sickness industry

7/30/2019 Sickness Industry

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Sickness Industry / Sick firm


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Sick industry

Sick industry refers to the Sick units in a

particular industry as a whole.

Example

Sickness in Textile industry ( say the factories /

units in the industry as a whole are Sick ) .

Refers to the general phenomena and does not

refer to any particular unit in the industry.


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Remedies The Industrial units can do nothing of the

happenings for which it has no control but canequip themselves prepared to protect to face

such unfavorable happenings.

In the example given, the people of thatcommunity can use Mosquito nets to protect

themselves from Mosquitoes.

In the example given , the Industrial units can

consider constructing the sheds well above thefloor level at the time of construction to avoid

water entering the shed during rainy season.


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Unit Protecting from the influences

of external environment Normally entrepreneurs conduct

environmental scanning to know and to

implement suitable strategies for managing

macro environment which influences theoperations of the business in all the following

stages of business to avoid unit becoming Sick,

Project Identification

Project planning

Project implementation

Project management

Project development


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Sick firm

Sick firm refers to the Sick unit in a particularindustry .

Reserve Bank of India ( RBI ) defines Sick firm as

the firm incurring cash loss for two consecutivefinancial years and erosion of net worth of theassets of the firm to the extent of 50%.

Example

Sickness happening in a Textile firm ( say Binny Mills) .

Refers to sickness happening in a firm and thus referto a particular unit in the industry.


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Causes for Sickness

Causes for Sickness in Industry could be termed asIndustry Sickness and the Causes for Sickness of theFirm could be termed as Sick Firm.

The Sickness in Industry may result in Firm Sickness but

Sickness in any one firm may not make the IndustrySick.

The Industry Sickness is viewed from the Macro anglebut the Firm Sickness is viewed from the Micro angle.

Nothing could be done by the Firms to change theMacro environment. They can do something to someextent adjust themselves and find ways to survive inthe environment.


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Causes for Industry Sickness

The causes for Sickness in the industry may bebecause of external reasons.

EXTERNAL REASONS Political and legal ( LPG )

Socio cultural preferences ( using Computers)

Natural calamities ( tsunami )

Competition ( Substitute, Industry, Form )

Technology ( State of the Technology )

Economy ( boom, recession, depression )

The industrial sickness may lead to sickness of the unitsof the industry.


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Remedial measure for Industry

Sickness

If the Industry as a whole is Sick and there

exists a need to revive the Industry by taking

appropriate steps at the Macro level.

In the example given earlier , burning a

Mosquito coil to kill all the Mosquitoes to

avoid malaria. Association of the Industry

asking for Tax relief from Govt throughLobbying.


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contd

When there is no Industry Sickness and if

some units are Sick in the industry then we

can come to a conclusion that there are some

problems in the management of those units

which need to be attended to avoid the units

becoming Sick further and also to revive the

Sick unit if feasible.


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Causes for Firm Sickness

The causes for Sickness in the industry may alsohappen due internal reasons of the firm also.

The reasons for Sickness of the firms can happen at anyone or more of the following stages while performingthe business functions viz Marketing, Production,Finance and Human Resource Management

1) Project Identification

2) Project Planning stage

3) Project implementation stage

4) Project Maintenance stage


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Factors causing Sickness during Project

Identification Stage - 1

Not performing the activity of Scanning theenvironment properly to know the Opportunitiesand Threats that exist in the environment,

Not performing the activity of matching theStrengths and Weakness of the Promoters withthe required Strengths to manage the Projectefficiently and effectively ( in terms of

Management personnel, Government formalities,Marketing , Production, Finance and HumanResource Management )


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Factors causing Sickness during Project

Planning Stage 2 ( at Planning stage )

Marketing not estimating the quantity of

Sales properly and the Product mix

In Planning the Branding strategy wrongly

Not Understanding the competitors strengths

and weakness properly

Not Understanding consumer preferences in

deciding the Product mix

Assuming the price of the Product at a very

high rate without obtaining the feedback from

the Pros ective Customers of the Product.


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Technical ( at Planning stage )

Technical not choosing the right technology,going wrong in the Installed capacity,

not ensuring availability of Raw material,

labor, accessories, packing material, etc

Not ensuring availability of Utilities

requirement properly

not ensuring equipments and man power toimplement Quality control measures and

taking steps to add in the facility proposed

Not locating the project in the suitable area

for the Pro ect


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Government Supports ( at Planning stage ) Not verifying from the concerned Government departments

on the objections / un favorable policies that exist to the

business projects of the nature proposed like, whether there will be delay in obtaining licenses from the

Govt authorities like Production license, Sales Tax

registration, etc.

Objection from Pollution control Board

availability of Infra structure facilities to be provided to the

proposed business projects from the Government

Authorities

availability of Term loan from the State FinancialInstitutions and Banks

Whether there will be any delay in disbursing Investment

subsidy given Government


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Financial aspects ( at Planning

stage )

Not arriving at the correct requirement of thefunds for starting / establishing the business /

project.

