Entrepreneurship Development PCP8H001 PDF

3/13/2019 Entrepreneurship
Development
B.Tech, Semester VIII
A Chiranjibi Rambabu Achary

GIMS, GUNUPUR
Entrepreneurship Development
Module I
Entrepreneurship -- Introduction
Entrepreneurial development today has become very significant; in view of its being a key to
economic development. The objectives of industrial development, regional growth, and
employment generation depend upon entrepreneurial development.
Entrepreneurs are, thus, the seeds of industrial development and the fruits of industrial
development are greater employment opportunities to unemployed youth, increase in per
capita income, higher standard of living and increased individual saving, revenue to the
government in the form of income tax, sales tax, export duties, import duties, and balanced
regional development.
Concept of Entrepreneurship
The word ―entrepreneur‖ is derived from the French verb enterprendre, which means ‗to
undertake‘. This refers to those who ―undertake‖ the risk of new enterprises. An enterprise is
created by an entrepreneur. The process of creation is called ―entrepreneurship‖.
Entrepreneurship is a process of actions of an entrepreneur who is a person always in search

of something new and exploits such ideas into gainful opportunities by accepting the risk and
uncertainty with the enterprise.
There are fundamentally two different types of entrepreneurship.
Small Medium Enterprise entrepreneurship (SME): These are fundamentally small

companies and stay small. Their focus is local market. They opted services businesses. They
usually grow for some time extent but tabbed out of the market due to lack of innovation.
Examples: dry cleaner, restaurant etc.
Innovation driven Enterprise entrepreneurship (IDE): This one is looking for the global
market. It required more cash to start the business. Therefore there is a negative cash flow at
the beginning of the business. It involves lot of risk. Companies of this type may not make it;
but if they make it, they will grow exponentially.
A CHIRANJIBI RAMBABU ACHARY

ASST. PROFESSOR
DEPARTMENT OF MBA, GUNUPUR 1
Intrapreneurship
Intrapreneurs are not entering into their own, work venture, but they are working within a
company, thus the ―intra‖ part. It is the act of behaving like an entrepreneur while working
within a large organization.
An intrapreneur (also referred to as inside entrepreneur) is an employee within an

organization who has certain entrepreneurial skills and who is given the responsibility and
authority to use those entrepreneurial skills to develop a new product without incurring the
risks associated with it.
As intraprenuers are self-motivated, free thinkers, they can transform your startup more
quickly than others can. Therefore you need to hire intrapreneurs in case are you looking to
scale up your startup.
Example:
Google
Gmail was developed by one of the intrapreneurs in Google, Paul Buchheit, who worked on
this project for 4 years till its launch on April 1, 2004.
Sony:
The PlayStation as we know it is the brainchild of an intrapreneur in Sony. Ken Kutaragi, an

employee of Sony, wanted to make a better version of the Nintendo console and came up
with the idea of the PlayStation which was recognized and rewarded by the CEO of the
company.

ASST. PROFESSOR
Difference between an Entrepreneur and an Intrapreneur
Entrepreneur Intrapreneur
Entrepreneur is free and the leader of the Intrapreneur is an employee

operation.
An entrepreneur himself raises funds required Funds are not raised by the intrapreneur.
for the enterprise.
Bears all types of risk. Bears moderate risk
Operates from outside the organization. Operates from inside the organization.
Independent decisions to execute dreams. Collaborative decisions to execute dreams.
Types of Entrepreneurs
 Classification by Clarence Danhof
 Innovating Entrepreneurs: is one who introduces new goods, inaugurates

new methods of production, exploit new source of material, discover new
market and reorganizes the enterprise.
 Imitative or Adoptive Entrepreneurs: readiness to adopt successful

innovation inaugurated by innovating entrepreneurs.
 Fabian Entrepreneur: They are very cautious and skeptical in adopting and
implementing any change. They avoid risks and tend to follow their
predecessors.
 Drone Entrepreneurs: they continue to operate in their traditional way and

resist changes. When their product loses marketability, they are pushed out of
market.

ASST. PROFESSOR
 On the Basis of type of Business
 Business entrepreneurs: Who start business units after developing ideas for
new products/services?
 Trading entrepreneurs: Who undertake buying & selling of goods, but not
engage in manufacturing.
 Corporate entrepreneurs: Who establish and manage corporate form of

organization which have separate legal existence.
 Agricultural entrepreneurs: Who undertake activities like raising and

marketing of crops, fertilizers and other allied activities?
 On the Basis of use of Technology
 Technical entrepreneurs: Who are task oriented and ‗craftsman type‘? They
prefer doing to thinking. They concentrate more on production than on
marketing.
 Non-technical entrepreneurs: Who are not concerned with technical side,

but rather with marketing and promotion?
 Professional entrepreneurs: Who start a business unit, but later sell the
running business and start a new unit later.
 On the Basis of Motivation
 Pure entrepreneurs: Who are basically motivated to become entrepreneurs

for their personal satisfaction, ego etc.
 Induced entrepreneurs: Who are induced to take up entrepreneurial role by

the assistance and policy of government including incentives, subsidies etc.
 Motivated entrepreneurs: They are motivated by the desire to make use of

their technical and professional expertise and skills.
 Spontaneous Entrepreneurs: They are motivated by their desire for self-

employment and to achieve or prove their excellence in job performance. They
are natural entrepreneurs.

ASST. PROFESSOR
 On the Basis of Stages of Development
 First generation entrepreneurs: Who do not possess any entrepreneurial

background? They start industry by their own innovative skills.
 Second generation entrepreneurs: Who inherit the family business and pass
to next generation.
 Classical entrepreneurs: Who aims to maximize his economic returns at a

level consistent with the survival of the unit with or without an element of
growth?
 According to Gender
 Women entrepreneurs: It may be defined as a woman or group of women who

initiate, organise and run a business enterprise. Government of India has defined
women entrepreneurs as owning and controlling an enterprise with a woman
having a minimum financial interest of 51% of the capital and giving at least 51%
of the employment generated in the enterprise to women
 According to Area
 Urban entrepreneurs: They belong to urban areas and establish their

business in the same location to avail the regional advantages. These types of
entrepreneurs are mostly corporate or industrial entrepreneurs.
 Rural entrepreneurs: Rural entrepreneurs are usually involved in trading or

agricultural activities. They belong to rural areas and establish their business
in the same location. Various government assistance are provided to the rural
entrepreneurs to encourage and accelerate such activities.
 Others
 Social entrepreneurs: A person who establishes an enterprise with the aim of

solving social problems or effecting social change. They builds strong and
sustainable organizations, which are either set up as not-for-profits or
companies.

ASST. PROFESSOR
Nature & Characteristics of Entrepreneurship
1. Innovation: Entrepreneurship is a creative activity. An entrepreneur is basically an

innovator who introduces something new in the economy.
2. High Achievement: People having high need for achievement are more likely to
succeed as entrepreneurs. The achievement motive is, by assumption a relatively
stable enduring characteristic of an individual. Achievement motive can be increased
by deliberate efforts.
3. Managerial Skill and Leadership: Managerial skills and leadership are the most
important facets of entrepreneurship. A person who is to become an industrial
entrepreneur must have more than the drive to earn profit. He must have the ability to
lead and manage.
4. Organization Building: Organization building ability is the most critical skill

required for industrial development. This skill means the ability to ‗multiply oneself‘
by effectively delegating responsibility to others.
5. Status Withdrawal: An entrepreneur is a creative problem solver interested in things

in practical and technological realm. He feels a sense of increased pleasure when
facing a problem and tolerates disorder without discomfort.
6. Group Level Pattern: Entrepreneurial activity is generated by the particular family

background, experience as a member of certain groups and as a reflection of general
values.
Importance of Entrepreneurship
1. Promotes Capital Formation
Entrepreneurs promote capital formation by mobilizing the idle savings of public.

They employ their own as well as borrowed resources for setting up their enterprises.
Such type of entrepreneurial activities lead to value addition and creation of wealth,
which is very essential for the industrial and economic development of the country.

ASST. PROFESSOR
2. Creates Large-Scale Employment Opportunities
Entrepreneurs provide immediate large-scale employment to the unemployed which is

a chronic problem of underdeveloped nations. With the setting-up of more and more
units by entrepreneurs, both on small and large-scale numerous job opportunities are
created for others.
3. Promotes Balanced Regional Development
Entrepreneurs help to remove regional disparities through setting up of industries in

less developed and backward areas. The growth of industries and business in these
areas lead to a large number of public benefits like road transport, health, education,
entertainment, etc. Setting up of more industries lead to more development of
backward regions and thereby promotes balanced regional development.
4. Reduces Concentration of Economic Power
Economic power is the natural outcome of industrial and business activity. Industrial
development normally lead to concentration of economic power in the hands of a few
individuals which results in the growth of monopolies. In order to redress this
problem a large number of entrepreneurs need to be developed, which will help
reduce the concentration of economic power amongst the population.
5. Increasing Per Capita Income
Entrepreneurs are always on the lookout for opportunities. They explore and exploit
opportunities, encourage effective resource mobilization of capital and skill, bring in
new products and services and develops markets for growth of the economy. In this
way, they help increasing per capita income of the people in a country.
6. Improvement in the Standard of Living
Entrepreneurs play a key role in increasing the standard of living of the people by
adopting latest innovations in the production of wide variety of goods and services in
large scale that too at a lower cost. This enables the people to avail better quality
goods at lower prices which results in the improvement of their standard of living.
ASST. PROFESSOR
7. Promotes Country's Export Trade
Entrepreneurs help in promoting a country's export-trade. They produce goods and

services in large scale for the purpose earning huge amount of foreign exchange from
export in order to combat the import dues requirement.
8. Augmenting and meeting local Demands
Entrepreneurs also play a significant role in augmenting local demands and meeting
them squarely. Towards this, entrepreneurs focus their attention to
manufacture/service through indigenous technology, local skill, local resources and
local experiences.
Entrepreneurial Skills
Running a company may be a challenging task, but starting a business requires patience,
knowledge, and nerves. Due to a lack of experience, first-time entrepreneurs are an especially
vulnerable group − there is a long way to success with many ups and downs.
Beside doing research and developing an adequate marketing strategy, each entrepreneur
should work on acquiring and strengthening some crucial traits and skills that will help them
gain more business success.
1. Organization Skills
Starting and running a business isn‘t something you can do on the spur of the moment – it
takes careful planning, goal setting, scheduling, and execution.
Before you do anything, there are certain questions you need to consider, which include
evaluating your experience and resources, as well as researching the market.
All of the above cannot be done unless you develop strong organizational skills. This means
you need to set clear and attainable goals, plan every step, prioritize tasks, meet deadlines,
manage time, and try not to stray from your path. Consider making a business plan and
writing everything down as this will help you immensely.

