ENTREPRENEURSHIP DEVELOPMENT (EOE -071)

UNIT -I Entrepreneurship- definition. growth of small scale industries in developing countries and their positions vis-a-vis large industries; role of small scale industries in the national economy; characteristics and types of small scale industries; demand based and resources based ancillaries and sub-control types. Government policy for small scale industry; stages in starting a small scale industry.ENTREPRENEURSHIP:

Entrepreneurship is the activity performed by an entrepreneur to organize and run an enterprise (Business).

ENTREPRENEURSHIP = Entrepreneur + Enterprise

Entrepreneur is generally to be the owner, manager of an enterprise. Entrepreneurship is the activity of an entrepreneur which includes all the activities performed from the inception stage of an enterprise till its death. Entrepreneurship is a person-oriented task where the entrepreneur creates a small world of his own and becomes the master of his own business universe.

Entrepreneurship is a creative activity. It is the ability to create and build something from practically nothing. It is a knack of sensing opportunity where others see chaos, contradiction and confusion. Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks and derive benefits by setting up a venture. It comprises of numerous activities involved in conception, creation and running an enterprise.

“Entrepreneurship is a creative activity, the entrepreneur being an innovator who introduces something new into the economy, a new method of production not yet tested by experience in the branch of manufacture concerned, a product with which customers is not familiar, a new source of raw materials and other similar innovation”. According to Peter Drucker

Concept of Entrepreneurship

According to Peter F Drucker, “Entrepreneurship” is neither a Science nor an Art, it is a Practice.

It has a Knowledge Basis. Knowledge in Entrepreneurship is a Means to an End, Indeed what constitutes Knowledge in Practice is largely defined by the Ends, that is by Practice.

There are Several Definitions of “Entrepreneurship”, important ones being some of the Following :

1) It is a Purposeful Activity of an Individual or a Group of Associated Individuals, undertaken to initiate, Maintain or increase Profit by Production or Distribution of Economic Goods & Services.

2) It is an attempt to Create Value thro Recognition of Business Opportunity, the Management of Risk Appropriate to Opportunity & thro the Communicative & Management Skills to mobilize Human, Financial & Material Resources necessary to bring a Project to fruition.

3) Entrepreneurship is the ability to create & build a Vision from practically nothing. It is a Dynamic Process of Creating Incremental Wealth.

4) According to One Study, the Definition is “Entrepreneurship is based on Purposeful & Systematic Innovation”. It includes not only the independent businessman but also company direction & managers who actually carry out innovative functions.

Entrepreneurship can exist in Different Kinds of Business, on all levels of Company size & in different functions.

In all above definitions, Entrepreneurship refers to the activities performed by an Entrepreneur in establishing an Enterprise. We can therefore say that Entrepreneurship is the Act of being an Entrepreneur. It is a Process involving various Activities to be undertaken to establish an Enterprise.

The Two Basic Elements involved in Entrepreneurship are “Innovation” & “Risk Bearing”. These Two Factors are Given Below :

1) Innovation : This refers to coming out with a New Product or Process or doing something differently. This is a Basic Characteristic of Every Entrepreneur. There are a Few Innovations & New Products developed as given in the Example below :

Example : a) “Bisleri” introduced Packaged Drinking Water, every one was wondering whether this Business Idea would ever succeed. Now you can see several other Entrepreneurs have copied this idea & have set up Enterprises to manufacture Packaged Drinking Water. In fact, many of them have been successful too. The reason being, People are Health Conscious & are ready to pay Extra Money for sake of their Health. Hence, a Good Market has developed for this Product.b) Introduction of “Taj Mahal Tea Bags” (Dip Tea) for use by Travelling Public, by various Big Manufacturers of Tea Powder. c) Various Ready to Cook Packaged Food Items introduced by “MTR” Ltd., Bangalore to cater to the needs of Working Couples in Bigger Cities & Metros & other Consumers. d) The Rs 1.00 Lakh “Nano” Car released by Tata Motors to meet the needs of 4 Wheelers for the Middle Class people in the Country who cannot afford Expensive Vehicles & who wish to switch to 4 Wheelers from 2 Wheelers.

From the above Examples, We can infer that the Entrepreneurs need to innovate continuously to come out with Newer products to meet the Changing Demands of the Customers. 2) Risk Bearing : Any Business Proposition has an element of Risk, the Reason being very obvious that, an Enterprise may Earn Profits or Incur Losses because of Various Factors beyond the Control of the Entrepreneur like Increasing Competition, Labor Unrest. He needs to be Courageous to face the Risk & Challenges involved in running the Enterprise. His ability to Sustain Risk ultimately helps him to be a Successful Entrepreneur, against All Odds.

Entrepreneurship is concerned with Performance & Coordination of the Entrepreneurial Functions. This also means that Entrepreneur precedes Entrepreneurship.

Entrepreneur

Entrepreneur is a person who undertakes a business venture by combining the resources for production of goods and services and selling them to earn a profit.

Entrepreneur is a person who has already started an enterprise or is in the process of starting an enterprise.

“Entrepreneur is one who ORGANISES, MANAGES, and ASSUMES THE RISK of a business enterprise”Entrepreneur is an action oriented highly motivated individual with a strong desire to be the successful who take risks to achieve goal.

