Business Incubator With a Difference

7/27/2019 Business Incubator With a Difference

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Mahatma Gandhi-Business Incubatorwith a Difference

A Grassroots ApproachBy

K.N.NaikFreelance Consultant & Trainer

Introduction

"What's in a name? That which we call a roseby any other word would smell as sweet."--From Romeo and Juliet(II, ii, 1-2)Shakespeare Quotes

The above quote aptly applies to the word Business Incubator.A number of synonyms could be considered: Facilitator, Mentor,Guide, Service provider etc. The message has to be followedmore in spirit than in words. There are a number of definitions forBusiness Incubator, but following is the summary of servicesprovided by a Business Incubator:

Nurture the development of entrepreneurial companies,helping them survive and grow during the start-up period,when they are most vulnerable

Provide them with business support services and resourcestailored to young firms

Provide management guidance, technical assistance,finance arrangement assistance and consulting tailored toyoung growing companies

Provide access to appropriate rental space and flexibleleases, shared basic business services and equipment,technology support services

Highly adaptable, incubators have differing goals, includingdiversifying rural economies, providing employment for andincreasing wealth of depressed inner cities, and transferringtechnology from universities and major corporations.

The most common goals of incubation programs are:

Creating jobs in a community Enhancing a communitys entrepreneurial climate

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Retaining businesses in a community Building or accelerating growth in a local industry Diversifying local economies

An example of Incubation will be discussed here, which hadobjectives similar to above. Probably it (Khadi movement) wasthe first large scale grassroots business incubation endeavourever taken up in India with a sharp focus, by none other than theFather of the Nation, Mahatma Gandhiji.

Historical Perspective

When we have become village-minded, we willnot want imitations of the West or machine-

made products.-Gandhiji

In pre-British rule days, spinners and weavers in India wereexporting finished cotton and silk cloth to various countriesincluding Europe. No foreign country could match the quality andfinesse of Indian cloth. The Indian spinners and weavers haddeveloped unique equipments and methods of producing highquality goods at low cost which could not be imitated by anyonein the world. After the advent of industrial revolution in Britain,

the British factory-owners developed the techniques ofmechanised spinning and weaving. Since there was no domesticproduction of cotton, they imported cheap raw cotton from theAmerican plantations. Finished cloth from British mills becamemuch cheaper than the Indian handloom products. Cotton mills inEngland, flooded Indian markets with their cloth which adverselyhit the domestic producers & much of India's basic needs incotton clothing was being met by cloth exported by Britain.Indian spinners and weavers lost their jobs, and had to turn toagriculture to make a living.

Gandhiji started several nation-building activities and expressedhis views with fervor. Swadeshi was a burning passion within him.He visualized Khadi1 as a means to revive the lost art ofspinning, weaving in Indian countryside and reinstate the wide

1 Khadi is an indigenous hand woven product innovated by Mahatma Gandhi from 1920s to late 1940s

Source: en.wikipedia.org

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Current Status

The seed that was sown by the Father of the Nation has becomea large banyan tree today. From the plain and simple Khadigramodhyog today the movement has flowered into a Handloomand Handicrafts business in the hands of millions of rural Indians.

The support structure for the sustenance and growth of thesector is federal with all states and central governmentcontributing their might to take the sector from better to bestposition.

Imagine a bamboo artefact created by an entrepreneurcraftsman in distant Tripura, enhancing the life style of a richman in USA. This could only happen as a result of the seed of

Swadeshi2 sown by none other than the great MahatmaGandhi. His Swadeshi movement took the form of HandloomHouses in post independence era which later forayed intohandicrafts et al.

Handloom and handicraft fall under the category of small scale,cottage scale or even household industry and are situated faraway from potential market places. The people in the business-the weavers and craftsmen- are not adequately educated and are

not good at business management. An agency is required whichwill work towards removing the above difficulties and help themget the better value of their goods while ensuring sustainability oftheir livelihood. The objectives of such an agency (set of BusinessIncubators) should be to effectively deal with following issues:

Producers being away from market

Unaware of value of goods

Logistics is a major problem

Synchronizing with modern way of living

Achieving better employment sufficiency and distribution of

income

Traditional production technique

Low level of technology and skills

Lack of modernization

2 Swadeshi, is a movement launched by Mahatma Gandhi to remove the British Empire from power and

improve economic conditions in India through following principles of swadeshi (self-sufficiency)

Source: en.wikipedia.org

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Quality up gradation - Research and Development

Lack of adequate, even and timely supply of inputs

Lack of product and design innovation

Non-availability of adequate and timely credit facilities

Lack of skill up gradation of weavers in designing, dyeing,printing and processing;

Inadequate organizational marketing and technical supportMain areas of assistance are:

Marketing & Logistics

Fetching a remunerative price

Managing the cash cycle

Capital expenditure

Technology absorption

Value Addition- exports & linkage with tourism

Significant work has already been done by the supportingagencies in above areas and more needs to be done. The clustersystem implemented by the government is a step in this directionwhere localized and focused efforts could be made to enhancethe income of the workers and craftsmen by imbibing newtechnology, improving work practices, refining the products,seeking value addition alternatives, expanding market horizonsand improving logistics. It is as a result of such efforts only thatnow artefacts made from bamboo and such other materials couldbe purchased on the internet.