ASST. PROFESSOR
2. Communication Skills
Being a great entrepreneur means being people-oriented and having good communication
skills – along the way, you will surely need to communicate with business partners,
employees, and customers.
The way you communicate will determine your future success, so you need to know both
how to convey a message and how to respectfully listen to others. This is the only way to win
people over and earn their trust, so make sure you always communicate clearly and pay
attention to what others are saying.
3. Confidence
To lead employees and build relationships with partners and clients, you need to act with
confidence. This doesn‘t mean you should be strict and arrogant, but you do need to have
faith in both yourself and your own abilities.
While listening is important, you must also have the confidence to speak your mind honestly.
People sometimes act irrationally or will make decisions you do not agree with. Learn how to
say no with confidence. Being open, assertive, and confident will also make you appear more
trustworthy.
Nobody has all the answers, but there are people who are confident enough to pretend that
they do. The phrase ―Fake it 'til you make it‖ is applicable in this situation.
4. Commitment to Learning
Learning is a never-ending process. We must all continue to try to evolve, learn new things,
and continually improve ourselves. Head to the library, read a new blog, attend a seminar, or
watch a new documentary. Learning will help you and your business continue to grow.
Stay on top of all the new innovations and developments occurring in your line of business.
Learn from the people who are already successful in your field. Send an email or call an
industry leader. Speak to them, ask them for advice, and listen to all they have to share. As
important as it is to stay up to date with information about your industry, you must also take
an interest in other things as well. Insight can be found anywhere.

ASST. PROFESSOR
5. Creative Thinking
You have heard it before but, in order to be a successful entrepreneur, you must learn how to
think outside the box. Creativity is an often underappreciated skill in the business world;
however, it is absolutely necessary for innovation and progress to occur.
Practice this not only in work but also in your life, as including creative changes into your
everyday life will help you to be more creative in your business. Try changing the layout of
your office, talking to new people, or eating new foods. Always set new goals to try to
continually improve yourself!
6. Courage
It takes a certain amount of courage to do anything, especially when you are putting yourself
out there with a new business.
In order to be successful, you have got to have guts. Bravery is necessary not only to make
choices but also enact them. Not every decision you make will be cut and dry. You will often
be unsure, but it is crucial to be brave and confident. As John Burroughs once said, ―Leap and
the net will appear.‖
If you are brave, determined to succeed and enthusiastic, your coworkers and customers will
look up to you. Properly reflecting a positive attitude will help you deliver your services with
much greater success.
7. Tenacity
Tenacity is the persistence to never give up, even in the face of adversity.
This is an incredibly important skill to have. Let‘s face it, certain failures are inevitable,
mistakes will be made, and a good entrepreneur needs to know how to handle them. Patience
is a vital aspect of tenacity. There is no such thing as an overnight success. You need to be
prepared for the slow movements of the business world.
Of course, there will be setbacks. It is only human to experience guilt, fear, self-doubt, and
criticism. However, a good entrepreneur knows how to persevere and remain confident no
matter what. After all, optimism and perseverance are necessary for success.

ASST. PROFESSOR
Entrepreneurial Motivation
Entrepreneurial motivation is the process of transforming an ordinary individual to a

powerful businessman, who can create opportunities and helps in maximizing wealth and
economic development.
To become an entrepreneur one should identify their strengths and opportunities from the
external environment. Here motivation plays a major role in identifying their own strengths to
become strong leaders or powerful entrepreneurs which make them to accepting risks and
face uncertainty for the purpose of reaching pre-described goals.
Motivation makes entrepreneur by fulfilling higher level needs such as recognition, esteem,
and self-actualization. Various theories explained motivation as an influencing concept, it can
bring out hidden talents and creativity, and it contributes to the individual goals and society
development. Maslow‘s need hierarchy theory, Hertzberg‘s two-factor theory, and David MC
Clelland‘s acquired needs theory proved that motivation can bring energy, enthusiasm,
creativity and efficiencies in fulfilling the desired objectives.
Motivation activates innate strengths to achieve a particular goal, many questions arise during
knowing this concept such as why can‘t all the human beings become leader or entrepreneurs
even though they face same motivation during his/her lifetime? Who can become effective
motivators? What type of motivation can influence one‘s behavior? Is the extent of
motivation decides the power of externalized behavior? Etc., entrepreneurial motivation is a
psychological process in which all the motives may not influence with the same intensity, it
varies with the perception levels of the individuals and factors responsible for the motivation.
Sometimes a single motive can influence to become strong and powerful entrepreneurs, these
motives may come from various factors as follows.
[1.] Internal factors

[2.] External factors
Internal factors
Need for self-actualization
It is explained by Maslow and it is the top level need refers to the desire for self-fulfillment.
Need for freedom and self-fulfillment makes the individuals or employees of the organization
make them become powerful leaders or entrepreneurs.
Optimism
Individuals having positive mindset get motivated by finding opportunities during critical
situations also. Positive attitude and perception motivate an individual to work out for the
best even during unfavorable and tough situations also.
ASST. PROFESSOR
Positive attitude
The positive attitude is the most important factor which motivates the individuals to become
successful entrepreneurs. Habituating positive attitude can lead an individual to develop
constructive thinking; it motivates them to become powerful entrepreneurs, finally, the
positive attitude can prove that how valuable they are.
Self-motivation
Most of the successful and powerful entrepreneurs are self-motivated; here they fulfill the
desired objectives by motivating themselves. Though many individuals have ideas but they
cannot put those for business development; however self-motivated people can take decisions
to implement ideas.
Enthusiasm
Enthusiasm motivates in finding better solutions, finally, it stabilizes the ideas and makes
them become creators and innovators which result in successful entrepreneurs.
Commitment
Commitment towards a goal can make to achieve success. It motivates entrepreneurs by

inspiring and developing emotional attachment towards an objective.
Education
Education is the most important factor it motivates a person to innovate and create new
products, this result in establishing an organization or a new business venture. The
knowledge acquired during the course of time and innate skills highly motivates a person to
become a successful entrepreneur.
Background
Family background, occupational background and a person‘s own experience in a job

motivates him/her to become an entrepreneur. Having entrepreneurial background acts as a
clear path to becoming a successful and powerful entrepreneur.
Financial background
Finance is the scarce resource which motivates and enables a person to become an
entrepreneur. Money can make many things it is the major thing in deciding one‘s status and
development, strong financial background facilitates to start a business.

ASST. PROFESSOR
External factors
Influence
Influence of family members, friends, and society motivates the individuals to become
entrepreneurs. The extent of influence shows an effect on the character, behavior, and
development, it comes from the external environment. Here people get influenced by seeing
successful entrepreneurs or by the words of others.
Availability of resources
Resource availability motivates at a high extent to become entrepreneurs, availability of land,

labor, money, machinery, and materials make individual to start a new business. Though
there is creativity, intelligence, commitment and enthusiasm in the individuals, but the
unavailability of resources becomes an obstacle for new entrants or entrepreneurs.
Product’s demand
Higher demand for a particular product motivate entrepreneurs to produce innovative and
value added products, here product‘s demand motivates the individuals to become
entrepreneurs. The hope of success makes them produce innovative products or substitute
products, some entrepreneurs fulfill the market demand by producing complementary goods
also. So the increase in products demand highly motivates to become entrepreneurs.
Government policies
Subsidies and benefits given by the government motivate entrepreneurs to produce new
products or motivates individual to become entrepreneurs. Government policies show higher
influence on establishing new firms and it leads to economic development. In the case of
small scale industries, rural people are encouraged by the various training programs, financial
support, and subsidies; it is one of the main reasons for the establishment of new firms and
arrival of new entrants.
Information availability
Market knowledge and information motivate individuals to enter into the markets and to
become entrepreneurs. If there is abundant information then it automatically creates interest
in the minds of enthusiastic people to become entrepreneurs. Availability of information
facilitates research and producing innovative and value added products, and it creates a scope
to become entrepreneurs.

ASST. PROFESSOR
Technological advancement
Technological advancement acts as a path to transform ideas into products, feasibility in

production and expected success rate highly motivates to become entrepreneurs. It reduces
errors and cost of production and maximizes success rate, this is the reason why people are
interested in becoming entrepreneurs with the increase in technology.
Changing tastes and preferences
Changing tastes and preferences of the customers maximizes the chance to produce substitute
and complementary goods, it creates a scope to innovation and establishment of the new
ventures.
Entrepreneurial Personality
The entrepreneurial personality can be well define by taking to consideration of the Big Five
model of personality.
An entrepreneur should score high on openness & conscientiousness i.e. they are more open
to new experiences and dutifulness and rather energetic towards the social and material world
(extraversion). At the same time entrepreneurs tend to score lower in agreeableness and
neuroticism.
The Entrepreneur are of ESTP (Extraverted, Sensing, Thinking, Perceiving) Personality.
 Bold – They are the people with full of life and energy and they are pushing
boundaries and discovering and using new things and ideas.
 Rational and Practical – They love knowledge and philosophy, but not for their own
sake. They find ideas that are actionable and drilling into the details so they can put
them to use.
 Original – Combining their boldness and practicality, they love to experiment with
new ideas and solutions. They put things together in ways no one else would think to.
 Perceptive – They have the ability to notice when things change – and when they
need to change! Small shifts in habits and appearances stick out to them, and they use
these observations to help create connections with others.
 Direct – This perceptive skill isn‘t used for mind games – they prefer to communicate
clearly, with direct and factual questions and answers. Things are what they are.
 Sociable – All these qualities pull together to make a natural group leader in them.
This isn‘t something that they actively seek – people with this personality type just
have a knack for making excellent use of social interactions and networking
opportunities.

ASST. PROFESSOR
Module II
Entrepreneurial Environment
Environment refers to as factor which has strong impact over the business. Business can‘t
function in isolation it must regularly come in contact with the environment. Various factors
exits in the environment which are changing regularly. Changes are increasing rapidly and
business in turn must cope up with such changes. Organization which remains passive
towards the changes would gradually fade away.
Classification of Environment
 Micro environment: It refers to as small area or immediate periphery of an

organization. It influences an organization regularly and directly.
Element of micro environment can be classified as below:
o Consumer/customer: customer is the person who purchase the good where as

consumer is the one who ultimately consumes the goods. It is necessary to
identify who are the customer or consumer, what is their buying habits, test
and preference
o Market : it is larger than customer, various factors are to be consider such as

cost, technological element, distribution factors
o Supplier : they are provider of raw material, equipment‘s, other services they
have the bargain power and ability to influence the business
o Organization : it can be classified owners that is individual shareholder or

group who have a stake or interest in the organization, board of directors who
are elected by shareholder and is the in charge of general management of the
organization, employee they person actually work in the organization.
o Intermediary: agents, broker, middle man have an ability to exert the

considerably influence over the organization.
o Competitors: they may be direct or indirect identifying and diagnosing type

of competitor, their composition, resources used and the ability to influence
the organization is to be identified. Competitors not only share market but also
share profit.

