned or controlled by any other industrial undertaking).

4.2 Definition of Tiny Units TIny (Sector) Units include industrial units located in villages and in towns where population does not exceed 50,000 (1981 census) and in which the original investment in machinery and equipment does not exceed Rs.25 lakhs. These units include all industry related services and business enterprises. 4.3 Definition of Village Industries

Village Industries have been defined as artisans (irrespective of location) or small industrial activities (viz. , manufacturing, processing/preservation and servicing) in village and small towns with a population not exceeding 50,000 (as per 1981 census) and involving utilisation of locally available natural resources and/or human skills, where individual credit requirements do not exceed Rs.25,000.

Small Scale Industries and Entrepreneur Development : 66

Registered Small Scale Industries Estimated Number Statewise as on 30.06.2002 The total number of Small Scale Industries all over the country registered upto June 30, 2002 is estimated at 27.,35,652 .

(Source: Ministry of Small Scale Industries).

Clicking to the Head of the Class Only about 21 per cent of roughly 4,000 US colleges and universities are currently using electronic course management programmes, but that number is expected to grow. A large part of the growth in e-education is expected in online education, or distance learning. Online postsecondary education revenues 2.5 2

1.5

0.5

o 1999

2000

2001

2002

(Source: Eduventures Inc) ,

2003*.

2004*

Small Scale Industries : 67

4.4 Definition of Cottage Industries

Cottage Industries are the units started as domestic industries in the initial stages, which are later on developed into small scale units so as to serve as feeder units to other industrial units. These are managed mostly by artisans and skilled craftsmen and are involved in traditional activities such as agriculture, khadi, handlooms, handicraft. These industries are generally associated with either part time or whole time occupations in rural and semi-urban areas, utilising locally available resources and/or human skills.

Cottage Industries

Involving Skilled Workers

Maximum Investment Rs.25lakhs

Involving artisans

Small Scale Sector

Tiny Units

Rs. 25 Lakhs

Ancillary Units

Rs. 1 Crore

Service Establishments

Rs. 25 Lakhs

Fig. 4.1 Small Scale Sector 4.5 Definition of Service Establishments Service Establishments are units involved in all industry related service and business enterprises, irrespective of location with recognised potential for generating employment with an investment ceiling corresponding to that of tiny units. 4.6 Various Requirements for Starting an SSU A small scale entrepreneur should look after many areas and should have the capability to handle many disciplines. (see Fig. 4.2). 4.7 Classification of SSIs Broadly, this can be classified into two types: (see Fig. 4.1 & 4.3). •

Traditional

•

Modern

4.8 Problems of the Small Industries and Policy Measures Thanks to the incentives and encouragement given by the Government to the cottage and small scale sector in India, this has enabled a substantial progress during the last four decades. The volume and variety of its output have both greatly

Small Scale Industries and Entrepreneur Development : 68

Small entrepreneur (All in one)

Functions as chief executive of the unit and also takes up additional areas

Fig. 4.2 Various Requirements for Starting an SSU

• • • • • • • • •

Traditional Khadi Handloom Village Industries Handicraft Sericulture Coir Cotton Textiles Jute Sugar etc.

-Small Seai:' Industries

""'"

Traditional Small Industries are Highly Labour Intensive E.g:. In 1979-80, some so traditional small industries accounted for only 13% of the total output; total employment was 56% (output was Rs. 4,420 crores, with an employment of 133 lakh workers averege output of labour was roughly Rs. 3,3(0)

.........

Modern Produce wide range of goods from comparatively simple items to sophisticated products such as • Television Sets • Electronics Controls • Systems • Various engineering products (as ancillaries to the large Industries) Make use of Highly Sophelticated Machinery and Equipment

In 1979-80, the output accounted in modern small industies was 74%; employment share was only 33% (output of Rs. 24,885 crores was produced by 78 lakh workers. Average output of labour was Rs. 31,900)

Fig. 4.3 Comparlslon of Traditional Small Scale Industry Vis-a-Vis Modem Small Scale InFfustry increased. But their development has not been commensurate with their potentialities or with the need for them. Besides, whatever progress has been made is not without serious weaknesses and drawbacks. Cottage and SSIs have had to function under serious handicaps. The main problems/difficulties faced by SSIs which have retarded the development are:

Small Scale Industries : 69

~ Powerlooms

I

Khadi

-

I Village Industries j.I

Handlooms

A

D

t-- -

Coir Industries

I

Sericulture

..-

I

Cottage

J+-

I

Artisans

J+-

n

r-

T R

~

I

r-

I

T t-I 0 N A L

5 5 ---+ I

~

M 0

D E

R

I

.Lt

Small Scale (with and without power)

N

- - ..

Export oriented AncillariesJ

Tiny r. NEnterprises Small Scale Service & ~ Business Enterprises

Fig. 4.4 Classlftcatfon of 55ls (i) Inefficient human factor (ii) Lack of credit facilities (iii) Absence of organised marketing (iv)

Problems of raw materials

(v) Lack of machinery and equipment

Power shortage and frequent power cuts (vii) Problem of late payment of bills (f) Inefficient Human Factor: Owing to illiteracy, ignorance, and the outdated methods of the cottage workers, there is an ineffici~nt human factor. The entrepreneurial abilities of the promoters of cottage industries am:. "51s are handicapped by the lack of technical knowhow in the areas of production, finance, accounting and marketing management. (II) Lack of Credit Facilities: The small industrialists are generally poor and there are no facilities for cheap credit. They fall into the clutches of the money lender who charges very high rates of interest, or else they borrow from the dealers of their goods, who exploit them by compelling them to sell their products at very low prices. After the nationalisation of 14 major Indian Banks in July 1969, the commercial banks were providing only a small proportion of 551s financial requirements. The position has somewhat improved since then, but it is far from satisfactory yet. Credit to the 551 sector continues to be non-commensurate with its contribution to the total industrial output. As against the share of the village and 551 sector at 40% in the industrial output, its share in total credit to the industrial sector is only about 30%. (III) Absence of Organised Marketing: As marketing is not properly organised, the helpless artisans are completely at the mercy of middlemen. (vi)

Small Scale Industries and Entrepreneur Development : 70

The potential demand for their goods remains underdeveloped. The SSUs have to face the competition from large scale units in marketing their products. It causes damage to the growth and stability of SSIs. SSIs cannot afford to spend lavishly for advertisement to promote their sales. Further, SSIs produce such products which cannot satisfy modern tastes. They cannot afford to have services of specialists to prepare marketing plans for penetration into domestic and foreign markets. (Iv) Problem of Raw Materials: The quantity, quality and regularity of the

supply of raw materials are not satisfactory. There are no quantity discounts, since they are purchased in small quantities and hence charged, higher prices by suppliers. Difficulty is also experienced in procuring semi-manufactured materials. Many bogus small scale units exist only to procure raw materials at lower cost and sell the raw materials in the black market. (v) Lack of Machinery and Equipment: Exclusive machines and equipment suitable for SSIs are not available. This is another serious handicap. Very little attention is paid to manufacturing such machinery. Hence the problem of Small Scale Units (SSUs) is the lack of availability of suitable machines and the obsolescence of the machines in use. (vi) Power Shortage and Frequent Power Cuts: In the recent years, power shortage and frequent power cuts have played havoc with the SSUs. (vII) Problem of Late Payment of Bills: SSUs face serious financial difficulty in as much as more than half of the total SSUs catering to medium and large industries face the problem of late payments of their bills by the latter. This was as per the report by RBI committee.

4.9 Suggestions for Improvement Suitable steps are to be taken to remedy the existing defects and to remove the main difficulties of such industries. These measures include: (I) Surveys: Detailed surveys of the existing industries should be conducted and production programmes of the SSIs are to be drawn up. (II) Proper Education and Training of Workers: Large number of

Industrial Technical Institutes and Polytechnics for different crafts should be established for imparting training to the craftsmen. (fff) Improvement in Techniques: The artisan should be familiarise~ with new and more economical methods of production. Following are to be provided: • Modern tools popularised on the hire-purchase system • Technical guidance and advice ~ A system of training-cum-production centers and pilot workshops • Use of new patterns and designs. (Iv) Supply of Inputs: Good raw materials, equipment and imported accessories may be ensured by suitable measures. These should be regular, of good quality and at reasonable costs.

Small Scale Industries : 71

(v) Supply of Capital or Credit: Cooperative Societies or State Financial

Corporations are a good source for capital or credit, Commercial banks should also take an active role in this. However, in view of the red tap ism and the rigidity in their working, SSI entrepreneurs may face problems. (vi) Effective Marketing Organisation: • Sales depots may be started in all big towns • Exhibitions of SSI products may be organised (vII) Provision of Cheap Electricity: In Japan and Switzerland, success of SSIs has been achieved due to the availability of cheap power. This should happen in India. Integration with Large-Scale Industries: SSI should be complementary to the large scale ones. The raw materials can be semi-processed in rural areas in small and medium sized units and then brought in a semi-finished state to the big urban industrial units. The large organised sector can provide • Technical guidance • Market information • Result of its own R&D activities in respect of quality and packing methods. Temporary Measures of Protection: May be afforded to cottage and SSIs by reservation of spheres and in other ways, until by carefully devised measures for improvement of techniques and of organisation, they are enabled to withstand competition. Separate Suitable Machinery: May be set up for each category of cottage and SSIs to attend to their respective problems and thus to promote their development. Research in Techniques: A central institute of research may be started which should solve their problems. If there is a need, the National Laboratories also are to be used for guidance and communicating results to smaller research centers and the artisans. '11 the case of SSIs, special research sections may be opened in research institutes assodated with large scale industries. Besides, standards of quality should be laid down and enforced in all the important lines of production by the provision of testing facilities. e.g. If the line of production is Consumption goods, goods such as toys, toilet requisites, food products including preserved fruits, meat and fish could be produced by SSIs. A committee set up by the government made the recommendations on stream lining procedures for the SSIs: • Compulsory registration of SSIs • Introduction of an insurance cover against erosion of capital • Creation of a separate department in the industry ministry • Establishment of a bureau of small industries intelligence • Larger purchase of the Directorate-General of Supplies and Disposals (DGSD)

Small Scale Industries and Entrepreneur Development : 72

• •

Single payment under social security levy A separate financial cell to assess the needs of the units and prepare financial feasibility reports suiting the financial agency

•

Making such financial limits binding on the financing agencies

4.10 New Policy Governing SSls in India The Industrial Policy reflects the direction and pattern of industrial development the country desires to have to help realise the economic, social and political objectives of national development by means of industrialisation. Hence, the industrial development of a country will be guided and fostered by the Industrial Policy. The industrial policy would indicate (i) the respective roles of the public, private, joint and cooperative sectors (ii) large, medium and small-scale sectors (iii) identifies national priorities (iv) expresses Government's policy etc., with respect to industrial sector. A number of policy statements on industrial development have been made by the Government of India after independence, starting from 1948, the first industrial policy.

