ENTREPRENEURSHIP

DEVELOPMENT

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SYLLABUS

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 Module 1
Entrepreneurship

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Entrepreneurial activity is increasing throughout the world. In India too,
there has been a significant change in the mindset of the society. There is no
doubt that entrepreneurs and entrepreneurship are playing important roles
in today’s global business environment. So what is entrepreneurship? And
who are entrepreneurs?

Entrepreneurship is a composite skill, which include imagination, readiness

to take risks, ability to bring together and put to user other factors of
production, capital, labour, land, as also intangible factors such as the
ability to mobilize scientific and technologic advances. One of the qualities of
entrepreneurship is the ability to discover an investment opportunity and to
organize an enterprise, thereby contributing to real economic growth. It
involves taking of risks and making the necessary investments under
conditions of uncertainty and innovating, planning and taking decisions.

What is Entrepreneurship?

DEFINITION OF ENTREPRENEURSHIP

In the words of Stevenson and others, “Entrepreneurship is the process of

creating value by
bringing together a unique package of resources to exploit an opportunity.”
According to A.H. Cole, “Entrepreneurship is the purposeful activities of an
individual or a group of associated individuals undertaken to initiate,
maintain or organize a profit oriented business unit for the production or
distribution of economic goods and services”. All activities undertaken by an
entrepreneur to bring a business unit into existence are collectively known
as entrepreneurship. It is the process of changing ideas into commercial
opportunities and creating values. In short, entrepreneurship is the process
of creating a business
enterprise.

According to Frank Knight, “It involves a specialized group or persons who

bear ‘risks’ and meet the uncertainty”

According to Musselman and Jackson, “Entrepreneurship is the investing

and risking of time, money and effort to start a business and make it
successful.”

According Peter Drucker, “Entrepreneurship is neither a science nor an

art. It is a practice. It has a knowledge base. Knowledge in entrepreneurship
is a means to an end. Indeed what constitutes knowledge in practice is
largely defined by the ends; that is, by the practice. Let’s look closer at these
common themes so we can begin to better understand what
entrepreneurship is. Thus entrepreneurship is a complex phenomenon.
“Some think of entrepreneurs primarily as innovators, some chiefly as
managers of enterprise, some as bearers of risks and others place major
emphasis on their function as mobilisers and allocators of capital.”
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NATURE AND CHARACTERISTICS OF ENTREPRENEURSHIP
Features of entrepreneurship are summarized as follows:
1) It is a function of innovation.
2) It is a function of leadership.
3) It is an organization building function.
4) It is a function of high achievement.
5) It involves creation and operation of an enterprise.
6) It is concerned with unique combinations of resources that make existing
methods or
products obsolete.
7) It is concerned with employing, managing, and developing the factors of
production.
8) It is a process of creating value for customers by exploiting untapped
opportunities.
9) It is a strong and positive orientation towards growth in sales, income,
assets, and
employment.
INNOVATION AND ENTREPRENEURSHIP
Innovation is one of the underlying dimensions of entrepreneurship. It is a
key function in
the entrepreneurial process. Without innovation, an entrepreneur cannot
survive in the modern
competitive business world. Entrepreneurship is a creative and innovative
response to the
environment and an ability to recognize, initiate and exploit an economic
opportunity. An
entrepreneur is an innovator who introduces who introduces something new
in an economy.

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As per the Schumpeter’s view, a person becomes an entrepreneur only when
he or
she is engaged in innovation .further, innovation is equal to competitive
advantage. The
entrepreneurs today realize the need for innovation. Innovation adds value
to the product. It is only
through innovation, the organizations can survive the increasing
competition in the market place.
RISKS INVOLVED WITH ENTREPRENEURSHIP
Entrepreneurship involves the following types of risks.
1) FINANCIAL RISK: The entrepreneurship has to invest money in the
enterprise on the
expectation of getting in return sufficient profits along with the investment.
He may get attractive
income or he may get only limited income. Sometimes he may incur losses.
2) PERSONAL RISK: Starting a new venture uses much of the
entrepreneur’s energy and
time .He or she has to sacrifice the pleasures attached to family and social
life.
3) CARRIER RISK: This risk may be caused by a number of reasons such
as leaving a
successful career to start a new business or the potential of failure causing
damage to professional reputation organizing and running a business
venturesome entrepreneurs who have suffered financial catastrophes have
been unable to bounce back.
BARRIERS TO ENTREPRENEURSHIP
Entrepreneurial development is very slow in under developed and developing
countries.
This is due to the presence of several factors. Gunnar Myrdal pointed out
that Asian societies lack entrepreneurship not because they lack money or
raw material but because of their attitudes. These barriers to
entrepreneurship are classified into three as follows:
A. ENVIRONMENTAL BARRIERS
Following are the important environmental barriers to entrepreneurship:
1) Non-Availability of Raw Material: - Non-availability of raw materials
especially during peak season is one of the obstacles inhibiting
entrepreneurship. This leads to competition for raw material.
2) Lack of Skilled Labour: - This is the most important resource in any
organization.
Unfortunately, desired manpower may not be available in an organization.
This is either due to the lack of skilled labour or due to lack of committed or
loyal employees in the organization.
3) Lack of Good Machinery: - Good machines are required for the
production of goods, because of rapid technological developments, machines
become obsolete very soon. Small entrepreneurs find it difficult to get large
amount of cash for installing modern machinery.
4) Lack of Infrastructure: - Lack of infrastructure facilities is a major
barrier to the growth of entrepreneurship particularly in under developed
and developing economies. The infrastructural facilities include land and

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building, adequate and cheap power, proper transportation, water and
drainage facilities etc.
5) Lack of Fund: - There are various methods by which an entrepreneur
arranges for funds, e.g.,own savings, borrowings from friends and relatives,
banks and other financial institutions. Many people do not enter into
entrepreneurial activities because of lack of funds.
6) Other Environmental Barriers: - Lack of business education, Lack of
motivation from
government, corruption in administration, high cost of production etc. are
the other environmental barriers that inhibit the growth of entrepreneurship
in underdeveloped countries.
B PERSONAL BARRIERS
Personal barrier are those barriers that are caused by emotional blocks of
an individual. Some
of the personal barriers may be outlined as below:
1) Unwillingness to Invest Money: - Even though people have money, still
they do not
come in entrepreneurship. They are not willing to take the risk of investing
money in business.
2) Lack of Confidence: - Many people thing that they lack what it takes to
become an
entrepreneur. They feel that they could not master all the skills. Thus most
people are reluctant to
become entrepreneurs.

3) Lack of Motivation: - When an individual starts a new venture, he is

filled with
enthusiasm and drive to achieve success. But when he faces the challenges
of real business or bears
loss, or his ideas don’t work, he loses interest or motivation.

SOCIAL BARRIERS
The social attitude inhibits many people even from thinking of starting a
business. The
important social barriers are as follows.
1) Low Status: - The society things that entrepreneurs are the people who
exploit the
society. Thus the attitude of the society towards entrepreneurs is not
positive.
2) Custom and Tradition of People: - Most people want a real job. Even
parents who are
entrepreneurs wouldn’t like their children to be entrepreneurs. Thus lack of
support from society and family hinder the growth of entrepreneurs.factors
such as the father’s occupation, the family work ethic and religion, family
size and the first born son, growing up experience and so on.
(D) Caste System: - Certain religions and caste encourage the growth of
entrepreneurial talent.Some religious communities like the parsees,
marwaris and sindhees seem to have an affinity for entrepreneurial activity.

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The caste system in Hindu society has promoted to the growth of business
and professional skills.
(E) Occupation :- Those born in rich families with silver spoons in their
mouth have not only an advantage of having financial resources for carrying
out business but also learn the business skill by continuous interaction and
contacts with parents, customers, employees and visitors in family shops,
offices and homes.
(F) Education and Technical Qualifications: - Education is the best
means of developing man’s resourcefulness which encompasses different
dimensions of entrepreneurship. It may be expected that the high level of
education may enable the entrepreneurs to exercise their entrepreneurial
talent more efficiently and effectively.
(G) Social Status: - Every human being aspires for a high social status and
once he achieves a reasonable level, his aspirations and desires for its start
getting multiplied. People work hard to maintain their status as it also
contributes to their entrepreneurial growth.
(H) Social Responsibility: - It is the obligation to the society in which the
business enterprise operates. An entrepreneur generates employment for
others besides helping himself.
ECONOMIC FACTORS: - Economic factors also influence the growth of
entrepreneurship. The important economic factors are:
(A)Infrastructural Facilities: - Entrepreneurship development requires
certain basic
infrastructure like power, transportation, communication, technical
information etc. These provide external economies and improve the
efficiency of investments by entrepreneurs. These infrastructural facilities
are scarce in less developed countries. The entrepreneurs themselves have
to procure these facilities at their own cost. They have to obtain these
facilities at higher costs. This will greatly discourage the entrepreneurship
development. In advanced countries, those who are desirous of starting an
enterprise will find no difficulty in procuring the infrastructural facilities at
reasonable costs.
(B) Financial Resources: - Finance is the life blood of business activity.
Capital is required to obtain materials, machinery, equipment, etc. and to
undertake innovation. Capital is regarded as lubricant to the process of
production. The lack of financial resources discourages the youth and
potential entrepreneurs to start new ventures. Hence, the need for fixed and
working capital should be adequately met if new entrepreneurs are to come
forward and grow.

(C) Availability of Material and Know – How: - Entrepreneurship is

encouraged only if there is
an adequate supply of materials and know-how. Easy availability of
materials attracts more
individuals towards entrepreneurship. Technical know-how is essential for
innovation. With

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technical knowledge, men discover more and sophisticated techniques of
production.
(D) Labour Conditions: - The quality rather than quantity of labour is
another factor which
influences the emergence and growth of entrepreneurship. The availability of
cheep labour
positively affects entrepreneurship. Labour problem can be solved not by
capital intensive
technologies but by increasing their mobility, by offering them facilities,
incentives and
concessions in every remote corner of the country.
Market: - The size and composition of market influence entrepreneurship in
their own ways.
Practically, monopoly in a particular product in a market becomes more
influential for
entrepreneurship than a competitive market.
(F) Support System: - Ability, initiative and support systems include
financial and commercial
institutions, research, training, consultancy services, ancillary industry etc.
(G) Government Policy: - The socio- political and economic policies of the
government inhibit or foster entrepreneurial growth. Land and factory sheds
at concessional rates, adequate sources of power, supply of materials and
other physical facilities should be provided by the government to facilitate
the setting up of new enterprises. The government has a dominant role to
play in the industrial development of backward regions with a view to attain
a balanced regional development.
PERSONALITY FACTORS: - The supply of entrepreneurship in a society
is largely
influenced by the presence of individuals with the initiativeness,
foresightedness and organizing and managerial competence. The following
personality factors contribute to the entrepreneurial development:
(A). Personality: - The entrepreneurial personality comprises of the person,
his skills, styles and motives. Impressive personality and individual skill
help to develop entrepreneurship. These qualities are required for
entrepreneurs because they have to work with officers, managers, engineers,
labourers, customers, investors, govt. officers, ministers etc.
(B). Independence:-Another personality factors which influences
entrepreneurship is
independence. An entrepreneur works out plans on his own, searches and
explores resources and
experiences and uses inner urge to make the enterprise a success instead of
waiting for
suggestions or directions from others.
(C). Compulsion: - Certain compelling reasons also force the people to
become entrepreneurs.
These include: (a) unemployment or dissatisfaction with existing job or
occupation, (b) to use
technical or professional knowledge and skills, (c) to put the idle funds to
use. A large number of

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technically qualified people after gaining initial experience and confidence
and not being satisfied
by their growth in the profession have a compulsive reason to try
entrepreneurship.

