Small Business_BE Unit VI

8/11/2019 Small Business_BE Unit VI

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SMALL BUSINESS /

ENTERPRISESMALL SCALE INDUSTRY

Unit 6


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What is Small Business?

In accordance with the provision of Micro, Small &Medium Enterprises Development (MSMED) Act, 2006the Micro, Small and Medium Enterprises (MSME) areclassified in two Classes:

Manufacturing Enterprises:- The ManufacturingEnterprise are defined in terms of investment in Plant& Machinery. ( Investment in Plant & Machinery isMore than 25 lakh rupees but does not exceed 5 crorerupees)

Service Enterprises :- The enterprises engaged inproviding or rendering of services and are defined in

terms of investment in equipment.(Investment in


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PROBLEMSOF SMALL

BUSINESS

Finance

Labour

Irregular supply of raw material

Obsolete Technology

Marketing Problem

Quality


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Finance

One of the severe problems faced by SSIs is that of non

availability of adequate finance to carry out its operations.

Generally a small business begins with a small capital

base.

These units frequently suffer from lack of adequate working

capital, either due to delayed payment of dues to them or

locking up of their capital in unsold stocks.

Banks also do not lend money without adequate

collateral security or guarantees and margin money,

which many of them are not in a position to provide.


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Labour Problem

Small business firms cannot afford to pay higher salaries

to the employees, which affects employee willingness to

work hard and produce more.

Thus, productivity per employee is relatively low and

employee turn over is generally high.

Because of lower remuneration offered, attracting talented

people is a major problem in small business organisations

Non-availability of adequate skilled manpower in the

rural sector poses problem to small-scale industries.


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Irregular Supply Of Raw Material

Another major problem of small business is the

procurement of raw materials. If the required materials are

not available they have to compromise on the quality or

have to pay a high price to get good quality materials.

Their bargaining power is relatively low due to the small

quantity of purchases made by them. Also, they cannot

afford to take the risk of buying in bulk as they have no

facilities to store the materials.


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Outdated Technology

Most small businesses use old technologies

because they cannot afford better.

As a result the quality of their goods is inferior

and the cost of production is higher than incase of other big ventures.


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Marketing Problem

Marketing is one of the most important

activities as it generates revenue.

Small business usually do not have a brand

name or loyalty, as there are hardly any fundsfor advertising or sales promotion.

These organisations have, therefore, to

depend on middlemen, who at times exploitthem by paying low price and delayed

payments.


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Quality

Many small business organisations do not

adhere to desired standards of quality. Instead

they concentrate on cutting the cost and

keeping the prices low. In fact maintaining quality is their weakest

point, when competing in global markets.


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INCENTIVES

Some of the common incentives offered are discussed as

below:

Land: Every state offers developed plots for setting up of

industries. The terms and conditions may vary. Some states

dont charge rent in the initial years, while some allow

payment in installments.

Power: Power is supplied at a concessional rate of 50 per

cent, while some states exempt such units from payment inthe initial years.

Water: Water is supplied on a no-profit, no-loss basis or

with 50 per cent concession or exemption from water

charges for a period of 5 years.


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INCENTIVES

Sales Tax: In all union territories, industries are

exempted from sales tax, while some states extend

exemption for 5 years period.

Octroi: Most states have abolished octroi .

Finance: Subsidy of 10-15 per cent is given for

building capital assets. Loans are also offered atconcessional rates.

Documents

Small Business_BE Unit VI