entrepreneurship and management of smes

Entrepreneurship and Management of SME’s Module – I Understanding Entrepreneurship

I. Concept of Entrepreneur

The word Enrepreneurship is derived from the the French Verb “ENTERPRENDRE” whcih mean to undertake that means a person who take the risk of new enterprise . The French men who organized and led military expeditions in the early 16th Century were referred to as Entrepreneurs. Aroud 1700 A.D. the term entrepreneur was used for architects and contractors of public works.

Who is an Entrepreneur?An entreprnerur is a person who brings in change through innovation for the maximum social good. Entrepreneur is an individual who organizes an enterprise or a business venture by combining various factors of production for production of goods or services with an aim of selling them at profit.

Enterpreneur as a risk bearer Entrepreneur as a organizer Entrepereneur as a innovator

Hence the concept of entrepreneur is associated with three elements riskbearing, organizing and innovating. Hence an entrepreneur can be defined as a person who tries to create something new, organizes production and undertakes risks and handles economic uncertainty involved in enterprise.

Definition of Entrepreneur To Oxford Dictionary, “One who undertakes an enterprise, especially a contractor – acting as intermediary between capital and labour.”To P. F. Drucker, “Innovation is the specific tool of entrepreneurs, the means by which they exploit changes as an opportunity for different business or a different service.”To E.E. Hagen, “An entrepreneur is an economic man who tries to maximize his profits by innovation, involve problem solving and gets satisfaction from using his capabilities on attacking problems.”

What is Enterpreneurship?Entrepreneurship is the act of being an entrepreneur or "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods".

Definition of Entrepreneurship To A.H. Cole, “Entrepreneurship is the purposeful activity of an individual or group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods or services.”To P. F. Drucker, “Entrepreneurship is neither a science nor an art. It is possible. It is knowledge base. Knowledge in entrepreneurship is a means or an end, that is by practice.”To Eston Kimani, MIT, “A person who creates and manages change by the recognition of opportunities(needs, wants, opportunities, problems and challenges) and develops people and manage resources to take advantage of the resources to take the opportunity and creates a venture (profitable business).

What are different outcomes of engaging in Entrepreneurship?1. Innovation or newness – Product or services2. Organizing resources – finance, people, physical and information resources.

1 Prof. Debasis Pani

3. Generating wealth4. Creating new product or service.5. Taking risk in business venture6. Prepared to face uncertainty7. Create job opportunity8. Increase the abundance of wealth generation for the nation.

What is an Enterprise?An enterprise is an object set up by the entrepreneur.

What is the difference between Entrepreneur and Entrepreneurship?Enterpreneur Entrepreneurship

Person Visualizer Creator Organizer Innovator Planner Leader

Process Vision Creation Organization Innovation Planning Leadership

What is the difference between Entrepreneur and Manager ?Points Entrepereneur ManagerMotive The main motive of an entrepreneur

is to start a venture for his personal gratification.

Main motive of a manager is to render services in an enterprisealready set by someone else.

Status Owner ServantRisk Assumes risk and uncertainty Manager does not bear any risk

involved in enterprise.Rewards Profits, which are highly uncertain

and notfixed.

Salary which is certain and fixed

Innovation Entrepreneur himself thinks over what and how to produce goods to meet the changing needs of the customers. Hence he acts asinnovator / change agent.

A manager simply executes plansprepared by the entrepreneur.

Qualification

An entrepreneur needs to possess qualities and qualifications like high achievement motive, originality in thinking, foresight, riskbearingability etc.

A manager needs to possess distinctqualifications in terms of soundknowledge in management theoryand practice.

Who is an Intrapreneur?When we spilt the term we will get, intra + preneur stands for intra-corporate

entrepreneur. To heritage dictionary, “A person with in a large corporation who takes direct responsibility for truning an idea into a profitable finished product through assertive risk-taking and innovation.” Intrapreneur thinks like an entrepreneur or leaves to start a new company.


What is the difference between Entrepreneur and Intrapreneur?Points Entrepreneur IntrapreneurDependency He is independent in his

operation.He is dependent on the entrepreneurs i.e. owner.

Raising of funds

He himself raises funds requiredfor the organization.

He does not raise funds for theorganization.

Risk Entrepreneurs bears the riskinvolved in the business.

He does not fully bear the riskinvolved in the organization.

Operation An entrepreneur operates fromOutside

An intrapreneur operates frominside.

Innovation Entrepreneurs converts the ideasinto viable opportunities.

Intrapreneurs takes the responsibilityof creating innovation.

Reward Entrepreneurs takes the profit ofthe business.

He is provided with a variety ofperquisite for his innovation.

Who is an Ultrapreneur?According to James B Arkebaur, the concept of ultrapreneuring is to identify business opportunity, determine its viability and form a company. It requires assembling a super competent management team who then develop, produce and market the product or service. They then sell the majority interest of the company, all of this with maximum resource leverage of both talent and money in the shortest optimum time period. Ultra growth companies are made by ultrapreneurs.

II. Entrepreneurial Motivation

What is Motivation? Motivation Defined Derived from Latin word – ‘Movere’ – to move. Psychologically, it

means an inner or environmental stimulus to action, forces or the factors that are responsible for initiation, and sustaining behaviour. Different people engage in the same behaviour for different reasons.

Need or Importance of Entrepreneurial Motivation Motivated employees make optimum use of available resources for achieving

objectives. Motivation is directly related to the level of efficiency or employees. Motivated employees make goal-directed efforts. Motivation also helps in improving the image of an organsition.

Maslow’s Hierarchy of Needs

Maslow's hierarchy of needs is a theory in psychology, proposed by Abraham Maslow in his 1943 paper "A Theory of Human Motivation". Maslow subsequently extended the idea to include his observations of humans' innate curiosity(1) Physiological needs: For the most part, physiological needs are obvious – they are the literal requirements for human survival. If these requirements are not met, the human body


simply cannot continue to function. In organizational settings these needs are adequate wages, and by the work environment. (2) Physiological needs: are the most prepotent of all the other needs. Safety and Security needs include: Personal security, Financial security, Health and well-being, Safety net against accidents/illness and their adverse impacts(3)Love and belonging: After physiological and safety needs are fulfilled, the third layer of human needs are interpersonal and involve feelings of belongingness. The need is especially strong in childhood and can over-ride the need for safety as witnessed in children who cling to abusive parents. Deficiencies with respect to this aspect of Maslow's hierarchy – due to hospitalism, neglect, shunning, ostracism etc. – can impact individual's ability to form and maintain emotionally significant relationships in general, such as: Friendship, Intimacy, Family(4) Self Esteem: Humans need to feel a sense of belonging and acceptanceMost people have a need for a stable self-respect and self-esteem. Maslow noted two versions of esteem needs, a lower one and a higher one. The lower one is the need for the respect of others, the need for status, recognition, fame, prestige, and attention. The higher one is the need for self-respect, the need for strength, competence, mastery, self-confidence, independence and freedom. The latter one ranks higher because it rests more on inner competence won through experience. Deprivation of these needs can lead to an inferiority complex, weakness and helplessness.(5) Self Actualisation: “What a man can be, he must be. This forms the basis of the perceived need for self-actualization. This level of need pertains to what a person's full potential is and realizing that potential. Maslow describes this desire as the desire to become more and more what one is, to become everything that one is capable of becoming

ERG Theory of Motivation Clayton Alderfer has proposed an alternative hierarchy of needs – called ERG theory

of motivation. The letters E,R, and G stands for Existence, Relatedness and Growth. Alderfer categorized the lower order needs (Physiological and Safety) into the Existence category. He fit Maslow's interpersonal love and esteem needs into the Relatedness category. The Growth category contained the self-actualization and self-esteem needs.

Alderfer also proposed a regression theory to go along with the ERG theory. He said that when needs in a higher category are not met then individuals redouble the efforts invested in a lower category need. For example if self-actualization or self-esteem is not met then individuals will invest more effort in the relatedness category in the hopes of achieving the higher need

Mc Clelland’s Needs Theory of Motivation McClelland identified three types of manifest needs(1) Need for Power (N-Pow.): “concern for influencing people”. politicians, social-religious leaders Chief Executive Officers, (CEOs), Government Bureaucrats/Civil Servants. based on the belief that the source of power lies in the “position” a person occupies in organizational/societal context.(2) Need for Affiliation : “readily thinks about interpersonal relationships”. “a tendency of the people to conform to the wishes and norms of those whom they value.” Social activists, environmentalists, teachers, and doctors and nurses.(3) Need for Achievement : Need for Achievement Concerns issues of excellence, competition, challenging goals and overcoming difficulties. want to take personal responsibility for solving problem. Goal oriented, sets moderate, realistic, attainable goals. One also seeks challenge, excellence, and individuality. Takes calculated risk and willing to work hard 4 Prof. Debasis Pani

Factors for Entrepreneurial Motivation : Entrepreneurial Ambition:

1. to make money2. to gain social prestige3. to secure self employment

Compelling Reasons1. Unemplyment2. Dissatisfaction with existing job or occupation3. to use technical or professional knowledge

Facilitating Factors1. Previous Knowledge, experience 2. Encouragement from family members, friends3. Imitation of successful entrepreneurs Factors for Entrepreneurial Motivation

Factors Responsible for the Emergence and Growth of Entrepreneurship : Background Factors

1. Education Training and Experience2. Family, role models and association3. Financial conditions

Motivational Factors1. Need for Achievement2. Personal Motives3. Business Environment

Economic Factors1. Supportive Government Policies2. Availability of Financial Assistance3. Ancillary Support

Reward1. Recognition2. Social Status

III. Entrepreneurship.

What is Enterpreneurship?Entrepreneurship is the act of being an entrepreneur or "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods".

Definition of Entrepreneurship To A.H. Cole, “Entrepreneurship is the purposeful activity of an individual or group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods or services.”To P. F. Drucker, “Entrepreneurship is neither a science nor an art. It is possible. It is knowledge base. Knowledge in entrepreneurship is a means or an end, that is by practice.”To Eston Kimani, MIT, “A person who creates and manages change by the recognition of opportunities(needs, wants, opportunities, problems and challenges) and develops people and manage resources to take advantage of the resources to take the opportunity and creates a venture (profitable business).


To Joseph A Schempeter, “Entrepreneurship is essentially a creative activity. It consists of doing such things as are not generally done in ordinary course of business. An entrepreneur is one who innovates i.e., carries out new business.”To Mc Clelland, “There are two characteristics of entrepreneur: first is doing a thing in a new and better way, second is decision making under uncertainty.”

The various definitions of entrepreneurship identify two basic elements of entrepreneurship namely innovation and risk bearing.(1) Innovation: Innovation is doing something new or something different. Entrepreneursconstantly look out to do something different and unique to meet the changing requirements of the customers Hence entrepreneurship needs to apply inventions on a continuous basis to meet customers changing demands for products.(2)Risk Bearing: An entrepreneur needs to be bold enough to assume the risk involved and hence an entrepreneur is a risk-bearer not risk-avoider. This risk-bearing ability keeps him to try on and on which ultimately makes him to succeed.

Charms of being an Entrepreneur1. Enterepreneurship offers a dignified career and secured futute for those who have

the courage to be independent.2. If offers scope for higher growth which no other profession can offer. 3. This is the only profession which offers scope to become master and master of many.4. An entrepreneur is a most popular person in the society because society and people

are directly and indirectly related. 5. Enterpreneurship make a person dynamic, hard working, challenging aggressive and

increase the value of an individual.6. This profession offers economic growth of an individual.7. Entrepreneurs are the role models and are example for many.8. Entrepreneurs are not only employ themselves but also offer employment

opportunities for many.9. Enterprenerurs contribute the GDP of the country.10.Entrepreneurs play important role in the nation building process by producing and

supplying goods and services to the society there by increasing the econimc activities and circulatin of money.

Function of an Entrepreneur

1. Idea generation: The first and the most important function of an Entrepreneur is idea generation. Idea generation implies product selection and project identification.2. Determination of business objectives: Entrepreneur has to state and lay down the business objectives. Objectives should be spelt out in clear terms. The Entrepreneur must be clear about the nature and type of business 3. Rising of funds: All the activities of the business depend upon the finance and hence fund rising is an important function of an Entrepreneur. An Entrepreneur can raise the fund from internal source as well as external source. He should be aware of different sources of funds.6 Prof. Debasis Pani

4. Procurement of machines and materials: Another important function of an Entrepreneur is to procure raw materials and machines. Entrepreneur has to identify cheap and regular sources of raw materials which will help him to reduce the cost of production and face competition boldly. While procuring machineries he should specify the technical details and the capacity.5. Market research: Entrepreneur has to undertake market research persistently to know the details of the intending product, i.e. the demand for the product, size of the market/customers, the supply of the product, competition, the price of the product etc.6. Determining form of enterprise: Entrepreneur has to determine form of enterprise depending upon the nature of the product, volume of investment etc. The forms of ownership are sole proprietorship, partnership, Joint Stock Company, co-operative society etc. Determination of ownership right is essential7. Recruitment of manpower: To carry out this function an Entrepreneur has to perform the following activities.