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 Macro Environment: it refers to as a largely external element to the enterprise which

is beyond the control of the organization but which has an ability to influence the
business.
Elements of the macro environment are classified as below:
o Demographic environment: Demographic denotes population in an area,

district, and country. Factors such as age or income also have an ability to
influence the business. Few factor can be elaborated as below:
 Population size: Changes in the population, birth rate/death rate, have

an ability to influence the business.
 Geographic distribution : shift or change in the population from non-

metropolitan to metropolitan will have an impact on the company‘s
strategy
 Income distribution : changes in the level of income, purchasing

power, saving pattern will affect the business
 Ethnic mix: factors such as changes in the ethnic mix of population

with regard to product or service delivery will the new services or
product demanded or whether the existing one is to be modified, ability
of the manager to manage the culturally diverse workforce.
o Economic environment: factor such as money market, raw material

components, supply market influence the supply. Purchasing power depends
upon income, distribution and circulation of money as well as savings
o Technological environment: Technology are growing rapidly it can be

consider both opportunity and threat. Opportunity for those business which
can take advantage of it how threat as to those business which can‘t take the
advantage of it. Organization must identify the technology, investment, and
additional technology, positive and negative effect of the same.
o Political legal issue/environment: the type of government in power political

pressure various rules regulation laws relating to companies, competition,
labor, foreign exchange is to consider and have an impact on the business
o Social factor/environment: it consists of factor like human relation and the

impact of social and cultural values which has a bearing on the business.
Factor such as role of business in society, environment pollution, role of
women in society, education level awareness and contentiousness of rights,
effective utilization of labor and non-exploitation of labor.
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Identification of Opportunities
Opportunity always exists in the environment. It is the entrepreneur who need to sense the
opportunities available in the environment. Having sensed the entrepreneurial opportunities,
the next step involved in enterprise creation or establishment is to properly identify the
opportunities available for one in the given environment and, then, select the best one from
amongst the available to be pursued as an enterprise.
Entrepreneur and enterprise go hand in hand. The success of business enterprise is depends
on the compatibility of entrepreneur and enterprise.
The dynamics of compatibility between entrepreneur and enterprise can be better understood
by the following diagram:
The above four combinations can be interpreted as follows:
Dynamics of Combinations The Result
[1.] Both entrepreneur and enterprise are good Successful
[2.] Entrepreneur is not good but enterprise selection is good Failure
[3.] Both entrepreneur and enterprise are not good, or say, suitable Failure (Immediate)
[4.] Entrepreneur is good but enterprise selection is not good. Failure
Having justified the need for a good combination of entrepreneur and enterprise, the
entrepreneur should have entrepreneurial characteristic (Refer to module 1) and for a good
enterprise or the suitable enterprise one need to understand the Porter‘s five forces model.

ASST. PROFESSOR
1. Threat of substitute products

Threat of substitute products means how easily your customers can switch to your
competitors product. Threat of substitute is high when:
 There are many substitute products available
 Customer can easily find the product or service that you‘re offering at the same or
less price
 Quality of the competitors‘ product is better
 Substitute product is by a company earning high profits so can reduce prices to the
lowest level.
In the above mentioned situations, Customer can easily switch to substitute products. So
substitutes are a threat to your company. When there are actual and potential substitute
products available then segment is unattractive. Profits and prices are effected by substitutes
so, there is need to closely monitor price trends. In substitute industries, if competition rises
or technology modernizes then prices and profits decline.
2. Threat of new entrants
A new entry of a competitor into your market also weakens your power.
Threat of new entry depends upon entry and exit barriers. Threat of new entry is high
when:
 Capital requirements to start the business are less
 Few economies of scale are in place
 Customers can easily switch (low switching cost)
 Your key technology is not hard to acquire or isn‘t protected well
 Your product is not differentiated

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There is variation in attractiveness of segment depending upon entry and exit barriers. That
segment is more attractive which has high entry barriers and low exit barriers. Some new
firms enter into industry and low performing companies leave the market easily. When both
entry and exit barriers are high then profit margin is also high but companies face more risk
because poor performance companies stay in and fight it out. When these barriers are low
then firms easily enter and exit the industry, profit is low. The worst condition is when entry
barriers are low and exit barriers are high then in good times firms enter and it became very
difficult to exit in bad times.
3. Intense rivalry among existing players
Industry rivalry mean the intensity of competition among the existing competitors in the
market. Intensity of rivalry depends on the number of competitors and their capabilities.
Industry rivalry is high when:
 There are number of small or equal competitors and less when there‘s a clear market
leader.
 Customers have low switching costs
 Industry is growing
 Exit barriers are high and rivals stay and compete
 Fixed cost are high resulting huge production and reduction in prices
These situations make the reasons for advertising wars, price wars, modifications, ultimately
costs increase and it is difficult to compete.
4. Bargaining power of suppliers
Bargaining Power of supplier means how strong is the position of a seller. How much your
supplier have control over increasing the Price of supplies. Suppliers are more powerful
when
 Suppliers are concentrated and well organized
 a few substitutes available to supplies
 Their product is most effective or unique
 Switching cost, from one suppliers to another, is high
 You are not an important customer to Supplier
When suppliers have more control over supplies and its prices that segment is less attractive.
It is best way to make win-win relation with suppliers. It‘s good idea to have multi-sources of
supply.

ASST. PROFESSOR
5. Bargaining power of Buyers

Bargaining Power of Buyers means, how much control the buyers have to drive down your
products price, Can they work together in ordering large volumes? Buyers have more
bargaining power when:
 Few buyers chasing too many goods
 Buyer purchases in bulk quantities
 Product is not differentiated
 Buyer‘s cost of switching to a competitors‘ product is low
 Shopping cost is low
 Buyers are price sensitive
 Credible Threat of integration
Buyer’s bargaining power may be lowered down by offering differentiated product. If
you‘re serving a few but huge quantity ordering buyers, then they have the power to dictate
you.
Michael Porters five forces model provides useful input for SWOT Analysis and is
considered as a strong tool for industry competitive analysis.
Opportunity identification and selection are like corner stones of business enterprise. In a
sense, identification and selection of a suitable business opportunity serves as the saying
―well begun is half done.‖
Start-ups
A startup is a young company that is just beginning to develop. Startups are usually small and
initially financed and operated by a handful of founders or one individual. These companies
after a product or service that is not currently being offered elsewhere in the market, or that
that founders believe is being offered in and inferior manner.
Startups Ecosystem
A startup ecosystem is formed by people, startups in their various stages and various types
of organizations in a location (physical or virtual), interacting as a system to create new
startup companies.

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Startup ecosystem are controlled by both external & internal factors
External and Internal Factors
External factors, such as financial climate, big market disruptions and significant transitions,
control the overall structure of an ecosystem and the way things work within it. Start-up
ecosystems are dynamic entities which progress from formation stages to periodic
disturbances (like the financial bubbles) and then to recovering processes.
Start-up ecosystems in similar environments but located in different parts of the world can
end up doing things differently simply because they have a different entrepreneurial culture
and resource pool. The introduction of non-native peoples' knowledge and skills can also
cause substantial shifts in the ecosystem's functions.
Internal factors act as feedback loops inside any particular start-up ecosystem. They not
only control ecosystem processes, but are also controlled by them. While some of the
resource inputs are generally controlled by external processes like financial climate and
market disruptions, the availability of resources within the ecosystem are controlled by every
organization's ability to contribute towards the ecosystem. Although people exist and operate
within ecosystems, their cumulative effects are large enough to influence external factors like
financial climate.
Elements of Startup Ecosystem
1. Support Organizations
2. Big Companies
3. Universities
4. Funding Organizations
5. Service Providers
6. Research Organizations

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BUSINESS INCUBATION
Business incubation is a dynamics process of business enterprise development. Incubators

nurture young firms, helping them to survive & grow during the startup period when they are
most vulnerable. Incubator provide hands-on management assistance, access to financing
business or technical support services, most also offer entrepreneurial firms shared office
services, access to equipment, flexible leases & expandable space – all under one roof.
BUSINESS INCUBATOR
Business incubator is a facility (company) designed to assist businesses to become

established and profitable during the startup phase.
It provides
 Business advice
 Business services
 Networking
 Mentoring
 Full time manager
Types of Incubators
a) Government sponsored: It is organized by the government organizations or

departments.
b) Non-profit sponsored: It is organized & managed through association, chambers of

commerce etc.
c) University of academic institutions: It is organized by universities or academic

institutions, the major goal of this type of incubator is to transit the finding of fasten
research & development into new product & technologies.
d) Privately sponsored: It is organized & managed by private firms or companies. The

major goal is to make profit.

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Principles of Business Incubation
a) The incubator aspires to have a positive impact on its community‘s economic health
by maximizing the success of emerging companies.
b) The incubator itself is a dynamic model of sustainable, efficient business operation.
Operational Models
The operational model determines the way in which the incubator will be organized and
operate.
The following models can be found:
 BRICKS AND MORTAR (which ―is definitely vertical as to information flow, and
local in nature‖)
 VIRTUAL, PORTAL OR WITHOUT WALLS (which are those which do not use
physical space, operate through a portal and which require a greater marketing effort)
 THE HUB / VENTURE INCUBATOR (which ―is most common among the business
incubator models‖)
 EGGUBATOR (which ―is structure more with a view for the future‖)
Bricks and Mortar (BAM)
This is the first of the four models. It is the simplest of the four
 It represents the historical model of business incubation, which focuses on physical

facilities, office support and limited on-site services
 It has a nuclear structure in that it is a facility providing very little alliances with
external entities.
 The incubator provides a very limited amount of services, which may include a
receptionist, a telephone, a photocopier and the likes.

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 It is unlikely that considerable management expertise is available, but one individual

may be there to provide limited coaching and direction
Its strength is its simplicity. Its weaknesses include the limited scope of the services they
provide and the fact they do not provide any funding‖.
Virtual, Portal or Without Walls
The Portal is a new type of business incubator. Most are primarily startups themselves. As
such, they have no solid track record, but are rapidly proliferating. They deliver a wide range
of services electronically, through the Internet. They create virtual alliances and provide a
limited amount of funding.
 The Portal‘s major strength is easy access to a wide range of services, no

administrative costs associated with physical facilities, and ease in seeking associates
and serving clients, globally.
 Its weakness though is a lack of human interaction that delimits its clientele, since
many seek personalized humanized services, in addition to the electronic medium.
 Virtual incubator is described as an organization which is set up on the internet and

which provides a wide data bank and information, with the possibility of stimulating
new business.
 Virtual business incubators / technology estates make services available in a virtual

medium. They connect companies, customers, suppliers, partners and the operating
management of the virtual incubator with each other through the Internet, electronic
data interchange, videoconferences, etc.
 Virtual incubators as those which provide entrepreneurs with all the services and
support which are necessary for the development of the enterprise and which are
common to incubators, but they normally do not offer physical space and a shared
infrastructure.

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 Virtual incubators can be classified into venture incubators, venture accelerators,

venture portals and venture networks. Of these, only the venture incubator will
usually offer physical space.
Hub / Venture Incubator

The Hub is most typical start-up incubator. Hubs combine the strengths from both the BAM
model and the portal model into a central office.
 Specialized divisions within the incubator offer a good range of services.
 A limited amount of funding is available to the incubatees.
 Yet, the incubators network with the outside is underdeveloped, loose, informal and
inconsistent.
Eggubator
The newest and the most recent model of a business incubator is the hardest to define: it is so
new, that though its description finds its way into studies and articles none of those have
applied a name to it
 It has an orbital structure, in that it has a strong core in the center that ensures good
vertical information flow, and multi-layered orbits/affiliations that allow high quality
information circulation both horizontally and multi-directionally, across the layers.
 It offers a ―total‖ range of services; its devoted alliances and partnerships represent a
perfect entrepreneurial network where access to a needed service is offered at any
time. These alliances and partnerships also have internal sources of funding built into
the system.