4.11 Industrial Policy Resolutions (f) Industrial Policy Resolution 1948

It stressed on the importance of small enterprises-cottage and village industries. (If) Industrial Policy Resolution 1956 This laid down the role to be assigned to an approach of the government towards SSIs in the country. It assigned the following six tasks to SSIs in addition to others. • • •

• • •

To create a big scale employment opportunities for people with a relatively low capital investment per head. To make an attempt to meet a substantial part of domestic demand for consumer goods and even part of capital goods. To bring about mobilisation of capital and entrepreneurial skills in the vast areas of the country, especially in rural areas (If these are not used effectively it is a national waste and it amounts to insufficient planning). To provide assistance to a large number of entrepreneurs, artisans and craftsmen in getting employment, income and reasonable standard of living. To make available foreign markets for products of SSIs by taking measures to make them export oriented. To remove disparities in regional industrial development in areas where such services do not exist or are thoroughly inadequate, so that SSIs may develop there. This would provide employment and income to people in the area. .

Some more roles are: • Heavy industries in public sector may obtain some of their requirements of the lighter components from the private sector, while the latter in turn would rely for many of its needs on the former. The same principle would apply with even greater force to the relationship between large scale and SSIs.

Small Scale Industries: 73

•

The Government of India would, in this context, stress the role of cottage, village and SSIs in the development of the national economy. In relation to some of the problems that need urgent solutions, they offer some distinct advantages. They provide: - Immediate employment opportunities to a large number of people. - A method of ensuring equitable distribution of the national income. An effective mobilisation of resources of capital and skill which might otherwise remain unutilized. Some of the problems that unplanned urbanisation tends to create will be avoided by the establishment of small industrial units all over the country. In the policy statements of 1991, the state followed a policy of supporting small enterprises in the country.

1991 Policy Small scale enterprises (SSEs) account for 55% of industrial production, 40% of exports and above 88% of manufacturing employment. Hence they are considered as dynamic and vibrant sector of the economy. The relative importance tends to vary inversely with • The level of development • Their contribution These remain significant in the country. •

•

SSEs have: Played a significant role in creating sufficient load and balancing economic and social developments within the country Emerged as the leaders in the industrial sector In recognition of their significance and stature, the new Government announced policy measures on August 6, 1991, for the first time in the post independence period. This was to promote and strengthen small, tiny and village enterprises. This is almost a U-turn in policy stimulants and structure of micro and small enterprises in the country.

The Primary Objective of the Policy This is to impart vitality and growth impetus to the sector so that the sector could contribute in terms of: • •

growth of output, employment, and

• export. In addition, the other objectives are: (i) to decentralise and de license the sector (ii) to deregulate and debureaucratise the sector (iii) to review all statutes, regulations and procedures and to effect suitable modifications where necessary (iv) to promote SSEs, especially industries in tiny sector

Small Scale Industries and Entrepreneur Development: 74 .

(v) to motivate small and sound entrepreneurs to set up new green enterprises

in the country (vi) to involve traditional and reputed voluntary organisations in the intensive

development of KVI through area approach (vii) to maintain a sustained growth in productivity and attain competitiveness in the market economy, especially in the international markets (viii) to industrialise backward areas of the country (ix) accelerate the process of development of modern SSEs, tiny enterprises and village industries through appropriate incentives, institutional support and infrastructure investments. The total approach of the new policy is towards creating an atmosphere conducive to the development of entrepreneurship and technological progress.

Salient Features of New Policy Equity participation up to 24% by other industrial undertakings (including foreign companies).

Table 4.1 Salient Features of New Policy • Hike in Investment limit for tiny sector up from Rs. 2 to 5 lakhs. • Legislation to limit financial liability of new and non-active partners/ entrepreneurs to the capital invested. • Relaxation of certain provisions of labour laws. • Easier access to institutional finance. • Factoring services through SIOBI to overcome the problem of delayed payments. • Composite loans under the single window scheme also to be given by banks. • Priority to SSls/tiny units in allocation of indigenous raw materials. • PSUs and NSIC to help market products through consortia approach both domestically and internationally. • Legislation to ensure payment of SSI bills. • Compulsory quality control for products that pose risk to health and life. • A technology development cell to be set up. • Incentives and services package to be developed at the district level. • Traditional village industries would be given greater thrust.

• Investment limit of ancillary units and export oriented units hiked to Rs.75 lakhs. • Service sector to be recognized as tiny sector. • Support from National equity fund for projects up to Rs. 10 lakhs. • Single window loans to cover projects up to Rs. 20 lakhs. Banks too to be involved. • Sub-contracting exchanges to be set up by industry association. • Women enterprises redefined. • Marketing of mass consumption items by NSIC under common brand name. • Tiny sector to be accorded priority in government purchase programme. • Promise to deregulate and debureaucratise small and tiny sector. • Janata cloth scheme to be replaced by a new scheme which will provide funds for loom modernisation. • A special monetary agency to be set up for the small scale sector's credit needs. • A new scheme of integrated infrastructural development to be implemented. • An export development center to be set up. • Khadi and village industries commission and boards to be expanded.

Small Scale Industries : 75

In pursuit of the objectives of the policy statement, the Government of India has decided to take a series of initiatives in respect of the policies related to the following areas: • • •

Industrial Licensing Foreign Investment Foreign Technology Agreements

•

Public Sector Policy

• MRTPAct Table 4.2 Comparison of 881, TIny 8ector and Village Industries Small Scale Industries -

Financial support Infrastructural facilities MarkCi!ting and exports Modernisation Promotion of Entrepreneurship - Simplification of rules and procedures

Handicraft Section - Extending services like supply of raw materials etc. - Market development support - Expansion of training facilities

TIny Sector - Investment - Broadening the concept of service sector - Locational - Simplification of rules Handloom Sector - Project package scheme - Welfare package scheme - Qrganisational and Development scheme - NHDC as a nodal agency

Other Vii/age Industries - Improving quality - Enquiring better flow of credit from FIs - Thrust on the traditional village industries - Setting of functional industrial estates - Upgrading the training programmes - Coordinating with development programmes

The new policy for SSIs (including the tiny sector) is conceptually sound. But it opens the flood gates for large industries and foreign companies minimising the natural growth of entrepreneurship at the grass root level, the success of which depends to a greater degree on the quality of the downstream action that is needed. The merit of the policy depends upon its implementation, as well as plugging the loopholes. The policy is expected to provide fresh stimulus for growth and international competitiveness of the small sector if it is matched with timely technological upgradation, professional management, innovative ideas, entrepreneurial vision and well trained manpower. The need of the hour is an agenda for growth of small enterprises and industries in the tiny sector as a viable phenomenon. Developing entrepreneurship and promoting responsible and innovative management must be the guiding principles of the new policy for the SSIs, which calls for a sincere attempt to foster development and growth. Following innovative features are to be appreciated such as: • Strengthening of micro (tiny) enterprises • Removal of locational constraints • Broadbasing of the concept of SSI by including industry related services and small business • Ensuring access to need based finance • Promising deregulated and debureaucratised small business administration

Small Scale Industries and Entrepreneur Development: 76

The success of policy depends on its effective implementation. So far, successful implementation has taken place. Table 4.3 ThrustIPolicy Statement on 1977 Policy and 1991 Policy Policy

Emphasis/Thrust

Policy Statement

1977

Which included: - economic investigation of the districts - raw material and other resources - supply of machinery and equipment - arrangement for credit facilities - call for quality control - research and extension - to establish close linkages with development banks and specialised institutions like SISI To impart more vitality and growth impetus to the sector to enable it to contribute its mite fully to the economy particularly in terms of: - growth of output - employment - exports Separate small industries policy announced Government decided the conflicting divisions between large and small scale industry to be cleared.

Were capable of being established or expanded in the small scale sector List of industries reserved for small scale sector (para 4.32) is continuously revised so that capacity creation does not lag behind the requirements of the economy

Policy

1991 Policy

• A policy of integrated industrial development of nucleus plants in each district identified as industrially backward to generate as many accessories and small scale and cottage units as possible • Government increased the limit of investment for tiny units to Rs.5 lakhs, irrespective of the location of the units. • A growth of service sector was recognised e.g. Hotel and Hospital services

4.12 Steps to be taken while Starting a Small Scale Industry Steps for starting a Small Industry are as under: • Decision to become an entrepreneur • Steps to be taken Selection of product Selection of form of ownership Selection of site Designing capital structure Acquisition of manufacturing knowledge Preparation of project report Registration as an SSI Municipal Licence Power connection Arrangement of Finance Preparation of project report guidelines, procedures and formalities Procedures for Registration Relevant provisions of Sales Tax Acts

Small Scale Industries:

n

Registration of Designs Pollution Control Clearance (i) Decision to become an Entrepreneur An unemployed person faces a multifaceted environment and if he possesses strong orientation towards entrepreneurship and growth, the right type of decision is to start a small scale enterprise, instead of playing the subservient role of an employee/worker. With this, he can enjoy the soverign status of being the owner controlling the affairs of his enterprise. An entrepreneur possessing a keen aptitude for setting up a small scale unit should formulate a business plan and take a number of steps to give shape to his business idea. He has to prepare project reports and obtain various approvals and sanctions. (Ii) Steps to be Taken Selection of the Product: An entrepreneur selects a product according to his own capacity and motivation. If he is innovative, he may design a new product or like an imitative one, he may copy an established product. He may also improve upon an existing product in terms of additional uses, comfort or saving in cost. The economic viability of a product covers the following demand aspects: (i) Volume of: Existing demand in the domestic market Existing demand in the export market Aggregate existing demand in all markets Potential demand Demand by big units for ancillary products. (ii) Degree of: - Import substitution - Substitution of an existing product. The relevant information on these aspects may be obtained from: • • •

Various technical publications State Development agencies Industrial house developing ancillary units

•

Giant public sector units (in respect of the development of products that they now import from other countries)

• Various research laboratories of CSIR and NRDC etc. Consultants may also be hired for product selection from the broad industry groups. To obtain accurate market information and to ascertain product viability, the entrepreneur may take up a market survey either by himself or taking the assistance of a consultant. Product selection is a very delicate and a tough exercise. Institutions like DICs, SISI, consultancy organisations would guide the entrepreneurs in selecting the right product with their experience and contacts in case the entrepreneurs have not

Sman Scale Industries and Entrepreneur Development : 78

decided the type of the product. Entrepreneurs should select a product line by considering: Market segment Availability of raw material Place of manufacture Investment criteria Technical knowhow Availability of skilled manpower etc. Products are classified under the following categories: • • •

Engineering Foot-loose type Technology-based

• • •

Non-engineering Demand-based Need-based

Criteria for Selecting a Product • • • • •

Availability of market Availability of technology Availability of necessary finance Availability of raw material Availability of other infrastructural facilities like power, water, skilled labour, transport etc.

Product Lines could be • • • •

Consumer durables (steel furniture, electrical iron, voltage stabiliser, water heater etc.) Consumer non-durables (plastic items, cosmetic items, readymade garments, food items etc.) Industrial non-durables (bolts, nuts, screws, spacers, washers, springs etc.) Intermediate goods (paints, varnish, pharmaceutical formulations, dye stuff etc.)

