Management of New and Small Enterprises, Corporate Objective, Product Life Cycle

7/31/2019 Management of New and Small Enterprises, Corporate Objective, Product Life Cycle

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VIABILITY OF FAMILY BUSINESS

Family business is the most traditional form of business enterprises. Despite the development of various

other forms of enterprises, the family form of business enterprise still dominates. Those who are advocates

of professional management argue that the traditional family values of enterprise stability often clash with

changing economic goals of sustained investment and growth. They further argue that the traditional

family structure is vulnerable in the context of increasing environmental complexity and turbulence. As

against this, family business provides benefits which are rarely available to professionally managed firms.

Entrepreneurship, dedication, commitment, family reputation, integrity, leadership and initiative are some

of the very important qualities of family business. The question whether family business is a viable

proposition in the present context is reasonable enough to be raised here. To answer this, let us discuss the

positive and negative sides of family business.

Negative Side

The intervention of family in the management of the firm is often considered unhealthy and

unprofessional. This affects the organisational efficiency and performance in many respects. Some of the

commonly occurring negative effects are discussed here:

i) Nepotism is one of the marked features of family business enterprises. The blood relationship

determines the entry into the business and holding of key positions. Merit becomes secondary and even an

insignificant criterion for promotion. This affects the loyalty and commitment of hired professionals. Theinefficiency of relative-employee is often covered up by the efficient performance of non-relative

employees. This ultimately make the total functioning of organisation inefficient.

ii) Overlap between business and family goals is another feature of family business. Logically, the goal of

the enterprise is oriented to fulfil the interest and achievement of the family. This, many a time contradicts

the survival and growth goals of the firm. Family members very often pursue their personal goals at the

cost of sacrificing growth opportunities of the firm. This threatens the long-term survival of the firm.

iii) Family rigidity is the third feature which imposes poor profit discipline. Family members very often

prioritise certain aspects of firms functioning on the basis of family values or family decision. For

example, family value is to create a good social image which requires giving employment to needy people.

This may affect the profit of the firm. Many times, family members unduly support their pet projects, no

matter whether they are profitable or not.iv) Succession is the fourth feature of family. The continuity of family is achieved by way of handing over

the charge of the firm to the next generation. Very often the successors are selected using blood relation as

only criterion. They may not be efficient and may not have any experience of running a well-established

business firm. In the want of proper succession, a good number of family businesses get into trouble and

sometime are led to closure of business enterprises.

v) Family feuds, and contradictions adversely affect professional management of the business as they are

not confined to the house alone.

Positive Side

Family, which is considered obstructive to the business performance is also considered a major source ofstrength and support in many respects. Some of the advantages of family business are as following:

i) The basic premise on which family business rests is its stability and continuity which is linked from one

generation to another. The long-term interest of family members in the business often provides the

sentiments of family solidarity and natural loyalty. Family members work with each other with greater

team spirit to attain a common goal. They make personal sacrifices by taking minimum dividends from the

firm and bringing in personal financial resources in the time of financial crises. Many times, business gets

greater priorities under their personal needs. Loyalty and dedication of family members have been

responsible for continued operation during the hardship period.

ii) The image and social reputation of the family becomes the goodwill of the firm. It helps in establishing

trust and credibility in the market. Bankers and suppliers feel comfortable in dealing with such family

owned enterprises because of their good image and reputation.iii) Since stockholders and managers of the firm work unitedly, managers are less sensitive to the criticism

based on the short-term performance. They enjoy a great amount of freedom and flexibility in

concentrating on long-term objectives of the firm. This is possible only in family business as both

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stockholders and managers have mutual understanding and trust.

iv) There are other conditions in which the choice of the family form of enterprise becomes almost

essential. Entrepreneurs who have worked very hard throughout their life to build the business empire

very often desire that the fruits of their hardwork must go to their families.

At the same time, they have many obligations towards the family as they derived the initial capital and

emotional support from the family. Therefore, new enterprises adopt the family business form to satisfy

family needs.

v) During the transition period, the founder needs trustworthy people to take care of sensitive operations

as he or she finds it difficult to manage the business alone. One looks for family members and relatives as

a source of strength to fill the transitional gap. Small firms cannot afford to hire professionals and

therefore they start taking family members and relatives to provide support in the growing business. The

legislative environment has also been indirectly a binding force on the founder to adopt family business to

enjoy certain benefits.

The foregoing discussion highlights benefits and disadvantages of the family business system. It has also

been made clear that under certain conditions, the family form of business becomes almost essential. As

against the family business, the professional management system is being advocated. The professional

management system helps transform the proprietary firm into a modern corporation in which family

ownership and control are separated. It has been thought that the continuity of family business can beensured only through professionalisation due to increasing complexity in the environment. The advocates

of professionalisation observe that family business, because of its inherent weaknesses like nepotism,

favouritism, rigidity and conservative policies, is likely to be vulnerable in the long run.

Professionalisation is certainly a need of the time to ensure stability and continuity of the family business

in the long run. However, the professional management practices are not fully foolproof in many respects.