Need to Emulate the Model in Biodiesel

All hues of politicians have one pronounced agenda (whether wellmeaning or not!) in common and that is Rural Upliftment. Intodays environment of Globalisation and Modernisation, nearly60% of Indias (needy) population is rendered only lip service butgiven a go bye when it comes to real action.Since India needs to acquire some semblance of energy security,biodiesel could play a significant role in achievement of this

objective of rural upliftment by ensuring better redistribution ofincome.No doubt, while lot of action seems to be taking place in the area,unless they are reorganized effectively with focus on earlyachievement, they may prove to be nothing more than a storm ina tea cup.

The following forward path (incubation plan) may prove effectivein repeating the feat achieved in Khadi, handloom and

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handicrafts. It will be a fitting tribute to the master businessincubator designer of all times- The Father of the nation:

Biodiesel Production- the Mega Task: A distant DreamThe Mega Task

If we go by the diesel demand estimates shown in table belowand work out the amount of biodiesel required for variouspercentage of blending from 5% to 20%, it will be appreciatedthat it is indeed a momentous task. Looking at the present scaleof activities (We have tried to compile an inventory of activitieshappening in the country), we can say that the belief that thecountry will achieve the target set forward in the NationalBiodiesel Mission is a day dream. The question of achievinganything worthwhile in 2006-07 seems next to impossible. Evento achieve the target set for 2011-12, there is dire need to actnow keeping in mind the gestation period of the project and theamount of inputs needed in terms of money, material, men,policy initiatives, Research & development inputs and financialincentives in order to create facilities and infrastructure andstabilize a commercial system. Since 2006 is already round thecorner, analysis of data will be on 2011-2012 targets to arrive atefforts needed to give a more realistic picture of the gap betweengoals and achievement.

The calculations below are based on following set of assumptions:1. Three cases of seed yields are assumed. i.e. 1kg. /tree,3kgs/tree, 5kgs/tree

2. Three cases of oil content are assumed. i.e. 30%, 35%, 40%3. Three cases of oil recovery are assumed. i.e. 75%, 80%, 85%4. Three cases of blends are assumed. i.e. 5%, 10%, 20%5. It is assumed that 2500 Jatropha trees could be planted in onehectare

The results are tabulated below:Diesel & Bio-diesel Demand, Area Required under JatrophaPlantation for Different Blending Rates

Diesel Bio-

Diesel

5%

Demand MMT

MMT Pessimistic Base case Optimistic

2011-12 66.9 3.35 5.96 2 0.79

Year Area for 5%

Mha

(please mention the source)

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Bio-

Diesel

10%

Bio-

Diesel

@20%

MMT MMT

Pessimistic Base case Optimistic Pessimistic Base case Optimistic

6.69 11.89 3 1.57 13.38 23.79 6 3.15

Area for 10%

Mha

Area for 20%

Mha

Note: Pessimistic case take the lowest figures, base case takesthe middle figures and optimistic takes the highest figures

The Financial Implications of plantation efforts for various casesare worked out on following assumptions:

1. There will be no rent on waste land allotted to farmers orcorporates for Jatropha plantations

2. Three cases of cost of plantation are assumed. i.e. Rs.

10000/ha, Rs. 20000/ha, Rs. 30000/ha3. Three cases of cost of running cost of plantations for three

years till it starts yielding fruits are assumed. i.e. Rs.5000/ha/yr., Rs. 10000/ha, Rs. 15000/ha

The results are tabulated below:

Bio-Diesel

@5%

MMT

Pessimistic

Base case Optimistic

3.35 5.96 2 0.79Cost of plantation &

upkeep (Rs. Crores) 44667 7976 1971

Area for 5%

Mha

(please mention the source)Bio-

Diesel

10%

Bio-

Diesel

@20%

MMT MMT

Pessimistic

Base case Optimistic Pessimistic

Base case Optimistic

6.69 11.89 3 1.57 13.38 23.79 6 3.15

89200 15929 3935 178400 31857 7871

Area for 10% Area for 20%

Mha Mha


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The Financial impact of setting up oil extraction andTransesterification plants for a matching capacity are worked outwith following assumptions (The capital costs for such plants arenot well established since not many plants exist in India. Sincethe oil extraction plants- a collection of various unit operations-

will grow in capacity essentially by way of adding lines of thelargest capacity technically feasible, the economy of scale willnot play a major role.) :