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Setting up a Small Enterprise
The formalities for setting up of a small business enterprise is given in Fig

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[1.] Selection of a Project
A strong entrepreneur is the most vital aspect of every successful project. In order to
set up a small-scale industry, a suitable project has to be decided upon. This involves:
a) Project or service selection
Before deciding on a suitable project the entrepreneur has to decide on a suitable

product or a service. The main factors are as follows:
 Background and experience of the entrepreneur
 Availability of technology and know-how for the project.
 Marketability of the product/service
 Investment capacity
 Availability of plant and machinery
 Availability of raw materials
 Availability of proper infrastructure facilities (land/shed, power, water,

transport and so on)
b) Location selection
Some of the major aspects to be considered before deciding on the location of the
project are
 Proximity to market
 Availability of raw materials
 Availability of transportation and communication facilities
 Availability of incentives/concessions
 Government policy
 Availability of suitable infrastructures facilities and
 Convenience for the promoter

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c) Project feasibility study
The important facets of a project feasibility study are as follows
 Market analysis: under this analysis one need to understand the aggregate
demand of the proposed product/services in future and its market share of
the project appraisal.
 Technical analysis: It seeks to determine whether the prerequisites for the

successful commissioning of the project have been considered and
reasonably good choices have been made with respect to location, size,
and process and so on.
 Financial analysis: It seeks to ascertain whether the proposed project will

be financially viable in the sense of being able to meet the burden of
servicing debt and whether the proposed project will satisfy the return
expectations of those who provide the capital.
 Economic analysis: It also referred to as social cost-benefit analysis, is

concerned with judging a project from the larger, social point of view. In
such an evaluation the focus is on the social costs and benefits of a project,
which may often be different form its monetary cost and benefits.
Example: need to answer to question like
What would be the impact of the project on the distribution of income in

the society?
What would be the impact of the project on the level of saving and
investment in the society?
What would be the contribution of the project towards the fulfilment of

certain criteria like self-sufficiency, employment and social order?
 Ecological analysis: The key questions raised in ecological analysis are as

follows.
What is the likely damage caused by the project to the environment?
What is the cost of restoration measures required to ensure that the damage
to the environment is contained within acceptable limits?

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d) Business plan preparation
It can be used it to establish realistic goals or targets to achieve and to determine

the current position. A business plan is used to help make crucial start-up
decisions; to reassure lenders, investors or backers; to measure operational
progress; to test planning assumptions; to adjust forecasts; and to set the standard
for good operational management.
While making a business plan keep the following points in mind
 Keep target audience in view
 Strategy – core of a business plan
 Think competitively throughout
 Be realistic
 Involve people

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e) Prepare project profile
A project profile gives a bird‘s eye view of the proposed project. This may be
used for obtaining the Provisional Registration Certificate (PRC) from the District
Industrial Centre and for making, applying for Industrial Areas Development
Board for land or State Small Industries Development Corporation (SSIDC) for
shed and other infrastructures
[2.] Decide on the constitution
To start any industry the promoter(s) have to decide on the constitution of the unit.
There are four major alternatives
a) Sole proprietorship
b) Partnership
c) Corporation/Limited Company
d) Cooperative
e) Franchising
The constitution of the unit has to be decided at the initial stages of the project and the
necessary formalities should be completed by the time the application for provisional
Registration certificate is made.
[3.] Obtain SSI registration
Small-scale and ancillary units that is undertakings with investment in plant and
machinery of less than Rs 1 Crore should seek registration with the Director of
Industries of the concerned State government. Entrepreneurs desiring to start a small
scale industry have to initially obtain a Provisional Registration Certificate. One the
unit goes into production, the PRC has to be converted into a Permanent Registration
Certificate (PMC)

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[4.] Obtain clearance from departments as applicable
Several clearances are required from different authorities depending on the type of
industry and the location of the unit.
Example:
Agricultural land conversion
Pollution control board clearances etc.
[5.] Arrange for land/Shed
Once the location of the unit is decided, the land for the project could be conveniently
taken from the State Industrial Areas Development Board. However, private land
could also be purchased, but it has to be converted for industrial purpose and other
necessary legal/formalities will have to be completed.
[6.] Arrange for plant and machinery
The plant and machinery required for the project could be purchased from recognised
manufacturers/dealers. (Direct Purchase). The plant and machinery could also be
taken on a hire purchase scheme operated by the National Small Industries
Corporation (NSIC). This is a Government of India corporation.
[7.] Arrange for infrastructure
The main infrastructure facilities required for a SSI unit are land or shed for the
project, power connection, water supply and telephone facility.
Check out for the availability, rate, and quality etc. of the same.
[8.] Prepare project report
For any new project or venture, proper planning is necessary. A detailed project report
provides such a plan for the project. The report is useful to the entrepreneur for
planning and implementing the project. It is essential for obtaining finance and other
clearances for the project. The project report gives a detailed insight of the project and
indicates the techno-economic viability of the project.

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The general points to be kept in mind while preparing a project report are given
below:
 Proper validation of the data and information based on reliable sources
 Effective presentation by use of charts, graphs, and pictorial forms
 Cost minimisation and timeliness etc.
[9.] Apply and obtain finance
There are various sources of funds. Small-scale units can obtain finance for their
projects under two main categories
 Term Loan
 Working Capital Loan
[10.]
a) Proceed to implement: The entrepreneurs will have to take necessary steps to

physically implement the project after obtaining the various licenses,
clearances, infrastructure facilities and so on.
b) Obtain final clearances: Entrepreneurs are required to take several final

clearances when the unit is ready for commissioning or as soon as it goes into
production.
Environmental Problems
Industrialization, while important for the economic growth and development of a society, can
also be harmful to the environment. Amongst other things industrial process can cause
climate change, pollution to air, water and soil, health issues, extinction of species, and more.
Air Emissions
Industry is a major cause of air pollution, since the operation of factories results in the
emission of pollutants, including organic solvents, respirable particles, sulphur dioxide (SO2)
and nitrogen oxides (NOX). These pollutants can both harm public health and damage the
environment by contributing to global phenomena such as climate change, the greenhouse
effect, ozone hole and increasing desertification.

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Wastewater
The sources of effluent - treated or untreated wastewater that is discharged into surface
waters - are many and varied. Effluent can come from industrial outlets, treatment plants, and
sewers. Untreated wastewater can cause environmental woes including: pollution of
groundwater reservoirs, damage of transport and wastewater treatment systems, and
degradation of treated wastewater and sludge such that it would disqualify them from being
used for agricultural purposes.
Land Pollution
Leakage from the fuel and energy industries, as well as industries involving hazardous
materials, are the main causes of land contamination. Examples of soil pollution sources are
oil refineries and pipelines transporting gas, oil depots, gas stations, garages, metal treatment
and coating factories, chemical plants, dry cleaning businesses, printing businesses, the
textile industry, and sites where hazardous materials are stored.
Soil contamination is caused by direct exposure to the pollutant, leakage of toxic gases into
buildings, and groundwater pollution. The properties of soil result in pollutants remaining in
the soil long after the pollution incident.
Hazardous Materials
Hazardous materials are widely used in a variety of different businesses, including industry
and agriculture. If not properly treated, stored, or dealt with, hazardous materials can cause
damage to human health, environment and property.
Solid Waste
Solid waste is generated wherever there is human activity and is characterized by a several
different streams, each with different characteristics and components. These include
industrial waste, dry waste, and organic waste.
Pesticides and Pest Control Products
Animals are considered dangerous to humans when there is a risk of them spreading disease,
injuring a person, damaging property, or becoming an intolerable nuisance. Examples of
"pests" include: mosquitoes, flies, cockroaches, fleas, fire ant, mice, and bats. Non-approved
pesticides can damage the environment and result in the poisoning of living things and in
environmental pollution.

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Asbestos and Harmful Dust
Products that contain asbestos (friable or cement) that is in a state of disintegration may cause
the release of asbestos fibres into the air. This can be hazardous to the environment and can
cause human illness such as lung disease.
Radiation
The public and the environment are at-risk from exposure to both ionizing radiation (sources
include radioactive materials, x-ray machines, and accelerators) and non-ionizing radiation
(sources include electrical installations, mobile broadcasting centres and lasers).
Noise
Frequent or prolonged exposure to loud noises is not only a nuisance, but can cause damage
to a person's physical and mental health.
Examples: Unreasonable Noise from Construction Equipment etc.
Environmental Pollution Act
The Environment (Protection) Act was enacted in 1986 with the objective of providing for
the protection and improvement of the environment. It empowers the Central Government to
establish authorities [under section 3(3)] charged with the mandate of preventing
environmental pollution in all its forms and to tackle specific environmental problems that
are peculiar to different parts of the country. The Act was last amended in 1991.
Objectives:
 To protect and improve air, water and land environment
 To prevent hazards to all living creatures and properties
 To maintain a pleasant relationship between human beings and their environment.
Important features of this act
 This act empowers the government to lay down procedures and safeguards for
prevention of accidents that cause pollution and remedial measures if an accident
occurs.
 The government has the authority to close/prohibit or regulate any industry or its
operation if violation of the provisions of the act occur.

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 Any person who fails to comply or contravenes any provision of the act is punishable
with imprisonment for a term extending up to five years or a fine up to one lakh
rupees or both.
 An additional fine of Rs.5000 per day may be imposed for entire period of violation
of rules.
 The act fixes the liability on the person who is directly in-charge unless it is proved
that the offence was committed without his/her knowledge or consent.
 This act empowers the officer of central government to inspect the site and collect
samples of air, water, soil or other material for testing.
This act is the most comprehensive legislation with powers for central government to act
directly without interference from regulatory authorities or agencies.
The Central Government hereby makes the following rules further to amend the Environment
(Protection) Rules. 1986. Namely:-
Industrial Policy
It is a formal declaration by the government whereby it outlines it general policies for

industries.
The industrial policy of a country generally deals with the ideology of the current political
dispensation.
Objective
The main objective of any industrial policy is to augment the industrial production & there by
enhance the industrial growth which leads to economic growth by optimum utilization of
resources.
 Modernization
 Balanced industrial development & balanced regional development
 Co-ordinated development of large as well as small medium & cottage enterprises
 Determination of area of operation under private & public sector

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 Enhance cordial relation between workers & management and proper utilization of
the domestic/foreign capital
 To set the direction of foreign investors & foreign investment
Industrial Policy resolutions
After independence India has been released industrial policy around six times
Industrial policy resolution of 1948
Out of these six resolution IPR 1948, 1956 & 1991 are more important, whereas IPR 1977,
1980 & 1990 are just the extension of IPR 1956.
The govt. of India declared its first industrial policy on 6th April 1948. The industrial policy
1948 was presented in the parliament by then industry minister Dr. Shyma Prasad Mukerjee.
India ushered into a mixed economy taking the society on socialistic pattern. The large
industries were classified in four categories.
1. Strategic industries (Public sector): Defence, Atomic energy, Railway etc. The
total control is of central Govt.
2. Basic/Key industries (Public –cum- Private sector): Coal, Iron, Aeroplane mfg.
Telephone, wireless, Manufacturing, Refinery oil etc.
First it will be in control of private sector if they fail, then after ten year it‘s take
over the Govt.
3. Important industries (Controlled by private sector): Automobile, Textile,

Cement, Sugar etc.

