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ENTREPRENEURSHIP DEVELOPMENT

BBA – VITH SEMESTER

PROF (DR.) SATISH KUMAR DOGRA


PREPARED BY: DR. S.K. DOGRA 1
DHIRUBHAI AMBANI

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MUKESH AMBANI

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RATAN TATA

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AZIM PREMJI

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SHAHNAZ HUSAIN

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AIRTEL

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MTNL

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INDIAN RAILWAY

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DTC

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MOTHER DAIRY

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VEGETABLE VENDOR

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FRUIT CART SELLER

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TEA VENDOR

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SHOPPERS STOP

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PVR

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PARANTHA WALA

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CYBER CAFE

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AUTO REPAIR SHOP

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All Industrial and Economic Development possible only
through the presence of Entrepreneurship.
 Major determinant of industrial growth is
Entrepreneurship.
 Economists, Planners and Government all over the
world make policies and create conducive
environment for economic growth.

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ENTREPRENEURSHIP AND ITS SCOPE

Who is an Entrepreneur?

•Person responsible for setting up a Business or an


enterprise.
•Takes initiative, has skills for innovation and looks
for achievement.
•Agent of change and work for the good of people.
•Opens up employment opportunities, creates wealth
and boosts other sectors.

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 Highly self-motivated person, who takes risks to
achieve goals.

 Firm believer in social betterment.

 Visionary having outstanding leadership.

 Desire to excel, strongly believes in R & D.

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 Found in all areas.

 Play important role in economic growth.

 Aims at high goals.

 Person, who identifies an opportunity, gathers the


necessary resources, ultimately responsible for the
performance of the organization.

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 The word Entrepreneur is borrowed from the french
language and derived from ‘Entreprendre’ means “to
Undertake”.
 A French economist Richard cantillon in 1755, was the
first to use the term Entrepreneur.
 He said – “Entrepreneur is one who buys factors of
production at Certain Prices and sells his Products at
uncertain prices, thereby bearing a non-insurable risk
that may arise, due to depressed demand for his
product.

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 Peter F. Drucker said – “Entrepreneurs are innovators.
Innovation is the specific tool of entrepreneurs, this
means by which they exploit change as an opportunity
for a different business or a different service. He always
searches for changes, responds to it and exploits it as
an opportunity

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 We can now say that entrepreneur is a person who
bears the non-insurable risk, works under uncertainty,
combines and manages the factors of production,
innovates on all fronts on regular basis, functions as
proprietary capitalist and is motivated by profit.
Associated with three elements:-
 Risk–bearing,
 Organizing,
 Innovating.

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CURRENT SCENARIO OF ENTREPRENEURSHIP IN
INDIA
 India provides very encouraging scope for
Entrepreneurship development due to large demand,
aspirational customers government support not only
for Entrepreneurship from India but also abroad.
 Many young entrepreneurs without prior
entreprenusial expertise have also done wonders.

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 More Entreprenusial Developmental activities
confined to Micro, Small and Medium Enterprises
(MSME) sector

 MSME most dynamic & vibrant sector providing large


employment opportunities to rural & urban segments.

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India Economy has the great potential for growing
businesses from some distinguishing features like :
1. Democratic open society
2. Strong Technological base.
3. Unique diversity.
4. Vibrant capital markets.
5. Increasing young population (50 % is 25 yrs and
younger).
6. Sizeable growing market.
7. Large number of customer with vast unmet needs.
8. Environment of full and free competition in private
sector
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Entreprenuership
Entrepreneurship is the process of creating something
new with a value, particularly responding to the
opportunities available. It involves time efforts and
assumption of risk with the expectation of receiving the
rewards at the end. The rewards can take any form
monetary or non-monetary (personal contentment).
Entrepreneurship begins with action and creation of
new organization.

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QUALITIES / TRAITS / CHARACTERISTICS OF AN ENTREPRENEUR

 Strong achiever

 Self-Reliant & Independent

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 Determined and committed

 Hungry for success, optimistic

 Self confidence and self-faith

 Sustained enthusiasm

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 Courage & Self-motivated

 Ability to survive defeat

 Single-Mindedness

 Willing to accept responsibility

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 Never ending energy

 Both thinker and doer

 Clear objective & creativity

 organization skills

 Intelligent and have technical knowledge

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TYPES OF ENTREPRENEURS
1. INNOVATING ENTREPRENEURS:-
 Introduces something new into the economy – New
technique of production, a new source of material or
product, opens a new mkt.
 Aggressive in experimentation.
 Puts attractive possibilities into practice.
 Commonly found in developed countries, as people of
such countries also look for change and progress,
extensive research feasible.

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ADOPTIVE OR IMITATIVE ENTREPRENEURS:-

 Adopt successful innovations created by innovating


entrepreneurs.
 Copy the technology and techniques, knowledge
 Commonly found in developing countries as can not afford
expensive research.
 Have capacity to start ventures with limited resources.
 Face lesser risks.
 Very important for developing countries as he brings
change.

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FABIAN ENTREPRENEURS:-

 Very cautious and skeptical for change.


 Lack the will to adopt new methods.
 Shy and lazy for taking risks
 Dealings determined by customs, traditions, past
practices.
 May change only for survival

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DRONE ENTREPRENEURS:-
 Conservative and laggards
 Resist change, continue past methods.
 Struggle to exist, not to grow
 May be pushed out of the market, when they loose the
market.

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FUNCTIONS OF AN ENTREPRENEUR

1. INNOVATION:- Conceives / ideas for production of new


products/services or improvements in the quality of
production
 For this he considers the economic viability and
technological feasibility.
 Includes introduction of new products, creation of new
markets, application of new process of production,
discovering new and better sources of Raw-Materials,
New form / culture of Industrial organization.

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2. ASSUMPTION OF RISK OR RISK – TAKING:-

 Assumes all possible risks of business.


 Also involves risks due to changes in tastes/behavior of
consumers, competition, new inventions and techniques of
production.
 Invests capital, pays interest to lenders, Wages/ salaries,
rent, working capital expenditures and after all these, may
be left with little or no profits.
 Being Enterprising, assumes risks and tries to manage /
handle it by his skills, innovation, judgement, planning,
expansion etc.

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3. BUSINESS DECISIONS AND ORGANIZATION
BUILDING

 Decides nature & types of goods/services to be produced.


 Crucial decision of entering a particular industry, prospects
of products in future and most profitable methods of
production.
 Decides about changes in size of business, its location, new
branches, techniques, ways to develop business.
 Organizes and monitors various factors of production,
minimize costs of production.
 Takes majority of core decisions himself but delegates
authority and decision making when business grows and
decisions become complex.
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4. MANAGERIAL FUNCTIONS:-

 Also performs managerial functions of planning,


directing, controlling, leadership etc.
 Formulates plans, arrange finance, procure raw
materials, arrange production facilities, HRD
functions.
 Large organs:- Delegated to paid managers.

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5. EARNING PROFITS:- As he takes up ventures, takes
risks – for earning profits. Have strong motivation to
earn profits and have success.

 For this exploits opportunities.

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INTRAPRENEURSHIP

 Also called intra corporate entreps.

 Intrapreneurs are highly innovative self motivated,


proactive and action-oriented persons who take
initiatives within the confines of an organization in the
pursuit of a novel product or service.

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 Persons with deep desire of personal achievements
within organization are internal Entreps.

 Creative and innovative people within the


organization, catch hold of new ideas for product,
service or process and work to bring their vision into
reality.

 Possess entrepreneurial skills blended with managerial


skills but operate within the boundaries of an
organization.

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 Work independently but do not assume ownership
from employer. They are on the payrolls of the
company. Incharge for an identifiable activity.
 Allowed to reap the full benefit of their creative effort
 May leave the company to start their own venture and
compete with the company
 Dynamic executive, leads company to greater heights
that’s why encouraged
 Top Management provide financial and technical
assistance to their ideas.

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Entrepreneur V/s Intrapreneur
Basis Entrepreneur Intrapreneur

1. Status 1. Entrepreneur is the owner of the business. 1. Intrapreneur works as employee of


the company

2. Capital 2. Entrepreneur raises the requisite capital 2. Intrapreneur does not raise any
himself. capital.

3. Freedom 3. Entrepreneur works independently. 3. Intrapreneur is semi-independent.

4. Risk-taking 4. Entrepreneur is one who bears full risks of 4. Intrapreneur does not bear any
his business risks of business.

5. Guarantee 5. Entrepreneur guarantees payment to 5. No such guarantee is required to be


suppliers of inputs. given by the intrapreneur.

6. Norms and Rules 6. Entrepreneur operates independently. He 6. Intrapreneur operates from within
is the master of his own show as he frames the organization. He is an
norms and rules of his business. organization man and is bound by
organizational norms and rules.

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DISTINCTION BETWEEN ENTREPRENEUR AND
MANAGER
ENTREPRENEUR MANAGER
1. Introduces new ideas to increase 1. Runs the business on established lines.
profits. 2. Runs an existing venture.
2. Sets up new venture 3. Undertakes no risk
3. Assumes risks of economic 4. Earns salary which remains relatively
uncertainties fixed and regular
4. Earns profits which fluctuate. 5. An employee and dependent on the
5. Own boss and independent status. owner.
6. Formal education not essential. 6. Formal education more important.
7. Very high amount of commitment, 7. Commitment and self-motivation may
self-motivation required. be relative
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METHODS & PROCEDURE TO START AND
EXPAND ONE’S OWN BUSINESS

 Decide which type of business organization would like


to have
 Type of organization determines risk, control,
responsibility, decision of profits.
 Decision to be taken after due care, clear vision, long
term view.

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VARIOUS FORMS OF BUSINESS
ORGANISATIONS

 Sole Proprietorship
 Partnership Firm
 Joint Stock Company
 Co-operative Society
 Joint Hindu Family Firm

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SOLE TRADER
 Oldest form – owned, controlled by one
 Bears all responsibilities, risks & profits
 Manages himself, however may take the help of family
members/relatives/paid employees
 Simplest and easiest form
 No need for any legal formalities

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Features of Sole Proprietorship
 One person’s control
 Single ownership
 Unlimited & undivided risk
 No. Govt. regulation / formality
 No separate entity of the firm

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ADVANTAGES
 Easy and simple formations No legal
formalities/approval/licenses required, start, close,
expand sole trading concern anytime.
 Quick Decision Making:-
 Sole authority to decide and no interference –
quick decisions.
 Direct & Exclusive Control:-
 Full direct authority to run the business
 Exclusively accountable to himself
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 Maintenance of secrecy:-
 Handles business single-handedly, so business &
trade secrets, remain with him
 Self-Motivation and direct Incentive for work:-
Direct relation between efforts / rewards.
 Personal touch with customers:-
 Always possible to develop close relations with
the customers, better understanding of the
customers and better satisfaction provided,
goodwill improves.

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 Economies in Management:-
 As compared to other forms of business,
majority of the activities controlled by the sole
trader himself. Thus economies of scale do occur
in business
 Minimum govt. regulation/interventions.
 Socially Significant:- Many individuals start with
reasonable ease a sole trading concern in many
sectors and places, generates self-employment,
livelihood, initiative, confidence levels etc.

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DISADVANTAGES OF SOLE PROP.
 Limited Financial Resources
 Limited Managerial Abilities
 Unlimited Liability:- Debts of business relate entire
property.
 Limited Growth:- Lack of capital and managerial skills
lead to limited growth.
 Uncertainty of continuity:- If dies, there is no
guarantee of continuity.

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Suitability of Sole
Proprietorship
 Where capital required is small, limited.
 Where limited risk is involved.
 Where personal attention to individual customers
tastes & fashion required – beauty parlors, tailoring
shops.
 Where demand – local seasonal, temp-fruit sellers etc.
 Where activities / Operations – simple – do not
require skilled management.

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PARTNERSHIP
 Limitations of sole trader and need to expand the
business lead to the need to create a partnership
firm.
 Group of persons with different skills, capital,
resources set up a combined business with
common ownership and Management.
 Risks, responsibilities shared

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 Sec-4 of Indian Partnership Act, 1932-
“Partnership is the relation between persons
who have agreed to share the profits of a
business carried on by all or any of them
acting for all.”
 Individually called partners & jointly a firm.
 Terms / conditions contained in an
agreement called ‘Partnership deed’.

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FEATURES OF A PARTNERSHIP FIRM
 More persons required:- Minimum two Max. – 10
persons for banking business and 20 for Non-banking
business.
 Sharing of profits / losses as per agreement
 Unlimited Liability:- if the assets of the firm fall short
to meet firm’s obligations the private assets of partners
can be used.
 Contractual Relationship:- Oral or written agreement
among partners.

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 Lawful business:- partner to carry on lawful business &
share profits / losses.
 Utmost good faith and honesty required:-
 Principal – Agent Relationship:- Business carried by all
or anyone of them acting for all. Each partner
represents the firm and other partners while
performing business. Thus partner is an agent of the
firm and also other partners.
 Restrictions on Transfer of share:- No partner can
transfer his share to an outsider without the consent of
other partners.

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PARTNERSHIP DEED
 The agreement can be oral or written.
 Advisable to have written agreement to avoid
litigations and misunderstandings in future.
 Agreement in written form called partnership
deed which has to be signed by all the partners,
stamped & registered.
 Any modification only with mutual consent of all
partners.

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A partnership deed generally contains
the following:-
 Name of the firm
 Nature of the business
 Names of the partners
 Place of business
 Amount of capital contributed by each partner
 Salary / Commission payable to each partner

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 Ratio of Profit sharing
 Loans / Advances from partners &
incentives to be paid.
 Duties, powers and obligations of partners.
 Arbitration in case of disputes among
partners.
 Accounts settlement in case of dissolutions.
 Maintenance of Accounts and arrangement
for Audit.
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ADVANTAGES OF PARTNERSHIP
 Easy Formation - However some difficulty in selection
of partners.
 Enhanced financial resources.
 Risks Divided
 Flexibility:- Easy to introduce changes like
introduction of a new partner, raising new capital,
expansion of business.
 Combined abilities & balanced Judgment:- Brains
ideas, skills, capital of more than two persons pooled
together for better management of business. Joint
consultatrans may produce better business results.
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 Business Secrecy Maintained:- No legal
requirement to publish and circulate annual
accounts / Financial statements.
 Mutual Trust and Inter-dependence:-
 Each partner an agent of other partners
 Team sprit and inter-dependence develops
 All partners get equal rights & powers.
 Easy Dissolution:- Can be dissolved by the
partners merely by expressing to each other their
desire to do so.
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DISADVANTAGES OF PARTNERSHIP:-
 Availability of Limited Resources:-
 Unlimited Liability:-
Held personally liable for debts of firm.
 Lack of Public Confidence
Annual accounts not published & made
public
Hardly any legal control over these firms

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 Instability:- Firm dissolved if any partner dies or
become insolvent.
 Small disputes may lead to dissolution.
 Non-Transferability of Interest:- No partner can
transfer the business interest, to an outsider without
the consent of all other partners. Even then it may not
came easily.
 Risk of Implied Authority:- Any partner can act as
an agent of the firm or other partners. If negligent,
acts carelessly, commits a mistake, other partners
became equally liable.
 Lack of centralized Authority:- Lack of a supreme
and a centralized authority, as all partners enjoy the
power of management.
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Registration of Partnership Firm
 Not mandatory as per partnership Act.
 But desirable to have registration
 Registration process – Firm applies to the registrar of
firms of the state Govt. in the prescribed applications
form, signed by all.
 Following information filled:-
 Name of the firm.
 Location of the business place.
 Other places, if any where the firm is carrying on the
business.

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 Date of the commencement of the business.
 Date of joining of all the partners.
 Names and permanent addresses of all the
partners.
 Duration of the firm, if applicable.

When the registrar is satisfied with all the above


details, he registers the firm by making an entry in
the Register of firms.

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Dissolution of a Partnership Firm
 When a partner ceases to be associated with the business,
it is dissolution of partnership.
 Winding up of the business – dissolution of firm, new
agreement among remaining partners Three ways:-

1. Dissolution by Agreement:- As per P. Deed, compulsory


dissolution as per agreement.
2. Dissolution by the court:- if one partner becomes of
unsound mind/ one partner transfers his share to third
party without authority.
3. Dissolution due to contingency- completion of firm’s
venture, expiry of partnership period /death of any
partner. PREPARED BY: DR. S.K. DOGRA 71
ENVIRONMENTAL FACTORS AFFECTING
THE SUCCESS OF A NEW BUSINESS
 Entrps. require conducive social, political
and economic environment to start business
and be successful.
 Right environment, alongwith their efforts
make them achievers.
 Developed countries provide better
environment.

PREPARED BY: DR. S.K. DOGRA 72


ENVIRONMENT FACTORS AFFECTING
SUCCESS
I. ECONOMIC FACTORS:-
 Availability of Capital
 Basic need is capital, to arrange for land, materials,
machines, equipments.
 Easy availability motivates entrepreneurs to start and grow.
 Raw materials Availability
 Raw materials required for manufacturing and industrial
enterprises.
 Easy availability and access to raw-materials encourage
entrepreneurs
 Labour:- Quality / Quantity of Labour and its cost influence
the entrepreneurship
 More flexible and mobile labour motivates.
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 Cost of labour also v-important complexation for example
4. Market:- all the goods and services produced
must get a market with customers willing to buy
and with capacities to pay.
 Entrepreneurs feel encouraged if there is
potential in the market.
 Consumption trends provide encouragement to
the entrepreneurs.
 Size of the markets and its composition relating
to number of suppliers, competition, types of
customers, their profiles motivate entrepreneurs
and they look for opportunities to exploit.
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5. Infrastructure:- Availability of required
infrastructure encourage entrepreneurs.
 Developed communication, transportation,
power facilities – big support for
entrepreneurs.
 With these better infrastructural facilities,
entrepreneurs can develop new business
and also enlarge their markets / supplies.

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II. Social Factors
1. Education:- gives knowledge and better
understanding for solving day to day problems.
 Any country, the system of education has an
impact on people to inculcate and develop
entrepreneurial values.
 The knowledge given by education regarding
growing economy, new business opportunities,
trade on global standards, changing consumer
behaviour influence some people to show their
initiative and entrepreneurial talent.

