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Small Business Management Unit 1

Sikkim Manipal University Page No. 1

Unit 1 Introduction to Small Business Management

Structure:

1.1 Introduction

Objectives

1.2 Significance of Small Business

1.3 Evolution of Small Business in India

1.4 Definition of Small Business

1.5 Characteristics of Small Business

1.6 Forms of Organisation

1.7 Common problems Affecting Small Businesses

1.8 Summary

1.9 Glossary

1.10 Terminal Questions

1.11 Answers

1.1 Introduction

Small business is considered as a powerful engine of economic

development of any country.Many nations – both developed and

developing – recognised that the small industry sector is a useful vehicle for

growth. In developing counties, small business is a major source of creation

of new employment opportunities on a wide scale in the shortest possible

time, promoting entrepreneurial culture. It is small industries that have

propelled countries like Japan, Taiwan and Korea become powerful.

Small business is mostly, privately owned and operated with a small number

of employees. Their operations are confined to the vicinity of their

locationwith a relatively low volume of sales.

However, it must be noted that all big businesses started small. Infosys was

started by NR Narayanamurthy along with six software engineers in a small

room in his house with $10,000 borrowed from his wife. It is now an

enterprise with turnover of $31254 crores in 2011-12 and as on 31-03-2012

it had a cash and bank balance of $18057 crores.

Shahnaz Husain is a very famous name in the cosmetic industry and

pioneering beauty treatments using Ayurveda. She started off small with the

help of family members and today Shahnaz Herbals employs more than

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1800 people, with exports to 60 countries and a range of over 250 high-

selling beauty products.This unit highlights the significance of small business, contribution to the

economy and evolution of small business in India. The institutional support

for promotion and development for giving fillip to the sector, definition and

characteristics, forms of ownership and implications, common issues that

hampers the process of growth are also dealt with.

Objectives:

After studying the unit, you should be able to:

explain the concept of small business

recognise its role in the economy

describe the evolution of small business

distinguish between different forms of organisations that small

businesses can take

explain the characteristics of small business and identify the common

problems of small business.

1.2 Significance of Small Business

Significance of small business can be understood under two dimensions –

its contribution to the national economy and its contribution to

entrepreneurship contribution to the economy.

Both in developed and developing countries, small business plays a pivotal

role in generating employment, improving exportsin a significant manner

and contributing to Gross Domestic Product (GDP) as could be seen from

the table 1.1:

Table 1.1: Share of small business in world economies

Description

Share of small business in

GDP Employment Exports

US and EU countries 40-60% 60% 30-60%

China, Japan, Malaysia, and SouthKorea

40% 70-80* NA

African countries 30-40% 70* 4%

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In India, it is estimated that (as on 31st March 2011) small business:

Contributed 8.72% to GDP. Employed 732 lakh persons.

Accounted for 40% of the exports of the country.

In terms of value, the sector accounts for about 45 percent of the

manufacturing output valued at $1095758 crores.

There are 312 lakh small enterprises.

The sector has consistently registered a growth rate of over 12% which

is than the rest of the industrial sector.

The fixed investment in the sector is $773487 crores.

The sector manufactures 6,000 products ranging from traditional to hi-

tech items. The product groups are depicted in the pie chart below.(Refer Chart 1.1)

Chart 1.1: Products of MSMEs

A) Contribution to entrepreneurship

For promotion of different types of enterprises – micro, small and medium –entrepreneurship development is one among the inevitable elements. This is

especially true for first generation entrepreneurs. Entrepreneurship is the

process of exploring opportunities, scanning the environment, mobilising

resources, converting ideas into viable business proposition and providing

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new products and services to the society by bringing together and

combining various factors of production.Entrepreneurial dynamism forms the cornerstone of a progressive society as

it creates value through identification of business opportunity, management

of risk appropriate to opportunity, honing of management skills, maintaining

financial discipline and ensuring resources to bring a project to fruition.

The first step for a person aspiring to become an entrepreneur is to make an

inventory of traits. This self-awareness and analysis helps define strengths

and overcome weaknesses. The process involves relentless efforts on the

part of the entrepreneurs to become successful. The government has set up

institutes to facilitate entrepreneurial development which drives economic

growth.