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Worked by private sector but in the supervision of Govt.
4. Other industries (Private & co-operative sector)
Apart from the four fold classification of the industries the industrial policy 1948
endeavoured to protect cottage & small scale industries by according them priority status.
Industrial Policy Resolution - 1956
The Industrial policy resolution of 1985 was based upon the Mahalanobis Model of growth,
which suggested that emphasis on heavy industries would lead the economy towards a long
term higher growth path.
The Industrial Policy Resolution - 1956 classified industries into three categories:
 Schedule A Industries (17 industries): exclusively under the domain of the

Government. These included inter alia, railways, air transport, arms and ammunition,
iron and steel and atomic energy.
 Schedule B Industries (12 industries): which were envisaged to be progressively

State owned but private sector was expected to supplement the efforts of the State.
 Schedule C Industries The third category contained all the remaining industries and
it was expected that private sector would initiate development of these industries but
they would remain open for the State as well.
It was planned after the first five year pane in which Agriculture was the agenda. But in the
second five year plan the objective was Industrial development
Here is the starting of Licensing Raj
Before next industrial policy two more licensing Act were introduced
a) Monopolistic & Restrictive Trade Practice under MRTP Act 1969

(Introduced in August 1966 in parliament but passed in December 1969)
The MRTP Act 1969 was enacted
 To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few
 To provide for the control of monopolies
 To prohibit monopolistic & restrictive trade practices

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 The MRTP Act extends to the whole of India except J&K
b) The Foreign Exchange Regulation Act (FERA) was legislation passed in India
in 1973 that imposed strict regulation on certain kinds of payments, the dealings in
foreign exchange (forex) and securities & the transactions which had an indirect
impact on the foreign exchange and the import & export of currency. The bill was
formulated with the aim of regulating payments & foreign exchange
 FERA applied to all citizens of India, all over the India
 The idea was to regulate the foreign payments regulate the dealings in Foreign
Exchange & Securities and Conservation of foreign exchange for the nation.
Industrial Policy Resolution 1977
The Industrial Policy statement 1977 was announced by Janata Govt led by Morarji Desai on
23 December 1977
Salient feature of Industrial Policy Statement 1977
 Special focus on Small – Scale Industries
 Focus of labour – intensive Technology
 Viability of public sector
 Focus on Indigenous Technology
 Focus on self sufficiency
 Balanced Regional Development
 Workers‘ participation
 Restrictions on Foreign Investments
(Note: Not able to implement in ground level)
Congress came back to power in 1980 indicated to thrust in Industrial Policy of 1956. On 25
July, 1980 the new Industrial Policy was announced.
 To improve the efficiency of Public Sector Enterprises

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 Integrating Industrial development by promoting the concept of Economic Federalism
 Redefining the small & Tiny units
 Regulations of unauthorised excess capacities
 State policy on mergers & Takeover of sick units
The Janata Dal Government announced it new Industrial Policy on May 31, 1990
Its salient features are as follows
 The investment ceiling raised
 Focus on small-scale sector
 Central Investment subsidy
 Modernisation & up gradation of technology
 A new apex bank SIDIBI has been established to ensure adequate & timely flow of
credit for the small-scale industries.
 Bureaucratic control will be reduced
In view socialistic pattern, Indian government had put much restriction in foreign investment
and foreign company so that many foreign company left India, company like IBM & Coca-
Cola are among them.
On July 24, 1991 government of India announced its new industrial policy with and aim to
correct the distortion & weakness of the Industrial structure of the country
Salient Features
This new model of economic reforms is commonly known as the LPG or Liberalisation,
Privatisation & Globalisation model
The primary objective of this model was to make the economy of India the fastest developing
economy in the globe with capabilities that help it match up with the biggest economic of the
world.

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To meet above objectives govt of India had made to many reforms. They are:
Licensing System
Industrial licensing policy. This policy abolished the industrial licensing for all industries
except for a short list of 18 industries. This list of 18 industries was further pruned in 1999
where by the number reduced to 5 industries. Viz.
1. Drugs & pharmaceuticals
2. Hazardous chemicals
3. Explosive such as gun powder & detonating fuses & electronic aerospace & defence
equipment
4. Tobacco Products
5. Alcoholic drinks
The compulsion for obtaining prior approval for setting units in metros was also removed.
However in this policy industries reserved for the small scale sector were continued to be so
reserved.
Public Sector
Only two sector were finally left reserved for Public sector
1. Nuclear Energy & Mineral which are used for nuclear power
2. Railway Transport
Foreign Investment & Capital
This was the first Industrial Policy in which foreign companies were allowed to have majority
stake in India. In 47 high priority industries, up to 51% FDI was allowed. For export trading
houses, FDI up to 74% was allowed. Today, there are numerous sectors in the economy
where govt. allows 100% FDI
The Govt also established a special empowered board called Foreign Investment Promotion
Board (FIPB) to negotiate with international firms & approve FDI in selected areas.

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Foreign Technology Agreements
Automatic permission was given for foreign technology agreements in high priority
industries up to a lump sum payment of Rs1 crore, 5% royalty for domestic sales & 8% for
exports, subjects to total payment of 8% sales over a 10 year period from date of agreement
or 7 years from commencement of production. Further, Govt. eased hiring of foreign
technicians.
Review in Public Sector Investments
A promise was made to review the portfolio of public sector investment with a view to focus
the public sector on strategic, high-tech & essential infrastructure. This indicated a
disinvestment of public sector. The PSUs which were chronically sick & which are unlikely
to be turned around were to refer to the Board for Industrial & Financial Reconstruction
(BIFR). It was promised that Boards of public sector companies would be made more
professional & given greater power.
Amendments to MRTP Act
The MRTP Act will be amended to remove the threshold limits of assets in respect of MRTP
companies & dominant undertakings. This eliminates the requirement of prior approval of
central Govt for establishment of new undertakings, expansion of undertakings, merger,
amalgamation & takeover & appointment of Directors under certain circumstances. The
MRTP limit for MRTP companies was made Rs 100 crore. Currently, MRTP act is replaced
by competition Act 2002
New Definition of Tiny Sector
The definition of tiny unit was changed as a unit having an investment limit of less than Rs 5
lakh
And also introduced National Renewal Fund 1992 to provide safety net for Labourers. (But
this provision of fund discontinued in year 2000)
They also made reform in the field of Industry Localization. According to this the
Industrialist can choose the location of the plant independently.

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Module III
Need to know about Accounting
Accounting ratio is the comparison of two or more financial data which are used for
analyzing the financial statements of companies. It is an effective tool used by the
shareholders, creditors and all kinds of stakeholders to understand the profitability, strength
and financial status of companies.
This is also widely known as financial ratios based on which business performance can be
monitored and important business decisions are made.
Accounting ratios, classified into the following categories:
[1.] Liquidity Ratio: Liquidity ratio helps in measuring the cash sufficiency of an
enterprise to pay off its short-term liabilities. A High liquidity ratio ensures the
company is in a good position to pay its creditors. The liquid ratio of 2 or more is
considered acceptable.
[2.] Profitability Ratio: Profitability ratio is generally used to determine how well the
business is generating profits from its operations. Profit is the balance of income
earned after deducting all related expenses.
[3.] Leverage Ratio: Leverage ratio measures the utilization of borrowed money by the
business. It helps to identify the financial stability of the business by analyzing the
total debt of the company.
[4.] Activity Ratio: Activity ratio indicates the return generated from a particular type of
asset using the sales, cost and asset data. This ratio helps the business to identify
effective utilization of the assets and thereby facilitates efficient management.
All these types of ratios are used for monitoring the business performance and comparing the
business results with competitors.

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Working Capital Management
Working capital management is the process of managing these short-term assets and
liabilities to ensure the company has adequate liquidity to operate smoothly.
Working Capital = Current Assets – Current Liabilities
Working capital efficiency can be measured by certain ratios. Some of the measures used in
estimating the efficiency of working capital management include current ratio, days of
payables outstanding, days of inventory outstanding, days of sales outstanding, etc.
If the working capital is managed efficiently, the business will be able to free up cash to pay
debts or for reinvestments.
Working Capital can be divided into two main categories:
A. Based on capital
1. Gross Working Capital
2. Net Working Capital
B. Based on time period
1. Fixed Working Capital
2. Variable Working Capital
Gross Working Capital
Gross working capital is the total amount available for financing of current assets. However,
it does not reveal the true financial position of an enterprise.
Gross Working Capital = Total Current Assets

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Net Working Capital
The net working capital is an accounting concept which represents the excess of current
assets over current liabilities. Current assets consist of items such as cash, bank balance,
stock, debtors, bills receivables, etc. and current liabilities include items such as bills
payables, creditors, etc. Excess of current assets over current liabilities, thus, indicates the
liquid position of an enterprise.
Net Working Capital = Current Assets-Current Liabilities
The ratio of 2:1 between current assets and current liabilities is considered as optimum or
sound.
Fixed Working Capital
The amount of funds needed for meeting requirements normally varies from time to time in
every business.
However, business always needs a certain amount of assets in the form of working capital if
it is to carry out its functions.
A part of the investment in current assets is as permanent as the investment in fixed assets. It
covers the minimum amount necessary for maintaining the circulation of the current assets.
Working capital invested in the circulation of the current assets and keeping it moving is
permanently locked up.
The permanent or fixed working capital is of two kinds:
a. Regular working capital: It is the minimum amount of liquid capital required to

keep up the circulation of the capital from cash to inventories to receivables and back
again to cash. This would include a sufficient amount of cash to maintain reasonable
quantities of raw materials for processing into finished goods to ensure quick delivery
etc.
b. Reserve margin or cushion working capital: It is extra capital required to meet
unforeseen contingencies that may arise in future. These contingencies may crop up
on account of rise in prices, business depression, strikes, lock-outs, fires and
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unexpected competition. It is needed over and above the regular working capital
requirements.
Variable working capital:
The variable working capital fluctuates with the volume of business. It may be sub-divided
into:
a. Seasonal Working capital: It refers to liquid capital needed during the particular
season. According to Gestenberg, ―Beyond initial and regular working capital, most
businesses will require at stated intervals a large amount of current assets to fill the
demands of the seasonal busy periods‖
During the season, the business enterprises have to push up purchase of raw materials
(sugarcane by sugar mills, wool by woolen mills) and employ more people to convert
them into finished goods and thus require large amount of working capital.
b. Special working capital: It is that part of the variable capital which is needed for
financing special operations such as the organization of special campaigns for
increasing sales through advertisement or other sale promotion activities for
conducting research experiments or execution of special orders of Government that
will have to be financed by additional working capital.
Marketing Management
"Marketing management is 'the art and science of choosing target markets and getting,
keeping, and growing customers through creating, delivering, and communicating superior
customer value'
Marketing problems of small scale industries
Small scale units are exposed to numerous problems. Major problems faced by these units are
concerning raw-material, labor financial and marketing. Problem of marketing is more
complicated in case of small scale industries. These units are in no position to face the
onslaught of large scale limits w.r.t., quantity quality and cost and at the same time are not in
a position to assess the prevailing market scenario (or) changes which are taking place w.r.t.