The end user of the products are: • Domestic consumer (urban, semi-urban, rural areas, high income, low income, middle income groups) • Industrial consumer/Institutional consumer Main objectivity is to make a reasonable return on investment (ROI), SISIs, Director of Industries and. Commerce conduct quick market surveys to identify industries for a particular area. SISI prepares Area Survey Reports of Districts, Industries Status Reports, on a particular industry (Status report for Auto ancillaries, leather auxiliaries, chemicals, textile machinery etc.). Secondary source of information are also available for new entrepreneurs on the periodical reports issued by SIDO, RBI, Planning Commission etc. Besides, the entrepreneur can himself take up a study in whiCh case, he should be taught how to carry a market survey in a particular locality which forms the primary source of information. The concerned institutions would help the enirepreneurs in drawing up questionnaires locating prospective clientele, interviewing techniques etc.

Small Scale Industries : 79

Certain products require Government rules and regulations that are to be adopted (like disposal of effluents or waste water pollution control etC.) and some may need special licences (Drug and Food stuffs, crackers etc.) Institutions like SISIs, DICs are helping entrepreneurs by preparing periodically lists of products that have got scope for development in particular areas. Similar products already existing in some areas need not be taken up, as these are unprofitable for manufacture and results in competition.

Selection oj Form oj Ownership This could be from sole proprietorship, family ownership, partnership or private limited company. The first two forms are preferred for having unified control over the unit. The next two facilitate the pooling of financial resources managerial and technical skills and business experience. Where the family ties and resources are strong, partnerships are in no way distingUishable from family concerns. Selection oj Site Suitable plot for factory or shed is to be chosen, for which an entrepreneur has certain options. He can choose a plot of land from an industrial area developed by the State Development Corporation (KSSIDC), SIDCO or Directorate of Industries where necessary industrial infrastructure has been provided. The second option is factory sheds in an industrial estate constructed by the State Industrial Development Agency and provided with adequate infrastructural facilities or he may choose layouts/sheds developed by private developers (Private Idnustrial Estates). Information regarding this could be obtained from newspaper advertisements, or real estate agents. In such cases, he has to obtain permission from the District Collector and/or his subordinate officers. The last option is to select a site/shed available in free trade zone (like Kandla in Gujarat, Seepz in Bombay or Madras Export Processing Zone). For selecting a site, an entrepreneur is to take care of the following: (i) Preferably the site could be at his native place (ii) The site enjoys most or all incentives provided by the government (iii) Nearness to market (iv) Nearer to the source of skilled labour and raw material (v) The site has modern infrastructural facilities (vi) Whether the area is a declared industrial area or not [as per the information available at District Industries Centre (DIC)]. Designing Capital Structure For any new venture, the initial capital will be from the following resources: • Own capital • Long term loans taken from friends and relatives • Term loans from banks and financial institutions (FIs) The institutional lending has increased but is not the dominant source of funds for small industry. Banks generally provide working capital finance.

Small Scale Industries and Entrepreneur Development : 80

• •

Support from FIs is not adequate FIs should gear up their administrative machinery and produce better performance to fulfil the objectives and targets. Manufacturing Knowhow Acquisition Manufacturing knowhow is provided by institutions like: • Government research laboratories (e.g. National Laboratories/CSIR, ROC) • Research and development divisions of industries • Individual consultants. In the case of ancillary units, the main unit provides the knowhow to the promoter, who needs the technology to suit his requirements. Foreign Technical collaboration is also another source for knowhow. In this case, a collaboration agreement into be entered by the foreign firm with the Indian firm seeking collaboration. For this, Indian government's approval has to be taken. The scale of operation depends on: • • •

Technology FinancIal resources availability Market demand envisaged

Registration of an SSI It may be noted that there is no obligaiton on new entrepreneurs to get a licence under the Industries (Development and Regulation) Act, 1951 for establishing an SSU or an AncUlary unit.' However, if they register, they get certain benefits like facilities, concessions fromthe government, quota for scarce or controlled raw materials. It is in their own interest, that SSIs can register themselves with DICs or State Directorate of Industries and obtain the registration certificate. Two types of registrations are: • Provisional (temporary) registration. This is after deciding on a suitable product and if the entrepreneur is actively considering to establish an industrial unit, he is issued a provisional SSI registration certificate for a period of one year (subsequently renewed for two periods of 6 months each). The extension is necessary because the entrepreneur is not able to commence production due to the circumstances beyond his control. Provisional registration provides him to apply for: (i) A shed in an industrial estate or a developed plot in an industrial area. (ii) Corporation/Municipalities for other licences. (iii) Power connection. (iv) Financial assistance from Banks and FIs. (v) NISC/SIDO for procuring machinery on hire purchase basis. (vi) Sales tax, excise duty. (vii) To take other steps that may be nessary to establish the industrial units.

Small Scale Industries : 81

The application for this registration is to be sent in duplicate. •

The issue of provisional registration certificate is automatic and iwll be issued within seven days.

•

For permanent registration certificate, when an industrial unit estate has commenced production or ready for production, the entrepreneur can apply in triplicate for registration in the prescribed form available with the DIe, Regional Deputy Director within 7 days, the unit will be informed about the inspection details by District Industries Officer (DIO) or other designated officer. the inspection includes an assessment of the installed capacity of the unit. After satisfaction, the concerned officer would issue the permanent registration certificate to the unit that applied for registration. the Director of Industries maintains a list of all registered small scale units at his head quarters office.

Obtaining Statutory Licence (Municipal Licence) • • • •

Obtain municipal licence from the concerned municipal authorities for which a fee is charged. Registration with central and sales tax department is necessary. Entrepreneur should study the procedure for accounting sales to those departments and returns have to be submitted periodically. If the unit comes under the purview of the Factory Act, regarding number of employees, ten persons with electric power or twenty without electric power. Registration with the Inspector is required. Otherwise, registration of the unit will be under the Shops and Establishments Act (if applicable).

Power Connection Low Tension (LT) and High Tension (HT) power connections are needed. Up to a connected load of 75 HP Low Tension is needed. Between 75 HP to 130 HP, the consumer has the option to avail either LT or HT supply. Beyond 130 HP, it is a HT consumer. Most of the units fall under the LT category. A new entrepreneur has to make an application to the concerned engineer in the electricity board, the load applicable for the new unit would be decided by him. Thereafter, the entrepreneur has to pay a security deposit (amounting to three months power consumption to avoid delay in getting power connection).

Arrangement of Finance The funding requirements are: •

Long term requirements - To acquire fixed assets like land and building, plant and machinery and for security deposits.

•

Short term loans for working capital in the form of key loan/cash credit/bill discounting etc.

Term loans for fixed assets are provided by the State Financial Corporation (In Karnataka-Karnataka State Financial Corporation-KSFC) and a commercial bank, more or less on the same terms and conditions. SFCs extend financial assistance by availing the refinance facilities available with the Small Industries Development Bank of India (SIDBI). Rate of interest varies depending upon:

Small Scale Industries and Entrepreneur Development : 82

• •

The amount of term loan sanctioned RBI gUidelines

4.13 Process of Setting up a Small Scale Industry 1. Selection of Industry Small Industries Service Institutes (SISI): Guidance to entrepreneurs in the selection of: • Industries • Products • Areas • Suitable Raw materials • Machinery • Training, etc. India Investment Centre Advises on: • Foreign capital participation • Technical collaboration Guidance to entrepreneurs regarding: • Government policies • Procedures • Available incentives • Facilities for investment • Economic size of investment • Magnitude of investment required • Demand Forecast • Availability of raw materials etc. Ministry of Industrial Development and Company Affairs, New Delhi • Approves the cases of Foreign collaboration District Industries Centres (DIes) • This comes under Directorate of Industries and Commerce of each state. • Every district has one agency to deal with all requirements of small and village industries. Under one roof, all services and support needed by SSI and Village entrepreneurs would be provided. • The Rural Industries project and Rural Artisans programme would be merged with the programme of DICs. • Each DIC would be headed by G.M. and several managers of different disciplines for looking after: Planning Economic Investigation Credit Marketing, etc.

Small Scale Industries : 83

2. Factory Accommodation Directorate of Industries: •

Built up factory space in industrial estates or developed factory sites, power, water etc. (Building Designs have to be approved by Municipalities or Corporations. Power and Water connections are sanctioned by the State Governments) .

• In Karnataka, factory accommodation is provided by KSSIDC and KIADB. 3. Industrial Estates •

More than 600 Industrial estates exist in India at present.

•

HMT was the first to build an Industrial Estate in Bangalore in the year 1961 with 50 ancillary units in that industrial estate.

•

Industrial estates in India provide constructed accommodation in developed areas providing common facility centres, services, allotment of sheds on hire-purchase, concessional water and power charges, exemption from octroi duty on building material etc. 4. Registration • •

Not mandatory. Certainly helps to obtain the SSI registration from DICs for raw materials and certain incentives. S. Machinery • • •

SISI advises the type of machinery and equipment (on deferred credit basis). Technical Consultancy Organisations, TCOs also advice the same. National Small Industries Corporation (NSIC) supplies indigenous as well as imported machinery on hire purchase basis.

Chief Controller of Imports and Exports, New Delhi • Issues import licences for machinery of foreign orlgm on the recommendation of the Director of Industries of each state. Consultants (TECSOK) in Karnataka • Install machinery as per the layout drawn by them. 6. Raw Materials Development Commissioner, Small Scale Industries, New Delhi (DCSSI) • Procures raw materials for the small industry and distributes them among State Governments (KSSIDC is responsible in Karnataka for distribution). • Also arranges imports of raw materials through the Minerals and Metals Trading Corporation (MMTC) and the State Trading Corporation (STC) of India. Directorate of Industries • Allot quotas of scarce raw materials. State Small Industries Corporation (KSSIDC in Karnataka is responsible for supply of raw materials).

Small Scale Industries and Entrepreneur Development : 84

Chief Controller of Imports and Exports • Issue licences for the import of raw materials. 7. Finance Small Industries Development Bank of India (SIDBI) 1989 • SIDBI started operations through its 25 offices located in different states of the country. •

• •

SIOBI has been set up under an Act of parliament as the principal financial institution for promotion and development of industry in the tiny and small scale sector. Expected to coordinate the functions of the institution engaged in similar activities. Wholly-owned subsidiary of lOBI; taken the latter's finance activities relating to the small scale sector.

State Financial Corporation • Long term credit for the purchase of fixed assets are provided. State Directorate of Industries • Provides loans under State Aid to Industries Act/Rules for Block Capital. State Bank of India and its Subsidiaries • Sanctions medium term and installment credit loans for the purchase of machinery and the connection of factory buildings. • Provides working capital for the purchase of raw materials and meeting day-to-day requirements. Commercial Banks • Sanction loans for working capital needs. Small Industries Service Institutes (SIS Is) • Guides entrepreneurs to prepare technical reports needed by financial institutions. 8. Technical Know-how SISls • Prepare improved designs and institutes drawings for products. • Assist in making tools, dies, jigs and fixtures. • Help in optimum utilisation of resources (Men, Materials and Machinery). • Prepare management control charts for the maximisation of profits. • Train managers and supervisors in Industrial management. • Train workers to upgrade their skill. • Demonstrate modern technical processes. National Small Industries Corporation (NSIC), New Delhi • Provides advanced training in their Prototype Production cum Training Centre in the operation of modern machines.

Small Scale Industries: 85

Council of Scientific and Industrial Research (CSIR), New Delhi •

Develops new technological processes and disseminates the same to industry.