Entrepreneur is an individual responsible for the operation of a business including,1. Choice of the product2. Mobilization of resources3. Decision4. Prices5. Market6. Employment of labour7. Extending or reducing the scope of his business.

Definitions on Entrepreneur:

1) Peter F. Drucker defines Entrepreneur as One Who Always searches for Change, Responds to it & Exploits it as an Opportunity. Innovation is the Specific Tool of Entrepreneurs, the Means by which, they Exploit Change as an Opportunity for Different Business or Service.

2) Encyclopedia Britannica defines an Entrepreneur as an Individual who bears the Risk of Operating a Business in the Face Of Uncertainty about the Future Conditions.

3) International Labor Organization (ILO) : This defines “Entrepreneurs as People who have the Ability to See & Evaluate the Business Opportunities ; together with the necessary Resources to take Advantage of them ; & to initiate Appropriate Action to ensure Success.”

4) Dr. Poornima M. Charantimath, Professor, Management Studies, KLS Institute of Management Education & Research (IMER), Belgaum says “ The World Entrepreneur is derived from a Sanskrit Word called “Antaraprerana” ! (Urge from within or Internal Urge).

5) Joseph Schumpeter (1934) stated Entrepreneur as one who applies “Innovation” within the Context of the Business to satisfy Unfulfilled Market Demand.

6) Peter F Drucker perceived Entrepreneurship as the Creation of a New Organization, regardless of its ability to Sustain itself, let alone make a Profit.

CHARACTERISTICS / QUALITY OF AN ENTREPRENEUR

1. Desire to Excel: The entrepreneur should always engage in competitions with self-imposed standards with himself to beat his last best performance. According to Mc Clelland, this high achievement motive strengthened him to overcome the obstacles, suppress anxieties and repair misfortunes. The entrepreneur must have a strong desire to be a winner. 2. Hard Work: Entrepreneurs who successfully build new enterprises possess an intense level of strong determination and willingness to work hard. They possess a capacity to work for long hours and in spurts of several days with less than normal amount of sleep. 3. Self Confidence: Entrepreneurs must have confidence and belief in themselves to achieve their desired objectives. They strongly believe that they can beat anyone in the field. 4. Initiative: An entrepreneur must have initiative seeking personal responsibility for actions and use the available resources for optimisation of objectives. They take full credit for the success and assume full responsibility for the failure of the enterprise. 5. Moderate Risk-Taker: An entrepreneur must be a moderate risk taker and learn from failures. The successful entrepreneurs are neither high risk takers, nor gamblers. They work in between the two extremes. They take moderate challenging risk to attain moderate returns which are influenced within their abilities and decisions. 6. Motivation: An entrepreneur should have a strong motivation towards the achievement of a task and must be able to get things done by others. He should be a person who likes working with people and has skills in dealing with them. 7. Optimistic: Entrepreneurs do not believe that the success or failure of a new business venture depends mostly upon luck or fate or external uncontrollable factors. They are highly optimistic about the success of the enterprises. They use positive knowledge to support their thinking. They always look at the brighter side of the situation. 8. Analytical Ability: Entrepreneur must be realistic in their approach. They should not be affected by the personal likes and dislikes. At the time of crisis, they must select experts rather than their friends and relatives to solve the problems. They must analyse the problem in detail before taking any decisions.

9. Mental Ability: Mental ability refers to the inner strength of an entrepreneur which helps him to reach his goal. It is that ability which helps him to quickly respond to difficult situation. It consists of intelligence and creative thinking of an entrepreneur. 10. Communication Ability: An entrepreneur must be good with the art of communication. It is that skill through which both the sender and receiver understand each other and are being understood. Entrepreneurs are required in many situations to influence customers, employees, suppliers, creditors, and government and make them think in his way and act accordingly. An entrepreneur who can effectively communicate and convince the above people will be more likely to succeed than the entrepreneur who does not. 11. Flexibility: Entrepreneurs should be flexible in their decisions in the sense that they should not be very rigid in the decision making process. If the situation demands a change in the decision that will be beneficial to the enterprise, then after analysing the pros and cons of the decision, the entrepreneur should revise or modify or change the decisions. 12. Independence: Successful entrepreneurs do not like to be guided by others. They prefer to work in an environment free from interference. They like to be independent in the matters of decision making of their own business. 13. Leadership: An entrepreneur must have an ability to lead so that he can induce the people to work with confidence and zeal. It is an aid to authority and helps in better utilization of manpower. 14. Good Human Relations Ability: Entrepreneurs must have the abilities to maintain and establish good relations with customers, employees, suppliers, financiers and other people related with the business to run it effectively and efficiently. An entrepreneur who maintains good human relations is much more likely to succeed in his business than the individual who does not practice such relations.