Firstly, nepotism and favouritism are also found in professionally managed companies where it is based on

caste, community, regions, etc. In fact many decisions of promotions are considered on the basis of these

factors ignoring merit. Professional managers are often criticised for lack of entrepreneurial initiative

which hamper the growth potential of the business. Their commitment and loyalty to the business are also

doubtful as they do not have any stake in the enterprise. Infact, the so-called professional managers have

yet to prove professional excellence to create an image and goodwill. Moreover, the supply of professionalmanagers is not adequate in the developing countries.

Despite a few weaknesses of family business, it is still a useful system to achieve pace in industrial

development. The unique supply of entrepreneurial and managerial resources from the business family has

been responsible for the large-scale success of business houses of the country. Family business has

continued to be viable even in the present context because of its ability to respond quickly to the changing

needs of business by making drastic internal adjustments.

FAMILY MANAGEMENT PRACTICESTo get acquainted with the family business, it is necessary to learn some of the commonly employed

management practices in family business. We describe here some of the choices of management control

that are available to the founder along with the internal work environment, organisational structure and

delegation.

1) Management Control Mechanism: Choices

The family business consists of two systems: family and task systems. The task system is subject to the

influence of the family system and is determined on the basis of norms, values and principles of the family

and its members. The family has different options through which it can control and manage the task

system:

i) In the first case, the founder may decide to exercise direct control on the management of the firm. This

is a normal feature in proprietorship and partnership firms. Under the direct control systems, familymembers are given a certain number of shares with the assurance of power of voting. All important

decisions are taken by the founder which are binding on the other members of the family.

ii) Another choice the founder has, is to dilute his or her authority of direct control by consulting a few


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selected family members before taking important decisions. Certain areas are clearly defined where

approval of the family members is needed. For example, any decision concerning capital investment needs

the approval of family members.

iii) The founder uses professionals to carry out the management function. The founder clearly defines the

boundaries between business and family decisions. Family members are assured to ownership control

while business related decisions are taken by different heads of business.

iv) The founder may decide to place the firm under the full control of the family. Family members are

involved in the early stages of enterprise development at different levels to take charge of various

management functions.

2) Internal Environment

Family business consists of two sets of individuals: family members and non-family members. The

sentiment system of the family system is at its core and made up of those individuals who are bound by

emotions and loyalty. The non-family members are subject to the rules made by the family owning the

enterprise.

The general feature of the family business is that the top man is surrounded by a loyal cadre of

top-management personnel who are highly trusted individuals and are with the enterprise from beginning.

They have normally grown with the firm and exhibit intense feeling of permanent relationship with the

founder. The forces of traditions, kinship, caste and religion support the integrity of the family business.Relatives of the family members are hired and placed on key positions of the firm. They get fitted in the

internal environment of the firm more easily that non-relative employees. The relatives have free access to

the top man no matter at what level he is, while non-employees have to strictly adhere to the formal

channel.

Decisions are taken by the family members and power to take decisions is normally centralised at the top.

Professionals are hired to give technical advice and they do not possess any decision-making power.

Since relations are considered as one of the basic criteria for selecting people to top and middle levels,

non-relative employees at junior levels suspect the authority of those who are at the top and feel that they

do not deserve it by competence. They often complain that it is difficult for them to work productively

with the non-competent family members/relatives. Competit ion among family members/relatives

non-relative employees normally leads to subtle rivalries amongst them. This creates a climate of poorinterpersonal relations and groupings.

Objectives and policy direction of family business are oriented towards the goals of the family. Therefore,

the internal environment of family business is geared to reinforce and perpetuate family pride and

tradition.

3) Organisational Structure and Delegation

Normally, the organisational structure of family business is hierarchical and decision-making authority is

centralised at the top. The organisation is structured on the functional basis: functional specialists and

managers at intermediate level are often between the top and workers. In practice, the hierarchical system

reduces the enterprise to one-man show. As a result, formalisations are kept to a minimum. It is very often

observed that no written documents are kept which detail out rules, regulations and operating instructionsof the organisation. Job descriptions and organisational charts are rarely available. The family business

also avoids standardisation as no specific policies are clearly stated. Decisions are taken mostly on internal

judgement.

In such organisations, delegation of power does not really take place in a formal sense. Functional

specialists play the role of advisers while managers at intermediate level do not really exist in practice.

They are communicated of decisions for which they are responsible for implementation. However they

have no power to take decisions. Very often, family business organisations have a large span of control as

almost everyone excepting workers keep reporting to the top man. To sum up, organisation and

management in family business are based on personalised modes rather than professional modes.

ISSUES AND PROBLEMS IN FAMILY BUSINESS

Family businesses are often criticised for their lack of professionalism in dealing with environmental

complexities more efficiently. Intervention of family in the business affects business-like responses to


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various situations of opportunities and threats. As a result, more and more family businesses are getting

into trouble. Problems that most of the family businesses get into are: conflicting business and family

norms; rivalry among family members, professionalisation and problems of continuity. In the past, these

problems have led even the most successful enterprises into severe problems causing sometimes the

collapse of business enterprises. Some of these issues and problems are discussed here:

i) Business vs. Family

Family businesses very often face this unique dilemma to make a choice from alternatives that is best for

the business against the family norms. Given this choice, decisions are very often made in the interest of

the family and not business. Values, norms and principles of the family are incongruent with that of

business. This leads the family business to operate under the normative ambiguity. Human resources and

growth opportunities are adversely affected due to this conflict. With regard to human resources, family

management due to its obligation towards the family select, promote and compensate family members and

relatives considering relationship/kinship as a major criterion.