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tastes, liking, disliking, competition, technology etc. moreover these units do not possess the
requisite expertise to adjust their operations according to the changed situation.
[1.] Problem of standardization: Small scale units face problems w.r.t. fixing the
standards and sticking. This results in the poor quality of their products and it
adversely effects their image (or) goodwill in the market.
[2.] Competition from large scale units: Small scale units are ill equipped to face
competition from large scale unit‘s w.r.t. quantity, quality and cost. In the modern
competitive world there is survival of the fittest, even the existence of small scale
units is endangered.
[3.] Poor sale promotion: Small scale units have limited financial resources and hence
cannot afford to spend more on sale promotion. These units are not having any
standard brand name under which they can sell their products. Various channel
members to exploit them because of the lack of goodwill of their products in the
market.
[4.] Poor bargaining power: Small scale units because of their limited resources and
lower scale of operations are in a week position while negotiating with the suppliers
of raw-material, finances (or) marketing agencies. They are always at the receiving
end and as such are not in a position to safeguard their interests.
Importance of Marketing in Small Scale Industries
Marketing is one of the most important things a business can do. Not only does marketing
build brand awareness but it can also increase sales, grow businesses and engage customers.
 It informs: marketing is the most effective way to communicate your value

proposition to your customers in a fun and interesting way.
 It sustains: Marketing is important because it allows businesses to maintain long-
lasting and ever-present relationships with their audience. It is not a one-time fix, it is
an ongoing strategy that helps businesses flourish.
 It engages: Customer engagement is the heart of any successful business – this is
especially true for Small Medium Business. Consumers want to be engaged outside
the store. This is where marketing comes in, and whatever the medium, you can send

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your customers content to keep them engaged beyond store hours. Your audience
wants to form a relationship with your brand, and marketing can be used to do just
that.
 It sells: Marketing is important because it helps you sell your products or services.
The bottom line of any business is to make money and marketing is an essential
channel to reach that end goal. Marketing helps sales and sales help your business.
 It grows: Marketing is an important strategy to ensure the growth of your business.
While your current customers should always be your main priority, marketing efforts
can help you expand this base.
Marketing Strategies of Small Scale Industries
The term "marketing mix" was coined in 1953 by Neil Borden in his American Marketing
Association presidential address. The marketing mix is a business tool used in marketing
products. The marketing mix is often crucial when determining a product or brand's unique
selling point (the unique quality that differentiates a product from its competitors), and is
often synonymous with the 'four Ps': 'price', 'product', 'promotion', and 'place'. However, in
recent times, the 'four Ps' have been expanded to the 'seven Ps' with the addition of 'process',
'physical evidence' and 'people'. Recently, 'four Cs' theory is also in the limelight
Small scale industries not using appropriate marketing strategies in the highly competitive
environment. Small scale industries are weak in differentiation strategy .As small scale
industries are following low cost pricing strategies, so it is also essential to follow product
differentiation for product development. The small manufactures need to use selective
product positioning strategies for different products because same product positioning
strategies for all products are not beneficial.
Further, the SSI‘s needs to be very careful about price decision because of highly competitive
environment. Product should be offered at highly competitive price after doing comparative
market analysis.
Small scale industries are highly satisfied regarding their product‘s price and pricing method.
But SSIs should concentrate on pricing strategies because it affect their overall marketing
strategies .Customer also highly satisfied from pricing of the small scale industries products.
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SSIs should focus on cutting the product cost at the operational and marketing level with use
of latest management approaches.
Small scale industries are not satisfied their distribution channel or place so small industries
need to improve their distribution channel for maximum coverage of the buyer. For
maximum coverage of the market latest technology e- marketing or web marketing may help
the small manufacturer to place the product to large number of buyer.
Customers also highly dissatisfied from the distribution channel and current method of
convenience of the small scale industries. Small manufacturer should adopt new methods of
the convenience to the customers. It is not possible to carry out all strategies simultaneously
but a set of strategies that can serve as a skeletal framework for customized approach is
necessary to contact more customers towards the small scale industries products.
Human Resource Management (HRM)
It can be defined as a strategic and coherent approach to the management of an organization‘s

most valued assets—the people working there who individually and collectively contribute to
the achievement of its objectives. HRD is that component of HRM which deals with the
development of human resources. For a small enterprise, the following aspects of human
resource development are important.
[1.] Manpower planning

[2.] Recruitment, Selection, and placement
[3.] Performance appraisal and development
[4.] Employee compensation
[5.] Motivation
[6.] Communication

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Industrial relations, Labour laws, and Environmental and Pollution control

laws
No business or industry can survive without worker cooperation and industrial peace.
Therefore, effort should be made to ensure that relations between workers and
owners/managers of the firm remain peaceful. However, disputes are frequent due to
expectations on the part of both employers and employees. The government has legislated
certain basic norms to he followed to avoid dispute and maintain peace, to obtain maximum
output from their combined activity in the interest of the nation‘s economy. The legislation
can be categorized as follows.
[1.] Law regulating the conditions of work in factories and establishments
a) General laws, applicable to all factories and establishments:
The Factory Act 1948: The objective of this Act is to provide for the health,
safety, and welfare of workers
b) Specific laws, applicable to specific industries, like Mines Act, 1952, Indian
Merchant Shipping Act, 1923 and Plantation Labour Act, 1998
[2.] Laws relating to wages
a) Minimum wages Act, 1948: This Act has been adopted by State governments to
prevent exploitation of workers, for the fixation and payment of minimum wages.
The Act prescribes for the fixation of wages a) a minimum time rate; b) a
minimum piece rate; c) guaranteed time rate; and d) an overtime rate.
b) Payment of wages Act, 1936: The objective of this Act is to regulate the payment
of wages to a certain class of persons employed in industry and is of two kinds:
 The date of payment of wages: wages must be paid before the expire of the
seventh day after the last day of wage period (in case of less than 1000
employee). In other cases, the payment must be made before the expiry of
the tenth day after the last wage period. In the event of termination of
employment of any employee, the wages earned by him shall be paid
before the expiry of the second working day from the day on which his
employment is terminated
 Deduction from wages, whether fine or otherwise: No deduction of any
kind should be made from wages payable except those authorized by the
payment of wages Act. The total amount of deductions which may be

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made in any wage period from the wages of any employed person, shall
not exceed the wage.
[3.] Law relating to social security measures
a) Workmen‘s compensation Act, 1923: The Act provides for payment to the
workmen by a certain category of employer compensation for injury by accident
sustained at work.
b) Employees‘ State Insurance (ESI) Act, 1948: This Act provides certain benefits to
employees in the event of sickness, maternity, and employment injury.
c) Employees‘ Provident Fund (EPF) Act and Family Pension Fund Act, 1952: The
EPF consists of the contributions made by the employer and the employee of the
factory. The Act also provides for the Employees‘ Family Pension Scheme that
ensures families pension and life insurance benefits to the employees of the
establishment.
[4.] Laws relating to workers’ associations and disputes
a) Trade union Act, 1926: This Act provides the right and liabilities of a registered
trade union.
b) Industrial Disputes Act, 1947: Its main aim is to ensure industrial peace through
voluntary negotiations and compulsory adjudication.
[5.] Laws relating to women and child workers
[6.] Laws relating to environment and pollution control
a) Water (Prevention and control of pollution) Act, 1974
b) Air (Prevention and control of Pollution) Act, 1981
c) Environment (Protection) Act, 1986

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ORGANIZATIONAL SUPPORT SERVICES – CENTAL & STATE

GOVERNMENT
Entrepreneurship is a multifaceted phenomenon, which has gained popularity around the
world. Becoming an entrepreneur is a challenging task, which requires various resources and
facilities. Small-scale enterprises, given their small resources, find it difficult to have their
own. Finance has been an important resource to start and run an enterprise. In addition to
finance, a minimum level of prior built-up of infrastructural facilities such as transport and
communication are needed to start any enterprise. Creation of infrastructural facilities
involves huge funds, which the small entrepreneurs do lack. In view of this, various Central
and State Government institutions have come forward to help small entrepreneurs in this
regard by providing them various kinds of support and facilities.
 Central Level Institutions
 State level Institutions
 Other agencies
Central level Institutions

NSIC (National Small Industries Corporation)
NSIC has been working to promote, aid and foster the growth of micro, small and medium
enterprises in the country.
NSIC has set up Training cum Incubation Centre managed by professional manpower.
Some of the main services provided by NSIC are described below
Machinery and Equipment (Hire-Purchase Scheme)
 Supply of indigenous and imported machinery on easy financial terms, mainly
targeted at first-generation entrepreneurs, women entrepreneurs, weaker sections,
physically challenged and ex-servicemen.
Machinery and equipment (Lease scheme)
 100 per cent finance to facilitate SSIs in diversification and technology up gradation.
 Tax rebate on full-year rentals.
Financial Assistance Scheme

Provide finance to SSIs for the following activities.
 Marketing
 Bills discounting
 Raw material purchases
 Exports
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Assistance for procurement of raw material

 Supply under the off-the-self basis scheme
 Import of raw materials
 Providing scarce materials on priority basis
 Supplies through NIST depots/godowns
National Institute for Entrepreneurship & Small Business Development (NIESBUD)
 It is a premier organization of the Ministry of Skill Development and

Entrepreneurship, engaged in training, consultancy, research, etc. in order to promote
entrepreneurship.
 Its goal is to promote, support and sustain entrepreneurship and small business
through training, Education Research and consultancy.
 The major activities of the Institute are Training of Trainers, Management

Development Programmes, Entrepreneurship-cum-Skill Development Programmes
and Entrepreneurship Development Programmes.
SMALL INDUSTRY DEVELOPMENT ORGANISATION (SIDO)
Central Small Industry Organization (CSIO) is the heart of all agencies dealing with the
development of small industry — renamed as Small Industries Development Organization
(SIDO). The office of the Development Commissioner, SSIs is also known as the Small
Industries Development Organization (SIDO), established in 1954. It is a policy-making,
coordinating and monitoring agency for the development of SSI entrepreneurs. It is the nodal
agency that advises the Ministry of Industry and other Ministries in formulating policies and
programmes for the development of SSIs. It also overseas the 'package of services' rendered
by the SISIs at field level and provides comprehensive range of consultancy services and
technical, managerial and marketing assistance to SSI units.
The SIDO provides common facilities
 Technology support services

 Marketing assistance and
 Entrepreneurial development support through its network of 30 Small Industries
Service Institutes (SISIs), 28 Branch SISIs, 4 Regional Testing Centers (RTCs), 7
Field Regional Testing Centers (RTCs), 2 Small Entrepreneur Promotion and
Training Institutes (SEPTIs) and 1 Hand Tool Design Development and Training
Centre.
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 The SIDO also has a network of Tool Rooms and Process-cum Product Development
Centers (PPDCs) to provide technology and training support
SIDO performs functions such as
 Conducting training courses through SISIs and Extension Centers

 Organizing EDPs and motivational campaigns for rural artisans, educated
unemployed, women entrepreneurs and physically handicapped persons;
 Securing reservations of certain products for SS's;
 Assisting and encouraging entrepreneurs to set up industrial units in rural areas and
estimating the requirements of raw materials of SSIs.
All SSIs except those falling within the specialized boards and agencies like KVIC, Coir
Boards and Central Silk Board fall under the purview of the SIDO.
NSTEDB
The National Science & Technology Entrepreneurship Development Board (NSTEDB),

established in 1982 by the Government of India to promote knowledge based technology
driven enterprises. The Board aims to convert "job-seekers" into "job-generators" through
Science & Technology (S&T) interventions.
The NSTEDB has verities of programs. The programs starts from creating awareness (i.e.
Entrepreneurship Awareness Camp (EAC)) by sponsoring three day program in the academic
institutions with the aim to germinate entrepreneurs after the gap of 3-5 years

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Here what we can say that just through the seeds in the wild without putting water & fertilizer
in the seed & with expecting some of them will germinate as entrepreneur. It is one of the
very low budget program but an effective program of this board. Its success rate is around
5%.
Then the next programs are the training programs like Entrepreneurship Development
Programme (EDP) of 6-8 weeks durations, aims at training the S&T graduates and the
diploma holders in the essentials of conceiving, planning, initiating and launching an
economic activity or an enterprise successfully.
Faculty Development Programme (FDP) is designed to train and develop professionals in

entrepreneurship development so that they can act as resource persons in guiding and
motivating young S&T persons to take up entrepreneurship as career. The duration of
program is 2-3 weeks;
Technology Based Entrepreneurship Development Programme (TEDP), its primarily focuses

on training and developing need of S&T entrepreneurs in a specific technology area (e.g.
Leather, Plastic, Electronics and communication etc.) The duration of program is about 6
weeks;
The flagship program that the NSTEDB have is the Technology Business Incubation (TBI)
program.
State level Institutions