Risk Taking Innovation Organization Creation Creating Value Profit or Non Profit Growth Uniqueness & the Owner – Manager

Entrepreneurship in India

Entrepreneurship is regarded as closely associated with the Economic History of India. This is traced way back to even as early as Rig Veda, when Metal Handicrafts manufacturing cottage & small enterprises existed in the Country. It has passed thro several Ups & Downs. The important ones include the Decline of Indian Handicrafts Industry towards the end of the 18 th Century, entry of the East India Company of the Britisher’s in India’s Business Activities. The Swadeshi Campaign for Indian Manufactured Goods, the First World War, Emergence of the Indian Managing Agency Systems by promoting Joint Stock Companies, the Second World War, Partition of Undivided India & undertaking planned development of Entrepreneurship in the Country by Govt of India after Independence in 1947. For the purpose of encouraging Entrepreneurship, the Govt of India brought out the First Industrial Policy Resolutions in 1948 which was subsequently revised from Time to Time. The Govt of India in order to promote , assist & develop industries in the National Interest has taken the following Three Important Resolutions in the Industrial Resolutions :

i) To maintain a proper distribution of economic power between Private & Public Sector. ii) To encourage Rapid Industrialization by moving the concept of Entrepreneurship from existing centers to other cities, towns & rural areas. iii) To disseminate the Entrepreneurship acumen concentrated in a few dominant communities to a large number of Industrially Potential People of varied Social Background. To achieve these Objectives the Govt accorded emphasis on the Development of Small Scale Industries in the Country,the Govt announces various Incentives & Concessions in the form of Capital, Technical Know How, Reservation of Certain Items for Exclusive Manufacture in Small Scale Sector Tax Concessions, Provision of Infrastructural Facilities like Developed Land, Sheds, Roads, Communication etc for Promotion of Enterprises in the Country etc. This has helped in Speedy Economic Development in all the States in the Country & to a great extent has minimized regional imbalances. National Common Minimum Programme (NCMP) describes Small Scale Enterprises as the Most Employment Intensive Segment. At the beginning of the 10th

Plan, (2002 – 2003), the Segment provided gainful employment to 24.9 Million People in the Rural & Urban Areas of the Country thro 10.5 Million Units, engaged in Manufacturing & providing a Wide Range of Goods & Services. If the Units in Khadi Village Industries are also taken into account, the Employment would rise to 332 Million.

Thus this is rightly called as the segment which provides employment next only to Agriculture. The Contribution of Small Enterprises Segment to the Economic Development of the Country is very significant. Nearly 39% of the Gross Manufacturing Output & 34% of the Exports of India arise from these Enterprises. Yet a large number of Entrepreneurs are facing lots of Challenges. In order to assist them to fully harness their potential by availing of the increasing opportunities generated by Trade Liberalization, it is necessary to not only build an enabling Policy Environment but also supplement the former with a specific set of measures to address the continuing challenges. Therefore Ministry of Micro, Small & Medium Enterprises, Govt of India has announced a package for Promoting such enterprises in Feb 07 to provide full support in the Areas of Credit, Technological Up gradation, Marketing & Infrastructural Up gradation in Major Industrial Infrastructure etc.

SMALL SCALE INDUSTRIES

Small-Scale Industries in India: Definition, Characteristic and Objectives!

Meaning of SSIAccording to micro, small and medium Enterprises Development (MSMED) Act 2006,the micro, small and medium enterprises (MSMEs) are classified into two classes, namely,manufacturing enterprises that are engaged in manufacture or production of goods pertainingto any industry specified in the first schedule to the Industries (Development and Regulation)Act 1951 and service enterprises.

In Indian economy small-scale and cottage industries occupy an important place, because of their employment potential and their contribution to total industrial output and exports.

Government of India has taken a number of steps to promote them. However, with the recent measures, small-scale and cottage industries facing both internal competition as well as external competition.

There is no clear distinction between small-scale and cottage industries. However it is generally believed that cottage industry is one which is carried on wholly or primarily with the help of the members of the family. As against this, small-scale industry employs hired labour.

Moreover industries are generally associated with agriculture and provide subsidiary employment in rural areas. As against this, small scale units are mainly located in urban areas as separate establishments.

Definition:

The official definitions of a small scale unit are as follows:

(i) Small-Scale Industries:

These are the industrial undertakings having fixed investment in plant and machinery, whether held on ownership basis or lease basis or hire purchase basis not exceeding Rs. 1 crore.

(ii) Ancillary Industries:

These are industrial undertakings having fixed investment in plant and machinery not exceeding Rs. 1 crore engaged in or proposed to engage in,

(a) The manufacture of parts, components, sub-assemblies, tooling or intermediaries, or

(b) The rendering of services supplying 30 percent of their production or services as the case may be, to other units for production of other articles.

(iii) Tiny Units:

These refer to undertakings having fixed investment in plant and machinery not exceeding Rs. 23 lakhs. These also include undertakings providing services such as laundry, Xeroxing, repairs and maintenance of customer equipment and machinery, hatching and poultry etc. Located m towns with population less than 50,000.

(iv) Small-Scale Service Establishments:

These mean enterprises engaged in personal or household services in rural areas and town with population not exceeding 50000 and having fixed investment in plant and machinery not exceeding Rs. 25 lakhs.

(v) Household Industries:

These cover artisans skilled craftsman and technicians who can work in their own houses if their work requires less than 300 square feet space, less than 1 Kw power, less than 5 workers and no pollution is caused. Handicrafts, toys, dolls, small plastic and paper products electronic and electrical gadgets are some examples of these industries.