Self Assessment Question

Fill in the blanks:

1. Name the three main areas to which small business makes a

contribution.

a) _______

b) _______

c) _______

1.3 Evolution of Small Business in India

Small scale and cottage industries encompassing a variety of industries

ranging from manufacturing of iron safes, locks, carpets, marble jigs,

baskets, hand-loom and khadi cloth and coir products existed in India for a

long time. However, official recognition of their pivotal role in economic

development came after India attained independence. The small industry

can be categorised under three major heads:

1. Coirindustries.

2. Small Scale Industries producing industrial products or engaged in

providing services.

3. Khadiand Village Industries.

The role of each of the above is elaborated below:

1. Coir Industries

In 1953, Coir Board was established as a statutory body under the Coir

Industry Act, 1953 for promoting the overall development of the coir industry

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and improvement of the living conditions of the workers engaged in this

traditional industry.India is the largest coir producer in the world accounting for more than 80

percent of the total world production of coir. The coir sector in India is

diverse and involves households, co-operatives, NGOs, manufacturers and

exporters. This Industry is the best example of producing beautiful artefacts,

handicrafts and utility products from coconut husks which is otherwise a

waste.

The coir industry employs more than 7 lakh people of whom a majority is

from rural areas belonging to the economically weaker sections of society.

Nearly 80% of the coir workers in the fibre extraction and spinning sectors

are women.The fibre production estimated during 2011-12 is 6,00,000 M.T.

2. Small Scale Industries

In 1955, The National Small Industries Corporation (NSIC) Ltd. was

established by the Government of India with a view to “to aid, counsel,

assist, finance, protect and promote the interest of small industries in India.”

NSIC continues to remain at the forefront of industrial development

throughout the country with its various programmes and projects to assist

the Micro, Small and Medium Enterprises (MSME) in the country, generally

on a commercial basis. It provides a variety of support services to micro and

small enterprises by catering to their different requirements in the areas ofraw material procurement, product marketing, credit rating, acquisition of

technologies and adoption of modern management practices

The important functions NSIC:

1. Provides financial assistance by way of hire-purchase scheme for

purchase of machinery and equipment, required for the setting up

industries.

2. Provides equipment on lease.

3. Assists in marketing of the products of SSIs.

4. Helps in exporting the product of SSIs.

5. Provides training to workers of SSIs in various trades.

6. Helps in the development and upgradation of technology and

modernisation of industries.

7. Undertakes construction of industrial estates.

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8. Purchases huge quantity of important raw materials and distribute the

same to SSIs at reasonable rates.9. Develops prototype machines and equipment to pass on to SSIs for

commercial production.

10. Sets up small scale industries in other developing countries on turn-

key.

International cooperation

Since its inception, NSIC has contributed to strengthening enterprise-to-

enterprise cooperation, South-South cooperation and sharing best practices

and experiences with other developing countries, especially those in the

African, Asian and Pacific regions.NSIC thus plays a prominent role for the

development of entrepreneurship as well as industrialisation in the country.

Training andentrepreneurship development

For promotion of different types of enterprises – micro, small and medium –

entrepreneurship development is one among the inevitable elements. This is

especially true for first generation entrepreneurs. To undertake this task on

regular basis, the Ministry has set up three national-level Entrepreneurship

Development Institutes (EDIs). These are:

The National Institute for Micro, Small and Medium Enterprises

(NI-MSME), Hyderabad (then known as National Institute for Small

Industry Extension Training, set up in 1960).

The National Institute for Entrepreneurship and Small Business

Development (NIESBUD), NOIDA, set up in 1983.

The Indian Institute of Entrepreneurship (IIE), Guwahati, set up in 1994.

3. Khadi and Village Industries

In 1956, the Khadi and Village industries Commission (KVIC) was set up

under an Act of the same name. The main objectives of KVIC include:

i. The social objective of providing employment in rural areas.

ii. The economic objective of producing saleable articles.

iii. The wider objective of creating self-reliance amongst people and

building up a strong rural community spirit.

