Entrepreneurship

This book is a part of the course by Jaipur National University, Jaipur.This book contains the course content for Entrepreneurship.

JNU, JaipurFirst Edition 2013

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Index

I. Content .................................................................... II

II. List of Figures ..................................................... VII

III. List of Tables ................................................... VIII

IV. Case Study ......................................................... 133

V. Bibliography ........................................................ 137

VI. Self Assessment Answers .................................. 140

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1Basics of Entrepreneurship ......................................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction .............................................................................................................................................. 21.2 The Entrepreneur...................................................................................................................................... 21.3 Evolution of Entrepreneurship ................................................................................................................. 3 1.3.1 Entrepreneurial Traits .............................................................................................................. 31.4 Entrepreneurship and Intrapreneurship .................................................................................................... 4 1.4.1 Entrepreneurship ...................................................................................................................... 4 1.4.2 Intrapreneurship ....................................................................................................................... 51.5 Entrepreneurial Culture ............................................................................................................................ 6 1.5.1 Elements of Entrepreneurial Culture ....................................................................................... 6 1.5.2 The Building Blocks of Entrepreneurial Culture ..................................................................... 61.6 Comparison of Traditional Manager, Intrapreneurs and Entrepreneurs................................................... 71.7 Role of Entrepreneurship in India ............................................................................................................ 8Summary ....................................................................................................................................................... 9References ..................................................................................................................................................... 9Recommended Reading ............................................................................................................................... 9Self Assessment ........................................................................................................................................... 10

Chapter II ................................................................................................................................................... 12Entrepreneurial Development Process ..................................................................................................... 12Aim .............................................................................................................................................................. 12Objectives .................................................................................................................................................... 12Learning outcome ........................................................................................................................................ 122.1 Introduction ............................................................................................................................................ 132.2 The Entrepreneurial Environment .......................................................................................................... 132.3 Entrepreneurial Decisions ...................................................................................................................... 142.4 Types of Enterprises ............................................................................................................................... 152.5 Problems in Small Scale Enterprise ....................................................................................................... 152.6 The Entrepreneurial Process .................................................................................................................. 172.7 Entrepreneurial Process Models ............................................................................................................ 19 2.7.1 The Four Stage Growth Model .............................................................................................. 19 2.7.2 The Corporate Development Process Model ......................................................................... 202.8 Key Success Factors for Entrepreneurs ................................................................................................. 212.9 Characteristics of Successful Entrepreneurs .......................................................................................... 222.10 Functions of Entrepreneurs .................................................................................................................. 22Summary ..................................................................................................................................................... 23References ................................................................................................................................................... 23Recommended Reading ............................................................................................................................. 23Self Assessment ........................................................................................................................................... 24

Chapter III .................................................................................................................................................. 26The Business Planning Process ................................................................................................................. 26Aim .............................................................................................................................................................. 26Objectives .................................................................................................................................................... 26Learning outcome ........................................................................................................................................ 263.1 Introduction ............................................................................................................................................ 273.2 Principles for Business Planning ........................................................................................................... 273.3 Common Elements in a Business Plan Executive Summary ................................................................. 273.4 Defining a Business Idea ....................................................................................................................... 29

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3.5 Identifying Problems and Opportunities ................................................................................................ 293.6 Purpose of Business Plan: Purpose of Planning .................................................................................... 303.7 Environmental Analysis ......................................................................................................................... 31 3.7.1 Environment Search ............................................................................................................... 31 3.7.2 Types of Environment ............................................................................................................ 32 3.7.3 Environmental Scanning ........................................................................................................ 323.8 Entrepreneurship Development Cycle ................................................................................................... 333.9 Business Incubators ............................................................................................................................... 34Summary ..................................................................................................................................................... 36References ................................................................................................................................................... 36Recommended Reading ............................................................................................................................. 36Self Assessment ........................................................................................................................................... 37

Chapter IV .................................................................................................................................................. 39Project Management .................................................................................................................................. 39Aim .............................................................................................................................................................. 39Objectives .................................................................................................................................................... 39Learning outcome ........................................................................................................................................ 394.1 Introduction ............................................................................................................................................ 404.2 Entrepreneur as a Project Manager ........................................................................................................ 404.3 Feasibility Study .................................................................................................................................... 414.4 Setting up a Project ................................................................................................................................ 42 4.4.1 Project Selection .................................................................................................................... 42 4.4.2 Technology and Machinery: Process selection ...................................................................... 44 4.4.3 Finincial Assistance for Small Scale Industries ..................................................................... 44 4.4.4 Unit Development .................................................................................................................. 454.5 Risk Management .................................................................................................................................. 464.6 Management of Cash ............................................................................................................................. 474.7 Management of Inventory ...................................................................................................................... 48Summary ..................................................................................................................................................... 50References ................................................................................................................................................... 50Recommended Reading ............................................................................................................................. 50Self Assessment ........................................................................................................................................... 51

Chapter V .................................................................................................................................................... 53Marketing Function and Strategies .......................................................................................................... 53Aim .............................................................................................................................................................. 53Objectives .................................................................................................................................................... 53Learning outcome ........................................................................................................................................ 535.1 Introduction ............................................................................................................................................ 545.2 Definition of Marketing ......................................................................................................................... 545.3 Marketing Concepts ............................................................................................................................... 545.4 The Marketing Mix ................................................................................................................................ 55 5.4.1 The Product ............................................................................................................................ 56 5.4.2 Price ....................................................................................................................................... 57 5.4.3 Place ....................................................................................................................................... 57 5.4.4 Promotion ............................................................................................................................... 575.5 Market Research .................................................................................................................................... 58 5.5.1 Secondary Research ............................................................................................................... 59 5.5.2 Primary Research ................................................................................................................... 595.6 Market Segmentation ............................................................................................................................. 605.7 Marketing Strategy ................................................................................................................................. 605.8 Marketing Plan ....................................................................................................................................... 61 5.8.1 Review Mechanism ................................................................................................................ 63 5.8.2 Use of Marketing Plans .......................................................................................................... 64

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5.9 Marketing Budget .................................................................................................................................. 645.10 E-marketing .......................................................................................................................................... 64 5.10.1 E-marketing Techniques ...................................................................................................... 64Summary ..................................................................................................................................................... 66References ................................................................................................................................................... 66Recommended Reading ............................................................................................................................. 66Self Assessment ........................................................................................................................................... 67

Chapter VI .................................................................................................................................................. 69Sources of Finance ..................................................................................................................................... 69Aim .............................................................................................................................................................. 69Objectives .................................................................................................................................................... 69Learning outcome ........................................................................................................................................ 696.1 Introduction ............................................................................................................................................ 706.2 Financial Decisions to Make Before Starting a Business ...................................................................... 706.3 Stages of Entrepreneurial Financing ...................................................................................................... 706.4 Equipment Leasing or Equipment Financing ........................................................................................ 726.5 Inventory Financing ............................................................................................................................... 736.6 Factoring Accounts Receivables ............................................................................................................ 736.7 Bank Finance through Commercial Banks and Financial Institutions ................................................... 74 6.7.1 Fund Based Bank Facilities ................................................................................................... 74 6.7.2 Non-fund Based Bank Facilities ............................................................................................ 756.8 Schemes offered by Various Banks and Financial Institutions .............................................................. 75 6.8.1 Industrial Development Bank of India (IDBI) ....................................................................... 75 6.8.2 State Bank of India (SBI) ....................................................................................................... 76 6.8.3 Industrial Credit and Investment Corporation of India (ICICI) ............................................. 76 6.8.4 Small Industries Development Bank of India (SIDBI) .......................................................... 77 6.8.5 State Financial Corporation (SFC) ........................................................................................ 77 6.8.6 The Maharashtra State Financial Corporation (MSFC) ......................................................... 77 6.8.7 National Bank for Agriculture and Rural Development (NABARD) .................................... 78 6.8.8 Other Banks offering Financial Assistance ............................................................................ 786.9 Venture Capital Funding (VCF) ............................................................................................................. 78 6.9.1 Characteristics of Venture Capital Funding ........................................................................... 79 6.9.2 Advantages of Venture Capital............................................................................................... 79 6.9.3 The Venture Capital Investment Process ............................................................................... 80 6.9.4 Role of Venture Capital Investor............................................................................................ 81Summary ..................................................................................................................................................... 82References ................................................................................................................................................... 82Recommended Reading ............................................................................................................................. 82Self Assessment ........................................................................................................................................... 83

Chapter VII ................................................................................................................................................ 85Human Resource Aspects .......................................................................................................................... 85Aim .............................................................................................................................................................. 85Objectives .................................................................................................................................................... 85Learning outcome ........................................................................................................................................ 857.1 Introduction ............................................................................................................................................ 867.2 Human Resource Planning ..................................................................................................................... 867.3 Formation of Entrepreneurial Team ....................................................................................................... 867.4 The Recruitment Process ....................................................................................................................... 897.5 Training the Employees ......................................................................................................................... 907.6 Employee Motivation ............................................................................................................................. 91Summary ..................................................................................................................................................... 93References ................................................................................................................................................... 93Recommended Reading ............................................................................................................................. 93

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Self Assessment ........................................................................................................................................... 94

Chapter VIII ............................................................................................................................................... 96The Legal Procedure for Setting up an Enterprise ................................................................................. 96Aim .............................................................................................................................................................. 96Objectives .................................................................................................................................................... 96Learning outcome ........................................................................................................................................ 968.1 Introduction ............................................................................................................................................ 978.2 Type of Business Ownership .................................................................................................................. 978.3 Registration of SSI Units ....................................................................................................................... 978.4 Permissions and Clearances ................................................................................................................... 98 8.4.1 Regulatory or Taxation Clearances ........................................................................................ 99 8.4.2 Environment and Pollution Related Clearances .................................................................... 99 8.4.3 Product Specific Clearances .................................................................................................. 99 8.4.4 Labour Laws ........................................................................................................................ 1008.5 Legal Acts Governing an Enterprise .................................................................................................... 100 8.5.1 Factories Act, 1948 .............................................................................................................. 100 8.5.2 The Payment of Wages Act, 1936 ........................................................................................ 101 8.5.3 The Workmen’s Compensation Act, 1923 ........................................................................... 101 8.5.4 The Industrial Employment Act, 1946 ................................................................................. 102 8.5.5 The Employees State Insurance Act, 1948 .......................................................................... 102Summary ................................................................................................................................................... 103References ................................................................................................................................................. 103Recommended Reading ........................................................................................................................... 103Self Assessment ......................................................................................................................................... 104

Chapter IX ................................................................................................................................................ 106Role of Government in Entrepreneurial Development ........................................................................ 106Aim ............................................................................................................................................................ 106Objectives .................................................................................................................................................. 106Learning outcome ...................................................................................................................................... 1069.1 Introduction .......................................................................................................................................... 1079.2 Incentives ........................................................................................................................................... 107 9.2.1 Importance of Incentives ..................................................................................................... 1079.3 Various Incentives given by the Government of India to Small Scale Entrepreneurs ......................... 1089.4 Incentives given to Export Oriented Units ............................................................................................1109.5 Incentive Schemes by Maharashtra State Government ........................................................................1119.6 Agencies Promoting Entrepreneurship Development in India ..............................................................111 9.6.1 Entrepreneurship Development Institute of India (EDII) .....................................................111 9.6.2 National Small Industries Corporation Ltd. (NSIC) .............................................................112 9.6.3 National Entrepreneurship Development Board (NEDB) ....................................................113 9.6.4 Small Industries Service Institute (SISI) ..............................................................................114 9.6.5 National Institute of Entrepreneurship and Small Business Development (NIESBUD) ......116 9.6.6 District Industries Centre (DIC) ...........................................................................................117 9.6.7 Prime Minister’s Rozgar Yojana (PMRY) for Educated, Unemployed Youth......................118Summary ....................................................................................................................................................119References ..................................................................................................................................................119Recommended Reading ............................................................................................................................119Self assessment ......................................................................................................................................... 120

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Chapter X ................................................................................................................................................. 122Women Entrepreneurship ....................................................................................................................... 122Aim ............................................................................................................................................................ 122Objectives .................................................................................................................................................. 122Learning outcome ...................................................................................................................................... 12210.1 Introduction ........................................................................................................................................ 12310.2 Definition of a Woman Entrepreneur ................................................................................................. 12310.3 Factors Supporting Women’s Entrepreneurship ................................................................................ 12310.4 Characteristics of Women’s Entrepreneurship ................................................................................... 12410.5 Barriers to Women’s Entrepreneurship .............................................................................................. 126 10.5.1 Overcoming the Barriers .................................................................................................... 12610.6 Promoting Women’s Enterprises ........................................................................................................ 126 10.6.1 Government’s Role in Promoting Women’s Enterprises ................................................... 126 10.6.2 Supportive Measures for Women’s Economic Activities and Entrepreneurship ............... 12710.7 NGOs Supporting Women Entrepreneurs .......................................................................................... 127 10.7.1 Self-employed Women’s Association (SEWA) .................................................................. 127 10.7.2 Association of Women Entrepreneurs of Karnataka (AWAKE) ........................................ 127 10.7.3 Area Networking and Development Initiatives (ANANDI) .............................................. 127 10.7.4 Private Sector Organisations .............................................................................................. 12810.8 Leading Indian Women Entrepreneurs............................................................................................... 128Summary ................................................................................................................................................... 130References ................................................................................................................................................. 130Recommended Reading ........................................................................................................................... 130Self Assessment ......................................................................................................................................... 131