PREPARED BY: DR. S.K. DOGRA 76


2. Caste Factor :- In every society, there are certain
cultural practices and values that influence the
actions of individuals.
 Right from early life, people develop same
inclination towards certain occupations, business
– global trend.
 In Indian society also, certain caste show better
entrepreneurial initiatives.

PREPARED BY: DR. S.K. DOGRA 77


3. Family Background :-

 Exp. of a family in some business – a


motivating factor to encourage family
members. Success factor encourages family
members.
 Expertise, traits, practices available within
the family, to take up business.

PREPARED BY: DR. S.K. DOGRA 78


III. PSYCHOLOGICAL FACTORS
 Need Achievement:- Sense of need achievement /
achievement motivation leads to growth of more
entrepreneurs.
 Motives:- Motive to earn wealth, seek power, prestige and
be independent.
 Entrepreneur thinks he can control his own life
independently, does not believe in luck/ fate
 Risk taking is quite high, confident of handling business
risks.
 Power of tolerance helps entrepreneurs. They must have a
certain amount of tolerance for ambiguity/Uncertainty.
 Entrepreneurs have the thinking of achieving more and
more in less and less time.
PREPARED BY: DR. S.K. DOGRA 79
IV. POLITICAL FACTORS
 Entrepreneurs function effectively if govt. provides
them support.
 Govt must ensure that infrastructure is created,
required resources available and accessible to
entrepreneurs.
 Various polices of the Govt. relating to prices, capital
availability, labour, taxation greatly affect
entrepreneurship.
 Providing incentives/ Subsides/ Tax benefits provide
encouragement.
 Stable Govts. Provide required encouragement.
PREPARED BY: DR. S.K. DOGRA 80
JOINT STOCK COMPANY
 Bigger form of business organ.
 Most of the limitations of other forms of businesses get
removed here.
 Most appropriate for large scale productions, economies of
scale, using advanced technology and arranging large
capital.
 A company is a voluntary association of persons,
recognized by law, having a distinctive name and a
common seal.
 Formed to carry on business for profit with capital divisible
into transferable shares
 Members/ shareholders have limited liability.
 Organ has a corporate structure and a perpetual
succession, a going concern.
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FEATURES / MERITS OF A COMPANY
 Separate legal Entity
 Company has a separate legal entity, independent of its members.
 Company owns property and enters into contracts in its own name
 Can sue and get sued in its own name.
 Limited Liability:-
 Liability limited to the extent of ownership of shares held.
 If the company has to pay the creditors, members/shareholders
liable to the extent of shares held or unpaid amount of shares
subscription.
 Prepetual Succession :-
 Not affected by the death, insolvency of a member or a director.
 Services as long as not wound up
 Old members may go and new may come but no effect on the
existence of the company.
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 Artificial Legal Entity:- as created by law, does not
come into existence through natural birth, called on
artificial entity.
 Common Seal:- as it is an artificial legal entity, it can
not sign for itself, so as per law, it needs to have a
common seal as a substitute for its signature.
 Approves its documents by putting the company’s
common seal which has the company’s name engraved
on it, alongwith signature of at least two directors or
other authorized officials.
 Transferability of shares:-
 Shares of public Ltd. Co. transferable easily
 Can be sold, purchased through brokers at the market
price
 Some restrictions inDR.aS.K.
PREPARED BY: Pvt. Ltd. Co.
DOGRA 83
 Ownership & Management Separated:-
 a public co. may have large no of
shareholders but can not be asked to run
the co. and look after the affairs of the
company – so they choose same
representatives called Directors, to run
the company.

PREPARED BY: DR. S.K. DOGRA 84


 Incorporated association of Persons:-
 No single individual can make/run a
company
 Is a registered association of persons,
requires at least seven persons to start a
public limited company and two to start a
Pvt. Ltd. Co.
 Procedures to add more persons.

PREPARED BY: DR. S.K. DOGRA 85


 Availability of Large Financial Resources
– shares, Debentures, Bonds, Loans, etc.
 Professional Management :-
 Employees Professional Mgrs as has large
financial resources, perpetual succession and
growth path

PREPARED BY: DR. S.K. DOGRA 86


 Considerable scope for growth and
expansion:- due to large financial management,
technical resource – very good scope for growth.
 Public confidence:-
 People / shareholders have lot of faith, trust in a Public
ltd. Co. based on its performance, sales, quality, audited
accounts and since regulated by companies Act., get
listed, trading done liquidity available.

PREPARED BY: DR. S.K. DOGRA 87


Suitability of a Company
Appropriate for large scale business and where:-
 Owners want limited liability.
 Business involves uncertainty / heavy risks, like shipping, mining etc.
 Heavy, basic industries requiring huge finances.
 Large scale operations crucial for economies of scale – manufacturing etc.
CO-OPERATIVE SOCIETY
 Profit Motive Substituted with Service Motive.
 An association of persons, usually of limited means, who have voluntarily
joined together to achieve a common economic end.
 Associate together to promote common interest
 Generally formed and registered under the co-operative societies Act 1912.
 Form of business organizations can be applied to every type of economic
activity.
 Members supply the capital by buying the shares of the society.
 Each shareholder has one vote in the management of the business,
irrespective of the number of shares held.
PREPARED BY: DR. S.K. DOGRA 88
FEATURES OF A CO-OPERATIVE
SOCIETY
 Voluntary association
 Democratic style of Management
 Equal voting Rights.
 Service Motive Limited Returns of Capital:-
Limited rate of interest presenting max 10%
is given as capital invested.

PREPARED BY: DR. S.K. DOGRA 89


 State Control:- Working governed by the Co-
operative societies Act of 1912 or the state co-
operative Act of the state
 Society to be registered under these Acts and
rules, regulations followed
 Accounts to be audited and a copy to be
submitted to the registrar.
 Separate Legal Entity: - as it has to be registered
 can own property, enter into contracts sue and
be sued in its own name.

PREPARED BY: DR. S.K. DOGRA 90


 Equitable Distributions of surplus:- Equitable
distributions of surplus to its members, irrespective of
the capital contributions.
 As per co-operative society Act. 25% of its profits, after
meeting its trading expenses and paying a fixed rate of
interest on capital not exceeding 10% to be transferred
to general reserve.
 Also, portion of the profit not exceeding 10% to be
utilized for the general welfare of the locality where the
society is functioning.
 Remaining distributed to members, collectively.
 Suitability:- For small and medium business like
retail stores, building societies, etc.
 Few cases of Large – Amul – kaira dist. Co-operative
society. PREPARED BY: DR. S.K. DOGRA 91
JOINT HINDU FAMILY FIRM
 Also called Hindu undivided family.
 Found only in India and governed by the
provisions of Hindu Law.
 Family consisting of Grand Parents, parents and
sons carry on business.
 HUF defined as a form of business organ in which
all the male members of a HUF carry on business
under the Management and control of the Head of
the family called Karta
 This business disappearing due to decline of the
Joint family system.
PREPARED BY: DR. S.K. DOGRA 92
FEATURES OF HUF
 Membership for male child by birth.
 Minors can become full-fledged members
 Restrictions on Female Membership (can not Join)
 No limit on members – minimum two
 No need of registration as per Hindu Law.
 Management by Karta – Senior Most Member.
 Liability of Karta is unlimited.
 Perpetuality – Death of a member or karta is no matter
 Rights / Duties governed by Hindu sucession Act 1956.
 Fluctuating share – due to birth or Death of a Male Member.
 Right to Accounts – Members can ask details of
 A/C’S from PREPARED
Karta BY:
when leaving or disintegration of family.
DR. S.K. DOGRA 93
MOTIVATION OF ENTREPRENEURS
 Motivation is something that moves the
person to action and continuous him in the
course of action already initiated.
 Factors that motivate some people to start
business enterprises are:-

PREPARED BY: DR. S.K. DOGRA 94


I. Internal Factors
 Educational Background
 Occupational Experience
 Desire to do Something Pioneering and Innovative
 Desire to be Free & Independent
 Family Background
 Internal factors lead to do something creative,
introduce an entirely new product in the market,
place hometown on country’s industrial map,
make use of technical skills, give employment

PREPARED BY: DR. S.K. DOGRA 95


II. External Motivating Factors
 Assistance from govt.
 Financial assistance from institutions
 Availability of Technology / Raw Material
 Encouragement from big business units
 Others – Availability of surplus funds, sick
units available at cheaper price, support of
friends / relatives, dissatisfaction of job held

PREPARED BY: DR. S.K. DOGRA 96


Becoming Entrepreneur
Personal and environmental barriers
to entrepreneurship
 Entrepreneurship is influenced by many
personal & environmental barriers.
 Personal barriers or factors can be
Qualifications, skills, experience, knowledge
and environmental factors could be
economic, social, and political factors.

PREPARED BY: DR. S.K. DOGRA 97


PERSONAL BARRIERS
 Lack of Viable concept
 Lack of Market Knowledge
 Lack of Technical Skills
 Lack of Seed Capital
 Lack of Business Know-How
 Complacency – Lack of Motivation

PREPARED BY: DR. S.K. DOGRA 98


 Social Stigma-Compared to successful ones.
 Time pressures
 Legal constraints & Regulations (Not in
Residential Areas)
 First Generation Entrepreneurs
 Entrepreneur by Accident since was
unemployed

PREPARED BY: DR. S.K. DOGRA 99


ENVIRONMENTAL BARRIERS
ENTREPRENEURSHIP IS
ENVIRONMENTALLY ORIENTED
 Sudden Changes in Government policy
 Sudden Political Upsurge
 Outbreak of war or regional conflicts e.g. “Sons of
the soil” call
 Political Instability or hostile govt. attitude
towards industry
 Excessive red-tapism and corruption among
governmentPREPARED
agenciesBY: DR. S.K. DOGRA 100
 Ideological and social conflicts
 Unreliable supply of power, material,
finance, labour and other inputs
 Rise in costs of inputs
 Unfavorable market fluctuations.
 Non co-operative attitude of Banks and
Financial Institutions
 Competition

PREPARED BY: DR. S.K. DOGRA 101


PROBLEMS IN SETTING UP A NEW
VENTURE
I. Lack of Managerial experience or poor
knowledge of the particular line of production:-
 All-round knowledge about various aspects of
Production, Processes, Management Not known –
what, how and when to produce, how to market the
products, maintenance of accounts, financial
transactions understanding etc.
 None of the above areas can be ignored
 Changing technology, methods of production not
known.
PREPARED BY: DR. S.K. DOGRA 102
II. Lack of Accounting
knowledge/ system
 Information, Understanding about costs,
gross margins, break-even point,
depreciation is lacking, thus decision
making may become difficult.
 Difficult to maintain proper accounting
Data etc.

PREPARED BY: DR. S.K. DOGRA 103


III.Wrong / Inadequate Estimate of
cash requirements or faulty capital
planning / budgeting.
 Proper Financial Planning Essential for proper
functioning of the enterprises
 New enterprise feels cash crunch when:-
 Production does not reach optimum level
 Production is below Break-Even Point
 Fails to Create and Increase the Demand for
products. Result – wastage of Finance
 Delay in various activities will cause need for
additional finance.
PREPARED BY: DR. S.K. DOGRA 104
IV. Lack of Knowledge About Tax-
Related Matters
May not be Aware of provisions related to Income Tax /
Sales Tax, Obtaining of Sales Tax Registration at the
right Time, Filing Tax – Returns.
V. Erratic Shortages of Raw Materials.
VI. Flourishing Black market
VII. Gaps between official promise and performance by
various deptts.
VIII. Irresponsible attitude of employees.
IX. Rising cost of capital & credit.

PREPARED BY: DR. S.K. DOGRA 105


X. Arrogance and Non Co-operative Attitude of Bankers
XI. Inadequate common services like road, power, water
in the area
XII. Emerging competition
XIII. Lack of knowledge about inventory management

PREPARED BY: DR. S.K. DOGRA 106


STAGES FOR SETTING UP A NEW VENTURE
Or
PROMOTION OF A VENTURE
 Foundation of an enterprise is the project or the venture
 Venture is a plan or an idea which is intended to be
carried out in the future
 Ventures can be industrial, agricultural, Production,
Services etc.
 Entrepreneur originates the idea, makes a detailed study
of various aspects of project, estimate the profit, finally
implements it.
 Setting a New Business not an easy Task
 Various difficulties to be faced in creating the business
and making itPREPARED
successful
BY: DR. S.K. DOGRA 107
BASIC CONSIDERATIONS STAGES IN SETTING UP A NEW
BUSINESS UNIT/STAGES
 An entrepreneur wanting to start a new venture has to
take decisions with regard to following:-
1. SELECTION OF A LINE OF BUSINESS:-
 Proposed idea analysed to find out whether the
business would be profitable, including probable risks
and the capital required.
 Conduct survey of various business opportunities.
 Make feasibility reports, surveys
 Estimated Costs, Profits, Returns Analysed

PREPARED BY: DR. S.K. DOGRA 108


2. CHOICE OF FORM OF OWNERSHIP
 Could be sole proprietorship, P.Ship or a Joint
stock company
 Choice of form will determine the authority of the
entrepreneur
 Size of business also will determine the form of
organ.
 Company form more suitable for large business
 Sole Trader / P.Ship for Small / Medium
 Capital requirements, Managerial Skills, Coverage
will also decide the form
PREPARED BY: DR. S.K. DOGRA 109
3. SIZE OF BUSINESS
 Size of the firm influenced by various factors like
Technical, Managerial, financial and Marketing
 Some factors favour the large size of business while
others operate to restrict the scale of operation
 Wherever Entrepreneurs confident of marketing their
products widely and arrange large resources can start
large business
 For new ideas / business beginning can be made on
small / medium scale.
 Forces of risks and uncertainties can restrict the size of
business
 Basic purpose of the optimum size to achieve max.
output at minimum
PREPARED BY: cost
DR. S.K. DOGRA 110
4. Financing the Proposition
 Adequate amount of capital for starting and
running the business to be arranged.
 Capital to be arranged for fixed as well as
working capital
 Large businesses to arrange capital from
various sources.

PREPARED BY: DR. S.K. DOGRA 111


5. Location of Business
 One of the very difficult decisions
 Location to be reviewed from the point of
view of access to raw materials, labour,
power, Markets and services like banking,
Insurance, Transport, communication.
 Location has to be optimum to have
minimum costs of production from and
distribution
PREPARED BY: DR. S.K. DOGRA 112
6. Machines and Equipment
 Choice will depend upon availability of capital, size of
production, nature of production processes.
 Mechanisation needs to be optimum, leading to
higher productivity.

7. Human Resources
 Right kind of Skilled, Unskilled and Managerial Staff
necessary to avoid huge losses of time, money and
effort.
 Proper Training and Motivation to be provided.

PREPARED BY: DR. S.K. DOGRA 113


8. Plant Layout
 An efficient Plant Layout allows materials to
move through rapidly and the most direct
way possible.
 It reduces Transport, Materials Handling,
Clerical and other Costs and increases
inventory turnover.
 Experts Services can be used.
 Must reduce chances of delay and
bottlenecks in the Production Systems.
PREPARED BY: DR. S.K. DOGRA 114
9. Procedural Formalities
 No formalities in sole Traders and Partnerships.
 Co. exposed to greater procedural formalities both
at incorporations and during its life.
 Incorporation compulsory, documents and fee
deposited with the Registrar of cos.
 A public co. also obtains certificate of
commencement.
 Co. also required to send periodical returns to the
registrar of cos. and stock exchange authorities.

PREPARED BY: DR. S.K. DOGRA 115


10. Tax-Planning
 Entrepreneurs to visualize well in advance
the various taxes to be paid.
11. Launching the Business
Enterprises:-
 Promoter actually arrange men, material,
machinery, money and the managerial ability.
 Makes organ. Structure, various deptts. Mkg.,
Prod., Finance, HR Made to accomplish goals.
 Advtg. Sales Promotions to be done.
PREPARED BY: DR. S.K. DOGRA 116
PROBLEMS OF SMALL BUSINESS
1. Shortage of Material & Power:-
 Face acute shortage of basic raw materials at times.
 Under a handicap in obtaining raw materials of
requisite Quality at reasonable prices.
 Some short supply of raw material may increase the
prices and rise in prices puts pressure on these firms to
procure the Materials etc.
 Some times few bogus units take away Quota of Scarce
Materials and create shortage.
 Also face power shortage and are not able to fully
utilize their plant capacity – Power not available due to
cuts and can not install their own power generating
sets. PREPARED BY: DR. S.K. DOGRA 117
2. Lack of Adequate Finance:-
 Often unable to procure adequate financial resources
for purchase of machinery, equipment, raw materials
due to their weak financial standing – credit may also
not be available.
3. Competition from Big Players:-
 Low goodwill and little fixed investment make it
difficult to borrow at reasonable interest or lower
interest rates.
 Largely depend upon internal resources as are not able
to borrow easily from others.

PREPARED BY: DR. S.K. DOGRA 118


4. Outdated Technology:-
 Most firms use old Techniques of Prod. and
outdated machinery / equipment.
 Can not use latest ones – Quality suffers
 Research & Development not possible on a
continuous basis and thus Productivity /
Quality suffers.

PREPARED BY: DR. S.K. DOGRA 119


5. Inadequate Marketing Facilities:-
 Many difficulties faced in marketing and
distribution – do not have their own
Marketing Network.
 Find it difficult to sell at remunerative prices
due to high cost of production and non-
standardized quality of products.
 Can not afford much advertising, sales
personnel

PREPARED BY: DR. S.K. DOGRA 120


6. Weak Organization & Management:-
 As generally managed by owners, not
qualified.
 Lack of Distribution of Labour.
7. Lack of Trained Personnel:-
 Find it difficult to recruit, retain and
motivate skilled managerial and technical
people as they leave for large business.