QUALITIES OF A SUCCESSFUL ENTREPRENEUR

In order to organize and run it successfully, the entrepreneur must possess
some qualities and traits.
They are as following:
1) Willingness to Make Sacrifices and Assume Risks: - A new venture is
full of
difficulties and unanticipated problems. In such an inhospitable
environment entrepreneur has to be
prepared to sacrifice his time, energy and resources in order to carry out the
venture and make it
success.
2) Hard Work: - Willingness to work hard distinguishes a successful
entrepreneur from an
unsuccessful one. For example, Assim Premji (chairman of Wipro) works in
his office fourteen
hours every day. He is a successful entrepreneur. He is one of the richest
persons in India.
3) Optimism: - Successful entrepreneurs are not worried by the present
problems that they
face. They are optimistic about the future. This enhances their confidence
and drives them towards
success. Some of the world’s greatest entrepreneurs failed before they finally
succeeded.

Self Confidence: - This is the greatest asset of a successful entrepreneur.

He must have
the confidence to make choices alone and bounce back when he fails.
5) Leadership: - Successful entrepreneur generally has strong leadership
qualities. He
should be a good judge of human nature and a good leader. He must be able
to select, train anddevelop persons who can properly manage and control
the labour force. McClelland identified two main characteristics in an
entrepreneur- (1) Doing things in a new and better manner. (2) Decision
making under uncertainty. A successful entrepreneur must be capable and
well-informed, a successful leader of men, a keen judge of things,
courageous and prudent. Above all he must be
gifted with a large measure of practical common sense. There are not many
Fords, Tatas, Birlas,

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Thapars and Ambanis in the world. Entrepreneurship is not limited to any
class, community or
religion. There is no age bar, for any person who possesses certain
behavioural traits and attitudes
can work to become an entrepreneur.

TYPES OF ENTREPRENEURS

Entrepreneurs may be classified in a number of ways.

A. ON THE BASIS OF TYPE OF BUSINESS.
Entrepreneurs are classified into different types. They are
1) Business Entrepreneur: He is an individual who discovers an idea to
start a business
and then builds a business to give birth to his idea.
2).Trading Entrepreneur: He is an entrepreneur who undertakes trading
activity i.e;
buying and selling manufactured goods.
3) Industrial Entrepreneur: He is an entrepreneur who undertakes
manufacturing
activities.

4) Corporate Entrepreneur: He is a person who demonstrates his

innovative skill in
organizing and managing a corporate undertaking.
5) Agricultural Entrepreneur: They are entrepreneurs who undertake
agricultural
activities such as raising and marketing of crops, fertilizers and other
imputs of agriculture. They
are called agripreneurs.
B. ON THE BASIS OF USE OF TECHNOLOGY: Entrepreneurs are of the
following types.
1) Technical Entrepreneur: They are extremely task oriented. They are of
craftsman type.
They develop new and improved quality goods because of their
craftmanship. They concentrate more on production than on marketing.

2) Non-Technical Entrepreneur: These entrepreneurs are not concerned

with the technical
aspects of the product. They develop marketing techniques and distribution
strategies to promote their business. Thus they concentrate more on
marketing aspects.
3) Professional Entrepreneur: He is an entrepreneur who starts a business
unit but does
not carry on the business for long period. He sells out the running business
and starts another
venture.
C. ON THE BASIS OF MOTIVATION:
Entrepreneurs are of the following types:
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1) Pure Entrepreneur: They believe in their own performance while
undertaking business
activities. They undertake business ventures for their personal satisfaction,
status and ego. They are
guided by the motive of profit. For example, Dhirubhai Ambani of Reliance
Group.
2) Induced Entrepreneur: He is induced to take up an entrepreneurial
activity with a view to avail some benefits from the government. These
benefits are in the form of assistance, incentives, subsidies, concessions and
infrastructures.
3) Motivated Entrepreneur: These entrepreneurs are motivated by the
desire to make use of their technical and professional expertise and skills.
They are motivated by the desire for self-fulfillment.
4) Spontaneous Entrepreneur: They are motivated by their desire for self-
employment and to achieve or prove their excellence in job performance.
They are natural entrepreneurs.
D. ON THE BASIS OF STAGES OF DEVELOPMENT: They may be classified
into;
1) First Generation Entrepreneur: He is one who starts an industrial unit
by means of his own innovative ideas and skills. He is essentially an
innovator. He is also called new entrepreneur.
2) Modern Entrepreneur: He is an entrepreneur who undertakes those
ventures which suit the modern marketing needs.
3) Classical Entrepreneur: He is one who develops a self supporting
venture for the satisfaction of customers’ needs. He is a stereo type or
traditional entrepreneur.
E. CLASSIFICATION ON THE BASIS OF ENTREPRENEURIAL ACTIVITY:
They are classified as follows:
1) Novice: A novice is someone who has started his/her first
entrepreneurial venture.
2) Serial Entrepreneur: A serial entrepreneur is someone who is devoted to
one venture at
a time but ultimately starts many. He repeatedly starts businesses and
grows them to a sustainable size and then sells them off.
3) Portfolio Entrepreneurs: A portfolio entrepreneur starts and runs a
number of
businesses at the same time. It may be a strategy of spreading risk or it may
be that the entrepreneur is simultaneously excited by a variety of
opportunities.

F. CLASSIFICATION BY CLARENCE DANHOF: Clarence Danhof, On the

basis of American agriculture, classified entrepreneurs in the following
categories:
1) Innovative Entrepreneurs: They are generally aggressive on
experimentation and
cleverly put attractive possibilities into practice. An innovative entrepreneur,
introduces new goods,inaugurates new methods of production, discovers
new markets and reorganizes the enterprise.

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Innovative entrepreneurs bring about a transformation in lifestyle and are
always interested in
introducing innovations.
2) Adoptive Or Imitative Entrepreneurs: Imitative entrepreneurs do not
innovate the
changes themselves, they only imitate techniques and technology innovated
by others. They copy and learn from the innovating entrepreneurs. While
innovating entrepreneurs are creative, imitative entrepreneurs are adoptive.
3) Fabian Entrepreneurs: These entrepreneurs are traditionally bounded.
They would be
cautious. They neither introduce new changes nor adopt new methods
innovated by others
entrepreneurs. They are shy and lazy. They try to follow the footsteps of
their predecessors. They follow old customs, traditions, sentiments etc. They
take up new projects only when it is necessary to do so.
4) Drone Entrepreneurs: Drone entrepreneurs are those who refuse to
adopt and use
opportunities to make changes in production. They would not change the
method of production already introduced. They follow the traditional method
of production. They may even suffer losses but they are not ready to make
changes in their existing production methods. There is another classification
of entrepreneurs. According to this, entrepreneurs may be broadly classified
into commercial entrepreneurs and social entrepreneurs.
Commercial Entrepreneurs: They are those entrepreneurs who start
business enterprises for their personal gain. They undertake business
ventures for the purpose of generating sales and profits.Most of the
entrepreneurs belong to this category.
Social Entrepreneurs: They are those who identify, evaluate and exploit
opportunities that create social values and not personal wealth. Social
values refer to the basic long standing needs of society. They focus on the
disadvantaged sections of the society. They play the role of change agents in
the society. In short, social entrepreneurs are those who start ventures not
for making profits but for providing social welfare.

MODULE -2

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SMALL SCALE ENTERPRISES

MEANING AND DEFINITIONS OF SMALL SCALE INDUSTRY

Small-scale industry comprises of a variety of undertakings. The definition

of small-scale industry varies from one country to another and from one
time to another in the same country depending upon the pattern and stage
of development, Government Policy and administrative set up of the
particular country. As a result, there are nearly 50 different definitions of
SSIs found and used in 75 countries. All these definitions either relate to
capital or employment or both or any other criteria. We trace here the
evolution of the legal concept of small-scale industry in India. There can be
two bases for defining small business and these are:
I. Scale of Business: The size or scale of business can be measured in
various ways like :
(i) Investment on plant and machinery
(ii) Employment generation.
(iii) Investment and Employment.
(iv) Volume and/or value of production.
(v) Volume and/or value of sales.

Qualitative Aspects: These can be:-

(i) Ownership of small business is in the hands of an individual or a
few individuals.
(ii) Management and control of small-scale firm is with the owner or
owners.
(iii) Technology adopted in small-scale unit is normally labour
intensive.
(iv) Small-scale business is normally carried on in a limited or local
area.
Before Second World War a small concern was defined as a unit
having capital invested upto Rs. 30,000 and those concerns having capital
in excess of that amount were classified as large-scale units. The definition
of small-scale enterprise has undergone changes over years with the ceiling
raised to take into account the rising cost of machinery as well as falling
value of rupee. Various definitions of small-scale unit are as under:
According to Fiscal Commission, 1950 “A unit operating mainly with
hired labour usually 10 to 50 hands.”
According to Small Scale Industries Board, 1955 “A unit employing
less than 50 persons if using power and less than 100 persons without the
use of power and with a capital investment not exceeding Rs. 5 lakhs.”
According to Ministry of Commerce and Industry, 1960 “An industrial
unit with a capital investment of not more than Rs. 5 lakhs irrespective of
the number of persons employed.”

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 According to Ministry of Commerce and Industry, 1966 “An
undertaking having an investment in plant and machinery of not more than
Rs. 20 lakhs and 25 lakhs in case of ancillary units.”
According to Government of India, 1985 “An undertaking having an
investment in plant and machinery of not more than Rs. 35 lakhs and not
more than Rs. 45 lakhs in case of ancillary units.”

Tiny Industries : Very small industries with an investment of less than Rs.
25 lakhs are included in the category of Tiny industries. Capital investments
for this purpose means investment in plant and machinery. The location
restrictions or the setting up of Tiny Units have been removed by Small
Industries Policy of 1992. The number of persons employed in these units
must be less than 50. These units are normally operated under sole
proprietorship form of ownership. These units are managed by family
members and not professionals which result in lower profit generation.

Ancillary Units: Industrial units having an investment in plant and

machinery, whether held on ownership or by lease or by hire purchase does
not exceed Rs. 1 crore and engaged or is proposed to be engaged in the
manufacture or production of parts, components, sub assemblies, tooling
and intermediaries, or the rendering of service and supply or render at least
50 per cent of its production or services as the cases may be to one or more
other industrial undertakings.

Cottage Industries: These are also called household industries. They are
organised by individuals’ and with the help of members of the household
(including family labour) and are pursued as full time or part time
occupation. The capital investment is small and the components used are
simple. These industrial units normally use local resources and local skills.
The output produced in each industrial unit is generally sold in the local market.