Estimating man power requirement for short term and long term. Laying down the selection procedure. Dscheme of compensation. Laying down the service rules. Designing mechanism for training and development.

8. Implementation of the project: Entrepreneur has to develop schedule and action plan for the implementation of the project. The project must be implemented in a time bound manner.

Different types of Entrepreneur

Innovative entrepreneur: This category of Entrepreneur is characterized by smell of innovativeness. This type of Entrepreneur, sense the opportunities for introduction of new ideas, new technology, discovering of new markets and creating new organizations.Adoptive or imitative entrepreneur: Such entrepreneurs imitate the existing entrepreneur and set their enterprise in the same manner. Instead of innovation, may just adopt the technology and methods innovated by others.Fabian entrepreneurs: Fabian entrepreneurs are characterized by great caution and skepticism, in experimenting any change in their enterprises.Drone entrepreneurs: Such entrepreneurs are conservative or orthodox in outlook. They always feel comfortable with their old fashioned technology of production even though technologies have changed.Industrial entrepreneurs: Such entrepreneurs engage in manufacturing and selling products. Who identifies the potential needs of customers and tailors product or services to meet the marketing needs. Service entrepreneurs: Such entrepreneurs engage in service activities like repair, consultancy, beauty parlor etc where entrepreneurs provide service to people.Business entrepreneurs: they are the individuals who conceive an idea for a new product or service and then create a business to materialize their idea into reality. Social entrepreneur: a social entrepreneur is a person who recognize the problem in a part of the society and provides new solution to the social problem. Like women empowerment, child labour, working for the betterment of the childAgricultural entrepreneurs: They engage themselves in agricultural activities like horticulture, floriculture, animal husbandry, poultry etc.Corporate entrepreneurs: Corporate entrepreneurs undertake their business activities under legally registered company or trust.


Rural entrepreneurs: Entrepreneur’s selecting rural-based industrial opportunity in either khadi or village industries sector or in farm entrepreneurship are regarded as rural entrepreneurs. Women entrepreneurs: According to government of India an entrepreneurs is defined as an enterprise owned and controlled by 16 a woman and having minimum financial interests of 51% of the capital and giving at least 51% of the employment generated in the enterprise to women.Induced entrepreneur: one who is induced to take up an entrepreneurial task due to policy measures of the government that provides assistance, incentives, concessions and necessary overhead facility to start a venture. Lifestyle entrepreneurs: have developed an enterprise that fits their individual circumstances and style of life. Their basic intention is to earn an income for themselves and their families.

Role of Entrepeneurship in Economic Development

Economic development essentially means a process of upward change whereby the real per capita income of a country increases for a long period of time. The economic history of the presently developed countries, for example, USA and Japan tends to support the facts that the economy is an effect for which the entrepreneurship is the cause.

After the Independence, India has realized that, for achieving the goal of economic development, it is necessary to increase the entrepreneurship both qualitatively and quantitatively in the country. The important role that an entrepreneurship plays in the economic development of an economy can be put in a more systematic manner as follows.1. Entrepreneurship promotes capital formation by mobilizing the idle saving of the public.2. It provides immediate large-scale employment. Thus it helps to reduce unemployment in the country.3. It provides balanced regional development.4. It helps reduce the concentration of economic power.5. It stimulates the equitable redistribution of wealth, income and even political power in the interest of the country.6. It encourages effective resources mobilization of capital and skill which might otherwise remain unutilized and idle.7. It also induces backward and forward linkages which stimulated the process of economic development in the country.8. It promotes country’s export trade i.e. an important ingredient for economic development.

IV. Why to start Business

Starting a small business can be both challenging and rewarding – find out the reasons why so many people start new businesses each year, what the advantages of starting a business? These question need a deeper insight. Practically some of them become entreprnerus even by coice, by chance, by compulsion or by tradition. The person going to start a business must be determined to do so. This determination usually comed due to various reasons, some of which may be listed below,

1. Financial scarcity2. Failure to get job employment3. Pain of unemployment or underemployment


4. Self employment5. Family problems6. Desire to be successful7. To utilize idle time and resources8. Enviousness at other’s success9. To meet challenges10.To earn money11.To take advantage of business situation12.To utilize local resources13.To earn name and fame 14.To utilize talent15.To prove to be competent

Some times due to lack of confidence and eagerness to be successful, many people start business on an experimental basis. When such experiments become successful they continue their business.

V. Entrepreneurial characteristics

1 Initiative Does things before asked for or forced to by events and acts toextend the business to new areas, products or services.

2 Perceiving opportunities

Identifies business opportunities and mobilizes necessary resourcesto make good an opportunity.

3 Persistence Takes repeated or different actions to overcome obstacles.4 Information gathering Consults experts for business and technical advice. Seeks

information of client or supplier’s needs. Personally undertakesmarket research and make use of personal contacts or informationnetworks to obtain useful information.

5 Concern for qualitywork

States desire to produce or sell a better quality product or service.Compares his performance favorably with that of others.

6 Commitment tocontractualobligations

Makes a personal sacrifice or expands extraordinary effort to complete a job, accepts full responsibility in completing a job contract on schedule, pitches in with workers or work in their place to get the job done and shows utmost concern to satisfy the customer.

7 Efficiency orientation Finds ways and means to do things faster, better and economically.8 Planning Various inter-related jobs are synchronized according to plan.9 Problem solving Conceives new ideas and finds innovative solutions.10 Self-confidence Makes decisions on his own and sticks to it in spite of initial setbacks.11 Experience Possesses technical expertise in areas of business, finance, marketing,

etc.12 Self-critical Aware of personal limitations but tries to improve upon by learning

from his past mistakes or experiences of others and is never complacent with success.

13 Persuasion Persuades customers and financiers to patronize his business.14 Use of influence

strategies.Develops business contacts, retains influential people as agents andrestricts dissemination of information in his possession.

15 Assertiveness Instructs, reprimands or disciplines for failing to perform.16 Monitoring Develops a reporting system to ensure that work is completed and

quality norms.17 Credibility Demonstrates honesty in dealing with employees, suppliers and

customers even if it means a loss of business.


18 Concern foremployee welfare

Expresses concern for employees by responding promptly to theirgrievances.

19 Impersonalrelationship

Places long-term goodwill over short-term gain in a business relationship.

20 Expansion of capitalbase

Reinvests a greater portion of profits to expand capital of the firm.

21 Building productimage

Concerned about the image of his products among consumers and does everything possible to establish a niche for his products in the market.

VI. Enterperneurial Skills

Skill is the ability to demonstrate a system and sequence of behavior which results in something observable, something that one can see. Skills can be acquired by practice. The skills which entrepreneur include are his ability to deal with situations, organizations and social and economic forces as they emerge from time to time. Behavioural skills Motivation

Judgement Initiative Team working Self management Thinking skill Attitude Personality Self confidence

Entrepreneurial skills Inner control /disciplined Risk taking Innovative Visionary leader Ability to manage change Market sensing skill Make a difference whenever, wherever and however you can

Group skills Ability to work together Ability to learn together Ability to use taks force / project teams Ability to work in unstructured situations

Business management skill

Planning and goal setting Decision making Human relation Marketing Finance Accounting Manageing growth

Technical skills Communication Monitoring environment Technical business management

Communication skills Be flexible Able to identify an opportunity to communicate Communicate well Interact effectively

Listening skills Listen without the intervension of any thoughts Pay more attention to oters


Establish rapport Actively listen

A learning organistion Is an active philosophy Competitive advantage is learning Encourage people to larn to produce the results they desire Develops fresh organizational capabilities all te time

P – Problem solving (judgement, logic, conflict resolution )E – Ethics (Courtesy, honesty, professionalism)O – Open mindness (flexible, open to new ideas, positive outlook)P – Persuasiveness (diplomacy, communication, listening skills)L – Leadership (accountability, management, motivational skills)E – Educational interests (continual thirst for knowledge and skill development)

VI. Entrepreneurial success and failures.

The businsess is started with the aim of achiving success but success is not always guaranteed. Because business has to go always in uncertainty. A good entrepreneur should be able to to forecast such a situation and take appropriate steps to remain away from such uncertainties or to convert uncertainties to certainties. Hence, success or failure in entreprneurship largely depends on the strength and weakness of the entrepreneur.

A business survives as long as there are customers for its products and services. It lives on the faith of the customers. The reputation of a business and its product or services is the foundation which is the main reason for the success of a business. Success of an enterprise may be due to many reasons which can be broadly grouped in two: internal reasons and enternal reasons

I. Internal reasons Efficient management Quality goods and services Good reputation of the business and its products Good reputation of the entrepreneurs Low cost of production Effective marketing and selling network Proper financial management Dedicated manpower Appropriate technology Timely updating of products and technology

II. External Reasons quality manpower Increase in demand Availablity of appropriate raw materials at affordable price Suitable government policies Low level of competition Opening of new markets Natural environment

Similarly, failure of a business may be due to many reasons which can be grouped into two categories; internal reasons and external reasons.

I. Internal Reasons Ineffective management


Obsolete technology Poor financial management Ineffective sales and marketing Poor quality of products and services Higher cost of production Poor quality of inputs Poor industrial relation Low equity of human resource Improper leadership

II. External Reasons Shortage of rawmaterials Shortage of powers Shortage of quality manpower Shortage of finance Change in technology Change in taste, fashion, etc. High level of competition Reduction in demand Increase in supply Change in government policies Availability of better substitutes and alternatives Natural causes Strategic causes.

VII. Entrepreneurial Process

In the entrepreneurial function both the individual as well as the environment are equally important. For example, a person may be fully qualified, the idea excellent and the new product or service offered. But in case the conditions are wrong or the context inappropriate, the possibilities will remain largely underdeveloped. Hence, the four components under the four C's theory of Entrepreneurship include :

Characteristics i.e. psychological traits Competencies i.e. Skills Condition i.e. in family, firm or community Context i.e. environmental factors

It is not just that these components be present but it is their simultaneous interaction also that needs to be looked into, to gauge the levels of entrepreneurial activity. If the placement of these components is towards the positive side, the level of activity will be higher whereas a negative placement would keep the level on the lower side. You must also remember here that getting an idea for a new business is not just enough. It has to be pursued and this pursuance, besides the personal attributes, depends on avariety of factors that can be termed as environmental variables. These could be economic factors or social factors or both.

economic factors include market incentives and suflicient stock of capital social factors take into account customs, cultural values, family environment, etc.

Besides these, the government policies, rules and regulations also have a bearing on the environmental process.VIII. Steps of entrepreneurial process. Deciding – Developing – Moving – Managing – Recognizing.12 Prof. Debasis Pani

The process of starting a new venture is embodied in the entrepreneurial process, which involves more than just problem solving in a typical management position. An entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces that resist the creation of something new. The entrepreneurial process involves all the functions, activities and actions linked with perceiving an opportunity and creating an organisation to pursue them.The process has four distinct phases:(1) Identification and evaluation of the opportunity(2) Development of the business plan(3) Determination of the required resources(4) Management of the resulting enterprise Identify and Evaluate the Opportunity

Opportunity identification and evaluation is a very difficult task. Most good business opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to possibilities, or in some case, the establishment of mechanisms that identify potential opportunities. Although most entrepreneurs do not have formal mechanisms or identifying business opportunities, some sources are often fruitful: consumers and business associates, members of the distribution system, and technical people. Often, consumers are the best source of ideas for a new venture. Whether the opportunity is identified by using input from consumers, business associates, channel members, or technical people, each opportunity must be carefully screened and evaluated. This evaluation of the opportunity is perhaps the most critical element of the entrepreneurial process, as it allows the entrepreneur to assess whether the specific product or service has the returns needed compared to the resources required. This evaluation process involves looking at the length of the opportunity, its real and perceived value, its risks and returns, its fit with the personal skills and goals of the entrepreneur, and its uniqueness or differential advantage in its competitive environment. Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is particularly important that the entrepreneur be able to put forth the necessary time and effort required to make the venture succeed. Although many entrepreneurs feel that the desire can be developed along the venture, typically it does not materialize. An entrepreneur must believe in the opportunity so much that he or she will make the necessary sacrifices to develop the opportunity and manage the resulting organization. Opportunity analysis, or what is frequently called an opportunity assessment plan, is one method for evaluating an opportunity. It is not a business plan. Compared to a business plan, it should be shorter; focus on the opportunity, not the entire venture; and provide the basis for making the decision of whether or not to act on the opportunity.13 Prof. Debasis Pani

Developing a Business Plan

A good business plan must be developed in order to exploit the defined opportunity. This is a very time-consuming phase of the entrepreneurial process. An entrepreneur usually has not prepared a business plan before and does not have the resources available to do a good job. A good business plan is essential to developing the opportunity and determining the resources required, obtaining those resources, and successfully managing the resulting venture.Determine the Resources Required

The resources needed for addressing the opportunity must also be determined. This process starts with an appraisal of the entrepreneur’s present resources. Any resources that are critical need to be differentiated from those that are just helpful. Care must be taken not to underestimate the amount of variety of resources needed. The downside risks associated with insufficient or inappropriate resources should also be assessed. Acquiring the needed resources in a timely manner while giving up as little control as possible is the next step in the entrepreneurial process. An entrepreneur should strive to maintain as large an ownership position as possible, particularly in the start-up stage. As the business develops, more funds will probably be needed to finance the growth of the venture, requiring more ownership to be relinquished. Alternative suppliers of these resources, along with their needs and desires, need to be identified. By understanding resource supplier needs, the entrepreneur can structure a deal that enables the recourses to be acquired at the lowest possible cost and the least loss of control.Manage the Enterprise

After resources are acquired, the entrepreneur must use them to implement the business plan. The operational problems of the growing enterprise must also be examined. This involves implementing a management style and structure, as well as determining the key variables for success. A control system must be established, so that any problem areas can be quickly identified and resolved. Some entrepreneurs have difficulty managing and growing the venture they created.