• Trains factory owners to increase productivity. Small Industry Extension Training Institute, Hyderabad •

Provides full time management training to managers/proprietors in the SSI sector.

Central Institute of Tool Designs (CITD), Hyderabad • Provides technical consultancy. • Tool facilities. • Training in design and manufacture of tools. Institute for Design of Electrical Measuring Instruments (IDEMI), Bombay • Provides technical knowhow and testing, calibration, laboratory, workshop and training facilities to electrical measuring instrument manufacturers. 9. Standardisation Small Industries Service Institutes (SISI) • Provides technical guidance in the production of goods according to prescribed standards. Indian Standards Institution (lSI) • Prescribes specifications for the products and issue lSI certificates. Directorate of Industries • Prescribes standards and gives quality mark to the small industry's products. • Those in charge provide technical guidance in maintaining the quality of products. 10. Marketing Small Industries Service Institutes (SISI) • Conduct distribution and surveys for the benefit of small industrialists. • Enlist the units for participation in the Central Government Stores/Purchase Programme. • Issue competency certificates to the units receiving Government orders. • Promote ancillary relationship with large and medium scale units in public and private sectors. • . Conduct plant level committee (PLC) meetings with public sectors regarding ancillarisation. National Small Industries Corporation (NSIC), New Delhi • Secures contracts from DGS&D, Railways, and Defence Departments for supply of manufactured goods by SSUs. State Small Industries Corporation (SSICs) • Secure orders from the State Government and other semi government organisations for the supply of stores.

Small Scale Industries and Entrepreneur Development : 86

11. Export Small Industries Service Institutes •

Enlist small units for participation under the Export Aid to Small Industry Scheme of the State Trading Corporation (STC) of India.

•

Render Technical counselling service for a satisfactory execution of export orders. Disseminate information about the items having export markets. Maintain a close liaison with specialised agencies like the Export Pronwtion Councils to have up-to-date knowledge abo\lt the products having export markets.

• •

Chief Controller of Imports and Exports, New Delhi • Issues licences for the export of products to foreign countries. Directorate of Export Promotion, New Delhi • •

Collects and supplies information on foreign markets. Carries out market studies for particular products.

• Publishes Trade Directories, Brochures and Bulletins. Export Promotion Councils • Organise exhibitions and showrooms. • Maintain a close liaison between Indian exporters and foreign buyers; settle commercial disputes.

State Trading Corporation (STC) of India • •

Registers units for participation under Export Aid to Small Industry scheme. Helps the SSUs in the preparation of sales leaflets, price lists etc.

• Secures export orders for SSIs. Trade Fair Authority of India, New Delhi • Orgatlises National Small Scale Industries Fairs. • •

Conducts publicity work. Projects image of the industry and

a~sists

in finding markets.

12. Inventions The Inventions Promotion Board, New Delhi • Promotes workable inventions of practical utility through financial assistance and other incentives. The Central Institutes of Tools Design (CITD), Hyderabad • Produces tools, jigs, fixtures, dies and moulds for SSI. • Trains practising personnel in the design and manufacture of tools etc. 13. Training Small Scale Industries Development Organisation •

Trains practising managers and technologists. _l.'

Small Scale Industries : 87

Small Industries Service Institutes (SISI)

• Conduct management courses for senior managerial personnel. Extension Centres •

Conduct regular and ad hoc training courses in various technological trades for skilled and semi-skilled workers. Indian Investment Centre • Conducts regular EDP courses. • Assistance is given to the trainees in the identification of project reports. • Help provided to obtain the necessary financial assistallce from FIs. • Guidance provided up to the stage of trial production. Small Industry Extension Training Institute (SIET) • Offers training in industrial management and other aspects of small industries development. • •

Undertakes Feasibility/Research studies. Collects and disseminates technical information through its Documentation Centre. • Under 'assistance to young engineers 'programme', training is provided through specified agencies • Provides interest rate 7% per annum (normal rate charged by financial institutions), subject to a maximum of Rs.20,OOO/annum for a period of 5 years in backward areas and 3 years in other areas. National Institute for Entrepreneurship and Small Business Development (NIESBUD) •

An apex body established in 1983 for coordinating and overseeing the activities of various institutes/agencies engaged in Entrepreneurship Development in Small Industry and small business. 14. Problems The Federation of Associations of Small Industries of India, New Delhi • Represents the problems faced by the small industries to the Government. • Discusses the problems and represents them to the appropriate authorities. 15. Monitorhig The National Alliance of Young Entrepreneurs (NAYE) • National level apex organisation of entrepreneurs. • Assists in promoting new enterprises through first generation entrepreneurs. • Monitors the EDPs in India. 16. Other Voluntary Organisations Many others are there like AWAKE, WIMA, SEWA, WASME, NAYE etc.

Small Scale Industries and Entrepreneur Development : 88

4.14 Broad Policy Objectives of the Government towards Small Scale Sector The broad policy objectives of the small scale industrial policy during the nineties would be to impart more vitality and growth impetus to the sector so that the sector could contribute in terms of growth of output, employment and export. The other objectives are: • To decentralise and delicense the sector. • To deregulate and debureaucratise the sector. • To review all state regulations and procedures and effect suitable modifications where necessary and to promote small enterprises, especially • industries in tiny sector. •

To motivate small and sound entrepreneurs to set up new green enterprises in the country. • To involve traditional and reputed voluntary organisations in the intensive development of Khadi and Village Industries through area approach. • To maintain a sustained growth in productivity and attain competitiveness in the market economy, especially in the international markets. • To industrialise backward areas of the country. • Accelerate the process of development of modern small enterprises, tiny enterprises and village industries through appropriate incentives, institutional support and infrastructure investments. The total approach of the new policy is towards creating an atmosphere conducive to the development of entrepreneurship and technological progress. 4.15 Rules, Regulations and Acts governing Small Scale Industry Rules and regulations are essential since they ensure a healthy and rapid growth of the industries. They act as a governor ensuring steady growth of the industry as well as the environment and the labour force. They are the basic components of SSIs. The basic objective is to ensure that the results of operations conform as closely as possible to established standards of goods, specified procedures or instructions. The needs are meant to develop SSIs on the successful track. They are essential for the directions, for excellence, growth and development. Regulation is a mO!,)itoring mechanism of rules. Small Scale Enterprises (SSEs) are generally concerned with land, building, environment, infrastructure, rules and regulations. These are to be formulated to safeguard interests of the entrepreneurs. If there is a greater awareness among the entrepreneurs, the rules and regulations have minimum effect and disturbance. Rules and regulations in general ensure: • • • •

Steady/rapid growth of SSIs Develop new products and markets Produce quality goods Promote healthy development of human resources

Small Scale Industries: 89

SSIs do not: • Pollute or degrade the ecosystem (environment) • Intervene with or exploit labour • Cheat the consumer on any counts There are about 133 Acts and orders about which the entrepreneur or his legal advisor should have knowledge. Some of the important Acts worth studying are: • The Factories Act, 1948 • The Industrial Disputes Act, 1947 • The Contract Labour Act, 1970 • The Minimum Wages Act, 1948 • The Industrial Employment (Standing Orders) Act, 1926 • The Industrial Relations Act, 1946 • The Payment of Bonus Act, 1978 • The Indian Trade Unions Act, 1926 • The Workmen's Compensation Act, 1923 • The Maternity Benefit Act, 1961 • The Payment of Gratuity Act, 1972 • The Industrial Development (Regulation) Act IDRA • The Payment of Wages Act, 1936 • The Employees State Insurance Act, 1948 • The Employment Provident Fund Act, 1952 • The Indian Boilers Act, 1923 • The Indian Electricity Act, 1910 • Income Tax Act, 1961 • Drug Control Act • Central Sales Tax Act and State Sales Tax Acts The different types of acts are as indicated on pages 91 to 96. The small scale entrepreneur is to be well versed in excise, customs procedures and export and import regulations and procedures. He should seek assistance from the following professionals: • Inspecting Staff of Government • Labour Consultants • Financial Consultants The salient features of the regulations governing the SSIs are as under: Regulations

As already mentioned in para 4.15, Regulations are the govening factors which ensures: • Everything occurs in conformity with the plan • The instructions issued • The principles established These point out the weaknesses and errors to be rectified and prevents such things do not occur again.

Small Scale Industries and Entrepreneur Development: 90

Fig. 4.5. Types of Acts Need

Fig. 4.6. Regulations of SSls Regulations Governed by:

• • • • • • • • • •

State Industries Act The Factories Act, 1968 Shops and Establishment Act 1948 Indian Border Act (if applicable) Payment of Wages Act, 1936 Minimum Wages Act, 1948 Workmen's Compensation Act, 1923 Employees Provident Fund Act, 1952 Employees State Insurance Act, 1948 Income'Tax Act, 1961

Types

Small Scale Industries : 91

• Central Sales Tax Act and State Sales Tax Act • Drugs Control Act • The Payment of Bonus Act, 1978 • The Industrial Employment (Standing Orders Act), 1926 • Industrial Disputes Act, 1947 Rules and regulations governing SSls act as a governor: • Ensruing steady growth of the industry as well as the environment • Growth in the labour force Rules and regulations are the basic components of SSIs. 4.16 Location of SSls

This plays a very important role and will finally result in the success or failure of SSIs. This is a vital factor on which depends the small industry's ability to: • Obtain an adequate regular supply of raw materials at the minimum cost • Obtain Quality material • Maintain a sufficient labour force • Serve its customers satisfactorily Many small entrepreneurs do not think about proper location and finally suffer que to this. While choosing a plant location, following points are to be taken care of: • Selection of the region • Selection of the locality or community • Selection of the exact site • Selection of an optimum site Plant Location

Location of plant is the function of determining where the plant is to be located for maximum operating economy and effectiveness. The plant location once decided, out of different locations considered, has to live for a long time, with the prospects and problems regarding the raw material, supplies, labour, all other resources and markets. The Steps to be taken in choosing a Location for the Plant Step 1. Selection of the rl!gion

The entrepreneur must look for a suitable region and start the unit where he can find raw materials, markets nearby, power, transport etc. He should meet the competition by producing the product in that region in a most economical way. Step 2. Selection of appropriate place within the region

After selecting the region or state, he should locate a suitable place within the region (say if the state is Karnataka, place may be Bangalore or Mysore) where skilled labour at a cheaper rate. Availability of water, civic amenities for workers etc. are found. There should be no delay in starting activities. Finance should be

•

Table 4.4 Brief Details of Selected 12 Acts Type of Act

Purpose

1.

To control and direction of private sector industrial investment through the mechanism 'of the industrial licensing system, which enables it to exert pressure on the applicants in a variety of ways.

2.

Industrial Development (Regulation) Act

Factories Act, 1948 (i) Factory Definition

(ii)

Employment of children

(iii) Hours of work

for children (iv) Hours of work for Adult Female and Male workers.

A factory is defined as any place where number of people are working and in which a manufacturing process is' carried on with the aid of motive power supplied by steam, oil or electricity. Amendment Act came in April 1954 with annual leave on wages Minimum age of person to work at a factory for work14 years, prohibits children Up to 13 years. Age 14-17 from 5 hours a day to 4th hours a day at a stretch. 8 hours of work could be spread to 10th hours maximum. No worker shall work more than 5 hours without interval or rest.