Characteristics of Small-Scale Industries:

Following are the characteristics of some industries which identify them as small-scale industries:

1. Labour intensive:

Small-scale industries are fairly labour-intensive. They provide an economic solution by creating employment opportunities in urban and rural areas at a relatively low cost of capital investment.

2. Flexibility:

Small-scale industries are flexible in their operation. They adopt quickly to various factors that play a large part in daily management. Their flexibility makes them best suited to constantly changing environment.

3. One-man show:

A small-scale unit is generally a one-man show. It is mostly set up by individuals. Even some small units are run by partnership firm or company, the activities are mainly carried out by one of the partners or directors. Therefore,' they provide an outlet for expression of the entrepreneurial spirit. As they are their own boss, the decision making process is fast and at times more innovative.

4. Use of indigenous raw materials:

Small-scale industries use indigenous raw materials and promote intermediate and capital goods. They contribute to faster balanced economic growth in a transitional economy through decentralisation and dispersal of industries in the local areas.

5. Localised operation:

Small-scale industries generally restrict their operation to local areas in order to meet the local and regional demands of the people. They cannot enlarge their business activities due to limited resources.

6. Lesser gestation period:

Gestation period is the period after which the return or investment starts. It is the time period between setting the units and commencement ol production. Small-scale industries usually have a lesser gestation period than large industries. This helps the entrepreneur to earn after a short period of time. Capital will not be blocked for a longer period.

7. Educational level:

The educational level of the employees of small industries is normally low or moderate. Hardly there is any need of specialised knowledge and skill to operate and manage the SSI.

8. Profit motive:

The owners of small industries are too much profit conscious. They always try to keep high margins in their pricing. This is one of the reason for which the unit may lead to closure.

(i) Ownership:

Ownership of small scale unit is with one individual in sole-proprietorship or it can be with a few individuals in partnership.

(ii) Management and control:

A small-scale unit is normally a one man show and even in case of partnership the activities are mainly carried out by the active partner and the rest are generally sleeping partners. These units are managed in a personalised fashion. The owner is activity involved in all the decisions concerning business.

(iii) Area of operation:

The area of operation of small units is generally localised catering to the local or regional demand. The overall resources at the disposal of small scale units are limited and as a result of this, it is forced to confine its activities to the local level.

(iv) Technology:

Small industries are fairly labour intensive with comparatively smaller capital investment than the larger units. Therefore, these units are more suited for economics where capital is scarce and there is abundant supply of labour.

(v) Gestation period:

Gestation period is that period after which teething problems are over and return on investment starts. Gestation period of small scale unit is less as compared to large scale unit.

(vi) Flexibility:

Small scale units as compared to large scale units are more change susceptible and highly reactive and responsive to socio-economic conditions.

They are more flexible to adopt changes like new method of production, introduction of new products etc.

(vii) Resources:

Small scale units use local or indigenous resources and as such can be located anywhere subject to the availability of these resources like labour and raw materials.

(viii) Dispersal of units:

Small scale units use local resources and can be dispersed over a wide territory. The development of small scale units in rural and backward areas promotes more balanced regional development and can prevent the influx of job seekers from rural areas to cities.

Objectives of Small Scale Industries

The objectives of small scale industries are:

1. To create more employment opportunities with less investment.

2. To remove economic backwardness of rural and less developed regions of the economy.

3. To reduce regional imbalances.

4. To mobilise and ensure optimum utilisation of unexploited resources of the country.

5. To improve standard of living of people.

6. To ensure equitable distribution of income and wealth.

7. To solve unemployment problem.

8. To attain self-reliance.

9. To adopt latest technology aimed at producing better quality products at lower costs.

Types of Small Scale Industries

The available Small Scale Industries of manufacturing sector or the service sector in India are mainly divided into five types:

1. Manufacturing Industries:-The industries that are liable for producing articles for processing called as manufacturingindustries are popular examples of this category are power looms, khadi industries,engineering industries, processing industries, coin industries etc.2. Ancillary Industries :-This industry is liable for producing small to bigger parts of every component that are usedto render services in big industries.

3. Service Industries :-The Business & Management Review, Volume 5 Number 4 January 2015International Conference on Issues in Emerging Economies (ICIEE), 29-30th January 2015 103The well-known service sector is known for covering all light repair shops that are essentialto maintain all types of mechanical equipments. This industry is also known for the completedependency on machines.4. Feeder Industries :-The well-known service sector is known for covering all light repair shops that areessential to maintain all types of mechanical equipments. This industry is also known forthe complete dependency on machines.5. Mining or Quarries :-The demand of minerals, different types of stones is increasing in the global market andso many mining projects are running just to meet the requirement of the masses. Todaywe can see many finding are in the process just in hunt of finding the right location formining. Just because of increasing awareness on the issue of the environmental impact ofthese mining they have reduced its effect and trying to improve safety.