The family norm of providing help to relatives by way of giving them employment often encourages

incompetent persons getting priority over qualified professionals.

Similarly, compensation is determined on the basis of the position of the relatives in the family and their

needs whereas the business norm is to compensate according to ones merit and competence. Even in the

case of appraisal, family members are appraised on the basis of their standing in the family rather than

performance.Training and development of employees should be done as per the needs of the organisation. But, in

family business, it is often done on the basis of the needs of the family members for their own

development.

Because of certain family norms or principles, a number of growth opportunities are lost. Family principles

include not to have outsiders meddling in family affairs. This can have adverse effects. For example, when

the growth opportunities need raising of extra capital through equity financing, the family may decide not

to go for equity financing as it means loss of freedom of family in the business. Such interests of family

may weaken the organisation and make it more inefficient which in turn threatens survival.

ii) Rivalry among Relatives

A number of family members of varying age and relationship participate in the family business. They very

often clash with each other because of conflict of interests. This causes the breakdown of communicationand creates barrier to organisational integrity.

The founders relatives occupy top positions in the family business. The rivalry starts right from father to

son and spreads soon among brothers and other relatives. The father-entrepreneur normally considers his

business as an extension of himself and only source of power. Despite his being consciously aware of the

need to groom his son to ultimately take over the business, he never gets down to delegate the authority to

his son. He does not even share necessary information with him nor consult him while making important

decisions. He very often presumes his son to continue to follow traditional styles of management and

resists any change in the organisation initiated by his son. The son, on the other hand, feels confused when

he gets to know a number of decisions already implemented by his father contradicting his future plans.

He feels that he is not fully equipped with the required level of authority to bring in changes in theorganisation. He starts feeling that his father is too protective and does not trust his ability. This rivalry

often leads to infighting with the organisation.

Brother to brother rivalry is equally intense in family businesses. The rivalry is caused due to their anxiety

to prove their mantle better than the other. Competition with each other often amounts to pulling each

other down at the cost of organisational resources. The rivalry further gets complicated when other

members of the family directly or indirectly favour one of them. Under such circumstances, a few family

members can even take actions which may lead the firm into disaster.

Rivalry among relatives often leads to factional decisions that spring up in the organisation as the

non-relatives starts choosing family members with whom they want to be identified. Many a time,

non-family employees do not want themselves to be involved in a family fight until it is resolved. This can

paralyse the working of the organisation.Such rivalries are the peculiar phenomenon which obviously arise owing to clashes of interests and ego.

The organisation becomes directionless. Even the founder becomes helpless to resolve such conflicts as

every member tries to defend his action. Slowly the business moves towards distability and finally


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becomes sick.

iii) Problem of Continuity

Every family business has to face the problem of continuity or succession when the original founder

retires or dies. There has to be someone to take the charge of the business to ensure continued inheritance

to the next generation. It has been noted that even the most successful business firms have suffered a

setback due to improper succession or non-availability of competent successors.

The successors are selected on the basis of blood relationship, no matter how competent the successor is

in running the business. Infact, in most of the cases, the prospective successor is ignorant of business

experiences and does not possess entrepreneurial abilities. Further, the inexperienced successors often

start from the top and therefore remain unaware of the dynamics at lower and middle levels.

The outgoing entrepreneur generally tries to groom ones successor informally for the job. Such training

has limited benefit for the successor as the process of learning is unsystematic and inconsistent owing to

the protective nature of the entrepreneur.

Many a time, succession is unplanned and therefore in the event of death or early retiring of the founder,

the eligible successor is chosen to run the business. In such conditions, the successor is not psychologically

prepared to take charge of the business. A few family members or relatives take undue advantage of the

situation and try to mislead or misguide the eligible successor.

Apart from the problem of the choice of successor, the process of succession itself is complex. The

founder considers the enterprise as his or her own baby. Despite awareness of the need of handing overthe charge to the next generation, he or she keeps hanging on to it, does not delegate the power and

continues to take important decisions. As a result, the successor feels overshadowed and frustrated. The

successor and the founder continue to resist each others actions on matters concerning any change.

In the case of the second or third generation successors, when there are more than one eligible successors

in the family, the distribution of assets and activities of business becomes difficult. It often results in split.

If not efficiently handled the business gets paralysed for want of proper settlement.

The successors often lack credibility in the organisation as blood relation and not professionalism the sole

criterion. Employees often resist their authority. Efficient and loyal employees feel threatened and

therefore start quitting the enterprise. Suppliers and bankers might also withdraw owing to unstable

situations created due to takeover by the newcomer.

In many cases, successors are not able to replace the leadership of the previous entrepreneurs. They areoften resisted for any initiation of change in the organisation.