Number of People involved

Other details ofth Act In August 1972 report, the Bhat Committee prepared a total of five draft legislations for the Government's approval: The Small Industries Development Act(included a definition of SSI) The Restricted Partnership Act The Small Industries Reservation Act The Small Scale Ancillary Industries Reservation Act The Public Stores Purchase and Disposal Act

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Purpose

More than 8 hours a day or 48 hours a week shall be paid for the extra hours at the rate of twice the ordinary rates of wages. (v) Cleanliness, Ventilation and temperature, Artificial humidification, Overcrowding Lighting, Drinking water, Latrines, Urinals, Provision of shiftrooms Safety provision, Dangerous fumes, Explosive gases, dust, Fume etc. (vi) Safety of Factory Buildings and Machinery

(vii) Welfare provisions, storing and drying clothes, facilities for sitting, first aid appliances, penalties for breaches for provisions of the Act, creche.

As per norms prescribed in the Factory Act, 1948.

Number of People inlJollJed

Other details ofth Act

per week and from 9 hours to 8 hours a day. Cool drinking water is to be provided during hot weather if more than 253 workers are employed. A space of atleast 500 cubic feet per worker.

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factory is dangerous to human life or safety the inspector of the building/machinery may serve notice specifying the measures to be adopted and the specific date by which it should be rectified. For any contravention of the provisions of the Act, the manager and the occupier of a factory shall each be guilty of an offence punishable with imprisonment-for a period of maximum three months or fine of Rs.500 or both on repetition, more stringent punishments (Double)

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Type of Act

Purpose

3.

80HHA-an assessee is entitled to a deduction in respect of profits and gains derived from a new SSI set up in any rural area at 20% of the 1st ten assessment years. Another incentive is the investment allowance under section 32A.

4.

5.

Income Tax Act year 1961 (80HHA is for the units which commenced manufacturing activity after 30 Sept, 1977). 32A section of the Act is applicable for the SSUs where the plant and machinery are installed after 31 March 1976. The Industrial Employment (Standing orders) Act, 1946.

The Indian Trade Unions Act, 1926

Number of People involved

Other details ofth Act As per section 32A of the Act,

an SSU is entitled to a deduction at the rate of 25 per cent of the cost of plant and machinery installed after 31 March 1976. This allowance is capital oriented whereas most of the SSUs are capital saving and labour-oriented.

Rights and obligations of the employer and 100 or more the workers in respect of recruitment, persons discharge disciplinary action, holidays, leave etc. is one of the most frequent causes of friction between management and workers. Based on the recommendations of the Tripartite Labour Conferences held in 1943/ 50 or more 1944,1945, the Governement of India passed persons in this Act in 1946. This Act provides for the Maharastra framing of standing orders in all establishments, employing 100 or more persons. Employers have to submit within 6 months the enactment of the standing orders. Central Govt. published the central rules in 1946 applicable to (Commissioners provinces and central government undertaking followed. State Governments also followed)

The Act covers: * The classification of workmen (temporary & permanent) * The manner of intimating to them their hours of work, holidays, pay days and wage rates * The procedure to be followed for applying leave and holidays * The termination of employment and notice of discharge, disciplinary action.

In free enterprise in the industrial field revealed that though theoretically both the employers and workers were free to enter into a

The worker's weak bargaining position compels him to accept whatever wages are offered to him. A trade union is a must for

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contract and to agree upon the wages to be paid and received, for various reasons, this freedom did not benefit the workers. The rules and rights of a trade union have been worked out and the same are to be followed. 6.

7.

The payment of Wages Act, 1936 (provisions of the act are applicable to workers engaged in factories as defined in the Factories Act of 1948 and to persons employed on any railway by contractor or subcontractor)

The payment of wages to factory workers in a particular form and at regular intervals without any unauthorised deductions. Wages are paid before the expiry of the seventh day after the completion of the wage period generally a month (on the 7th day of next month) on the 10th day of the next month. Terminated employees' wages on the next working day after such termination.

The Workmen's Compensation Act, 1923 (Compensation to be provided for categories of injuries schedules I to IV)

Compensation as per the provisions in the Act are to be paid for loss of fingers, hands, feet, and even lives while working on machines. To provide some basis for a statutory claim for compensation to be paid to the disabled factory worker, this act has been passed.

Other details of th Act the welfare of the workers.

Less than 1000 persons > 1000 People

Applicable to those persons whose wages do not exceed Rs.400 per month. Payment of wages shall be on a working day. Authorised deductions as per the provisions in the act are allowed.

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" Injuries for the purposes of this Act have been classified as: (i) Death (ii) Permanent total disablement (iii) Permanent partial disablement (iv) Temporary disablement, Partial or total.

Type of Act

Purpose

8.

The benefits conferred by the Workmen's Compensation Act of 1923 revealed that it did not reach the factory workers in many cases for various reasons. Hence the Employees State Insurance Act was framed in 1948 to prevent such victimization of the worker by the employer.

Every worker was insured and they have to contribute. There are many benefits like sickness, maternity, disablement, dependants and medical. Employees are compensated as per the provisions of the Act. Penalties also exist for false statements.

This act came in 1947 to settle the disputes as stated in the 1st column between the employer and employee. Important provisions of the Industrial Disputes Act were clearly stated and the penalties for non-fulfilment of the provisions of the Act were clearly indicated.

Any worker who commences, continues or acts in furtherance of an illegal strike shall be punisha"ble with appointment up to one month or with fine up to Rs.50 or both.

9.

The Employees State Insurance Act. 1948.

The Industrial Disputes Act 1947 (Strikes and lock-outs occurred after 1914 due to reasons of increase in cost of living, low wages, serious discontentment notably in the textile industry. Further long hours of work, bad conditions, insantiary housing conditions absence of any provision till 1922 for compensation of injuries, absence of any right to form a trade union till 1925, ilItreatment of workmen etc. were the root causes)

Number of People involved

Other details ofth Act

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11.

12.

The Emploiyees Provident Fund Act, 1952

The Indian Boiler Act, 1923.

The Indian Electricity Act, 1910

Act provides for the institution of a contributory provident fund in an establishment in which 10 or more persons are employed. The employer's contribution to be paid is 8 1/3 percent of the basic wages and the dearness allowance payable to each employee. The employee's contribution is equal to the contribution payable by the employer. An owner of a boiler shall not use it or permit it to be used until he fulfils certain provisions of the Act. The permit is a 'must' for Boilers. The Act relates to the supply and use of electricity energy.

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Other details ofth Act The contribution, which shall be paid by the employer to the fund, shall be 8 1/3 per cent of the basic wage and dearness allowance payable to each employee.

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Small Scale Industries and EntretJreneur Development: 98

easily available. He should get research facilities. Local taxes and restrictions are to be minimum. He has to consider various convenience factors. Step 3. Selection of various sites within the selected place

After deciding the place, he should decide on various sites aDd work out economics. The factors to be considered are: Availability of cheap land to build and to expand the plant; soil, size and topography are to be studied; cost of construction should be less in levelling of land and foundations etc., facilities for transport in getting and dispatching goods and materials (Road, Rail and Water connections), facilities for housing of the workers and their transportation to work site, cost of installation of electricity, gas and other facilities, inexpensive means of disposing of factory waste, minimum government restrictions, facilities for the upkeep and general maintenance, availability of qualified/experienced sub-contractors, cost of laying the water supply, etc. providing sewage and disposal work, less noise pollution. Step 4. Decide optimum site

Considering all the points mentioned in steps 1,2 & 3, decide optimum site. Step 5. work out the economy for different sites and finally select the 'optimum site' where he gets the maximum benefit. Steps in Plant Location

The Four Steps are: Step 1 Select the suitable region within the country Step 2 Select a particular place within the region Step 3 Select different sites within the selected place (A,B,C,D) Step 4 Select the optimum site (say C)

Region or

Stale Country --~ ~-+--+---

Selected place withm the state

A.B.C,D are four locations (sites)

Ideal location selected after evaluatmg all relevant

factors (say C)

Fig. 4.6 Selection of Optimum Site Many a times, location of SSI is determined by Government Licensing regulations and not by the individual choice of the promoters. Appraisers evaluate location in relation to the above factors. The social infrastructure facilities such as availability of housing, education, medical and recreation facilities also playa dominant role if skilled, experienced people have to take up entrepreneurshIp. For

Small Scale Industries : 99

Step 1 1. Selection of the region

I" Availability , of raw material 1° Availability of power

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I" Market Nearness of , facilities

I" Suitability of climate

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Step 2 2. Selection of the Community

I" Soil, size and topography

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I" Workers amenities ~

° Existence of complementary and competing industries

I" Disposal of waste

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Step 4 4. Selection of an optimum Site

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° Optimum site is selected on the basis of evaluation of ~ various alternatives (comparative economics survey is made)

Water/Fire availiabilitv Local taxes and restrictions

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Fig. 4.7 Steps In Location

certain projects involving sophisticated technology, availability of testing and research facilities, common facility centers (where the firm cannot invest more in plant and machinery) are considered. The weightage given to different aspects varies upon the type of industry. A place where power dominated projects are to be taken up, there should be adequate power. Similarly, in the case of water intensive projects, for export-oriented projects, location near a port may be needed. If value added components are not high, the project is located near source of raw material and vice-versa. This takes care of transportation costs of raw material and finish~ products. In general, following points may be considered in selecting a site. Availability of: • Nearness to: • Nuisance problems Raw materials Cheap power - Smoke Skilled and Sewage Noise Odour unskilled disposal labour facilities Smog Transport Soft water Dust facilities Market (controls to be provided) • Lastly, suitability of climate Selection of a suitable site, after considering all the above points, may be decided further after considering: • Soil test (type, load bearing capacity of the soil at various strata, water table, terrain etc.) • Extent of site development needed •

Small Scale Industries and Entrepreneur Development: 100

• • •

Climatic conditions (temperature, rainfall, humidity, etc.) Presence of mineral deposits Proneness to natural and structural disturbances (Study previous history of the area) • Leasehold or freehold nature of land (price/compensation, mode of acquisition etc.) Study the copies of the location map, site plan with contour lines, internal roads, power receiving station, railway-siding, tube-well, factory layout (for flow of raw material and finished products), space for future expansion, whether all formalities connected with the acquisition of land are completed before the appraisal of the project.

4.17 Contributing Role of Small Scale Industries in Indian Economy India is predominantly an agricultural country. Indian Government has found that the popular development of SSIs is vital for the healthy growth of Indian economy, by considering Japan's experience in the last three to four decades. Village industries and SSIs in their different aspects are an integral and continuing element, both in the economic structure as well as in the scheme of national planning. The main object of developing SSIs in rural areas is: • To generate better employment opportunities • To raise incomes • To raise standards of living • To bring about the growth of a more balanced and integrated rural economy. SSI sector plays a pivotal role in the Indian economy in terms of employment. A high rate of growth has been recorded after independence in spite of stiff competition faced by them with large sectors. Further, it has not received enough encouraging support from the Government. The number of units and its growth in production, employment, investments, exports etc. are shown in a simple tabular form. Table 4.5 SSls Role in Indian Economy Year

No. of Units (Iakhs)

Employment (Iakhs)

In vestment (Rs.Cr.)