PREPARED BY: DR. S.K. DOGRA 121


PREPARATION OF FEASIBILITY
REPORTS
 Before starting any venture / enterprise, an entrepreneur
must study the feasibility of the project.
 Type of Industry / Business to start, where to start and how
to start.
 Various items / area can be listed, shortlisted which have
scope for development
PROJECT FEASIBILITY ANALYSIS
 Includes – Market analysis
 Financial analysis
 Technology analysis
 Profitability analysis
To study the strengths and
PREPARED BY: weaknesses
DR. S.K. DOGRA of the projects. 122
MARKET ANALYSIS INCLUDES
 Market area / size, methods of
transportation, channels of distribution and
general trade practices.
 Study past and present demand,
consumption patterns, major common
pockets, future potential – past and present
supply – domestic and imported, extent of
competition – selling power, quality and
marketing practices of competition.
PREPARED BY: DR. S.K. DOGRA 123
TECHNICAL ANALYSIS INCLUDES
 Whether the project is technically feasible or not, costs
involved.
 Study the techniques, processes to be applied.
 Description of the product – physical, mechanical and
chemical specifications, uses of the product.
 Processes flow chart – justifications for use of a particular
process.
 Plant size and prod. Schedule.
 Selection of Machinery, equipment, quotations, suppliers,
delivery, terms of payment, spare parts availability.
 Location of the plant, raw material.
 Cost of setting up building, other infrastructure.
 Estimate of thePREPARED
production cost of the product
BY: DR. S.K. DOGRA 124
FINANCIAL ANALYSIS INCLUDE
 Capital Required
 Sources of Financing
 Total Project Cost
 Initial Capital Required
 Working capital required
 Break even point study
 Cost – Price analysis

PREPARED BY: DR. S.K. DOGRA 125


PROJECT REPORT
What is a project?

 The foundation of an Enterprise is a Project as it will


lead to success or failure.
 An idea or a plan that is intended to be carried on in
future or is being carried out at present, is a Project.
 Has a distinct mission, for the completion of which a
group of activities are carried on.
 Every entrepreneur wants to complete the project
successfully.
 E.g. Industrial Projects, Construction Projects, Making
of Flyover, running a School.
PREPARED BY: DR. S.K. DOGRA 126
PRODUCT IDENTIFICATION & PROJECT
FORMULATION
 Entrepreneur comes across many business opportunities &
becomes difficult to identify the most suitable one
 Prduct identification involves collection, compilation and analysis
of economic data, for the final choosing of the best opportunity for
investment.
 The success of the Project or venture will depend upon the right
choice made.
 The skills, availability of resources, background, and qualifications
play very important role in identifying the right project.
 Before identifying the right project, study should be made with
respect to raw materials, potential customers.
 Also study of environment, Government policies, technology to be
used etc PREPARED BY: DR. S.K. DOGRA 127
PROJECT FORMULATION
 A process where the entrepreneur makes an
objective & independent assessment of the various
aspects of a project idea to determine its total impact
& liability.
 Specialists and consultants provide advice.
 Careful weighing of various components.
 Analytical stage where aim is to achieve the project
objectives with the minimum expenditure &
adequate resources.
 Project formulation leads to making up a project
report which is very crucial for setting up an
enterprise PREPARED BY: DR. S.K. DOGRA 128
PROJECT REPORT
 After selecting a particular project – product or service, a project
report has to be prepared by the entrepreneur.
 A project report provides all the necessary information / details of
the project / unit offering a product or service.
 Required by financial Institutions / Development Institutions
offering finance or other assistance.
 A project report will enable the entrepreneur to know:-
 Money, Manpower, Machines Required
 Technology, Location
 Economic viability and gains.
 Technical Managerial, Financial needs.
 Project report, prepared by C.A., Management Consultant, Experts.
 Entrepreneurs own judgment, views important as it will bring him
close to realities.
 His own involvement in making of a project is very crucial.
PREPARED BY: DR. S.K. DOGRA 129
SIGNIFICANCE OF A PROJECT REPORT
The important benefits of a project report are:-
1. Helps in procuring suitable developed land or
shed from concerned deptt. of the Govt.
2. Helps in approaching Dist. Industries centre for
obtaining provisional or permanent registration.
3. Helps in securing supply of raw-materials, water,
power etc.
4. Approaching Bank / F.I. for working capital loans.
5. Obtaining term loans from SFCs/Banks/F.I.
6. Preparation of Techno-Economic viability reports of
the project.
PREPARED BY: DR. S.K. DOGRA 130
CONTENTS OF A PROJECT REPORT
 No Short cut to prepare a well-prepared business plan or a
project report.
 Project report to be prepared with great care and should be a
concrete, complete and clear.
 A good project report should have the following contents:-
 General Information:- Product / Profile and details of the
product.
 Promoter:- Name full address, educational and other
qualifications, work experience and project related experts.
 Location :- Exact location of the project, lease or freehold,
locational advantages.
 Land & Buildings:- Land area, construction area, type of
construction of PREPARED
building, cost of Land, building, plant layout 131etc
BY: DR. S.K. DOGRA
 Plant & machinery:- Details of machinery required,
capacity, suppliers, cost, various alternatives available.
 Production Process:- Details of production process,
process flow-chart, technical know-how, production
programmes, targets etc.
 Utilities Required:- Water, power, steam cost
estimates, sources of utilities.
 Transport & Communications:- Modes of transport /
Communication to be used, various costs involved.
 Raw-Materials:- List of raw – material required,
Quality-Quantity and source of procurement, costs,
supply arrangement etc.

PREPARED BY: DR. S.K. DOGRA 132


 Manpower:- Various types of Labour, to be
employed, sources of Manpower cost of recruitment
/ selection, training etc.
 Products:- Product Mix Variants estimate of sales,
distribution channels, product standard & quality,
competition etc.
 Market:- End users of the products, - Type of Mkt-
local, domestic or international, trade practices,
sales promotions methods, marketing research.
 Working capital Requirements:- Sources of
working capital and amount required, need for
collateral security, nature and extent of credit
facilities which will be available, etc.
PREPARED BY: DR. S.K. DOGRA 133
 Funds requirement:- Break up of project cost
in terms of cost of land, building, machinery,
preliminary expenses contingencies, total
amount required for setting up the full project.
 Cost of Production & Profitability for first 10
years.
 Break-Even Analysis – Point at which no
profit, no loss.
 Schedule of Implementations

PREPARED BY: DR. S.K. DOGRA 134


SELECTION OF A FACTORY LOCATION
 Multiple locations may be available for locating a
factory.
 Few sites more suitable
 Factors for a suitable location can be – raw
material, transportation, labour, supply of water,
power, and attitude of local Govt. etc.
 Different type of business may prioritise the above
factors. A good balance of all these factors may
lead to choosing the right location.

PREPARED BY: DR. S.K. DOGRA 135


THREE – STEP PROCESS
 Selection of the region, district, state.
 Particular part of the city/district – East/West.
 Selection of the plant site, plot etc.

 One follows the other – All are inter-related.


The comparisons play very important role.
Lot of information do help.

PREPARED BY: DR. S.K. DOGRA 136


FACTORS AFFECTING INDUSTRIAL /
FACTORY LOCATION
1. FACTORS AFFECTING SELECTION OF A REGION
 While keeping in view the nature of business, the following are
considered when choosing a region:-
1. Availability of Raw Material
 Cost of raw – materials an important issue for cost of production.
 Nearness to the raw-materials very useful.
2. Labour Availability:-
 Labour an important factor of Production and it greatly affects the
location
 Entrepreneurs want easy supply of labour at low wages
 Location should attract mobility of labour
 More organized Labour in some state may discourage entrepreneur
to located his plant.
PREPARED BY: DR. S.K. DOGRA 137
3. Accessibility to Markets:-
 Sole aim of manufacturing is selling
 Easy, quick access to the markets crucial factor for locations.
 Industries whose products are costly to carry, on account of
fragility, perish ability or bulky may be located in close proximity
to the markets.
 Nearness to markets have many benefits
 Saves time & transportation costs.
4. Fuel, Water, Power Supply:-
 For arriving at the final cost of production the cost of power,
water, fuel will have to be considered.
 Sources of energy / fuel like coal, gas, electricity and their easy
and cheaper availability will help in locations.
 If certain industries need lot of water for its processes then a
place with good PREPARED
availability
BY: DR. S.K.of water must be chosen.
DOGRA 138
5. Communication Transport Facilities
 Raw materials to be brought to the factory & finished
products to be dispatched economically.
 Good transportation facilities including storage,
handling & service facilities in a place will motivate an
entrepreneur to locate his factory at an ideal place
 Cheap and easy transportation is an important
considerations
 Sometimes, to save transportation costs, the
entrepreneurs may try to locate the factory from where
raw-material may be nearer.
 Better communication facilities are very useful for the
success of the business. Their easy availability will also
help in choosing a right location.
PREPARED BY: DR. S.K. DOGRA 139
6. Natural and Climatic Considerations
 Topography of a region, level of ground, drainage
facilities, disposal of waste products and the
climate also greatly affect the locations.
 Extractive industries like coal, iron ore located in
regions where they are available in plenty.
 Dry climate is required for flour mills – in U.P.
 Humid climate required for cotton Mills –
Mumbai.
 Good Climate also encourages employees to work
better / harder.
PREPARED BY: DR. S.K. DOGRA 140
7. Personal choice of the Entrepreneur
being home town or some other
personal preference.
8. Open a factory in a region where all
the facilities are already there, including
an established mkt

PREPARED BY: DR. S.K. DOGRA 141


9. Political and strategic considerations.
 Political stability may also influence setting up
industry in a particular state.
 Disturbed area and failure of the Govt. to curb
the disturbances is also a negative factor.
10. Govt. Policy:- Govt. Encourages setting up
industries in backward areas by giving
subsidies, tax-rebate, good transport. This
attracts entrepreneurs and the state achieves
balanced regional growth.

PREPARED BY: DR. S.K. DOGRA 142


11 Financial Facilities:- Finance – life blood.
 Availability of financial institutions and easy terms for finance also a
consideration for locations.
 Offices of Financial Institutions.
 Locating a factory – a long term proposition and so above points to be
considered wisely
FACTORS AFFECTING SELECTION OF A COMMUNITY, DISTRICT
WITHIN THE REGION:-
 Adequate labour supply in Quantitative and Qualitative Terms
 Prevailing wage-rates be reasonable.
 Availability of complementary or supplementary enterprise supplying
various raw-materials etc.
 Living conditions in the place should be favourable so that the employees at
all levels get proper social life.
 Urban or Rural area to be decided, as both have merits / demerits.

PREPARED BY: DR. S.K. DOGRA 143


III. FACTORS AFFECTING SELECTION
OF A SPECIFIC SITE:-
 Last stage- for actual plot / site.
 Size of plot for present and future needs.
 Load-bearing capacity of land for heavy
building.
 Better water and power facilities.
 Easy sewage, waste disposal facilities.
 Easy approachable roads, rail links.
 Cost of the land.
PREPARED BY: DR. S.K. DOGRA 144
INDUSTRIAL ESTATES
 Specially designed area where factories can
be built (a U.K. concept for encouraging
industrial growth in selected area.)
 Basic infrastructure & common services
facilities created for development of
industrial units.
 Utility services – water, power, drainage,
transport available to all units – low,
subsidized rates
PREPARED BY: DR. S.K. DOGRA 145
Objectives of Industrial Estates
 Promotion of small / medium industries –
backward areas.
 Removal of congestion in Industrial cities /
towns.
 Balanced reg. development by
decentralizing industry.
 Growth of ancillary industries in the
townships surrounding major industrial
units. PREPARED BY: DR. S.K. DOGRA 146
Advantages of an Industrial Estate
to Entrepreneur
 Offers industrial sites / plots at reasonable rates
and the decision to buy can be quick
 Utility services – water, power, drainage and
common services – testing center workshops,
banks, insurance, courier available at subsidized
rates etc.
 Promoters of such estate provide safety, security
and protection.
 Combined strength of Entrepreneurs can help the
entrepreneurs to bargain
PREPARED BY: DR. S.K. DOGRA 147
Demand Analysis & Market
Potential Measurement
Q.1. What is the likely total demand for my
product / service?

Q.2. What share of the market my product


will enjoy?

PREPARED BY: DR. S.K. DOGRA 148


 While searching answers to above questions
demand analysis get made. (Consumption,
competition, substitutes) Demand Analysis is the
in-depth study of and assessment of many factors
including:-
 Patterns of consumption Growth.
 Composition of the market
 Nature of competition
 Availability of substitutes
 Reach of distribution channels
 Increase of the consumers
 Price elasticity of demand
PREPARED BY: DR. S.K. DOGRA 149
KEY STEPS FOR DEMAND ANALYSIS
1. Situational analysis and specification
of objectives.
 Informal talks with customers, competition
middlemen, others etc. and details gathered.
 Situation analysis generates enough data
 Little later, specific objectives, with relation to the
product / service to be stated, questions made.
 Answers will bring clues for demand of the
product.
PREPARED BY: DR. S.K. DOGRA 150
2. Collection of Secondary Information
 Secondary Information – which is already
available, as gathered in some other context.
 Secondary information provides the base and the
starting point for demand analysis – books,
journals.
 Provides clues for collecting more primary
informations.
 Sources can be census reports, economic survey,
annual reports, economic survey, annual reports of
Ministries, Journals, Research Reports etc.

PREPARED BY: DR. S.K. DOGRA 151


3. Conduct of Market Survey

 Primary information in the shape of Market


survey supplements secondary information.
 Survey can be Product / customers /
Segment / Behaviour specific
 Costly and time consuming
 Population or sample survey

PREPARED BY: DR. S.K. DOGRA 152


4. Characterization of the market
 Demand for the product / service has to be described
with respect to:-
 Effective demand in past & present
 Total demand broken down as per the segments.
 Competitive Pricing / Competitions.
 Methods of distribution & sales promotion methods
required.
 Consumers behaviour, attitudes, likings
 Govt. Policy – import duties, export incentives excise
duties, import policy etc.

PREPARED BY: DR. S.K. DOGRA 153


5. Demand Forecasting
 Attempt made to forecast future demand
 Sale in monetary terms / units to be sold.
 Will help greatly the sales deptt.
 Various methods / intuition used in
forecasting demand – computers used

PREPARED BY: DR. S.K. DOGRA 154


6. MARKETING PLANNING
 An appropriate Market Plan required to
enable the product to reach the right
markets.
 All 4 Ps of Mktg. to be taken care

PREPARED BY: DR. S.K. DOGRA 155


MARKET POTENTIAL MEASUREMENT

 A market potential is an estimate of the maximum


possible sales opportunities present in a particular
market segment and open to all sellers of a good or
service during a stated future period.
 By using the appropriate marketing methods, how
much a particular product can be sold to a
particular segment in a specified future period.
 Cell phones, Luxury case, Laptops

PREPARED BY: DR. S.K. DOGRA 156


STEPS TO MEASURE MKT. POTENTIAL
 Market identification:- Identify the Mkt./Users,
market segment, their interests, patterns.
 Market Motivation:- Find why customers buy
the product today & why potential customers
will buy in future – study mind – factors of
users.
 Measuring the Market Potential:- Cases not be
done directly straightaway. Market factors to be
analyzed – all do not buy LIC Policy to save taxes

PREPARED BY: DR. S.K. DOGRA 157


CAPITAL SAVING & PROJECT COSTING

 Financial analysis most important tool for


appraising the real worth of a project.
 Looks at capital cost, operations, cost and
operating revenue.
 Cost of the project concerned with the size of the
funds required.
 Every project’s cost to be calculated to bring
together land, labour, assets, machinery, materials
etc.
 Wherever possible, capital needs to be saved.
PREPARED BY: DR. S.K. DOGRA 158
 Ideal piece of land, right kind of Raw
Material Quantities to be purchased.
 Capital to be borrowed at minimum
possible rate of interest.
 Cost of borrowings should be minimum.
 Incentives / subsidies available as per Acts /
Law should be fully utilised.
 All tax benefits to be fully utilised.

PREPARED BY: DR. S.K. DOGRA 159


PROJECT COSTING
 Costing is the calculation to determine how much
each product or service costs to produce and sell.
 Knowing the various costs helps in setting prices,
reducing costs and improving profits.
Project Costing

Project Capital Costing Project Operating Costing

PREPARED BY: DR. S.K. DOGRA 160


Project Capital Costing
 Sum total of the expenditure expected to be incurred till the date of starting the
commercial production of a project.
 Includes
 All advance expenditure for the project before taking a final investment
decision.
 Cost of fixed assets (land, machinery)
 Duties and taxes on imported goods.
 Consultancy expenses
 Pre-operative expenses
 Interest charges paid during the construction phase.
 Advance expenditure on feasibility report, consultancy charges.
 Land charges for basic cost of land plus for its acquisition & development.
 Cost of plant & machinery – basic & duties if imported.
 Training costs, cost of patents, copy rights, trade marks are project capital costs.
 Can be some misc. costs also.
PREPARED BY: DR. S.K. DOGRA 161
Project Operating Costing
 Once project started commercial prod. Expenses
incurred for day to day operations.
 Operating costs generate operating revenues, so very
important
 Costs vary with the outputs.
 The matching of operating costs and revenues result in
profits or losses.
 Costs used for making profit & loss A/c, Balance Sheet,
Cash flow statements.
 Operating costs classified into Direct / Indirect / Fixed
/ Variable / Marginal
PREPARED BY: DR. S.K. DOGRA 162
 Main components of operating costs:-
 Raw Materials costs
 Labour Costs
 Energy Costs
 Plant Maintance Costs.
 Supervision Costs
 Administrative & Management Costs.
 Depreciation Charge and the interest on
borrowings.
 Selling and distribution costs
 Promotion Expenses
PREPARED BY: DR. S.K. DOGRA 163
WORKING CAPITAL REQUIREMENT
 Working capital required for day to day successful operation &
continued existence.
 Efficient Management of working capital – basic necessity for
sound operational health.
 Basically means – Management of current assets, current liabilities
and interrelationships, between the two
 Current assets are:-
 Advance given for purchase of raw materials etc.
 Inventories (raw materials, store, packing materials, spare parts)
 Work-in-process
 Finished Goods
 Cash & Bank Balance
 Marketable securities.
 All current assets (except cash) get converted into cash.
 Current liabilities include
PREPARED payment
BY: DR. S.K. DOGRA of bills, interest, to creditors etc164
DETERMINANTS OF WORKING CAPITAL
 Many factors influence the working capital needs of a
business.
 Needs change over different periods of time for the same
firm and also needs are different for different firms.
 Total investment in working capital depends upon:-
1. Nature & Size of Business:- Trading, Financial,
Retail Stores – More working capital and less in
fixed assets.
2. Manufacturing Cycle:-
 Larger the manufacturing cycle – more working capital
required
 Minimum time Sh. Be taken in processes
PREPARED BY: DR. S.K. DOGRA 165
3. Business Fluctuations:-
 Many firms face seasonal and cyclical fluctuations in
the demand for their products.
 These variations affect the working capital
requirements.
 Due to upward swing in the economy, the sales will
increase – more investment in Inventories will be
required, borrowings made.