Module II: Setting up of a small Business Enterprise.

I. Identifying the Business Opportunity(Refer Vasant Desai)

What is a Business Opportunity?

A business opportunity is a likely feasible idea that may be turned into reality by the entrepreneur by virtue of its entrepreneurial capablity. Business Opportunity may be defined as a business proposal an entrepreneur would like to pursue considering risk and the reward involved in the proposal

Identifying business opportunity generally lies with generating business ideas or opportunists known as ‘Opportunity Scanning and Identification (OSI)’. After getting ideas it is necessary to evaluate them so as to identify the most appropriate idea/opportunity. This process is called ‘Zeroing in Process’.

What are the various types of business opportunity?

Business opportunities to Drucker are of three kinds they are


1. Additive opportunities: are those opportunities which enable the decision maker to better utilize the existing resources without any change in the character and the structure of the business.

2. Complementary opportunities: involves introduction of new ideas and execution of these opportunity leads to change in the structure of the business but no change in the character of the business. The element of risk is greater in case of breakthrough opportunity.

3. Breakthrough opportunities: involve fundamental changes in both the structure and character of business. The element of risk is greatest in case of breakthrough opportunity.

How are the various sources for identifying Business Opportunity?

Persons interested in becoming entrepreneur must have the ability to generate large number of ideas so that at least one of the ideas has the potential for a business opportunity. Entrepreneur must be in a position to choosing a good idea. The idea must not only good fro the market, but good for the project and good for the entrepreneur.

1. Imagination: means the ability to create ideas in mind. History of great entrepreneur shows that winning requires intense desire, relentless focus and flawless execution. Winning big requires dreaming big and taking bold steps to fulfill these dreams.

2. Thinking creatively: every problem is an opportunity for a creative person. Creativity is a major tool for the survival of an entrepreneur. It is not only gives one the edge for recognizing needs, generating business and marketing ideas, but it also helps in solving problems.

3. Observation: it is one of the most important sources of project ideas. The observant mind continuously comes across situations which can be utilized to develop investment opportunities. The observant mind is always on the look out for opportunities which can form the existing processes which can sometimes lead to new opportunities and project ideas.

4. Brain storming: - is a process of detaching analysis of ideas form the actual development of ideas. Brainstorming is a group creativity technique by which a group tries to find a solution for a specific problem by gathering a list of ideas spontaneously contributed by its members.

5. Trade and Professional magazine: it provides very fertile sources of ideas. The statistics and information given by these magazines are reports and records of professional bodies often reveal opportunities which can be eventually developed into investment propositions.

5. Bulletin of research institution: bulletin generally gives the broad outlines of the new processes or products developed by research institutions. The research bulletin may give new idea with a new business opportunity.

6. Various Govt. Departmental publications: the plan document published by the government provides a very useful source of project ideas. The plan document generally analyses the existing economic situation in a country and also pinpoints the investment opportunities which fit into the overall planning effort.

7. Market survey: market survey studies the demand and supply of the product over the last few years to estimate its future demand based on the past trend. While doing so we need to consider various factors like taste & preference, fashions, technology and the level of incomes of the people.


8. Technical and management consultant: various technical and management consultants can give better ideas and have various projects, what an entrepreneur can look forward for execution. For that they may charge few charges as consultant fee.

9. Import and Exports: the Government of India is encouraging exports and various EXIM policy encouraging entrepreneur to think about the new option.

10. Product profile: an analytical study of the end products and by-products can through light on new project idea. E.g. by-product of sugar industry gave rise to one more large scale industry called paper industry.

11. Revival of sick units: a sick unit gives ample investment opportunities in the hands of dynamic entrepreneur. He can revitalize and turn a sick unit into a profitable one.

What are the criteria for selecting a project?

After gathering a large number of project profiles, the entrepreneur should consider the following criteria for selecting a particular project.

1. Project cost: the investment size or the project cost is very important criteria for selecting a project. It varies with the size of the business unit.

2. Location: a new entrepreneur should locate his project to the extent possible around a state head quarter. It is necessary to have such a location to attract competent managers.

3. Technology: the selection of technology and its sophistication is an important factor which is directly related to the unit cost of the product.

4. Raw material: the easy supply of raw material should be taken into account. 5. Equipment: the entrepreneur should select the best equipment based on the advise of

experienced technical consultants. 6. Marketing: the product produced must be easily accessible to the market. 7. Cheap labour supply: the cheap labour force is required. This factor be taken into

consideration.

II. Business Opportunities in Various Sectors (Refer Poornima Charantimath)

Business opportunities are many that lies in various sectors are as follows

(1) Green Business: - it is the buzzword in the current business society that has less harmful effect to the society and economy. Green business is enterprise that has no negative impact on the global or local environment, community, society, or economy. One of the important strategies towards green entrepreneurship is waste minimization is to think new creative way of products and process for minimizing waste. Basically the green business focuses on 3Rs “Reduce, Reuse, Recycle”.

(2) Bio-technology: - Biotechnology (sometimes shortened to "biotech") is a field of applied biology that involves the use of living organisms and bioprocesses in engineering, technology, medicine and 17 Prof. Debasis Pani

other fields requiring bio-products. The biotechnology sector takes a momentum in India after 2000. Since then many entrepreneur are taking interest in this sector and investing money.

(3) Event management:- Event management is the application of project management to the creation and development of festivals, events and conferences. This industry is shining globally and in India it is estimated between Rs 300 cr to Rs 350 cr. To FICCI this industry is having more potential and may cross Rs 3500 with in five year. An important aspects of this event management is multidisciplinary tiers of the industry it creates large employment directly and indirectly.

(4) IT enabled service: - IT Enabled services (ITES), also called web enabled services or remote services or Tele-working, covers the entire range of operations which exploit information technology for improving efficiency of an organization. These services provide a wide range of career options that include opportunities in call Centres, medical transcription, medical billing and coding, back office operations, content development, payrolls, logistics management, GIS (Geographical Information System), HR services, web services etc. the Steven report says India is going to the potential market for IT enabled services.

(5) Food, Fruits and Vegetable Processing, Refrigeration and Transportation:- India is one of the country emerged as a food producing country, moreover the climate condition supports it. In order to exploit the opportunity entrepreneurs are investing in food, fruit and vegetable processing units. The demand for food, fruit and vegetable with in India and abroad leads to the development of the refrigeration and transportation business.

(6) Mineral Water:- we are living in the packaged water age where the consumer are very much health conscious, there is huge demand for Mineral water, is water containing minerals or other dissolved substances that alter its taste. Many small entrepreneurs find it an opportunity to start their business.

(7) Courier Service: - in courier service, a company delivers messages, packages, and mail. Courier service is one type of door to door service, provides vital link between suppliers and customers courier service enabled cost effective distribution of time-critical goods and documents. In recent time it brings the focus of organized and unorganized players into this sector.

(8) Insurance Sector:- The Indian insurance sector has witnessed significant growth - the number of life policies in force has increased nearly 12-fold over 2000-2010, and health insurance policies nearly 25-fold. This industry is growing at the rate of 20 to 25 percent per annum. At present there are 23 insurance companies. This sector creates more employment opportunity as insurance broker, agent, salesperson, insurance claim processors, loss assessors, insurance surveyors and many more.

(9) Telecommunication:- The Indian telecommunication network is the third largest in the world and the second largest among the emerging economies of Asia. The total mobile phone subscription in the country to 791.38 million. The Indian telecom sector is largely dominated by private operators that control a share of 87.9 per cent share of the entire sector. Among the top players in the telecom sector, Bharti Airtel owns the largest share at 20.09 per cent, followed by Reliance, Vodafone, state-owned BSNL, Tata and Idea many operators want to invest in this sector.

(10) Herbal Sector:- Indian Ayurveda system of treatment based upon the herbs is gaining popularty in the western countries and in medical science. This sector creates more opportunity for the entrepreneur. There are about 8,000 licensed small manufactures in India are in this sector. In addition, thousands of Vaidyas also have their own miniature manufacturing facilities. The estimated current annual production of herbal drugs is around Rs. 3500 crores. 18 Prof. Debasis Pani

(11) Tourism and Hospitality:- Tourism is a significant sector of the Indian economy and contributes significantly to the country’s gross domestic product (GDP) and foreign exchange earnings (FEE). The Indian tourism sector is also linked with important sectors such as transportation, infrastructure, and handicraft, which further helps in the growth and development of the country. India currently holds the 12th position in Asia and 68th position in the list of overall in the list of the world's most attractive tourist destinations, as per the Travel and Tourism Competitiveness Report 2011 by the World Economic Forum (WEF). The tourism and hospitality industry experienced a healthy growth trend of 24.6 per cent during 2009-2010. thus the growth of tourism sector leads to the development of the business opportunities like holiday package, round the clock tourism information centre, and package tours.

(12) Vermi-culture (Organic Farming):- Organic farming is the form of agriculture that relies on techniques such as crop rotation, green manure, compost and biological pest control to maintain soil productivity and control pests on a farm. Organic farming becoming very popular today because change in the attitude of the people towards health conscious. Potential entrepreneurs having interest in this area would find good business opportunity.

(13) Plastic:- due to the nature of eco-friendly, reuse and recycle it is widely used. Moreover due to its versatility uses it is replacing woods, glass, metal and paper. Plastic is widely used in packaging, house ware, business electronics, engineering, agriculture, automobiles, irrigation and telecommunication and white goods industry. This sector provides tremendous opportunity for entrepreneurs.

(14) Real Estate:- The real estate sector in India is on a growth path. The development in the real estate market encompasses growth in both commercial and residential spheres During, 2010-11, the Indian real estate and housing sectors received US$ 1.12 billion in foreign direct investment (FDI), according to the Department of Industrial Policy and Promotion India (DIPP). The growth of this sector leads creation of more direct employment as real estate broker or real estate agent and growth of other industries like iron, cement.

(15) Home Based Business:- Courier service, out-door catering services, mail order retailing, Beauty parlor, health club, travel agent, clearing and maintenance service, data processing, internet café, medical clinics, crèche.

III. Formalities for Setting up of a Small Business Enterprise (Refer Poornima Charantimath)

The success of an entrepreneur depends upon ones doing right thing at right time. Because the role of an entrepreneur is small business is very much important and iconic. A small entrepreneur is the CEO of his unit, most of the work he gets though himself. Its supervisor, accountant clerk, purchase manager, sales manager, and sales man, legal and economic advisor all in one.


What is Small Business Enterprise?

Business enterprises are termed as small business enterprise because those enterprises are comparatively small in operation, employment, products, capital and technology.

“Small is not only beautiful, but also beneficial, efficient and reliable.” “Small scale enterprise is the beehive of entrepreneurship, innovation, growth and

development”In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED)

Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes: (a) Manufacturing Enterprises- The 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). (b) Service Enterprises: The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro Enterprises Does not exceed twenty five lakh rupees

Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees

Medium Enterprises

More than five crore rupees but does not exceed ten crore rupees

Service Sector

Enterprises Investment in equipments

Micro Enterprises Does not exceed ten lakh rupees:

Small Enterprises More than ten lakh rupees but does not exceed two crore rupees

Medium Enterprises

More than two crore rupees but does not exceed five core rupees

What is Village Industry?