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List of Figures

Fig. 1.1 Schematic representation of entrepreneurship .................................................................................. 4Fig. 1.2 Four stages of intrapreneurial team development ............................................................................. 5Fig. 2.1 Entrepreneurial environment .......................................................................................................... 13Fig. 2.2 Entrepreneurial decisions arising out of four interconnected decision domains ............................ 14Fig. 2.3 The entrepreneurial process ............................................................................................................ 17Fig. 2.4 The four-stage growth model .......................................................................................................... 19Fig. 2.5 The corporate development process model .................................................................................... 20Fig. 2.6 Key success factors for entrepreneurs ............................................................................................ 21Fig. 3.1 Environmental circle ....................................................................................................................... 31Fig. 3.2 Environmental scanning process .................................................................................................... 33Fig. 3.3 Entrepreneurial development cycle ................................................................................................ 33Fig. 4.1 Steps in setting up a project ............................................................................................................ 42Fig. 5.1 The four P’s of marketing mix ........................................................................................................ 56Fig. 5.2 Types of product ............................................................................................................................. 56Fig. 5.3 Steps in market research ................................................................................................................. 59Fig. 5.4 Strategic marketing process ............................................................................................................ 61Fig. 6.1 Venture capital funding ................................................................................................................... 79Fig. 6.2 Venture capital investment process ................................................................................................. 80Fig. 7.1 Formation of the entrepreneurial team ........................................................................................... 87Fig. 7.2 Employee recruitment at SSIs ........................................................................................................ 89Fig. 7.3 Employee training at SSIs .............................................................................................................. 90Fig. 8.1 Steps for permissions and clearances ............................................................................................. 99Fig. 10.1 Factors supporting women’s entrepreneurship ........................................................................... 123

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List of Tables

Table 1.1 Views of management thinkers on entrepreneurship ..................................................................... 5Table 1.2 Comparison of traditional managers, intrapreneurs and entrepreneurs ......................................... 7Table 2.1 Types of environments ................................................................................................................. 13Table 3.1 Factors in the development cycle ................................................................................................. 34Table 5.1 Different variables for segmentation ............................................................................................ 60Table 6.1 Factoring situations ...................................................................................................................... 74Table 6.2 Role of venture capital investor ................................................................................................... 81Table 8.1 Forms of business organisation .................................................................................................... 97

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Chapter I

Basics of Entrepreneurship

Aim

The aim of this chapter is to:

introduce the concept of entrepreneurs, enterprise and entrepreneurship•

explain the concept of intrapreneurship•

distinguish intrapreneur and entrepreneur with traditional manager•

Objectives

The objectives of this chapter are to:

clarify the characteristics of entrepreneurs•

enlist skills and resources needed by an entrepreneur•

explain the Indian entrepreneurial economy•

Learning outcome

At the end of this chapter, you will be able to:

recognise the prominent characteristics of an entrepreneur •

identify the role of entrepreneurs in building a good business•

understand the role of Indian government in entrepreneurship•

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1.1 IntroductionIn India, after completion of education, one has broadly two career options. One can employ oneself in government agencies,publicandprivatesectors,acceptingthefixedsalary.Theothercareeroptionisself-employmentunderwhichoneperceives/innovatesanidea,organisesproductionbyorganisingresourcesandfinallymarketstheproductsand services. Such persons are called as entrepreneurs. However, it is observed that some of the entrepreneurs achievesuccesswhilesomeofthemfacehugelosses.Whyisitso?Isestablishingsuccessfulbusinesssodifficult?How can success be achieved by an enterprise? Why do many initiatives fail?

It is said that some humans have the ability to achieve success by hard work, while others may lack in using their abilities. If this fact is correct, what sort of enterprise one should plan to venture into? What would one need to acquire in terms of skills and resources to make the venture a success? What are the initiatives taken by the government and otheragenciestosupportthesekindsofenterprises?Thisandsubsequentchaptersareanattempttofindanswersto all these questions. Let us try to understand what makes an entrepreneur, and what the ‘entrepreneurship’ is all about.

1.2 The EntrepreneurEntrepreneurs are the people with the ability to create an enterprise where none existed before. They produce combinations of ideas, skills, money, equipment, and markets that form a successful enterprise.

TheMerriam-WebsterDictionarydefinesthetermentrepreneursas,“theonewhoorganises,managesandassumes•the risks of a business or an enterprise.” The term entrepreneur is derived from the French verb ‘enterprendre’, which literally means to undertake something.An entrepreneur can be described as someone who:•

starts his/her own enterprise �manages his/her own enterprise �identifiesnewproductsoropportunities �organisesandcontrolsresources(likecapital,labour,materials)toachieveprofit �is creative and innovative �hasfinancialmeansorwhocanobtainfinancingsoastorealisetheenterprise �hastheabilityandinsighttoproduceandfinanceandmarketaserviceorproduct �is willing to take calculated risks �

Some of the famous entrepreneurs are:•Henry Ford (automobiles) �Thomas Edison (electricity/ light bulbs) �Milton S. Hershey (confections) �Jamshetji Tata (Iron and Steel, Textiles) �Sunil Mittal (Telecommunications) �Dhirubhai Ambani (Petrochemicals) �

Ted Turner is another example of entrepreneurial spirit. He launched CNN because he perceived that people •wanted more television news than they were being offered. It took a lot of time for Turner to realise the vision, but he had studied the market thoroughly. In realising the promise of CNN, Turner demonstrated a live scenario of entrepreneurial spirit and persistence.

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1.3 Evolution of EntrepreneurshipEntrepreneurship is the practice of starting new organisations, particularly new businesses generally in response to identifiedopportunities.Entrepreneurial activities differ according to the type of organisation that is beingstarted.

The understanding of entrepreneurship owes a lot to the work of economist Joseph Schumpeter and Austrian School of Economics. For Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation.

1755 - Richard Cantillion: Essal Sur la Nature du Commere on General1803 - Jean-Babsite Say: A treasure of Political Economy1921-FrankKnight:Risk,UncertaintyandProfit1934 - Joseph Schumpeter: The Theory of Economic Development1968 - Harvey Leibenstein : Entrepreneurship and Development1973 - Competition and Entrepreneurship1973 - Israel Kizner: Competition and Entrepreneurship1982 - Mark Casson: The Entrepreneur: An Economic Theory1986 - Peter Drucker and Entrepreneurship

For Frank H. Knight (1967) and Peter Drucker (1970), entrepreneurship is about taking risks. Still, another •view of entrepreneurship is creating and building value from practically nothing. That is, entrepreneurship is the process of creating or seizing an opportunity and pursuing it regardless of the resources currently.Ontheotherhand,HowardStevensonatHarvardUniversitybelievesthattheentrepreneurshipis“• the pursuit of opportunity without regard to resources currently controlled.” Thus, entrepreneurship is widely regarded as an integral player in the business culture of life.

1.3.1 Entrepreneurial TraitsAccording to entrepreneurial personality studying literature, there are certain traits that seem to be associated with entrepreneurs. They are as follows:

In 1961, David McClelland described the entrepreneur as primarily motivated by an overwhelming need for •achievement and strong urge to build.Collins and Moore (1970) studied 150 entrepreneurs and concluded that they are tough, realistic people driven •by needs of independence and achievement. They rarely are willing to submit to authority.Bird (1992) views entrepreneurs as mercurial, that is, prone to approaching, brainstorms, deceptions, ingeniousness •and imagination. They are cunning, opportunistic, creative, and tough.BusenitzandBarney(1997)claimentrepreneursarepronetooverconfidenceandovergeneralisations.•According to Cole (1959), there are four types of entrepreneur:•

the innovator �the calculating inventor �the over-optimistic promoter �the organisation builder �

These types are not related to the personality but to the type of opportunity the entrepreneur faces.•Burton W. Folsom, Jr. distinguishes between what he calls a political entrepreneur and a market entrepreneur.•

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Thepoliticalentrepreneurusespoliticalinfluencestogainincomethroughsubsidies,protectionism,governmentgranted monopoly, government contracts, or other such favourable arrangements with government. The market entrepreneur operates without special favours from the government.

1.4 Entrepreneurship and IntrapreneurshipGiven below is the description of entrepreneurship and intrapreneurship

1.4.1 Entrepreneurship

An entrepreneurship is a process that involves various actions to be undertaken to establish an enterprise by an •entrepreneur.Entrepreneurshipcanalsobesaidtobeatendencyofmindtotakecalculatedriskswithconfidenceto achieve a predetermined business objective.

Entrepreneurship = Entrepreneur + Enterprise

Entrepreneur Enterprise(Process Driver) (Actionable Process) (Expected Outcome)

Enterpreneurship

Fig. 1.1 Schematic representation of entrepreneurship

Entrepreneurship is the active process of creating incremental wealth. Individuals, who assume the major risks •in terms of equity, time, and commitments or provide value for some product or services, create the wealth.Thus,wecandefineentrepreneurshipastheprocessofcreatingsomethinginnovativewithvaluebydevotingthe•necessarytimeandeffort,assumingtheaccompanyingfinancial,psychological,andsocialrisksandreceivingmonetary and personal satisfaction and independence.Thisdefinitionstressesonfouraspectsofentrepreneurship.Theyareasfollows:•

Entrepreneurship involves the creation process–creating something new. �Entrepreneurship requires the devotion of the necessary time and effort. �Assuming the risks is an essential aspect of entrepreneurship. �Thelastpartofthedefinitioninvolvesrewardsofbeinganentrepreneur.Theserewardsaremostlyinthe �form of success in terms of personal satisfaction and money.

Management Thinkers Views

Schumpeter

“Entrepreneurship is essentially a creative activity.The entrepreneur is theinnovator who introduces something new into the economy. Entrepreneurs are business leaders and not simple owners of capital. They have vision, drive and talent, and spot out opportunities and promptly seize them for exploitation.”

McClelland “Entrepreneurshipmeansthefunctionofcreatingsomethingnew,organising,coordinating, undertaking risk and handling economic uncertainty.”

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A.H. Cole

“Entrepreneurship is the purposeful activity of an individual or a group ofassociated individuals, undertaken to initiate,maintain or organise a profitoriented business unit for the production or distribution of economic goods and services.”

Peter Drucker

“Entrepreneurship is neither a science nor an art. It is a practice and hasaknowledgebase.Innovationis thespecifictoolofentrepreneurs, themeansby which they exploit changes as an opportunity for different businesses or services.”

Table 1.1 Views of management thinkers on entrepreneurship

1.4.2 Intrapreneurship

Pinchot (1985) coined the term Intrapreneurship to describe entrepreneurial-like activities inside organisations •and government. The concept is commonly referred to as Corporate Entrepreneurship. Intrapreneurship is the practice of entrepreneurial skills and approaches by or within a company.Pinchotidentifiedfourstagesofspontaneousteamdevelopment.•

Stage 1Sole Phase

Stage 2Network Phase

Stage 3Bootleg Phase

Stage 4Formal Team Phase

Individual nurtures idea to establish feasible innovation to develop.

Innovator seeks advice and support from colleagues to develop the idea.

Working informally team proposes idea to organisation for development.

Corporate provides budget and mandate for team to pursue formal development of motivation.

Fig. 1.2 Four stages of intrapreneurial team development

Individuals, who strongly believe in their own talents, have a regular desire to create something independently, •want responsibility and have a strong need for individual expression and more freedom in their present organisation, are ideal to be termed as intrapreneurs.Thus, an intrapreneur is a persistent leader with a unique vision who is able to bring about change from within •an institution or organisation, through innovation. These innovative employees help the company in constructive ways to initiate new products and services.The intrapreneur uses resources in creative ways, by recruiting a core team of motivated people and encouraging •them to implement change and innovation, by building bridges and bringing people together from within various parts of the institution.It is very essential for the senior management of the company to carefully utilise the skills of these intrapreneurs •to achieve organisational goals.For example: Wipro Technologies•

Wipro Technologies which is one of the India’s top 3 IT service companies initiated a unique program.Wipro �had a sizeable chunk of IT professionals who were not being assigned to client projects.Instead of resorting to layoffs, it invited employees to submit their business ideas in the technology domain, �which could be implemented within the broad areas of its operation.

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Acommittee of technology, business andfinance professionals goes through all such proposals and �employees are asked to defend their ideas. All accepted proposals are started within the organisation by mutual decision.TheemployeesareeducatedontheimportanceofIntellectualPropertyandencouragedtofilepatentswith �joint ownership. This helped Wipro to increase the entrepreneurial spirit of employees as well as effectively utilise its vast pool of technical talent.

1.5 Entrepreneurial CultureCulture is a set of social behavioural aspects, which include mainly beliefs, knowledge, ideas and preferences. •AccordingtoWebster,“Culture is an integral pattern of human behaviour which includes thoughts, speech and action.”Entrepreneurial culture involves vision, values, norms and traits that are helpful for the development of •the economy. Culture of any enterprise depends on the culture of that country as well as the nature of that business.In order to create a culture which promotes growth, entrepreneurs should overcome their old established mindsets, •regulate themselves and build up their tolerance for the vague, the uncertain and the unpredictable.An entrepreneur should be prepared to face any type of risk. Thus, entrepreneurial success is a result of strategic •thinking and corporate culture building.