IMPORTANCE OF SMALL SCALE INDUSTRIES

Small-scale industries play an important role in industrial development of a

country. It is all the more important in case of developing countries like
India. The socio-economic transformation of India cannot be achieved
without the development of small-scale industries. It has been estimated
that the small-scale industries contribute about 47 per cent of gross value of
output manufactured in the country. Their importance can be further
highlighted by noting that SSIs provided nearly five times the employment
as compared to the large-scale sector. SSI is an important segment of the
economy contributing substantially in the form of production, employment
and export. Let us now discuss the various advantages of small-scale
industries to highlight the importance of this sector. The main advantages
are as follows:

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1. Generation of Employment: The small-scale industries are labour
intensive i.e. the ratio of labour to investment is very high in their case. A
given amount of capital invested in a small-scale industry provided more
employment than the same amount of capital invested in a large-scale
industry. Since capital is scarce and labour abundant in India, the
generation of employment is the advantage that can be put forward for the
support of small-scale industries in India. Moreover, these industries can be
set-up at the very doorstep of workers and, thereby, provide work for the
unemployed, more work for the underemployed and supplementary work for
the seasonally unemployed workers.
2. Self Employment: The small-scale industries offer almost limitless
opportunities for self employment and hence are particularly suited to a
developing country like India where there is a big problem of unemployment
and underemployment.
3. Lesser Capital Requirement: Another advantage of small-scale
industries is that they need relatively lesser amount of capital than that
required by large-scale industries. As capital is very scarce in an
underdeveloped country like India, it may be used to greater advantage in
small-scale sector.
4. Mobilisation of Capital: Small-scale industries not only make economies
in the use of capital but also mobilise capital that would not otherwise have
come into existence. Large-scale industries cannot mobilise the savings from
rural areas, while this task can be effectively accomplished by setting up a
network of small-scale industries in such areas.
5. Mobilisation of Entrepreneurial Skill: Another advantage of small-scale
industries is the lesser requirement of skill and expertise, which is also
scarce in a developing country like India. Further, large-scale industries
cannot utilise a number of entrepreneurs who are spread over small towns
and villages of the country. On the other hand, small-scale industries can
effectively mobilise such entrepreneurial skills.
6. Equitable Distribution of Income: Small-scale industries secure a more
equitable distribution of income and wealth. They are particularly suitable
for the fulfillment of the objective of social justice. This is ensured
because the ownership of small-scale industries is more widespread
and they offer a much longer employment potential as compared to
the large-scale industries. The development of large-scale industries
tends to concentrate large incomes and wealth in a few hands.
7. Balanced Regional Development: Small-scale industries utilise local
resources, bring about dispersion of industries and promote balanced
regional development. The growth of large-scale industries on the other
hand have a tendency towards concentration of industries at a few places
leading to many evil consequences such as overcrowding, pollution, creation
of slums, etc. Concentration of industries at a few places is undesirable from
the point of view of national defence also, as during war times, there is a
greater risk of destroying different industries concentrated at one place.
8. Saving in Foreign Exchange: Another advantages of the small-scale
industries are the savings they offer in the scarce foreign exchange
resources of the country. Firstly, small-scale industries do not require much

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foreign exchange resources for their establishment and secondly, these
industries can contribute to the foreign exchange resources of the country
through adding to exports.
9. Quick Investment: The time lag between the execution of investment
project and the start of production of goods is relatively short in case of
small-scale industries. These quick investment type of industries are
particularly suitable for developing countries like India.
10. Beneficial to large-scale industries: Large-scale industries can also
prosper and develop, if small-scale industries manufacture and supply their
small parts and semi-finished goods required by them. Infact, small-scale
industries are a must for the development of large-scale industries.
11. Other advantages: These industries also confer certain other social and
political benefits such as overcoming territorial immobility, reduction of
pressure on land, relieving congestion in urban areas, self-employment, etc.

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1972 as per SSI census gradually rose to Rs. 92.07 thousand in 2004-05 as
per the results of Annual Survey of Industries (ASI).
4. Output: Total production of the small-scale units has increased from Rs.
7200 crores in 1973-74 to Rs. 57,100 crore in 1985-86. The value of output
of the SSI sector in 2004-05 is at Rs. 7,89,620 crores showing an increase of
10.2% over the output of Rs. 5,72,887 crores in 1999.
5. Contribution to Exports: The contribution of SSI sector towards export
has been increasing at a faster rate. The value of exports of the products
produced by the small-scale sector has increased from Rs.393 crore in
1973-74 to Rs. 9,100 crore in 1990-91 and then to Rs. 68,280 crore in
2004-05. Again in dollar terms, the value of exports from SSI sector has also
increased from Dollar 8.87 billion in 1993-94 to Dollar 15.18 billion in
2004-05. The share of export from small-scale sector in the total export has
increased from 9.6% in 1971-72 to 42% in 2004-05.
6. Equitable Distribution of Income: Small-scale and cottage industries
has been resulting more equitable distribution of national income and
wealth. This is mainly due to the fact that the ownership of small-scale
industries is quite widespread as compared to large-scale industries and
small-scale sector is having a higher employment potential than that of
large-scale sector.
7. Mobilisation of Capital and Entrepreneurial Skill: Small-scale
industries can mobilise a good amount of savings and entrepreneurial skill
from rural and semi-urban areas which remained untouched from the
clutches of large-scale sector. Thus, a huge amount of latent resources are
being mobilised in the SSI sector for the industrial development of the
country.

PROBLEMS OF SMALL SCALE INDUSTRIES

Small scale industries plays a very vital role in the economic development of
our country. This sector can stimulate economic activity and is entrusted
with the responsibility of realising various objectives like generation of more
employment opportunities with less investment, reducing regional
imbalances etc. Small-scale industries are not in a position to play their role
effectively due to various constraints. The various problems faced by small-
scale industries are as under:
(i) Inefficient Labour: Labour is major but active player in small-
scale industries. But they lack training and developmental

AIHM&CT - IQAC 18
 opportunities in small-scale sector. So they are unable to contribute
as expected from them. Since size of small units is not always optimal so
they are also unable to understand the importance of training and
development. Level of education of workers working in small-scale sector is
also low and they fail to cope up with the challenges of modern production
system. Professionals and technocrats are also not interested to join small
scale as this sector is not ready to compensate them properly. So small
entrepreneurs are facing the constraint of inefficient labour force and unable
to improve their productivity.
(ii) Defective System of Supply of Raw Materials: Small-scale
industries are facing the problem of short supply of raw materials. Small
size and weak financial position also force them to unutilize the services of
middlemen to get raw materials on credit from suppliers. Canalising
agencies like state level small industry corporations, STC, MMTC and
Handloom Development Corporations are not providing much help in
arranging adequate supply of raw materials at right price in right time. So
they fail to utililse their full production capacity and it also increases their
cost of production which adversely affect their competitive strength in the
market.
(iii) Absence of Credit Facility: Historically, SSIs have had privileged
access to bank finance through cheap priority sector lending. Since interest
rates were fixed lower for them than the market rates, they did not reflect
the higher risks and costs of investing in small borrowers. SSIs also
benefited from the subsidies implicit in the tax standards for provisioning
for bad and doubtful debts. The deregulation of interest rates in present
scenario forces them to pay more. The bench mark rate of interest for banks
is the
price lending rates – a higher rate reflects the risks of lending to individual
borrowers. Consequently, interest rates have risen sharply for small-scale
units. The priority sector lending scheme hardly softens the burden since
not more than Rs. 2 lakh can be borrowed under this scheme. Besides, SSIs
are also unable to generate resources as they lack systematic way to
communicate their work to the capital markets and muster support from the
intermediaries. Due to poor financial image, they generally fail to get their
credit facility at reasonable costs.
(iv) Lack of Machinery and Equipment: SSIs are also facing the
problem of inferior supply of machinery and equipments etc. Most of
companies which are engaged in production of plants and machineries are
meant for medium and large scale companies. Only selected companies or
few producers are engaged in the production of plant, machineries and
equipments for small-scale sector. So they generally charge high price for
their capital goods supplies from small-scale units. Besides, bargaining
power of SSIs is not so much and they have to work with available
machinery and equipments in the market. They have also been forced to use
second-hand machines. It also affects the production performance of SSIs.
(v) Huge Number of Bogus Small Firms: Government policy favours
SSIs in terms of concessions, subsidy and incentives. This has prompted the
so-called entrepreneurs to develop bogus firms on paper to avail government
subsidies and incentives. It makes impossible for the genuine firms to get

AIHM&CT - IQAC 19
due concessions, subsidies etc. from the Government. They indirectly help
the medium and large-scale enterprises in availing raw materials etc. at
reduced rates. Availability of cheap finance also encourages the bogus firms
to operate in the small-scale sector.
(vi) Unsuitable Location: Selection of location for the development of
plants etc. also creates problem before the SSIs. The choice of location is
generally governed by different consideration like availability of
infrastructural facility, the cost and tenure of acquisitions, availability of
labour and the proximity of markets. Small entrepreneurs are not properly
trained in deciding about suitable location. Actually, they select their
location due to other consideration like availability of cheap land, family
business, sentimental attachment to their traditional ancestral property etc.
(vii) Competition from Large Scale Units: SSIs are facing the
problem of competition from their other counterparts – medium and large
scale industries. Since 1991, a large number of items reserved for small
industries are now freely importable. The Government has also announced
that it is considering a phased removal of quantity restrictions on consumer
goods imports over a period of five years. Medium and large-scale industries
are also producing goods, which are competiting with the goods being
produced by the SSIs. So in practice, SSIs are unable to complete with
large-scale units as their size is small and products are not cost effective.
(viii) Obsolete Technology: SSIs lack latest technology as they do not
have any technological support from the Government and other
technological institutes and laboratories. But in practice, technology alone
can ensure quality and high level of productivity. R & D efforts are costly
venture and SSIs do not have resources to finance these programmes
individually and internally. Small
enterprises have a very limited choice with regard to foreign collaboration
and technological support too. Their potential partners overseas have a
better reputation for innovation but the investment climate in India is not
yet hospitable enough to attend them in small-scale sector. Special steps
have not yet been taken to address the issues of collaboration between
Indian and overseas small industries.
(ix) Absence of Organised Marketing Facility: Small-scale industries
are unable to spend huge amount on the development of marketing facilities
as they lack resources. Lack of standardisation, poor design and quality,
lack of precision and proper finish, absence of after-sale service, ignorance
about potential market, financial weakness are some of the problems in
their selling process.
(x) Poor Recoveries: It is general practice for buyers to avail credit
facility from sellers. SSIs lack bargaining power in dictating their terms to
the potential buyers for their products. Provision for credit facility with
regard to sales is forced upon the SSIs by potential purchasers. Initially,
credit period ranges between one month to three months. But purchasers
generally avoid timely payments. A situation has now developed in which
buyers do not pay their dues to SSIs for more than 12 months. It created
working capital problems before the SSIs.

REMEDIAL MEASURES

AIHM&CT - IQAC 20
 SSIs are holding a very important place in the industrial system of the
country. Thus, suitable measures are necessary to remove these bottlenecks
in the optimum operation of SSIs. These remedial measures are as follows:

Effective Planning: SSIs are required to conduct detailed survey of the

existing situations prevailing in small-scale sector and draw productive
programmes for them. Study suggests that very few small entrepreneurs
launch their operations on the basis of a careful plan. A detailed feasibility
study or detailed project report is highly essential for small entrepreneurs to
start their units. Without proper planning, they may be affected by improper
location, inexperienced consultancy services, improper technology, under
estimation of costs, etc. So SSIs are required to initiate effective action plan
for their survival.
2. Improvement in Techniques of Production and Proper
Technology: SSIs should try to improve their techniques of product and
adopt modern technology. Government consultancy organisations and
laboratories have an important role to play in this context. They have to
arrange viable and modern techniques of production to them, as they are
unable to expend money on this count. Besides SSIs should keep
themselves in touch with development in technology. They should also try to
give a lead, if possible financially, in research and development efforts. They
should also believe in continuous innovation and then they can remain in
their business.
3. Training and Development: SSIs should make concerted efforts in
imparting proper education and training to workers engaged in this sector
as they are valuable asset of industry. Expenditure on training and
development activities should be treated as an investment. Small Industries
Associations should also involve themselves in providing knowledge and
skills required for them in the changing environment. Workers should be
encouraged to innovate themselves in the production process as it would
enable the SSI’s to compete with their medium and large scale counterparts.
For this purpose effective motivation and reward system is highly desirable.
4. Provision of Infrastructural Facilities: Development finance,
power arrangement, water supply, etc. are necessary for the smooth
functioning of SSIs. State Development Corporation, Small Industries
Corporation, State Technical Consultancy Organisations are engaged in
provision of these facilities. But their support system needs further
improvement. Development of industrial estates has solved this problem to a
certain extent but efforts are needed to develop more industrial estates to
accommodate more small units.
5. Regular Supply of Raw Materials: Small Industries Development
Corporations and other canalising agencies responsible for the supply of raw
materials to small scale sector should take necessary action to maintain a
continuous but proper supply of raw material to SSIs. They should also
ensure that bogus firms are to be excluded from this type of support.
Government should also intervene from time to time in arranging cheaper
imports of raw materials for them.
6. Adequate Credit Arrangement: For SSIs, traditional sources of
financing offer little scope for expansion and alternative means like venture

AIHM&CT - IQAC 21
capital are yet to be developed for them. SIDBI has formulated guidelines for
venture capital and there is hope for better finance facility for this sector.
Besides, priority sector lending scheme should be made more broad-based
and credit limits is to be enhanced. The SSIs depend more on their own
funds and loaned fund from non-banking sector as they are unable to get
proper support from banks and other funding agencies. The SIDBI is
trying to provide these facilities but intermediaries involved in the system
are creating problems for them. So SIDBI should try to bring transparency
and effectiveness in its functioning.
7. Effective Marketing Arrangements: SSIs should focus on brand,
product and market development. They should try to remain in the market
and special trust should be given on quality improvement programme.
Products at low costs and passing on the benefits to consumers would go in
long way to improve their marketing performance. The large companies earn
handsome profits from marketing the products of small units by charging a
much higher price from the customers. The reason is they have brands. So
SSIs should try to popularise their products in the market which will
provide them separate product and brand identity. This strategy will benefit
them in the long run. However, efforts should be made to maintain
standards and quality of the output then they will get positive support from
their potential customers.
8. Development of Suitable Machinery: SSIs should try to develop
separate suitable machineries for taking initiative with regard to problem
faced by them. SSIs have different typical problems and that have to
overcome by taking offensive strategies. SSIs Association should be offensive
and objectively clear in their goals in pleading their cases with the
Government. Associations like FICCI, Assocham and CII are more powerful
in maintaining their relations with the Government. They should also
involve themselves in focusing attention on the problems being faced by
their members through seminar, conferences etc. So similar strategies
should be adopted by the small industries associations to protect their
members interest with the Government.