Because of the peculiar problems of succession, even the most successful businesses have suffered serious

setbacks.

iv) Professionalisation in Family Business

It is argued that the family business system is desirable at the stages of enterprises initiation and survival.

But when the business starts growing, it is desirable to replace family management with professional

management. The traditional value oriented family management may clash with economic goals of growth.

In the wake of increased competition and complexity, the traditional organisational structure and decision-

making system is more vulnerable. Family businesses very often are not adaptable to the requirements ofmodern industry and technological changes. Needs of growth and modernisation call for adoption of

professional management in family business.

Professional management consists of a team of managers whose primary occupation is providing

management services without having any substantial ownership stake. A team of professional managers

performs the function of entrepreneurship and management of the firm. The team holds key position in the

firm on the basis of technical competence. Professional managemen t is expected to achieve excellence in

building human, physical and financial resources, and capture new opportunities of growth with

professional approach through research and development.

Looking to the need for professional skills to cope with growth, every family business has to consider

whether to adopt professional management or not. The family managers often resist this alternative on the

ground that family will have no control over the management to protect its interests. They will not be ableto help their relatives by way of providing jobs in the business.

A few family businesses which have introduced professional management have not been able to cope with

the transition problem. This is because family members continue to keep certain key positions and take all


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critical decisions. Professionals are hired in the capacity of technical advisers only. They are not given full

charge of the management of the firm. As a result, professionals remain largely ineffective in the

organisation. Even cases where professional management has taken over, family members continue to

interfere in the working of managers by virtue of ownership rights. The performance of professionals is

greatly hampered because of non-co-operation and lack of acceptance on the part of the family.

Family businesses are not able to respond competently to changes in environment owing to their inability

to adopt professional management practices. Because of inadequate supply of professional managers,

many family businesses cannot have professionals. Family businesses are vulnerable to the increasing

complexity and competitiveness in the market owing to their lack of professionalism.

At the same time, we have cases where the family businesses have been able to successfully integrate

professionalism in their business and achieve high growth.

COPING STRATEGIES

The natural resources of family business like commitment, loyalty, initiative, entrepreneurship, financial

resources, family image, etc. have to be used more effectively. For this, is essential that family business

develops certain key advantages and overcome certain inherent weaknesses. Based on the experiences of

some successful family businesses, the following coping strategies are suggested:

i) Linking Family and Business GoalsSuccessful family businesses are the ones which have been able to establish a close link between family

and business by clarifying that the goal of the family can be achieved only if the enterprise achieves its

long term goals. Participation of the family members should be allowed as long as it contributes to the

enterprises long term strengths. Such a stand should be made clearly at the time of enterprise initiation or

when the involvement of family begins. Strategically, eliminating some amount of family participation

strengthens the leadership of the family members who are in the business and ultimately result in better

performance.

ii) Recruitment of Relatives

The best managed family businesses have adopted the policies of not recruiting relative employees at all.

The needy relatives are helped by the founders to find jobs elsewhere. This may be considered too rigid a

policy as there may be professionally competent person in the family or a relation who would not beselected purely on the ground that he or she happened to be a relative of the founder. Instead of having

such a rigid policy, one may have a recruitment policy stating that relatives may be considered for

employment provided they stand up to the companys standards. This way the business norms are not

sacrificed to the interests of the family.

iii) Avoidance of Nepotism

In family business, family members as employees get several undue benefits. In order to avoid this, the

successful businesses adopt firm personnel policies applicable to both relatives and non-relative

employees. It may be clearly stated in the personnel policies that one may be given an opportunity to work

in the business because of the relationship factor but his or her growth within the firm would depend

solely on competence and merit. Relative employees, like non-relative employees, are subject toperformance evaluation which should be carried out by independent people. This would greatly help the

family business to avoid nepotism and favouritism within the organisation.

iv) Task Structuring

It will be unrealistic to imagine a family business, however successful it is, to remain away from certain

inherent issues pertaining to the family. It is also possible that despite all possible efforts to avoid, a

number of family issues in business may continue to remain unresolved. In such a case, to save the

business from possible consequences, the primary task structure of the organisation may be designed in a

manner to minimise the negative effects on its performance. A number of strategies for task structuring are

suggested here:

a) The founder must try to identify those critical operational activities which need to be adequatelysupported to ensure at least the survival of the firm. He or she may structure them in such a manner that

all important operations continue to take place without any disturbance despite pertaining conflict

amongst the family owners-relatives. Powers may be given to competent people who need not have to go


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to any of the family members for frequent approvals as long as they are carried out as per the guidelines.

b) The firm must create reserves to meet any contingencies occurring owing to non-co-operation of family

members. There could be extra staff to compensate the possible loss of work because of incompetency of

family members to carry out a given task.

c) While carrying out the structuring of the task system such areas should be identified where conflicts

among family members are likely to arise. In these areas more professionals may be employed. At the

same time, family members may be entrusted with those areas where the chances of conflict are less.

d) The founder should take extra care to keep the morale and motivation of the employees so high that

they continue to remain committed and loyal to the firm. They are likely to be the only individuals who

can be entrusted with higher level of responsibility in times of conflict for ensuring smooth functioning of

the organisation.

e) Very often, the founder refuses to accept certain lapses in the organisation which are results of family

issues. This leads to a state of confusion in the organisation resulting in family members blaming each

other for poor performance. The founder should accept certain given problems and issues as weaknesses

because of family based management system. This would help avoid unnecessary anxiety and conflict in

the organisation.

f) The task system should be loosely structured so that enough flexibility is built in. The bureaucratic

structure is very much vulnerable during a period of conflict. In the case of conflicts or blocks being

created to routine functions, a middle course should be adopted.