1.5.1 Elements of Entrepreneurial CultureThe entrepreneur has to ensure that the following elements are a part of the entrepreneurial culture of his enterprise:

people and empowerment focused•value creation through innovation and change•commitment and personal responsibility•attention to the basics•hands-on management•doing the right thing and freedom to grow and to fail•emphasis on the future and a sense of urgency•

1.5.2 The Building Blocks of Entrepreneurial Culture

V.V. Ranganathan, the Country Leader and National Director, Entrepreneur of The Year Awards, Ernst & Young •Indiastatedthat,“ArobustentrepreneurialculturehasstrengthenedIndia’spositionintheworldeconomy.As Indian businesses cross borders, they foster both wealth creation and generation of employment opportunities. •Given the right impetus, there is very strong potential for more Indian businesses to become truly world class players.”

The following are fundamentals that help build an entrepreneurial culture:Organisation culture

Organisational culture consists of the social structure, and integrated form of attitudes, values, experiences, •and beliefs.Organisationalcultureisthespecificcollectionofvaluesandnormsthataresharedbypeopleandgroupsinan•organisationandthisinfluencethewaytheyinteractwitheachotherandwithstakeholdersofthecompany.

Corporate cultureCorporate culture brings the following things for an entrepreneur:

Leader - set examples in terms of personal characteristics like honesty and justice.•Facilitator- demonstrates commitment, communicate and listen to people.•

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Deliberate-beresultoriented,usefirmagendasandstriveforspecificobjectives.•Decisive - take fast decisions, be quick and transparent.•Explicit - get people to take responsibility for small as well as big tasks.•

Quality cultureQuality culture means total quality output and customer satisfaction. It also means improvement of quality of work life and employee satisfaction. It is the sum total of norms, beliefs and values that regulate the behaviour of individuals and groups within an organisation.

Productivity cultureProductimprovementdoesnotonlymeandoingthingsbetterbutdoingtherightthingsbetteratthefirsttimeitself.Theattitudeoftheemployeesworkingintheorganisationinfluencestheproductivityculture.

Business ethics/code of conductBusiness ethics is a normative discipline, whereby particular ethical standards are advocated and then applied. It makesspecificjudgmentsaboutwhatisrightorwrong.Inotherwords,itmakesclaimsaboutwhatoughttobedoneor what ought not to be done in the course of business.

1.6 Comparison of Traditional Manager, Intrapreneurs and Entrepreneurs

Attribute Traditional Manager Intrapreneur Entrepreneur

Primary motives Office,power,promotionsandother corporate rewards

Freedom, access to corporate resources, goal oriented, self- motivated

Independence, opportunity to create, money

Time orientationShort- term meeting quotas, budgets- weekly, monthly, quarterly and annually

Depending on urgency to meet self-imposed and corporate timetable

Survival and achieving business growth in 5-10 years

Status Concerned about status symbols

Desires independence, cares less about status

No concern about status symbols

Activity Delegates and supervises more than direct involve- ment

More than delegation, direct involvement Direct involvement

Risk failure and mistakes

Cautious Avoids mistakes and failures

Moderate risk taker Attempt to hide risky projects from view until ready

Moderate risk taker Deals with mistakes and failures

Decisions Aligned with senior management decisions

Ability to get othersagree to help achieve dream

Follows own dreams

Relationship with others

Hierarchy as the basis of relationship

Transactions within hierarchy

Transactions and deal making as basic relationships

Family history Family members worked for large organisation

Entrepreneurial, small-business or farming background

Entrepreneurial with small-business, professional or agricultural background

Table 1.2 Comparison of traditional managers, intrapreneurs and entrepreneurs

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1.7 Role of Entrepreneurship in IndiaThe Indian economy has transformed consistently from a backward agrarian economy to its present status. Small business has played a crucial role in this transformation of the Indian economy.

It has created millions of job opportunities to the unemployed people even to those having basic education. It •has fostered the inbuilt entrepreneurial spirit in all the corners of the nation which has developed all the regions. It has been instrumental in raising the standard of living of the massive population.Thesmall-scalesectorhascontributedspecificallyinthefollowingareas:•

employment generation �low initial capital investment �balanced regional development �equitable distribution of income �promoting inter-sectoral linkages �exporting goods �develo � pment of entrepreneurship

Many of the big businesses today, for example, Siemens, Ford, Reliance, Eastman Kodak, Lever Brothers, •Nirma, Rasna and so on, were all started as a small business and then raised into big businesses. The success stories of businesses built on a great idea executed by a talented team have great appeal in India, in spite of scarcity of capital and resources.Entrepreneurship has been embedded in the Indian genius and is a part of its tradition. The renowned economist •T.N.Srinivasanstatesthat,“Indiahasbeenanentrepreneurialsocietyandtheentrepreneurialspiritisanongoingcharacteristic of India’s history. Traditionally, the Entrepreneurship of trading communities is facilitated principally by the successful use of informal entrepreneurial ecosystems and interdependent business networks.”Government must commit to create the right environment to develop successful business builders. To do this, •the government must focus on four areas like:

creation of conducive environment to start a business �ensure that entrepreneurs have access to the right skills �ensure that entrepreneurs have access to smart capital �enable networking and exchange of ideas �

Thus,Indiacanbenefitbycreatingastrongforumofentrepreneursfromwhomnewentrepreneurscandrawadviceand support.

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SummaryTheMerriam-WebsterDictionarydefinesthetermentrepreneurs“theonewhoorganises,managesandassumes•the risks of a business or an enterprise”. The term entrepreneur is derived from the French verb ‘enterprendre’, which literally means to undertake something.An entrepreneurship is a process that involves various actions to be undertaken to establish an enterprise by an •entrepreneur.Entrepreneurshipcanalsobesaidtobeatendencyofmindtotakecalculatedriskswithconfidenceto achieve a predetermined business objective.Individuals who strongly believe in their own talents, have a regular desire to create something independently, •want responsibility and have a strong need for individual expression and more freedom in their present organisation, are ideal to be termed as intrapreneurs.Pinchot (1985) coined the term Intrapreneurship to describe entrepreneurial-like activities inside organisations •and government. The concept is commonly referred to as Corporate Entrepreneurship. Intrapreneurship is the practice of entrepreneurial skills and approaches by or within a company.The intrapreneurial team development passes through phases like sole phase, network phase, bootleg phase, •formal team phase.The basics of entrepreneurial culture along with the elements of the entrepreneurial culture are included in this •chapter. The building blocks of culture are organisation culture, corporate culture, quality, productivity, and business ethics.The comparison between an entrepreneur, a manager and an intrapreneur is done considering the attributes like •primary motives, time orientation, status, activity, risk failure and mistakes, decisions, relationship with others, family history.

ReferencesGoswami A., Dalmia, N. & Pradhan, M., 2008. • Entrepreneurship in India. National Knowledge Commission.Nieuwenhuizen C., Machado R., 2004. • Basics of Entrepreneurship, Juta and Company Ltd.Coleman, H., 2011, • Entrepreneurship101, [Video Online] Available at: <http://www.youtube.com/watch?v=4oevfE8TfOY> [Accessed 5 September 2012]Morelli, S., 2011, • Innovative thinking & entrepreneurship lecture, [Video Online] Available at: <http://www.youtube.com/watch?v=eYE9G6Hy2SU> [Accessed 5 September 2012].Toren, A., 2012• , Entrepreneur, [Online] Available at: <http://www.entrepreneur.com/article/224271> [Accessed 5 September 2012].Doran, J., • Articles in entrepreneurship, [Online] Available at: <http://www.justindoran.ie/1/post/2012/08/article-in-entrepreneurship-and-regional-development.html> [Accessed 5 September 2012].

Recommended ReadingBhide, A., 2004. • What Role for Entrepreneurship in India? Columbia University.Lal, A. K., 2005. Economic Development in India: The Role of Individual Enterprise. • Asia- Pacific Development Journal.Singh, B., 2009. • Entrepreneurship Development. Wisdom Publications.

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Self Assessment“Entrepreneurshipisneitherasciencenoranart,”says____________.1.

McClelland a. Schumpeter b. A. H. Colec. Peter Druckerd.

Schumpeteremphasiseson___________andcreativityinentrepreneurship.2. ambitiona. innovationb. adventurous naturec. couraged.

______________identifiedfourstagesofspontaneousteamdevelopment.3. McClelland a. Schumpeter b. Pinchotc. Peter Druckerd.

What is the primary motive for an entrepreneur?4. Promotion and corporate rewards a. Independence and opportunities to create moneyb. Poweronstaffandofficec. Freedom and corporate resourcesd.

For Frank H. Knight, entrepreneurship is about 5. .innovation a. creativity b. taking riskc. capital investmentd.

What is referred to as corporate entrepreneurship?6. Enterprisea. Entrepreneurb. Intrapreneurship c. Businessd.

Which of the following is not from the four stages of spontaneous team development?7. Bootleg phase a. Sole phaseb. Network phasec. Growth phased.

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______________ involves vision, values, norms and traits that are helpful for the development of the8. economy.

Enterprisea. Entrepreneurial culture b. Intrapreneursc. Economistsd.

Which of the following statements is true?9. Organisational culture consists of the social structure, and integrated form of attitudes, values, experiences, a. and beliefs.Corporate culture consists of the social structure, and integrated form of attitudes, values, experiences, and b. beliefs.Quality culture consists of the social structure, and integrated form of attitudes, values, experiences, and c. beliefs.Production culture consists of the social structure, and integrated form of attitudes, values, experiences, d. and beliefs.

____________istheprocessofcreatingorseizinganopportunityandpursuingitregardlessoftheresources10. currently.

Intrapreneurshipa. Enterpriseb. Entrepreneurc. Entrepreneurshipd.

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Chapter II

Entrepreneurial Development Process

Aim

The aim of this chapter is to:

enlist various types of enterprises•

explain entrepreneurial development process and its phases•

elucidate the characteristics of successful entrepreneurs•

Objectives

The objectives of this chapter are to:

explain the entrepreneurial process•

identify the factors that affect entrepreneurs decisions•

explore the characteristics of successful entrepreneurs•

Learning outcome

At the end of this chapter, you will be able to:

understand entrepreneurial development process and its phases•

identify the types of environment affecting entrepreneurs decisions•

recognise the key success factors of entrepreneurs•

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2.1 IntroductionEntrepreneurs are those who like to set up a business on their own. The business ideas can evolve out of many sources like experience, friends and relatives or personal interests. The process of creating or grabbing an opportunity is quite difficultformostoftheentrepreneurs.However,tostartupwithanytypeofbusinessitisnecessarytounderstandthe opportunities available in that particular business. Once the entrepreneurs are aware of the opportunities which will be advantageous to set up a business, they advance to carry out set of actions to set up the business. This process is called as entrepreneurial process.

2.2 The Entrepreneurial EnvironmentThe factors that affect entrepreneurs are referred to as the entrepreneurial environment. The entrepreneurial environmentisclassifiedintosixpartsasshown.

Economic Technological

Legal

SocialPolitical

Cultural Entrepreneurial Environment

Fig. 2.1 Entrepreneurial environment

Entrepreneurial development is largely dependent on the types of environments and hence they are major considerations in the decision-making process of entrepreneurship. Following table gives a view of type of environment and what it consists of:

Type of Environment Composition

Political Environment Political conditions, leadership qualities, and so on

Economic Environment Economic policies, trade practices, tariff regulations, incentives, subsidies, labour issues, and so on

Social Environment Consumer attitudes, tastes, and motives

Technological Environment New inventions, risk management, productivity, competition, and efficiency

Legal Environment Rules and regulations, Government guidelines

Cultural Environment Social structure, values, beliefs, aspirations, and so on.

Table 2.1 Types of environments

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2.3 Entrepreneurial DecisionsThe entrepreneurial process involves the selection or formation of a combination of resources, stakeholders and an environment that transforms the idea into a successful enterprise. This selection and formation occurs through a set of interconnected entrepreneurial decisions. Entrepreneurial decisions arise out of four interconnected decision domains. They are as follows:Resources

This domain includes non-human resources. The decisions raised out of this domain typically lead to the selection/ •creation of a production function with relevant inputs and technological constraints.Financing issues, issues of information systems and flows including accounting can also occur in this•domain.

StakeholdersThisdomaininvolvesallstakeholdersinternaltothefirmexcepttheentrepreneur.•Decisions arising out of this domain typically lead to the selection/creation of a set of feasible contracts between •stakeholderswithinthefirm.

EnvironmentThisdomain forms the interfacebetween thefirmand its external environment.Theexternal environment•consists of competitive (market/strategic) environment and macroeconomic environment.Thedecisionsraisedoutofthisdomainleadtothedevelopmentofthefirm’scorecompetencies.•The other areas included in this domain are issues of market identification, positioning, and strategy •development.

EntrepreneurThisdomainisparticularlyuniquetothepre-firmandbringsinissuesofleadership,visionandthesubjective•theories of the entrepreneur who makes the selection/creation decisions arising out of all the domains.Decisionsarisingoutofthisdomainleadtotheoverallidentityofthefirmintermsofitsorganisationalstructure,•form,andpurpose.Inotherwords,theyleadtoeitherthecreationofthefirmortheprematureterminationofthepre-firm.