The term village industry 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 in which the fixed capital investment per head of artisan or worker does not exceed Rs 1 lakh (Rs 1 Lakh and 50 thousand in case of village industry located in a hilly area) or such other sum as may, be notification in the official gazette, be specified from time-to-time by the central government”

What is Cottage Industry?20 Prof. Debasis Pani

An industry where the creation of products and services is home-based, rather than factory-based. While products and services created by cottage industry are often unique and distinctive given the fact that they are usually not mass-produced, producers in this sector often face numerous disadvantages when trying to compete with much larger factory-based companies.

Why to go for Small Business Enterprise? (Advantages)

1. Some small scale industry do not require a high level of technology2. small scale industry generally labour intensive and do not require a large amount of capital3. Projects related to these industries can be undertaken in a short period.4. Small scale industry based on the processing of locally produced raw materials.5. Small scale industrial enterprises are the training ground for local entrepreneurs on decision

making.6. The development of Small scale enterprises in developing countries help to create economic

stability in society by reducing inequality.7. There is a linkage between agriculture or rural development and small scale enterprise.

What are the various formalities for setting up of a Small Business Enterprise?

Before setting up on an enterprise the entrepreneur must have the knowledge regarding the various regulation and concession provided by the govt.


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(1) Selection of Project: - in order to setting up a small business enterprise, a good project has to be selected. This involves product or service selection and a location for the unit. Bases upon the selection a project feasibility study has to be conducted. Then a brief profile has to be prepared for the proposed project. Then the entrepreneur has to prepare the business plan.

a) Product or service selection: the entrepreneur has to select a suitable product or service based on which a project can be started. He has to consider various factors before deciding a suitable project. The main factors are as follows

Background and experience of the entrepreneur Available of technology for the product Marketability of the product or service Investment capacity Availability of plant and machinery Availability of raw material Availability of proper infrastructure (land, power, road, water and transport)


b) Location selection: one of the important decisions the entrepreneur need to take regarding the location of the project as where to set the unit. Some of the important aspects have to be considered before deciding on the location of the project

Closeness to the market Availability of raw material Availability of transportation and communication. Availability of concession and incentives. Government policy Available sustainable infrastructure Convenience for promoter

However many SSI units can’t be setup at home either due to size or due to the nature of the industry. The entrepreneur may like to set up its unit at industrial estate, area, parks and complex developed by the concerned state government. Ideally select two or three location, and then compare those locations in relations to your requirements.

c) Project feasibility study: the important facets of feasibility study are as follows

1. Market Analysis: concerns with what will be the future demand for the proposed product or service in future and what will be the market share of the project under appraisal for this certain kind of information are required are given below

Consumption trend in the past and present consumption level Past and present supply position Production possibilities and constraints Imports and exports Structure of competition Cost structure Elasticity of demand Consumer behavior Distribution channel and marketing policy in use

2. Technical Analysis : this analysis deals the technical and engineering analysis about the project the important decision under the technical analysis are as follows

Have the preliminary studies and test been done? Has the availability of raw material, power and other inputs are established? Is the production process selected suitable? Are the machine and equipments chosen appropriate? Has provision been made for the treatment of waste? Is the proposed layout of plant and building sound? Has work schedule been done realistically? Is technology proposed to be employed appropriate social point of view?

3. Financial analysis: is an analysis about the concerning the financial viability of the proposed project. The various aspects to be looked in are as follows

Investment outlay and cost of project Means of financing Project profitability Break even analysis Cash flows of the project Projected financial position Level of risk

4. Economic analysis: is also called socio cost benefit analysis, it is concerned with judging a project from larger social point of view. The question to be answered in this analysis is

What are the direct economic benefits of the project? What would be the impact of the project in distribution of income in the society? What would be the impact of the project on the level of saving and investment in the

society?23 Prof. Debasis Pani

What will be the contribution of the project in attaining self-sufficiency, employment and social order?

5. Ecological analysis: is the analysis about the ecological concern of the project. The key question to be asked under the analysis are

What are the likely damage caused by the project to the environment What is the cost of restoration measure required to ensure that the damage to

environment is contained with in acceptable limit?d) Business plan preparation: A business plan is a document or a formal statement of a set of business goals which many believed to achieve in future. In other words it is the plan of achieving the future business goal. It may also contain background information about the organization or team attempting to reach those goals. A business plan is used to help make crucial start-up decisions: to reuse lenders, investors; to measure operational progress; to test planning assumptions; to adjust forecasts; and to set the standard for good operational management.

e) Prepare a project profile: A project profile is a bird’s eye view of the proposed project. This may be useful for obtaining Provisional Registration Certificate (PRC) from the District Industries Centre and for making, applying for Industrial Area Development Board for land or State Small Industries Development Corporation (SSIDC) for shed and other infrastructure.

Question: What are the various steps in Identifying a business opportunity?

Once the ideas are screened and a viable business opportunity emerges the project has to be conceptualized in all its dimensions. The 4 Ps of Project Conception is:

PRODUCT (Shape, Size and Nature) PROCESS (Technology to produce the product) PLACE (Location of Plant) PARTNER (Technological of Financial Collaborator)

2) Decide on the constitution: To start an industry the promoters have to decide on the constitution of the unit. There are four major alternatives, Partnership, Corporation/limited Company / Cooperative / Franchising. The constitution of the unit has to be decided at the initial stage of the project and the necessary formalities should be completed by the time the application for provisional registration certificate is mandatory.


3) Obtain SSI Registration: Small –scale and ancillary units that in undertaking with investment in plant and machine of less then Rs 1 crore should seek registration with the director of industries of the concerned sate government. Entrepreneurs desiring to start a small scale industry have to initially obtain a provisional registration certificate (PRC). Once the unit goes into production, the PRC has to be converted into a permanent registration certificate (PMT)

1. PRC is the initial registration for starting a small scale industry. It enables the entrepreneur to initiate necessary steps to bring the unit into existence. The entrepreneur should apply and obtain a PRC after selection of the project and deciding on the location of the unit. To obtain


PRC the entrepreneur should make an application in the prescribed application form along with the prescribed court fee stamp, copy of the project profile, partnership /memorandum and article of association, affidavit as per format on appropriate stamp paper. The PRC will be normally issued immediately, the initial validity of the PRC is for two year and it can be renewed subsequently. The PRC will help the entrepreneur in many way as

To obtain loans from various financial institutions To obtain facilities for accommodation, land, other approval To obtain NOC and clearance from regulatory bodies such as pollution control board,

labour regulation 2. Permanent Registration Certificate (PMT): an SSI unit can get PMT when it goes into

commercial production. The PMT registration will help SSI units in several ways. To apply for scare raw material and for imported raw material To get working capital from banks/ financial institutions To obtain central excise duty concession. To apply for registration under the government store purchase programme/ ancillary

development programme/ export promotion programme and to get purchase and price preferences.

The apply for incentives including sales tax exemption wherever applicable.The application in the prescribed form in duplicate along with prescribed court fees stamp, affidavit as per the format on appropriate stamp paper has to be submitted. The PMT certificate is normally issued immediately.

3. Registering an SSI unit: the main purpose of registration is to maintain statistics and maintain a roll of such unit for the purpose of providing incentives and support services by central and state government. SSI is basically a state subject. State uses the same registration scheme for implementing their own policies. It is possible that some states may have a SIDO (Small Industries Development Organization) registration scheme and a state registration scheme. State provides various facilities to the SSI are as credit prescription, differential rate of interest, excise exemption scheme, exemption under direct tax laws, statutory support as reservation and interest on delayed payment act, to create nodal centre at the centre, state and district levels to promote SSI

The basis of evaluation

The unit has obtained all necessary clearances, whether NOC from pollution control borad. Unit has not violate any location restrictions Value of plant and machinery is within prescribed limits

De-regulation: a SSI unit may liable for de-registration if it crosses the investment limit, with out permission if it goes for producing a new item

4) Clearances from Specific Departments: Several clearances are required from different authorities depending on the type of industry and the location of the unit. These clearances are classified into three types they are as

Regulatory or Taxation Clearances

1. Registration under Sales Tax Act - Commercial Tax officer of area concerned

2. Registration under Central Excise Act - Collector of Central Excise or his nominee for area

3. Payment of Income Tax - ITO of the area concerned

4. Registration of Partnership deed - Inspector General of area concerned26 Prof. Debasis Pani

5. Calibration of weights & measures - Weights and Measures Inspector of State

6. Power Connection - Designated Officer of State Electricity Board

7. Employee strength exceeding 10 with power connection or 20 without power - Chief Inspector of Factories

Product Specific Clearances

1. Establishing a Printing Press - District Magistrate

2. License for Cold Storage Construction - Designated Official in State

3. Pesticides - Central/State Agricultural Department - Ministry of Agriculture

4. Drugs and Pharmaceuticals - Drug license from State Drug Controller

5. Safety Matches/ Fireworks - License under Explosives Act from Directorate of Explosives, Nagpur

6. Household Electrical Appliances - License from Bureau of Indian Standards

7. Wood Working Industry within 8 km from forest - District Forest Officer

8. Milk Processing & Milk products manufacturing units - Approval under Milk and Milk Products Order from State Agricultural/ Food Processing Industries Department above a designated capacity.

Environment & Pollution Related Clearances

The method of granting consent under water and air pollution to SSI units has been simplified. Except for 17 critically polluting sectors, in all other cases SSI units will have to file an application and obtain an acknowledgement which will serve the purpose of consent

5) Arrange for Land / Shed: For any industrial project, a suitable industrial site or a ready industrial shed is required. Once the location from the State Industrial areas development board. However, private land could also be purchased, but it has to be converted for industrial purpose and other necessary legal / formalities will have to be completed. For setting up an SSI unit, the promoters could consider using a ready industrial shed. This could be on rent or on ownership basis.

6) Arrange for plant and machinery: The plant and machinery required for the project could be purchased from recognized manufacturers/ dealers. The plant and machinery could also be taken on a hire purchase scheme operated by the national small industries corporation (NSIC) is a government of India Corporation.


1. Direct purchase: the entrepreneur has to select and buy the required plant and machinery from recognized manufacturers / dealers. Banks and state financial corporation maintain a list of approved machinery suppliers. The entrepreneur is advised to refer to such a list before deciding on the supplier. Moreover the entrepreneur should compare the quality, performance and service terms, price and other details of the alternate plant and machinery that may be available in the market.

2. NSCI Hire Purchase Scheme: in this scheme the required plant and machinery will be the asset of NSIC and they will lease it to the promoters of the industrial unit. As per the NSIC scheme agreement, once the required lease installment is paid, the assets will become the property of the industrial unit.

3. Process selection: choice of process technology emerges once the product is finalized. For some complex products, process know-how has to be imported. In such case agreements for technology transfer should be made with due care to safeguard interest. A lot of appropriate technology is being developed at CSIR and Defense Research Lab. Besides there are some in-house R&D centre of companies which develop technologies and sell tem to interested parties.

4. Raw Materials: it is one of the important decisions before starting up and SSI unit. A good inventory management practice should be followed to avoid over stock and under stock position. Raw materials must be bought form reputed dealers and agencies only and before ordering prices must be compared and three to four quotations invited.

5. Machinery and equipments: choosing and ordering the right machinery depends upon the level of technology and process specifications, for that an extensive techno-economic survey need to be carried out. International trade fairs and engineering fairs are good place to look at available options. The entrepreneur must also seek the advice of DIC, NSIC .

7) Arrange for Infrastructure: The main infrastructure facilities required for SSI units are land or shed for the project, power connection, water supply and telephone facility.

1. Single window agencies (SWAs) are set up at district level for the benefit of Small scale industries. The SWA provides clearances for various infrastructure and other facilities for the tiny and small scale industries and review and recommend sanction of term loans and working capital loans by the state financial corporation and commercial banks within the district for the new and existing small scale industries.

2. While deciding the location and site, three important factors have to be kept in mind are availability of basic amenities like power, road or port, price of the land.

3. Getting the utility connections: among the utilities of prime importance are power and water. Check out what is the source of your water supply. Is it river, canal, tube well or some other sources? Like wise check out the nearest substation from where you will get power?

8) Prepare a project report: a project comprises a series of activities for achieving predetermined objectives or set of objectives. A project report consists of relevant data in respect of a project, serves as a guide to management and records merits and demerits in allocating resources to production of specific goods or services. A project report is prepared by an expert after detailed study and analysis of the various aspects of a project. It gives a complete analysis of the inputs and outputs of the project.