4. Production Policy:-
 Production policy has to be a policy to produce as per
the changing demand and thus the working capital
will be required and adjusted accordingly
PREPARED BY: DR. S.K. DOGRA 166
5. Firms Credit Policy:-
 Credit allowed by the company to its customers
and its policy of collection also affect the working
capital requirements. There is also a risk of some
credit turning into bad debts.
6. Availability of Credit:-
 Liberal credit terms available from the suppliers /
creditors will need less working capital as the firm
will have time to pay.

PREPARED BY: DR. S.K. DOGRA 167


7. Growth and expansion activities:-
 A growing firm needs more working capital, as sales
grow and more production required.
 More investment needed in current assets to support
enlarged production.
 A growing firm needs working capital funds on a regular
basis, to be arranged from internal / external sources.
8. Profit Margin & Appropriation:-
 Profit is also a source of working capital
 A firm earning high net profit can contribute more to
working capital
 Cash Profits can be allocated to increase the stocks, thus
less working capital to be arranged from external
sources. PREPARED BY: DR. S.K. DOGRA 168
9. Price Level Changes:-
 Changes (increase / decrease) in price levels affect
working capital requirements.
 Rising price levels will require a firm to maintain
higher amount of Working Capital
 Some levels of current assets will need increased
investment when prices are rising.
10. Operating Efficiency:-
 Should be optimum utilization of resources at
minimum cost.
 Better utilization of resources improve profitability
and helps in releasing the pressure on working capital.
PREPARED BY: DR. S.K. DOGRA 169
SOURCES OF FINANCE FOR WORKING CAPITAL
1. Trade Credit:- Primary source and the most popular
 Few days credit given by seller/supplier to the buyer.
2. Bank Credit:- Primary Institutional source.
 Banks offer both secured and unsecured loans to business like cash credit,
overdrafts, loans, purchase & discounting of bills.
3. Non Bank Short Terms Borrowing:-
 Private loans.
 Cash advance from customers.
 Inter – corporate deposits – deposit made by one company with another, for
a period upto six months.
4. Long-Term sources comprising equity capital and long term
borrowing.
 Equity
 Debenture
 Public Deposits PREPARED BY: DR. S.K. DOGRA 170
MANAGEMENT OF WORKING CAPITAL
 Working Capital means administration of both current
assets and current liabilities.
 Satisfactory level to be maintained.
 Following different components of working capital
need to be managed.
1. Management of Cash:-
 Adequate cash required to pay current liabilities and
also unexpected contingencies.
 Avoid idle cash to prevent loss of income
 Cash flows to be managed.

PREPARED BY: DR. S.K. DOGRA 171


2. Management of Inventory:-
 Include raw material, finished goods, work-in-
progress, supplies.
 Minimum stock of inventory required to carry on
operations.
3. Management of Accounts receivable:- Goods sold
on credit needs to be monitored. Terms of credit sales,
credit period, terms, cash discount, efficiency of
collection to be managed.
4. Management of Accounts Payable:- Liberal terms
of credit can be obtained from suppliers
 Save interest cost through delayed payments.

PREPARED BY: DR. S.K. DOGRA 172


PROFIT & TAX PLANNING
 Profit Planning
 Profit is a major objective of any business
 An award for entrepreneur for his efforts, risk
taking ability.
 Profit planning includes
 Arriving at minimum costs
 Break even point and the level of operations.
 Margins of profits.
 Profit planning for future years depends on the
capacity utilizations
PREPARED BY: DR. S.K. DOGRA 173
 Profits do not happen, need to be produced.
 Profit planning is part of an overall planning
process.
 Profit planning represents an overall plan of
operations. Cover a definite period of time and
formulates the planning decisions of the
Management.
 Consists of the operating budget, financial budget
and appropriation budget
 Preparation of profit plan begins months before
end of the year & chief executive makes it.
PREPARED BY: DR. S.K. DOGRA 174
 Long term profit planning implies a sacrifice of today’s
profit for tomorrow on the belief that management
makes the future of a business today.
 Long range profit planning is systematic and
formalized process for purposefully directing and
controlling future operations with a view to achieving
the desired objectives for periods extending beyond
one year.
 Process includes budgetary planning and control
programme, costs, profits, working & fixed capital,
dividend distributions.

PREPARED BY: DR. S.K. DOGRA 175


 Sales, prod., purchase, inventory budgets
provides the basis for making a profit plan.
 Largely a routine exercise and covers a
definite span of time.
 Profit planning is an indicator of what the
future holds for a company.
 The ultimate objective of profit planning is
profit Maximisation

PREPARED BY: DR. S.K. DOGRA 176


EMERGENCE OF ENTREPRENEURIAL
CLASS
 Entrepreneurs started emerging from the times of
Industrial revolution when men with mechanical
rather than financial and commercial skills started
setting up industrial establishments on small scale.
 They mostly worked with their own hands whose
innovations were in the field of technology, cause from
lower / middle classes.
 In India, growth of Entrepreneurship in post-
independence era has been significant.
 Number of entrepreneurs in the small / medium scale
sectors has increased significantly over the years.
PREPARED BY: DR. S.K. DOGRA 177
 Self Motivated and talented class of people who are
engaged in the development of new enterprises.
 Upto the 19th century, entrepreneurs included those
persons who bore risks of future uncertainty of profits in
new ventures.
 Used efficiently the economic resources of the society and
contributed to higher productivity and greater yields.
 Here an important difference was made between
entrepreneurs and the capital suppliers.
 Those taking risk by forming new ventures and earning
profits were called entrepreneurs.
 Others were people who earned profits by supplying
capital.
 They had different kind of risks and job profiles.
PREPARED BY: DR. S.K. DOGRA 178
 During 20th Century, the Entrepreneurs not only took risks
of new ventures but also innovated new useful products,
technologies and markets.
 Maximized opportunities by innovating new products,
taking initiatives, organizing some social and economic
mechanisms (understanding needs of society and
arranging new sources of capital, learning economies of
scale and also accepting risks of failure.)
 In view of time and effort put in by such people they were
seen as a different class – real entrepreneurs and
differentiated from venture capitalists who provided
finance and earned interest there on.
 Entrepreneurs made lot of research, made innovative
products, competition intensified and customers started
getting better PREPARED
productsBY: DR. S.K. DOGRA 179
 Since 1980’s, a new class called the Intrapreneurs have
started emerging.
 Emerge from with in the confines of an existing
enterprise.
 In big organs. Top Mgrs. are encouraged to catch hold
of new ideas and convert them into innovative
products with the help of the research and
development facilities available in the organs.
 This class becoming popular in developed Nations and
India also.
 Of late women are also emerging as a new class of
entrepreneurs, fund successfully in various field in
many countries
PREPARED BY: DR. S.K. DOGRA 180
ENTREPRENEURIAL BEHAVIOUR
An entrepreneur performs many tasks:-
 perceives opportunity
 make business plan
 organize resources
 manage & oversee production
 Undertakes marketing
 manage financial activities
 Establish liaison with Govt. officials.
 Establish liaison and manage various stakeholders.
 Innovate, bear risks and build an organization
 Face competition & beat it.
 All above require sound values and attitudes on the part of the
entrepreneur
PREPARED BY: DR. S.K. DOGRA 181
CORE VALUES AMONG ENTREPRENEURS
i) INNOVATION & CREATIVITY:-
 Most important value
 Are guided by these values when they come out with
creative ideas, new products, services, processes etc. to
solve specific problems of the society.
 Discovering new opportunities, working out new
combinations and seeing the new idea through to the
end- are all different facets of the uniquely creative and
innovative spirit of the entrepreneurs.
 Innovativeness can be seen through actions like –
Experimenting with new ideas, facing uncertainty,
valuing unconventional behaviour, finding new use for
existing methods or equipments.
PREPARED BY: DR. S.K. DOGRA 182
 ii) Independence or Self-Reliance:-
 Entrepreneurs drive great satisfaction in their sense of
independence or ownership.
 A very strong and positive ego drive involved in the action
plans of entrepreneurs.
 Enables them to develop a mission concept which drives them
to achieve their goal with a clear vision.
 Want to work in an atmosphere of freedom, master of their
own destiny.
 Quality of self-reliance – an imp. asset as it provides courage
and confidence to undertake risks of trying with innovative
things.
 Need to be independent to accomplish the sense of
achievement.
 Dependence on others for decision undermines
independence.PREPARED BY: DR. S.K. DOGRA 183
iii) Respect for work:-
 Have great respect for work.
 Successful entrepreneurs believe that they can achieve
anything through hard work.
 Concentre on work to achieve goals.
 Nothing deviates them.
 This value encourages them to pursue right path and
they realize the incentives / rewards linked to degree
of hard work.

PREPARED BY: DR. S.K. DOGRA 184


iv) Quest for outstanding performance or
achievements orientation:-
 This value makes their organs. vibrant and successful.
 Challenges stimulate and motivate entreps.
 Set for themselves certain standards of excellence and
deal with unexpected obstacles with confidence.
 Quest for excellence resolves problems under pressure.
 Are persistent and work harder when things go wrong.
 Find another way to solve problems.
 Leads to systematic planning

PREPARED BY: DR. S.K. DOGRA 185


What are values?
 Values are beliefs that guide actions and judgment
across a variety of situations. E.g. a businessman is
expected to supply true information rather than
making false claims.
 Values are standards of morality
 Relatively permanent in nature.
 Value system influences an entrepreneur’s decisions
and his solutions to various problems.
 Parents, friends, teachers and external reference
groups can influence individual values.
 A persuasive values develop as a product of learning
and experience in the cultural setting in which he
lives. PREPARED BY: DR. S.K. DOGRA 186
What are attitudes?
 Attitudes constitute an important psychological
attribute of individuals which shape their
behaviour.
 An attitude may be defined as the way a persons
feels about some thing – a person, a place, a
situation.
 It explains an individual’s positive or negative
feelings about some object.
 May be unconsciously held.
 Can be considered as a way of thinking feeling and
behaving.
PREPARED BY: DR. S.K. DOGRA 187
 Entreps. have attitude of developing user-friendly
products for customers.
 Attitudes are invisible but the results may speak a
persons is higly productive. We may infer that he
has a positive attitude towards his work.
 Attitudes acquired from direct personal
experiences (handwork pay), associates with good
people.
 Optimists have positive & pessimist have negative
attitud

PREPARED BY: DR. S.K. DOGRA 188


ESSENTIAL ATTITUDES OF SUCCESSFUL
ENTREPRENEURS
 Attitude towards imaginations to visualize
opportunities. They imagine to solve the problem of
the people, by intuitions & efforts.
 Att. Towards risk – take calculated risk, do not become
gamblers.
 Towards initiative – do not remain on lookers,
basically leaders, endeavour to turn dreams into
reality.
 Towards change – like change, accept challenges
thrown open.
 Towards freedom of expressions & actions/think on
their own andPREPARED
act. BY: DR. S.K. DOGRA 189
 Towards performance (successful completion of
targets) – Give outstanding performances against odds
– satisfaction.
 Towards personal capacity – own efforts not luck is
emphasized.
 Towards building relations or networking
 Solve many difficulties in business by having
networking with suppliers etc.
 Towards customers – put customers first – give
respect, top priority for cust. Satisfactions, best quality
– feedback, improve.

PREPARED BY: DR. S.K. DOGRA 190


SOCIAL RESPONSIBILITY OF ENTREP.
 Entrep. Part of society
 Society provides opportunities
 It provides resources like capital, materials, human
resources, infrastructures etc.
 Since entreps. utilize resources of the society, must
assume social responsibility.
 SR means obligations to act in a manner which will
best serve the interests of the society.
 Relates to the voluntary efforts on the part of business
organs. To contribute to the social well-being.
 Refers to the concern for the welfare of the society.
 A business unit owes
PREPARED its
BY: DR. S.K.very
DOGRA existence to the society 191
MAJOR AREAS OF S.R. OF ENTREPS.
 Honoring contractual commitments. – fulfill them
for bank, suppliers, workers etc.
 Concern for ecology & envt:- SR for not causing air,
water, pollution SR to keep it under control – devices.
 Concern for consumers – produce goods which meet
the needs of the consumers of different classes, tastes
and with different purchasing power.
 Give reasonable prices, give prompt, adequate service,
handle grievances quickly, ensures regular supply,
truthful advts.

PREPARED BY: DR. S.K. DOGRA 192


4. Concern for workers.
 Pay reasonable wages & salaries to lead a good life.
 Provide good working conditions
 Provide service benefits like housing, medical,
retirement benefits.
5. Concern for community & society:-
 Ensure safety of local surroundings.
 Generate employment opportunities
 Provide quality products to society
 Discourage social evils like hoarding, black mktg.,
overcharging etc.

PREPARED BY: DR. S.K. DOGRA 193


6. Obligations towards suppliers.
 Make payments to suppliers in time and also be
transparent in dealings
 Ensure timely payment of interest and principal to
lending institutions
7. Concern for healthy competition.
 for survival & growth, should increase productive
efficiency, improve product, quality, design, use etc.
 Do not use by unfair means in business dealings
8. Statutory obligations
 Abide by law & guidelines issued by the govt., pay
taxes honestly, avoid corrupting Govt. officials, follow
labour laws, adopt fair dealings in foreign trade.
PREPARED BY: DR. S.K. DOGRA 194
INNOVATION V/S INVENTION
 Innovation is the process of doing new things or
doing old things through new techniques. While
creativity relates to the ability to conceive,
innovation means doing new things.
 Ideas have little value until they are converted into
useful products or services.
 Innovation transforms creative ideas into useful
applications. Hence, creativity is a pre-requisite to
innovation.

PREPARED BY: DR. S.K. DOGRA 195


Innovation may occur in the following ways:
(i) Introducing a new manufacturing process that has
not yet been tested and commercially exploited.
(ii) Introduction of a new product with which the
consumers are not familiar or introducing a new
quality in an existing product.
(iii) Locating a new source of raw material or semi-
finished product that was not exploited earlier.
(iv) Opening a new market, hither to unexploited, where
the company products were not sold earlier.
(v) Developing a new combination of means of
production.

PREPARED BY: DR. S.K. DOGRA 196


 Every person is gifted with some
competencies which if cultivated, can
change the world.
 People have amazing mix of talents but fail
to harness them. Talent remains buried and
untapped in case of many individuals.

PREPARED BY: DR. S.K. DOGRA 197


 An inventor is one step above an entrepreneur.
Invention implies creating something new not
merely any new product but also new
technological processes, new designs, new
technical knowledge, etc.
 Edison and Marie Curie were inventors whereas
Henry Ford and Bill Gates could be put in the
category of innovative entrepreneurs.

PREPARED BY: DR. S.K. DOGRA 198


Invention versus Innovation

Creation of a new Results in new


Invention product idea knowledge
creation

Conversion of an Results in new


Innovation products,
idea or resources
processes or
into real-life
services
application

PREPARED BY: DR. S.K. DOGRA 199


Innovation is a process which requires analytical
ability to work out the details in order to carry on the
project. An entrepreneur has to obtain materials,
select site, arrange staff, acquire manufacturing
facilities and then establish his organization in order
to exploit the idea commercially.

PREPARED BY: DR. S.K. DOGRA 200


TYPES OF INNOVATION
There are two types of innovations which are discussed below:
(i) Technical Innovation.
 Concerned with innovations in the processes by which
production takes place and also with innovation in the products
themselves, also called pure innovation.
 Creation of something radically different from existing
technologies or products.
 An innovation may have no competitors as its birth, thereby
giving a monopoly to the individuals who hold the legal rights to
the invention.
 New inventions can create new products thereby new industries.
 Generally, technical innovation is also treated as product
oriented innovation which involves developing goods and
services that incorporate entirely new and novel breakthrough
advances.
 Over the product life cycle, large organizational units develop to
exploit these products
PREPARED and
BY: DR. markets
S.K. DOGRA as they mature 201
(ii) Non-Technical Innovation.
 Concerned with finding innovative missions, styles of
management, growth strategies, management systems,
and organizational structures.
Also treated as process innovation.
 Incremental and evolutionary as purpose is to make
existing processes more efficient.
 Involves small changes in design, product formulation
and manufacturing, materials and service delivery that
firms make to keep their product uptodate and their
costs down.
 Also involves making improvements to existing
products and other organizational processes.
PREPARED BY: DR. S.K. DOGRA 202
COMPETING THEORIES OF
ENTREPRENEURSHIP
 Good quality entrepreneurs are very important for
economic growth of an economy.
 Entrepreneurs bear non-insurable risks. All economic
activities carried on by the entrepreneurs.
THEORIES
1. Entrepreneurship: A function of Innovation.
 propounded by Joseph – A. Schumpeter (1934)
 Entrepreneurship plays critical role in economic
development.
 Economic development is not an automatic process, but
takes place when a new product is introduced in the
market, new production technology is introduced, a new
market is developed, new sources of supply are found out
and there is new organization
PREPARED BY: DR. S.K. DOGRAof the industries. 203
 All above changes must be actively and deliberately
promoted by the agents – entrepreneurs.
 They provide economic leadership to bring dynamic
changes, regularly.
 He is an innovator.
 Psychologically, entrepreneurs not solely motivated by
profit.
 Theory conceived in the context of the industrial revolution,
innovations, inventions of that time.
 Such innovations attracts surplus for reinvestment and the
entrepreneurs can invade various economic fields with great
success.
 Theory modeled on big private entrepreneurship as large
volumes can be handled by the entrepreneurs in Pvt. Hands.
 Entrepreneurship is shy in an underdeveloped region as
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basic infrastructure is weak, only innovative mind can’t work
2. Entrepreneurship: A function of group
level pattern – by Frank W. Young
 One individual cannot take entrepreneurial
initiative.
 One must find entrepreneurial groups for a
joint effort, as groups have higher
differentiation and different capacities.
 Members of a group can show more
solidarity.
 Unified actions & mutual understanding
will bring better results.
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 Some members of the groups excel at combining
the resources like labour, capital etc. in new ways
and thus they become better entrepreneurs.
 Entrepreneur does not work single handedly.
 Individual characteristics are not above group
effort.
 Entrepreneurial activity is generated by the
particular family background and combined
experiences.