Entrepreneur

Environment

Stake holders Resources

Fig. 2.2 Entrepreneurial decisions arising out of four interconnected decision domains

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Thefigureillustratesasetofentrepreneurialdecisionsarisingoutofthefourinterconnecteddecisiondomains.Thetopological objects are used to capture the interconnectedness of the four domains. However, there are many factors that affect the entrepreneur’s decision like:

culture and sub-culture•education and experience•peer groups•family background•

2.4 Types of EnterprisesSole proprietorship

This type of enterprise is easy to form as it usually involves just one individual who owns and operates the •enterprise. Example: Haldiram took 20 years to grow and venture abroad.Advantages• : All income belongs to the owner. From legal point of view, it is easy to start and close down a sole proprietorship. The functioning of the enterprise is simple and can be easily adapted to changing circumstances.Disadvantages• :Raisingcapitalisdifficultasbanksandotherfinancingsourcesareoftenreluctanttomakebusiness loans to sole proprietorships.

PartnershipIn this case business will be owned and operated by several individuals. There are minimum of two partners •and maximum of twenty members. Partnerships come in two varieties: general partnerships and limited partnerships.Advantages• : Opportunities for obtaining capital are usually favourable. The decision making process is faster. Thepartnersaretaxedintheirpersonalcapacityandnotcollectively,sotheprofitissharedandeachpartner’sshare is taxed separately.Disadvantages• : Personal liability is a major concern. Like sole proprietors, general partners are personally liable for the partnership’s obligations and debts.

CorporationA corporation is an independent legal entity, separate from its owners, and as such; it requires compliance with •more regulations and tax requirements.Advantages• : A corporation’s debt isn’t considered that of its owners, so personal assets are not put at risk. Acorporationcanalsoretainsomeofitsprofitswithouttheownerpayingtaxesonthem.Otheradvantageisthe ability of a corporation to raise money. A corporation can sell stock, either common or preferred to raise funds.Disadvantages• : There are higher costs involved. Corporations are formed under the laws of each state, each of which has its own set of regulations. You’ll probably need the assistance of an attorney and accountant to guide you. And not only are corporations subject to corporate income taxes at both the federal and state levels, any earnings distributed to shareholders in the form of dividends are taxed at individual tax rates on the owners’ personal income tax returns.

2.5 Problems in Small Scale EnterpriseDuring the process of setting up an enterprise, the entrepreneurs face many problems. The problems in small scale enterprise are as follows:Problem of raw material

A major problem that the small scale enterprises face is with the procurement of raw materials. The problems •related to raw materials include:

an absolute scarcity �poor quality of raw materials �inadequate suppliers �

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The small units that use imported raw material face raw material problem with more severity, mainly due to •difficultyinobtainingthismaterialeitheronaccountoftheforeignexchangescrisisorsomeotherreasons.

ProblemoffinanceAnimportantproblemfacedbythesmall-scaleindustries inthecountryis thatoffinance.Theproblemof•financeinsmall-scalesectorismainlyduetotworeasons

scarcity of capital in the country as a whole �weak credit worthiness in the country �

Highcustomdutiesandhightaxes,delayedpaymentsfromcustomersadduptothefinancialproblemsofthe•entrepreneurs.

Marketing problemsThe small entrepreneur cannot supply standardised goods of high quality and as a result cannot compete with •products of large companies or MNCs.They usually do not have a brand name or loyalty, as there are hardly any funds for advertising or sales •promotion.

Under-utilisation of capacityAccording to Arun Ghosh, on the basis of All India Census of Small Scale Industries 1972, the percentage •utilisation of capacity was only 47 in mechanical, 58 in automobile industries, 50 in electrical, 55 in leather products and only 29 in plastic products manufacturing. On an average, it concludes that 50 to 40 percent of capacity was not utilised in small-scale units.The vital problem of under-utilisation of capacity is power problem faced by small-scale industries. The power •supply is not always available to the small scale units, and if it is available it is rationed by utilising only for few hours.Since small scale units are weak on economic front, they have to manage the best as they can within the available •meager means.

Obsolete technologyMost small businesses use old technologies because they cannot afford better. As a result, the quality of their •goods is inferior and the cost of production is higher than in the case of other large-scale enterprise.This has adverse effects especially after opening up of the economy when they have had to compete with •imported goods.

Poor project planningWith the lack of education and experience, small-scale businessmen often depend upon consultants.•They do not fully understand project details. Due to poor planning of project, cost and time overruns arise.•

Inadequate infrastructureInfrastructure quality and quantity of transportation, communications and other basic services particularly in •backward areas is another problem.Inadequate infrastructure results in under utilisation of capacity and wastages. For example, instability of voltage, •unscheduled power cuts and long delays in getting power connections are common.

Poor managerial and organisational skillsUsually the entrepreneur has to perform diverse functions invariably without having any exposure to professional •education or formal training.Ontheotherhand,thelarge-scaleenterprisehirethebest-qualifiedandtrainedpeople.Thismayleadtohiring•more people than required and improper selection. This will add up to the costs.

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Also the entrepreneur may not be able to see the company as a whole. This inability to see the bigger picture is •a typical managerial failure observed in entrepreneurs.

Other problemsIn addition to the problems listed above, there are numerous other problems that the small units face.•According to the Seventh Five Year Plan, these include shortage of trained technicians, technological obsolescence, •insufficientmanagementexpertise,unorganisednatureofoperations,andsoon.

2.6 The Entrepreneurial ProcessThe process of starting a new enterprise is embodied in the entrepreneurial process, in which entrepreneurs •playasignificantrole.Itdoesnotonlyinvolveproblemsolvinginatypicalmanagementposition,butanentrepreneurmustfind,evaluate,•and develop an opportunity by overcoming the factors or risks that affect the creation of a new enterprise. The process has four distinct phases:

identificationandevaluationoftheopportunity �development of the business plan �identificationofresources �management of the enterprise �

Identify Opportunity

Entrepreneur

Analyse outcomes

Develop Business Plan

Determine Resources

Manage the Enterprise

Fig. 2.3 The entrepreneurial process

IdentificationandevaluationoftheopportunityOpportunityidentificationandevaluationisaverydifficulttask.Mostgoodbusinessopportunitiesdonotsuddenly•appear, but rather result from an entrepreneur’s alertness to possibilities, or in some cases, the establishment of mechanisms that identify potential opportunities. The entry of the entrepreneurs into the business world is withtheintentiontoearnprofit.Entrepreneurshipisaprofit-orientedactivity.Thus,entrepreneurialopportunityisevaluatedbytwodistinct•attributes:

Marketissues:potential,profitmargins,competitors,barrierstoentry �Financial issues: taxation, capital required, returns on investment �

Thesetwoattributesdecidethepossibilityandprofitabilityofconvertingtheopportunityintoaconcretebusiness•project. Opportunity analysis or opportunity assessment plan includes:

description of the product or service �assessment of opportunities, entrepreneur and the team �

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specificationsofalltheactivitiesandresourcesneededtotranslatetheopportunityintoafeasiblebusiness �venturesourceofcapitaltofinancetheinitialventureaswellasitsgrowth �

The assessment of the opportunity requires answering the following questions:•What does market need? �What personal observations have been experienced or recorded with regard to that market need? �What social condition underlies this market need? �What market research data can be organised to describe this market need? �What competition exists in this market? How would one describe the behaviour of this competition? �What does the international market look like? �What does the international competition look like? �Where is the money to be made in this activity? �

Development of the business planAgoodbusinessplanmustbedeveloped inorder todevelop thedefinedopportunity.This isavery 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 involves:

development of the opportunity �identifying the resources �obtaining those resources �successfully managing the enterprise �

IdentificationofresourcesThe resources needed by a typical enterprise are:

people �premises �customers �suppliers �funds �

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. Acquiring needed resources in a timely manner, while giving up as little control as possible is the next step in the entrepreneurial process.The risks involved in obtaining resources should also be determined. The amount of resources may vary as per •the stages of growth of the enterprise.Forexample,asthebusinessdevelops,morefundswillprobablybeneededtofinancethegrowthoftheenterprise,•requiring more ownership to be relinquished. That is why, alternative suppliers of all the resources, along with theirneedsanddesiresneedtobeidentified.

Management of the enterpriseAfter resources are acquired, the entrepreneur must use them effectively to execute the business plan. This involves following steps:Planning

Decision making•Operational and strategic planning•Budgetsandcash-flows•

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OrganisingDivision of work and organisational structure•Allocating available resources•

LeadingDelegation•Motivation•

ControllingPerformance evaluation•Review•

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 thatanyproblemareascanbequicklyidentifiedandresolved.

Thus,wehavestudiedthebasicsofentrepreneurial.However,variousthinkersinthisfieldhaveproposeddifferentmodels for entrepreneurial process or new enterprise creation, which are discussed hereunder.

2.7 Entrepreneurial Process ModelsDescribed below are the entrepreneurial process models.

2.7.1 The Four Stage Growth ModelThe four-stage growth model consists of categories of distinct activities that are essential for the progress of new enterprise from an idea to a substantial enterprise. The four stages are as follows:

Pre-start-up stage1. Start-up, early stage2. Early growth stage3. Later growth stage4.

Pre-start-up stage Start-up stage Early growth stage

Later growth stage

The period during which enterprise is planned and preliminary work of obtaining resources and getting organised prior to start up

The initial period of business when entrepreneur must position the enterprise in market and necessary adjustments to sure survival

This is the period of rapid growth. Enterprise may undergo major changes in market,financeand resource utilisation.

Enterprise evolves into a large company with active competition in established industry. Professional Management is more important than entrepreneurial energy.

Fig. 2.4 The four-stage growth model

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Pre-start up stagedefiningbusinessconcept•product-market study•financialplanning•pre-start-up implementation•

Start-up stageThisistheinitialperiodofthebusinessanddoesnothaveadefinitetimeframenoraretheremodelstodescribe•what a business does during this stage; however there are two standard conditions.First, entrepreneurs want to meet operating objectives, such as satisfying sales, revenue and cost targets.•Second, they want to position the venture for long term growth.•

Early growth stageThis is a period of intense monitoring and growth can occur at different rates.•The growth rate ranges from slow growth through incrementally higher sales to explosive growth through •quantum changes in consumer demand.

Later growth stageIf the enterprise proves successful in the early growth stage, it canfind itself in competitionwith larger•companies.This is the later growth stage, when the rate of growth may be slower and the industry has attracted •competition.Companiesreachingthisstage,often“gopublic”withstockofferings.Familyfortunesturnintocorporateequity•positions and professional management replaces the entrepreneurial cadre.

2.7.2 The Corporate Development Process Model

Theprocessofdevelopmentofthefirmininteractionwithitsinstitutionalenvironmentisdiscussedbelowwith•thehelpofthefigure.

Regulative or

Formal Institutions

Regulative or

Formal Institutions

Regulative or

Formal Institutions

Cognitive-cultural or

informal Institutions

Cognitive-cultural or

informal Institutions

Cognitive-cultural or

informal Institutions

Initiations phase(Entrepreneur)

Establishment phase(Enterprise)

Growth phase(Enterprise)

Phase 1The initiation

phase

Phase 1The establishment

phase

Phase 1The operational/

growth phase

Fig. 2.5 The corporate development process model

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Thefigureillustratestheinteractionbetweentheindividualentrepreneur/entrepreneurshipandinformal/cultural•and structural/formal institutions, i.e., the corporate development process. This model is divided into three stages:

the initiation phase �the establishment phase �the operational/growth phase �

The model also illustrates how companies are affected in the development process by informal and formal •institutions, respectively, in three development phases. In general, the entrepreneurial perspective can be divided into two:

focusing on the individual (the entrepreneur in focus) �focusing on the corporate development process, i.e., the entrepreneurial process �

Entrepreneurship is viewed as a process where companies develop interaction with the institutional environment. •This involves the role that institutions play in the corporate development process.

2.8 Key Success Factors for EntrepreneursEntrepreneurs possess unique characteristics that set them apart from people who are intent on starting an •enterprise on their own. However, different entrepreneurs possess different characteristics.Some of them become successful because they are prepared to take risks, and others achieve their goals as a •resultoftheirinnovativeideas,skillsandflairformanagement.

KEY SUCCESS FACTORS

Skill ExpertiseAptitude

Personalqualities

Managementskills

Externalfactors

Fig. 2.6 Key success factors for entrepreneurs

Factors that usually contribute to successful entrepreneurship are known as key success factors, which are summarised inthefiguregivenabove.Otherkeysuccessfulfactorsareasfollows:

Entrepreneurial team• :Theforemostkeysuccessfactoristhe“entrepreneurialteam”.Theteamisimportant,because, usually, entrepreneurs do not start businesses by themselves, and they have teams, partners, close associates, or extensive networks of advisers.Products or services• : Nearly all successful enterprises start from small scale and grow incrementally. There are veryfewwhichstartonalargescaleatthebeginning.Productstendtohavestrongprofitpotentialwithhighinitial margins rather than small margins with substantial volume requirement. Service businesses hold good margins by effective cost controls and well-monitored overheads.Markets and timing• : Successful entrepreneurs usually have a clear idea of both existing and potential customers. All great ideas need to be carried out simultaneously with valid market research. Timing pertains to when products or services are introduced, how they are introduced, how they are priced, how they are distributed, and how they are promoted.Business ideology• :Abusiness ideology is defined as a systemof beliefs about howone accomplishes anenterprise. From an entrepreneur’s perspective, every enterprise has an ideology, a philosophy or rationale for existing.