Production at Current

Export fRs.Cr.)

Share in Total % Exports

40 210 845 4,345 43,204 44,450

5.2 8.4 15.6 28.8 32.5 32.2

Prices

(Rs.Cr.)

1950-51 1965-66 1977-78 1987-88 1997-98 1998-99

0.16 1.31 6.70 15.76 30.10 31.75

7.0 30.0 54.0 107.0 167.5 175.2

120 356 3,959 12,621 33,455 36,216

615 2,850 14,300 87,300 4,62,157 5,08,372

(Estimated)

The small-scale sector has progressed from the production of simple consumer goods to the manufacture of many sophisticated and precision products like electronic control system, microwave components, electro medical equipment, TV

Small Scale Industries: 101

set, etc. It is even exporting certain sophisticated machine tools and competing with even large public sector undertakings. The Government also evinced keen interest and has been following a policy of reservation of items for exclusive development in the small scale sector: At the time of the 1972 census of SSIs, there were only 177 items in the reserved list. By 1983, it included 837 items for exclusive production in the SSI. These units produce over 5000 commodities. In developing countries, small scale industries can playa major role in achieving national economic and socio political objectives. The principal economic objectives of a number of developing countries include: • An increase in the supply of manufactured goods • Promotion of capital formation • Development of indigenous enterprise and skills • Creation of employment opportunities The main socio-economic goods include: • Decentralisation of manufacturing activity • Regional imbalances reduction within the country The main socio-political objectives include: • Wide distribution of socio-economic and political power • Creation of opportunities for people with initiative to rise by their own ability and hard work. • Development of entrepreneur managers (who acquire economic independence but learn to take initiative, to be self reliant and acquire the knowledge to organise and operate a factory or other SSIs). The relative importance of these objectives vary from country to country though achievement of the above objectives is seen as desirable in almost all developing countries. The situation in India is as under: {ij State takes more interest in the development of SSI by providing both financial and nonfinancial assistance. (ii) State assists SSI to: improve their techniques of production and management provide credit facilities (for investment and as well as for working . capital) provide common facility services (iii) Central Government has set up a Small Scale Industries Board, appointed a Development Commissioner for Small scale Industries (DCSSI) and. established Regional Small Industries Service Institutes (SISIs) and a National Small Industries Corporation (NSIC) to coordin~te the above activities.

Small Scale Industries and Entrepreneur Development : 102

Till independence, only cottage industries, village industries, rural industries or agro-based industries were considered to be small industries. With the dawn of the planned era in the independent India, Government has been following a policy of promotion as well as protection of the SSI sector. If promotional activities produce result, the protection would be gradually reduced. The main objectives of the development of SSIs are: • To create more employment opportunities for the people • To effect decentralisation of industries by creating Industrial estates • To effect a redistribution of economic power as well as income • To raise the standard of living of the people These objectives are in line with the principles of the ideal goal of q welfare state and in theory, aim at developing the country on the basis of social justice and social welfare. An important feature of SSUs is that a good percentage of them may be bogus units. The 1992 census revealed that there were 2.581akh SSUs registered in the Directorates of Industries (actual numbers were only 1.4lakh units). The All India Report on the Census of Small Scale Industrial Units concluded that the difference between the figures conveying cumulative totals and working units sepread a note on that nearly 50% of the units in the SSU were bogus. The fact is of special relevance in the measure of SSUs for obtaining import licenses and other tax concessions by the large and medium sector in Indian industry. Another important aspect of SSUs is the high incidence of sickness. Many of them have been closed down for want of working capital.

4.18 The Articles of Association The Articles of Association are rules and regulations of the internal working of a company. Usually this contain sthe rules and regulations regarding the following as shown in Figure 4.8.

· · · ·

· · ·

Voting by members Powers, rights, remuneration, qualification and duties of - Directors Proceedings of Board Appointment of Manager, Secretary etc. Seal of the company Dividend reserves and capitalisation of profits Accounts and winding up _ _

Articles of Association

/.

Share capital and variation of rights

/.

Exercise of lien by the company

/.

Calls on shares

/ . Transfer, transmission,

'-. '-.

,.

forfeiture and surrender of shares Conversion of shares into stock and re-conversion into shares Issue of share warrants and rights to their holders Alteration of Capital

........... Conduct of any proceding at General meetings of shareholders

Fig. 4.8 Contents oj Articles oj Association

Small Scale Industries: 103

Prospectus

•

In mostly public limited companies, it becomes necessary to sell shares or debentures among the public. For this purpose, a prospectus is prepared.

•

In the Companies Act, 1956, a prospectus is defined as 'any prospectus, notice, circular, advertisement or other invitation offering to the public for subscription or purchase of any shares in, or debentures of, a body corporate' . The object of this is to arouse the interest of the investors in the proposed company and induce them to invest in its shares or debentures. If the company can make arrangements for raising the capital privately, then public appeal is not required. The company is required to prepare statement in lieu of prospectus.

•

Provisions of the Companies Act regarding the issue of the Prospectus

•

• •

•

A copy of the prospectus must accompany each form of application for shares offered to the public Aprospectus must be dated and signed by the Directors A copy of the prospectus together with the consent of the expert, whose statement is included in it, a copy of every contract appointing or fixing remuneration of managerial personnel and any other material contract not entered into in the ordinary course of business must be filed with the Registrar on or before the date of the prospectus (The prospectus must be issued to the public within 90 days of its date). , In addition to information thought necessary by promoters to induce the public to subscribe to its shares, the prospectus must contain all other information about the company.

4.19 Preliminary Work Relating to the Registration of a Company Formation of Company/Organisation

A company is a corporate body enjoying a separate entity of its own and is distinct from that of individual members. It can be set up only by following the procedure laid down for the purpose under law. The process of company formation has two stages: • Promotion • Incorporation Promotion is the process of exploration, investigation and the organisation of necessary resources with the object of initiating business under corporate ownership. It is the exercise of business enterpreneurship for establishing and starting a company. The promoters are entrepreneurs who foresee prospects of gain through a particular line of business. They take active steps to get the business started under company form of organisation by taking the necessary initiative and pia!:e before the general public a business proposition that needs public funds.

Small Scale Industries and Entrepreneur Development : 104

Incorporation is the legal process through which the separate corporate entity of company is given recognition by law. Most of the companies are brought into existence through this process. To secure incorporation, promoters prepare and file with the registrar of Joint Stock companies the following documents: • The Memorandum of Association (Charter of the company laying down the objects, the capital etc. of the company). • The Articles of Associations (Rules and byelaws governing the internal working of the company). • Written consent of persons who have agreed to serve as Directors of the company. • Notice of the Registered office of the company (Filed within 28 days of registration) . • A statutory declaration by the secretary of the proposed company or a solicitor to the effect that all provisions regarding incorporation have been compiled with. The above documents are to be filed with the registrar with the necessary fees. Registrar will scrutinise these and after satisfaction, he will enter the name of the company in the register maintained for the purpose and then issue a certificate. This certificate is a conclusive proof of incorporation and confers legal status on the company. 4.20 Preliminary Considerations an Entrepreneur should keep in mind while Selecting a form of Organisation

Suitable form of ownership is to be selected by the entrepreneur. This is one of the important decisions, one has to take after deciding upon other things regarding the type of business (like the nature and scale of operations, persons to be associated with ownership initially and so forth). This would help the entrepreneur not only for initial success but also in later operation (reorganisation). The basic consideration governing the selection of ownership organisation is the attainment of business objectives decided by him. The ideal form of organisation is the one which leads to the best realisation of its objectives. Business and entrepreneurial objectives generally vary and hence no single form of organisation would be ideal for all kinds of business.

I

Need for selection of ownership organisatio),!

I

I -------- --------

For initiating the enterpreneurial operations

For meeting the needs of growth and expansion

Fig. 4.9 Need for Selection of Ownership Organl~atlon

I

Small Scale Industries: 105

Characteristics of an ideal form of organisation. Figure 4.10 gives the answer for this which indicates the various factors responsible for the same. 1. Early formation (brought into existence with least difficulty)

~ H

8. Freedom from state regulations and lesser tax liability

~

7. Direct relationship

between ownership control and management

3. Limited liability (In case

2. Facility for raising the required amount of capital

of insolvency or winding up, the owners will be held responsible only up to the amount of capital agreed to be contributed by them)

I-i ----

Characteristics of an ideal form of organisation

4. Maintaining business secrecy

I

~

6. Maximum flexibility of operation and adaptability

5. Continuity or stability (enjoys uninterrupted existence over a long period oftime)

Fig. 4.10 Characteristics oj an Ideal form of Organisation These characteristics are not to be considered in isolation from each other.

4.20 Choice of a Suitable form of Organisation The various choices, which gUide entrepreneurs on the basis of some requirements are given below. • Type of business (trading, manufacturing, commercial or service) • • • • •

Expected volume of business Area of operation Degree of direct control over management (as desired by the management) Finance required for initial requirements and expansions Willingness of owners to assume personal liability for the risks encountered

•

Arrangement for sharing profits

• • •

Expected life span of business Tax advantage under different types of ownership Degree of Government regulation and the freedom desired by the entrepreneur Capital is the most important pre-requisite to the success of a business enterprise in the recent days. Hence the facility with which the amount required for the launching of an enterprise can be raised, decides mostly the form of organisation to be adopted. The limitation of liability is the next important factor.

Small Scale Industries and Entrepreneur Development: 106

4.21 Various Phases of Developing a SSU The success of SSI depends upon the entrepreneurs doing the right thing at the right time. Though procedural aspects are quite large, one has to be fully conversant with the varied regulations governing the SSI and the procedures to be followed in order to acquire the necessary assistance and incentives offered by the Government from time to time (from conceiving the project to conception). The procedures involved are right from the conceiving time of the project until the repayment of creditors and ploughing back of the profits. A small scale entrepreneur should look after many areas and should have the capability to handle many diSciplines as given in Fig. 4.9.

4.22 Role of Khadi and Village Industries Commission (KVIC) KVIC was established in 1953 with the primary objective of developing Khadi and Village Industries and improving rural employment opportunities. Its wide range of activities include: • Training of artisans • Extension of assistance for procurement of raw materials • Marketing of finished products • Arrangement for manufacturing and distribution of improved tools, equipment and machinery to producers on concessional term KYIC provides assistance to Khadi and Village Industries. It is characterised by low capital intensity and ideally suited to manufacturing utility goods by using locally available resources. There are about 26 specified village industries such as processing of cereals and pulses, leather, cottage matches, gur and khandasari, palar gur, non-edible oils and soaps, bee-keeping, village pottery, carpentry and blacksmithy, gobar gas, household aluminium utensils etc. KVICs policies and programmes are executed through: • 26 State Khadi and Village Industries Boards • 1150 Institutions registered under the Societies Registration Act, 1960 • About 30,600 Industrial Cooperative Societies registered under State Cooperative Societies Act. Activities involving pioneering type of work, such as developing new industries in hilly, backward and inaccessible areas are undertaken by KVIC directly.