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Functions of KVIC are to:

i. Plan and organise training of people employed or desirous of seekingemployment in Khadi and village industries.

ii. Build up directly or through specified agencies reserves of raw

materials and implement and supply them or arrange supply of raw

materials and train persons engaged or likely to be engaged in

production of hand spun yarn or khadi or village industries.

iii. Facilitate production and to promote the sale and marketing of khadi or

products of village industries or handicrafts.

iv. Encourage and promote research in the technology used in Khadi and

village industries, including the use of non-conventional energy and

electric power with a view to increasing productivity and eliminatingdrudgery.

v. Provide financial assistance to people engaged in the development and

operation of khadi or village industries and guide them through supply

of designs, prototypes and other technical information for the purpose

of producing goods and services in effective demand.

Grouping of industries

While Khadi programmes comprise hand spun and hand woven cotton,

woollen, muslin and silk varieties, the Village Industries programmes have

been classified into seven broad groups. These are:

i. Mineral Based Industry.

ii. Forest Based Industry.

iii. Agro Based and Food Processing Industry.

iv. Polymer and Chemical Based Industry.

v. Rural Engineering and Bio-Technology Industry.

vi. Hand Made Paper and Fibre Industry.

vii. Service Industry.

Industries connected with meat, manufacturing or sale of intoxicant items

like beedi/pan/cigar/cigarette, etc., any hotel or dhaba or sales outlet servingliquor, preparation/producing tobacco as raw materials, tapping of toddy for

sale, etc., are not assisted under KVI programme as these are neither eco-

friendly nor in line with the ideology and ethos of Mahatma Gandhi.

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Performance of KVI SectorYear 2011-12 (upto Feb 2012)

Khadi VI

Production ($ crores) 637.95 22913.69

Sales ($ crores) 821.10 24334.20

Employment (Lakh persons) 10.35 119.77

“Rural area means the area comprised in any village, and includes the area

comprised in any town, the population of which does not exceed twenty

thousand or such other figure as the Central Government may specify from

time to time.

Similarly, the term “village industries” has been redefined in amended KVIC Act, 1956 as “any industry located in a rural area which produces any goods

or renders any service with or without the use of power and in which the

fixed capital investment per head of artisan or worker does not exceed $

One lakh ($ one lakh and fifty thousand in case of village industry located in

a hilly area) or such other sum as may, by notification in the Official Gazette,

be specified from time to time by the Central Government”.

Micro, small and medium enterprises

In 2006, Micro, Small and Medium Enterprises Development Act was

passed by the Parliament. Subsequent to this enactment, Ministry of Agro

and Rural Industries and Ministry of Small Scale Industries were mergedinto a single Ministry, namely, “Ministry of Micro, Small and Medium

Enterprises.” KVIC and Coir Board were also brought under this Ministry.

This Ministry designs policies and promotes/facilitates programmes, projects

and schemes and monitors their implementation with a view to assisting

MSMEs and help them scale up.

MSMED Act was to address policy issues affecting MSMEs as well as the

coverage and investment ceiling of the sector. The salient features of the Act

include:

Setting up of a National Board for MSMEs.

Classification of enterprises.

Advisory Committees to support MSMEs.

Measures for promotion, development and enhancement of MSMEs.

Schemes to control delayed payments to MSMEs.

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Enactment of rules by State Governments to implement the MSMED Act,

2006 in their respective States.The primary responsibility of promotion and development of MSMEs is of

the State Governments. However, the Government of India, supplements the

efforts of the State Governments through various initiatives. The role of the

Ministry of Micro, Small and Medium Enterprises (M/o MSME) and its

organisations is to assist the States in their efforts to encourage

entrepreneurship, employment and livelihood opportunities and enhance the

competitiveness of MSMEs in the changed economic scenario.

The schemes/programmes undertaken by the Ministry and its organisations

seek to facilitate/ provide:

i) Adequate flow of credit from financial institutions/banks.

ii) Support for technology upgradation and modernisation.

iii) Integrated infrastructural facilities.

iv) Modern testing facilities and quality certification.

v) Access to modern management practices.

vi) Entrepreneurship development and skill upgradation through

appropriate trainingfacilities.

vii) Support for product development, design intervention and packaging.

viii) Welfare of artisans and workers.

ix) Assistance for better access to domestic and export markets.

x) Cluster-wise measures to promote capacity building and empowerment

of the units.

The Ministry of MSME has two Divisions called Small and Medium

Enterprises (SME) Division and Agro and Rural Industries (ARI)

Division.