The general points to be kept in mind while preparing a project report are given below

Expected use of the project report Elaborate details but retaining the confidential data Proper validation of the data and information based on reliable sources Effective presentation by use of charts, graphs and pictorial forms Cost minimization and timeliness


Proper estimation of the requirement of number of copies

Contents of a Project Report

1. Executive summary: Introduction , financial performance, balance sheet analysis, Proposed project, project profitability and analysis, SWOT analysis,

2. Company details: history, manufacturing facilities, promoters, shareholding pattern, board of directors, key executives, major products, major customers, details of division, group units.

3. Operational details: capacity utilization, profit and loss account, balance sheet, term loans and advances, working capital loans, marketing and distribution networks of the company, marketing strategy, export sales, trends in selling prices, details of sub-contractors, out sourcing.

4. project detail: proposed project, order and enquires, location, manufacturing process, technical feasibility, technical know-how, input for production, manpower, power, water, marketing, auxiliary services.

5. Project Cost: land, building and civil works, plant and machinery, preoperative expenses, margin money for working capital

6. Means of finance: Equity-share capital, internal accruals, deposits, debt, other sources.7. Project status: implementation schedule, PERT and CPM analysis, Current status, Government

approvals8. Profitability and risk analysis: financials of the project, financials of the company, analysis of

break-even analysis, major risk factors, SWOT analysis.9. Company Vs Related industry: general analysis, competing industries, advantage of the

company.10. employment generation: Direct / indirect11. Conclusion12. Annexure: promoters bio-data, organization chart, details of group units, statutory sanctions

and approvals, arrangement for land and building, statement of cost of plant and machinery, details of orders and enquires, process chart, financials for project and its analysis, any other details.

There are various organizations like Small Industries Service Institute (SISI) and Small Industries Development Organization (SIDO) helps the entrepreneur in preparing project report.

9) Apply and obtain finance: There are various sources of fund they are as follows Share capital, internal accruals, deposits – own/public, debentures, short term borrowings, long term loans, bridge loans, working capital loans like cash credit

Means of finance: Own equity, internal accruals, inter corporate deposits, state financial institutions, other financial institutions, banks, other borrowings like ECB, CP, FDI state subsidies and seed capital, lease finance

SSI units can obtain finance for their project under two main categories as term loan and working capital loan

A) Term Loan : for starting a SSI unit, term loan finance for fixed asset can be availed. Term loans can be availed from the state financial corporation or from commercial banks. The term loan is usually decided on the basis of the fixed assets required for the project. The fixed assets of a project are land, building and plant and machinery. The extent of the loan depends upon


the project cost and the entrepreneur’s background. The repayment of loan advanced is generally spread over a period of 5 to 8 years.

B) Working capital loan : such a loan is needed for the day-to-day operation of the unit. Working capital is required for raw material purchase, credit sales, for the products/goods in the process of manufacture, for the finished goods kept in stock and for working expenses. For such purposes commercial bank provide working capital loans. The banks however will assess the working capital needs of the individual industry while sanctioning a working capital loan.

Arranging finance: To start and set up business, all SSI units need monetary support. Before seeking fund, estimate the cost including that of working capital required for a minimum of six to eight months and always keep a provision for buffer. The entrepreneur can take the help of a CA or the concerned officials in the Entrepreneurship Development Institute to work out the total financial cost of your project. Financial assistance in India for SSI units is available form a variety of institutions. The important one are as follows.

Small industries development bank of India State financial corporation National small industry corporation Small industrial development corporation of various states Commercial / cooperative banks District industry centre In addition, large term loans are also available from all India financial institutions such as IDBI,

IFCI and ICICI. The EXIM Bank, Export credit and guarantee corporation (ECGC).

Long and medium term loans are provided by SFCs, SIDBI and SIDCs. Banks also finance term loans. This type of financing is needed to fund purchase of land, construction of factory building/shed and for purchase of machinery and equipment. The short-term loans are required for working capital requirements, which fund the purchase of raw materials and consumables, payment of wages and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks. The commercial banks also sanction composite loan comprising of working capital and term loan up to a loan limit of Rs.1 crore.

A sanction or rejection letter is issued by bank after its assessment of the application. After receiving a sanction letter, applicants need to indicate in writing their acceptance of terms and conditions laid down by FI/Banks.

Subsequently, loan is disbursed according to the phased implementation of the project. In today’s environment there are other choices apart from commercial banks and Government owned financial institutions. These options include venture capital funds and non-government finance companies.

There is a single window scheme for SSI units. Under the scheme one agency either the bank or the financial institution funds both the loan and working capital requirements.

A formal application needs to be made for loans from financial institutions and commercial banks. The detail of documentation that need to be provided with the loan application are given below

1. balance sheet and P&L statement for the previous three consecutive years2. income tax assessment certificates of partners3. proof of possession of land / buildings


4. architects estimates for construction cost5. partnership deed MOA & AOA6. project report7. budgetary quotation of plant and machinery

A sanction or rejection letter is issued by the bank after its assessment of the application. After receiving a sanction letter, applicants need to indicate in writing their acceptance of terms and conditions laid by the financial institutions / banks.

10) Implement the Project and Obtain Final Clearances: The entrepreneur will have to take necessary steps to physically implement the project after obtaining the various licenses, clearances, infrastructure facilities and so on.

1) Construct shed: if the entrepreneur has obtained land in an industrial estate or have arrangements for vacant land privately must obtain clearances from the Municipal Corporation or municipalities or village panchayats and so on. For constructing shed it should have to obtain suitable quotation from established contractors and decide on awarding the contracts to suitable contractors. Moreover entrepreneur has to take necessary steps to arrange for water supply, drainage system, electrical wiring through licensed contractors.

2) Order for Machinery: the entrepreneur has to order the necessary machinery and equipment through dealers or make arrangements to get them on hire purchase through NSIC or any suitable organization.

3) Recruit personnel: depending upon the size of the industry and type of product, entrepreneurs will have to hire different types of personnel as managerial, technical personnel, office staff for the enterprise.

4) Arrange for Raw Materials: They should try to get the necessary samples for the basic raw materials and components that they need to buy from outside the project. During the implementation of the project, they should finalize the source of raw materials and quality and quantity requirements for the project.

5) Marketing: the entrepreneur have to undertake necessary ground work of contacting prospective customers and preparing necessary plans for marketing. The planning should cover the products design, pricing, promotional activities and distribution system.

6) Erection and Commissioning: once the building is ready and the necessary plant and machinery have arrived. Entrepreneurs have to take steps to erect the machinery. The various items of plant and machinery should be erected as per the prescribed plan. After erection, commissioning is needed. For a standardized process the entrepreneur make necessary adjustments and changes in production process.

7) Obtain final clearances: entrepreneurs are required to take several final clearances when the unit is ready for commissioning or as soon as it goes into production.


Franchising as a New Format of Business

What is franchising?

Franchising is a process of agreement and business conduct between franchisor and franchisee through franchise system.

What is franchise system?

A franchise system is a business operating system through any arrangement in which the owner (franchisor) of a trademark, trade name, or copyright has licensed other business owner (franchisee) to conduct business by selling goods and/or services. Some examples of these franchises are McDonalds, Kentucky Fried Chicken and Pizza Hut restaurants.

Advantages of Franchising

1. A proven track record: A franchisor or the franchisor has already proved the particular business has been successful for at least in the five consecutive years and still enjoying the successfulness.2. Brand-name appeal: An appealing brand-name is a name of product and/or service which is registered with certified trademark organization/institution and well accepted by consumer community. The brand-name labeled representing high quality product/service compare to the current similar product/service offered by lesser-known outlets.

3. Financial assistance: From the franchisor’s proven track record, brand-name appeal, and training and guidance provisions the financial community/institution easily understand the business operation running in the market and with less questions to ask in giving financial support and approving business loan to the franchisee.

4. Training and guidance: Franchisor provides a well-know and certified ‘Training and Guidance’ method in the areas of their support system in general management, financial management, product knowledge, customer service management, production management, marketing, advertising, selling procedures, employee skills enhancement, stock, and inventory.

Disadvantages of franchising

1. Franchise fees: Franchise fees sometimes are too high or expensive, where normally it is measured to the level of successfulness of the franchisor. The franchise fees include; license right with upfront money and the each unit gross sales by percentage. It means every unit product/service sold there is earning for franchisor from franchisee business.2. The franchisor control exercised: A franchisor control franchisee business activities to achieve degree of uniformity. Sometimes control franchisee employee’s activities during business operating hours, especially in accounting area of management e.g. account updating for every an hour, etc.3. Franchisor unfulfilled the promises: Regarding franchisor promises, many cases happened in stock 32 Prof. Debasis Pani

supply. Whereby, the so called cheap stock buying price promised earlier breached by franchisor. This is a real burden to franchisee business, whereas, the unit selling price of product/service remains standard. Secondly, after running business for quite a long time the brand-name no longer with drawing power or not having high competitive edge compare to rivals product/service in the open market

III. Environmental Pollution Related Clearances.(Refer Entrepreneurship Development - Vasant Desai)

Environment protection is the call of the day. It is the matter of concern for all of us. In the recent past, we have exploited the nature to such an extent that it has become difficult for living, being to survive.

Different types of industries cause different types of environmental pollution and accordingly, pollution control measures have to be followed to suit the environment. The guidelines, rules and regulations are prescribed by the government and to enforce them pollution control board has been created. They are located at all the important locations throughout the country. Three acts have been passed with a set of rules and regulations to be followed by all the industries. They are

The Water (prevention and control of pollution) Act, 1974, The Air (prevention and control of pollution) Act, 1981, and The Environment (protection) Act, 1986.

For the sake of environmental pollution, industries are classified into three categories depending on the products they manufacture such as,

1) Red Category: refers to the highly polluting industries, pollution control board puts maximum restriction on the red categories of industries where they have to follow a number of restrictions and adopt a large number of pollution control measures. E.g. iron & steel, power, aluminum, cement, cotton textile, leather, chemical, etc.

2) Orange Category: refers to medium level polluting industries, hence are given less importance. E.g. bricks, food processing, hotels, pharmaceuticals, hospitals.

3) Green Category: refers to non-polluting industries or very little polluting in nature, hence are given no importance. E.g. floor mills, cinema halls, cosmetics, gems and jewelry, printing press.

An entrepreneur has to apply CPCB for NOC which is letter of consent to establish an industry.

1) Provisional registration certificate from the local DIC,2) Permission from the local body or the local village committee.3) Certificate that the place is minimum 500 meter away from National highway or State

highway4) Certificate that the proposed unit is not located within a distance of one K.M.


1. Pollution control: a No objection certificate should be obtained from the state pollution control board before commencement of construction activity. In case of the industry falls in the highly polluting category, a full fledged or rapid environmental Impact Assessment (EIA) has to be carried out and submitted to the state pollution control board for approval, after which the constitution can commence

2. Industries require water and affecting effluent disposal: a no objection certificate should be obtained from the state pollution control board before commencement of construction activity.

3. For the unit functioning outside the industrial area: permission has to be sought from the municipal corporation/municipality/ panchayat. In case private land is purchased for the project, the land would have to be rezoned as industrial zone. Permission to convert such agricultural land to industrial area would have to be obtained form the local office of the Directorate of Town and country planning before the actual start of the construction.

4. Registration and licensing of a boiler: safety clearance of the Chief Electrical Inspector and the Chief Inspector of Boilers are required before commencing operation with electrical and pressure vessels (boiler ) respectively.

5. For registration as a 100 per cent Export Oriented Unit (EOU) which can enjoy many additional concessions, the clearance of the Development Commissioner of the export processing zone is required. If the company wishes to offer equity shares to the public, the clearance of the SEBI has to be taken.

IV. Sickness in Small Business Enterprises (Study Material)

V. Causes of Sickness (Study Material)

VI. Symptoms of Sickness (Study Material)


VII. Cures of Sickness (Study Material)

VIII. Government Policies on Revival of Sickness and Remedial Measures.

In the light of the consequences of sickness, the Government has been taking many steps and remedial measures in order to tackle this problem in India.

(1) Sick Industrial Companies (Special Provisions) Act, 1985

The most important piece of legislation dealing with industrial sickness was the Sick Industrial Companies (Special Provisions) Act,1985 (SICA). It applies to industrial undertakings both in the public and private sectors. The basic rationale of enacting SICA was to determine sickness in the industrial units. It also aimed at expediting the revival of potentially viable units so as to make the investments in such units profitable. Thus, the broad objectives of SICA were:-

Timely detection of sick and potentially sick companies owning industrial undertakings Speedy determination by experts of the preventive, remedial and other measures for sick

units. Expeditions enforcement of the measures so determined and for matters connected therewith

or incidental.

(2) Board for Industrial and Financial Reconstruction (BIFR)

The Government of India, in order to tackle the problem of industrial sickness, had set up a Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR), under the purview of Sick Industrial Companies (Special Provisions) Act,1985 (SICA). It had been established as a quasi-judicial body in the Department of Economic Affairs, Ministry of Finance, for revival and rehabilitation of potentially sick undertakings and for closure/liquidation of non-viable and sick industrial companies.