PREPARED BY: DR. S.K. DOGRA 206


3. Entrepreneurship: A function of Managerial skills
& leadership.
 By Bert. F. Hoselitz (1952)
 Person / Entrepreneur has a drive to amass wealth
motivated by profit expections.
 But must have some managerial abilities, including the
ability to lead.
 Managerial abilities and leadership are the prime
concern and financial skills have a secondary concern.
 More matured and developed personalities make
better entrepreneurs leading to productivity, creative
integration of resources and the establishment of
social institutions.
 An open society also develops good entrepreneurs.
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 4. Entrepreneurship: An Organization building
Function:-
 By Frederick Harbison.
 Ability of “Organizations building” – most critical skill
in industrial development.
 Entrepreneurship is the skill to build an organ.
 He effectively delegates responsibilities to others and
thus multiplies himself.
 Harnesses the ideas of other innovations and becomes
an “Organizer builder”.
 Good leaders are excellent administrators.
 More stress on managerial skills and creativity.
 Ability to create an organ is most crucial skill as it
facilitates thePREPARED
economicBY: DR. S.K.use
DOGRAof other innovations. 208
4. Entrepreneurship: A function of high
achievements or achievement motivation.

PREPARED BY: DR. S.K. DOGRA 209


ACHIEVEMENT MOTIVATION
 Achievement Motivation theory developed by David
McClelland
 An individual’s need for achievement (n-ach) refers to
the need for personal accomplishments.
 A drive to excel and strive for success. Person with high
achievement motives takes calculated risks and wants
to win.
 Take personal responsibility for initiatives and solving
problems. Plus – keep on evaluating themselves – how
well are they doing and what more required.
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 Do something better and more efficiently than others
have done before
 Not for social recognition but for the inner feeling of
personal accomplishment.
 This need for achievement motivate some persons to
take risks and prove themselves.
 Such persons behave in Entrepreneurial way and take
initiatives.
 McClelland considers the need for achievement to be
the most important and critical element for country’s
economic development.

PREPARED BY: DR. S.K. DOGRA 211


 He termed the need for achievement as inner spirit.
Higher it is, more energetic entrepreneur would grow,
high need for achievement motivates entrepreneur to
take risks, work hard, innovate, save more, reinvest
savings in business.
 Said-achievement motivates lower in underdeveloped
countries compared to developed countries – lack of
ambitions explains the lack of enterprise in
underdeveloped nations. The ambition motivate
people, make them active, broaden success and make
their life meaningful, builds up achievement pressure
in persons.

PREPARED BY: DR. S.K. DOGRA 212


 Duty of leaders and teachers to build up ambition into
the minds of young people. Ambition nourish the
achievement motivates and brings economic growth.
However ambition differs among individuals on the
basis of the environment in which they are born and
brought up.

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ENTREPRENEURIAL SUCCESS IN RURAL AREAS
 Entrepreneurship most crucial factor in the economic
development of each and every region including rural areas.
 70% of people in our country live in rural areas where
agriculture main occupation, allied activities but there is a
limit to the rural labour force getting engaged in Agriculture.
 Despite rural migration to cities, rural unemployment
remains a problem.
 Thus entrepreneurship becomes crucial in non-agricultural
activities also.
 In India Rural Industrialization is characterized by small
scale sector.
 Big employment generator, next to agriculture in rural areas.
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PROBLEMS OF RURAL ENTREPRENEURS
1. Lack of Managerial experience.
 Less knowledge of Management, A/cs, finance
 Can not afford to employ specialists.
 However ideally should have knowledge about
different aspects of Prod., Mkg., A/cs, Fiannce.

2. Lack of knowledge about Tax-related Matters.


 Should have Income Tax Knowledge to file returns and
sales tax to obtain sales–tax registration and abide by
Tax rules.
 Normally lacking in rural entrepreneurs.

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3. Poor Accounting System:-
 Good Knowledge about various costs, margins, break-
even points – lacking may hamper good decision
making.

4. Inadequate estimate of cash requirements:-
 Prod. Not reaching optimum level, not reaching
break-even point, less demand
 Creates poor cash Mgt. – delays means more cash
requirements. Expert advice also not available.

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CHOICE OF A SUITABLE FORM OF BUSINESS
ORGANIZATION
 Choice to be made at two occasions:-
I Choice at the starting of a new business:-
 Following factors to be considered:-
 Nature of business – trading, manufacturing or service.
 Degree of control by the owner.
 Scale of operation – small / medium / large.
 Size of market area – local, regional, national etc.
 Amount of capital required.
 Capacity to take risk / liability.
 Tax liability and Govt. control.
 Profit margin and distribution

PREPARED BY: DR. S.K. DOGRA 217


II – Choice for expanding business:-
 Increase in demand and the success of business may
require expanding the business.
 To expand and changing over to other form of
business, following need to be analysed.
 Additional capital required.
 Need for internal re-organization.
 Arrangement for specialized services.
 Increase in risk / liabilities
 Retention of effective control.
 Increased Tax Liability.

PREPARED BY: DR. S.K. DOGRA 218


ALTERNATIVES AVAILABLE FOR CHANGING
EXISTING FORMS OF BUSINESS

 SOLE TRADER:-
1. Employing A Manager V/s changing over to
partnership:-
 Sole trader needs additional capital and help in
management to expand business.
 Either can hire a paid manager or can consider one /
more partners.

PREPARED BY: DR. S.K. DOGRA 219


Let us examine this further
 Capital:- If Manager hired, the additional capital to be
arranged by the owner himself. However, does not
share profits with the Manager – can repay the loans
out of the profits.
 If partners taken – will bring more capital but will also
share profits. No need to take loans and repay them.
 Re-organization of the business structure:-
Manager taken – existing structure does not change. If
partners taken from sole trader to partnership firm – P.
Deed –registration – difficult to get a good partner

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 Management:- A skilled or qualified Manager may
improve the quality of management.
 With fixed salary, may not show full worth and not take
full interest.
 Partners became owners, bring capital and run the
business with full interest, as they will also share profit.

 Control of the business:-
 Managers control with the owner.
 Partners – control gets diluted.

PREPARED BY: DR. S.K. DOGRA 221


 Sharing of business risks:-
 Managers – risks with owner, losses are borne,
loans/int. Repaid.
 Partners – Risks, losses get shared.
 Busines secrecy:- Mgr – Secrecy maintained.
 Partners – information to be shared
 Continuity of business:-
 Business comes to an end if sole trader dies,
insolvent
 Partners – remaining partners may carry on the
business
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 2. Partnership V/s Private Company:-
 When partnership grows – option are:-
 Induct more partners
 Go in favour of a Private Company.
 Points to be considered will be:-
 Additional Capital:-
 Partnership – Max – 10 or 20
 Pvt. Co. – 50 Max. – More cap available
 Liability concerns:-
 P.Ship – Liability Unlimited
 Pvt. Co. – Limited Liability – Positive
 Legal formalities for the re-organization of
business:- Pvt. Co. Legal formalities. Will be there.
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 Issue of management:-
 P.Ship – all partners to be consulted, so conflicts,
disputes may hamper business.
 Pvt. Co. – Elected Directors have full authority.
 Control over the business:-
 P.Ship – Joint Control
 Pvt. Co. – Original owner becomes M.D. has full
authority.
 State regulations.
 Filing of Accounts – Co. files audited A/cs/ -Reg.
 Continuity – Co. continues for long.
 Tax benefits:- P.Ship pay taxes on profits at
progressive rates – Co. at flat rate pay more.
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3. PRIVATE CO. OR PUBLIC CO.:-
 When business of a Pvt. Co. grows,
 Either continues as a Pvt. Co. or
 Convert it into a Public Ltd. Co.
 Following points to consider:-
 Capital Requirements:- Public co. can arrange huge
financial resources.
 Re-organizations:- A public co. has to raise
minimum subscription, obtain certificate for
commencement of business etc. to convert a Pvt. Co.
to public, articles of association to be amended.

PREPARED BY: DR. S.K. DOGRA 225


 Management:-
 Pvt. – Directors – close associates
 Public – Directors may be no-owners, experts form outside
having sp. Mgt. skills.
 Degree and extent of control:-
 Pvt. – Owners have close control, by having key positions.
 Public – Control shared with share holders, financial
institutions, C.A., etc.
 Secrecy:- Pvt – Published accounts filed with registrar, not
open to public, for inspections.
 Public – Open to inspection on payment of fee.
 Govt., Regulations:- Pvt. Co. closely held – not much
regulations – Public:- widely held – various govt. acts
regulates these cos. entp. Must analyse above points.
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STAGES FOR SETTING UP A NEW
BUSINESS VENTURE – THREE STAGES
Pre-Investment Stage:-
 Setting of aims & Objectives
 Forecasting of Demand
 Selection of Best Means, Strategies, to achieve objectives
 Evaluations of resources or inputs required.
 Projection of financial plan.
 Cost-benefit analysis.
 Pre-investment appraisal of all resources, approvals, etc.

 Project Idea converted into a concrete investment


proposal
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The Construction Stage:-
 Starts after the investment decision is taken.
 Resources like land & buildings, plant &
machinery, transport, communication & other
services technology, arranged & assembled.
 Processes made for control systems, sales &
marketing, managerial and other personnel,
policies for acquisition of raw materials, supplies
assembled and allocated to create tangible
project.

PREPARED BY: DR. S.K. DOGRA 228


Normalization stage:-
 The allocated resources of assets (created
in the 2nd stage) utilized / employed to
produce end results – i.e. output of goods
and services.
 Production of Actual Goods and Services
fulfill the project objectives.
 Final Stage – Project starts operating –
Processing inputs and generating outputs.
 Goods Distributed and customers created
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GROWTH OF & DEVELOPMENT OF SMALL SCALE
INDUSTIES-DEFINITION OF SMALL ENTERPRISE
 “Small Scale” used to describe industrial units referring
to the scale of investment in plant & machinery.
 Small enterprises exist in every country of the world but
more in developing country, like India.
 Small scale industries tend to be labour intensive or
capital saving.
 Provide better opportunities for generating employment,
better utilization of local resources, wider dispersal of
industries & for equitable distribution of national
income
DEFINITION OF SMALL ENTERPRISE:-
 What is small enterprise depends on the character of
economic activity. Different countries define small
business in different
PREPARED BY:ways
DR. S.K. DOGRA 230
Two standards have been used to define small
business:-
 Size of Business:- Very often, small firms that have
not grown beyond a certain size are termed as small.
The criteria used to measure the size of small
enterprises include:-
 The number of persons employed.
 Amount of capital invested
 The value of annual sales turnover.

 USA – Any plant employing less than 200 workers is


termed small.
 India – Fixed investment is the basis of defining small
business.
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 Qualitative Criteria:- Complexity and quality of
Material also criteria for defining small enterprise,
like:-
 Ownership in the hands of one individual or a
small group of individuals.
 Management is independent & personalized.
 Area of operation is mainly local though the
goods might be exported.
 Technology employed is labour Intensive.
 Business enterprise is relatively small in
comparison with the largest units in the field in
which it operates.
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DEFINITION OF SMALL BUSINESS IN INDIA
 Industries regulation and development ACT (IRDA) 1951, defined a
small scale unit as one that employed not more than 50 persons
when using power and 100 when not using power and with a capital
investment not exceeding Rs. 5 Lacs.
 In 1960, all industrial units with capital investment of not more
than Rs. 5 Lacs irrespective of the number of persons employed, was
termed as small business.
 In 1966 – not more than Rs. 7.5 Lacs.
 In 1975 – not more than Rs. 10 Lacs.
 In 1980 – not more than Rs. 25 Lacs.
 In 1990 – not more than Rs. 60 Lacs.

 On the recommendation of Abid Hussain Committee, Govt. of
India once again revised the definition of Small scale Industry, if the
Plant and machinery is upto Rs. 1. Crore
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 Can offer personalized services to their customers.
 The No. of persons employed cannot exceed 50,
using power or 100 without power.
 Greater motivation possible as owner can maintain
personal rapport with the employee’s
efficiency
 Enjoy special govt. support for more employment
and diversification of industries.

PREPARED BY: DR. S.K. DOGRA 234


SCOPE OF SMALL SCALE INDUSTRIES IN
EMERGING SCENARIO
 Wide scope for small scale business in various sectors.
 Scope of small businesses can be understood by their
operation in various areas of eco. Activity:-
1. Manufacturing:- Engaged in assembling and processing
various types of products, some produce small parts,
some make & supply finished products.
 They manufacture electronic components, optical
instruments, lab equipments, eatables, furniture,
construction equipment, mat-weaving, basket-making,
stationery items, toys, cosmetics, soaps, hosiery, sports
goods, bicycles, foot wear, and handicrafts.
 Some make useful
PREPAREDcomponents
BY: DR. S.K. DOGRA for large business 235
 2. Wholesale Trade:- Small business carried on for
distribution of consumer and industrial goods. These
wholesale small business channels for distribution are very
economical for manufacturers and retailers. They provide
lot of services from their firms.
 Small firms carry wholesale trade in textiles, toiletry-
preparations, bakery products, fruits & vegetables etc.
3. Retail Trade:- Retailing dominated by small scale firms.
Small retail stores found in every area of business.
 Wholesalers and sell them to consumers, maintaining
variety.
 Deal in daily use articles; take care of varied consumer
needs and provide consumer needs and provide
convenient shopping to consumers

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 4. Services:- No. of services are increasing day by day in
every area of business.
 Small scale business very suitable for providing services
of a local and personal nature.
 Doctors, attorneys, property dealers, CI’s tax consultants,
financial advisors, restaurants, repair shops, beauty
parlours, gyms, fast food outlets operate as small scale
firms.
 Can provide personal attention and care.
5. Franchising and agency business:- Small business
very suitable for those who want to take franchising
without making much investments. They follow
methods, policy of franchisor. Many foreign cos. also
interested to tie with small firms.
PREPARED BY: DR. S.K. DOGRA 237
SMALL BUSINESS

 ROLE OF SMALL BUSINESS


 Small business achieve many goals:-
1. Employment :-
 Use labour intensive techniques to provide more
employment.
 In India, small / tiny units employ people next to
agriculture.
 Create more employment in scattered areas more than
large scale units.

PREPARED BY: DR. S.K. DOGRA 238


 Balanced Regional Development:-
 Promote decentralized development.
 Help removing regional disparities.
 Leads to industrialization in rural and backward areas.
 Check migration from rural areas and their living standards
improve there.
 Optimization of Capital:-
 Require less capital per unit of output and thus greater output can
be obtained with small investment.
 Due to shorter gestation period, quick returns can be obtained.
 Mobilization of local resources:-
 Facilitate mobilization and utilization of local resources and skills
which might otherwise remain unutilized.
 Promote a new cadre of small entrepreneurs, self employed and
encourage local talent
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 Foreign Exchange earnings:-
 Do not require imports of sophisticated machinery and
equipment, thus reducing pressure on foreign exchange.
 Also earn valuable foreign exchange through export of
their products, 35% of India’s total exports now
 Promote more equitable distribution of national
income and wealth:-
 Help in reducing concentration of economic power in
few hands.
 Benefits of small scale business spread over wider
population.
 Standard of living of rural people improves

PREPARED BY: DR. S.K. DOGRA 240


 Feeder to large Industries:-
 Manufacture various components, spare parts, tools
required by the large scale sector.
 Also distribute the goods made by large scale firms.
 Social Advantages:-
 Offer Opportunity for an independent way of life to
people with small means.
 Help to raise per capita income and standard of living.
 Widely diffused ownership permits wider
participation of people in the process of economic
development.
 Promotes entrepreneurship by providing an excellent
opportunity to young men and women with limited
money to start their own business ventures.
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Need & Rationale of Small Business
 Development of Entrepreneurship.
 Introduction of new products.
Better to start at a small scale.
 Limited demand for local products.
 Flexibility in operations for making changes in
products etc.
 Personalized services – Auto / TV repairs, interior
decorations etc.
 Relations with employees
 Support to large enterprises

PREPARED BY: DR. S.K. DOGRA 242


THE DEFINITION OF SMALL SCALE
INDUSTRY
 In India, the small scale industry has been defined in
three ways
 The conventional definition includes cottage and
handicraft industries which employ traditional labor –
Intensive methods to produce traditional products.