DIC (District Industries Centers)
 The 'District Industries Centre' (DICs) programme was started by the central
government in 1978
 The objective of providing a focal point for promoting small, tiny, cottage and village
industries in a particular area and to make available to them all necessary services and
facilities at one place.
 The District Industries Centre is the institution at the District level, which provides all
the services and support facilities to the entrepreneur for setting up Micro, Small and
Medium Enterprises. This included identification of
o suitable schemes
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o preparation of feasibility reports

o arrangements for credit facilities
o machinery and equipment‘s
o Provision of raw materials and development of industrial clusters etc.
State Financial Corporations (SFCs)

 This is State level financial institutions which play a vital role in the growth of small
& medium enterprises in the concerned States.
 They offer financial assistance in the form of direct subscription to debentures/equity,
term loans, guarantees, discounting of bills of exchange & seed/ special capital, etc.
 SFCs have been set up with the purpose of catalyzing higher investment, engendering
greater employment & extending the ownership base of industries.
 They have also started offering assistance to newer types of business activities like
tissue culture, floriculture, poultry farming, services related to engineering, marketing
and commercial complexes. In India, there are 18 State Financial Corporations
(SFCs).
STATE INDUSTRIAL DEVELOPMENT CORPORATIONS (SIDCs)

The State Industrial Development Corporations (SIDCs) were incorporated under the
Companies Act, 1956, as wholly owned State Government Undertakings for promoting
industrial development.
The main functions of SIDCs are to provide assistance in the form of term-loans,
underwriting direct subscription to shares / debentures and guarantees. They also undertake a
variety of promotional activities like preparation of feasibility reports, conducting industrial
potential surveys, entrepreneurship development programmes and developing industrial
estates. Some SIDCs also offer a package of developmental services such as technical
guidance, assistance in plant locations and coordination‘s with other agencies. In line with the
changing environment, many SIDCs are making efforts to diversify and mutual funds. There
are 28 SIDCs in the country.

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Other agencies
NABARD (National Bank for Agriculture and Rural Development):
 It formed based on the Committee to Review the Arrangements for Institutional
Credit for Agriculture and Rural Development (CRAFICARD) which outlined the
need for a new organizational device for providing undivided attention, forceful
direction and pointed focus to credit related issues linked with rural development.
 Formation of National Bank for Agriculture and Rural Development (NABARD) was
approved by the Parliament through Act 61 of 1981.
 NABARD came into existence on 12 July 1982.
 It was dedicated to the service of the nation by the late Prime Minister Smt. Indira
Gandhi on 05 November 1982.
 Set up with an initial capital of Rs.100 crore, its‘ paid up capital stood at Rs.10, 580
crore as on 31 March 2018.
 It aimed at building an empowered and financially inclusive rural India through
specific goal oriented departments which can be categorized broadly into three heads:
Financial, Developmental and Supervision.
Industrial Finance Corporation of India (IFCI)

 IFCI Ltd. was set up in 1948 as Industrial Finance Corporation of India
 It provide medium and long term finance to industry.
 The Government of India, as per the Budget for FY 2014-15 has mandated IFCI for
setting up of a Venture Capital Fund under Social Sector initiatives with an aim to
promote entrepreneurship among the Scheduled Castes (SC) and to provide
concessional finance to them.
Small Industries Development Bank of India (SIDBI)

 Set up on 2nd April 1990 under an Act of Indian Parliament, acts as the Principal
Financial Institution for Promotion, Financing and Development of the Micro, Small
and Medium Enterprise (MSME) sector as well as for co-ordination of functions of
institutions engaged in similar activities.
 Over the years, SIDBI has been working towards the sustainable development of
MSME sector

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Government Subsidy for Small Business in India
Government subsidy for small business is very much effective in any small-scale industry.
Many incentives are provided with both by the Central and State Governments to pro-mote
the growth of small-scale industries specially MSME.
[1.] The Credit Guarantee Fund Scheme for Micro and Small Enterprises
The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGMSE) was
launched by the Government of India to provide collateral-free credit to Indian
MSMEs. Both the existing and the new enterprises are eligible for the scheme.
The scheme provides credit facilities in the form of term loans and working capital
facility of up to Rs. 100 lakh per borrowing unit. The amount is contributed by the
Government and SIDBI in the ratio of 4:1, respectively. The scheme also offers
rehabilitation assistance to sick units covered under the guarantee scheme.
[2.] SAMPADA Scheme for Agro-Marine Produce Processing
SAMPADA stands for Scheme for Agro-Marine Produce Processing and
Development of Agro-Processing Clusters. With a budget of Rs. 6000 Crores, the
SAMPADA scheme is aimed to integrate current and new schemes in the food
processing sector. The main objective is reducing food wastage and doubling farmers‘
income.
[3.] Government Subsidy for Small Business from NSIC
NSIC provides two basic subsidies. Such as raw material assistance and marketing
assistance. Raw Material Assistance Scheme aims at helping Small Scale
Industries/Enterprises by way of financing the purchase of Raw Material (both
indigenous & imported).
This gives an opportunity for SSI to focus better on manufacturing quality products.
Under the Scheme, marketing support is provided to Micro, Small & Medium
Enterprises through National Small Industries Corporation (NSIC) to enhance
competitiveness and marketability of their products.
[4.] Credit Linked Capital Subsidy Scheme for Technology Up gradation (CLCSS)
Up gradation of the process as well as the corresponding plant and machinery is
important to help SMEs reduce the cost of production and remain price competitive in
the global market. To help SMEs flourish in international trade markets, the Ministry

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of Small Scale Industries (SSI) runs a scheme for technology up gradation of Small
Scale Industries.
Known as the Credit Linked Capital Subsidy Scheme (CLCSS), it aims at facilitating
technology up gradation by providing the upfront capital subsidy of 15% (limited to
maximum Rs.15 lakhs) to SSI units for credit availed by them for the modernization
of their plant and machinery. All sole proprietorship, partnership firms, cooperative,
private and public limited companies are eligible for this scheme.
[5.] Capital Subsidy for Solar Lighting and Small Capacity PV Systems
The Government of India has launched the Jawaharlal Nehru National Solar Mission
(JNNSM) to promote sustainable energy generation and support the growing need for
energy in India while addressing India‘s energy security challenge. The JNNSM
provides a host of subsidies and soft loans for the promotion and penetration of solar
energy generation in the nation.
Through the capital subsidy for solar lighting and small capacity PV systems, the
JNNSM provides capital subsidy of up to 40% of the approved unit cost (benchmark
cost) for solar lighting systems and small capacity Photovoltaic systems. Capital
subsidy of 90% of the benchmark cost, would be available for special category states,
viz. NE, Sikkim, J&K, Himachal Pradesh and Uttarakhand.
Incentives to Small Scale Industries in India
An incentive is a motivational factor which induces a person to work hard or to do his work
more efficiently.
[1.] Reservation:
To protect the small-scale industries from the competition posed by large-scale
industries, the Government has reserved the production of certain items exclusively
for the small-scale sector. The number of items exclusively re-served for the small-
scale sector has been considerably increased during the Five Year Plan Periods and
now stands at 822.
However, prior to the 1997 – 98 Budget the number of items reserved for the small-
scale sector stood at 836. The Finance Minister de-reserved 14 items in the 1997 – 98
Budget.

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[2.] Preference in Government purchases:

The Govern-ment as well as Government organizations shows preference in procuring
their requirements from the small-scale sector. For instance, the Director General of
Supplies and Disposals purchases 400 items exclusively from the small-scale sector.
The National Small-Scale Industries Corporation assists the SSI units in obtaining a
greater share of Government and defense purchases.
[3.] Marketing assistance:
The National Small Industries Corporation (NSIC), the Small Industries Development
Organization (SIDO) and the various Export Promotion Councils help SSI units in
marketing their products in the domestic as well as foreign markets. The SIDO
conducts training programmers on export marketing and organizes meetings and
seminars on export promotion.
[4.] Excise duty:
In respect of SSI units excise duty concessions are granted to both registered and
unregistered units on a graded scale depending upon their production value. Full
exemption is granted up to a production value of Rs.30 lakhs in a year and 75 % of
normal duty is levied for production value exceeding Rs.30 lakhs but not exceeding
Rs.75 lakhs. If the production value exceeds Rs.75 lakhs, normal rate of duty will be
levied.
[5.] Supply of raw materials:
In order to ensure regular supply of raw materials, imported components and
equipment‘s, the Government gives priority allocation to the small-scale sector as
compared to the large-scale sector. Further, the Government has liberalized the import
policy and streamlined the distribution of scarce raw materials.

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Module IV
Industrial Sickness
The Reserve Bank of India has defined a sick unit as one ―which has incurred a cash loss for
one year and is likely to continue incurring losses for the current year as well as in the
following year and the unit has an imbalance in its financial structure, such as, current ratio is
less than 1: 1 and there is worsening trend in debt-equity ratio.
CRITERIA TO IDENTIFY SICKNESS/ INCIPIENT SICKNESS
The following criteria were adapted to identify sick/ incipient sick units in the Third Census.
[1.] Continuous decline in gross output compared to the previous two financial years;
[2.] Delay in repayment of institutional loan, for more than 12 months; and
[3.] Erosion in the net worth to the extent of 50 per cent of the net worth during the
previous accounting year.
REASONS FOR SICKNESS/ INCIPIENT SICKNESS
About 66 % of the sick/ incipient sick units were facing lack of demand, followed by 46 %
facing shortage of working capital and 36 % facing marketing problems.
CAUSES FOR SICKNESS/INCIPIENT SICKNESS
The FICCI study entitled ‗Industrial Sickness — Dimensions and Perspectives‘ says that the
causes of sickness are both internal and external, often operating in combination.
External factors are government policies on pricing, duties, taxes, high interest rates, taxes on
profit, slackness in demand, sluggishness in export markets, high labour cost, inadequate
availability of inputs, lack of infrastructure and the like.
The internal factors which contribute to sickness are wrong planning in relation to location,
technology, capital cost, technological obsolescence, management deficiencies and industrial
unrest. Given below are the details about these external and internal factors:

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External Factors:
The following are some of the external factors causing industrial sickness in India:
[1.] General Recessionary Trend:

Sometimes a general depression hits industrial units. This is reflected in lack of
demand for industrial products in general. An overall slowdown in economic
activities affects the performance of individual projects. Improper demand estimation
for the products to project lands the industrial units in difficulties.
[2.] High Prices of Inputs:
When the costs of manufacture are high and sales realization low, the industrial unit
cannot stand in the market. This happens when the prices of inputs such as price of
fuel such as petroleum during energy crisis goes up whereas the competitive forces
keep down the prices of the products.
[3.] Non-Availability of Raw Materials:
When the supplies of raw materials are not available regularly or in good quality, the
industrial units are bound to be in trouble. This often occurs in case of supply of
imported raw materials.
[4.] Changes in Government Policies:
The industrial sickness is also caused by certain changes in policy designs of the
government. These frequent changes affect the long-term production, financial and
marketing planning of an industrial unit. Changes in Government policies regarding
imports, industrial licensing, and taxation can make viable units sick. For example,
liberal import policy since 1991 has rendered many small-scale industrial units sick.
[5.] Infrastructure Bottlenecks:
Often the infrastructure difficulty is responsible for industrial sickness. No industrial
unit can survive prolonged transport and power bottlenecks.