AIHM&CT - IQAC 22
MODULE -3
STARTING SMALL BUSINESS

A good business opportunity is that which is a techno-economically and

commercially viable and feasible and environmentally sustainable
proposition. Every entrepreneur needs to identify a sound opportunity. To
identify an opportunity, one needs to collect the following informations:

i. Collect basic information on local resource base, e.g. agriculture, forest

and mines
ii. Collect information on Opportunity Identification (OI) exercise done earlier
(if any), by DIC, banks, other financial institutions, etc.
iii. Discuss the potential business opportunities with existing entrepreneurs
iv. Discuss with octroi and sales tax officials about the inflow of goods
v. Collect information on new major investment going to materialise in the
area
vi. Collect negative list of banned items for financing
vii. List out poor performing industries
viii. Collect information on skill base—especially on handicrafts, etc.
ix. Collect information on availability of infrastructure like power, water and
transport, etc.

The above information, will enable us to identify business opportunities in

the market.
However, please remember, that opportunities are location and time specific.
An opportunity today may not remain an opportunity tomorrow. Or an
opportunity in a forest area may not hold good in the deserts of Rajasthan,
as the resource base will change. Moreover, one would also need to assess
the viability and feasibility of the opportunities before pronouncing them as
business opportunities.

An opportunity may be absolutely viable but may not be feasible if it is

mismatched. For example, although setting up a large flourmill may be a
perfectly viable proposition, it may not be feasible to set up one in
Sunderbans for an illiterate rural or tribal man. Therefore, one needs to
consider the following facts before deciding upon an opportunity:
1. Natural Resource-Based Opportunities: such as the ones based on
cereals, cash crops, fruits and vegetables, agro-wastes, animals, marine-
based, processing of food products like cereals and pulses fruit preservation,
pickles, honey, etc.
2. Local Industry Based: those dealing in supply of intermediary raw
material, ancillarisation, job-work, recycling of industrial wastes, by-
products, etc.

AIHM&CT - IQAC 23
3. Local Demand Based: which may include products like bread, biscuits,
flour, spices, etc.
4. Export Based: any local product, which is being exported; or resources
available locally to manufacture the items, which have good export potential
􀀔 One’s Education
􀀔 Experience
􀀔 Economic Background
􀀔 Investment Capacity
􀀔 Family Background
􀀔 Managerial Capabilities
􀀔 Market Competition with other Producers/Size of Market
􀀔 Location of the Unit
􀀔 Availability of Technology and Process Know-how Availability of Raw
Material
􀀔 Availability of Skilled Workforce
􀀔 Availability of Required Infrastructure
􀀔 Project Cost
􀀔 Export Potential
􀀔 Life-cycle of the Product and Future Growth of the Product
􀀔 Shelf-life of the Product (highly perishable like milk or long-term like
capital goods or consumer durables, etc,)
􀀔 Profitability of the Product
􀀔 Degree of Risk
􀀔 Gestation Period
􀀔 Government Policy

A set of introspective questions while deciding upon an opportunity How

comfortable are you with the technology? Will you be able to handle it?
􀀔 What is the situation of competition? How will you withstand the
competition?
􀀔 Will you be able to muster enough resources (especially finance)? Will
you be able to manage investment from your own resources? If not, how do
you plan to get funds?
􀀔 How critical is the government support for your product?
􀀔 Is raw material easily available? If not, how will you manage regular
supply of raw material?
􀀔 Will you get adequate skilled manpower? If not, how will you manage?

Before setting up a small scale enterprise

Small scale enterprise development is not for everyone, whether disabled or
not, and needs a high level of discipline, dedication, persistence and
creativity as well as a lot of work. The micro entrepreneur must be capable
of decision making and have the ability to manage employees (if any) and
accounts. Furthermore, small scale enterprise development for persons with
disabilities involves a multitude of additional challenges, which require
specific attention and strategies. Before setting up a small scale enterprise,
it is necessary to:

Deal with specific challenges

AIHM&CT - IQAC 24
In any business venture, specific challenges need to be addressed. These
include:
 seed money
 physical location of the business venture
 construction or other physically demanding work
 management skills
 accounting skills
 marketing skills
 maintenance of equipment, machinery and premises.

Ask these questions:

1.What are my strengths?

2. What are my weaknesses?
3. How can I compensate for my weaknesses?
4. What are my current personal needs?
5. Who will be working with me?

Choose the right business

The right business certainly varies from one person to another. Personal
preferences, along with physical and mental capabilities are the main
deciding factors. Nevertheless, the focus should be on market demand and
its limitations to determine if the business can be successful.

Review market demand and the competition

Review of the competition is necessary. Competition means there is a

market, but how big is the market It is important not to saturate the market
and to supply the right type of product or service; something that is in
demand.

Ask these questions:

Who are my competitors?

2. Who are my customers?
3. How much can the market absorb before saturation?
4. Is there a shortage or surplus?

Check season ability

Agriculture and farming produce are often seasonal. The following questions
must be
considered:
1. Is the crop or product available only during certain seasons?
2. Are raw materials available all year round?
3. Can the product be kept in storage?
4. Is the service or product only required during certain periods of the year?
5. Can there be offseason production?
AIHM&CT - IQAC 25
Decide on business size

Care must be taken in deciding the size of the business.

If too small, the business may not be feasible.
If too big, it becomes too difficult to manage properly and may require extra
help, which adds to costs.
If too big, the market may not be capable of absorbing the produce.

1.Who are the clients?

2. Where are the clients?
3. How many clients are there?
4. How much produce or services can each client use?
5. Are there seasons or days of the week when the produce or service is more
in demand?
6. Who else is offering the same service or produce?
7. What percentage of the business share can I expect to take?
8. How much money do I have to start the business?
9. How much can I manage by myself?
10. How can I ensure quality?
Identify the location
Location
Location plays a crucial role in starting a small scale enterprise. While a
farming or farm related enterprise need not be accessible to the buyers, the
micro entrepreneur will have to
travel to the market to sell the produce. When the business involves fresh
produce, timely
sale is crucial. For example, fruits, vegetables and flowers are highly
perishable and have to
be sold quickly. Easy access to markets is important. It is necessary for a
micro entrepreneur
with a disability to be able to reach the market or to have easy contact with
potential buyers. In some cases, it may be necessary to hire someone to help
in the delivery of the produce.

Check availability of raw material

Raw material for making the produce should be readily available. Import of
the material
should be avoided because this will make it difficult to ensure a steady
supply.

Check feasibility before starting the enterprise

Too many people start a new small scale business, blinded by the
attractiveness of the product or by what seems to be an attractive market.
However, many microenterprises close down after a few months or years of
operation, shattering the small scale entrepreneur's dreams of what

AIHM&CT - IQAC 26
appeared to be the perfect way of making a decent living. In order to avoid
this, a prefeasibility study should be conducted. Although this may be based
on estimates, it helps to prepare for the future and, in some cases, shows
that another activity may be better.

Startup expenses generally include:

Legal professional fees

Licenses / permits
Rent and/or construction
Equipment and tools
Assistive devices (when required)
Raw material
Salaries / wages
Utilities

There are ELEVEN basic and unavoidable steps in preparing to start a

business.

1.Secure funding
2. Open bank account
3. Identify precise location for the enterprise
4. Build or renovate the structure or building required
5. Arrange necessary infrastructure (water, electricity, communication and
others)
6. Request permits (if necessary)
7. Purchase and adapt necessary tools, equipment and assistive devices
(when required)
8. Identify suppliers of raw materials and consumables .
9.Start production
10. Control quality
11. Devise marketing and sales strategies

Managing the business

A profit making business

Running a small-scale business is not only buying, producing and selling. It
also means:
 Keeping clear records
 Verifying profit and loss
 Managing cash flow
 Maintaining tools, equipment and buildings
 Reviewing the market regularly
 Expanding the business wisely

Market Survey Tools, Preparation of Schedule and Techniques

AIHM&CT - IQAC 27
Market survey is a valuable tool to help minimise risks and increase the
probability of success. However, that doesn’t mean it is a sure-shot way
to eliminate risk and guarantee complete success. You should undertake
market
assessment with a survey before you finalise marketing plans for your
product or service. This chapter aims to explain what a market survey is
and
how to conduct it.

Markets are changing rapidly, becoming complex and competitive. It is

difficult
to keep pace with the rapidly changing demand and supply patterns as
an entrepreneur is unable to respond quickly to a new environment. He
needs
better market understanding and a market survey puts him in contact with
the
market. A systematic use of this tool can reduce risks in decision-making.

WHAT IS A MARKET SURVEY?

A market survey is an objective and systematic collection, recording,

analysis
and interpretation of data about existing or potential markets for a
product/service. This definition will be better understood by looking at the
objectives of a market survey. During a market survey, one needs to focus
on:

 Size of the market and the anticipated market share in terms of

volume and value
 Pattern of demand—seasonal or fluctuating in time (in a month, day,
etc)
 Market structure
 Buying habits and motives of buyers
 Unique selling proposition of certain products/services
 Past and present trends affecting the selected product or similar
product

PROCESS OF CONDUCTING A MARKET SURVEY

A systematic 5-point process is involved in a market survey:

1. Defining objectives and specific information needed:
 Identifying source to obtain information
 Assessing time and cost for the study
 Working methodology and action plan

AIHM&CT - IQAC 28
2. Selecting a sample size by determining whom to contact and when
3. Preparing questionnaires for the survey
4. Collecting data and analysing it
5. Preparing a report, based on analysed data

PRIMARY AND SECONDARY SOURCES OF INFORMATION

Conducting a market survey does not always mean contacting people
directly.
There may be information in the form of reports, published material or
documents of trade/industry associations. Data may be collected from two
sources:
􀁺 Primary data sources: Information coming straight from those in the
specified market, e.g. in the toy market, information obtained from toy
manufacturers and traders.
􀁺 Secondary data sources: Data existing in reports or in a published
form and may not have been collected for specific purpose. Such
information can also be had from census office, banks, traders and
manufacturers’ association or published anywhere.

SCREENING OF PROJECT IDEAS

The need for screening of the ideas arises because all the ideas generated
may not be promising. Only the most promising or most profitable ideas are
to be selected for further study.

The process of evaluating the project ideas with a view to select the best and
promising idea after eliminating the unprofitable ideas is called screening of
project ideas. The following factors need to be considered:
1) Cost of The Project: A study of the cost structure under material cost,
labour cost, factory
overheads etc., will give a good idea regarding different types of costs.
2) Profitability: The project yielding higher return must be selected.
3) Marketing Facilities: Existing and potential demand in domestic and
export market, nature of competitions, sales and distribution system,
consumption trends etc., should be assessed and evaluated before taking
the final decision.
4) Availability of Imputs: The resources and imputs required for the project
must be reasonably assured. The availability of skilled workers is to be
ensured before launching an enterprise.
5) Consistency with Government Regulations and Priorities.
6) Compatibility with the Entrepreneur: The idea must suit the interest,
personality and
resources of the entrepreneur. It should not be beyond his capacity.