The SME Division is allocated the work, inter-alia, of administration,

vigilance and administrative supervision of the National Small Industries

Corporation (NSIC) Ltd., a public sector enterprise and the three

autonomous national level entrepreneurship development/trainingorganisations. The division is also responsible for:

Implementation of schemes related to marketing and export promotion.

Performance monitoring and evaluation.

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The ARI Division looks after the administration of two statutory bodies viz.

the Khadi and Village Industries Commission (KVIC) and Coir Board andMahatma Gandhi Institute for Rural Industrialisation (MGIRI). It also

supervises the implementation of the Prime Minister’s Employment

Generation Programme (PMEGP).

The implementation of policies and various programmes/schemes for

providing infrastructure and support services to MSME’s is undertaken

through, the Office of the Development Commissioner (MSME) and NSIC,

KVIC and the three training institutes.

Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)

There has been a long felt need to create a mechanism that would provide

high quality science, technology and management inputs and support in a

comprehensive manner the Khadi and Village Industry (KVI) sector. Such a

facility would strengthen rural industrialisation, enhance employment in rural

areas and help identify new areas with opportunities for the sector. With this

objective the Wardha Institute started by Mahatma Gandhi in 1935 was

upgraded as a national institute to be called ‘Mahatma Gandhi Institute for

Rural Industrialisation’ in 2003. The objectives of this are:

To accelerate rural industrialisation for sustainable village economy so

that KVI sector co-exists with the main stream.

Attract professionals and experts to Gram Swaraj. Empower traditional artisans.

Innovation through pilot study/field trials.

R and D for alternative technology using local resources.

Functions

The activities are being carried out by its six divisions:

1. Chemical-based Industries Division.

2. Khadi and Textiles Division.

3. Bio-processing Industries Division.

4. Rural Energy and Infrastructure Division.5. Rural Crafts and Engineering Division.

6. Management and Systems Division.

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Achievements during 2011-12.

The institute has delivered 23 major Science and Technology interventionsfor rural industries. Some of the significant ones are as follows:

1. New modified 8-spindle charkha to enhance yarn quality and reduce

drudgery, demonstration.

2. Solar power tool for craftsman.

3. A web portal www.udyamisahayak.com with a repository for technology

applications, equipment and machineries, process training institutions,

source of raw materials and spares, institutional services and

consultancy and problem capturing database.

4. Single twist machine for making low count yarn sliver that will be used

on low countyarn Charkha.

5. 150 trendy state-of-art designs have been created and uploaded on

www.Green khadi designs.com, a web portal for Khadi institutions to

benefit from the use oftrendy designs and increase their market share.

6. Use of Calcium Lactate preservative for calcium enrichment in soya milk.

7. On entrepreneurship development, MGIRI has done significant

contribution by helping 65 self-financed entrepreneurs.Around 252 KVIC

personnel have been trained on various aspects of production, quality,

etc.

National Manufacturing Competitiveness Programme (NMCP)With a view to build the capacity of Indian micro, small and medium

manufacturing enterprises for overcoming competition in the global markets

and facing challenges being posed by the entry of multi-nationals in

domestic markets, the Ministry of MSME has implemented National

Manufacturing Competitiveness Programme (NMCP).

The objective of NMCP is to ensure healthy growth of MSME manufacturing

sector. The 10 components of the programme dealing with firm level

competitiveness are being implemented in Public-Private-Partnership (PPP)

mode. The 10 components of NMCP address the entire gamut of

manufacturing in the sector. The details of the components of theprogramme are given below:

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Sl. No. Component with Short Name

1 Marketing Support / Assistance to MSMEs (BAR CODE)

2Support for Entrepreneurial and Managerial Development of SMEsthrough incubator

3 Setting up Mini Tool Room and Training Centres (MTR)

4 Building Awareness on Intellectual Property Rights (IPR)

5 National Programme for Application of Lean Manufacturing (LEAN)

6Enabling Manufacturing Sector to be Competitive through QualityManagement

7 Standards and Quality Technology Tools (QMS/QTT)

8Technology Upgradation and Quality Certification Support to SMEs

(TEQUP)

9Marketing Assistance for SMEs and Technology Upgradation Activities(MARKETING)

10Design Clinic Scheme to bring Design expertise to the Manufacturingsector

11 Promotion of ICT in Indian Manufacturing Sector (ICT)

Self Assessment Questions

Fill in the blanks

2. The two divisions under the Ministry of MSME are ______________

and ___________3. The two major functions of KVIC are ____________ and _________

4. The Institute created for providing science and technology inputs

tokhadi and village industries is known as ____________

State whether the following statements are true or false:

5. The objective of NIMSME is to promote the development of smallscale

industry.