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6. Write short notes on the following:-

a) Tiny Sector

TINY SECTOR

14.0 Policy Support

14.1 The investment limit for the tiny sector will continue to be Rs. 25 lakhs.

14.2 Under the Prime Minister's Rozgar Yojna, which finances setting up of micro enterprises and

generates employment for the educated unemployed, the family income eligibility limit of Rs. 24,000perannum being revised to Rs. 40,000 per annum.

15.0 Credit Support

15.1 The Nayak Committee's recommendations regarding provision of 20 per cent of the projected

turnover as working capital is being recommended to the Financial Institutions and Banks. In respect of

Tiny units also 20 per cent of the projected annual turnover would qualify for working capital loan.

15.2 The National Small Industries Corporation will continue to give composite loans upto Rs. 25 lakhs to

the Tiny Sector and continue to charge one per cent concessional interest rate.

15.3 SIDBI will continue to give concessional rate of refinance to the tiny sector which is now at 10.5 per

cent as compared to 12 per cent for the MSME sector. This policy will continue.

15.4 In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs. 50lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of Rs. 10

lakhs per project. Assistance under the NEF will be provided at a service charge of 5 per cent per annum.

Under the National Equity Fund Scheme, 30 per cent of the investment will be earmarked for the Tiny

Sector.

16.0 Infrastructure Support

16.1 The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the

country with 50 per cent reservation for rural areas. Under this Scheme, 50 per cent of the plots will be

earmarked for the tiny sector (as against 40 per cent done earlier). (Annexure-VII)

16.2 Under the National Programme for Rural Industrialisation, cluster development is being taken up by

KVIC, SIDO, SIDBI and NABARD. The major beneficiaries of Cluster Development Programme will be

Tiny Sector Units. The sponsoring organisation for each cluster will provide for design development,capacity building, technology intervention and consortium marketing. A Cluster Development Fund will

be created under the Plan.

17.0 Technological Support


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17.1 Under the Scheme of Capital Subsidy of 12 per cent for investment in technology upgradation in

select sectors, preference will be given to the Tiny Sector.

18.0 Marketing Support

18.1 Preference will be given to the Tiny Sector while organising Buyer-Seller Meets, Vendor

Development Programmes and Exhibitions.

A. SMALL AND TINY ENTERPRISES

1.0 INTRODUCTION

1.1 The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the economy during

the eighties. At the end of the Seventh Plan period, it accounted for nearly 35 percent of the gross value of

output in the manufacturing sector and over 40 percent of the total exports from the country. It also

provided employment opportunities to around 12 million people.

1.2 The primary objective of the Small Scale Industrial Policy during the nineties would be to impart more

vitality and growth-impetus to the sector to enable it to contribute its mite fully to the economy,

particularly in terms of growth of output, employment and exports. The sector has been substantially

delicensed. Further efforts would be made to deregulate and debureaucratise the sector with a view to

remove all fetters on its growth potential, reposing greater faith in small and young entrepreneurs.

1.3 All statutes, regulations and procedures would be reviewed and modified, wherever necessary, to

ensure that their operations do not militate against the interests of the small and village enterprises.2.0 TINY ENTERPRISES

2.1 Government have already announced increase in the investment limits in plant and machinery of small

scale industries, ancillary units and export oriented units to Rs 6 million, Rs 7.5 million, and Rs 200

thousand respectively. Such limits in respect of "TINY" ENTERPRISES would now be increased from the

present Rs 200 thousand to Rs. 500 thousand, irrespective of location of the unit. Limit in plant and

machinery for determining the status of SSI/Ancillary units as on date is Rs 10 million. For tiny it is Rs 2.5

million and for SSSBE Rs 500 thousand.

2.2 Service sub-sector is a fast growing area and there is need to provide support to it in view of its

recognised potential for generating employment. Hence all Industry-related service and business

enterprises, recognised as small scale industries and their investment ceilings would correspond to those of

Tiny enterprises.2.3 A separate package for the promotion of Tiny Enterprises is now being introduced. This constitutes the

main thrust of Governments new policy.

2.4 While the small scale sector (other than Tiny Enterprises) would be mainly entitled to one-time

benefits (like preference in land allocation/power connection, access to facilities for skill/technology

upgradation), the Tiny enterprises would also be eligible for additional support on a continuing basis,

including easier access to institutional finance, priority in the Government Purchase Programme and

relaxation from certain provisions of labour laws.

2.5 It has also been decided to widen the scope of the National Equity Fund Scheme to cover projects

upto Rs. 1 million for equity support (upto 15 per cent). Single Window Loan Scheme has also been

enlarged to cover projects upto Rs 2 million with working capital margin upto Rs 1 million. Compositeloans under Single Window Scheme, now available only through State Financial Corporations (SFCs) and

twin function State Small Industries Development Corporation (SSIDCs), would also be channelised

through commercial banks. This would facilitate access to a larger number of entrepreneurs.