Major Features of the small Industrial Policy – 1991 :-a) Emphasis to shift from cheap credit to adequate creditb) Equity participation by other undertakings (both domestic and foreign) upto 24%c) Introducing of factoring services by banks.d) Marketing of mass consumption goods under common brand name.e) Setting up of sub-contraction s exchangesf) Establishment of technology development cell.g) Opening of quality counseling and technology information centres.h) New technology up graduation programmesi) Opportunity to SSI in India Global economy:-

SSI in India can get some opportunities from global economy these are following.

ILO’s Five Points Crisis Response for MSMEs :-

The ILO has developed a five point crisis Response to help existingMSMEs, weather the crisisand to support unemployed workers, including migrant, in creating self employment. The fivepoints, detailed below:

1 ) Rapid assessments of the enterprise environment :-The impact and severity of the crisis have caught employers, workers and policy makersby surprise, As such, a rapid assessment of the impact and how they are making enterprisesvulnerable is an important first step in designing appropriate responses. The crisis has had ageneral impact on all economies around the world, but there are sectoral and geographical(region, country, within,country) differences. A rapid assessment will pinpoint problem areas.

2)Advice through examples for policy makers on access to finance :-

The ILO has produced this guide which in section 2 focuses considerable attention on thecredit issue and provides a range of examples drawn from countries in various part of theworld. These examples offer ides for policy makers and social partners in other countries onhow to take a proactive approach to unblocking the financing constraint. Each country will needto work out its own approach based on its own set of banking institutions (includingdevelopment banks and small enterprise banks) and credit programs, and on its resources,expertise and regulatory environment.

3) Advice to Policymakers on public Procurement :-

The ILO promotes on approach to public procurement that seeks to both remove theconstraints faced by MSMEs in gaining access to government contracts and by activelypromoting these enterprises because of their high labour intensity. Many governments haveresponded to the crisis with demand stimulus measures that involve spending on public wiith adequate access, MSMEs in relevant sectors, notably road and building construction, can compensate for the decline in demand from private clients with increased servicing of public sector customers. Other micro or small business, which are not or have not been able to secure public contracts, may benefit by supplying or sub-contracting with other enterprises that have. The ILO has a training program on public procurement by MSMEs that can be used to provide advice and ideas to policymakers.

4) Advice and training on business development services :-

Small enterprises need to cope with reduced demand in their traditional markets anddevelop products. And services for new markets and new opportunities arising during thecrisis. For this they need help to ‘think outside of the box’ and take initiatives to ensure thatinstead of being entrepreneurs in crisis, they are entrepreneurial in the midst of the crisis.Entrepreneurship is a complex issue involving personal attributes, a supporting culture and onenabling policy environment. It can be assisted through training on how to start and manage abusiness.

5) Advice and training to strengthen enterprises associations :-

Enterprise associations can be a valuable support mechanism for businesses during thedownturn. They allow members to share ideas and knowledge. Provides information on newpolicies and programs and advocate on behalf of their member’s vis-a—vis governments. Theeffectiveness of such organization various considerably depending on the ability to attractmembers, the level of funding and the leadership and management. The federation of smallbusiness in the U. K. and the Canadian federation of Independent Business are two of the manyeffective organizations around the world also

The ILO ready to strengthen these associations through its training programs for small business association so that these associations can play a more active role during the down turn.

2. Industrial :-Emergence of worldwide production markets and broader access to a range of foreignproducts for consumers and companies. Particularly movement of material and goods betweenand within national boundaries. For example- MNC, Domestic firm, etc.3. Economic:-Realization of a global common market based on the freedom of exchange of goods andservices. The interconnectedness of these markets however meant that an economic collapse inany one given country could not be contained.4 .Information:-Increase in information flows between geographically remote locations. Arguably this isa technological change with the advent of fibre optic communications, satellites and increasedavailable of telephone and internet.5.Competition :-Survival in the new global business market calls for improved productivity andincreased competition. Due to the market becoming worldwide, companies in various industrieshave to upgrade their products and use technology skillfully in order to face increasedcompetition.6.Cultural :-Growth of crass- cultural contracts, it can make opportunities of new categories ofconsciousness and identities which embodies cultural diffusion the desire to increase one’sstandard of living and enjoy foreign products and ideas,adopt new technology and practices,and participate in a “world culture” some become the resulting consumerism and loss oflanguages. 7.Technical:-Development of a global telecommunication infrastructure and grater transborder data flow,using such- technogies as the internet. Communication satellites, submarine fiber optic cable andwireless telephones, increase in the number of standards applied globally: e.g. copyright laws,patent and world trade agree.8. Legal/ Ethical :-The creation of the international criminal court and international justice movements alsocrime importation and raising awareness of global crime-fighting efforts and co-operation.9. The main opportunities of small scale industries is that in this a company proprietoritself can make communication and contact with the employees of the company. Notonly care but he can talk to them and try to find out about their problems. Sometimesaccording to the requirement they initiate to give them proper help and try to make themsatisfied and these types of services and care make these employees happy and moresincere towards their job and responsibilities. Whereas in large industries things areavailable on large scale and very difficult to manage. There owner of the company has notime to talk to their employees and to know about their problems and requirements asthey are many They behave like the professional and the entire work is governed by therelated rules and regulations.10. The biggest opportunity of small scale industries is that they create less harm to theenvironment and generate less pollution. If they use effluents then its quantity is limitedthat can be easily disposed after every use. Just because of limited strength they managethings beautifully and generally follow all related rules and regulations meant by theGovernment for them. However things are not manageable in case of large scale

industries as they produce more influents, smoke and eating noise that comes from theirheavy machinery also they produce massive contaminated water that is not possible tocontrol so they increase hazards in environment. These days reports of severeenvironmental degradation is increasing day by day and only small scale industries arecapable to balance the environment.