6. Coir is obtained from coconut husk.

1.4 Definition of Small Business

In India, small business is broadly classified into two types on the basis of

the nature of activity – manufacturing or production, and services.

1. Services

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It is further classified based upon the amount invested in plant and

machinery or equipment into micro, small or medium enterprise. The Micro,Small and Medium Enterprise Development Act, 2006 (MSMEDA) classifies

all small businesses as given below.In case of enterprises engaged in the

manufacture or production of goods pertaining to any industry specified in

the first schedule to the Industries (Development and Regulation)Act, 1951,

as:

1. A micro enterprise, where the investment in plant and machinery does

not exceed twenty 5 lakh rupees.

2. A small enterprise, where the investment in plant and machinery is more

than 25 lakh rupees but does not exceed 5 crore rupees.

3. A medium enterprise, where the investment in plant and machinery ismore than 5 crore rupees but does not exceed 10 crore rupees.

In case of enterprises engaged in providing or rendering of services, as:

1. A micro enterprise, where the investment in equipment does not exceed

10 lakh rupees.

2. A small enterprise, where the investment in equipment is more than 10

lakh rupees but does not exceed 2 crore rupees.

3. A medium enterprise, where the investment in equipment is more than 2

crore rupees but does not exceed 5 crore rupees.

Classification of MSME

Manufacturing Services

MicroInvestment in plant andmachinery up to $25 lakhs

Investment in equipment up to$10 lakhs

SmallInvestment in plant andmachinery between $25 lakhs to100 lakhs

Investment in equipmentbetween $10 lakhs and $200lakhs

MediumInvestment in plant andmachinery between $1crore and$10 crores

Investment in equipmentbetween two crores and fivecrores

Self Assessment QuestionsState whether the following statements are true or false

7. Small enterprise in India is defined by the size of investment, number of

people employed and number of owners.

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8. A service unit with a total investment of $15 lakhs including $8 lakhs in

equipment is a small enterprise.

1.5 Characteristics of Small Business

1. Personal character: Mostly businesses have the same person as

owner and manager, which enables it to operate independently.

Owners/managers are able to provide customised services, which could

be their USP.

2. Flexibility: Being led by one person, waiting for approval from higher

authority is absent in small businesses. Response to changing

environment is quick in small businesses agility and enthusiasm helps

small entrepreneurs to respond to changing trends quickly.3. Labour intensive: Scope for employment opportunity creation is

immense in small businesses, which is of great significance for a country

like India.

4. Local area of operation: Small businesses function in a local level but

may have their services spread out in different level – local, regional or

international.

5. Short gestation period: Investment for small businesses is usually low

and the time given for output is short. Because of this there is quick

returns from small businesses, which helps in increasing the pace of

economic growth.

Self Assessment Question

State whether the following is true or false

9. Hierarchy is a characteristic feature of small business.

1.6 Forms of Organisation

Small business may operate under any one of several forms of organisation.

These are:

1) Sole proprietorship

Here the owner and manager is the same person, who will have theresponsibility of taking care of each and every aspect of the business. This

is a common business structure. With this structure, operation is easy and

devoid of any authoritative control. Managerial flexibility is much more in this

form and legal obligations are lesser when compared to other forms of

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business. But in case of any liabilities, owner will have to take the complete

responsibility.The grocery store at the street corner is an example of sole proprietary

business. The milkman who delivers milk at the doorstep every morning

owns the business of production and supply of milk.

2) General partnership

In general partnership, two or more people agree to share each aspect of

business, which could be in terms of contributing money, skill and labour.

Partners share profit, loss and managerial aspects of the businesses. They

are also equally responsible for the liabilities. A written agreement is used

for stating the formal terms of partnership.

When the proprietor of the grocery store mentioned above retires and his

two sons run the business, it becomes a partnership.

The sewing machine was invented by Isaac Merritt Singer. But the

manufacture and marketing of the sewing machine was taken up by the IM

Singer and Co. which was a partnership of three people.