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2.9 Characteristics of Successful EntrepreneursIf we go through the business history of India, we come across the names of persons who have emerged as •successful entrepreneurs. Some examples of successful entrepreneurs are JRD Tata, Dhirubhai Ambani, Aditya Birla, Rahul Bajaj, Laxmi Niwas Mittal, Azim Premji and many more.Thus, it is seen that the success of these entrepreneurs was because of their unique characteristics. The •characteristics that are seen in most of the successful entrepreneurs are:

self-confidenceandoptimism �able to take calculated risk �positive response to challenges �creativity, high achievement motivation �dynamic leadership �flexibility �market knowledge �team spirit �resourcefulness �independent mindset �foresightedness �responsive to suggestions �initiative taker �open to criticism �

2.10 Functions of EntrepreneursKilbyidentifiedmanyfunctionsofanentrepreneur,inwhichmanagerialfunctionsarealsoincluded.Hehasclassifiedthese functions into four groups as follows:Exchange relationship

perceiving market opportunities•gaining command over scarce resources•purchasing inputs•marketing of the products and responding to competition•

Political administrationdealing with public bureaucracy•managinghumanrelationwithinthefirm•managing customer and supplier relations•

Management controlmanagingfinance•production management•

Technologyacquiring and overseeing assembly of the factory•upgrading process and product quality•introducing new production techniques and products•

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SummaryThe entrepreneurial process has two main models: the four stage growth model and the corporate development •process model.The basic entrepreneurial process has four distinct phases including; identification and evaluation of the•opportunity; development of the business plan; determination of the required resources and; management of the resulting enterprise.Entrepreneurial development is largely dependent on the types of environments and hence they are major •considerations in the decision-making process of entrepreneurship. There are six types of environments like political, economic, social, technological, legal, and cultural environment.The types of enterprises have also been described in the chapter. There are mainly three types of enterprise; sole •proprietorship, partnership and corporation.Thein-borntraitsinanentrepreneurandtheskillsetswhichcanbedevelopedtobesuccessfulinthisfieldarean•integral part of the successful entrepreneurial process. The focus should be on developing creative entrepreneurs by stimulating innovation and the entrepreneurial spirit. This will help our country to become a strong and growing economy in the 21st century.Successful enterprises can be achieved by studying the key success factors, functions and the characteristics •presentinthesuccessfulentrepreneurs.Characteristicslikeself-confidence,optimism,takingcalculatedrisk,respondingpositivelytoachallenge,creativity,highachievementmotivation,dynamicleadershipandflexibilityshould be present in a person who wishes to become a successful entrepreneur.

ReferencesSingh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi.Cecile, N. & Machado R., 2004. • Basics of Entrepreneurship. Juta and Company Ltd.IGNOU, E• ntrepreneurship development , [pdf] Available at: <http://www.egyankosh.ac.in/bitstream/123456789/32147/1/Unit4.pdf> [Accessed 6 September, 2012].Dabson, B., • Fostering entrepreneurship development systems in rural America, [pdf] Available at: < http://www.energizingentrepreneurs.org/content/cr_5/2_000242.pdf>[Accessed6September2012].Butler, J., 2012, • Lectures in Entrepreneurship, [Video Online] Available at: <http://www.youtube.com/watch?v=0ax_7IEMhOk>[Accessed6September2012].Simonson, R., 2011, • Entrepreneurship 101,[VideoOnline]Availableat:<http://www.youtube.com/watch?v=tw_tVaUWPjk> [Accessed 6 September 2012].

Recommended ReadingBygrave, W. D. & Zacharakis, A., 2010. • Entrepreneurship, 2nd ed., John Wiley and Sons.Lal, A. K. & Clement R. W., 2005. Economic Development in India: The Role of Individual Enterprise, • Asia-Pacific Development Journal.Chatrapathy, M. M., 2007 • Basics of Business and Entrepreneurship. Asian Centre for Entrepreneurial Initiatives.

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Self AssessmentConsumer attitudes, tastes, motives are a part of 1. .

political environment a. social environmentb. legal environmentc. cultural environmentd.

The decisions raised out of 2. domain lead to the development of the firm’s core competencies.

resourcesa. stakeholders b. environment c. entrepreneurd.

Which of the following statements is true?3. Social structure, values, beliefs, aspirations form the cultural environment. a. Social structure, values, beliefs, aspirations form the political environment.b. Social structure, values, beliefs, aspirations form the legal environment.c. Social structure, values, beliefs, aspirations form the social environment.d.

Inwhichdomaindoesfinancingissues,issuesofinformationsystemsandflowsincludingaccountingoccur?4. Stakeholders a. Environment b. Resourcesc. Entrepreneurd.

Which type of enterprise is simple and can be easily adapted to changing circumstances?5. Limited partnership a. General partnership b. Corporationc. Sole proprietorshipd.

Which of these is not from the functions of an entrepreneur?6. Exchange relationshipa. Business administration b. Management controlc. Technologyd.

The7. stage is of intense monitoring, and growth can occur at different rates.pre-start-upa. start-upb. early growth c. later growthd.

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A___________isdefinedasasystemofbeliefsabouthowoneaccomplishesanenterprise.8. business ideology a. marketb. productc. serviced.

___________identifiedmanyfunctionsofanentrepreneur,inwhichmanagerialfunctionsarealsoincluded.9. Peter Druckera. Kilbyb. Pinchotc. Frank Knightd.

Whichstagedoesnothaveadefinitetimeframenorthereareanymodelstodescribewhatabusinessdoes10. during this stage?

Pre-start-up stage a. Early growth stage b. Later growth stage c. Start-up staged.

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Chapter III

The Business Planning Process

Aim

The aim of this chapter is to:

elucidate the concept of business plan•

explain entrepreneurship development cycle•

examine the problems and opportunities for entrepreneurs•

Objectives

The objectives of this chapter are to:

determine the business planning process•

analyse the environment and the process of environmental scanning•

examine the different factors in entrepreneurial cycle•

Learning outcome

At the end of this chapter, you will be able to:

understand the business planning process•

identify the effects of environmental factors on business planning•

recognise the business incubators•

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3.1 IntroductionA business plan describes a business opportunity. It is like a road map, because it tells what to expect and what alternative routes are available to arrive at determined destination. A number of research studies have indicated that successful small business managers set realistic goals and plan how they are going to achieve them.

Planning facilitates the entrepreneurs to work smarter rather than harder. It facilitates future-orientation and motivation to achieve the results. Perhaps, most importantly, the process of completing a business plan helps in analysing the goals of business and work with commitment to make a successful enterprise. Roger Thompson in Nation’s Business saysthat,“Arealisticbusinessplanmightsaveyoufromyourselfbypersuadingyoutoabandonabadideawhileyour mistakes are still on paper.”

3.2 Principles for Business PlanningBefore getting into the details of preparing a business plan, Jack Kaplan of the Columbia Business School, suggests that it is necessary to answer the couple of questions such as:

What is the idea to set up a business?•What is the purpose of this plan?•Who is the target audience?•How can the plan help to advance the project?•What are the current market needs?•What is the target set to achieve the market goals?•

A plan must be:explicit: all steps must be completely spelled out•intelligible: should be capable of being understood by those who will carry it out•flexible:shouldbeableofacceptingchange•written: committed to writing in a clear and concise manner•presentedwiththedistributionplan:mustbespecificabouthowthecompanywillsellanddistributeitsproducts•or services

3.3 Common Elements in a Business Plan Executive SummaryThisisthefirstsectionofabusinessplanandisasynopsisoftheproposedenterprise.Usually,ithasnolongerthanthreepagesandaddressesfivesubjectsasmentionedbelow:

Definitionoftheenterprise•Products or services•Market characteristics•Entrepreneurial team•Financial summary•

Business conceptA brief description of the business is done in this section. Points which could be included in this section are:

Purpose of enterprise and major objectives•Descriptionofmajorcompetenciesofthefirm•Nature of market demand•Nature of business•Technologicalprofileofthefirm•

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Product or serviceThissectionincludesdetaileddescriptionofthefirmsproposedproduct/service.Themajorpointsthatarepresentare as follows:

Nature and function of product and service•Proprietary interests•Attributesandtechnicalprofile•

Market research and analysisThismaybethemostdifficultbutthemostessentialpartoftheproposedplan.Thismayinclude:

Proposedcustomerprofileandconsumerbehaviourresearch•Macro-environment, market scenario, trends•Competitorprofile•Market niche and pricing systems•Distribution channels•Sales forecast•

Market planThisplandescribestheentrepreneur’sintendedstrategy.Itisbuiltontheresearchfindings.Thissectionusuallydescribes the following marketing aspects such as:

Product or service•Prices•Promotions•Distribution channels•Services and warranties•Market leadership•

Manufacturing or operationsThis section depends on the nature of business. The key elements of a typical operations plan are as follows:

Facilities - size, layout, capacity, location•Inventory-rawmaterialinventory,finishedgoodsinventory,warehouserequirements•Human resource requirements•Operational rationale•Insurance and legal protection•

Entrepreneurial teamProfileoffounders•Key personnel•Investors•Key management roles•

Financial documentationIncome and expenses statements•Cashflows•Assets and liabilities•

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3.4DefiningaBusinessIdeaGreat ideas cultivate great business opportunities.Thedefinitionof a successful business is one,which is•profitable,andprofitablebusinessisbuiltuponideasthathavebeenthought,researchedandevaluated.Once an idea is thought to represent a real opportunity, one must be able to research the market, know what data •is important and how to gather it meaningfully, and know what actions this information indicates. This can then be worked into a rather detailed plan, and then advanced into a blueprint for success.

Below are some steps an entrepreneur can carry out to transform the idea generated into a successful dream enterprise.Analyse likes

A list of personal interests and hobbies, something one is good at should be prepared. Others opinions can also •be sought. This list represents broad business models, which will give you the greatest joy over time.Decide which items on your list you would most like to develop into a business.•

Generation of ideasIdeas can be generated from many sources. Some of the sources are as follows:

Family•Friends•Successful entrepreneurs•From skills, attitudes and aptitude•From daily activities•

DefinethebusinessoperationsTodefinethebusinessoperations,followingquestionsmustbeanswered:

What are the skills and experience related to this business?•Whataretheestimatedfixedcostsandothervariableexpenses?•What is estimated the break-even period?•What is the statutory compliance needed?•Whataretheproposedsourcesoffinance?•Are there any insurance and legal coverage requirements?•What will be the corporate structure of the business?•

3.5 Identifying Problems and OpportunitiesTo identify the potential opportunities and problems, the entrepreneur has to follow the following steps:

OpportunitycreationoridentificationAn entrepreneur may identify a potential opportunity by various ways. One could be by observation of the environment. Some of the other methods adopted by potential entrepreneurs are as follows:

Identificationoftheneedsofthepeople•Market survey•Trade, journal, business magazines and newspapers•Technical and vocational skills•Education•Monopoly business•Government schemes•

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Strength weakness analysis of the particular opportunityThis is the most critical step after identifying the opportunity. It involves ascertaining business value of the idea by assessing the questions such as:

How would the market accept the product/idea?•What resources would be required?•What are the entry and exit barriers?•What is the extent of present/future competition?•What is the expected revenue generation and market size?•

Risk return analysisThe evaluation of risks and returns can be calculated by using various methods like SWOT analysis and ETOP. These indicate the different factors which are available in the form of opportunities or threats, and thus lead to risks or returns. Some of the questions to be considered to quantify the risk factor are:

How would the lack or shortage of the resources affect?•Is there the risk of obsolescence or what is the shelf life of the product?•What if the committed factors or resources are not consistent with time?•

Mapping of entrepreneur’s skills and competence against the opportunityHere, a comparison between the entrepreneur’s capability to manage the business and the risk of investing into that particular business is made. One has to check the extent of risk involved in the business idea, how good are the returns on investment and how capable is the entrepreneur to cope with the unexpected situation and do the crisis management, if any. Conclusion can be contingency plan prepared by the entrepreneur and action plan for risk mitigation.

Study of competitors and environment factorsAdetailedstudyofcompetitorprofileisamust,asthiswillassistanentrepreneurtoidentifywherehe/shestandsand where he/she has to be. The study of all the environmental factors as seen above can bridge the gap between entrepreneur and the opportunity.

Develop the opportunity into a business planWhen the entrepreneur is clear with the business plan, he/she can now be well equipped to face the real situation and proceed with the business idea.

3.6 Purpose of Business Plan: Purpose of PlanningFollowing could be the purposes behind planning:

It acts as a long-term management tool•Decisionscanbemadeinthefuturethatbestfitwiththeaimofthebusiness•To investigate and evaluate new business opportunities•Topresentacaseforfinance•To get a clear picture of the business and its potential•Many of the areas covered in a business plan are common to all of the above purposes, the amount and type of •information will, however, vary with the purpose of the plan

Need of PlanningPlanning is essential to:

Control future risks•Prepare for future uncertainty•Control business environment•

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Control business growth•Avoid sales crises•Avoid liquidity crises•Avoid succession crises•Ensure people development•Ensure work space available•Avoid stock buying crises•

3.7 Environmental AnalysisEnvironmental analysis consists of following aspects

3.7.1 Environment Search

We have studied that market research is an important part of any business planning process. A detailed study of •the macro-environment is included in this research. The macro environment has two major parts: the internal and the external environment, which play a major role in any business development activity.Internal factors are those, which are controllable up to a certain extent. On the other hand, external factors are •those, which are uncontrollable but can affect the business tremendously.External factors include the demographic environment, natural environment, technological environment, political •environment and socio-cultural environment. It is necessary o study the environmental factors before starting any enterprise.