1. Three cases of cost of Plant for oil extraction and areassumed. i.e. Rs. 10000/MT, Rs. 20000/MT, Rs. 30000/MT

The results are summarized below:Diesel

Demand MMT

MMT Low Average High

2011-12 66.9 3.35 3350 5025 6700

Year Bio-Diesel @5%

Capital Cost (Rs. Crores)


MMT MMT

Low Average High Low Average High

6.69 6690 10035 13380 13.38 13380 20070 26760


Bio-Diesel @20%


Bio-Diesel @ 10%


The Weak Link in The Value Chain

From world wide experience and experience in India till now, it isquite clear that maximum attention is required in finding the rightvariety of the Jatropha plant for a given area to maximize theyield per hectare. An expert involved with the activity said that inGujarat alone, there are more than 100 varieties of Jatropha and

the crucial issue would be to match the right one for the rightarea.

The next major task is to release land for plantations withurgently cutting through the maze of red tape. As suggested byan entrepreneur involved in the business, the governments needto adopt a single window approach and provide all necessary

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infrastructure and extension services support to attract thefarming community towards this activity.Equally important would be the availability of seedlings orcuttings required in requisite numbers to cover the intendedareas for plantations. Thus, nursery raising and seedling

production will be crucial to the success of the project.Similarly, another important aspect for supporting this activitywould be to provide initial financial support for plantations.

The amount of funding needed under different scenarios isdiscussed in previous section. In fact SBI has set the trend byproviding finance for plantations.

Forward Path

It is quite clear that the country is no where near achieving thetargets set in the national biodiesel mission. There is an urgentneed to take a realistic review of actions needed by differentstakeholders in the value chain. In our view, the Government ofIndia and state governments should be the most interested stakeholders. Looking to its responsibility of sustaining the growth ofthe economy as envisioned, looking at energy security of thecountry and ensuring employment and income generation in therural areas, the powers that be have to get their act together.1. The first and foremost action should be to set mandatoryquantity and time targets for production and use of biodiesel.For achieving these, it may be made mandatory for oil refiningand marketing companies to achieve a specified percentage ofbiodiesel blending in petrodiesel sold by them within a given timeperiod. To ensure compliance the government may provideincentives like exemption from excise duty and a subsidy onquantity sold to start with till a certain quantity of biodieselquantity is produced and used and the economics of the wholevalue chain is well established.For achieving the above targets, the oil companies maythemselves take up corporate plantations. Another way is to gofor contract farming with farmers cooperatives while providing

them with infrastructure and extension services support as asingle point agency coordinating with respective governments,banks and research institutions. This model is reported to haveworked successfully in Maharashtra.Another successful model of managing the whole value chain isdemonstrated by some private entrepreneurs who have set upthe oil extraction and esterification plants and have contract

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farming agreements with a set of farmers. These companies thentake the responsibility of organizing availability of requisitefarming inputs and funding for the farmers. The oil companieshave the option of having a buyback arrangement with suchcompanies to complete the value chain.

2. The most important activity right now should be in the handsof research organisations, Agricultural Universities, State ForestDepartments and Private Entrepreneurs who should search outand further engineer the most suitable breed of the plant fora given area of land, produce seedlings and cuttings insufficient quantities to achieve plantation targets and supplythem at a reasonable cost to the farmers or other plantationagencies. The planning commission has indeed provided morethan Rs. 1000 crores for funding these activities but thegovernment needs to ensure that these activities do not suffer for

want of funding.3. Another important element in successful achievement ofplantation targets is the availability of land. It is essential thatland in possession of governments is leased out to corporates,private entrepreneurs, farmers cooperatives and individualfarmers without any loss of time and entanglements ofbureaucracy at a cheap rental. In fact fallow and arid land whichis lying unproductive could be leased for a token rental.4. The oil extraction and esterification processes use fairlyrudimentary and proven processes. Especially oil extraction is a

combination of unit operations which can be set up on a smallscale without any significant loss on account of economyof scale. This fact could be used gainfully to maximize theretention of the benefits of the value chain at rural level wherethe by-product- Pressed cake- will find a ready outlet for biogasgeneration and use of fertiliser.5. The benefits of large scale production of biodiesel areastounding:

Foreign exchange saving

Increase in local GDP while avoiding outflow of funds

Favourable distribution of income (Rural Upliftment) whichis the prime agenda of politicians of all hues

Greening of India

GHG (CO2) reduction which can earn Carbon Credits

It makes tremendous economic sense for the government tojustify creating a conducive environment and providing result

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Documents

Business Incubator With a Difference