Challenges to SSI in India in Global Economy

Small scale industries play a vital role in the economic development of our country. Butsmall scale industries are not in a position to play their role effectively due to variousconstraints, and also various challenges faced by small scale industries.

1. Finance:-Finance is one of the most important challenge to small scale industries. Finance is thelife bold of an organization and no organization can function properly in the absence ofadequate funds. The scarcity of capital and inadequate availability of credit facilities are themajor causes of this factor also entrepreneurs due to weak economic base, have lower creditworthiness. Neither they are having their own resources nor are others prepared to lendthem. Compare to MNCs.2. Raw Material :-Small scale industries normally tap local sources for meeting raw material requirements.These units have to face numerous challenges like availability of inadequate quantity, poorquality and even supply of row material is not on regular basis. All these factors adverselyaffect to functioning of these units.3. Marketing :-These small scale units are also exposed to marketing challenge. They are not in aposition to get fist hand. Information about the market i.e. about the competition.Taste,liking, disliking of the consumers and prevalent fashion. They are producing less of inferiorquality and that too at higher costs. Therefore, in competition with better equipped largescale units they are placed in a relatively disadvantageous position.

Resources Based SSI

A large number of SSI are started because raw material are available in plenty, cheaply and easily. Entrepreneurs get tempted to start SSI to take advantage of the raw material and other resources available. Resources like natural resources, mineral resources, marine resources, human resources, agricultural resources, forest resources, industrial waste resources etc. A large number of such quantities of such material is lying scattered here and entrepreneurs collect these surplus resources and start industries based on that. Entrepreneurs are encouraged to start small scale industry to take advantage of the cheap locally available resources with the expectation of earning good profits. Demand Based SSI:

Whenever there is a good demand of a product, many entrepreneurs get tempted to start manufacturing of such or similar products by establishing industry, so that they can easily

establish themselves in the market and earn good profits. SSI can be started to meet the growing demand of a product or to fill up the existing demand supply gap. Entrepreneurs do not come forward to start SSI because of the difficulties in selling the product but in demand based, it is advantageous for any entrepreneur as production is easier than marketing. Industries which have been started with the aim of taking advantage of the demand are known as demand based SSI. They do not create demand but take advantage and when they see that there is a good demand of a product in comparison to supply; they make entry into the field. They need not to search buyers for the product as they are easily accepted by the consumers. This type of situation does not continue for a long time but by the time such situation arises the entrepreneur might have established them firmly in the market and developed the capabilities to withstand the demand fluctuation.

ANCILLARY BASED

A large number of SSI’s do not produce usable completed products but produce components, parts, assembling, sub-assembling, tooling or intermediate goods which are supplied to other industries for manufacturing of other useful articles. It may not be possible for an organization to produce all of its required components, parts, accessories, tools etc. so they have to depend on other source of supply from other industries and this can be met by the ancillary industries. When there is a scope to supply components, parts, etc. to another industry, a small scale entrepreneur may start a small scale industry to manufacture such items as per the specifications & design of the other industries .Such ancillary industries are independent units and largely depend on other industries for supply of their goods and services. A small percentage of their percentage may be sold in the open market directly to the consumers, but their main aim is to supply to other industries to manufacture other useful products.Type of SSI unit Investment limit (1 million= 10 Lakhs) Remarks Small Scale Industry Rs 10 million Historical cost of plant & machinery Ancillary Rs 10 million At least 50% of its output should go to other industrial undertaking Tiny Enterprise Rs 2.5 million No location limits Service & Business Enterprise Rs 0.5 million No location limits Women Enterprise Rs. 10 million 51% equity holding by women Export Oriented Rs. 10 million Obligation to export 30% of production

SUBSIDIARDY TYPE or SUB CONTROL TYPE

SSI Many large scale manufacturer start SSI under the full control to manufacture small items or some of their products .All of their products are taken by the large industry and sold under their brand name. The SSI is created and managed directly or indirectly by the bigger industry but a different name .They are owned and controlled by the same management .They take advantage of the benefits, concessions and incentives available from the government due to the status of small scale industry. This type of SSIs is usually owned, controlled, financed and managed by some other industry or the control and management of such units may be vested in the hands of their family members or relatives. The entire production of the small industry may be sold to the bigger industry and for this there may be a tie up .This type of franchise may also be started to

cater to the need of a large area or population, to produce goods at a lower cost and to take advantage of the liberal SSI policies

STEPS TO START A SSI

1.Preliminary stage :

o Decision to become an entrepreneur and start an enterprise.

o Developing entrepreneurial characteristics

o Studying business environment

o Meeting entrepreneurs, people, experts and others

o Searching the opportunity.

