BOOK REVIEW

ON

THE SMALL ENTREPRENEUR

à
 



AUTHORED BY:
B YERRAM RAJU

DR. R. R. PUJARI

SUBMITTED TO:

SUBMITTEDY BY:

cc
c
ABOUT THE BOOK:
SMEs in India have come of age. The small enterprise sectors has shown a higher growth
rate and also it helps in society and economic development process of country. It tells how a
small effective enterprise can make a difference and how to launch a small venture of your own
and take it as a profession. It tells all about the basic things need to follow to set up a business
and venture. How to work in the field of marketing and finance to run a business into profits
those which are new to the market and have a strong potential ahead. It also tells about the
various policies of governing bodies to set up a small firm or organization. It is motivational
information which may change the economic condition of a country.

ABOUT THE AUTHOR:

B YERRAM RAJU, PhD is the regional director of professional risk's managers international
association, Hyderabad chapter and the director (projects and research) of development and
research services, Hyderabad. he has served as a banker, trainer and teacher at the STATE F
BANK; LBS national academy of administration, Mussorie; Administrative staff college of
India; institute of public enterprise (IPE); INDIAN INSTITUTE OF ECONOMICS, Hyderabad.
and also as the editor of ASIAN ECONOMICS REVIEW; spanning for more than four decades.
He has written several reviews and more 500 articles in national and economic dailies.

Dr. R. R. Pujari is a results oriented business leader with a strong record of accomplishment of
performance in turnaround and high paced organization. He has over 30 years successful
experience of providing fiscal and strategic operations leadership in uniquely challenging
situations. As a banker with 25 years experience, he held positions like vice president at SBI,
Frankfurt; vice president of SBI life insurance co ltd., and deputy general manager and head of
Punjab zone operations of SBI.

cc
c
 ONTENTS

yc Introduction
yc Starting an Enterprise
yc Key questions for entrepreneurs
yc Regulatory Aspects
yc Institutional Framework
yc Technology Management
yc Planning the growth and financing
yc Business development service providers
yc Cluster and Cluster Development
yc Export ± Import Procedures
yc SME Rehabilitation
yc Conclusion

cc
c
INTRODUTION

WHAT ARE SME¶S?

Small and medium enterprises (also SMEs, small and medium businesses, SMBs) are
companies whose turnover falls below certain limits.

FEATURES OF THE INDUSTRIAL POLICY OF THE GOVERNMENT OF INDIA

AFEECTING THE SMES

1. GOI enacted MSME Development Act 2006 to provide growth enabling competitive
environment for SME¶s and defined for the first time Medium enterprises.

2. Investment in plant and machinery to qualify as micro enterprises is Rs 2.5 million

3. Investment in plant and machinery > Rs 2.5 mn but <50 mn for qualifying as small enterprises
in the manufacturing sector.

4. Investment in equipment >Rs 1 mn but <Rs 20 mn in service enterprises.

STATE INITIATIVES IN REGULATION

States like Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujarat, Punjab,
Haryana, Rajasthan and Madhya Pradesh have taken initiatives proactively to: simplify
resources, reduce the inspection of inspectors, provide infrastructure at affordable cost to the
entrepreneurs.

STARTING AN ENTERPRISE

Entrepreneurship development and promotion of self employment continue to drive the

growth of developing economies as both the options have the potential to resolve the issues of
unemployment and underemployment significantly, which gives birth to an idea of starting an
enterprise.

c c
c
WHERE TO START? PLOT OR SHED? OWN OR RENTED?

Several state governments allot developed plots or constructed shell space (sheds) in
industrial Estates on either hire purchase basis or outright sale basis. It is also desirable that they
should try to search for a reliable business partner even with the close relatives like the spouse,
brother etc

FORMS OF BUSSINESS ORGANIZATION

a)c Sole Proprietary Concerns

b)c Partnership Account
c)c Joint Stock Companies
d)c Private Company
e)c Public Company

THE LEGAL ASPECTS OF INCORPORATION CHECKLISTS

a)c Have you carefully accessed the amount of finance required for expansion?
b)c What effect will rising outside finance have on your control of the business?
c)c Will outside investors require a seat on the board? If so, what expertise will they bring?
d)c Are you aware of your responsibilities as a director?