3.0 FINANCIAL SUPPORT MEASURES

3.1 Inadequate access to credit both short term and long term remains a perennial problem facing the

small scale sector. Emphasis would henceforth shift from subsidised/cheap credit, except for specified

target groups, and efforts would be made to ensure both adequate flow of credit on a normative basis, and

the quality of its delivery, for viable operations of this sector. A special monitoring agency would be set up

to oversee that the genuine credit needs of the small scale sector are fully met.

3.2 To provide access to the capital market and to encourage modernisation and technological

upgradation, it has been decided to allow equity participation by other industrial undertakings in the SSI,not exceeding 24 per cent of the total shareholding. This would also provide a powerful boost to

ancillarisation & sub-contracting, leading to expansion of employment opportunities.

3.3 Regulatory provisions relating to the management of private limited companies are being liberalised. A


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Limited Partnership Act will be introduced to enhance the supply of risk capital to the small scale sector.

Such an Act would limit the financial liability of the new and non-active partners/entrepreneurs to the

capital invested.

3.4 A beginning has been made towards solving the problem of delayed payments to small industries by

setting up of factoring services through Small Industries Development Bank of India (SIDBI). Network

of such services would be set up throughout the country and operated through commercial banks. A

suitable legislation will be introduced to ensure prompt payment of Small Industries bills.

4.0 INFRASTRUCTURAL FACILITIES

4.1 To facilitate location of industries in rural/backward areas and to promote stronger linkages between

agriculture and industry, a new Scheme of Integrated Infrastructural Development (including

Technological Back-up Services) for Small Scale Industries would be implemented with the active

participation of State Governments and financial institutions. A beginning in this direction will be made

this year itself.

4.2 A Technology Development Cell (TDC) would be set up in the Small Industries Development

Organisation (SIDO) which would provide technology inputs to improve productivity and competitiveness

of the products of the small scale sector. The TDC would coordinate the activities of the Tool Rooms,

Process-cum-Product Development Centres (PPDCs), existing as well as to be established under SIDO,

and would also interact with the other industrial research and development organisations to achieve its

objectives.4.3 Adequacy and equitable distribution of indigenous and imported raw materials would be ensured to

the small scale sector, particularly the tiny sub-sector. Policies would be so designed that they do not

militate against entry of new units. Based on the capacity needs, Tiny/Small Scale units would be given

priority in allocation of indigenous raw materials.

4.4 A proper and adequate arrangement for delivery of total package of incentives and services at the

District level will be evolved and implemented.

5.0 MARKETING AND EXPORTS

5.1 In spite of the vast domestic market, marketing remains a problem area for small and tiny enterprises.

Mass consumption labour intensive products are predominently being marketed by the organised sector.

The tiny/small scale sector will be enabled to have a significant share of such markets. In addition to the

existing support mechanism, market promotion would be undertaken through cooperative/public sectorinstitutions, other specialised/professional marketing agencies and consortia approach, backed up by such

incentives, as considered necessary.

5.2 National Small Industries Corporation (NSIC) would concentrate on marketing of mass consumption

items under common brand name and organic links between NSIC and SSIDCs would be established.

5.3 Government recognises the need to widen and deepen complementarily in production programmes of

large/medium and small industrial sectors. Parts, components, sub-assemblies, etc. required by large

public/private sector undertakings would be encouraged for production in a techno-economically viable

manner through small scale ancillary units. Industry associations would be encouraged to establish

sub-contracting exchanges, in addition to strengthening the existing ones under the SIDO. Emphasis would

also be laid on promotion of a viable and competitive component market.5.4 Though the Small Scale Sector is making significant contribution to total exports, both direct and

indirect, a large potential remains untapped. The SIDO has been recognised as the nodal agency to support

the small scale industries in export promotion. An Export Development Centre would be set up in SIDO to

serve the small scale industries through its network of field offices to further augment export activities of

this sector.

6.0 MODERNISATION, TECHNOLOGICAL AND QUALITY UPGRADATION

6.1 A greater degree of awareness to produce goods and services conforming to national and international

standards would be created among the small scale sector.

6.2 Industry Associations would be encouraged and supported to establish quality counselling and

common testing facilities. Technology Information Centres to provide updated knowledge on technology

and markets would be established.6.3 Where non-conformity with quality and standards involves risk to human life and public health,

compulsory quality control would be enforced.

6.4 A reoriented programme of modernisation and technological upgradation aimed at improving


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10.0 HANDICRAFTS SECTOR

10.1 The key areas in handicrafts that could contribute towards a faster pace of rural industrialisation are

production and marketing. Schemes for training and design development and for production and marketing

assistance will be given encouragement.

10.2 Considering the importance of this sector from the point of view of employment and exports, it is

proposed to provide an integrated development thrust to this sector with a view to enlarging the

production base, thus enhancing the opportunities for employment and income through crafts as an

economic activity and to giving it necessary inputs for quality improvement and effective marketing

support both internal and overseas. Efforts will be made not only to preserve the traditional richness of the

crafts but to engage the hereditary skills of the craftspersons to suit modern requirements.