 Operational Definition for policy purposes includes


all those under-takings having an investment in fixed
assets plant & machinery whether held on ownership
terms or by lease or hire purchase, not exceeding Rs. 1
Crore
PREPARED BY: DR. S.K. DOGRA 243
 Ancillary and tiny units also come under the umbrella of
small scale industries. A tiny unit where investment
upto Rs. 5 Lacs.
 An ancillary unit whose investment is not more than Rs.
75 lacs.
 And is engaged in:-
 The manufacture of parts, tooling, intermediate parts.
 The rendering of services of supplying 1/3 per cent of
their total service or production to other units
production of other articles.
 Third Definition of small scale industries relate to national
income accounting – includes all processing and
manufacturing activities including repair and maintenance
services undertaken by both house hold and non house
hold small scale units, not regd, under factories act.
PREPARED BY: DR. S.K. DOGRA 244
 Accordingly a small scale industry is presently defined:-
 “As a unit engaged in manufacturing servicing,
repairing, processing and preservation of goods having
an investment in plant & machinery at an original cost
not exceeding Rs. 1. crote”. An ancillary unit is defined as
“A unit having investment in fixed assets in plant and
machinery not exceeding Rs. 75 lacs and engaged in
manufacture of parts, components, sub – assemblies,
tooling or intermediaries or rendering of services and
supplying 50% of their prod. of articles provided that no
such undertaking shall be subsidiary or owned or
controlled, by any other undertaking.”
 Govt. of India announced a new policy for tiny sector
and kept the investment limit of Rs. 5 Lacs, irrespective
of location thePREPARED
unit.BY: DR. S.K. DOGRA 245
CLASSIFICATION OF SMALL SCALE INDUSTRIES

Traditional Modern

With power
Khadi
Power Looms Small Scale
Without Power
Village Industries
Export Oriented
Handlooms
Ancillaries
Coir Industries
Tiny Enterprises
Sericulture
Silk worm breeding Small Scale Services
and business
enterprises
Cottage

Artisans
PREPARED BY: DR. S.K. DOGRA 246
TECHNOLOGY KNOW-HOW AND
APPROPRIATE TECHNOLOGY
 Growth of small scale sector industries has not been very
satisfactory despite the various provisions for its promotion in
the Industrial Policy.
 One reason is the absence of latest technology which can
ensure quality and high rate of productivity.
 Should keep abreast of developments in technology so as to:-
 Remain in the market
 Lower the cost of production
 Improve the quality of products
 Pass on the benefits to the customers
 Even without the facility of a sophisticated laboratory and
gadgets, by using his intellectual capabilities and utilizing the
knowledge gained byBY:others.
PREPARED DR. S.K. DOGRA 247
SMALL INDUSTRIES SERVICE INSTITUTES FOR
TECHNICAL ASSISTANCE
 They prepare improved designs and drawings for products.
 Also assist in making tools, dyes fixtures etc.
 Help in optimum utilization of men, material and machinery.
 Prepare management control charts for maximization of
profits and train managers and supervisors in industrial
management train workers to upgrade their skills.
 Demonstrate modern technical processes.
National Small Industries Corp. N. Delhi:-
 Give advanced training in their prototype prod-cum-training
centres in the operations of modern machineries.
COUNCIL OF SCIENTIFIC AND INDUSTRIAL RESEARCH.
NEW DELHI:-
 Develops new technological processes and provides the same
to industry PREPARED BY: DR. S.K. DOGRA 248
 PRODUCTIVITY COUNCILS:- Train the factory owners
to increase the productivity.
 SMALL INDUSTRY EXTENSION TRAINING
INSTITUTE, HYDERBAD:- Gives full time Management
Training to Managers and proprietors in small Industry
sector.
 CENTERAL INSITUTE OF TOOL DESIGN (CITD):-
Specializes in provision of technical consultancy and
tool facilities, training in design and manufacture of
tools.
 INSTITUTE FOR DESIGN OF ELECTRICAL
MEASURING INSTRUMENTS (IDEMI):-
 Provides technical know-how and testing, laboratory,
workshop and training vacilities to electrical measuring
instrument manufacturers .
PREPARED BY: DR. S.K. DOGRA 249
APPROPRIATE TECHNOLOGY FOR
SMALL BUSINESS
 Underdeveloped / developing economies face a number of
serious and complex problems one of them is the
unemployment.
 Blind imitation of and wholesale adoption of the
established technology from industrialized countries may
aggravate the problem of unemployment.
 India, an agricultural economy is also labour-intensive.
Issue is whether our small scale sector should try to follow
the scientific discoveries of advanced countries? We should
always think of our large number of labour force.
 Small industries offer same remedy for the monitoring
unemployment problems
PREPARED BY: DR. S.K. DOGRA 250
 Appropriate technology should be used so that it takes
care of millions of idle hands and at the same time,
facilitate prod. of goods of comparable quality at a
reasonable cost. Such a technology is required for the
small scale sector, called as “Appropriate technology”.
 Also linked with the affordability
 Scientific capabilities and innovative talents can
provide a solution.
 Urgent necessity to develop this appropriate
technology in view of economic factors and factors of
our economy.

PREPARED BY: DR. S.K. DOGRA 251


LEGAL ASPECTS OF SSI
PROCEDURE FOR REGISTRAION OF SMALL SCALE INDUSTRIES:-
 Registration done in two stages:-
 Provisional Registration
 Permanent Registration
PROVISIONAL REGISTRATION:-
 Helps the party to take necessary steps to bring the unit into existence
should be converted into a permanent registration once the unit comes
not existence.
 Granted at the state / UT / District level by the state Director of
Industries or his designated authority.
 Valid for one year in the first instance and thereafter may be renewed
by a period of two or more years in six-monthly extensions by the
designated authority on submission of satisfactory proof that the party
is working.
 Lapse automatically at the end of three years. Application for extension
of validity period and for permanent registration to be made within
validity period. PREPARED BY: DR. S.K. DOGRA 252
The provisional registration entitle the party
to:-

 Apply for a shed in an industrial estate/develop


site in an industrial area / material for the
construction of the shed as the case may be.
 Apply to municipal corporations, panchayat or
other local authorities for permission to
construct the shed to establish a unit.
 Apply for power connection

PREPARED BY: DR. S.K. DOGRA 253


 Apply for financial assistance to SFC /
Nationalized banks or other financial
institutions on the basis of a project report as
may be required by them.
 Apply to NSIC / SSIC / Other institutions for
procuring machines on his re-purchase basis.
 Obtain sales tax, excise registration etc.
whenever required.
 Take other steps / approvals that may be
necessary to establish the industrial units
including obtaining import license for capital
goods / raw materials.
PREPARED BY: DR. S.K. DOGRA 254
PERMANENT REGISTRATION
 When the entrepreneur has taken all the steps to establish the unit,
like:-
 Factory building / Sheds ready
 Required Machinery, equipment ready.
 Power connection obtained.
Then:-
 Application for permanent registration can be made within seven
days of the receipt of application.
 The General Manager, District industries centre or other designated
officer will inform the party of the date and time of inspection of the
unit.
 On being satisfied that the unit is capable of productions activity, a
registration certificate may be issued by the Directorate of Industries
within one month of receipt of application.
 All registered units should submit half-yearly reports of raw materials.
PREPARED BY: DR. S.K. DOGRA 255
DEREGISTRATION OF SMALL SCALE UNITS
 A small scale unit already registered may be de-registered by the
registering authority on any one or more of the following
grounds:-
 If the unit remained closed continuously for a period
exceeding one year.
 If the unit failed / refused or avoided to give full and truthful
information as called upon by registering authority form time
to time and in particular the half-yearly report.
 If the unit has been proved to have misutilised the raw
material allocated to it.
 If the unit is found to be a subsidiary of or owned or
controlled by medium or large scale undertakings.
 If the fixed investment in plant and machinery exceeds the
fixed investment ceiling prescribed in the definition of small
scale / ancillary units.
PREPARED BY: DR. S.K. DOGRA 256
 The order of the de-registration will have to be signed by an
officer not below the rank of Joint Director of Industries or the
G.M. of the District Industries Centre where the unit was
reported to be closed, the notice may be duly pasted on the
premises. Action for de-registering the unit may be taken only
after the expiry of the 30 days time from the day of parting the
notice.
 Any unit aggrieved by the order of de-registration may appeal
to the next higher prescribed authority as notified by the state
Govt. within one month on receipt of the intimation of the
same. The appellate authority many, after examining the case
and making necessary enquiry, pass suitable order whether to
set aside the order of de-registration or maintain it.
 One of the important decision to be taken by the
entrepreneurs when he propose to start his unit is to decide
about the firm of ownership of the industry whether to set up a
proprietary / partnership or
PREPARED BY: DR. S.K.aDOGRA
company. 257
FINANCIAL AND MARKETING MANAGEMENT
OF SSI
FINANCIAL PLANNING
 Finance – very important pre-requisite to start an enterprise,
life-blood.
 Enterprise must chalk-out clearly its future financial
requirements right in the beginning.
 The decisions taken by the entrepreneur in advance regarding
the future financial aspects of the enterprise is called financial
planning. It is a financial forecast made for the enterprise in the
beginning itself.
 In a Financial Plan, The enterprise must answer the following
questions very clearly:-
 How much finance is needed?
 Where will money come from?
 When does the money
PREPARED BY: DR.need to be available?
S.K. DOGRA 258
 In every business, including a SSI, capital is arranged
from two sources – international and external. Internal
source is owner’s own money called equity. In case of
small scale unit, owner’s capital in this. External
sources include sources like financial institutions and
bank.
 Finance required for construction of factory building,
purchase of plant, machinery, equipment and also for
working capital requirements. Money also required for
expansion, renovations or modernization of plant
machinery.

PREPARED BY: DR. S.K. DOGRA 259


 LONG TERM & SHORT TERM CREDIT FLOWS
 1. Long term finance required for procuring fixed assets, establishment
of new business, substantial expansion of existing business,
modernization etc. It is such money whose repayment is arranged for
more than 5 years in future. The sources of long term finance could be
owner’s equity, term-loans from financial Institutions, credit facilities
from commercial bank, hire-purchase, leasing facilities from specific
organs, ploughing back of profits etc. Also provides by SFCS, National
small industries corp (NSIC), St. Ind. Dev. Corp. (SIDC) etc.
 SHORT TERM CAPITAL (CREDIT FLOWS):- This is borrowed capital
that is to be repaid within one year. The sources of short-term fiancé
include bank borrowing, for working capital, borrowings from friends
and relatives, short term credit flows usually required to meet variable,
seasonal working capital requirements, short term finance can also come
from trade credit, customer advances etc. finance for working capital
requirements also provided by state industrial & investment
corporations and also the co-operative banks. In small places, even
money lenders also advance loans.
 Short term finance / credit used for current assets like raw-materials,
semi-finished goodsPREPARED
etc. BY: DR. S.K. DOGRA 260
 The project appraisal is a process whereby a leading
financial institution makes an independent and
objective assessment of the various aspects of an
investment propositions for arriving at a financial
decision and is assigned at determining the viability of
a project, and sometimes modifying some provisions
and contents so as to improve its viability.
 The financial institutions has to take special care with
regard to the managerial aspects of the project. The
promoter, mgt. must be efficient and competent. The
financial appraisal ensures that the project has a sound
financial base. Analysis of cost, pricing, availability and
utilization of funds, income and expenditure and fair
return on investment areas are covered under financial
appraisal.
PREPARED BY: DR. S.K. DOGRA 261
A Financial Institution requires a detailed
evaluation of the feasibility from the
following major points of view:-
1. Managerial competence:-
 Will find out whether the entrepreneur possesses
needed managerial skills.
 The project report should contain information like
family background education qualifications, any past
experience, innovative ideas so as to enable the financial
institutions to assess managerial capabilities of the
entrep.
 Not necessary that the entre., should have all managerial
skills but the managerial structure should be explained
to the financial institutions
PREPARED BY: DR. S.K. DOGRA 262
2. Technical Feasibility:- Deals with the reso8urces and
technical aspects, to be mentioned in the project
report. Technical appraisal will deal with:-
 Location of the unit.
 Size of plant
 Process of Prod.
 Factory Layout
 Personnel
 Availability and Cost of Raw-Material
 Power and water facilities
 Technology used / required for making the furnished
products

PREPARED BY: DR. S.K. DOGRA 263


3. Market Analysis:-
 Marketing activity produces revenue while all other
activities incur expenditure. Thus success of the
project will depend on how it is able to sell the product
/ services in the market. Supply / Demand of the
product / Service to be estimated and market
opportunities also to be judged. The project report
should contain the following information’s:-
 Present demand for the product.
 Market segments identified.
 Short and long term demand / Projections.
 Extent of completions in the industry.
 Broad pricing structure
 The strategy of Marketing.
PREPARED BY: DR. S.K. DOGRA 264
 Economic Viability:- An important criteria for evaluating a
project. Whatever may be the motivation in starting a project from
the point of view of the promoters, it shall be necessary that the
operators quantified on a year to year basis should generate
sufficient profits. A project without adequate profits or which is
likely to incur losses. Could not be classified as economically and
commercially viable. Evaluation of economic of economic viability
can be carried out through the projection of profitability worked
out for a period ranging from three to ten years.
 Financial Viability:- The appraisal of the financial aspects involve
the scrutiny:- Cost of the project and the means of financing.
Estimate to be made for cost of land, building, fixed assets,
machinery, preliminary expanses etc.
 Then sources to be listed
 Cash flow estimates to be analysed. A cash flow statement is a
projection of future sources of cash and application profit is also a
PREPARED BY: DR. S.K. DOGRA 265
source of cashflows.
LEGAL REQUIREMENTS OF
ESTABLISHMENT OF A NEW UNIT
INCORPORATION OF A COMPANY

FILING OF DOCUMENTS: THE FOLLOWING


DOCUMENTS ARE REQUIRED TO BE FILLED WITH
THE REGISTRAR OF COMPANIES FOR THE
INCORPORATION OF JOINT STOCK COMPANY.

PREPARED BY: DR. S.K. DOGRA 266


1. MEMORANDUM OF ASSOCIATION: IT IS THE
MOST IMPORTANT DOCUMENT TO BE FILED
WITH THE REGISTRAR. IT IS ALSO CALLED
CHARTER OF THE COMPANY. IT CONTAINS THE
NAME OF THE COMPANY, PLACE OF
REGISTERED OFFICE, OBJECTS OF HE
COMPANY, THE LIABILITY OF MEMBERS, THE
AMOUNT OF ITS AUTHORISED CAPITAL ETC. IT
MUST BE SIGNED…

PREPARED BY: DR. S.K. DOGRA 267


…..BY AT LEAST SEVEN PERSONS I IN HE CASE
OF PUBLIC LIMITED COMPANY. THE
MEMORANDUM MUST BE PRINTED, DIVIDED
INTO PARAGRAPHS AND NUMBERED
CONSECUTIVELY. IT IS THE FOUNDATION ON
WHICH THE SUPERSTRUCTURE OF THE
COMPANY IS BUILT. IT DEFINES THE ACTIVITIES
AND POWERS OF THE COMPANY.

PREPARED BY: DR. S.K. DOGRA 268


2. ARTICLES OF ASSOCIATION: IT IS ANOTHER
IMPORTANT DOCUMENT. IT CONTAINS RULES
AND REGULATIONS FOR THE INTERNAL
MANAGEMENT OF THE COMPANY. PRIVATE
LIMITED COMPANIES MUST PREPARE THEIR
OWN ARTICLES. IN THE CASE OF PUBLIC
LIMITED COMPANIES, THE PREPARATION OF
ARTICLES IS OPTIONAL. A PUBLIC LIMITED
COMPANY WHICH DOES NOT PREPARE AND
FILE..
PREPARED BY: DR. S.K. DOGRA 269
….ARTICLES CAN ADOPT THE ARTICLES STATED
IN TABLE A OF THE COMPANIES ACT. THE
ARTICLES PRESCRIBE THE RELATIONSHIP
AMONG THE SHAREHOLDERS THEMSELVES AND
THE RELATION BETWEEN T HE SHAREHOLDERS
AND THE COMPANY.

PREPARED BY: DR. S.K. DOGRA 270


3. LIST OF DIRECTORS: THIS LIST CONTAINS THE
NAMES, ADDRESSES AND OCCUPATIONS OF
PERSONS WHO HAVE AGREED TO ACT AS THE
FIRST DIRECTORS OF THE COMPANY. THERE
MUST BE AT LEAST THREE DIRECTORS IN THE
CASE OF PUBLIC COMPANY AND TWO
DIRECTORS IN THE CASE OF PRIVATE COMPANY.

PREPARED BY: DR. S.K. DOGRA 271


4. WRITTEN CONSENT OF DIRECTORS: THE
WRITTEN CONSENT OF THE PERSONS WHO
HAVE AGREED TO ACT AS DIRECTORS OF THE
COMPANY HAS TO BE FILED.

5. DECLARATION REGARDING QUALIFICATION


SHARES: THE DIRECTORS SHOULD GIVE AN
UNDERTAKING THAT THEY HAVE AGREED TO
PURCHASE AND PAY FOR THE QUALIFICATION
SHARES ALONGWITH OTHER SHAREHOLDERS.

PREPARED BY: DR. S.K. DOGRA 272


6. NOTICE OF REGISTERED OFFICE: AT THE TIME
OF INCORPORATION, ADDRESS OF THE
REGISTERED OFFICE OF THE COMPANY,
STATING THE STATE IN WHICH IT IS GOING TO
BE LOCATED IS TO BE FILED. DUE TO ANY
REASONS IF IT WAS NOT FURNISHED, IT MUST
BE FILED WITHIN 30 DAYS FROM THE DATE OF
INCORPORATION.

PREPARED BY: DR. S.K. DOGRA 273


7. STATUTORY DECLARATION: A STATUTORY
DECLARATION BY AN ADVOCATE OR
SECRETARY OR DIRECTOR OR CHARTERED
ACCOUNTANT OR ANY OTHER PERSON WHO
HAS TAKEN PART IN THE FORMATION OF THE
COMPANY, STATING THAT ALL PROVISIONS OF
THE COMPANIES ACT WITH REGARD TO THE
REGISTRATION HAS BEEN COMPLIED WITH.

PREPARED BY: DR. S.K. DOGRA 274


8. PAYMENT OF STAMP DUTY AND REGISTRATION
FEE: ALONGWITH THE ABOVE DOCUMENTS, THE
NECESSARY STAMP DUTY, REGISTRATION FEE
AND FILING FEE ARE TO BE DEPOSITED WITH
THE REGISTRAR. IF ALL DOCUMENTS ARE
FOUND TO BE CORRECT AND IN ORDER, THE
REGISTRAR WILL ENTER THE NAME OF THE
COMPANY IN THE REGISTRAR OF COMPANIES
AND WLL ISSUE A CERTIFICATE KNOWN AS
CERTIFICATE OF INCORPORATION.
PREPARED BY: DR. S.K. DOGRA 275
9. CERTIFICATE OF INCORPORATION: IT IS
ISSUED BY THE REGISTRAR OF COMPANIES
WHEN ALL FORMALITIES CONCERNED WITH
THE REGISTRATION HAVE BEEN FULFILLED.
THE MOMENT THIS CERTIFICATE IS ISSUED,
THE COMPANY ACQUIRES A SEPARATE LEGAL
STATUS. THE CERTIFICATE OF
INCORPORATION….