4.23 Rural Industry This means an industry suitable for the rural areas as demarcated by the census records. The concept has a special demographic undertone. It serves the requirements of rural people as well as other markets. Rural Industries have certain specialities: • • •

Generally the financial needs are small Function even without infrastructural facilities Environmentally friendly

Small Scale IndustrIes: 107

Rural industry covers: • Village and small industries of different kinds • Cottage industries Promotion of these type of industries have been the central objective of many strategies of the Government to: • •

Bring about an equitable distribution of income by raising the productivity of the people Increasing the participation of the people in the process of development.

4.24 Importance of Rural Industrialisation The importance is found in many aspects: • A means of generating employment opportunities in the rural areas with low capital cost and in raising the present income of the people. • It contributes to the development of the agriculture and urban industries. • It can solve the problem of agricultural unemployment and widespread under-employments. • It promotes rural industries, the development of which increases the level of income in rural areas, breaks down the old self-sufficiency of the family, lessens its cohesiveness, creates plenty of opportunities for youth, women, and the other healthy ones as well in changing the pattern of leisure and work. •

It helps the rural workers not to migrate to urban areas, if they find

•

It serves as a dynamic element in the process of raising the productivity

remunerative employment in their own areas. and income levels of the workers in their own areas. • A key to rural development and rural prosperity. The benefits accrued from rural Industrialisation are: • Provides additional employment opportunities to men and women, as it is labour intensive • Helps in raising production • Improves economic condition • Ensures decentralisation of economic power • Elimination of monopolistic exploitation • Production through well-knit rural industries with a network obviates the necessity of complicated managerial and competitive marketing techniques; brings out reduction in cost due to low overheads • It lessens the disproportionate growth in large cities, resulting in slums, social tensions, unhappiness, exploitation, pollution rise etc. • It strives to build up village republics and human resource development • It provides more scope for the proportion of artistic achievement and creativity than found earlier.

Small Scale Industries and Entrepreneur Development: 108

Agricultural activites

Rural Artisan (Self Employed)

Service Sector

II' Linked to

Employment

_......

Small Scale Industry Tiny Industry

Rural Development

'"

I....

Grouped

Rural Industry

- ~

Income IImporance of, Consumption

r

.-

AgriFulture Rural Development

Fig. 4.11 Rural Industry

4.25 Programme of Rural Industrialisation •

This is to take industrial and manufacturing activities to the rural areas through a process of disperal and also developing the existing traditional units on sound footing.

•

In order to effect an industrial climate in the rural areas, growth centres are to be created. For this, provision of infrastructural facilities in the rural areas are to be planned carefully.

•

Setting up of nucleus plants in districts will promote as many, ancillary, small and cottage units, as possible. The interlinkages will help in integrated industrial development in rural areas. Development of focal points in specially identified areas after providing various facilities is considered beneficial. This helps better lancing, greater optional use of resources, better control, higher productivty and profitability. Migration from the villages to the city and return flow of skilled manpower to rural areas are possible by setting up of agro-industrial complexes as well as non-traditional industries in a planned way. This will enable gradual urbanisation of the rural areas.

•

•

Programme for Rapid Growth of Rural Industries • , It should be launched like a mass movement with the emphasis on brand. • , Message of rural development should go to the rural people. _. A definite market should be there for the rural consumer goods.

• •

This is to be treated as an integral part of the overall rural economy and all efforts to hasten up the integrated rural development should take place. Traditional village industries and crafts to playa pivotal role in providing new markets (in the case of handicrafts, handlooms, and other varied crafts)

Small Scale Industries : 109

3. Comprehensive planning needed especially with regard to availablity of ready market

2. Should be rural-urban localnational, even foreign trade linkages

4. There should be a nationwide organisation, with separate actions for product or group of products which are produced in the rural industrial sector Uptodate technology to be used to make the industrial units competitive

1. Industry should be based on locally available resources

Social Structures

in Tranformation of

in socioeconomic transformation of

r-------,

Under a--------fDeveloped Areas

Hence, required to rejuvenate rural industries and rural artisans to playa vital role

Fig. 4.12 Purpose of Rural'ndustrrlallsatlon

•

•

A number of activities have already started playing a significant role in the generation of employment and income and showing remunerative employment and a relatively better growth potential It is an effective means for the generation of growth and employment by utilising the potential of new industries as well as the traditional ones.

4.26 Comparison of a Small Scale Industry with a Medium/Large Scale Industry as well as Public Sector Advantages of SSIs compared to large industry: • Low investment • Easily controllable and manageable • Importance to the National Economy • More employment opportunities • Dispersion of Industries to rural areas • Entrepreneurial talent well utilised • Cost effectiveness • Complementarity characteristics to large industry The comparison of SSI, Medium/Large PSU is as given below:

Small Scale Industries and Entrepreneur Development: 110

Table 4.6 Comparison of SSI, Medium/Large Industry and PSU

(i)

(ii)

Parameters

SSI

Medium/Large

PSU (Public Sector Unit)

Quantitative Parameters • Investment • Capital Employed • Turnover • Profit • Number of employees • Social obligations

Small Small Small Small Small Do not exist

Medium to Large Medium to large Good to Excellent Good Good Medium

Very high Medium/High Fair to Good Less Very high High

Poor Simple

Good Professional

Medium/High Bureaucratic (Line organisation) Gore Sector

Low Very Good

Medium Good

High

Poor Very much needed Poor Poor More

Good Needed

Average Vital for specific industries Poor Average High

Qualitative parameters • Technology employed • Complexity of organisation

(iii) Others

* Government interference * Importance to the national economy

* Pay scales * Necessity * Productivity * Quality * Sickness

Average to Fair 'f Average to fair Not much

Table 4.7 Comparison of characteristics of Small Scale Enterprise and Large Scale Enterprise Factory

SSE

1. People type

Youngmen, energetic, enthusiasti ,Promoted and professionally zealous, pleasant mannered, managed through employed hardwork, determined, systematic, persons, well acquainted with self made men, self confident, political and official don, trend disciplined, planned approach, setters, great visionaries, trained/experienced, minimum responsible and value basic education driven, corporate philosophy Meageer Large (contributed by a large section of share holders) Large Small High Small Yes Yes Registered in the share markets/ stock exchanges No Yes Wide Limited Less More More Small Limited Promotes and pushes goods (create demand for products through consumer awareness programmes, education etc.) Not so easy Easy access

2. Capital 3. 4. 5. 6.

Assets Turnover/sales/profits Flexible Shares

7. Diversified activities 8. Number of products 9. Number of people 10. Area of operation 11. Market

12. Institutional finance 13. Development

LSE

Greater leverage

Small Scale Industries: 111

4.27 Small is Beautiful The meaning of 'small' as applied to an industry is the one which differentiates one set of industries from the others. Following are the specialities of small industries. •

Small in operation, hence controllable, manageable

•

Less employment

•

Small type of products

•

Low capital

• Simple technology • Unique problems Specially in manufacturing units, small industries have a unique set of problems in relation to their smallness that differentiates them from medium and large scale manufacturing units. They also have certain unique advantages. Small is beautiful since they are beneficial, efficient and reliable. Their contribution to industrial sector is highly significant. Their exports are also appreciable. Their future lies with small, dynamic, efficient production groups and could respond quickly to customer needs specially in the Internet age. They can hold the key to growth with equity and proficiency. 4.28 Legal Documents A. In case of land allotted by KIADB/CITB/BDNKSSIDC (Karnataka Industrial Areas Development Board/City Improvement Trust Board/Bangalore Development Authority/Karnataka State Small Industries Development Corporation respectively), the following legal documents are needed: (a)

Allotment letter

Registered lease cum sales agreement (c) Posession certificate (d) Encumbrance certificate from the date of allotment to the date of production of documents to the corporation (b)

(e)

Sketch of the site offered as security

(f) Permission to mortgage in favour of KSFC (g) Proof of payment of rent up-to-date

B. In case of industrial sheds allotted by KSSIDC to Government Allotment letter (b) Copy of lease deed (c) Possesion certificate (d) Proof of payment of rent up-to-date C. In case of sheds or premises leased by private individuals, the original lease deed containing the following: (a)

(a)

Period of lease must be double the period if repayment of the loan amount exceeds Rs.2 lakhs or should be for a period of at least 10

Small Scale IndustrIes and Entrepreneur Development : 112

years extendable by 5 years at the option of lessee. For loan amount under Rs.2 lakhs, lease period should be minimum 3 years extendable for another 3 years on lessee's option would be accepted. (b) Permission to mortgage/assign to hold lease right in favour of corporation (c) Undertaking by the lessor to give advance notice before taking action against the lessee (d) Copies of title deeds of the lease for a period of 12 years to prove the prima facie title of the lessor (e) Encumbrance certificate from the date of lease to the date of production of documents to the corporation (/) Sketch of the shed taken on lease indicating the boundaries. D. In case of freehold rights offered as security where the loan is for construction of the building also. (a) A brief description of the nature of the title of the property for past 30 years (b) All original title deeds in respect of the property offered as security for • the past 30 years (c) The nature of acquisition of property by the person offering security along with proof (d) Information regarding the interest of minors, if any (e) If the property belongs exclusively to the minor, necessary permission from the court of alienating the property (/) If the property is of the joint family, consent letter from members of the family for taking the loan (g) Order for converting the land to non-agricultural use and a letter indicating that the same has been converted, issued by the revenue authority (h) Khata certificate issued by the competent authorities (i) Record of rights (j) Encumbrance certificate for a minimum period of 15 years in respect of property offered as security (k) Proof of payment of taxes in respect of the property offered as security (l) A sketch of the property offered as security with boundaries E. In case of leasehold land offered as security for purpose of construction of an industrial building with the assistance of the corporation. (a) Original lease deed containing the following: (i) Period of lease, which must be at least 30 years (ii) Permission to assign/mortgage the leasehold right in favour of corporation

Small Scale Industries: 113

(iii) Undertaking by the lessor to give 6 months notice in advance before

taking any action against the lessee. (b) Consent letter from the lessor to join on the execution of the documents

in favour of the corporation for mortgaging his freehold right. (c) The deeds of the lessor mentioned at item (a) to (i) of D to establish the absolute ownership of the lessor. 4.29 Merits of Company as an Organisation

Following are the merits: •

Limited liability (shareholders are liable only to the extent of the face value of shares held by them)

•

Large financial resources (collection of huge resources)

•

Stability (uninterrupted business life)

•

Transferability of shares

•

Efficient professional management (avails the services of expert professional managers)

• •

Scope for growth and expansion Public confidence (enjoys the confidence of the public, regulated by the Government under Companies Act) Diffused risk (Risk is spread over large number of members)

• •

Social utility (provides avenues of investment for public financial institutions like LIC, GIC, UTI, Banks, etc.) However, the demerits are: •

Formation difficulties

• • •

Government control Lack of motivation and personal involvement OligarchiC management (rule by a few)

• • •

Delay in decisions Conflict of interest Maintenance of business secrecy (cannot retain business secrets)

•

Social evil (results in monopoly and concentration of economic power)

Ideal for following type of businesses

• •

• •

Heavy or basic industries (Ship building, railway coaches, engineering firms, machine tool industries where huge capital is needed) Large scale operations (because of economics of scale e.g., department stores, chain stores, enterprises in the construction of multistoreyed buildings, bridges, dams, etc.) Business involving great uncertainty/heavy risk (Shipping and Airlines) The law makes the company organisations obligatory e.g., Banking business.