AIHM&CT - IQAC 29
FINANCIAL ANALYSIS
It is defined as the process of obtaining relevant information about a project
in order to ascertain its
financial viability. The preliminary steps involved in the financial analysis
include:
1) Estimation of total capital outlay involves in the project.
2) Estimation of operating costs.
3) Estimation of operating revenue.
It purpose is to find out whether the project is attractive enough to secure
funds needed for its
various activities and whether the project will be able to generate enough
income to achieve the objective for which it is undertaken.
ESTIMATION OF CAPITAL OUTLAY
Capital outlay of a project refers to the sum of the expenditure till the date
of starting
commercial production. It includes all advance expenditure. Cost of fixed
assets, duties and taxes. Consultancy charges interest charges, intangible
expenses, registration fees and provision for contingencies.
The capital cost outlay is required not only for assessing fund requirement
but also for
ascertaining the economic viability of the project. Capital cost outlay is
shown in the statement of capital cost estimation.
ESTIMATION OF OPERATING COSTS
Operating costs are those which have to be incurred after the project
commences
production. Operating costs vary with quantity of output. Operating cost
cover material cost, labour cost, overhead costs and incidental expenses. A
proforma of operating costs shows the operating cost estimates.
ESTIMATION OF OPERATIONAL REVENUE
Operating cost is incurred to generate operating revenue or sales. It is
necessary to assess
the demand potential and the anticipated sale price of the goods. Sales and
production are closely related and they can be estimated together through
an estimate of production and sales. It shows details of installed capacity,
value of sales etc.
ESTIMATION OF WORKING RESULTS
For assessing the profitability of a project, the estimates of operating costs
and revenues are
matched, using a proforma profit and loss statement. It will show details on
expected sales, net sales, cost of production, gross margin, general and
administrative expenses, taxes, dividend etc.
ESTIMATION OF FINANCIAL POSITION
In order to ascertain the financial position of a firm, at a given point of time,
a proforma
balance sheet is prepared with the help of projected assets and liabilities. It
helps in preparation of projected funds flow and cash flow statements and to
compute various ratios on profitability,liquidity and solvency of the project.

AIHM&CT - IQAC 30
TECHNICAL ANALYSIS
Technical analysis of a project is essential to ensure that necessary physical
facilities required for production will be available and the best possible
alternative is selected to procure them. The object of technical analysis is to
assess the technical soundness of the project. This is considered essential
for the long term success of the project.
Technical analysis includes the study of the following:

1) MATERIAL INPUTS: It is essential to assess the availability of materials,

inputs and
utilities. Utilities include power, water, steam, fuel, communication facilities,
transport facilities etc. The feasibility study of material should include the
following variables:
(a) The availability of quality and quantity of raw material.
(b) Price elasticity of raw material.
(c) Perishable time of raw material.
(d) The factors on which the availability of raw material is depended.

2) MANUFACTURING PROCESS/TECHNOLOGY: Technologies simply refers

to the
tools, devices and knowledge that help in the transformation of inputs into
outputs. It is the
application of knowledge, encompassing the related concepts of science,
innovation, invention and discovery. It is the application of scientific
knowledge to practical commercial purpose.

3.PLANT CAPACITY: It refers to the volume or number of units that can be

manufactured
during a given period. Plant capacity is also called production capacity.

4.PLANT LOCATION: It refers to a fairly broad area where the enterprise is

to be established
like city, industrial zone or coastal area. The success of a project depends on
the location, to a
certain extent. They are discussed as follows.
1) Proximity to raw material.
2) Nearness to market.
3) Availability of infrastructure facilities.
4) Transport and communication facilities.
5) Effluent disposal.
6) Labour.
7) Government policies

5.SIZE OF THE PLANT: The efficiency and profitability of a project are very
much influenced
by its size. Size of the plant depends on the manufacturing process,
availability of raw materials,

AIHM&CT - IQAC 31
capital investment needed and the size of the market. Size of the plant
depends on:
1) Availability of raw materials and power.
2) Technology/process to be adopted.
3) Size of the market.
4) Size of the plant and machinery.
5) The location of the project.
6) The product mix.
7) Capital investment required.

6.PRODUCT MIX: Product mix or range is decided according to market

requirement. It refers to the set of all the products offered by a firm for sale.
The range of products to be marketed depends on the following:
a) Nature of business.
b) Nature of product.
c) Competition.
d) Tastes of consumers.
e) Size of target market.
f) Plant capacity.

7.FACTORY DESIGN: It refers to the plan for a particular type of building,

arrangement of
machinery and equipment and provision of service facilities, lighting,
heating etc. in the building. Factory design comprises layout of building and
layout of factory.

8) MACHINERIES AND EQUIPMENTS: The requirement of machinery and

equipment is
dependent on production technology and plant capacity. It is also influenced
by the type of project. To determine the kind of machinery and equipments
required for manufacturing industry the following procedure may be
followed.
1) Estimate the likely levels of production over time.
2) Define the various machinery and other operations.
3) Calculate the machinery hours required for each type of operation.
4) Select machineries and equipments required for each function.

NETWORK ANALYSIS
The network techniques have their origin in the late fifties in USA. These
techniques were developed to facilitate planning, scheduling and monitoring
the projects in an integrated manner so that these could be completed
within the constraints of desired time, cost and performance.

MEANING OF NETWORK ANALYSIS

Network is a combination of activities and events of a project. Network
analysis is a system

AIHM&CT - IQAC 32
which plans projects by analyzing the project activities. Network analysis is
one of the most popular techniques used for planning, scheduling,
monitoring and co-coordinating large and complex projects comprising a
number of activities. It is concerned with evaluation of time and resources
profile of project activities.

OBJECTIVES OF NETWORK ANALYSIS

1. It is a powerful tool for planning, scheduling and controlling of projects.
2. It helps to minimize total cost.
3. It shows in simple way the interrelationship of various activities
constituting a project.
4. It helps delegation of the power and authority.
5. It facilitates management by exception.
6. It avoids production delays.
7. It leads to optimal use of resources.
8. It helps to minimize time for a given cost.
9. It helps the entrepreneur to complete the project in time.

STEPS IN NETWORK ANALYSIS

1. Preparation of network.
2. Estimation of time to perform each activity.
3. Computation of critical path schedule.
4. Interpretation of results.

NETWORK TECHNIQUES
A number of network techniques have been developed. Few of them are
given below:
CPM: Critical Path Method.
PERT: Programme Evaluation Review Technique.
GERT: Graphic Evaluation and Review Technique.
RAMS: Resource Allocation and Multi Project Scheduling.
RPSM: Resource Planning and Scheduling Method.
MAP: Manpower Allocation Procedure.
LOB: Line of Balance.
Among these CPM and PERT are the most widely used network analysis
techniques in project management.

AIHM&CT - IQAC 33
 MODULE -4
BUSINESS PLAN

What is the Business Plan?

A Business Plan is a document which encapsulates the long-term objectives,

medium term goals and short term forecasts of the business. It will include
reference to past history and current operations; nevertheless it remains
essentially a blueprint for the future. Although some degree of
standardisation is desirable, in practice business plans will vary in content
since each reflects the philosophy and the special circumstances and
requirements of the particular business. It will refer to all aspects of the
business, so the reader and those involved are clear as to the main
objectives and how they are to be reached.
Some points to bear in mind are:
It should describe the company and project concisely and accurately.

It should normally not be more than 15 pages long with a clear

structured layout. Supplementary information and other supporting
material should be included as appendices.

The business plan will normally cover a three-year period and include
detailed financial forecasts for this period. A longer forecast period (generally
five years) will usually be necessary where equity finance is to be raised.

Always include an Executive Summary – it will allow the reader to

obtain an overview of the project immediately. The complete business plan
(excluding appendices) should be readable in half an hour.

Whilst the primary purpose of preparing the business plan is frequently

to assist in the raising of finance, the business plan is also an important
management tool to be used by the board of directors to set objectives, and
to monitor progress against those objectives on an ongoing basis.

As stated above, there is no standard form of business plan, however this

ensures that all aspects of the business are addressed, a clear and concise
presentation is made

The Objectives of the Business Plan

A business plan will have the following objectives, in most if not all
businesses:-
To show money lenders/investors/grant funders that the business is
viable and those they are likely to be repaid, either financially or in success,
where a grant has been awarded.

AIHM&CT - IQAC 34
 To use as a planned course & to alert when estimates do not go
according to plan.

To instil stakeholder confidence in the abilities of the management to run

the business.

To introduce the main income, expenditure and balance sheet items.

To identify the resources required.

To monitor performance against targets.

To achieve these objectives, the business must present what is unique about
the business and why it should succeed. Information should be presented to
reinforce these opinions.
The Business Plan will show:
Where you are.

Where you are going.

How you propose to get there.

What resources will be required.

How much money will be mad

The Contents of the Business Plan

1.0 Executive Summary

The executive summary is normally completed last, as it sums up the range
of issues covered in the plan. It is essential to any business plan and should
be included at the beginning. It is normally not more than one page long,
but two is acceptable. The executive summary should be written as a piece
of prose, but should contain the following
Main reason for business plan e.g. raising of finance
A brief description of the project (e.g. establishment or expansion of the
business)

A summary of the benefits of the project to the community, region and

economy

A table of financial highlights

I.e. the turnover and pre-tax profits forecast for each year, and the actual
results for the previous three years if applicable.
Total cost of the project, including working capital

Funding sought
AIHM&CT - IQAC 35
 Case for grants (where applicable)

2.0 Company Information

Company details
Name
Company Registration Number
Date of incorporation
Registered office address
Head office address (if different)
Telephone, fax and e-mail
Website address

Introduction

Mission statement (one or two short sentences will suffice)

History
An overview of how the business evolved and is there clear evidence of
transfer of knowledge from your educational background

Current stake in the business (full owner or shared amongst a group)

Group structure (if applicable)

Key personnel (names and job titles only at this stage)

Premises (current/proposed).

What is the size of the building and outside areas? Are they leased or owned?
If leased, who are the landlords and what are the terms of the lease?
Description of current operations, including current turnover, key
customers, locations and staff numbers at each location.

Background to project (i.e. why it is necessary)

SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)

Environmental Sustainability

4.0 Products and Services

Clearly explain what it is the organisation is to do or provide. If it is a
particularly complicated product or service, please explain as if the reader
has no prior knowledge.
Product/Service Description

AIHM&CT - IQAC 36
What products/services will be provided? Explain clearly what it is. Use
diagrams if appropriate
Unique features

What makes the product/service special, or better than that offered by

competitors?
Product lifecycle

What is the estimated life span of your product/service?

Research and development

Will there be future (new) product/service development? Describe the

mechanisms for innovation and continuous improvement of a service as well
as technological R&D activity
Intellectual Property Rights

What IPR (patents, trademarks, registered designs) does the company have
rights to, who owns those rights, and under what terms are the rights
exercised (e.g. royalty agreement, license, etc)

Production methods

Describe briefly how the product/service is manufactured/delivered

Health and Safety issues

What are the major risks inherent in the production process? What steps
does/will the company take to ensure the health and safety of its workforce
and compliance with legislation?
Costs of production

Per unit of product (raw materials and conversion costs, including direct
labour) or the direct costs of delivering the service. Include estimated cost of
wastage, pilferage, etc.
Suppliers

List the principal suppliers of raw materials, components and/or goods for
resale. (Consider terms and availability of supply). How quickly can they
deliver from the time of placing the order?
Capacity

What is the production capacity within the constraints of physical space,

machinery and personnel? Is it sufficient to meet peak demand?
Stock holding policy

What is the optimum level of each type of raw material stock in terms of day’s
production? What is the shelf life of the stock? How much finished goods stock

AIHM&CT - IQAC 37
will be needed to meet demand? How much storage will be required at times
of peak demand? Is a JIT policy in force?