3) Limited liability partnership

Limited Liability Partnership (LLP) Bill, 2008 was introduced in India with an

objective to combine entrepreneurship, knowledge and risk capital for

providing further impetus to economic growth. LLP is composed of at least

two individuals as designated partners and may include one or more limited

partners who can be individuals, firms or other body corporates. The

designated partners manage the business and share profits and losses fully.

Limited partners share profits of the business, but their losses are limited to

the extent of their investment. Limited partners are usually not involved in

the day-to-day operations of the business. LLP is a separate entity

registered as a body corporate under the Companies Act. Existing

Partnership firms, Private Limited Companies and unlisted Public

Companies can convert into LLP if they want to.

4) Registered company Any small business can register itself as a limited liability company under

the Companies Act of 1956. The Companies Act provided for two main types

of organisations viz., Private Limited Company and Public Limited Company.

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A Private Limited Company is limited by restriction on number of

shareholders (2 to 50), transfer of shares and ineligibility to invite capitalfrom general public.

On the other hand, Public Limited Companyis not constrained by any of

these restrictions.However, the liability of any shareholder is restricted to

his/her investment in the company in both the cases.

5) Cooperative

Referred to as a "co-op", a cooperative is a limited liability business that can

be organised both for-profit and not-for-profit. A for-profit corporate has

members, and not shareholders, who share the power of decisionmaking.

Cooperatives are usually classified as consumer cooperatives or worker

cooperatives. Cooperatives are essential to the ideology of economic

democracy.

The size of the registered MSMEs sectoris estimated to be 15.64 lakh. Of

the totalworking enterprises, the proportion of micro, small and medium

enterprises were 94.94%, 4.89% and 0.17% respectively. This comprisesof

67.10% manufacturing enterprises and 32.90% services enterprises. About

45.23% ofthe enterprises were located in rural areas.

As per the FourthAll India Census of MSMEs, there are 246 lakh

unregistered units in the MSME sector.

AMUL is an example of a successful cooperative society.

Registration of MSMEs with DIC

Any small business, desirous of availing the benefits under MSMED Act,

irrespective of the form of organisation described above, must file the E M

(Entrepreneur Memorandum) with the DIC concerned.

Types of EM filing

There are two types of filing of Entrepreneur Memorandum – Part-I & Part-II.

1. Entrepreneur Memorandum Part-I is for the proposed enterprises.

2. Entrepreneur Memorandum Part-II is to the established enterprises after

commencement of commercial production.

Filing of EM Part 1 is compulsory for medium enterprises engaged in

manufacture or production activity. It is optional in all other cases.

http://en.wikipedia.org/wiki/Consumer_cooperativehttp://en.wikipedia.org/wiki/Consumer_cooperative

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Once production or rendering of service commences Part 2 must be filed by

all enterprises, whether micro, small or medium.Self Assessment Questions

Fill in the blanks

10. LLP is registered as a separate entity under _____________ Act.

11. The maximum permissible number of members in a private limited

company is ___________.

1.7 Common Problems Affecting Small Businesses

Small business entrepreneurs face a number of challenges in successfully

starting and running their businesses. Some of the key constraints that are

being faced by the Indian small businesses are:

Management

1. Dishonesty and lack of integrity of owners.

2. Lack of proper organisation, untimely death/transfer of key personnel in

the unit.

3. Dissension among partners/directors, etc.

4. Difficulty in coping with suppliers of raw materials, water, power, etc.

Marketing

1. Keen competition.

2. Inadequate product base.3. Dependence on one or few buyers.

4. Improper distribution channels.

5. Changes in the fashion.

6. Lack of market intelligence.

7. Inadequate marketing skills and resources.

Finance

1. Slow and non-recovery of receivables.

2. Excessive investment in fixed assets.

3. Diversion of working capital for acquisition of fixed assets.

4. Diversion of funds from the business to associates/for non-productivepurposes.

5. Faulty costing and pricing of products.

6. Carrying of very high current assets disproportionate to scale of

production.

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7. Cost of new product development very high compared to the profit.