The SICA required the Directors of a sick industrial unit to make a reference to BIFR for determining the measures needed and the BIFR could direct any operating agency. The scheme could provide for any one or more of the following measures:

The financial reconstruction of the company The proper management of the company by change or takeover The amalgamation of the sick industrial company with any other company The sale or lease of a part or whole of the industrial undertaking.

(3) The MSMED Act, 200635 Prof. Debasis Pani

The MSMED Act, 2006 focused to encourage the development of enterprises and also enhance their competitiveness. It provides the first- ever legal framework for recognition of the concept of “enterprise” which comprises both manufacturing and service entities. MSMED Act, 2006 provides that the policies and practices in respect of credit to the micro, small and medium enterprises shall be progressive and such as may be specified in the guidelines or instructions issued by the Reserve Bank of India, from time to time relating to.

i. Loan policy governing extension of credit facilities

ii. Restructuring / Rehabilitation policy for revival of potentially viable sick units /enterprises.

(4) Infrastructure Development

The integrated infrastructural development (IID) scheme was launched in 1994, for setting up of industrial estates and to develop infrastructural facilities like power distribution network, water, telecommunication, drainage and pollution control facilities, road, banks, raw, materials, storage and marketing outlets, common service facilities and technological back up services etc, for MSMEs.

(5) Improving the Linkages and Relationships between SSIs and LSIs

The present ceiling of equity participation in SSI units has been raised in a phased manner from 24% to 74% for export-oriented items and high-tech items in which collaborations are forthcoming. This has encouraged more foreign collaborations, induction of the latest technologies, modernization, higher foreign direct investment, marketing inputs, etc., in the SSI sector. The mechanism to encourage technology transfer is expected to be provided by the partners through

buyer–seller meets organized in India and abroad.

(6) Financial Measures

1. Priority sector Lending :-Give credit to the MSES comes under the priority sector lending policy of the back. For the public and private sector banks, 40% of the net bank credit (NBC) is earmarked for the priority Sector, of which 10% is earmarked for the MSE sector.

2. Establishing Specialized SSI Bank Branches : As announced in the Union Budget for 2006, more specialized bank branches have been set up in the areas of SSI concentration. The government is now encouraging proposals to set up SSI branches in every district, with at least one in every important SSI cluster.

3. Micro-Credit: The Scheme of Micro-Credit has been found as an effective instrument for lifting the poor above the level of poverty by providing them increased self-employment opportunities and making them credit worthy. Total requirement of micro-credit in the country has been assessed at Rs.50,000 crore. Micro-credit programme works through NGOs/SHGs and the merit lies in weekly monitoring and refund of instalments. The rate of recovery under SIDBI’s Micro credit programme is as high as 98%.

4. Performance & Credit Rating Scheme : In April, 2005 the performance and credit rating scheme manufacturing MSEs was launched, with the objective of assisting the MSEs with


obtaining performance-cum- credit sating which would help them in improving performance and also accessing bank credit on better terms if the rating is high.

5. Micro and small Enterprises Cluster Development Programme : - For the holistic development of clusters of MSEs, the Micro and small enterprises cluster development programme (MSECDP) is implemented. The Programme envisages measures for capacity building, skill development, technology up gradation of the enterprises improved credit delivery, marketing support, setting up of common facility centers etc,

(7) Fiscal Measures for SSIs

1. Exemption from Excise Registration until Turnover Reaches Exemption Limit : The present limit on excise exemption of INR5.0 million has been raised to INR10 million so as to make SSI units more competitive and enable them to market their products in competition with large units.

2. Special Policy Packages for Underdeveloped States : In view of the problems faced by industries in underdeveloped regions such as the North Eastern Region, Jammu and Kashmir (J&K), and Himachal Pradesh, liberal policy packages have been revised incorporating both fiscal and financial measures.

3. Credit Guarantee : The Credit Guarantee Fund Scheme (CGFS) for the SSI sector, launched in August 2000 and operationalised from 1 January 2001, provides guarantee cover up to INR25 million or 75% of the loan. Initially it covered only manufacturing units, but later service units were also included.

(8) Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation

The Ministry of Small Scale Industries (SSI) is operating a scheme for technology upgradation of Small Scale Industries (SSI) called the Credit Linked Capital Subsidy Scheme (CLCSS). The Scheme aims at facilitating technology upgradation by providing upfront capital subsidy to SSI units, including tiny, khadi, village and coir industrial units, on institutional finance (credit) availed of by them for modernisation of their production equipment (plant and machinery) and techniques. The Scheme (pre-revised) provided for 12 per cent capital subsidy to SSI units

(9) ISO 9000 certification and reimbursement scheme

Government introduced an incentive scheme for their technological upgradation/quality improvement and environment management. The scheme provides incentive to those small scale/ ancillary undertaking who have acquired ISO 9000/ISO 14001/HACCP certifications. The scheme for ISO 9000 reimbursement in operation since March, 1994 has now been enlarged so as to include reimbursement of expenses for acquiring ISO 14001 certification

(10) Initiatives for Women Entrepreneurs

Women entrepreneurs have achieved remarkable success. The Micro, Small & Medium Enterprises Development Organisation (MSME-DO), the various State Small Industries Development Corporations (SSIDCs), the nationalised banks and even NGOs are conducting various programmes including Entrepreneurship Development Programmes (EDPs). To cater to the needs of potential women entrepreneurs, who may not have adequate educational background and skills,


Module III: Institutional Supporting Small Business.

I. Central / State level Institution.

Various organizations for assisting Small and Medium Entrepreneurs Various organizations have been set up by the Central and State governments and banks to support the development of the small scale enterprises. The main organizations are as follows : –

I . Central Government

(1) National Board for Micro, Small and Medium Enterprises.

MSMED Act-2006 provides for establishment of National Board for Micro, Small & Medium Enterprises (NBMSME)

Examine the factors affecting the promotion and development of Micro, Small & Medium Enterprises

Review the policies & programmes of the Central Government in regards to facilitating the promotion & development enhancing the competitiveness of such enterprises and the impact thereof on such enterprises.

Make recommendations on matters referred to in clause38 Prof. Debasis Pani

Advice the Central Government on the use of the Fund

(2) Small Industries Development Organization (SIDO)

Provide technical consultancy Provide financial constancy Provide managerial constancy Provide production constancy Provide constancy on quality control Provide constancy marketing Provide constancy on technical consultancy

(3) National Small Industries Corporation Limited (NSIC)

Help to procure plant and machineries on hire-purchase basis or on lease Import plant machineries for SMEs Help in marketing and exporting products of SMEs Help to import raw materials and other resources Train the workers on operation of modern machineries Assist in store purchase programme.

(4) National Institute for Micro , Small and Medium Enterprises (NIMSME).

The National Institute of Micro, Small and Medium Enterprises (NIMSME) was established with the mission of promoting the growth and development of MSMEs through services in the areas of policy, entrepreneurship, technology, information, education, management and extension

NIMSME has been providing its unstinted support, in terms of offering services like research, consultancy, information, training and extension not only to enterprises but also to concerned developmental agencies.

(5) Entrepreneurship Development Institute of India.

The Entrepreneurship Development Institute of India (EDI), an autonomous and not-for-profit Institute, set up in 1983, is sponsored by apex financial institutions - the IDBI Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and State Bank of India (SBI)

Promotes entrepreneurship though education training, research institution building

(6) Bureau of Indian Standards

The Bureau of Indian Standards (BIS) earlier known as Indian Standards Institute is the national Standards Body of India working under the aegis of Ministry of Consumer Affairs, Food & Public Distribution, Government of India. It is established by the Bureau of Indian Standards Act, 1986

ISI Marks ISO Certificates

II . State Government


(1) District Industries Centers (DIC)

Guidance to start small business Registration to small enterprise Help to prepare project report Help to procure finance and other inputs Technical support services Help to produce subsidies, incentives, concessions etc

(2) State Financial Corporations (SFCs)

Loan to acquire fixed assets Finance for modernization, expansion, diversification and renovation Loan for working capital Long term loan

(3) Council Of State Industrial Development and Investment Corporations Of India (COSIDICI),

Established in 1976, (COSIDICI) is a national federation of state level financial and investment corporations comprising State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs) As on 30th September, 1999, COSIDICI has a membership of 56 state level institutions. COSIDICI, which act as a catalyst for rendering assistance/guidance through its network of 56 affiliated State Industrial Development and Investment Corporations in respect of:

Availability of loans on soft terms; Allotment of industrial plot/shed in one of the industrial estates or industrial parks developed

by the state level corporation; Technical assistance for the preparation of project reports; Availability of special incentives provided by the respective state governments for setting up

of industries, etc.

(4) State Small Industries Development Corporation (SSIDC)

Help procurement of scare materials Procure orders to supply to government organization Arrange supply of plants and machineries to small enterprises Arrange sheds in industrial estates Provide financial and other technical services.

(5) Khadi and Village Industries Commission (KVIC)

Set up in 1957, KVIC assists with the development, promotion, and dispersal of traditional industries in rural and urban areas.

Some of its major functions are the planning, promotion, organization, and implementation of programs for the development of Khadi and other village industries in rural areas


III . Financial Institutions / Banks

(1) Small Industries Development Bank of India (SIDBI)

Financing and development of SMEs Financial assistance to SFCs and commercial banks to lend to SMEs

(2) Commercial Banks (State Bank)

Provide working capital loans Provide medium-term loans

(3) Regional Rural Banks

Provide working capital loan

(4) Cooperative Banks

Provide working capital loan

(5) National Bank for Agriculture and Rural Development (NABARD)

The NABARD was established on 12 July 1982 by a parliamentary act Provides credit for small enterprises in rural areas

IV . Organizations promoted by the Government/ Banks/ Financial Institutions

(1) Technical Consultancy Organization in various states.

Help to make feasible study Help to prepare project report Help to provide training to manpower Help to provide training to entrepreneur Project formulation Project implementation Consultancy on management Technical support services Plant layout Energy conservation measures

(2) Council of Scientific and Industrial Research (CSIR)

CSIR is the autonomous national R&D organization providing scientific industrial research for India’s economic growth and human welfare.


It has a country-wide network of 40 laboratories and 80 field centers converting fundamental and applied R&D in all areas of science and technology (except atomic research)

(2) India SME Technology Services Ltd.

India SME Technology Services Ltd. (ISTSL) provides a platform where Micro, Small and Medium Enterprises (MSMEs) can tap opportunities at the global level for acquisition of new and emerging technology or establish business collaboration.

(3) SIDBI Venture Capital Ltd.

SIDBI Venture Capital Limited (SVCL) is a wholly owned subsidiary of SIDBI, incorporated in July 1999. Current funds managed by SVCL are

The National Venture Fund for Software and Information Technology Industry (NFSIT) has been set up by Small Industries Development Bank of India (SIDBI) in association with Ministry of Information Technology (MIT), Govt. of India during 1999-2000.

The SME Growth Fund (SGF) has been set up by Small Industries Development Bank of India (SIDBI) in association with other leading commercial banks such as Punjab National Bank, State Bank of India, Bank of Baroda, Bank of India, Central Bank of India, Union Bank of India, Oriental Bank of Commerce and Corporation Bank.

(4) Credit Guarantee Fund Trust for Micro and Small Industries

Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

The main objective is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed.

The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency.

(5) India SME Asset Reconstructing Company (ISARC).

Asset Reconstruction Companies [ARCs] are established under SARFAESI Act, 2002 as specialized entities for NPA resolution.

These ARCs are established to acquire, manage and recover illiquid or Non-Performing Assets [NPAs] from Banks / FIs.

This process would relieve the banking system of the burden of NPAs and would allow them to focus better on their core function of financing and development of new business opportunities so as to further strengthen the economy.

The ARCs would maximize recovery value with optimal costs through its innovative NPA resolution methods.

V . Industry Associations

(1) Federation of Indian Micro and Small and Medium Enterprises (FISME)

FISME is a post-liberalization NGO set up to prepare Indian SSIs to the challenges of changing economic realities.


FISME networks with more than one million SSIs through state-level SSI associations. FISME believes that use of e-commerce, participation in fairs, and trade delegations are

important tools for marketing SSI products in the current millennium.

(2) Confederation of Indian Industry

CII works to create and sustain an environment for the growth of industry through advisory, training, and consultancy services.

CII also serves the cause of the SSI sector through its participation with both state and central governments in policy issues and in improving the industry through sponsoring business fairs and organizing specialized courses on WTO, TQM, technology, and IPR

(3) Federation of Indian Chamber of Commerce and Industries (FICCI)

Its membership is drawn from large, medium, small, and tiny segments of the manufacturing, trade, and service sectors.