Quality

What standards apply? How will quality of raw materials and/or of finished
goods/services be assured? What are historical levels of returns, complaints,
etc.?

Environmental considerations

What environmental legislation or EU directives apply to the product,

manufacturing process and/or disposal of waste? What is the overall cost of
compliance? What additional equipment is required to ensure compliance?
What use is made of recycled materials? Can the materials in the product
itself be recycled at the end of its useful life?
After sales service, including details of warranties given or to be given

Distribution

How will the product or service be delivered to the customer? Will third party
carriers be used or will the company operate its own delivery fleet? What will
be the average delivery cost per units.

Markets and Marketing

Evidence of understanding the market is essential in any business plan, and
a clear, costed strategy must be established for reaching the intended
customers. This section will show you know the market; will back up your
arguments and show that you have done the necessary research. For
existing businesses not expanding into new markets it is probably sufficient
to provide evidence of levels of turnover, customer lists and any other
supporting information.
General description

What market(s) are you in? Who are you intending to target? Where are the
markets located geographically? How price sensitive is the market? Describe
any seasonal changes.

Overall market size

Back this information up with evidence of original or third party research.

Market trends

Is the market expanding or declining? What external factors are likely to affect
your business? Are there any likely developments in the market in the near or
long term? Consider using a PESTLE analysis (Political Economic, Social,
Technological, Legal, Environmental)

AIHM&CT - IQAC 38
 Market position

What is your current / anticipated market share? (The latter assertion should
be backed up by original market research) Include a summary of the results of
the market research, but add the main details/questionnaires as an
appendix.

Major/Potential customers

Who are they? How much income will you receive from them per year?
(Include any letters of support as appendices)

Major competitors

Who are they? What are their relative strengths and weaknesses?
Competitive advantages

I.e. how do you intend to overcome the competition? What is the Unique Selling
Point (USP) of your product/service?

Marketing strategy

Describe how the company will reach its target market. What resources are
required to carry this out? How much will it cost?

Marketing structure

Who will be involved in the marketing effort? Where will the sales force be
located? How will they be incentivised and controlled? (Include diagrams and
tables if required)

Advertising & promotion

How and where will you advertise? What other promotional activity will be
carried out (e.g.

Selling methods
E.g. retail, cold calling, e-commerce, party plan, telesales mail order,online.
Give details as appropriate.

Pricing strategy

E.g. below competitors, market skimming, cost-plus pricing. Tabulate the

actual/forecast unit prices for each main product or service.

AIHM&CT - IQAC 39
 Sales volumes (current/forecast)

Tabulate current sales volumes for main products/services.

Forecast forward how many you expect to sell of each type each month over
the next year (consider seasonal fluctuations and be prudent). Estimate sales
growth in later years. Summarise and tabulate this information. Include
further detail in appendix if required.

6.0 Management, team and Personnel

The people in any business are its most important asset, and good
management is vital. Venture capitalists and banks will look at the
experience, qualifications and personal attributes of the directors and senior
managers and base their investment decision on their judgement of the
quality of the management team above any other single factor. It is
important therefore that a clear description of each individual manager’s
career background and responsibilities is given, and that the management
structure is properly explained (probably by means of a diagram)

7.0 Future Developments

This section deals with the long range strategic direction of the company,
and includes aspects beyond the horizon of the financial projections.
Long range plans – outline the company’s strategic plan, including:

Growth strategy

How does the company intend to expand within Wales, the UK, Europe and
worldwide (if applicable), e.g. by extending or moving premises, opening new
factories or sales outlets, regional offices or alternatively by establishing
strategic partnerships or agencies in other countries. Other growth strategies
could include franchising or acquisition.
Has consideration been given for the potential to collaborate or enter into
joint venture with other organisations?

Plans to develop new products or services

Contingency plan

For each significant threat listed under the SWOT analysis there should be a
plan of how to counteract it. For instance if the company is heavily reliant on
its IT systems, what would be done in the event of a total systems failure?
Finance

Historic results

Tabulate trading results and balance sheets for the previous three years (if
applicable) .State whether figures are from final/audited accounts, or from

AIHM&CT - IQAC 40
management accounts. Include a brief commentary on trends and any
unusual items.

Financial forecasts

Summarise and tabulate forecast profit and loss accounts, cash flow forecasts
and projected balance sheets for each year. Provide a brief commentary on
each if required. What is the peak funding requirement?

Fixed assets

Tabulate and describe existing and proposed new fixed assets (classes
and/or major items only). Outline depreciation policy. State if any significant
disposals are planned. State terms of any insurance policies in force /
proposed.

Proposed funding

Tabulate the components of the new funding proposed. Identify clearly any
personal input from the directors. State whether any other finance has
already been secured.

Exit plan (equity finance only)

How will the new shareholders realise their investment in the medium term?
(Generally one of the following: trade sale, floatation, redemption at premium,
guaranteed buy-back)

Tax implications for business and investors (equity finance only)

Exchange risks (where significant overseas trading or operations planned)

Business Plan Mistakes

The importance of business planning is widely documented; however,
guidance as to what constitutes good business planning is less clearly
defined. This article aims to redress that imbalance by describing 10 of the
most common mistakes that occur in business plans.
While the business-planning process is in itself a very worthwhile pursuit,
most business plans are produced for a specific purpose. The plan is used
as a means to convey an idea with a view to achieving a specific goal, e.g.
securing funding. Hence the plan needs to be tailored with the audience in
mind, and good knowledge of their requirements will help shape a winning
plan.
For example, the requirements a Venture Capitalist will have in assessing a
plan seeking to secure a million-pound investment will differ considerably
from those of a local bank manager who needs a plan to support a small-
loan application. While the former will be primarily looking for capital

AIHM&CT - IQAC 41
growth, the latter will be more concerned with security. Regardless of the
specific purpose of the plan, these following business plan lessons will
apply.

1. Incredible financial projections

One of the key areas business plan readers will focus on will be ‘the
numbers’. Specifically, they will concentrate on the projected Income
Statement or Profit & Loss. The fact that numbers are projected does not
mean that those figures can be included without due rigour or process. They
need to be credible, defensible and consistent. Of course forecasting is not
an exact science, and the use of proxies can help the author ensure that the
figures included are plausible and consistent with the story being told in the
other areas of the business plan. The figures must also show an ability of
the company to generate free cash flows so that the business can be run
profitably while satisfactorily servicing their debts at the same time.
All costs should be recorded including salaries to owner managers who run
the company. It is not credible to generate P&L projections where expenses
such as salaries are omitted to demonstrate managerial commitment or to
artificially reduce losses, etc. By the same token, no investor will be
prepared to fund a business where the projected salary payments are
excessive. While dealing with finances is not everyone’s strong point, there
has to be someone on the management team who is cognizant with the
maths. A business plan will need to include everything from break-even
projections to proposed return on investments to cash flow forecasts, and
one of the key players will have to converse on these subjects in a
convincing manner. They will also need to justify the numbers.

2. Lack of a viable opportunity

A business plan needs to not only describe an opportunity, it must also
detail how the opportunity can be exploited profitably and demonstrate the
company’s ability to deliver what is required. In recent years there has been
a significant increase in plans that are inaccessible to the average reader
because they are couched in technical jargon and unfamiliar terms. If the
reader of the plan cannot fully grasp who the prospective customer is, how
that customer will be targeted, and the prospective benefits from the
proposed solution, the reader will not invest. In an increasingly time-pressed
world, people crave simplicity. Many business plan recipients will only
scrutinize the Executive Summary and the financials, using these as the
decision points as to whether to read further or not. Hence it is of
paramount importance that both the executive summary and the wider plan
describes the opportunity in readily understood terms, such as:

 What is the issue or pain point?

 What is the proposed solution?
 What are the benefits of the solution?
 Why are these benefits compelling?
 Who will benefit the most from these?

AIHM&CT - IQAC 42
Once these are detailed, there will be greater transparency regarding the
viability, or otherwise, of the proposed opportunity in terms of the
company’s ability to profitably serve the target market.
3. No clear route to market
All opportunities are only prospective ones without evidence that the target
market can be accessed profitably. Many entrepreneurs are inherently
product focused, concentrating their energies on ‘the idea’ to the exclusion
of many other important elements such as how they intend to access their
customer base. The growth in popularity of the Internet has certainly helped
niche producers find geographically dispersed customers, making many
more ideas commercially viable. However, it does not come without its
challenges, as creating awareness online is both costly and intensely
competitive. The business plan must include a comprehensive and credible
analysis of how the company intends to secure access to their target market
in a cost-effective manner. The low cost and barriers to entry for websites
have resulted in the creation of hundreds of thousands of sites. Ensuring
that a site stands out from the crowd is easier said than done. Knowledge of
who the customer is and how they buy is very important, but identifying
them and accessing them on an individual basis is much more challenging
and costly.
4. Overestimation of revenues
Another key element of the plan will relate to the size and value of the
opportunity. Does the business plan describe a small local business-to-
business opportunity with limited scalability/ return or is it a concept with
widespread or even potentially global consumer appeal? While the
description of the market opportunity will undoubtedly be couched in
positive terms, an obvious danger relates to the innate optimism of
entrepreneurs and their tendency to exaggerate every business opportunity.
Hence the general interpretation of sales forecasts is that they will be
optimistic but not excessively optimistic. Admittedly what
constitutes ‘excessive’ is subjective, but the numbers will need to be
justified and if it emerges that the figures are mere fantasy, the author will
lose all credibility and it will significantly undermine any confidence the
potential investor might have in the plan.
It is important to guard against this by use of proxies and conservatism
when it comes to sales projections. Placing some rigor around the process of
deriving credible revenue figures also serves the entrepreneur well by
enhancing their awareness of some of the key drivers for revenue growth in
their business. It will also help them to produce a more plausible business
plan and will ensure that the author is confidently able to answer questions
regarding the market opportunity – questions that will top the list of any
prospective investor or bank manager. Statements like “the Market is worth
£10 billion and growing and we are focusing on capturing just 1% of it” set off
alarm bells in the minds of prospective investors.
A more appropriate method is to calculate the number of customers the
business intends to capture and their average revenues. These two inputs
are easier to calculate and also to justify in a wider discussion. For example,
a restaurant can easily use comparables from other restaurants as reference

AIHM&CT - IQAC 43
points to calculate average spend per person. Hence the focus turns to
predicting the number of covers likely per week which can then be scaled up
to obtain projected monthly revenue figures.
5. Lack of appreciation of the importance of good cash
flow management
A critical subtlety of any new business is the ability of the entrepreneur to
understand the differences between cash and profits and to accept the fact
that insolvency is probably the most significant threat to a business. Many
businesses fail, not because they are unprofitable, but because they
ultimately become insolvent (i.e., are unable to pay their debts as they fall
due).
Good cash flow management is vital when businesses pursue investment
opportunities where there are significant cash flows out, in advance of the
cash flows coming in. The start-up phase of a business is an obvious time
when cash flow is under stress with uncertain income streams sitting
alongside a raft of certain and often overdue bills. This tension is
exacerbated if there are delays to the income streams, e.g. if a restaurant
fails to open on time.
Once up and running a company can bank the income immediately if they
are a ‘cash-only’ business; however, if they sell on credit, they receive the
cash in the future and hence may need to pay some of their own expenses
before that income hits their account. This will put a further strain on the
company’s solvency. A well structured business plan needs to reflect reality
with likely losses in the first months of trading being expected and with
financing provisions, e.g. overdraft limits, being put in place in advance of
the predictable cash squeeze. A contingency figure should also be added as
it is important to leave breathing space for the unexpected costs and
overspends that always occur when least expected.
6. No clear objective
What is the main purpose of the plan? If it is to seek investment in the
business, it is important to clearly describe the investment opportunity. As
mentioned previously there is a tendency amongst entrepreneurs to focus
myopically on ‘the product‘ or ‘the idea‘. This is where they expend most
energy but alas that is only one part of the process. While the plan describes
the concept in detail, it must also address the purpose of the plan. If it is to
secure investment, one needs to recognize that investing is the investor’s
area of expertise and they will be seeking an appropriate risk/ return for
their investment. Their primary interest will quickly shift from the product
once they ‘get it‘ and ‘like it‘ to assessing the ability of the company
(including management) to generate free cash flows to enable the business
to grow while also returning cash to them. They will also seek to
understand:
 Why they would be better off investing in this business rather than
leaving money in other asset classes?
 When will they recoup their initial investment?
 What is their expected return on investment?