Macro environment

Market environment

Micro environment

Fig. 3.1 Environmental circle

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3.7.2 Types of EnvironmentFollowing are the types of environment:Demographic environment

The most important factor that entrepreneurs monitor is Demographic environment i.e. size and growth rate of •population in cities, age distribution, ethnic mix, educational levels, household patterns, and so on.Entrepreneurshavetofindouttheopportunitiesafteranalysingthepurchasingpowerofthepopulationinthat•area.

Natural environmentEntrepreneurs need to be aware of the threats and opportunities associated with the natural environment like •the shortage of raw material especially water, increased cost of energy, increased pollution, non-renewable resources, and so on.

Economic environmentA business depends upon the purchasing power of people and the purchasing power depends upon people’s •income, savings, and debt and credit availability. Major trends in income and consumer spending patterns are to be studied.Entrepreneurs,fortheirconvenience,candistinguishmarketintofivedifferentincomedistributionpatternsas•very low income, low income, medium income, high income and very high income.

Technological environmentAn economy’s growth rate is affected by how many major new technologies are discovered. Thus, entrepreneurs •have to keep pace with what new technologies are emerging in the market, where is a scope for innovation, etc.One needs to keep on upgrading on the technological front to stay in business. Emerging technologies can also •give birth to new business ideas.

Socio-cultural environmentEntrepreneurs need to study people’s views, values, beliefs, attitudes and culture in that area before starting •any business.The product/service should correspond to society’s core values and address the needs of different cultures in •the society.

Political-legal environmentEntrepreneur’sdecisionsarestronglyinfluencedbydevelopmentsinthepoliticalandlegalenvironment.This•environment is composed by government rules, laws, regulations, government agencies, etc.Sometimes these rules create new business opportunities. For example, the Indian Government provides incentives •to entrepreneurs to promote industries in under-developed areas.Thus, entrepreneurs should have a good working knowledge of the laws protecting competition, consumer and •society.

3.7.3 Environmental Scanning

The process of environmental scanning refers to information gathering about the external environment, the •knowledge of which would assist entrepreneurs in shaping up their business plans.This study also helps an entrepreneur to know perceived environmental change and may lead to a strategic •change. It is the process by which organisations monitor their relevant environment to identify opportunities and threats affecting their business.The purpose of environmental scanning is to serve as an early warning system by alerting entrepreneurs to •potentiallysignificantexternaldevelopmentsintheirearlystages.

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Scanning Strategies

ExternalEnvironment

Scanning

PerceivedChange

Change in Business Strategy

Internal Factors

Fig. 3.2 Environmental scanning process

3.8 Entrepreneurship Development CycleThe entrepreneurial development cycle begins with the individual entrepreneur who can decide to take advantage •of new innovations and translate them into a successful economic enterprise.The entrepreneur requires a lot of information and technological knowhow for translating a business idea into •a business plan and then into a setting up a business and in that context several stimulatory, supporting and sustaining factors which compile the development cycle.

Simula

tory Support

Sustaining

Entrepreneurial Cycle

Fig. 3.3 Entrepreneurial development cycle

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Stimulatory Factors Support Factors Sustaining Factors

Entrepreneurial education Registration of unit Helps in modernisation

Planned publicity for entrepreneur-ial opportunity Arrangingfinances Helpsindiversification/expansion/

substitute production

Identificationofpotentialentrepre-neursthroughscientificmethods

Providing land, shed, power, water and so on

Additionalfinancingforfullcapacityutilisation

Help and guidance in selecting prod-ucts and preparing project reports

Supply for scarce raw material and information

Diagnostic industrial extension/con-sultancy source

Evolving new products and pro-cesses, which are locally suitable

Getting licenses Product reservation/creating new avenues for marketing

Availability of Counseling and promoting activity for entrepreneurs by trained personnel

Providing common facilities Production unit’s legislation/policy change

Availability of techno economicinformationandproductprofits

Offering management consultancy and help for marketing the product

Deferring repayment/ interest

Creating an entrepreneurial forum and recognition of entrepreneurial skills

Tax relief and other government subsidies

Quality testing and improving services

Table 3.1 Factors in the development cycle

3.9 Business IncubatorsBusiness incubators are organisations that support the entrepreneurial process, helping to increase survival rates •for innovative startup companies.Only entrepreneurs with feasible business ideas are admitted into the incubators, where they are offered a •specialised menu of support resources and services.

The resources and services provided to an entrepreneur include:Provision of physical space �Management coaching �Help in making an effective �Business plan, administrative services �Technical support �Business networking �Advice on intellectual property �Sourcesoffinancing �

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The incubation process is intended to last around 2–5 years. Since business incubators are powerful economic •development tools, they collaborate actively with regional and national government agencies, from which they oftenreceivefinancialgrants.In many countries, business incubators have national associations to represent their interests and organise •meetings where best practices are disseminated.Evaluation of business incubators in Europe and the US suggest that 90% of incubated start-ups were active •and growing after three years of operation, which is a much higher success rate than that observed in startups launched without assistance.Science-based business incubators are thought to be particularly useful from a policy perspective because they •cansimultaneouslypromoteknowledgediffusion,technologytransferandhigh-techfirmcreation.

Thus, we have studied the business planning process in detail and how it helps the entrepreneurs to transform their idea into a successful business

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SummaryThefirststepinsettingupanyenterpriseisbusinessideageneration.Theeffortrequiredtoimplementtheidea•into reality needs proper planning and its execution.RogerThompson,inNation’sBusiness,saysthat,“• A realistic business plan might save you from yourself by persuading you to abandon a bad idea while your mistakes are still on paper.”The eight elements of business plan include executive summary, business concept, product or service, market •researchandanalysts,marketplan,operations,entrepreneurialteam,andfinancialinformation.The entrepreneurs need to creator identify the opportunity, analyse strength and weaknesses, analyse risk in the •opportunity, study the market and develop opportunity into a business plan.The types of environment include micro and macro environment. The macro-environment further includes •internal and external factors. External factors include the demographic environment, natural environment, technological environment, political environment and socio-cultural environment.The entrepreneur requires a lot of information and technological knowhow for translating a business idea into •a business plan and then into a setting up a business and in that context several simulatory, supporting and sustaining factors which compile the development cycle.Business incubators are organisations that support the entrepreneurial process, helping to increase survival •rates for innovative startup companies. Only entrepreneurs with feasible business ideas are admitted into the incubators, where they are offered a specialised menu of support resources and services.

ReferencesSingh, B., 2009. • Entrepreneurship Development, Wisdom Publications, Delhi. .Strydon, J., Antonites, A., Andreas de Beer, 2009. • Entrepreneurship & How to Establish Your Own Business. Juta and Company Ltd., Gleeson, A., • The business plan process, [Online] Available at: <http://articles.bplans.co.uk/writing-a-business-plan/business-plan-process/1015> [Accessed 7th September 2012].Hill, B• ., What is business planning process?, [Online] Available at: <http://smallbusiness.chron.com/business-planning-process-1080.html> [Accessed 7th September 2012].Atkins, C., 2010, your business planning process, [Video Online] Available at: <http://www.youtube.com/•watch?v=VEkB2r6iI9g> [Accessed 7th September 2012]. Tarrant, M., 2011• , Business Planning Process, [Video Online] Available at: <http://www.youtube.com/watch?v=AmhuGRQ4YSg>[Accessed 7th September 2012].

Recommended ReadingVillarosa, C. & Villarosa, A., 2009. • Down to Business: The First 10 Steps to Entrepreneurship for Women. Avery Trade.Singh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi.Thakur, A. K. & Rahman, R., 2009. • Women Entrepreneurship, Deep & Deep Publication

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Self Assessment_______________helpsinanalysingthegoalsofbusinessandworkwithcommitmenttomakeasuccessful1. enterprise.

Business plana. Business conceptb. Business research c. Market researchd.

Which of the following statements is true?2. A realistic market plan might save you from yourself by persuading you to abandon a bad idea while your a. mistakes are still on paper.A realistic business execution might save you from yourself by persuading you to abandon a good idea while b. your mistakes are still on paper.A realistic operations plan might save you from yourself by persuading you to abandon a bad employee, c. while your mistakes are still on paper.A realistic business plan might save you from yourself by persuading you to abandon a moderate idea while d. your mistakes are still on paper.

Entrepreneurialteamtypicallydoesnotinclude___________.3. profileoffoundersa. key personnel b. investorsc. inventory pland.

Whichisnotanelementinabusinessplanincludesfunctionandnatureofproduct/service,attributes,benefits4. and features?

Executive summary a. Product or serviceb. Market planc. Target audienced.

Whichisthefirstsectionofabusinessplanandisasynopsisoftheproposedenterprise?5. Business concept a. Market planb. Executive summaryc. Entrepreneurial teamd.

Astudyofincomeofpeopleandpurchasingpowerofpeopleisapartofstudyofthe____________.6. socio-cultural environmenta. economic environmentb. legal environmentc. demographic environmentd.

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The analysis of size and growth rate of population in cities, age distribution, ethnic mix, educational levels, and 7. householdpatternsandsoonisapartof________________analysis.

socio-cultural environmenta. legal environmentb. demographic environmentc. economic environmentd.

Astudyofthe_________________andsoonincludesstudyofgovernmentrules,laws,regulations,government8. agencies

socio-cultural environment a. economic environmentb. demographic environmentc. political-legal environmentd.

Astudyofpeople’sviews,values,beliefs,attitudesandcultureinthatareaisapartof__________analysis.9. legal environmenta. socio-cultural environmentb. economic environmentc. demographic environmentd.

_________________areorganisationsthatsupporttheentrepreneurialprocess,helpingtoincreasesurvival10. rates for innovative start-up companies.

Business incubators a. Business supportersb. Voluntary organisations c. Enterprisesd.

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Chapter IV

Project Management

Aim

The aim of this chapter is to:

explore the concept of project management•

explain 4Ps of project conception•

analyse risk management•

Objectives

The objectives of this chapter are to:

determine the role of entrepreneur as a project manager•

explain concept of feasibility study•

elucidate management of risk, cash and inventory•

Learning outcome

At the end of this chapter, you will be able to:

identify and enlist factors of feasibility study•

recognise risk management techniques•

understand how to manage a project•

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4.1 IntroductionOrganisationsperformwork,whichcouldbeclassifiedintoeitheroperationsorprojects,although,insomecases,both of them may overlap. Both operations and projects share many common characteristics like:

people perform both the activities•both are constrained by limited resources•both are planned, executed, and controlled•

However operations and projects differ primarily in its repeatability. Operations are ongoing and repetitive, whereas projectsaretemporaryandunique.Aprojectisthusdefinedintermsofitsdistinctivecharacteristics—aprojectisa temporary endeavour undertaken to create a unique product or service.

Project managementProject management is the application of knowledge, skills, tools, and techniques to project activities to meet project requirements. It is accomplished through the use of the following 5 processes:

Initiation•Planning•Execution•Controlling•Closure•

The project team manages the various activities of the project, and the activities typically involve:Competing demands for scope, time, cost, risk, and quality•Managing expectations of stakeholders•Identifying requirements•

4.2 Entrepreneur as a Project ManagerAn entrepreneur has to play the role of a project manager while setting up new enterprise. The entrepreneur •participates directly in the activities that produce the end result.The main aim is to set up a new enterprise, strive to maintain the progress and productive mutual interaction of •various parties in such a way that overall risk of failure is reduced.Asuccessfulentrepreneurmustbeabletoenvisagetheentireprojectfromstarttofinishandtohavetheability•to ensure that his vision is realised. The functions of project manager are:

Effective planning �Cost analysis �Analyse and design of objectives �Assess and mitigating risk �Estimate and allocate resources �Acquire human and material resources �Assign and direct activities �Execute project �Track and report progress �Analyse the results based on the facts achieved �

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4.3 Feasibility StudyA feasibility study is a preliminary study undertaken before the real work of a project starts, to ascertain the •likelihood of the project’s success.It is an analysis of possible solutions to a problem and a recommendation on the best solution to use. It involves •evaluatinghowthesolutionwillfitintothecorporation.Thegoaloffeasibilitystudyistounderstandthestrengthand weaknesses of the proposed project.It is important for an entrepreneur to check out the feasibility of the project in all the aspects like technical, •financial,marketing,manpower andmanagement.The factors included in feasibility study are discussedbelow.