FICCI provides business solutions to members through research, interactions at the highest political level, and global networking.

(4) Associated Chamber of Commerce and Industries in India (ASSOCHAM)

ASSOCHAM assists its members in dissemination of information, policy analysis, training and consultancy, industry and government interface, and enhancing international business relations;

It contributes primarily to enhancing the Indian economy at the macro level. It participated in the deliberations of the Working Group on Small Scale Industry to develop its

tenth plan and in the steering committee on the village industries sector.

II. Preparation of a Business Plan

Planning is an integral part of any business. Before setting up a business, a document is made for defining the steps or things required to be executed to legally set up a business. This written document is called as business plan. A business plan is a blueprint of an enterprise. Business plan helps us put our thoughts and ideas on paper in a clear, systematic and convincing manner.

Need for Business Plan

A business plan is necessary to ensure success. It enables potential entrepreneurs to perceive and mobilize all resources well in advance.


Finally, it gives the entrepreneur the much-needed confidence that they can produce, can sell the product/service, and can earn a profit.

Business plan also helps to set guidelines and milestones in a written format It serves as an operational tool which gives details of the past, present and future activities of

a business.

Preparation of Business Plan

For the preparation of a Business Plan, information is collected from various sources. Market survey yields information related to customers, competitors, existing prices in the market. Besides, the potential entrepreneurs need to collect information related to the production process, raw materials, machinery and equipment, sales and cost prices etc.

Preparation of this plan involves information under the following seven major categories:

1. General information about proposed enterprise: This includes information related to individuals and/or the group owning the enterprise, location and type of enterprise, and a brief description of product/service.

2. Production Details: Under this all products/services to be produced/ offered are listed. The production process or lists of activities to be carried out are described. Also the quantities/numbers of products are recorded.

3. Required Resources and their Sources: This lists the various resources like raw materials, machinery and equipment, and other utilities which may be required to set up the enterprise.

Raw materials include materials for production, packaging and testing and are described in terms of their type, quantity, value, and source of availability.

Machinery and equipment are described in terms of type, number, capacity, price including taxes and freight, installation and erection costs.

Utilities represent power, water, electricity, petrol, diesel or any other fuel required for the production. Facilities like phone, fax, Internet are also included here. Air conditioning and refrigeration facilities that may be required are also noted. These are described in terms of their estimated consumption, price and installation charges.

4. Market and Marketing of Product: This refers to all information collected during the process of market survey. It normally includes information on prospective customers, competitors, prevalent prices, packaging, location of market, nature and extent of demand, and estimated sale.

5. Capital for Enterprise and Cost of Product: Under this category the total investment required for setting up and running an enterprise are estimated. These are represented in terms of capital cost and working capital. Such a process helps in determining the final cost of product.

Capital Cost: This refers to one time costs needed to meet the cost of land, building, machinery and equipment, furniture and fixtures, fire fighting equipment, power connection and electrification, cost of providing utilities, and initial spare parts.

Working Capital: This is an important area requiring special attention. The enterprise functions consist of a series of cycles in which the cash is invested in raw materials, variable and fixed costs and is returned to the enterprise in the form of cash only after sales realization. This cyclic operation repeats perpetually. Working capital assessment consists of


assessing the delay at each stage of the operating cycle and the amount of finance required. The sum total of this assessment is the total working capital requirement. The basis for assessment of working capital requirements are the amounts required for raw materials (stocking, lead time procurement, buffer stock), finished goods (stocking, packing time, mode of dispatch, inspection time), bills (period of credit provided) and operating expenses for one month.

Cost of Product: This is estimated on the basis of fixed and variable cost. The total cost for the enterprise is estimated on the basis of capital cost and working capital. This portion of the Plan indicates the source of the total cost.

6. Estimates of profit: All the expenses involved in production, marketing, and administration are estimated. As a general rule of thumb, marketing expenses are calculated at 3% of the sales revenue generated. All expenses are deducted from total sales to obtain profit. Based on profit estimates, “the point of no profit no loss” which is also known as “ break even point” is estimated.

7. Balance sheet: A balance sheet is drawn as part of the Business Plan. The whole exercise can be practiced by using the Performa of business plan provided with this Unit.

Business Plan Outline

Cover Sheet: Business Name, Address, Phone Number, Principals

Executive Summary or Statement of Purpose

Table of Contents

Section One: The Business

A. Description of Business

B. Products/Services

C. Market Analysis

D. Marketing Plan

E. Location

F. Competition

G. Management and Operations

H. Personnel

I. Application and Effect of Loan or Investment


Section Two: Financial Data

A. Projected Financial Statements

Income Statements

Cash Flow Statements

Balance Sheets

Assumptions to Projected Financial Statements

B. Break Even Analysis

C. Sources and Uses of Funds

Section Three: Supporting Documents

A. Historical financial statements,B. tax returns, resumes, C. reference letters, D. personal financial statements, E. facilities diagrams, F. letters of intent,G. purchase orders, contracts, etc.


III. Elements of a Business Plan. (Components of Business Plan)

(1) Executive Summary: The first page of a business plan is summary. Summary should be concise and should cover all the essential details because the first page of a book only encourages a reader to continue reading the book. The summary should include the following points in brief:

Company’s / Business’ description Company’s / Business’ objectives Company’s products/services Competitors and market profile A statement which defines why and how the

business will succeed Projected growth for the company Key management team Funding requirements, time-line for the funds and

how the funds will be used

(2) Vision: Vision statement and milestones is the second main component of a business plan. Vision statement should give a clear mental picture of the business/ company owner about his business dream. Milestone should also be given to define the goal and the method to achieve the goal.

(3) Market and Competitive analysis: Market research data should be added to the business plan because investors like to invest money in a business which has a team with thorough knowledge of the market. Market analysis section involves:

A general description of the market a company (businessman) is willing to enter. Changes in the market Different market segments Market segments and customers Customer characteristics and needs Customer buying decisions

Competitive analysis involves the detailed analysis of competitive strengths and weaknesses of you and your company. This section should explain:

Industry overview Nature of the competition Industry changes Primary competitors Competitive products/services Opportunities Threats and risks


(4) Marketing Strategy: After doing market and competitive analysis the next step is to define the strategy which you will be using to target the market and distribute your products/services. This section should explain:

Key competitive capabilities and weaknesses Strategy that will be used by you Implementation of the strategy

(5) Products/Services: This section explains the products/services offered by your company or what do your company intend to offer. Provide details about the need of your product in the market. This section should contain:

Description of product/ services Positioning of product/services comparative to other competitors Future products/services, your company willing to offer

(6) Marketing and Sales: Marketing and sales section contains following points:

Marketing Strategy that will be used by your company Sales tactics that will be used by your company to sell its products/services Advertising media that you will use to advertise your products/services like TV, newspaper,

radio, hoardings, leaflets, handbills etc. Promotional campaigns, if any Publicity and trade shows, if any

(7) Operations: Operations involves the things required to implement the business idea. Operations section should explain:

Human resources plan Delivery of product/services: Customer service Facilities provided by your company

(8) Financial Plans: Financial details should include the following points:

Balance sheets – which indicates the owner’s equity and your financial position Profit and loss statement – alternatively known as income statement, indicates your

company’s cash management Cash Flow statement – details all cash receipts and disbursements. Some key ratios for the projections that are made by you for the next few years

IV. Kinds of Business plans

The business plans in the form of the project report are of two types, they are brief plan and detailed plan. 48 Prof. Debasis Pani

(1) Preliminary Project Report (PPR): The brief plan is prepared first and is known as the PPR. Copies of the PPR has to be submitted by the entrepreneur to various individuals and organizations particularly government organizations to get certificate of registration, license, permission, clearance, land, electricity, water, raw materials, loans etc. PPR is a brief report of an enterprise and is the mirror of the project covering almost all aspects of an enterprise. One can get a clear picture of the proposed project by going through the PPR.

(2) Detailed Project Report (DPR): The detail plan is know as DPR which contain details of each and every component like, its specification, size, capacity, strength, power, functions etc.

It is all the time desirable that the entrepreneur personally prepares the PPR of the enterprise. Here the entrepreneur may not be an expert in the art of preparing a PPR. So the entrepreneur may be trained to prepare bankable PPR independently.

V. Financial Management Finance is required to start any type of business and run it. Ideas of an entrepreneur can be

implemented a converted into business activities with the help of finance. Finance is needed irrespective of the size of the business. In a small business organization the finance is usually handled by the entrepreneur and in many cases by the manager with the help of some assistants who performs all the financial functions. 49 Prof. Debasis Pani

In a small business the finance is usually arranged by the entrepreneur. A large portion of the fund comes from the personal sources of the entrepreneur and the rest amount of the fund is usually financed by banks and financial institutions.

A small business enterprise has to undertake four important activities as a part of its busiess as finance, production, marketing and human resource management. There exist an inseparable relationship between finance function and all other function.

What is Financial Management?

Financial management refers to the activities relating to the handling of all finance function of an organization efficiently and effectively for smooth functioning and overall growth of an organization.

Financial management can be described as the planning, procurement, utilization and controlling the financial resources of an organization to achieve the goal of an enterprise.

Financial management includes taking various decision relating to investment decisions, financing decision, dividend decision, liquidity decision and proper use of surplus fund.

What are the functions of financial management?

Financial management involves two types of functions: 1. Managerial finance functions and 2. Route finance functions

{A} Managerial Finance Function: requires skillful planning, control and execution of financial activities. Managerial finance functions for small business enterprise are as follows

Estimating financial requirements: before starting an SME one should scientifically calculate fixed capital and working capital.

Identifying sources of finance: the entrepreneur should identify the sources from which finance can be raised such as personal funds, funds from friends, banks, financial institutions and public deposits.

Raising of finance: raising of finance does not mean mere collection of funds. It has four important dimensions as right source, time schedule, cost and adequacy.

Proper use of finance: finance raised for the purpose of business activity should be carefully used.

Control of finance: control relates to establishing proper procedures and systems to check the financial activity of the business enterprise.

{B} Routine Finance Functions: do not require managerial ability to be carried out. They are clerical in nature and incidental to the effective handling of the managerial finance functions.

Supervision of cash receipts and payments Safeguarding cash balances Record keeping accounting Custody and safeguarding of securities, insurance policies and other important documents Taking care of mechanical details of outside financing Regular return of borrowed funds


What are the various types of Financial Statements?

Any business has important financial concerns and its success or failure depend on large part on its financial decisions. Every key decision made by a firms’ manager has important financial implications. Entrepreneurs’ daily face questions like:

1. Will a particular investment be successful?2. Where will the funds come from to finance the investment3. How much inventory should be held4. Does the enterprise have enough cash or access to cash?

In order to answer these questions, an entrepreneur will require certain information and this information can be obtained from the financial statements. Financial statements, In business language, the accounts imply a set of reports or financial statements which show the financial standing of an enterprise. Specifically, there are three major reports:

1. Income and Expenditure Account: It is produced from either the trail balance or on receipts and payment accounts. It records as a summary

• All categories of income and expenditure which belong to that year;

• All income not yet received but belongs to that financial year

• All payments not yet paid but belong to that financial year

2. The balance Sheet: This is the listing of all the assets and liabilities on one particular date and provides a “snap shot” of the financial position or net worth of an enterprise. It is prepared on the fundamental relationship in accounting, that is, every addition to an organisation’s asset is financed by either outside parties or by the owners

Component of the Balance Sheet: The balance sheet has two parts. One part records all balances on assets account, the other record all the balances on liabilities accounts plus the income and expenditure account balance.

3. The Cash Flow Statement: The Cash Flow Statement explains where the funds came from and how they were applied during the reporting period. This report is of much greater relevance to a profit motivated enterprise where cash flows and investments are crucial to the enterprise’s performance and survival.

VI. Working Capital management The working capital refers to the funds required to meet the day-to-day obligations of

business operations. Hence working capital is said to be the life-blood of an enterprise. Working capital therefore needs to be maintained at an adequate level. Because both excessive and inadequate working capital are harmful for an enterprise.

Management of working capital means managing different components of current assets and current liabilities.


VII. Accounting & Book Keeping {Study Material}

VIII. Preparation of Financial Statement {Study Material}

IX. Marketing Management, problems & strategies According to Stanton, “Marketing is a system of interacting business activities designed to plan, price, promote and distributive want satisfying products and services to present the potential consumers.”

To Prof Philip Kotler - “Marketing is a social managerial function by which an individual or a organization obtains what they need and want through creating, offering and exchange of products and services of value with others”

To American Marketing Association (AMA) – “Marketing is the activity, set of institutions and process for creating, communicating, delivering and exchanging offerings that have value for customer, clients, partners and society at a large (Oct,2007)”

Problems of Marketing

1. Small firms can not withstand the cut-throat competition in respect of quality, cost, and standardization of the products with medium and large scale industries.