Not making adequate reserve under the HeadContingency provision for cost escalation and

un foreseen expenses in the Cost of the

Project

Not making adequate reserve under the Head

Preliminary and Pre operative expenses ( start

up expenses and initial expenses )in the Cost

of the Pro ect

td


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contd Not making proper arrangement for initial

Working capital funds with the commercial

Bankers. Not maintaining the required Promoters

capital funds in the readily available form to

be broughtin stages towardsimplementation of the Project.

Not foreseeing and considering alternative

arrangements in case of any delay in therelease of the Govt financial support like

Investment subsidy, Seed capital, etc. ( for this

Bridge loan is provided by Banks as a stop gap

arran ement


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contd Not assuming reasonable Selling price of the

Product in the cost of Production andProfitability statement prepared for 5 years

Not assuming reasonable Cost of the items

which goes into the Production in the cost of

Production and Profitability statement.

Not arriving at the appropriate Debt Equity

ratio for the means of finance

Borrowing term loan at a very high rate of

interest.

Not calculating Profit After Tax to know the

F i Si k


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Factors causing Sickness

Project Implementation stage

Delayed implementation compared to scheduledprogram

Improper implementation compared to the designed

program

Cost escalation very much above the estimated cost

of the program resulting in heavy financial strain for

the Project at the initial stage itself.

If the Project has not been implemented as per theset Plan it will become Born Sick Project and the

Sickness will continue even after the project come

into existence.


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Project Management stage

Mal function of Marketing Function, Due to change in the external environment

Marketing ,

Political and legal ( LPG ) - Ban on the Product by Govt Socio cultural preferences ( dressing style )

Natural calamities ( tsunami )


Technology ( State of the Technology ) land line phone tomobile

Economy ( boom, recession, depression ) demand for

real estate


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Project Management stage Mal function of Production Function, Due to change in the external environment Production ,

Political and legal ( LPG ) Restriction on usage of

Technology

Socio cultural preferences ( Organic food )

Natural calamities ( climatic conditions )


Technology ( State of the Technology ) land line phone tomobile

Economy ( boom, recession, depression ) demand for

real estate during Boom period of the economy

Supplier - inadequate supply of quality raw material andother materials


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Project Management stage Mal function of Finance Function, Due to change in the external environment Finance ,

Political and legal ( LPG ) increase in Income Tax for the

companies

Socio cultural preferences - change in the attitude of the

people towards saving from investing in business ventures

Natural calamities ( need to carry more inventory due to

heavy rains )

Competition ( Substitute, Industry, Form ) cost of capital

Technology ( State of the Technology ) Collection of Bill

through electronic media

economy ( boom, recession, depression ) demand for

money in the economy

Supplier increasing cost of raw material ,other materials


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Project Management stage Mal function of H.R.Function,

Due to change in the external environment Human ResourceManagement,

Political and legal ( LPG ) change in the Reservation policy

in the employee rolls of the company.

Socio cultural preferences - change in the attitude of thewomen to go for employment

Natural calamities (absenteeism of employees may be very

high due to continuous heavy rains affecting production)

Competition ( Substitute, Industry, Form ) when humanresource prefers to start business of their own posing a

challenge for the H.R department in mobilizing Man power

resulting non availability of Man power.

No rain situation for agriculture activity will result in laborforce shifting to building construction activity


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contd

Technology ( State of the Technology ) for the fast

changing technology companies may find difficult to get

Man power resulting in non availability of right work force

economy ( boom, recession, depression ) demand for

Man power becomes a major problem

Supplier non availability of contracting work force may

result in high labor cost for the company.


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Mal function of Marketing Function,

Due to change in the internal environment

Marketing ,

Due to internal reasons

Lack of professionalism

Shortage of funds for Marketing activity

Product Quality problem

Non cooperation of Distributors / Marketing

middlemen

Non cooperation of Sales personnel

F t i Si k


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Project Management stage Mal function of Production Function,

Due to change in the internal environment production ,



Shortage of funds for Production activity

Product Quality problem

Non cooperation of suppliers / service providers /

middlemen

Non cooperation of Production department

personnel

Machinery break down,

Non availability of utilities, infra structure, etc


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Mal function of Finance Function,


Finance ,



Shortage of funds for Finance activity

Product Quality problem sales revenue and

collection of Bills

Non cooperation of suppliers in extending credit

facility


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contd

Non cooperation of Banks in extending credit

facility to the company towards working capital

Non cooperation of Finance department

personnel


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Mal function of Human Resource

Management Function,


H.R. Management ,



Shortage of funds for H.R.D activity

Non cooperation of Consultancy companies, etc


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Remedial measure for Sick unit

If the Unit is Sick and there exists a need to

revive the Industry by taking appropriate steps

at the Micro level / studying the unit

individually from all the angles of business, bytaking up Case study research of the unit to

find out what exactly went wrong in the unit

and finding ways on how to overcome fromthe problems.


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contd

In the example given earlier , to protect from

the Mosquito bite people can use Mosquito

net. Similarly Sick units can consider

introducing new designs or new products tocater to the changing demand of the

Customers when the Industry is facing the

problem of Change in Customer preference inthe Macro environment.

sickness industry

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