AIHM&CT - IQAC 44
 Is the investment merely cash or do they need to bring additional things
to the table?
Once the primary objective of the plan is clear, the author will be able to
ensure that the key requirements of the reader are met.
7. No evidence of real demand
Another main area of interest when planning (linked to Point 4) is justifying
the sales forecast or demand levels for the product or service. There are two
main elements to forecasting – the use of facts and the use of subjective
assessment/ judgment. However, no matter how unique a concept is, if the
market is defined widely enough, it is likely that figures from alternative
offerings (facts) can be used to help assess likely demand levels (judgment).
The aim of sales forecasting is to come up with some revenue figures that
can be considered to be credible in the wider context. While earlier we
countenanced against excessively optimistic estimates, here we are delving
deeper to ensure there is, in fact, real demand for the offering. Prospective
investors will not want to invest at the very start where the risk is highest. Is
there poof of concept in the guise of sales or firm orders? Have some sales
occurred already? If not, why not?
Unless there is verifiable demand for the idea, the risks grow out of all
proportion, particularly if the initial start-up or investment costs are high. Is
it possible to test the idea in real time, either by identifying comparables in
other geographic areas or analyzing Google search logs or selling via eBay?
Again the business plan has to convincingly address the issue of demand
rather than concentrate in isolation on ‘the idea’. For some investors, firm
orders or evidence of sales will be the level of proof required and allusions to
proxies or comparables will not be sufficient. Conversely if there are already
strong sales volumes of the product and the company is facing financing or
resource constraints which have forced them to seek investment, then the
power shifts from the investor to the plan author.
8. Business plan inconsistencies
A business plan needs to be consistent throughout as all the various
strands are brought together into one single entity – the plan. If there are
multiple authors of the plan the risks increase that certain inconsistencies
will emerge. Similarly any presenters of the plan must be fully cognizant of
all facts and stay ‘on script’ so as to ensure that a cohesive story is being
told. The numbers must also be consistent with the broader content so that
there are no contradictions between them.
9. Playing down the competition
There is always competition. Yet the number of times the phrase “there are
no main competitors” appears in plans is considerable. No matter how
unique the proposition, there will also be some other business competing for
the same scarce resource, i.e., people’s money. While competitors may not
always be obvious in product terms, competitors emerge upon assessment of
the key needs the product fulfills. By broadening the definition of the
market, substitute products emerge as ultimately all products and services
serve to satiate a defined set of needs, be they physical or emotional. If
competitors can not be identified then the search has simply not been

AIHM&CT - IQAC 45
diligent enough. Finally it is also important to consider the threat of entry.
What will the competitive landscape look like in a few years? Are there
significant barriers to entry, or is it likely that a successful entry will be
followed by better-placed competitors with greater resources, etc. What will
emerge as the bases for competition and will the company be well placed to
compete on these bases?
10. Rushing the output
The plan needs to be right the first time and the content needs to be
accurate, clear and also without spelling or grammatical mistakes. More
often than not business plans need to be completed by a certain date and
hence the final stages can be rushed. Consequently, in many instances the
final output does not do justice to the plan. Attention to detail at the end is
vital, so it is important to ensure the following:
 The plan is printed on good quality paper and bound where appropriate.
 Tables and Charts have been edited to ensure they are formatted
correctly.
 Content of the plan has been edited down to a digestible size (Addendum
can be provided on request).
 Someone removed from the process has independently proofed the plan.
 If a presentation is part of the process, it should reflect the Executive
Summary.

Module- 5
Institutional Assistance to Small
Scale Enterprises

The various central government agencies for support of SSI are SSI board, KVIC, SIDO,
AIHM&CT - IQAC 46
NSIC, NSTEDB, NPC, NISIET etc. The state government agencies are DI, DIC, SFC,
SIDC, SIIC, SSIDC etc. NSIC provides information services, fulfills raw material
requirements of SSIs, meets credit needs and provides marketing assistance. SIDO is a
nodal agency for identifying needs of SSI units, coordinating and monitoring the policies
and programmes for promotion of small industries. The activities of SIDO are divided
into coordination activities, industrial development activities and management activities.
SISI serve as interface between central and state government, render technical support
services, conduct entrepreneurship development programme and initiate promotional
programmes.
SSIB has constituted to facilitate coordination and to act as inter-institutional linkage.
SSIDCs were setup in 1956 under companies act. The important function of SSIDC
are procuring and distributing scarce raw material, supplying machinery on hire
purchase system, providing marketing assistance and to construct industrial sheds. The
district industries centers were started in 1958 to provide integrated administrative
framework at the district level for promotion of small scale industries in rural areas.
The main functions of DIC are preparing and keeping model project profiles, prepare
action plans, carrying out industrial potential survey to identify feasible ventures,
providing assistance for land/shed, equipment etc.
TECSOK is leading investor-friendly professional consultancy organization in
Karnataka. Its various activities are investment advice, procedural guidance, management
consulting, merger and acquisition etc. KIADB is in the business of apportioning land
for industries and gearing up facilities to carry out operations.
KSFC was established in 1956 for extending financial assistance to tiny, small and
medium industries. It extends lease financial assistance, hire purchase assistance for
acquisition of machinery/equipment/transport vehicles. KSFC has evolved more than
thirty loans schemes.

NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)

The National Small Industries Corporation (NSIC), an enterprise under the union
ministry of industries was set up in 1955 in New Delhi to promote aid and facilitate
the growth of small scale industries in the country. NSIC offers a package of
assistance
for the benefit of small–scale enterprises.
1. Single point registration: Registration under this scheme for participating in
government and public sector undertaking tenders.
2. Information service: NSIC continuously gets updated with the latest specific
information on business leads, technology and policy issues.
3. Raw material assistance: NSIC fulfils raw material requirements of small-scale
industries and provides raw material on convenient and flexible terms.
4. Meeting credit needs of SSI: NSIC facilitate sanctions of term loan and working
capital credit limit of small enterprise from banks.
5. Performance and credit rating: NSIC gives credit rating by international
agencies
subsidized for small enterprises up to 75% to get better credit terms from banks
and export orders from foreign buyers.
6.Marketing assistance programme: NSIC participates in government tenders on
behalf of small enterprises to procure orders for them.

AIHM&CT - IQAC 47
SMALL INDUSTRIES DEVELOPMENT ORGANIZATION (SIDO)

SIDO is created for development of various small scale units in different areas. SIDO
is a subordinate office of department of SSI and ARI. It is a nodal agency for
identifying the needs of SSI units coordinating and monitoring the policies and
programmes for promotion of the small industries. It undertakes various
programmes of training, consultancy, evaluation for needs of SSI and development
of industrial estates. All these functions are taken care with 27 offices, 31 SISI
(Small Industries Service Institute) 31 extension centers of SISI and 7 centers
related to production and process development.

The activities of SIDO are divided into three categories as follows:

(a) Coordination activities of SIDO:

(1) To coordinate various programmes and policies of various state governments
pertaining to small industries.
(2) To maintain relation with central industry ministry, planning commission,
state level industries ministry and financial institutions.
(3) Implement and coordinate in the development of industrial estates.

(b) Industrial development activities of SIDO:

(1) Develop import substitutions for components and products based on the
data available for various volumes-wise and value-wise imports.
(2) To give essential support and guidance for the development of ancillary
units.
(3) To provide guidance to SSI units in terms of costing market competition
and to encourage them to participate in the government stores and purchase
tenders.
(4) To recommend the central government for reserving certain items to
produce at SSI level only.

(c) Management activities of SIDO:

(1) To provide training, development and consultancy services to SSI to
develop their competitive strength.
(2) To provide marketing assistance to various SSI units.
(3) To assist SSI units in selection of plant and machinery, location, layout
design and appropriate process.
(4) To help them get updated in various information related to the small-scale
industries activities.

SMALL INDUSTRIES SERVICE INSTITUTES (SISI)

The small industries service institutes have been set up in state capitals and other places
all over the country to provide consultancy and training to small entrepreneurs both
existing and prospective.
The main functions of SISI include:
(1) To serve as interface between central and state government.
(2) To render technical support services.
(3) To conduct entrepreneurship development programmes.
(4) To initiate promotional programmes.
The SISIs also render assistance in the following areas:
(1) Economic consultancy/information/EDP consultancy.
(2) Trade and market information.
(3) Project profiles.

AIHM&CT - IQAC 48
(4) State industrial potential surveys.
(5) District industrial potential surveys.
(6) Modernization and in plant studies.
(7) Workshop facilities.
(8) Training in various trade/activities.

7.4 SMALL SCALE INDUSTRIES BOARD (SSIB)

The government of India constituted a board, namely, Small Scale Industries Board
(SSIB) in 1954 to advice on development of small scale industries in the country. The
SSIB is also known as central small industries board. The range of development work
in small scale industries involves several departments /ministries and several organs of
the central/state governments. Hence, to facilitate co-ordination and inter-institutional
linkages, the small scale industries board has been constituted. It is an apex advisory
body constituted to render advice to the government on all issues pertaining to the
development of small-scale industries.
The industries minister of the government of India is the chairman of the SSIB.
The SSIB comprises of 50 members including state industry minister, some members
of parliament, and secretaries of various departments of government of India, financial
institutions, public sector undertakings, industry associations and eminent experts in
the field.

7.5 STATE SMALL INDUSTRIES DEVELOPMENT CORPORATIONS (SSIDC)

(Karnataka State Small Industries Development Authority KSSIDC in Karnataka State)

The State Small Industries Development Corporations (SSIDC) were sets up in

various states under the companies’ act 1956, as state government undertakings to cater
to the primary developmental needs of the small tiny and village industries in the state/
union territories under their jurisdiction. Incorporation under the companies act has
provided SSIDCs with greater operational flexibility and wider scope for undertaking
a variety of activities for the benefit of the small sector.
The important functions performed by the SSIDCs include:
● To procure and distribute scarce raw materials.

● To supply machinery on hire purchase system.

● To provide assistance for marketing of the products of small-scale industries.

● To construct industrial estates/sheds, providing allied infrastructure facilities and

their maintenance.
● To extend seed capital assistance on behalf of the state government concerned

provide management assistance to production units.

7.6 DISTRICT INDUSTRIES CENTERS (DIC)
The District Industries Centers (DIC’s) programme was started in 1978 with a view
to provide integrated administrative framework at the district level for promotion of
small scale industries in rural areas. The DIC’s are envisaged as a single window
interacting agency at the district level providing service and support to small entrepreneurs
under a single roof. DIC’s are the implementing arm of the central and state
governments of the various schemes and programmes. Registration of small industries
is done at the district industries centre and PMRY (Pradhan Mantri Rojgar Yojana) is
also implemented by DIC. The organizational structure of DICS consists of General
Manager, Functional Managers and Project Managers to provide technical services in
the areas relevant to the needs of the district concerned. Management of DIC is done
by the state government.
The main functions of DIC are:

AIHM&CT - IQAC 49
(1) To prepare and keep model project profiles for reference of the entrepreneurs.
(2) To prepare action plan to implement the schemes effectively already identified.
(3) To undertake industrial potential survey and to identify the types of feasible
ventures which can be taken up in ISB sector, i.e., industrial sector, service
sector and business sector.
(4) To guide entrepreneurs in matters relating to selecting the most appropriate
machinery and equipment, sources of it supply and procedure for importing
machineries.
(5) To provide guidance for appropriate loan amount and documentation.
(6) To assist entrepreneurs for availing land and shed equipment and tools, furniture
and fixtures.