10.3 Emphasis will be given to the following:-

- Extension of services like supply of raw materials, design and technical guidance, market support,

training and procuring of related materials/inputs in an integrated and area-based manner through the

setting up of craft development centres in identified clusters of villages.

- Market development support in the form of a package of assistance through expansion of marketing

infrastructure, exhibitions, publicity, etc., through Central and State Handicrafts Corporations, voluntary

organisations and support to direct marketing activity by craftspersons.

- Expansion of training activities by greater involvement of State Handicrafts Development Corporations,

Co-operatives and voluntary organisations.- Measures to sustain an increased exports of handicrafts through new marketing channels like trading

companies, departmental stores, etc.

11.0 OTHER VILLAGE INDUSTRIES

11.1 Government recognise the need to enhance the spread of rural and cottage industries towards

stepping up non-farm employment opportunities.

11.2 The activities of the Khadi and Village Industries Commission and the State Khadi and Village

Industries Boards will be expanded and the organisations strengthened to discharge their responsibilities

more effectively.

11.3 There will be greater emphasis on improving the quality and marketability of the products pari passu

with consumer preferences instead of merely depending on rebates and subsidies.

11.4 While the plan allocation for rural industries will be augmented, effective steps will also be taken toensure better flow of credit from the financial institutions and a more coordinated and optimal utilisation

of different development schemes and agencies operating in the rural sector. Bankability of projects

undertaken in this sector would be stressed.

11.5 The programmes of intensive development of KVI through area approach with tie-up with DRDA,

TRYSEM and ongoing developmental programmes relating to weaker sections like Scheduled Castes,

Scheduled Tribes and Women would be extended throughout the country.

11.6 The traditional village industries would be given greater thrust. Involvement of traditional and

reputed voluntary organisations will be encouraged.

11.7 Agro processing and food processing industries in KVI sector using appropriate technologies would

be promoted with a view to utilise locally available agricultural produce and promoteemployment/resource generation in the countryside.

11.8 Functional industrial estates would be established in areas with concentration of

agricultural/horticultural produce.

11.9 R & D in KVI sector would be strengthened through greater linkages with CSIR and other research

institutions in the areas of production, finishing/packaging, processes and development of new tools and

implements.

11.10 The training programmes would be upgraded and augmented to cover the expanded list of industries

under the purview of the KVIC.

@@@@@@@@@@@@@@@@@@@@@@@@@@

b) Wage Fixation

PRINCIPLES OF FIXATION OF WAGES AND SALARY

Salary or wage means all remuneration (other than remuneration in respect of over-timework) capable of


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being expressed in terms of money. Wages are defined broadly as any economic compensation paid by the

employer to his laborers under some contract for the services rendered by them. In its actual sense which

is prevalent in the practice, wages are paid to workers which include basic wages and other allowances

which are linked with the wages like dearness allowances, etc. , but does not include-(i) Any other

allowance which the employee is for the time being entitled to;(ii) the value of any house accommodation

or supply of light, water, medical attendance or other amenity or of any service or of any concessional

supply of food grains or other articles;(iii) Any traveling concession;(iv) Any Bonus (including incentive,

production and attendance bonus);(v) Any contribution paid or payable by the employer to any pension

fund or provident fund or for the benefit of the employee under any law for the time being in force;(vi)

Any retrenchment compensation or any gratuity or other retirement benefit payable to the employee or

any ex gratia payment made to him;(vii) Any commission payable to the employee.

Principles of Wage Determination

The basic principle of wage and salary fixation is that it should be based on the relative contributions of

different jobs and not on the basis of who the job holders are. If this principle is adopted, the first

requirement is to identify the likely contributions of different jobs. This is what job evaluation precisely

does. It provides the information about what is the worth of a job in terms of its contributions to the

achievement of organizational effectiveness.

Overcoming Anomalies

Job evaluation, if carried on periodically and objectively, helps in overcoming various anomalies whichmay develop in an organization over the period of time with regard to compensation management.

Knowles and Thomposon have identified that there are following anomalies and evils which may develop

in an organization and may be overcome by jobevaluation:1. Payment of high wages and salaries to

persons who hold jobs and Positions not requiring great skill, effort and responsibility;2. Paying beginners

less than that they are entitled to receive in terms of What is required of them?

3. Giving a raise to persons whose performance does not justify the raise; 4. Deciding rates of pay on the

basis of seniority rather than ability; 5. Payment of widely varied wages and salaries for the same or

closely Related jobs and positions; and6. Payment of unequal wages and salaries on the basis of race, sex,

religion, or political differences. As the major production cost, wages affect profits, business investment,

competitiveness, and are a cost push inflationary factor. As the major income in the economy, wages

affect standard of living, income distribution and poverty, and demand pull inflation. As the source ofwage disputes is the employer treating wages as their major cost

and the employee viewing wages as their major income.

Norms for fixation of wages in industry.