Economic feasibilityTo examine the economic feasibility of the project, the following points are to be considered:

Whetherthefirmcanaffordtobuildthenewproject?•Whether its returns should substantially exceed its costs?•Whether the project has higher priority than other projects that might use the same resources?•

Financial feasibilityToevaluatethefinancialfeasibilityoftheproject,thefollowingpointsshouldbeconsidered:

Total cost of project, capital required, working capital required and so on•Sourcesoffundsavailable,workingcapitalavailability,reserves,borrowings,banksandfinancialinstitutions,•cost of fundsAllocationoffunds,utilisationoffinancialresources,dividenddistributiontoshareholders•Management control system and monitoring, tax planning, return on investment, payback period•

Technical feasibilityTo evaluate the technical feasibility of the project, the following points should be considered:

Location of the project, sources of raw material, labour, power, market proximity, transport and communication •facility and so forthDetails of land and buildings should be studied well, if the land is on lease, proper scrutiny of the terms and •conditions should be doneSufficientnumberofquotationsshouldbestudiedfromsuppliersforthepurchaseofmachinery•Ensure provision for insurance, freight, duties and so on•

Marketing feasibilityTo evaluate the marketing feasibility of the project, the following points should be considered:

The proposed 5ps of marketing mix viz., Pricing, promotion, place, product and packaging•Consumer’swantsandexpectationsandtheproposedproduct’svariety,qualityandpackagingtofulfillthose•needsChannel partners, intermediaries, transportation, supply chain linkages•Price, pricing policies, discounts, schemes and concessions•Advertising campaigns, promotion and public relations•

Management feasibilityManagement feasibility means overall evaluation of the functions of management.

Management competence, capability, experience, goals and objectives•Business policies and strategies, process of strategy formulation, management information system and strategic •choice

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legalandregulatoryenvironment’sinfluenceonthemanagement,socialresponsibilityandpoliticalcontacts•

Manpower feasibilityTo evaluate the manpower feasibility of the project, the following points should be considered:

Policies of manpower planning, selection, recruitment, development, performance appraisal, career planning •and compensationQuality of managers, staff and workers•Image of the organisation as an employer and its working conditions•Industrial relations with trade union, collective bargaining, labour welfare, safety and employee motivation•

Ecological feasibilityThis involves questions pertaining (if applicable) to the scope of presumed ecological impact of a project on its environment.

4.4 Setting up a ProjectTo set up a typical project, following four steps are involved:

Project Selection

Technology and Machinery

Arranging Finance

Unit development

Fig. 4.1 Steps in setting up a project

4.4.1 Project Selection

Idea generation: The overriding reason for anyone to think of establishing a SSI (Small Scale Industries) unit •can be summarised in one word–opportunity; an opportunity to provide a product or service, which can generate sufficientsurplus.Thisallistrueifoneisabelieverinthemaxim,“SmallisBeautiful.”However,ideasneedtobefilteredthrough•a multi-layer sieve.

This model is based on following questions:Doestheideafireupmotivation?•Is it a viable business proposition in the concerned area?•Does it match the needs of the clientele?•Is it a sunrise industry?•

Also, following checklist should be considered:Check it out with basic market research•Test it out at the marketplace•

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Consult with the experts•Lookoutforcompetitioninthefield•Business opportunity•Project conceptualisation•

Once the ideas are screened and a viable business opportunity emerges, the project has to be conceptualised in all its dimensions.

The 4 Ps of project conceptionProduct (shape, size and nature)•Process (technology to produce the product)•Place (location of plant)•Partner(technologicalandfinancialcollaborator)•

Making a product choiceIn the project conceptualisation stage while making a product choice, the following factors related to the product need to be considered:

Product line - depth, width•Packaging•Branding•Warranties•After sales service•

Someotherfactorsthatoneshouldconsiderwhilefinalisingtheproductchoiceare:Ease of availability of raw-material•Process technology•Accessibility to the market•Incentive and support from government•

Market information is also important for product selection. Products, which are likely to have a number of players in the market, are best avoided. Some such products in the recent past have been plastic, footwear, audio cassettes, disposable gloves and bulk drugs.

In case the entrepreneur is looking for a product which has export potential, the following additional questions need to be asked:

What should be the contents of export-product portfolio?•What are the special requirements for packaging if one has to export the products?•Whatproductadaptationsareneededtobemadeforexportingaproducttoaspecificcountry?•AreanyWTOconditionsinvolved?Forexample,‘ChildLabourFree’,ISO9000certified,GMPfollowedand•so on.

The development of export-product portfolio can be done by considering four parameters:External demand conditions•Internal supply capability•Complexity of marketing tasks•Amount of investment required to penetrate the market•

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Analysis can be conducted using this four dimensional model. The obvious choice is a product which scores a high ratingonthefirsttwoparametersandlowratingonthelasttwoparameters.

EXIM (Export-Import Bank of India) Bank has also developed an excellent model to conduct the export-product portfolio analysis based on three parameters, viz.

supply capability in product group•domestic environment•export market attractiveness•

This analysis gives rise to product groups with high potential or low potential. With regard to special packaging requirements, one has to be careful about laws of the country one is exporting to. For instance, while exporting to Australia, wooden-packaging cannot be used.

4.4.2 Technology and Machinery: Process selection

Choicesofprocesstechnologyemergeoncetheproductisfinalised.Forsomecomplexproducts,processknow•how has to be imported.In such cases, agreements for technology transfer should be made with due care to safeguard interest. A lot of •appropriate technology is being developed at CSIR and Defence ResearchLabs and some of this technology can now be bought.•Indigenously developed process knowhow has intrinsic benefits such as appropriateness and relative •inexpensiveness.While checking out on a process technology, the following things need to be considered with utmost care:•

Whether process requires very high level of skilled workers or complex machines? �Whether process requires large quantities of water and/or power? �Does any process or product patent needs to be honoured while utilising the selected process technology? �If any special pollution or environmental regulations are to followed? �Finally, the appropriateness to the Indian environment and conditions, machinery and equipment. �

Oneof themajor deficiencies in the small industry scenario is the prevalenceof outdatedproduction and•managementmethodshinderingtheefficientoperationofsmall-scaleunits.It was also found that the most important reason for the reluctance of the small industrialists to install modern •machinery and equipment was the lack of investable funds.The main objective of the National Small Industries Corporation (NSIC) is to provide machinery and equipment •to small industrial units offering them long repayment period with moderate rate of interest. Equipment is also provided on hire or purchase basis.

4.4.3 Financial Assistance for Small Scale Industries . Thisneedforfinancecanbeclassifiedintothefollowing:

Long and medium term loans•Short term or working capital requirements•Risk capital•Seed capital/marginal money•Bridge loans•

Financial assistance in India for SSI units is available from a variety of institutions. The important ones are:SIDBI:SmallIndustriesDevelopmentBankofIndia(re-financesanddirectslending)•SFCs: State level Financial Corporation, e.g. Delhi Financial Corporation•NSIC: National Small Industry Corporation•

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Small Industry Development Corporations of various states•Commercial/Co-operative banks•DIC: District Industry Centre•

4.4.4 Unit Development

After deciding the issues of product and process, the next important question is where to set the unit up? For •many tiny units and service-based units, the home is perhaps the best starting point.Setting up an establishment is much more than putting a signboard up and waiting for customers to walk in.•It requires negotiating a favourable plot or shed purchase, organising for proper construction of building, design •ofinteriorsandfindinggooddealsforequipmentandmachinery.Thestepsinvolvedare:

Construction of buildingOnceanindustrialplotfortheunitissecured,thenthenextjobisthatoffindingasuitablearchitect.Designof•factory building has to be in consonance with the type of industry and have an appropriate plant layout.Anarchitect’sestimateofbuildingconstructionisessentialforloanapplications.Further,architect’scertificate•for money spent on building is needed for disbursement of loan.

Getting the utility connectionAmong the utilities of prime importance are power and water. In many cases, getting power connection causes •delay in setting up of plant. Therefore it is imperative to commence work on these aspects with diligent follow- up.Power connections are generally of either LT (Low Tension) or HT (High-tension) type. If connected load is •upto75HP,LTconnectionisprovided.Aformalapplicationneedstobemadeinaspecifiedformtothestateelectricity board.An electrical inspector is deputed for evaluation of application to factory site, after which the load is •sanctioned.In areas of power shortage, it is advisable to augment the power supply with a captive generating set. Water •connection is also obtained likewise by applying in advance in formal forms. The water supply can be augmented by the installation of a tube well.

Getting the 3M’s rightMen• :Projectionsformanpowerandstaffingaremadeintheprojectreport.However,itisnecessarytoschedulethe induction of manpower in a planned manner. The engineers and operatives must be available before the installation of the machinery.Machinery• : Choosing and ordering of the right machinery is also of paramount importance. In many cases the technologyorprocessprovidesuswithspecifications,whicharenotprovided.Thenanextensivetechno-economicsurvey of machinery and equipment available must be carried out. International trade fairs and engineering fairs are good places to look at available options. The entrepreneur must also consult experts, dealers/suppliers as well as users, prior to making a selection of equipment and machinery. The advice of DIC, SISI and NSIC can also be sought.Materials• : Materials procurement and planning are critical to the success of a start-up with a SSI unit. Inventory managementcanleadtomanageablecashflowsituations;otherwiseiftoomuchisorderedtoosoon,considerableamount of working capital gets locked up. On the other hand, non-availability may result in production hold- ups, and idle machine and manpower. For essential imported raw material whose lead-time is large, proper planning is all the more essential.

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4.5 Risk ManagementRiskinaprojectisdefinedasthevariabilityofitscashflowsfromthosethatareexpected.Aprojectexpected•togeneratehighreturnsmayalsobehighlyrisky.Thismaycauseadecreaseinthevalueofthefirm,despitehavinggoodprofitabilityprojections.Banksorfinancerswillacceptorrejectaproposaldependinguponrisk-adjustedreturnrequiredbytheinvestors•investing their funds in the project.Hence,anentrepreneurhastoassesstherisk,andunderstandhowhisfirm’svalueisaffectedbytherisk.There•are various statistical and probability models to assess the risk involved in a project. Some of the methods of assessingcashflowsare:

Dispersion �Total project risk �Contributiontototalfirmrisk �

Financial risk isoftendefinedas theunexpectedvariabilityorvolatilityof returns,and thus includesboth•potential;worsethanexpectedaswellasbetterthanexpectedreturns.Afundamentalideainfinanceistherelationship between risk and return.The greater the amount of risk that an investor is willing to take on, the greater the potential return. The reason •for this is that investors need to be compensated for taking on additional risk.Risk management is the process of measuring, or assessing risk and developing strategies to manage it. Strategies •include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.Traditional risk management focuses on risks stemming from physical or legal causes (e.g. natural disasters or •fires,accidents,death,andlawsuits).Regardlessofthetypeofriskmanagement,alllargecorporationshaveriskmanagement teams and small groups and enterprises practice informal, if not formal, risk management.

Risk management activities as applied to project managementIn project management, risk management includes the following activities:

Planning how risk management will be held in the particular project. Plan should include risk management •tasks, responsibilities, activities and budget.Assigningariskofficer-ateammemberotherthantheprojectmanager/entrepreneurwhoisresponsiblefor•foreseeingpotentialprojectproblems.Typicalcharacteristicofriskofficerisahealthyskepticism.Maintaining live project risk database. Each risk should have the following attributes:•

Opening date �Title �Short description �Probability �Importance �

Optionally, risk can have assigned person responsible for its resolution and resolution date.•Creating anonymous risk reporting channel. Each team member should have the possibility to report risk that •he foresees in the project.Preparing mitigation plans for risks that are chosen to be mitigated. The purpose of the mitigation plan is to •describe how this particular risk will be handled – what, when, by who and how it will be done to avoid it or minimise the consequences if it becomes a liability.Summarising planned and faced risks, effectiveness of mitigation activities and effort spend for the risk •management.

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Basic principles of risk management are as follows:There is no return without risk - rewards go to those who take risks.•Return is only half the equation - decisions should be made only by considering the risk and return of all •possibilities.Discipline - a consistent and rigorous approach will betray a constantly changing strategy.•Be transparent - risk should be fully understood.•Know what you don’t know - question the assumptions made.•Communicate - risk should be discussed openly.•Seek experience - risk is measured and managed by people, not mathematical models.•Common sense - it is better to be approximately right, than to be precisely wrong.•Diversify - multiple risks will produce more consistent returns.•

4.6 Management of CashFor an enterprise, cash is required for meeting day-to-day expenses and as a provision against uncertainties, •which are plenty in the Indian context - bank holidays, sudden strikes, and power failures. The term cash is used in two senses: currency notes and generally accepted forms – cheques, drafts, and bank deposits.The second form is liquid assets, marketable securities, time deposits in banks; these can be readily sold and •converted into cash. They serve as a pool of liquidity that can provide cash as and when needed.Theseareshort-terminvestmentoptionsforexcesscashandatthesametimeenablemeetingplannedoutflows.•Keyneshasidentifiedthefollowingfourmotivesforholdingcash:

Transaction motive �Precautionary motive �Speculative motive �Compensative motive �

Transaction motiveTofinancetransactionsthattheenterprisecarriesoutintheordinarycourseofbusinesslikecashpaymentsfor•purchases,wages,operatingexpenses,financialchargeslikeinterest,taxes,anddividends.Aregularinflowoccursfromsalesoperations,returnsoninvestments;scrapsales,realisationofHundis,Letters•of Credit, and pre-shipment credit from exports and so on.Atwowayflowofcashtakesplace,butinflows[receipts]andoutflows[payments]don’tcoincideorsynchronise•or match. A part may be held in securities maturing exactly at the time of anticipated payments. Adequate cash balancesessentialwheninflowsarelessthanoutflows,paymentsbecomedue,andsuchbalanceisknownasthe transaction motive.