2. Small enterprises of our country neither have the full appreciation of the importance of marketing nor had they employed and implemented effective marketing techniques in their enterprises.

3. The market competition of the small enterprises with the modern sector has aggravated due to several factors over the years.

4. Small scale industries lack the required resources as well as knowledge to practice the methods of sales promotion.

5. Small scale industries are suffering with the problems of week in bargaining power (Handicraft units)

Marketing Strategies

Market Assessment

Market Segmentation

Marketing Mix52 Prof. Debasis Pani

Branding and Packaging

Pricing Policy

Distribution Channels

Promotional Decisions

Government and Departmental Purchase

X. Problems of HRM Any enterprise, big or small needs to have clear objective both in the long term or short term.

All activities in an enterprise are then expected to be organised in such a manner as to achieve the set objectives. Functions, duties and responsibilities that are relevant for the objectives must be specified. The functions of staff management – which the human resources management, has the overall objective of ensuring that the enterprise attains its objectives by properly utilising its human resources.

Manpower Planning

Job Requirements

Recruitment

Selection

Training and Development

Remuneration and Benefits

XI. Relevant Labour – laws.The Labour Policies for Small Scale Industries is governed by comprehensive laws. The following laws and policies are applicable for Small Scale Industries in India:

The Factories Act, 1948

Objectives

1. To ensure adequate safety measures and to promote the health and welfare of the workers employed in factories.


2. To prevent haphazard growth of factories through the provisions related to the approval of plans before the creation of a factory.

Scope and coverage

Regulates working condition in factories.

1. Basic minimum requirements for ensuring safety, health and welfare of workers. 2. Applicable to all workers. 3. Applicable to all factories using power and employing 10 or more workers, and if not using

power, employing 20 or more workers on any day of the preceding 12 months.

Main provisions

Compulsory approval, licensing and registration of factories, Health measures, Safety measures, Welfare measures, Working hours, Employment of women and young persons, Annual leave provision, Accident and occupational diseases, Dangerous operations, Penalties, Obligations and rights of employees

When to consult and refer

1. On starting a factory 2. Throughout the life of the factory.

The Minimum Wages Act, 1948

Objectives

1. To determine the minimum wages in industry and trade where labour organisations are non-existent or ineffective.

Scope and coverage

1. Applicable to all employees engaged to do any work, skilled, unskilled manual or clerical, in a scheduled employment, including out-workers.

2. Fixation of minimum wages. Main provisions

1. Fixation of minimum wage of employees. 2. Procedure for fixing and revising minimum wages. 3. Obligation of employees. 4. Rights of workers.


1. At the time of fixation of salary of new/existing employees.

The Payment of Wages Act, 1936

Objectives

1. To ensure regular and prompt payment of wages and to prevent the exploitation of a wage earner by prohibiting arbitrary fines and deductions from his wages.


Scope and coverage

1. Application for payment of wages to persons employed in any factory. 2. Not applicable to wages which average Rs 1600/- ($35.83) per month or more. 3. Wages include all remuneration, bonus, or sums payable for termination of service, but do not

include house rent reimbursement, light vehicle charges, medical expenses, TA, etc. Main provisions

1. Responsibility of the employer for payment of wages and fixing the wage period. 2. Procedures and time period in wage payment. 3. Payment of wages to discharged workers. 4. Permissible deductions from wages. 5. Nominations to be made by employees. 6. Penalties for contravention of the Act. 7. Equal remuneration for men and women. 8. Obligations and rights of employers. 9. Obligations and rights of employees.


1. Deciding wages and salary administration at all times.

The Employees Provident Funds and Misc. Provisions Act, 1952

Objectives

1. To make provisions for the future of the industrial worker after he retires or for his dependents in the case of his early death.

2. Compulsory Provident Fund 3. Family Pension 4. Deposit linked insurance

Scope and coverage

1. Application to factories and establishments employing 20 or more persons. 2. Can be made applicable by central government to establishments employing less than 20

persons or if the majority of employees agree. 3. Excludes establishments employing 50 or more persons or 20 or more persons but less than

50 persons, until the expiry of three years in the case of the former, and five years in the case of the former, and five years in the case of the latter, from the date of setting up of establishment.

4. Applicable to all persons who are employed directly or indirectly through contractors in any kind of work.

Eligibility

1. Employees drawing pay not exceeding Rs. 3500/- ($78.37) per month.Benefits

1. Apart from terminal disbursal of non-refundable withdrawals for Life Insurance Policies 2. House building 3. Medical treatment 4. Marriage 5. Higher education 6. Family pension 7. Retirement-cum-withdrawal benefits 8. Deposit linked insurance Amount equal to the average balance in Provident Fund of deceased

subject to a maximum of Rs. 25,000/- ($559.79).55 Prof. Debasis Pani

Workmen’s Compensation Act, 1923

To provide compensation for workmen in cases of industrial accidental / occupational diseases in the course of employment resulting in disablement or death. Coverage for persons employed in Factories, Mines, Plantations, the Railways and others mentioned in Schedule II of the Act.

Benefits

Compensation for Death

- Minimum - Rs. 20,000 ($447.83) Maximum - Rs. 1,14,000 ($2,552.62)

Compensation for Permanent disablement

- Minimum - Rs. 24,000 ($537.4) Maximum - Rs. 70,000 ($1567.4)

Temporary disablement

- 50% of wages for a maximum period of 5 years.

The Contract Labour (Regulation & Abolition) Act, 1970

1. Not to be required to work beyond 9 hours between 6 A.M. and 7 P.M.2. with the exception of midwives and nurses in plantations.

The Inter-state Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

1. Separate toilets and washing facilities to be provided in employment covered by the 3rd and 6th laws.

Maternity Benefit Act, 1961

1. Maternity benefits to be provided on completion of 80 days working. 2. Not required to work during six weeks immediately following the day of delivery or

miscarriage. 3. No work of arduous nature, long hours of standing likely to interfere with pregnancy/normal

development of foetus or may cause miscarriage or likely to affect health to be given for a period of one month immediately preceding the period of six weeks before delivery.

4. On medical certificate, advance maternity benefit to be allowed. 5. Rs. 250 ($5.6) as medical bonus to be given in case when no prenatal confinement and post-

natal care is provided free of charge.

Equal Remuneration Act, 1976

1. Payment of equal remuneration to men and women workers for same or similar nature of work protected under the Act and also under the provisions at ISMW Act, mentioned above.


2. No discrimination permissible in recruitment and service conditions except where employment of women is prohibited or restricted by or under any law.

The Children (Pledging of Labour) Act, 1933

1. Any agreement to pledge the labour of children is void.

The Bidi and Cigar Workers (Conditions of Employment) Act, 1966

1. Employment of children under 14 years of age prohibited under the laws at Sl. Nos. 2 to 5. 2. Except in the process of family based work or recognised school-based activities, children not

permitted to work in occupations connected with: Passenger, goods mail transport by Railway Cinder picking, cleaning of ash pits Building operations, construction Catering establishments in Railway premises or port limits Beedi making Carpet weaving Cement manufacturing Cloth printing Dyeing, weaving Manufacture of matches, explosives, fireworks Mica cutting, splitting Wool cleaning

3. In occupations and processes other than the above mentioned, work by children is permissible only for six hours between 8.00 A.M. and 7.00 P.M. with one day's weekly rest.

4. Occupier of establishment employing children to give notice to local Inspector and maintain prescribed register.

The Payment of Gratuity Act, 1972 Objective

To provide for payment of gratuity on ceasing to hold office

Coverage

Factories, Mines, Oil fields, Plantations, Ports, Railway Companies, Shops & Commercial Establishments and to other establishments to which the Government extends the law.

Eligibility

Employees drawing wages not exceeding R. 3500/- ($78.37) per month.

Benefits

15 days wages for every completed year of service or part thereof in excess of six months subject to a maximum of Rs. 50,000 ($119.58)

Employees State Insurance Act, 1948

Objective

To provide for health cover, Medical care and Cash benefits for Sickness, Maternity, Employment injury Pensions to dependents in case of Death (or) Employment injury

Eligibility

Employees drawing wages not exceeding Rs. 3000/- ($67.17) per month57 Prof. Debasis Pani

Benefits

1. Compensation for Death Minimum - Rs. 20,000 ($447.83 Maximum) - Rs. 1,14,000 ($2552.62)2. Compensation for Permanent disablement Minimum - Rs. 24,000 ($537.4) Maximum - Rs

(70,000) $1,567.4 3. Temporary disablement 50% of wages for a maximum period of 5 years.

The Payment of Bonus Act, 1965

Objectives

1. To provide statutory obligations for payment of bonus to persons employed in certain establishments on the basis of profits or productivity.

Scope and Coverage

1. Applicable all over India to factories under the Factories Act and to other establishments employing 20 or persons on any day during a year.

2. Government can extend its coverage to establishments employing between 10 and 20 workers.

3. Covers all workers including supervisors, managers, administrators, technical and clerical staff employed on salary or wages not exceeding Rs 2,500 ($55.97) per month.

Main Provision

1. Eligibility for bonus. 2. Payment of minimum and maximum bonus. 3. Time limit for payment of bonus. 4. Deductions from bonus. 5. Computation of gross profits and available allocable surplus. 6. Rights of employees.

When to Consult and Refer

1. When the factory if registered under the Factories Act. 2. When the number of employees in the establishment reaches 20 or above. 3. When calculating the bonus.

The Shops and Establishments Act, 1953

Objectives

1. To provide statutory obligation and rights to employees and employers in the unorganised sector of employment, i.e., shops and establishments.

Scope and Coverage

1. A state legislation; each state has framed its own rules for the Act.2. Applicable to all persons employed in an establishment with or without wages, except the

members of the employer's family.3. State government can exempt, either permanently or for a specified period, any

establishments from all or any provisions of this Act.Main Provisions

1. Compulsory registration of shop/establishment within thirty days of commencement of work. 2. Communications of closure of the establishment within 15 days from the closing of the

establishment. 58 Prof. Debasis Pani

3. Lays down the hours of work per day and week. 4. Lays down guidelines for spread-over, rest interval, opening and closing hours, closed days,

national and religious holidays, overtime work. 5. Rules for employment of children, young persons and women 6. Rules for annual leave, maternity leave, sickness and casual leave, etc. 7. Rules for employment and termination of service. 8. Maintenance of registers and records and display of notices. 9. Obligations of employers. 10. Obligations of employees.


1. At the time of start of an enterprise. 2. When framing personnel policies and rules.

The Trade Unions Act, 1926

Objective

1. To confer a legal and corporate status on registered trade unions.Scope and Coverage

1. Applicable to unions of workers as well as associations of employers. 2. Extends to the whole of India. 3. A central legislation but administered and enforced by the state governments.

Main Provisions

1. Defines trade union. 2. Registration of a trade union by any seven or nine workers of an establishment on applying

with a copy of the rules of the union, the name and address, and the list of office bearers. 3. Cancellation and dissolution of trade unions. 4. Obligations of registered trade unions. 5. Rights of registered trade unions.


1. At the time of start of an enterprise. 2. Throughout the running of the enterprise.

The Industrial Disputes Act , 1947

Objectives

1. To provide a machinery for peaceful resolution of disputes and to promote harmonious relation between employers and workers.

Scope and coverage

1. Applicable to all industrial and commercial establishments 2. Covers all workers and supervisors drawing salaries up to Rs. 1600/- ($35.82) per month. 3. Not an applicable to person employed in managerial and administrative capacities.

Main provisions

1. Defines industry, industrial dispute, layoff, lockout, retrenchment, trade union, strike, wages. workman, etc.


2. Provides machinery for investigating and settling disputes through works committees, conciliation officers, boards of conciliation, courts of enquiry, labour courts, tribunals and voluntary arbitration.

3. Reference of dispute for adjudication. 4. Awards of labour courts and tribunals. 5. Payment of wages to workers pending proceedings in High Courts. 6. Rights of appeal. 7. Settlements in outside conciliation. 8. Notice of change in employment conditions. 9. Protection of workmen during tendency of proceedings 10. Strike and lockout procedures. 11. Lay-off compensation. 12. Retrenchment compensation. 13. Proceedings for retrenchment. 14. Compensation to workmen in case of transfer of undertakings. 15. Closure procedures. 16. Reopening of closed undertakings. 17. Unfair labour practices. 18. Recovery of money due from employer. 19. Penalties. 20. Obligations and rights of employees.


1. When a dispute arises with the workers' union. 2. When you plan changes in employment conditions. 3. When there is a strike. 4. When there is a lockout. 5. When retrenchment of workmen.6. When undertaking is being transferred 7. On closure of an establishment. 8. On re-opening establishment.