1. While computing the minimum wages, the standard working class family should be considered as

consisting of four consumption units and the earnings of women, children and adolescents should be

excluded.2. The minimum food requirements should be determined on the grounds of a net intake of

2700calories as laid down by Akroyd for a normal adult in India.3. Clothing needs should be established

on the basis of a per capita consumption of 16.62 meters per year.4. As regards housing, the minimum

wages should be determined from the standpoint of the rent corresponding to the minimum area specifiedunder the government Industrial Housing Scheme.5. Miscellaneous expenditure on items such fuel,

lighting etc. should from 20 per cent of the total minimum wage. The resolution further prescribes that the

authorities involved in the issue should justify any deviation from these norms. The following principles

have always been the bases of the wage determination process. All are economically valid. At different

stages they have collectively, and singularly, been used to determine wage increases.

1. Preserving real income:

This is the argument used by employees and Unions viewing wages as an income. Following this principle

usually results in wages being indexed to inflation. In periods of rising inflation, indexation becomes a

problem of an institutionalized wage-price spiral. Underlying aspects that have also impacted on real wage

preservation arguments have been a "basic" minimum wage, and comparative wage justice.

2. Labor productivity:A valid economic theory connects wages to labor productivity. Conflict arises over the measurement of

productivity. Rewarding labor with a wage increase when technology, and/or capital investment, increases

labor efficiency may not be justified.


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3. The capacity of business to afford wage increases:

This emphasizes wages as a cost of production, and the threat of wage increases to squeeze profits. This

"capacity" argument is that followed by business owners.

4. The capacity of the Economy to absorb wage increases:

This "capacity" argument views the macro impact of wage increases on inflation, competitiveness, and

other aspects of internal and external balance; as well as the affect on business profits and investment

from 3.This is the main argument of the Federal Government recognizing the macro policy potential of an

Incomes Policy

to address external and internal balance goals to supplement demand management policies, and the effects

on income distribution.

5. Supply and Demand of labor:

The labor market conditions or supply and demand forces operated at the national, regional and local

levels, and determine organizational wage structure and level. If the demand for certain skills and the

supply are low, the result is a rise inthe price to be paid for these skills. The other alternative is to pay

higher wages if the labor supply is scarce, and lower wages when it is excessive.

6. Prevailing Market rate:

This is also known as the comparable wage or going wage rate and is most widely used criterion. An

organizations compensation policies generally tend to conform to the wage rates payable by the industry

and the community. It is observed: Some Companies pay on the high side of the market in order to obtaingoodwill or to insure adequate supply of labor, while other organizations pay lower wages because

economically they have to, or because by lowering hiring requirements they could keep jobs adequately

manned

.

7. Living wage:

This means that wages paid should be adequate to enable an employee to maintain himself and his family

at a reasonable level of existence. However, employers do not generally favor using the concept of a living

wage as a guide to wage determination because they prefer to base the wages of an employee on his

contribution rather on his need.

8. Managerial Attitudes:

Top managements desire to maintain or enhance the companys prestige is a major factor in the wagepolicy of a number of firms. Desires to improve or maintain morale, to attract high caliber employees, to

reduce turnover, and to provide a high living standard for employees as possible also appear to be factors

in managements wage policy decisions.

9. Psychological and social factors:

these determine in a significant measure how hard a person will work for the compensation received or

what pressures he would exist to get his compensation increased. Psychologically, persons perceive the

level of wages as a measure of success in life, people might feel secure, has an inferiority complex, seem

inadequate or feel the reverse of all these. Sociologically and ethically, people feel that equal work

should carry equal wages that wages should be commensurate with their efforts that they are not

exploited andthat no distinction is made on the basis of caste, color, sex or religion. To satisfy the conditions of

equity, fairness and justice, a management should take these factors into consideration.

PRINCIPLES OF WAGE AND SALARY ADMINISTRATION

The government of India provides many regulations for regulating the wages and salary administration

such as,

The minimum wages act 1998

The equal remunerations act 1976

The companies act 1956

The industrial dispute act 1956


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The payment of wages act 1936 etc. The following guidelines should be followed in the administration of

wages and salary,1.Wage policy should be developed keeping in view the interests of the employer, the

employees, the consumers and the community.2.Wage policy should be stated clearly in writing to ensure

uniform and consistentapplication.3.Wage and salary administration should be consistent with the overall

plans of the company. Compensation planning should be an integral part of the financial planning.4.Wage

and salary plans should be sufficiently flexible or responsive to changes internal and external conditions of

the organization.5.Management should ensure that employees know and understand the wage policy of

thecompany.6.All wages and salary decisions should be checked against the standards set in advance in

the wage policy.7.Wage and salary plans should simplify and expedite administrative process.

8.An adequate database and proper organizational setup should be developed for compensation

determination and administration.

9.Wage policy and programme should be reviewed and revised periodically in conformity with changing

needs. Thus, by following the above mentioned principles of determination and administration of wages

and salary the objectives such as- to establish fair and equitable remuneration, to attract competent

personnel, to retain present employees, to improve productivity, to control costs, to establish job

sequences and lines of promotion wherever applicable, to improve union management relations, to

improve public image of the company can be effectively met.

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Comment thank u very much sir

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