To appraise the worthness of the project-proposals received from entrepreneurs.

(8) To help the entrepreneurs in obtaining required licenses/permits/clearance.
(9) To assist the entrepreneurs in marketing their products and assess the
possibilities of ancillarization.
(10) To conduct product development work appropriate to small industry.
(11) To help the entrepreneurs in clarifying their doubts about the matters of
operation of bank accounts, submission of monthly, quarterly and annual
returns to government departments.
(12) To conduct artisan training programme.
(13) To act as the nodal agency for the district for implementing PMRY (Prime
Minister Rojgar Yojana).
(14) To function as the technical consultant of DRDA in administering IRDP and
TRYSEM programme.
(15) To help the specialized training organizations to conduct Entrepreneur development
programmes.
In fine DIC’s function as the torch-bearer to the beneficiaries/entrepreneurs in
setting up and running the business enterprise right from the concept to commissioning.
So the role of DIC’s in enterprise building and developing small scale sector
is of much significance.
7.7 TECHNICAL CONSULTANCY SERVICES ORGANIZATION OF
KARNATAKA (TECSOK).
TECSOK is a professional industrial technical and management consultancy organization
promoted by the government of Karnataka and other state level development
institutions way back in 1976. It is a leading investor-friendly professional consultancy
organization in Karnataka. Its various activities are investment advice, procedural
guidance, management consulting, mergers and acquisition, process reengineering
studies, valuation of assets for takeovers, impact assessment of socio-economic schemes,
critical infrastructure balancing; IT related studies, detailed feasibility studies and reports.
TECSOK with its pool of expertise in varied areas can work with new entrepreneur
to identify a product or project. In addition to this TECSOK sharpens the project ideas
through feasibility studies, project reports, market surveys, and sources of finance,
selection of machinery, technology, costing and also providing turnkey assistance. To
help entrepreneurs to face the global competition TECSOK facilitates global exposures,
updated technology, market strategies, financial restructuring and growth to improve
profitability of an industry.

TECSOK can identify sickness in existing industry and facilitate its turn around.
TECSOK has expertise in rehabilitation of sick industries by availing rehabilitation
packages offered by the government and financial institutions. In addition it offers expert
professional services to various institutions and departments of the state and central
government.
TECSOK undertake the assignment in the field of

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● Technical and market appraisal of projects.
● Industrial potential surveys.

● Fact-finding and opinion reports.

● Corporate planning.

● Collection and collation of information.

● Impact assessment.

● Evaluation of schemes and programmes.

● Asset evaluation.

● Infrastructure development project proposal.

● Event management and publicity campaigns, and

● Organizing seminar and workshops.

TECSOK has over 25 well-experienced engineers in different disciplines, MBAs

economists and finance professionals. It has business partnerships with reputed national
and multinational consultants and out sources expertise for professional synergy.
TECSOK has an exclusive women’s cell which conducts training and education
programmes, exhibitions for promotion of products and services provided by women
entrepreneurs and offers escort services to women entrepreneur. TECSOK has many
publications. “Kaigarika Varthe” a monthly is published by TECSOK. In addition it
publishes “Guide to Entrepreneurs” “Directory of Industries” on a regular basis.
Focused Consultancy Areas of TECSOK
Promotion of agro based industries: TECSOK is recognized nodal agency by the
Ministry of Food Processing Industries, Government of India, for project proposal to
avail grant and loan assistance under the special schemes.
Energy management and audit: Thrust is given to use non-conventional energy
sources for which both state and central governments are offering incentives. TECSOK
has been recognized as a body to undertake energy audit and suggest energy
conservation measures. TECSOK undertakes studies and project proposal for availing
assistance from the Indian Renewable Energy Development Authority (IREDA).
Environment and ecology: TECSOK undertakes assignments relating to environment
education, environment impact assessment, environment management plan and pollution
control measures. TECSOK has joined hands with Karnataka cleaner production center
(KCPC) to provide total consultancy support in the area of environment.

Human Resource Development: TECSOK designs and organizes business development

programmes, management development workshops, skill development programmes
and in-house training packages. It undertakes programmes of empowerment of women
entrepreneurs, organization of self-help groups. In order to encourage local entrepreneurs
TECKSOK organizes awareness campaigns and motivation programmes in
taluks and districts throughout Karnataka.
Other TECSOK activities:
● Guidance in product selection and project identification.

● Market survey and market development advice.

● Consultancy for agro-based industries of a nodal agency of the government of

India.
● Diagnostic studies and rehabilitation of sick industries.

● Environment impact assessment studies environment management plans and

propagation of cleaner production techniques.

● Energy management and audit.

● Valuation of assets for mergers and takeovers.

● Infrastructure development project reports.

● Port tariff study and related areas.

● System study and software development.

● Management studies, company formation, corporate plan, enterprise

restructuring etc.

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● Designing and organizing training programme.

7.8 SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

For ensuring larger flow of financial and non-financial assistance to the small scale
sector, the government of India set up the Small Industries Development Bank of India
(SIDBI) under Special Act of Parliament in 1989 as a wholly owned subsidiary of the
IDBI. The SIDBI has taken over the outstanding portfolio of the IDBI relating to the
small scale sector. The important functions of IDBI are as follows:
(1) To initiate steps for technological upgradation and modernization of existing
units.
(2) To expand the channels for marketing the products of SSI sector in domestic
and international markets.
(3) To promote employment oriented industries especially in semi-urban areas to
create more employment opportunities and thereby checking migration of
people to urban areas.
The SIDBIs financial assistance to SSIs is channeled through existing credit delivery
system comprising state financial corporations, state industrial development corporations,

commercial banks and regional rural banks. In 1992-93 it has introduced two new
schemes. The first is equipment finance scheme for providing direct finance to existing
well-run small-scale units taking up technology upgradation/modernization and refinance
for resettlement of voluntarily retired workers of NTC. The other new scheme was
venture capital fund exclusively for small-scale units, with an initial corpus of Rs 10
crore. SIDBI also provides financial support to national small industries corporation
(NSIC) for providing leasing, hire-purchase and marketing support to the industrial units
in the small scale sector.
7.9 KARNATAKA INDUSTRIAL AREAS DEVELOPMENT BOARD
(KIADB)
The Karnataka industrial areas development board is statutory board constituted under
the Karnataka industrial area development act of 1996. Since then it is in the business
of apportioning land for industries and gearing up facilities to carryout operations. The
KIADB now acquires and provides developed land suited for industrialization, by
drawing up well laid-out plots of varying sizes to suit different industries with requisite
infrastructure facilities. The facilities include roads, drainage, water supply etc. The
amenities such as banks, post offices, fire stations, police outposts, ESI dispensaries etc
are also provided. It also plans to initiate the provision of common effluent treatment
plants wherever necessary.
KIADB has acquired a land of 39,297 acres out of which 21,987 acres had been
developed till March 1996. Developed industrial plots had been allotted to 7882 units.
Application forms for the allotment of land may be obtained from the executive
member, KIADB Bangalore or general manager DIC of concerned district or from the
Zonal office of KIADB located at Mysore, Mangalore, Dharwad, Gulbarga, Bidar, Hassan
and Belgaum. Applications duly filled must be accompanied by:
(a) A brief project report.
(b) Details of constitution of the company
(c) Provisional registration certificate
(d) EMD of Rs 500/- per acre, subject to a maximum of Rs 10,000/- along with
20%, 15% and 5% of the land cost for various districts.
On receipt of applications for all districts other than Bangalore, a discussion with
the promoters regarding the project will be held in the concerned district headquarters.
The district level allotment committee will take a decision on allotment of land to the
SSI units.
In case of Bangalore, the screening committee comprising of executive member
KIADB, director of SISI, chief advisor TECSOK with discuss the project and make

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necessary recommendation to a sub-committee. The sub-committee will in turn allot
the land. Once land is allotted the remaining payment should be made within six months
of the date of issue of allotment letter.

The industry should be started after obtaining the necessary license/clearance/

approval from the concerned authorities. Plans for the proposed factory/ building or
other structure to be erected on the allotted sites are executed only after prior approval
of the board. On being satisfied that the land is not being put to the prescribed use,
the board reserves the right to re-enter and take procession of the whole or any part
of the land. If necessary the leasehold rights on the allotted land may be offered as
security in order to obtain financial assistance from the government or corporate bodies.
However, prior permission of the board has to be obtained for creating second and
subsequent charges of the land.
7.10 KARNATAKA STATE FINANCIAL CORPORATION (KSFC)
The KSFC was established by the government of Karnataka in 1956 under the state
financial corporation act 1951 for extending financial assistance to set up tiny, small
and medium scale industrial units in Karnataka. Since 1956 it is working as a regional
industrial development bank of Karnataka. KSFC has a branch office in each district;
some districts have more than one branch.
KSFC extends lease financial assistance and hire purchase assistance for acquisition
of machinery/equipment/transport vehicles. KSFC has merchant banking department
which takes up the management of public issues underwriting at shores, project report
preparation, deferred payment guarantee, and syndication of loans, bill discounting and
similar tasks.
KSFC give preference to the projects which are
(i) Promoted by technician entrepreneur.
(ii) In the small-scale sector.
(iii) Located in growth centers and developing areas of the state;
(iv) Promoted by entrepreneurs belonging to scheduled castes and scheduled tribes,
backward classes and other weaker sections of society.
(v) Characterized by high employment potential.
(vi) Capable of utilizing local resources; and
(vii) In tune with the declared national priorities.
The eligible industrial concerns for financial assistance from KSFC are those
engaged/to be engaged in manufacture, preservation, processing of goods, mining, power
generation transport, industrial estate, hotels, R & D of any product or process of
industrial concern, weigh bridge facilities, power laundries, photocopying, hiring of
heavy material handling equipment, cranes and other earth moving equipments,
hospitals, nursing homes, medical stores, computers, tourism related activities,
construction of roads, tissue and horticulture software development, software parks,
block board vehicles, office construction, go down and warehouse construction, mobile
canteens, commercial complexes, training institutes, office automation and so on.

Loan Schemes of KSFC

KSFC has evolved loan schemes for extending financial assistance to industrial concerns
promoted by rural artisans, weaker sections of society, disabled entrepreneurs, exservicemen,
women entrepreneurs and others.
The various loan schemes of KSFC are given below:
(1) Composite loan scheme
(2) Disabled entrepreneurs loan scheme.
(3) Scheduled cast and scheduled tribe’s loan scheme.
(4) Ex-service men loan scheme.
(5) National equity fund scheme.

AIHM&CT - IQAC 53
(6) Mahila Udyama nidhi loan scheme.
(7) Single window loan scheme.
(8) Transport loan scheme.
(9) Computer loan scheme.
(10) Modernization loan scheme.
(11) Diesel generator loan scheme.
(12) Equipment finance loan scheme.
(13) Tourism related activities loan scheme.
(14) Hospital/nursing / medical store loan scheme.
(15) Electro-medical equipment loan scheme.
(16) Assistance for acquiring indigenous or imported second-hand machinery.
(17) Qualified professionals loan scheme.
(18) Scheme of assistance for acquisition of ISO 9000 series of certification.
(19) Hotel /mobile canteen loan scheme.
(20) Industrial estate loan scheme.
(21) Loan scheme for office automation.
(22) Loan scheme for training institution.
(23) Loan scheme for private software technology parks.
(24) Loan scheme for commercial complexes.
(25) Industrial estate loan scheme.
(26) Loan scheme for ready-built office/construction of new office building.
(27) Loan scheme for acquisition of land/building/commercial space.
(28) Loan schemes for marketing related activities.
Equity lease finance: Industrial concerns engaged in production for the preceding
two years, earning profits and regular in repayment to financial institutions/banks,
can avail the services of plant and machinery/equipment on lease without making

AIHM&CT - IQAC 54