CHOICE OF PLANT AND MACHI NERY

The promoter, if he is a technologist or a qualified engineer well acquainted with the product and
manufacturing process ,he may himself identified the plant and machinery required for the
venture, and if desirous for seeking counseling ,he may approach the micro small and medium
enterprises service institute(MSMI).

REGISTRATION-

Registration is the process by which a small enterprises gets eligibility for certain benefits
/grants/concession that the state and central governments as also financing institution extends.

c c
c
POLLUTION CONTROL CLEARANCE

It is extremely important that an entrepreneur in his anxiety to set up an industrial venture in the
name of employment creation and exports cannot afford to ignore the environmental concerns.

ESI REGISTRATION

Registration with the employee¶s state insurance corporation has to be completed prior to
commencement of production.

KEY QUESTION FOR THE ENTREPRENEUR

1.c What business we are in?

2.c Who are your customers?
3.c What influences customer¶s choice?
4.c What is the product or service?
5.c Who are your competitors?
6.c Do you have the right supplies?
7.c How shall we achieve the objectives?
8.c How do we get there?

REGULATORY ASPETS
IMPORTANCE OF REGULATION

There are number of procedures to be followed by a small manufacturing enterprise at the

stage of setting up of industrial unit and then going into production.

THE MSMED Act, 2006

Objectives of the act are to provide for facilitating the promotion and development and
enhancing the competitiveness of Micro, Small and Medium enterprises and for matters
connected there to

c c
c
The act contains six chapters¶ deals with following aspects-:

Chapter 1:

Deals with preliminary aspects like, Definition of Act, Date of commencement, Days of
acceptance, Day of deemed acceptance etc.

Chapter 2:

Deals with Setting up of National board for Micro, small & medium enterprises

Chapter 3:

Classification of enterprises, advisory committee and memorandum of micro, small and medium
enterprises. It also includes Size of enterprise

Chapter 4:

Deals with Measure of promotion, Development enhancement of competitiveness of micro,

small and medium enterprises

Chapter 5:

Deals with supportive measures to prevent delayed payments to Micro and small enterprises in
respect of supplies made by them

Chapter 6:

Deals with Miscellaneous provisions like appointment of Officers and other employees, levy of
penalties, jurisdiction of courts, power to make rules by central government etc

LIMITED LIABILITY PARTNERSHIP ACT

The features are

yc Creating of a new legal entity
yc Unlimited liability of partners in general partnership is a cause for concern
yc Creates risk for partners

c c
c
 yc Suitable platform for SMEs
yc Duties ,contributions and financial disclosures

INSTITUTIONAL FRAMEWORK

A broad-based institutional framework for proper structuring and promotion of SME

sector needs hardly any overemphasis. The state, private and public institutions have a crucial
role to play effective policy formulation, implementation training etc.

CENTRAL GOVERNMENT

MSME BOARD

yc Functioning under the union MSME ministry

yc Apex advisory body to facilitate coordination of inter institutional linkages in the SSI
sector
yc Constitutes members from Central, state governments, RBI,SBI,FASSI etc

SMALL INDUSTRIES DEVELOPMENT ORGANISATION (SIDO)

Offices of development commissioner of MSMEs located at various centers known as

SIDO. Following organizations are working under SIDO ± MSMESI, Field testing, Tool rooms,
CFTI, EDI, PPDC etc

STATE GOVERNMENT

Directorate of industries, district industries centres, state financial corporations, SIDC/SIIC and
state small industries development corporations are established by each state

OTHER AGENCIES

Few other agencies are- HUDCO,TCO,KHADI AND VILLAGE INDUSTRIES COMMISION,

EDII, RBI, COMMERCIAL BANKS ,RRBs ,COOPERATIVE BANKS, NABARD, SIDBI,
SVCL etc.