PREPARED BY: DR. S.K. DOGRA 276


… BEARS THE SERIAL NUMBER, DATE OF
INCORPORATION AND THE SIGNATURE AND
SEAL OF THE REGISTRAR OF COMPANIES. IT IS
CONCLUSIVE PROOF THAT ALL LEGAL
FORMALITIES REQUIRED FOR INCORPORATION
OF A COMPANY HAVE BEEN DULY FULFILLED

PREPARED BY: DR. S.K. DOGRA 277


CERTIFICATE OF INCORPORATION

I hereby certify that ……………………………………. (name of the


company) is this day incorporated under the Companies Act 1956, and that
the Company is limited.

Given under my hand at Delhi, this seventh day of June, two


thousand………………..

Fees: Stamp Deed Rs. ………………


Stamp Duty on Capital Rs. ………………
Sd/-
SEAL Registrar of Companies
Maharashtra

PREPARED BY: DR. S.K. DOGRA 278


EFFECTS OF CERTIFICATE OF INCORPORATION:
THIS IS THE CONCLUSIVE EVIDENCE THAT ALL
THE REQUIREMENTS OF THE COMPANIES ACT IN
RESPECT OF REGISTRATION HAVE BEEN
COMPLIED WITH. EVEN A COURT CANNOT
QUESTION THE VALIDITY OF INCORPORATION. IF
LATER ON, IT IS FOUND THAT THE OBJECTS OF
THE COMPANY WHICH HAD BEEN GRANTED A
CERTIFICATE OF INCORPORATION WERE ….

PREPARED BY: DR. S.K. DOGRA 279


….ILLEGAL, THE ONLY THE ONLY EFFECT WILL
BE THAT THE OBJECTS THE COMPANY CANNOT
BE LEGALLY EXECUTED. THE COURT HAS NO
POWER TO ANNUAL THE CERTIFICATE OF
INCORPORATION GRANTED TO A COMPANY.

PREPARED BY: DR. S.K. DOGRA 280


COMMENCEMENT OF BUSINESS

A PRIVATE COMPANY CAN COMMENCE BUSINESS


IMMEDIATELY AFTER INCORPORATION, BUT A
PUBLIC COMPANY, HAVING SHARE CAPITAL, HAS
TO COMPLY WITH SOME MORE FORMALITIES
BEFORE IT CAN COMMENCE BUSINESS. FIRST IT
MUST COMPLETE ALL FORMALITIES CONCERNED
WITH RAISING OF CAPITAL, ….

PREPARED BY: DR. S.K. DOGRA 281


…..SECOND, IT SHOULD ALLOT SHARES AND
APPLY TO THE REGISTRAR OF COMPANIES FOR
THE ISSUE OF CERTIFICATE OF COMMENCEMENT
OF BUSINESS. IN THIS CONTEXT, THE
FOLLOWING DECLARATIONS HAVE TO BE MADE:

PREPARED BY: DR. S.K. DOGRA 282


1. A DECLARATION THAT SHARES PAYABLE IN
CASH HAVE BEEN SUBSCRIBED FOR AND
ALLOTTED UPTO THE MINIMUM SUBSCRIPTION
MENTIONED IN THIS PROSPECTUS.

2. A DECLARATION THAT EVERY DIRECTOR HAS


PAID IN CASH, THE APPLICATION AND
ALLOTMENT MONEY ON HIS SHARES IN THE
SAME PROPORTION AS OTHER.

PREPARED BY: DR. S.K. DOGRA 283


3. A DECLARATION THAT NO MONEY IS PAYABLE
OR LIABLE TO BECOME PAYABLE TO THE
APPLICANTS BECAUSE OF THE FAILURE OF
THE COMPANY TO EITHER APPLY FOR OR
OBTAIN PERMISSION TO DEAL IN ITS
SECURITIES ON A STOCK EXCHANGE.

4. A STATUTORY DECLARATION THAT THE ABOVE


REQUIREMENTS HAVE BEEN COMPLIED WITH.
THE DECLARATION CAN BE SIGNED BY A
DIRECTOR OR SECRETARY OF THE COMPANY.
PREPARED BY: DR. S.K. DOGRA 284
A PUBLIC COMPANY RAISING FUNDS, WHICH HAS
EARLIER FILED A STATEMENT, IN LIEU OF
PROSPECTUS, HAS TO SUBMIT ONLY
DOCUMENTS (2) AND (4) LISTED ABOVE.

THE REGISTRAR SHALL EXAMINE THESE


DOCUMENTS. IF THESE ARE FOUND
SATISFACTORY, A ‘CERTIFICATE OF
COMMENCEMENT OF BUSINESS’ WILL BE
ISSUED….

PREPARED BY: DR. S.K. DOGRA 285


….THIS CERTIFICATE IS CONCLUSIVE EVIDENCE
THAT THE COMPANY IS ENTITLED TO DO
BUSINESS. WITH THE GRANT OF THIS
CERTIFICATE THE FORMATION OF A PUBLIC
COMPANY IS COMPLETE AND THE COMPANY CAN
LEGALLY START DOING BUSINESS.

PREPARED BY: DR. S.K. DOGRA 286


CERTIFICATE OF COMMENCE BUSINESS

IT IS ISSUED BY THE REGISTRAR TO A PUBLIC


COMPANY AFTER IT HAS SUCCESSFULLY RAISED
CAPITAL AND COMPLETED THE NECESSARY
FORMALITIES. THIS CERTIFICATE ENTITLES THE
COMPANY TO START IS BUSINESS OPERATIONS.

PREPARED BY: DR. S.K. DOGRA 287


IT IS A CONCLUSIVE EVIDENCE THAT THE
COMPANY IS ENTITLED TO DO BUSINESS FROM
THE DATE MENTIONED IN THE CERTIFICATE. THIS
ALSO MARKS THE COMPLETION OF THE PROCESS
OF FORMATION OF A PUBLIC COMPANY.

PREPARED BY: DR. S.K. DOGRA 288


CERTIFICATE OF COMMENCEMENT OF BUSINESS

I hereby certify that ……………………… Ltd. of ……………. Which was


incorporated under The Companies Act, 1956, on the ….. Day of ….. 20…
and which has this day filed a statutory declaration in the prescribed form
that the conditions of Section 149 have been complied with, is entitled to
commence business.

Given under my hand at………………this day of………….two


thousand………………..

Registrar
SEAL Joint Stock of Companies
Maharashtra

PREPARED BY: DR. S.K. DOGRA 289


VENTURE CAPITAL
VENTURE CAPITAL IS A GENERIC TERM USED TO
REFER TO FINANCING CHARACTERIZED BY HIGH
RISK AND POTENTIAL FOR SUBSTANTIAL
RETURNS. THE TERM IS MOST OFTEN USED TO
REFER TO THE SEED CAPITAL REQUIRED TO
LAUNCH NEW COMMERCIAL VENTURES AND TO
FINANCE THEIR EARLY-STAGE GROWTH.

PREPARED BY: DR. S.K. DOGRA 290


 VENTURE CAPITAL IS A SOURCE OF LONG-TERM FINANCE
TO PROVIDE EQUITY CAPITAL TO VENTURES ADOPTING
NEW TECHNOLOGY.

 THE MAIN OBJECTIVE OF VENTURE CAPITAL IS TO


PROVIDE EQUITY TO VENTURES USING NEW
TECHNOLOGY IN ORDER TO COMMERCIALISE THE
TECHNOLOGY AND DEVELOP NEW ENTREPRENEURS IN
SETTING UP NEW UNITS.

PREPARED BY: DR. S.K. DOGRA 291


 SUCH PROJECTS HOLD IMMENSE PROMISE FOR THE
ENTREPRENEURS WHO DO NOT HAVE ANY PAST
PERFORMANCE TRACK.

 THEREFORE, SOMETIMES THE INVESTMENTS MAY PROVE


A LITTLE RISKY.

 TO OBVIATE THIS RISK AND ATTRACT THE


ENTREPRENEURS, CONCESSIONAL TREATMENT HAS
BEEN ACCORDED TO THE INVESTMENT OF THIS NATURE
UNDER THE INCOME-TAX ACT.

PREPARED BY: DR. S.K. DOGRA 292


 THE SEBI HAS ISSUED SPECIFIC GUIDELINES FOR THE
SETTING UP AND GOVERNANCE OF SUCH FUNDS.

 VENTURE CAPITAL IS A HIGH RISK-HIGH RETURN


BUSINESS. THE HIGH RISK IS DUE TO THE FACT THAT
PROJECTS ARE UNTESTED AND ARE UNDERTAKEN BY
NOVICES.

 THE TARGETED LONG-TERM RETURNS FROM VENTURE


CAPITAL INVESTMENT ARE NATURALLY HIGH.

PREPARED BY: DR. S.K. DOGRA 293


 VENTURE CAPITAL INVESTMENT IS NECESSARILY A LONG
TERM INVESTMENT. THE FUNDS ARE USUALLY EXPECTED
TO BE TIED UP FOR THREE TO TEN YEARS.

PREPARED BY: DR. S.K. DOGRA 294


ROLE OF VENTURE CAPITAL
 THE FIRST GENERATION ENTREPRENEURS HAVE TO FACE
THE SHORTAGE OF EQUITY CAPITAL.

 BANKS AND FINANCIAL INSTITUTIONS GENERALLY


REQUIRE A SIZEABLE EQUITY CONTRIBUTION FROM THE
PROMOTER OF A PROJECT BEFORE THEY SANCTION
LOANS FOR IT.

 TECHNOCRATS AND SCIENTISTS WHO WANT TO SET


BUSINESS VENTURES CANNOT PROVIDE MUCH CAPITAL.

 VENTURE CAPITAL FUNDS PROVIDE THE MUCH NEEDED


CAPITAL TO THEM.

PREPARED BY: DR. S.K. DOGRA 295


 A HIGH DEGREE OF RISK IS INVOLVED IN VENTURE
CAPITAL FINANCING DUE TO THE HIGH PROBABILITY OF
LOSS IN NEW VENTURES.

 THE VENTURE CAPITAL FUNDS BEAR HIGH RISKS IN THE


HOPE OF A HIGH REWARD FROM THE SUCCESS OF THE
PROJECT.

 THE TECHNOCRAT PROMOTER CONTRIBUTES HIS IDEA


AND MAKES THE BUSINESS PLAN WHILE THE VENTURE
CAPITAL FUND CONTRIBUTES RISK CAPITAL AND
MANAGEMENT SUPPORT.

PREPARED BY: DR. S.K. DOGRA 296


 ONCE THE VENTURE SETTLES DOWN TO PROFITABLE
WORKING, BANKS AND RETAIL INVESTORS ARE WILLING
TO INVEST IN IT.

 AT THIS STAGE, THE VENTURE CAPITAL FUND CAN SELL


OUT ITS SHAREHOLDING IN THE ENTERPRISE.

PREPARED BY: DR. S.K. DOGRA 297


THE MAIN FEATURES OF VENTURE CAPITAL ARE AS
FOLLOWS:

 INVESTMENTS ARE MADE IN THOSE ENTERPRISES WHICH


ARE NEW AND USE NEW TECHNOLOGY TO PROVIDE NEW
PRODUCTS, HAVING AN EXPECTATION OF HIGHER
PROFITS.

 GENERALLY THE INVESTMENTS ARE IN EQUITY


INSTRUMENTS

 THE VENTURE CAPITAL INVESTMENT IS HIGHLY


ILLIQUID. IN OTHER WORDS, IT IS NOT SUBJECT TO
REPAYMENT ON DEMAND.

PREPARED BY: DR. S.K. DOGRA 298


 THE VENTURE CAPITAL INVESTOR CANNOT INTERFACE IN
THE DAY-TO-DAY MANAGEMENT OF THE ENTERPRISE BUT
TO PROTECT AND ENHANCE THE INVESTMENT, HE KEEPS
CLOSE CONTACT WITH THE ENTREPRENEUR(S) OR
PROMOTER(S).

PREPARED BY: DR. S.K. DOGRA 299


VENTURE CAPITAL IS AN IMPORTANT SOURCE OF EQUITY
FOR START-UP COMPANIES. AN ENTREPRENEUR STARTING
A NEW PROJECT WILL INVEST SOME CAPITAL OF HIS OWN
AND LOOK FOR SOME OTHER SOURCE TO RAISE REST OF
THE CAPITAL REQUIRED FOR THE PROJECT.

THAT SOURCE COULD BE A VENTURE CAPITALIST. IT IS


THE VENTURE CAPITALIST WHO TAKES THE RISK OF
CONTRIBUTING CAPITAL FOR SUCH PROJECTS WITH THE
EXPECTATION OF HIGHER RETURNS IN FUTURE.

PREPARED BY: DR. S.K. DOGRA 300


A VENTURE CAPITAL INSTITUTION MAY EVEN INSIST ON
HAVING A REPRESENTATIVE APPOINTED TO THE
COMPANY’S BOARD OF DIRECTORS TO TAKE CARE OF ITS
INTERESTS.

PREPARED BY: DR. S.K. DOGRA 301


VENTURE CAPITAL FUNDING IS A BOOM TO THE FIRST
GENERATION ENTREPRENEURS WHO START VENTURES
HAVING GREAT POTENTIAL. FOR DECADES, VENTURE
CAPITALISTS HAVE NURTURED THE GROWTH OF AMERICAN
HIGH TECHNOLOGY AND ENTREPRENEURIAL
COMMUNITIES RESULTING IN SIGNIFICANT JOB CREATION,
ECONOMIC GROWTH AND INTERNATIONAL
COMPETITIVENESS. COMPANIES SUCH AS DIGITAL
EQUIPMENT CORPORATION, APPLE, FEDERAL EXPRESS,
COMPAQ, SUN MICROSYSTEMS, INTEL, MICROSOFT AND
GENETECH ARE FAMOUS EXAMPLES OF COMPANIES THAT
RECEIVED VENTURE CAPITAL DURING INITIAL STAGES.

PREPARED BY: DR. S.K. DOGRA 302


VENTURE CAPITAL FUNDS IN INDIA
IN INDIA, VENTURE CAPITAL FUNDS ARE GOVERNED BY
THE SEBI GUIDELINES. A VENTURE CAPITAL FUND MEANS
A FUND ESTABLISHED IN THE FORM OF A COMPANY OR
TRUST, WHICH RAISES MONEY THROUGH LOANS, ISSUE OF
SECURITIES OR UNITS, AND MAKES OR PROCESSES TO
MAKE INVESTMENTS IN ACCORDANCE WITH SEBI
REGULATIONS.

VENTURE CAPITAL FUNDS PROVIDE VENTURE CAPITAL FOR


INDUSTRIES LIKE INFOTECH, BIOTECHNOLOGY AND
ELECTRONICS.

PREPARED BY: DR. S.K. DOGRA 303


THE INVESTMENT, HOWEVER, IS A LONG-TERM RISK

CAPITAL AS SUCH PROJECTS NORMALLY TAKE 3 TO 7

YEARS TO GENERATE SUBSTANTIAL RETURNS. VENTURE

CAPITALISTS OFFER ‘MORE THAN MONEY’ TO THE NEW

VENTURE AND SEEK TO MONITOR AND EVALUATE THE

PROJECT ON A CONTINUOUS BASIS.

PREPARED BY: DR. S.K. DOGRA 304


THE SUPPLIERS OF VENTURE CAPITAL USUALLY FALL IN
THESE CATEGORIES:

A. SUBSIDIARIES OF LARGE FINANCIAL CORPORATIONS


(INSTITUTIONS) AND BANKS

B. PRIVATE INDEPENDENT SPECIALIZED FIRMS

C. PUBLICLY FUNDED SMALL BUSINESS INVESTMENT


CORPORATIONS

D. SUBSIDIARIES OR DIVISIONS OF LARGE


MANUFACTURING CORPORATIONS

PREPARED BY: DR. S.K. DOGRA 305


IN THE RECENT YEARS, SEVERAL VENTURES CAPITAL
FUNDS (VCFS) HAVE COME UP IN INDIA TO PROVIDE
VENTURE CAPITAL TO THE YOUNG ENTREPRENEURS.

WAY BACK IN 1988-89, THE UTI SET UP A VCF OF RS.20


CRORE IN COLLABORATION WITH THE ICICI FOR
FOSTERING INDUSTRIAL DEVELOPMENT.

TECHNOLOGY DEVELOPMENT AND INFORMATION COMPANY


OF INDIA LTD. (TDICI) ESTABLISHED BY THE UTI LAUNCHED
VENTURE CAPITAL UNIT SCHEME (VECAUS-I) TO RAISE
RESOURCES FOR THIS FUND.

PREPARED BY: DR. S.K. DOGRA 306


SOME COMMERCIAL BANKS HAVE ALSO FLOATED VCFS.
RECENTLY, SOME VCFS IN THE PRIVATE SECTOR HAVE
ALSO BEEN FLOATED.

PREPARED BY: DR. S.K. DOGRA 307


DOCUMENTATION REQUIRED
FOR PROVING FINANCES FOR A NEW VENTURE ANY
FINANCIAL INSTITUTION OR INVESTOR NEEDS DETAILED
INFORMATION IN THE FORM OF DIFFERENT DOCUMENTS.

THE INVESTOR NOT ONLY GOES THROUGH THESE


VOLUMINOUS DOCUMENTS, BUT ALSO CROSS CHECKS BY
ASKING MORE RELEVANT DETAILS, COMPARING WITH
SIMILAR INDUSTRIES, DISCUSSIONS AND DUE DILIGENCE
OF THE DOCUMENTS, FIGURE AND ASSUMPTIONS MADE B
THE ENTREPRENEUR.

PREPARED BY: DR. S.K. DOGRA 308


THE DOCUMENT GENERALLY NEEDED ARE:

 PROJECTS FEASIBILITY STUDY REPORT (PFSR)

MARKET RESEARCH STUDY REPORT AND ANALYSIS

ENVIRONMENT AND SOCIAL STUDY REPORTS

ANALYSIS AND APPRAISAL OF PFSR FROM ECONOMIC,


FINANCE, MARKETING, ORGANSATIONAL ANGLES.