2. Decision making Stage:

o Selecting business opportunities

o Consulting DIC, SISI, consultants, banks, licensing authorities.

o Deciding the size, type, technology of the project

o Deciding the location and survey site

o Selection of exact site

o Preparation of the project report

o Studying the project from technical, financial, managerial and operational point of

view. Deciding the product3. Planning stage

o Application for acquisition of land or exact site

o Application for provisional registration

o Application for No-objection certificate, assurance from bankers for finance.

o Application for licenses, permission, clearances from state government, central

government and from the local authorities. o Application for loans and arrangement of capital

o Enquiry for plant and machineries etc.

o Preparing plans of the factory buildings

o Preparing plans for acquiring plants and machineries, tools and equipment’s,

furniture and fittings etc.o Prepare the detailed project report

4. Implementation stage

o Acquisition of land

o Development of site

o Construction of buildings and other infrastructure like road, affluent disposed

etc.

o Placing orders for plants and machineries, tools and equipment, furniture and

fixtures etc. Arranging electricityo water connection

o Installation of plants and machineries and test running

o Recruitment, selection, training and placement of manpower

o Procurement of raw material and other materials

o Finalise the marketing channel, distribution policy, percentage of margin and

commission to the middleman etc. o Carry on trial production and test marketing

5. Managerial stage o Evaluate the field performance of product and examine the consumer’s response

o Appoint dealer, wholesalers, agents, and arrange showrooms etc.

o Carry on commercial production

o Carry on advertising and marketing activities.

o Distribution and selling

o Managing the enterprise

o Creation of external economies

o Consolidating the marketing and selling network

o Ensure growth and generate profits

o Repayment of loan and interest.

o Keep pace with the change in technology, change in taste, fashion of consumers,

competition, and development of new product, new substitute or alternatives. o Carry on modernization, expansion, and diversification etc.

ROLE OF SMALL SCALE INDUSTRIES IN DEVELOPMENT OF ECONOMY OR ROLE OF SSIS IN NATIONAL ECONOMY

1. Employment generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive in character. They generate huge number of employment opportunities. It is a powerful tool of job creation. 2.Mobilization of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas by investing in small-scale units. Thus, a huge amount of latent resources are being mobilized by the small-scale sector for the development of the economy. 3.Regional dispersal of industries: There has been massive concentration of industries in a few large cities of different states of Indian union. People migrate from rural and semi urban areas to these highly developed centers in search of employment and sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem

of Indian economy is better solved by small- scale industries which utilize local resources and brings about dispersion of industries in the various parts of the country thus promotes balanced regional development.

4. Provides opportunities for development of technology:Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. The entrepreneurs of small units play a strategic role in commercializing new inventions and products.

5. Promotes exports: Small-scale industries have registered a phenomenal growth in export over the years.They help in increasing the country's foreign exchange reserves there by reduces the pressure on country's balance of payment. 6.Supports the growth of large industries:

The small-scale industries play an important role in assisting bigger industries and projects so that the planned activity of development work is timely attended. They support the growth of large industries by providing- components, accessories and semi-finished goods required by them 8. Better industrial relations:

Better industrial relations between the employer and employees help in increasing the efficiency of employees and reducing the frequency of industrial disputes. There is hardly any strikes and lock out in these industries due to good employee- employer relationship

GOVERNMENT POLICIES FOR SSIS

Government policies are flexible and changes from time to time, place to place and product to product. Different policies are applicable for different states as per the suitability of the states.

The central government also announces various schemes for the benefit of the SSIs and aimed at achieving industrial growth. So the central and state government have their industrial policies for the promotion of small scale industries. Some industries are classified as priorities industries and Governments allow special subsidies on those SSIs. Other facilities include:

a) Sales tax exemptions. b) Sales tax concessions.c) Water tax concessions.d) Electricity duty exemption concession. e) Marketing assistance.f) Price preference while supplying products to government organisation. g) Subsidy on expenses made on research and development . h) Subsidy on acquiring quality certificate like ISI marks, AG mark, ISO 9000 series,

ISO 14000 series.i) Single window system of clearance.

Policy Initiatives on SSI Sector

1)75 products are reserved for exclusive manufacture in the SSI sector consisting of chemicals and their products, leather and leather products, laboratory reagents etc. (ii) Selective enhancement of investment in plant and machinery from Rs 1 crore to Rs 5 crore carried out in respect of 13 items in stationery sector and 10 items in the drugs and pharmaceutical sector . (iii) The Union budget 2003–04 announced that banks would provide credit to the SSI sector within an interest rate band of 2 per cent above and below Prime Lending Rated (PLR). All public sector banks have adopted this norm. (iv) The composite loan limit for SSI units was enhanced from Rs 25 lakh to Rs 50 lakh (v) The RBI announced that banks may enhance the limit of dispensation of collateral requirements for loans from the existing Rs 15 lakh to Rs 25 lakh on the basis of good track record and financial position of the units. (vi) The lower limit of Rs 5 lakh on loans covered under the Credit Guarantee Scheme has been removed. All loans up to Rs 25 lakh made eligible for guarantee cover under the Credit Guarantee Scheme. (vii) 417 SSI specialized bank branches made operational throughout the country (viii) The final results of third All India Census of Small-scale Industries were released on January 17, 2004 (ix) In the first phase, 60 clusters were identified (July, 2003) for focused development, by including their credit requirements in the respective State Credit Plans. (x)Setting up of a Small and Medium Enterprises Fund (SMEF) of Rs 10,000 crore under SIDBI, to inter alia, address the problems of inadequacy of financial resources at highly competitive rates for small-scale sector. (xi) Laghu Uddyami Credit Card scheme liberalized with enhanced credit limit of Rs 10 lakh (up from Rs 2 lakh) for borrowers with satisfactory track records