c c
c
TEHNOLOGY MANAGEMENT

INDRODUCTION

SMEs in India are known for their ability for innovation and capacity to harness native
technologies to their unique advantage notwithstanding the common accusation that thrive only
on primitive and secondhand technologies

TECHNOLOGY TRANSFORMATION

yc Labor Intensive
yc Capital Intensive

TYPES OF TECHNOLOGY TRANSFERS

Basically there are three types of technology transfers. They are-:

yc Implicit ± A firm buys a machine; studies it; and initiates the technology.
yc Explicit- A firm acquires technology through licensing or a part of Foreign Direct
Investment (FDI).
yc International-Technology is transferred from one country to another by way of either
inter country agreement or interfirm agreement.

PLANNING THE GROWTH AND FINANING

STRATEGIC PLAN & SALES PROMOTION:

In the strategic planning of any organization there should be some basic objectives that
are wished to achieve within a specific time frame. As a team decide on what needs organization
will get those targets. Spend sufficient time refining the developing techniques and decide the
best the best way to achieve it.

In sales promotion embraces a number of short term activities aimed at achieving specific
tasks. Most sales promotion activities are concerned with time and time limits i.e. buying now,

c c
c
buying sooner, faster, before certain dates. The type of promotion undertaken must be in line
with the overall objectives.

Exhibitions provide another sales promotion opportunity. Those who exhibit need to make sure
that they invite the right people to visit. To creative an effective sales promotion activity one
need to first define the objectives in terms of the following:

1.c Create awareness of the product or service.

2.c Try to develop a brand or create customer loyalty.
3.c Inform customers of the benefits of the product.

ADVERTISING AND PUBLIC RELATION

Most small business is familiar with placing advertisements in their local newspaper.
Advertisements helps keep your name and advantages of the products of the products or services
in front of the customers. Consider the following while designing the advertisement.

1.c Make your advertisement different.

2.c Keep the copy to a minimum.
3.c Make use of space and do not overload the advertisement with too much detail.
4.c State the message directly.
5.c Promote the benefits of your product or service.

Public Relation is one of the most deliberate, planned and sustained effort to establish and
maintain understanding between an organization and its public. In other word it¶s another way of
publicity effort which is based around building up a company image.

PRICING AND NEW OPPORTUNITIES

Trying to decide on the price for a new product is one of the most important and difficult
tasks facing the owner/manager. This decision will matter the target profits, launching new
products, gaining a bigger share of the market. In cost plus pricing this is one of the most
commonly used methods to determine desired profit to the actual cost of sales. In market based
pricing many companies uses low pricing strategy to enter the competitive market. In market
based pricing the price is determined according to the market situation. Pricing should be

c c
c
determined according to Product differentials, Customer attitudes, Potential and existing
competitor response, Promotional activities, Costs.

FINDING THE FINANCE AND INSURANCE

At the time of setting the growth objectives its essential to plan for the costing and
budgeting for each activity. It will include a cash flow forecast, a projected profit and loss
account and a balance sheet. Profit projection is uncertain so prepare borrowing facilities in
excess of the predicted need. There are many ways to raise start up finance for the SMEs. They
include Personal savings and assets, Personal loans, Life insurance policies, Angel investors/
Venture capitalists, Friends and relatives.

PATENTS, REGISTERED DESIGNS AND TRADEMARKS

Growth is based on being different or having new approaches. If the new product is novel
and is capable of industrial application a patent could be sought. By registration you can protect
the appearance or style of your product against those seeking to imitate. And if the firm
expansion is linked to the creation of a corporate image then one should register the logo, sign,
mark or word.

BUSINESS DEVELOPMENT AND SERVIE PROVIDERS

Small and medium size enterprise can create wealth. SMEs can provide employment.
They have a greater proclivity to innovate than their larger counterparts and therefore play an
important role in the country. SMEs can make an important contribution to the infrastructure.
They can help to counter regional economic decline because SMEs could survive in limited
markets while their elder brothers cannot. Other benefits include large market, diversity.