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Internal Factors:
The following are the important internal factors which are often responsible for industrial
sickness:
[1.] Project Appraisal Deficiencies:

The industrial unit becomes sick when the unit has been launched without a
comprehensive appraisal of economic, financial and technical viabilities of the
project.
[2.] Industrial Unrest and Lack of Employee Motivation:
When there is labour discontent, no industrial unit can function smoothly and
efficiently. When labour lacks motivation no good results can be expected and this
results in sickness and non-viability of several industrial units.
[3.] Wrong Choice of Technology:
If the promoters use wrong technology, results are bound to be unsatisfactory. Many
industrial units, especially in the small-scale sector, do not seek professional guidance
in installing the correct machinery and plant. If the machinery and plant installed turn
out to be defective and unsuitable, they are bound to suffer losses and become sick
and non-viable.
[4.] Marketing Problems:
The industrial unit becomes sick due to product obsolescence and market saturation.
The industrial unit becomes sick when its product-mix is not attuned to the
consumers‘ demand.
[5.] Wrong Location:
If the location of an industrial unit happens to be defective either from the point of the
market or the supply of inputs, it is bound to experience insurmountable difficulties.
[6.] Lack of Finance:
Inadequate financial arrangements or in the absence of timely financial aid an
industrial unit is bound to come to grief. It will not be able to withstand operational
losses.

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[7.] Improper Capital Structure:

If capital structure proves to be unsound or unsuitable especially on account of
delayed construction or operation, it will result in cost overruns or unduly large
borrowing and create financial trouble for the unit concerned.
[8.] Management Deficiencies:
The biggest cause of industrial sickness is the managerial inefficiency. Lack of
professional management or experienced management and the existence of hereditary
management is an important cause of industrial sickness. Inefficient management
results in inability to perceive things in proper perspective devoid of routine
considerations. Inefficient management is also unable to build up good team and
inspire confidence for an organized collective effort and takes autocratic and high-
handed decisions.
[9.] Voluntary Sickness:
There is some sickness which is voluntarily invited by the entrepreneurs for various
motives like getting government concession or aid from financial institutions. Thus
industrial sickness cannot be attributed to any single, or simple cause but may be the
result of a combination of number of allied causes.
An analysis of 637 large-scale units identified that deficiency in management was
responsible for 52 per cent cases of sickness. While labour troubles caused sickness
only in 2 per cent of the industries, market recession and environmental factors came
second with 23 per cent.
The other causes were technical factors and faulty initial planning (14 per cent) and
infrastructural factors such as power cuts and shortage of critical inputs (9 per cent).
Of the 637 large units, 350 could be put back on the track. Of these, 221 units, with
the outstanding credit of Rs. 1,125.06 crores were put under the nursing programme.

ASST. PROFESSOR
SYMTOMS OF SICKNESS
It has already been mentioned that industries do not fall sick overnight rather the process of
failure can take number of years. This implies that the signs of sickness may be discernable
quite early in the life of an industry. These warning signs in several functional areas are
termed as ‗signals‘. In fact, the timely identification of various signals makes the detection of
sickness easier. Therefore, the various signals need to be identified and monitored at an early
stage of sickness.
The important signals of industrial sickness are:
[1.] Decline in capacity utilization;

[2.] Shortages of liquid funds to meet short-term financial obligations;
[3.] Inventories in excessive quantities;
[4.] Non-submission of data to banks and financial institutions;
[5.] Irregularity in maintaining bank accounts;
[6.] Frequent breakdowns in plants and equipment‘s;
[7.] Decline in the quality of product manufactured or service rendered;
[8.] Delay or default in the payment of statutory dues such as provident fund, sales tax,
excise duty, employees‘ state insurance, etc.;
[9.] Decline in technical deficiency; and
[10.] Frequent turnover of personnel in the industry.
CURES FOR SSIs’ SICKNESS
The following measures can be taken to improve the efficiency of SSIs and to prevent
sickness in small-scale units.
 In a market-oriented economy, SSIs must put greater emphasis on pragmatic planning

of their functions and discover new markets with innovative product or services.
 Success for an SSI depends upon accessibility to market information and using the
same effectively in business operations. The internet has revolutionized the world and
SSIs must become net savvy especially in marketing their products.

ASST. PROFESSOR
 More thrust should be given to R&D for product innovation, quality improvement,
cost reduction, and so on
 More attention must also be focused on promoting professionalism in management
and providing frequent training to update entrepreneurial skills and so on
 The infrastructure facility should be improved by the State to enable a smooth
functioning of the SSI activities.
 The modernization of plant is of utmost importance at present among the SSIs to
strengthen their competitive edge and for which the government should assist by
providing adequate finance at liberal terms.
 The SSIs must give attention to adequate marketing arrangements with the
prospective buyer to get regular orders and also undertake continuous market
research.
 The products of SSIs are widely advertised in the media for the adequate publicity and
for the better reach.
 SSIs will have to make special efforts for collection of their dues for their growth.
They may have to utilize the services of factoring for the purpose. It is imperative that
SSIs familiarize themselves with inventory control techniques to reduce the cost of
working capital.
Government Policy to Deal with Industrial Sickness:
The policy framework in respect of measures to deal with the problem of industrial sickness
has been laid down in the guidelines issued in October 1981 (which were subsequently
modified in February 1982) for guidance of administrative ministries of the Central
Government, State Governments, and financial institutions.
The Central Government has set up a Board for Industrial and Financial Reconstruction
(BIFR) with effect from January 12, 1987 in pursuance of enactment of the SICA—Sick
Industrial Companies (Special Provisions) Act, 1985. This is a major step for intervening at
an early stage and detecting, preventing as well as taking ameliorative, remedial, and such
other measures which need to be taken with respect to sick and potentially viable companies.

ASST. PROFESSOR
A number of measures have been taken to tackle the problem of industrial sickness. The
importance of detection of sickness at the incipient stage has been emphasized by the RBI.
Since its inception (1987) up to the end of March 1998, BIFR received 7,7,158 applications.
It is to be remarked here that the number of cases being registered with the BIFR has been
decreasing gradually.
Till October 2002, the Board has sanctioned rehabilitation schemes of 748 central and state
PSUs. It has so far recommended Winding up of 1,303. A small set of 485 companies have
been declared no longer ‗sick‘ and have been discharged from the purview of SICA, since net
worth of these public and private companies turned positive after the implementation of
rehabilitation schemes.
The Industrial Reconstruction Bank of India (IRBI) set up in 1985 has initiated various steps
for checking the growth of industrial sickness and helping in industrial revival. Out of 393
units assisted by the IRBI till the end of June 1986, 136 units have been revived. By March
1997, cumulative financial assistance sanctioned and disbursed stood at Rs 4,312 crore and
Rs 2,954 crore, respectively.
The IRBI was taken over by the Industrial Investment Bank of India in 1997. It functions as
the principal credit and reconstruction agency for industrial revival. A significant measure
taken during 1986 was the setting up of Small Industries Development Fund (SIDF) in the
IDBI. This is meant to provide special financial assistance to the small-scale sector.
The Government has set up two funds, the Textile Modernization Fund and the Jute
Modernization Fund—for modernization in the textiles and jute sector. Under these two
funds, assistance is provided not only to the healthy units for modernization at 11.5 p.c. rate
of interest, but also to sick but potentially viable units. Special loans are given to the weak
units for meeting a part of the promoters‘ contribution. These special loans carry 6 p.c. rate of
interest with a repayment period of 12 years and an initial moratorium period of 6 years.
Meanwhile, the Government appointed a ‗Committee on Industrial Sickness and Corporate

Restructuring‘ in 1993 under the chairmanship of Onkar Goswami. The Committee
recom-mends liquidation of sick concerns instead of their rehabilitation.

ASST. PROFESSOR
Government is now considering the repeal of SICA and winding up of the BIFR. It is feared
that, in view of the 2008 recession, in the immediate future large number of sick units would
be closed down thereby raising the bogey of unemployed workers.

ASST. PROFESSOR

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3/13/2019 Entrepreneurship

A Chiranjibi Rambabu Achary

Entrepreneurship is a process of actions of an entrepreneur who is a person always in search

There are fundamentally two different types of entrepreneurship.

Small Medium Enterprise entrepreneurship (SME): These are fundamentally small

Examples: dry cleaner, restaurant etc.

A CHIRANJIBI RAMBABU ACHARY

An intrapreneur (also referred to as inside entrepreneur) is an employee within an

The PlayStation as we know it is the brainchild of an intrapreneur in Sony. Ken Kutaragi, an

A CHIRANJIBI RAMBABU ACHARY

Difference between an Entrepreneur and an Intrapreneur

Entrepreneur is free and the leader of the Intrapreneur is an employee

Bears all types of risk. Bears moderate risk

Independent decisions to execute dreams. Collaborative decisions to execute dreams.

 Classification by Clarence Danhof

 Innovating Entrepreneurs: is one who introduces new goods, inaugurates

 Imitative or Adoptive Entrepreneurs: readiness to adopt successful

 Drone Entrepreneurs: they continue to operate in their traditional way and

A CHIRANJIBI RAMBABU ACHARY

 On the Basis of type of Business

 Corporate entrepreneurs: Who establish and manage corporate form of

 Agricultural entrepreneurs: Who undertake activities like raising and

 On the Basis of use of Technology

 Non-technical entrepreneurs: Who are not concerned with technical side,

 On the Basis of Motivation

 Pure entrepreneurs: Who are basically motivated to become entrepreneurs

 Induced entrepreneurs: Who are induced to take up entrepreneurial role by

 Motivated entrepreneurs: They are motivated by the desire to make use of

 Spontaneous Entrepreneurs: They are motivated by their desire for self-

A CHIRANJIBI RAMBABU ACHARY

 On the Basis of Stages of Development

 First generation entrepreneurs: Who do not possess any entrepreneurial

 Classical entrepreneurs: Who aims to maximize his economic returns at a

 Women entrepreneurs: It may be defined as a woman or group of women who

 Urban entrepreneurs: They belong to urban areas and establish their

 Rural entrepreneurs: Rural entrepreneurs are usually involved in trading or

 Social entrepreneurs: A person who establishes an enterprise with the aim of

A CHIRANJIBI RAMBABU ACHARY

Nature & Characteristics of Entrepreneurship

1. Innovation: Entrepreneurship is a creative activity. An entrepreneur is basically an

4. Organization Building: Organization building ability is the most critical skill

5. Status Withdrawal: An entrepreneur is a creative problem solver interested in things

6. Group Level Pattern: Entrepreneurial activity is generated by the particular family

1. Promotes Capital Formation

Entrepreneurs promote capital formation by mobilizing the idle savings of public.

A CHIRANJIBI RAMBABU ACHARY

2. Creates Large-Scale Employment Opportunities

Entrepreneurs provide immediate large-scale employment to the unemployed which is

3. Promotes Balanced Regional Development

Entrepreneurs help to remove regional disparities through setting up of industries in

4. Reduces Concentration of Economic Power

5. Increasing Per Capita Income

6. Improvement in the Standard of Living

7. Promotes Country's Export Trade

Entrepreneurs help in promoting a country's export-trade. They produce goods and

8. Augmenting and meeting local Demands

A CHIRANJIBI RAMBABU ACHARY

A CHIRANJIBI RAMBABU ACHARY