Problems Faced by Small-scale Industries (i) Difficulty in obtaining credit from commercial banks because of their general

inability to provide security.(ii) Absence of management expertise. Often managed by one person who performs a

number of functions usually with no formal training. (iii) Difficulty in competing with imported products due to high production costs. (iv) Difficulty in obtaining industrial land in towns and cities. The shortage of industrial

land is giving rise to more and more backward operations.(v) Under capitalisation.(vi) Difficulty in identifying appropriate technology and technical assistance.(vii) Surveys of material and human resources of the countries are not available to identify

the regions or areas for the development of small-scale and medium-scale industrial enterprises.

(viii) Difficulty in identification of industrial projects for development. Poor Project preparation and evaluation.

(ix) Lack of Financial or credit support and investment promotion. Lack of consultancy and counselling services. (x) Technology development and applications such as the designing of prototype

machines for products identified according to country resources and requirements. (xi) Inadequate Industrial training and skill formation.

(xii) Quality control and testing facilities. (xiii) Inadequate Market promotion, both domestic and export. (xiv) Difficulties in Procurement of raw materials and equipment.

LARGE SCALE INDUSTRIESIndustries with a fixed asset of more than one hundred million rupees are called large scale industries. These could be manufacturing units or others which use both indigenous and imported technologies. They cater to both the local and foreign markets. Examples of large scale industries :- include fertilizer, cement, natural gas, coal, metal extraction, metal processing, petroleum, natural gas, mining, electrical, petrochemical, food processing units, tourism, banking, sugar, construction, automobile, communication equipment, cement, chemicals, earth movers, consumer durables (like television, refrigerators, etc), engineering products, vehicle assembly, beverages, gas and water; other fuels, agricultural processing, insurance and finance. With the opening up of the market and globalization, the effects on such industries has been mixed, some have gained by attracting foreign customers, foreign trade and technology, tie-ups, while others have lost out due to their inability to cope up with the open market competition.

Role of small-scale industries in the growth of the country

The small-scale industries sector plays a vital role in the growth of the country. It contributes almost 40% of the gross industrial value added in the Indian economy.

It has been estimated that a million Rs. of investment in fixed assets in the small scale sector produces 4.62 million worth of goods or services with an approximate value addition of ten percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive. The number of small-scale units has increased from an estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000.

When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small-scale sector.

Employment

SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the small-scale sector generates employment for four persons.

Generation of Employment - Industry Group-wise

Food products industry has ranked first in generating employment, providing employment to 0.48 million persons (13.1%). The next two industry groups were Non-metallic mineral products with employment of 0.45 million persons (12.2%) and Metal products with 0.37 million persons (10.2%).

In Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%.

In all other industries the contribution was less than 5%.

Per unit employment

Per unit employment was the highest (20) in units engaged in beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in Repair services line.

Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas.

However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas.

In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12).

Location-wise Employment Distribution - Rural

Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%.

Urban

As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.

This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%) and Punjab (5.6%) together accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra & Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi.

Madhya Pradesh had the lowest figure of 2. In all other cases it was around the average of 6.

Export

SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. Besides direct exports, it is estimated that small-scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods.

It would surprise many to know that non-traditional products account for more than 95% of the SSI exports.

The exports from SSI sector have been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garments, leather and gems and jewellery units from this sector.

The product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products.

The SSI sector is reorienting its export strategy towards the new trade regime being ushered in by the WTO.

MajorExportMarketsAn evaluation study has been done by M/s A.C. Nielsen on behalf of Ministry of SSI. As per the findings and recommendations of the said study the major export markets identified having potential to enhance SSIs exports are US, EU and Japan. The potential items of SSIs have been categorised into three broad categories

ExportDestinationsThe Export Destinations of SSI products have been identified for 16 product groups. 

OPPORTUNITY IN SMALL-SCALE SECTOR

The opportunities in the small-scale sector are enormous due to the following factors:

Less Capital Intensive Extensive Promotion & Support by Government Reservation for Exclusive Manufacture by small scale sector Project Profiles Funding - Finance & Subsidies Machinery Procurement Raw Material Procurement Manpower Training Technical & Managerial skills Tooling & Testing support Reservation for Exclusive Purchase by Government Export Promotion Growth in demand in the domestic market size due to overall economic growth Increasing Export Potential for Indian products Growth in Requirements for ancillary units due to the increase in number of greenfield

units coming up in the large scale sector. Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.

By its less capital intensive and high labour absorption nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. This is the opportune time to set up projects in the small-scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing

range of products, particularly in consumer goods. However, the bugbear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation coupled with Government support will therefore, attract the infusion of just these things in the sector.

Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.