LUSTERS AND LUSTER DEVLEOPMENT

A cluster is a geographically bound concentration of similar related or complementary
business with active channels for business transaction, communication and dialogue that share

c c
c
specialized infrastructure, labor markets and services that are faced with common opportunities
and threats.

The two main challenges of small enterprises are to upgrade themselves from local,
national to global markets and to meet competition through superior quality and technology
upgradation. Thus with the help of cluster approach we can lead to interfirm cooperation culture,
combines flexibility and efficiency, continuous upgradation of production, markets, skills and
technology, increases innovation joint learning and collective efficiency.

Launching a cluster development approach we need to select the cluster. The selection of
a cluster is done through the identification of a cluster in a country, creation of a country cluster
table and map, preliminary selection and short list of cluster, formulation of final selection
criteria and final selection on cluster. Cluster development process consists of identification of
clusters, sources of information, skills upgradation, and strengthing of linkages, innovative
product development, institutional capacity building.

EXPORT ± IMPORT PROEDURES

Export is a fascinating activity. They facilitate in creation of new markets beyond the
boundaries of one¶s own country and making goods or services produced in one country
available to many foreign homes or businesses. Exports create jobs, economic prosperity and
help promote the image of the exporting country. As an exporter it is important to know certain
things and able to say no to certain things. Who must thoroughly know the product you deal in,
acquire full knowledge of various registrations required or facilities offered by the state, and do a
full research in the market. Success in export market comes to those who are fully prepared to
exploit opportunities as they emerge. Delays are fraught with grave risks such as cancellation of
orders, exchange losses and penalties. Export markets and orders are unique in nature and it is
important that attention be paid to every detail of the market.

The first step that an exporter has to decide on is what type of business organization
would be the best fir for the business. The final decision depends upon the size of business
operations, ability to fund the operations, the amount of control the exporter likes to exercise

c c
c
over the business, risk appetite of the exporter concerned. After finalizing the decision the
enterprise need to obtain the Importer Exporter Code number which is meant for identification
and collection of statistics. You can get export orders by connecting with potential importers,
visiting potential importers in select countries, participating in trade fairs in India and abroad,
browse the internet, meeting buyers visiting India. Packaging to be of critical importance in
exports as the products have to go through a long voyage and several handlings. The instructions
given by the importer should be strictly followed regarding packing. The Bureau of Indian
Standards has prescribed packing standards for certain items.

Export benefits can be like duty drawbacks where the exporter is refunded with any duty
he may have paid on the goods imported for the use in the export order execution. Deemed
exports refer to the goods that do not leave the country but which trigger earning of foreign
exchange.

SME REHABILATION

An enterprise is considered sick when any of its borrowed accounts has become a
doubtful like where the interest to be paid remained over due for a period exceeding 90 days.
Erosion in the enterprise due to accumulated cash losses.
The causes of sickness can be broadly divided into two categories, namely internal causes and
external causes. The internal causes are management - dishonesty and lack of integrity, finance ±
diversion of working capital to create fixed assets, production ± poor labor productivity,
personnel ± lack of skilled labor, marketing ± dependence on one or very few customers and
entrepreneurship qualities ± risk taking abilities. The external causes are finance ± inadequate or
delayed bank finance. Production ± raw material shortage, marketing ± competition from big
concerns, miscellaneous ± government decisions like export/import policy excise duty.

A primary preventive measure is to preserve health by removing the precipitating causes

and determinants of departures from good health. Secondary measure is to detect and correct
departures from good health as early as possible. Entrepreneurial responsibility is of great
significance in any rehabilitation effort. The firm should maintain transparency in all the
transactions. It should keep the bank informed of all the steps being taken, revalue all the assets.
c c
c
Do not commit on what is not probable and lose credibility further. It can seek professional
guidance or look at the market; how it is moving; is it price sensitive or brand sensitive.

ONLUSION:

This book tells us about how a small entrepreneur can develop and grow the business.
The expansion of the business can be done by following the components like clustering,
exporting and rehabilitating the business by taking corrective measures. Proper marketing and
financial planning are also vital to grow the business into the competitive market. Small and
medium sized business can develop the economic and employment scenario of the country.

c c
c