Small Scale Industries and Entrepreneur Development : 114

4.30 Memorandum of Association and its Need •

•

•

• • •

It is an important/fundamental document of the company known as the charter of the company and sets out the limits outside which the company will never be able to function. The company always remains within the terms of the memorandum. It regulates the affairs of the company in relation to the outsiders. It not only defines the scope of the operations of a company, but also serves to confine it within the limits of the objects stated therein. It is divided into suitable paragraphs, numbered continuously. It has the following clauses: Name clause Situation clause Object clause Liability clause Capital clause Subscription clause Those who want to deal with the company should study it and have a knowledge about it. The Memorandum of Association has to be prepared carefully since it enables everyone to understand its limit of functions. If the contract which a person enters into with the company is beyond the powers of the company as stated in the objects clause of the memorandum, such contract will not be enforceable against the oompany. A company can do only those acts that are permitted by the objects clause.

4.31 Small Industries Face Big Competition The Government policy on SSIs clearly indicates a move from 'protection-led growth' to competition-led growth in the last few budgets presented by the Finance Minister. Over the years, there has been mismatch between Receipts and Expenditure, which has resulted in various forms of budget deficits.

Table 4.8 Performance of SSI from 1999-2000 to 2002-2003 (Rs.Crores) Deficits Years

Fiscal 1,04,717

1999-2000 2000-2001 1,11,972 2001-2002 1,16,314 2002-2003* 1,35,524

%toGDP

Revenue

5.4 5.1 4.7 5.3

67,596 77,369 78,821 95,377

%toGDP 3.5 3.6 3.2 3.8 (*Estimated)

At the national level, the performance of the industrial sector, as indicated by the Index of Industrial Performance (lIP) has been unsatisfactory. The growth rate

Small Scale Industries: 115

of lIP has come down from 6.6% in 1999-2000 to 5.1 % in 2000-2001. During the current year, the growth of lIP is predicted at 3.5% by CMIE. However, the average monthly growth rate of lIP from April-December 2001 is 2.3%. Given the IEGDPC forecast for December 200l-January 2002 in the range of 2.5% to 4.2% if this persists for the rest of the current year, it is most unlikely that CMIE's prediction shall come true.

12

-

-~ -~-

--.- All Industries ___ Manufacturing

e---~-

6+------+~~~~-

3

+-----------~ ----------"\,~_l

O+---~----r_--~--~----~--~--__l

95-96 96-97 97-98

98-99

992000

2000- 200101 02*

Fig. 4.13 Growth Rate of liP The Multi Fibre Agreement (MFA) for textiles (2 nd largest) employment after agriculture will be phased out by 2004. A special incentive package has been announced including a relluction in rates of excise duty on: • Fabrics, made-ups and garmets from 16% to 12% until February 2005 • Handloom garmets (subject to certification from HEPC) • Specified processing machinery/silk reeling, weaving and trusting machinery (Reduction in custom duty of this machinery from 25% to 10%) to prepare the industry face competition. -In recognition of the importance of the export sector, outlay for export promotion industrial parks and associated facilities is raised from Rs. 97 crore in 2001-2002 to Rs. 330 crores in 2002-2003. A package of incentives for special economic package has also been announced. To expose the SSI sector to further competition, the budget has proposed the de-reservation of 50 new items (including knitwear, auto components, select chemicals and drugs). The above budgetary measures are sector specific, focusing mainly on giving reliefs and concessions in income taxation, customs duty reductions and exemptions, easing flow of institutional credit to SSls. The measures have positive and short term implications for:

Small Scale Industries and Entrepreneur Development : 116

• Overcoming sickness • Improving productivity • Strengthening competitiveness in a limited way However, to get a real picture about the implications of the budget, one should look at by drawing the implications of expenditure policies and programmes in other sectors too (intrastructure sectors like power, transport etc.) which are complementary for long run development of all sectors including SSI. A mere development of infrastructure is of no decisive help for SSIs; unless the cost of infrastructure-related inputs for SSIs are substantially reduced or made available at globally competitive prices. SSI had earlier made pre-budget demands like: • Rise in investment limit from Rs.l crore to Rs. 5 crores • Rise in Central Excise limit from Rs.l crore to Rs. 2 crores • Lower duties on raw material • Rise in basic exemption limit for Income Tax to Rs.75,000 • Export earnings to be totally exempted from Income Tax . • Continuation of reservation policy for exclusively manufactured products by SSIs • Liberalised labour laws reducing the compensation limit from existing 45 days to 15 days ! • Special institutions to provide infrastructure support for market development and technology upgradation The budget of 2002-2003 does not conceed all the above demands. However, this disappointment may not last long, if the overall implications of the budget shall result in strengthening the productivity led competitiveness of SSIs. - Traditional protective approach to promotion of SSIs has given way to exposing the SSIs to competition, domestically and globally (i) Investment limits reduced from Rs. 3 crores to 1 crore in 1997 to 1999. (ji) But the investment in hosiery and hard tool sub-sector raised to Rs.5 crore in 2001. . (iii) Under Government's purchase preference policy, items for exclusive

purchase from SSI reduced from 409 items to 358 items. (iv) Price Preference Policy: SSIs who have registered under Single Point Registration Scheme of NSIC entitled to get limited benefits like free of cost tender sets exemption from earnest money deposit exemption from security deposit price preference up to 15% over the lowest quotation of large scale units the number of items for exclusive manufacture/production in the SSI sector reduced from 821 during 1998-99 to 812 during 2000-2001 (14 items in footwear, leather goods and toy sectors de-reserved) production of unreserved items open to all industries in the country.

Small Scale IndustrIes : 117

The number of items on OGL (Open General Licence) has been increased from 478 during 1998-99 to 643 during 2000-2001 (Removal of Quantitative Restrictions) A new approach to the promotion of SSls has been adopted in terms of: • Adequate provision of credit flow into the SSI sector (limit for composite loans raised from Rs. 2 lakhs to 5 lakhs) through public sector banks. • • • •

Raising the exemption limit for collateral security from Rs. 25,000 to Rs. 5 lakhs. Introduction of Laghu Udyami Credit Card Scheme simplified to small business men and tiny industrialists. Raising the corpus fund for Credit Guarantee Fund Scheme from Rs.125 crore to Rs. 200 crore. Allows for capital gains exemption to amounts invested in Bonds issued by SIDBI and full exemption from tax to the income of the Credit 'Guarantee Fund Trust for SSls.

4.32 Central Budget of 2002-2003 Allows a Big Package for Small Industries Finance Minister Yashwant Sinha presented the budget 2002-2003 which was also made available on the Internet (www.nic.in) to all those interested living in and outside the country. Last year's budget papers added a new document called 'Implementation of Budget Announcements.' This year's new addition is 'Budget Highlights.' The budget has been formulated within the framework of continuing, widening and deepening the reform 'process, started in July 1991, and for attaining an economic growth rate of 5.4%. For this, higher allocation of public expenditure and encouragement for private investment on infrastructure' development emphasised. The budget has announced numerous incentives like enhanced credit flow, raised exemption limit for collateral security and a new credit card scheme for this sector.

Budget Highlights

• •

• •

• •

Budgetary deficits are allowed to grow in size Revenue (or fiscal) deficit is budgeted at Rs.95,397 (or Rs.1,35,524) crore or 5.3% of GOP in 2002-2003 On the Industrial sector, slowdown is recognised, given the estimated growth of lIP at 2-3% during April-December 2001. Wide ranging concessions and relief have been announced . Comparing performance of SSIs sector in 2000-2001, the esti'mated number of SSI Units - 33.7 lakhs (This shows an increase of 5% over last year) 12.7% Total production in annual increase of about Rs. 6,45,496 Crores Total Production Employment generation growth over the previous year 4%

Small Scale Industries and Entrepreneur Development : 118

• •

No.of persons Total Exports of 551 In percentage of total exports

•

Export Target to be met in 2006-2007 (SSls have to playa major role)

•

SSls four problems are: Number of sick units % of estimated total number of 551 units Potentially viable units Considerable number of SSls have been closed

18.56 min. US $13.13 bin. 29.47% US $80."48 bin.

2.5lakhs (7.42%) 5.23% Data not available

4.33 PLANT LAYOUT Plant Layout Definition Plant layout is referred to the arrangement and location of different departments and of the machinery within a department, so that an optimum utilisation of space available can be made with a view to enabling a plant to function in an effective manner. It involves the allocation of space and arrangement of equipment in such a manner that overall operating costs are minimised. The efficiency of any manufacturing unit depends largely on the planning of the layout and the design of the factory. 4.34 Objectives of Plant Layout The principal'objective of a good plant layout is to maximise the production at the minimum cost. It should accommodate the changes in management policies and processes and techniques of production. It should satisfy the needs of all the concerned associated with the production system like workers, supervisors, and managers. The layout should be planned to achieve the above goal and keeping "the following features in mind. • Economy in handling of materials, work in process, and finished stock. • Optimum utilisation of all resources like men, materials, equipment and space. • Minimising work-in-process and maximum-inventory turn over (Materials within the plant should move fast and congestion eliminated). • Ensuring flexibility of layout for varying needs of the enterprise. • 'f:nsuring efficient supervision and production control. • Reduced damage and spoilage of materials: • Ease of working, greater safety and reduced health hazards for workers. • Flexibility with regard to changing conditions. • Minimising delays and bottle necks in production systems.

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• • • •

Avoiding frequent changes so that production programme is not upset. . Boosting up employee morale by providing employee comforts and satisfaction. Convenient service centers. A good layout should take into consideration all the three dimensions of the space available (floor space, vertical space), known as cubical space.

4.35 Types of Layouts

The different types of layouts or methods of grouping or the types of layout are: • • • •

Process layout (Functional layout) Product layout (Straight line layout) Combination layout (Combination of the above two) Fixed position layout

4.36 Process Layout (Functional Layout) Process layout, also known as functional layout, is based on the function~ performed by a department. Under this system of layout, machines or eqUipment" of the same functional types are grouped together in a separate department. e.g. All lathes are grouped in the turning section. Thus separate departments are established for each operation of production. If drilling is to be done on a component, it should go to drilling depa,rtment. Thus, there are different departments like painting department, heat treatment. department etc., where particular operations are to be carried out. To start with the raw material goes to the first machine say a lathe in the turning section. Then, if drilling is the next operation, it will go to drilling department which may not be next to turning department. The following illustrations indicate how the component flows in the department.

Receiving

D

0 0 Cutting (9 in No)

Milling Machine (Sin No)

Drilling (9 in No) Grinding (S in No) Machnies Machnies

DO D- OD 0 DO 0 DO DO 0 DO DOD DO 0 0 0 0 DOD DOD Turning (9inNo)

Gear cutting (1 in No)

Plating (2 in No)

Fig. 4.14 Number of machines In dffferent sections (as an example)

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The same sketch is redrawn showing the departments and components. In the sketch below, three components flow from department to department. These three components go to various departments. Material moves long distances and has criscrossing paths. Receiving Milling Drilling Grinding Dep