SWOT ANALYSIS OF THE PROJECTS

A BRIEF OF THE PROJECT OR PROJECT AT A GLANCE.

PREPARED BY: DR. S.K. DOGRA 309


EXECUTIVE SUMMARY

LAND DOCUMENTS

PARTNERSHIP OR PROPOSED ORGANISATION

NECESSARY GOVERNMENT CLEARANCES FOR THE


VENTURE

ENVIRONMENTAL CLEARANCES

PLUS POINTS OF THE VENTURE PROPOSED

NEGATIVE OR LIMITING ISSUES IN THE PROPOSAL

PREPARED BY: DR. S.K. DOGRA 310


SOURCES OF VENTURE CAPITAL AND CRITERIA
TO PROVIDE VENTURE CAPITAL FINANCE
 For starting a high-risk and high-return project,
venture capital is instrumental and thus,
entrepreneurs search for the sources from which
venture capital can be obtained.
 Due to liberalization and privatization in the economy,
a number of companies have established venture
capital divisions to assist the entrepreneurs.
 Though initially the major players in this field were
financial institutions all over India, subsequently
others also have followed them.

PREPARED BY: DR. S.K. DOGRA 311


The important funds and the schemes by which the
venture capitalists in our country provide financial
assistance can be depicted as follows:
1. Programme for Advancement of Commercial
Technology (PACT): The first venture capital funding
in India was USAID’s Programme for Advancement of
Commercial Technology which started in 1955 to provide
finance to Indian firms in commercializing the
innovative technologies by Indo-US joint ventures.

PREPARED BY: DR. S.K. DOGRA 312


2. Technology Development and Investment
Corporation of India (TDICI): This was the first venture
capital company of India and was promoted by ICICI in 1986. The
following are the salient features of its scheme:
(a) TDICI invests in companies with high earning and growth
potential.
(b) The scheme spearheads towards assisting entrepreneurs
involved in manufacturing products which are commercially
viable by indigenously developed or ultramodern yet untested
technologies on commercial scale.
(c) The financial assistance may be up to Rs 2 crores in the form of
equity or conditional loan and the equity would be held for a
period of 5-8 years and then either sold to the promoter or
disposed in the secondary market.
(d) The most important aspect of this type of assistance is in the
developmental phase, the conditional loan would carry no
interest, but after this period, the interest rate would depend
upon the effectiveness of the project.
PREPARED BY: DR. S.K. DOGRA 313
3. Risk Capital and technology Finance
Corporation (RCTFC): This institution is an
independent body launched by Industrial
Finance Corporation of India (IFCI) to enhance
the purview of venture-capital operations. It
assists the entrepreneurs especially those who
engage themselves in technological
development.

PREPARED BY: DR. S.K. DOGRA 314


4. Venture capital scheme of IDBI: IDBI’s venture
capital fund has been set up with an initial corpus of Rs
10 crores. This scheme of IDBI has been emerging as
major source of venture-capital funding. Its aims are the
following:
(a) It is designed especially to assists projects which
promote new and untested technologies in Indian
conditions.
(b) The funding amount may vary between Rs 5 lakhs
and Rs 250 lakhs which includes both capital and
operating expenses.
(c) This part of funding is usually 80 to 90 % of the total
project cost.
(d) The assistance may be in the form of equity or loan.
PREPARED BY: DR. S.K. DOGRA 315
(e) The equity component carries a service charge of 1%
while the loan component carries an interest of 6% in
the development phase and 14% thereafter.
(f) It enjoys a 3-year moratorium period and is repayable
in about 10 years.
(g) If the project does not succeed, IDBI can insist on
transfer of technology to some other promoter or the
entrepreneur who is interested to take over the firm on
mutually agreeable terms.

PREPARED BY: DR. S.K. DOGRA 316


Apart from the above organizations, the following are
some of the players in the venture capital finance in the
country:
(a) ANZ Grindlays Bank
(b) Credit Capital Venture Fund (India) Ltd.
(c) 20th Century Venture Capital Corporation
(d) APIDC Venture Capital Ltd
(e) Canbank Venture Capital Fund
(f) Gujarat Venture Finance Ltd
(g) Industrial Development Bank of India
(h) IL and FS Venture Corporation
(i) SBI Capital Venture Fund
(j) SIDBI Venture Capital Fund
(k) Pardeshiya Industrial And Investment Corporation of
Uttar Pardesh Ltd (PICUP)
PREPARED BY: DR. S.K. DOGRA 317
Criteria adopted by venture capitalists to provide
venture capital finance: The following criteria are
adhered to by the venture capitalists while making
investment decision:
(a) The integrity, business acumen and the entrepreneurial
spirit of the management team as the most important factors
(b) The track record of the entrepreneur and his
management team
(c) The technical feasibility and commercial viability of the
project, process or service
(d) Large and rapidly-growing market opportunity
(e) Competitive advantage in terms of price or cost
(f) Potential for adequate profitability and attractive returns
over a period of four to seven years.
PREPARED BY: DR. S.K. DOGRA 318
Entrepreneurial Development Programmes
(EDPs)
 EDPs meant for the development of Entrepreneurs as
they are the agents of Economic Growth.
 E.D is a process in which persons are prepared to face
business uncertainties and risks, with proper
education, training, motivation, orientation etc.
 EDP means inculcating Entrepreneurial Traits in a
person, imparting the required knowledge, developing
the technical, financial, marketing and managerial
skills and building the entrepreneurial attitude.

PREPARED BY: DR. S.K. DOGRA 319


OBJECTIVES OF EDPs
 To identify Potential Entreps.
 Develop necessary knowledge, skills, Entrepreneurial
Qualities and Motivation among participants.
 Select Products & Projects.
 Formulate Project Reports.
 Understand process of setting up of business/analyse
business Environment.
 Provide gainful Self-Employment to educated youth.
 Train the Entreps to understand environmental threats
& opportunities.
 Train the Entreps to take strategic decisions to survive
and grow in the competitive world.
PREPARED BY: DR. S.K. DOGRA 320
ROLE & CONTRIBUTIONS OF EDPs
 EDPs create Entreps who are able to establish
small & micro Enterprises which require lower
funds and few employees only.
 Great role in increasing the supply of new Entreps.
To accelerate the process of industrialisation
 EDPs have been playing an important role in
speeding up the process of Economic.
development in the following ways:

PREPARED BY: DR. S.K. DOGRA 321


1. Elimination of unemployment & Poverty
 Self Employment and own careers.
 Will also give employment to others.

2. Balanced Regional Development


 Small industries in remote areas with meagre
financial resources
 Leading to balanced regional development
 Provide Employment to large No. of people in
rural/backward areas.

PREPARED BY: DR. S.K. DOGRA 322


3. Utilisation of Local Resources
 Small Entreps. allow the country utilize local
resources.
4. Prevention of slums in Urban areas:-
 Big cities highly congested giving rise to industrial
slums.
 EDP-Progressive step towards removal of
industrial slums as Entreps. trained, incentives
given for backward regions.

5. Defusion of tensions among youth


EDPs divert talent of the youth to Self-Employment
careers to help the country in defusing social
tension and unrest.
PREPARED BY: DR. S.K. DOGRA 323
ROLE OF GOVT. AND PROMOTIONAL AGENCIES IN
ENTREPRENEURSHIP DEVELOPMENT IN INDIA

 The Central and State Govts, b0th play an


important role in the development of
small/medium enterprises
 Govt. set up a number of development Institutions
to support Entreps.
 Govt. gives concessions & Incentives and Tax
benefits like Tax holiday.

PREPARED BY: DR. S.K. DOGRA 324


The following Institution/Promotional agencies
assist Entreps in India
1. Small Scale Industries Board:-
 Established in 1954 to advise on development of
small scale industries.
 Renders advice to the Govt. on all issues pertaining
to development of SSIs.
2. State Small Industries Corps:-
 Set up by State Govts to undertake commercial
activities like distribution of scarce raw-materials,
supply of machinery on hire-purchase basis, mgt.
of industrial estates, procuring orders from Govt.
depts. helps in export marketing.
PREPARED BY: DR. S.K. DOGRA 325
3. Small Industries Development Corp. (SIDCo)
 Helps small scale sector, makes provision of
constructed sheds/plots, in Industrial estates and
sell to Entrps. on hire purchase basis or rental
basis.
 Assists in procuring scarce raw material,
marketing assistance, financial assistance in the
form of subsidies.
4. Small Industries Service Institutes (SISI)
 Provide consultancy and training to small Entreps.
 Render technical support services, conduct EDPs,
trade & market informations, project profiles,
conduct of surveys.

PREPARED BY: DR. S.K. DOGRA 326


5. Dist. Industries Centres(DICS)
 Provide integrated administrative framework at
district level.
 Single window interacting agency with Entrp.
 Implementing arm of central/state
Govt. for various schemes & programmes
 Mainly promotional & development role.
 Guide Entreps to select right machinery,
equipments.
 Appraise various proposals received from Entreps.
 Help in marketing their products.

PREPARED BY: DR. S.K. DOGRA 327


6. Industrial Estates:-
 Planned clustering of industrial units, offering
standard factory pilots, buildings and variety of
services/facilities.
 To encourage development of small scale/medium
industries, decentralization of industry and
removing congestion in big cities, develop
ancillary units etc.
7. National Small Industries Corp. (NSIC)
 Set up in 1955 to develop small scale industries
 Provide Machinery on hire purchase, export
marketing, distribute raw materials, up-gradations
of technology, impart trg. in various industrial
trades etc.
PREPARED BY: DR. S.K. DOGRA 328
8. Entrepreneurial Guidance Bureau:-
 Guide Entreps. in identifying investment
opportunities, help them in selecting locations or
projects, assisting them to get financial assistance.

9. National Alliance of young Entreps. (NAYE)


 With the help of PSU banks, young Entreps.
helped to identify investment & self-employment
opportunities, making arrangements for their
training, provide financial assistance.

PREPARED BY: DR. S.K. DOGRA 329


10. Small Industry Extension Trg. Institute:-
 Provide consultancy to state Govts. and
development corps. to support industrial activities.

11. National Productivity Council (NPC):-


 Consultancy package to small industries, train
young Entreps, undertake market surveys for
identify investment opportunities
 Help enterprises improving their level of
productivity by training, help in mkt. studies.

PREPARED BY: DR. S.K. DOGRA 330


12. Khadi & Village Industries Comm. (KVIC):-
 Set up in 1953, to develop khadi & village industries
and improve rural employment.
 Training artisans, procurement of Raw material,
making of finished goods, distribution of improved
tools.
13. National Institute of Entrepreneurship & Small
Business Development:-
 Set up in 1983, national level institute to co-ordinate
research and training in Entrep. Development and to
impart specialized trg. to various categories of Entreps.
 Arrange exchange of view between various agencies.

PREPARED BY: DR. S.K. DOGRA 331


PHASES OF EDP
The EDPs normally pass through following three important
phases:
1. Pre-training phase
2. Training phase
3. Post-training or follow-up phase
1. Pre-training phase: This phase is the preparatory phase for
launching the programmes. It includes a number of activities,
which are as follows:
(i) Identification of operationally-promising area, normally a
district
(ii) Selection of a project leader/course coordinator to coordinate
the programme
(iii) Arrangement of infrastructural facilities for the programme
(iv) Undertaking potential industrial survey/environmental
scanning for identification of good business opportunities

PREPARED BY: DR. S.K. DOGRA 332


(v) Planning the programmes on various fronts such as:
(a) Promotional campaigns through publicity either
with the help of print or electronic media, leaflets,
posters, etc.
(b) Establishing contacts with business personalitie,
NGOs and related agencies which can contribute to
the programme both directly and indirectly
(c) Getting the application forms printed and making
them available at different centres alongwith
instructions.
(d) Forming selection committee for selecting the
trainees
(e) Preparing the budget, obtaining administrative
sanctions and organizing other activities which form
a part of EDP
PREPARED BY: DR. S.K. DOGRA 333
(f) Preparing and finalizing the need-based inputs in
training syllabus and to tie up with guest faculties to
impart training
(vi) Contacting the support agencies like DICs, SFCs,
MSME, banks, NSIC, District Magistrate, etc. to receive
support in implementing the programme
(vii) Organizing industrial motivational campaigns to
mobilise as many number of applications as possible
In fine, pre-training stage involves selection of potential
entrepreneurs and arrangement of facilities for
imparting training to the participants in the best
possible manner.

PREPARED BY: DR. S.K. DOGRA 334


2. Training phase:
 Training potential entrepreneurs and providing
them proper guidance for setting up enterprises
constitute the cornerstone of EDP.
 Most of the ED institutes generally conduct
training programmes of 4-6 weeks duration on full
time basis.
 The programmes are designed in terms of
objectives, training inputs and their focus on
enterprise management, first hard knowledge of
factory layout, business sites etc.

PREPARED BY: DR. S.K. DOGRA 335


3. Post-training phase :
 Post-training phase is otherwise known as the phase of
follow-up support.
 During this phase, post-training support services are
rendered to the participants who have successfully
completed the Entrepreneurship Development
Programme (EDP).
 This is because of the fact that, very often, the
potential entrepreneur after undergoing the training
confronts a number of problems while implementing
the action plan for grounding the project.
 In this phase, the training organization helps the
entrepreneur in sorting out the problems through
counseling support.

PREPARED BY: DR. S.K. DOGRA 336


A committee is formed consisting of members
generally drafted from the leading bank of the
district, State Financial Corporation, training
organization and above all, the District Industries
Centre to help the entrepreneurs with the following
objectives during the follow-up:
 To provide a meaningful direction to the trainees
in grounding their enterprise
 To review the progress made by the trainees in
implementation of the project

PREPARED BY: DR. S.K. DOGRA 337


 To review the post-training approach
 To provide escort services to the trainees by
involving financial institutions and promotional
agencies.

Follow-up action meetings are organized thrice a year


after the completion of training and the following
methods are generally used for follow-up:
(a) Postal questionnaire
(b) Telephone follow-up
(c) Personal contact by the trainer
(d) Group meetings

PREPARED BY: DR. S.K. DOGRA 338


EDP Course Sample

PREPARED BY: DR. S.K. DOGRA 339


ROLE OF ENTREPRENEURS IN THE ECONOMIC
GROWTH OF A COUNTRY
i) AS AN INNOVATOR
 They commercialize the inventions made by inventors, to
produce better goods to yield both satisfaction and profits.
 Converts technical work of the inventor into economic
performance
 Innovational activities raise the productive efficiencies of the
economy resulting in greater output / income.
 Have to be innovative for survival and better performance, to
solve all the problems of business.
 All the resources combined by him.

PREPARED BY: DR. S.K. DOGRA 340


II) BALANCED REGIONAL DEVELOPMENT OF
INDUSTRIES:-
 Growth of Industry and Business leads to large number
of public benefits like road transport, health, education,
entertainment.
 Rapid Development of Entrepreneurship ensures
balanced regional development. e.g. builders making
townships and shopping malls in many places in the
country.
 Competition in big cities force the entrepreneurs to
setup business in small towns, helping development of
backward areas.
 Small scale industries found everywhere requiring
meagre resources.
PREPARED BY: DR. S.K. DOGRA 341
III ) FOREX EARNINGS:-

 By exports, bring foreign exchange for the country,


enabling it to handle imports bills.

 Foreign exchange reserves for any country improve the


financial standing of the economy.

PREPARED BY: DR. S.K. DOGRA 342


IV) AUGMENTING AND MEETING LOCAL DEMAND:-

 Entrep. help in meeting wide variety of demand for


goods/services.
 Need for new goods, products also get created by
them, by many methods of promotion, education etc.
 Many times in backward areas and states,
entrepreneurs from other places come and start a
business thus harnessing local resources, found
abundantly and fulfill local as well as national
demand.

PREPARED BY: DR. S.K. DOGRA 343


Generation of Employment Opportunities:-
 Provide large scale employment to the unemployed by
creating more and more small, medium and large scale
business organizations.
 As enterprise grow they provide direct and indirect
employment to large no. of people.
 Effective role in reducing unemployment.
 Small business units create more jobs than large ones.
 Small, young, high technology business units create new
jobs at a much faster rate than large, older business
units.
 When existing units increase their production capacity,
more employment opportunities are created.
 Goods made by the entrepreneurs require services of
traders, transport, warehousing, advertising which
results in more employment.
PREPARED BY: DR. S.K. DOGRA 344
Complementing and supplementing economic
growth:-
 Entrepreneurs efforts for doing business motivate investors
to divest their idle savings towards buying shares
debentures, etc.
 Do not depend upon Govt or private jobs and directly
employ themselves by starting their own ventures, help
reducing unemployment.
 By taking the benefit of Govt concessions, subsidies
Entreps lead to balanced regional development.
 Setting up of large number of enterprises help in
weakening the evil effects of monopolies.
 Initiatives of Entreps in setting up new ventures help in
removing Entreps of essential goods.
 Large scale production of goods help in offering goods at
low cost, thus increasing the purchasing power of
consumers. PREPARED BY: DR. S.K. DOGRA 345
Bringing about Social Stability:-
 Although large enterprises lead to concentration of
ecomine power, developing a large number of small
enterprises help in even distribution of economic power,
ultimately bringing about social stability.
 Entrepreneurs also bring social stability by generating self
employment and facilitating development of rural and
backward areas.
 More and more employment provided by enterprises
provide respectable life to people and they become more
productive.
 Consumers are provided all goods and services required by
them and their living standards go up.
 By running productive ventures, entrepreneurs help in
increasing the national and per capita income.
PREPARED BY: DR. S.K. DOGRA 346
Role in Export Promotion and Import
substitution:-
 Promote country’s export trade by producing goods and
services in large quantity for the purpose of exports.
 Enpreps contribute to national self-reliance
 Help in manufacturing indigenous substitutes to imported
products which reduces the dependence on foreign
countries.
 Export of goods and services by exporters lead to earning
more and more foreign exchange for our country.
 Both import substitutions and export promotions lead to
self-reliance of the economy.

PREPARED BY: DR. S.K. DOGRA 347