8. Inadequate/delayed credit from bankers.Production

1. Lack of adequate production facilities and production planning.

2. Shortage of raw materials, power and other inputs.

3. Poor quality control.

4. Labour problems.

5. Transport bottlenecks.

6. Technology becoming obsolete/old and not improved.

7. Warehousing

8. Seasonal business

Others

1. Lack of adequate room to adapt to changes in government policy.

2. Inadequate protection from natural calamities.

3. Delays in project implementation due to inexperience or limited

resources or both.

4. Poor risk management. Their threshold level of tolerance to changes of

markets and vagaries of banking system is so small that any adverse

environment can have enormous consequences leading to sickness or

even closure.

5. Heritage weakness. As per Ministry of MSME, “a major weakness is a

heritage weakness. Due to theprotectionist, subsidy driven, reservation

based regime, the mind-set ofthe sector continues to demand similar

legacy treatments. It isinteresting to note that this tendency is gradually

dying out in thenewer generation of entrepreneurs but the thought

leaders from thisnewer generation are yet to emerge. We can term it as

a major weakness but also a transient weakness, which may require

extensive workshops/success story based approach for changing

thismind-set and overcome this problem.”


Fill in the blanks12. Two problems common to many small business enterprises are:

_________

_________

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1.8 Summary

Small business is a key driver of economic growth. Government constituted several institutions for promoting small

business.

Coir Board set up in 1953promotes the growth and development of coir

industries.

National Small Industries Corporation set up in1955 promotes the

growth and development of small business.

Khadi and Village Industries Board, set up in 1956, promotes the growth

and development of khadi and village industries.

Mahatma Gandhi Institute for Rural Industrialisation was set up in 2003to provide high quality science and technology inputs to khadi and

village industries andaccelerate rural industrialisation.

In 2006 Coir Board, NSIC, KVIB and MGIRI were all brought under the

Ministry of Micro, Small and Medium Industries.

Classification of small business is based on the criteria of investment

and the nature of business, i.e., manufacture of goods or provision of

service.

The characteristics of small business are mostly individual ownership

andmanagement, with personal care. Small business can take one of the different forms of organisation such

as proprietorship, general partnership, limited liability partnership, public

limited company, private limited company or cooperative.

Small businesses suffer from several problems in the areas of finance,

marketing and procurement.

1.9 Glossary

LLP: Limited Liability Partnership is partnership registered under the

Companies Act and where one of the partner’s liability is limited to

his/her capital investment in the firm.

GDP: Gross Domestic Product represents the market value of all goods

and services produced in a country over a period of time.

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1.10 Terminal Questions

1. What do you mean by small business in India?2. Discuss the role of small businesses in the economy.

3. What are the different forms of organisations that small businesses can

take?

4. What problems does a small business encounter with regard to

marketing and finance?

1.11 Answers


1. a) GDP.

b) Employment.c) Exports.

2. Small and Medium Enterprises (SME) Division, and Agro and Rural

Industries (ARI) Division.

3. a) To plan and organise training of persons employed or desirous of

seeking employment in khadi and village industries.

b) To arrange supply of raw materials.

(any two from the list of functions listed under the “functions of

KVIC”)

4. Mahatma Gandhi Institute for Rural Industrialisation (MGIRI)

5. False6. True

7. False

8. False

9. False

10. Companies Act

11. Fifty (50)

12. a) Dishonesty and lack of integrity of owners.

b) Slow or non-recovery of receivables.

Hint: Pick any two problems from the numerous listed in Section 1.7

Terminal Questions

1. Small business in Indiais classified into two types –manufacturing or

production and services on the basis of the nature of activity carried out.

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It is further sub-classified into micro, small or medium on the basis of the

amount invested in plant and machinery or equipment. Refer Section 1.4for more details.

2. Small business is a catalytic agent for contributing to GDP, generating

employment, boosting exports and stimulating entrepreneurship. Refer

Section 1.2 for more details.

3. Small business can take one of the different forms of organization such

as proprietorship, partnership, limited liability partnership, public limited

company, private limited company or cooperative. Refer Section 1.6 for

more details.

4. Some of the problems small business encounter in marketing and

financing are keen competition, inadequate product base, improperdistribution, slow and non-recovery of receivables, excessive investment

in fixed assets, etc. Refer Section 1.7 for more details.

References/E- references:

http://msme.gov.in/MSME-Annual-Report-2011-12-English.pdf

http://shodhganga.inflibnet.ac.in/bitstream/10603/684/7/07_chapter-i.pdf

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