Precautionary motiveIn addition to thenon-synchronisationof anticipated cash in-flows andoutflows in theordinary courseof•business,afirmmayhavetopaycashforunexpectedorsuddenpurposes.Theunexpectedcashneedsatshortnotice may be the result of:

Sharp increase in cost of raw materials �Order cancellations �Floods, strikes and failure of important customers �Unexpected slow down in collection of accounts receivables �Bills may be presented for settlements earlier than expected �Some client defaults on payments �

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The cash balances held in reserve for such random and unforeseenfluctuations in cashflows are called•precautionary balances. The precautionary motive implies the need to hold cash to meet unpredictable obligations. It serves to provide a cushion for contingencies.Themoreunpredictablethecashflows,thelargertheneedforsuchbalances.Availabilityofshort-termcredit•is another factor to bear in mind for the level of cash balances.Ifafirmcanborrowatshortnoticetopayforsuchunforeseenobligations,itneedstokeepsmallerbalances.•Such cash balances are usually held in market securities so that they can earn a return and at the same time be •available when needed.

Speculative motiveThismotivereferstothedesireofafirmtotakeadvantageofopportunitiesthatoccuratunexpectedmoments•and are outside the normal course of business.Thespeculativemotiverepresentsapositiveandaggressiveapproach.Firmsaimtoexploitprofitableopportunities•and keep cash in reserve to do so. The speculative motive helps to take advantage of delay in purchases of raw materials on the anticipation of decline in prices

a chance to speculate on interest rate movements by buying the securities when interest declines �an opportunity to purchase raw materials at cash discounts �to make purchases at favourable prices �

Compensative motiveThis motive for holding cash is compensating banks for providing certain services and loans.•Banksprovideavarietyofservicestobusinessfirmslike:•

Supply of credit information �Transfer of funds �Letters of credit �Hundi �Fixed cash-credit limits under rbi rules �Credit and debit cards, on-line banking, merchant banking, security transactions-gilt edged and bonds, �treasury services, derivative trading, wealth management.Export facilitation-pre-shipment credit, post shipment credit, imports, exports, currency support, forex �transactions, and traveller’s cheques, getting iec code from rbi and so onAct as a single banker or join as a consortium member, or as the lead banker �Accept professional taxes, advance taxes, municipal taxes, and phone and fax bills, credit card bills �Carry out hypothecation and other activities �Payroll administration �Give bank guarantees required for DGFT transactions; also give legal undertaking �

4.7 Management of InventoryInventory is an expensive asset and requires careful balancing of enough raw material stock to meet demand for •theprocessingoffinishedgoodsrequiredbythemarketandatthesametimeensurethattheinventorycarryingcost is within the prescribed limits.If inventory is too low, and it cannot meet the demand of sales in time, orders will be lost. And also to get back •an upset customer again will be costly and time consuming. Carrying excess stock is also harmful, because of the following reasons:

Excessive ordering, handling and storage cost �Capital tied up in dead stock �Deterioration and waste �

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Obsolescence risk �Pilferage �Extra administrative expenses of looking after unwanted items �

While establishing a new venture, the entrepreneur has to be careful about the inventory since no supplier will •initially give credit for the purchase of raw material and at the same time he has to ensure that all his orders arefulfilled.Hence, planning is required to ensure that optimum stock is available and is replenished when cash is generated •by sales. The entrepreneur can use techniques like Cash Flow Management, ABC Analysis, etc. to manage the inventorylevelsefficiently.As it is rightly said – ‘well begun is half done,’ an entrepreneur should follow these project management steps •while setting up his enterprise and he will taste the sweet fruit of success for sure.

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SummaryAprojectisdefinedintermsofitsdistinctivecharacteristics—aprojectisatemporaryendeavourundertaken•to create a unique product or service. Project management is the application of knowledge, skills, tools, and techniques to project activities to meet project requirements. It is accomplished through the use of the 5 processes which are initiation, planning, execution, controlling, and closure.Even if the entrepreneur is setting up a small-scale enterprise or a large organisation, he has to take it up in the •form of a project.A feasibility study is a preliminary study undertaken before the real work of a project starts, to ascertain the •likelihood of the project’s success. It is an analysis of possible solutions to a problem and a recommendation on thebestsolutiontouse.Feasibilityoffactorssuchasmarketing,management,technical,financial,economic,manpower, ecological is taken into consideration.Thestepsinvolvedtosetupabusinessincludeprojectselection,technologyandmachinery,arrangingfinance•and unit development.The role of an entrepreneur as a project manager is very vital. The functions of project manger include: effective •planning, cost analysis, analyse and design of objectives, assess and mitigating risk, estimate and allocate resources. Valuable insights are required into areas of risk management, inventory management and management of cash, for running the business successfully.Risk management is the process of measuring, or assessing risk and developing strategies to manage it. Strategies •include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.Keyneshasidentifiedthefourmotivesforholdingcash,whichincludetransactionmotive,precautionarymotive,•speculative motive, and compensative motive.Inventory is an expensive asset and requires careful balancing of enough raw material stock to meet demand for •theprocessingoffinishedgoodsrequiredbythemarketandatthesametimeensurethattheinventorycarryingcost is within the prescribed limits.

ReferencesSingh, B., 2009, • Entrepreneurship Development, Wisdom Publications, Delhi. Choudhary, N. M., 2005, • Project Management Fundamentals, ITC InfoTech India Ltd.Vilder, D., • Project Management, [pdf] Available at: <http://www.euromedyouth.net/IMG/pdf/tkit3.pdf> [Accessed 12 September 2012].Agile project management• , [pdf] Available at: <http://www.ccpace.com/resources/documents/agileprojectmanagement.pdf> [Accessed 12 September 2012].Prof. Sards, N., • Introduction to project management, [Video Online] Available at: <http://www.youtube.com/watch?v=5pwc2DYlKQU> [Accessed 12 September 2012]Prof. Kanda, A., • Project and production management- an overview, [Video Online] Available at: <http://www.youtube.com/watch?v=obzp6biyAN0> [Accessed 12 September 2012].

Recommended ReadingTichapondwa S. M. & Tichapondwa, S. P. • Successful Project Management, Bostwana College of Distance Learning.Singh, B., 2009. E• ntrepreneurship Development. Wisdom Publications, Delhi.Bhide, A., 2004. • What Role for Entrepreneurship in India? Columbia University.

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Self Assessment__________inaprojectisdefinedasthevariabilityofitscashflowsfromthosethatareexpected.1.

Risk a. Cash managementb. Banksc. Feasibility studyd.

______________isapreliminary studyundertakenbefore the realworkof aproject starts toascertain the2. likelihood of the project’s success.

Market studya. Cash management b. Financial analysis c. Feasibility studyd.

___________meansoverallevaluationofthefunctionsofmanagement.3. Management feasibility a. Technical feasibilityb. Financial feasibilityc. Marketing feasibilityd.

______________involvesquestionspertainingtothescopeofpresumedecologicalimpactofaprojectonits4. environment.

Management feasibility a. Technical feasibilityb. Financial feasibilityc. Ecological feasibilityd.

_________________istheprocessofmeasuring,orassessingriskanddevelopingstrategiestomanageit.5. Risk management a. Cash managementb. Project managementc. Inventory managementd.

Whohasidentifiedfourmotivesforholdingcash?6. Michael Porter a. Keynesb. Philip Kotlerc. McCarthyd.

Afirmkeepssomecashreservestopayforanunexpectedeventorsuddenpurposesasperthe__________.7. transaction motive a. speculative motiveb. precautionary motive c. compensative motived.

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Which bank has also developed an excellent model to conduct the export-product portfolio analysis based on 8. three parameters?

EXIM Bank a. ICICI Bank b. SIDBIc. IDBI Bankd.

Which is the expensive asset and requires careful balancing of enough raw material stock to meet demand for 9. theprocessingoffinishedgoodsrequiredbythemarketandatthesametimeensurethattheinventorycarryingcost is within the prescribed limits?

Inventory a. Riskb. Cashc. Projectd.

Foranenterprise_______________isrequiredformeetingday-to-dayexpensesandasaprovisionagainst10. uncertainties, which are plenty in the Indian context - bank holidays, sudden strikes, and power failures.

product a. riskb. inventory c. cashd.

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Chapter V

Marketing Function and Strategies

Aim

The aim of this chapter is to:

elucidate the four P’s of marketing mix•

evaluate market research•

explain the e-marketing concept•

Objectives

The objectives of this chapter are to:

definemarketing•

examine the steps involved in market research•

explain market segmentation•

Learning outcome

At the end of this chapter, you will be able to:

identify the marketing concepts•

recognise the marketing strategy•

understand the marketing plan•

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5.1 IntroductionWe have learnt that some of the most important elements of a typical business plan are: the product/service, the market research and analysis process and the market plan. All these are very critical elements of the entrepreneur’s marketing strategy. In this chapter, we will have a close look at these elements, but before that, it is necessary to understand the concept of marketing.

5.2DefinitionofMarketingTheAmericanMarketingAssociationdefinesmarketingastheprocessofplanningandexecutingtheconception,•pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational goals.Inessence,themarketingconceptsays,“Consumerisking.”Theconsumerisseenasthepivotwiththehelpof•which the business moves in operation to achieve the balanced and best interests of all concerned. This translates into three considerations for a successful business:Entrepreneurs must make concentrated efforts to develop and maintain customers and, in the process, satisfy •them by delivering value in products and services that they want and need.Entrepreneursmustfocusonlong-termprofitabilityandrelationshipsratherthanshort-termmonetarygains.•This can be achieved by creating a reputation for quality and service.Entrepreneurs must integrate the marketing effort with other facets of doing business and ensure a coordinated •management effort.Ifwehavealookatthemanagerialdefinition,marketingisdescribedas“theartofsellingproducts”.Butitis•rightly said that selling is only the tip of the marketing iceberg. Peter Drucker, a leading management guru, says thattheaimofmarketingistomakesellingsuperfluous.Theaimofmarketingistoknowandunderstandthecustomersowellthattheproductorservicefitshimand•sells itself. Ideally, marketing should result in a customer who is ready to buy.Forexample:whenSonydesigned itsWalkman,Motoroladesigned thefirstCellphone,andwhenToyota•introduced the Lexus, they had their order book full immediately because they had designed the right product based on careful marketing research.

5.3 Marketing ConceptsThere are competing philosophies under which organisations conduct marketing activities. Here, we will have a look at some of these concepts:Production concept

This is one of the oldest concepts in marketing says that consumer prefer widely available and inexpensive •products.Productionorientedbusinessesconcentrateonachievinghighproductionefficiency,lowcostsandmass distribution.This concept makes sense in developing nations where consumers are more interested in availability than features •of the product. A modern day example could be of Reliance India Mobile.

Product conceptThis concept believes that consumers prefer products that offer performance, quality and innovative features. •Thesecompaniesaresointernallyfocusedandconfidentthattheycandevelopexceptionallywellproductsthatthey get little or no input on customer needs or competitor activities.For example, Coca-Cola was so focused on its soft drink business that it could not foresee the consumers’ tastes •shifting towards fruit juices.

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Selling conceptThis common business theory believes that an aggregate selling and promotion effort is required to sell products. •It assumes that consumers show buying inertia and must be coaxed to buy.Selling concept is more practiced by companies in insurances, encyclopedias, dictionaries, etc. and such unsought •goods.Itissometimesemployedwhenafirmhasexcesscapacity.

Marketing conceptMarketing concept appeared in the mid-1950s. There was a radical shift now and marketing managers said that •theirjobisnottothefindrightconsumersforyourproduct,buttherightproductforyourconsumers.Thiswasthe end of the Industrial Revolution era and the beginning of the Information Age.The key to success here is in creating, delivering and communicating superior customer value to chosen target •customers that are delivered by competitors. Phrases like ‘Love the customer, not the product,’ ‘Have it your way,’‘Puttingpeoplefirst’epitomisesthemarketingconcept.

Customer conceptThis concept moves beyond the marketing concept in offering customised products and services at the individual •customer level.Companies try to capture a larger share of the customer’s expenditure by focusing on building high customer •loyalty and on customer lifetime value. The role of Information Technology and CRM becomes very crucial here.

5.4 The Marketing MixMarketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, •goods, services to create exchanges that satisfy individual and organisational goals.The marketing mix approach to marketing is a model of crafting and implementing marketing strategies. It •stressesthe“mixing”orblendingofvariousfactors/marketingtoolsinsuchawaythatbothorganisationalandconsumer(targetmarkets)objectivesareattained.ThemodelwasdevelopedbyNeilBordenwhofirststartedusing the phrase in 1949.The most common variables used in constructing a marketing mix are price, promotion, product and placement •(also called distribution). First suggested by Jerome McCarthy, they are sometimes referred to as the four P’s of marketing.It describes what variables marketers have to work with, and hence is sometimes referred to as a marketing •management perspective. Robert Lauterborn claimed that each of these variables should also be seen from a consumer’sperspective.Thistransformationisaccomplishedbyconvertingaproductintoa“customersolution”,priceinto“costtothecustomer”,placeinto“convenience”,andpromotioninto“communication”.Hecalledthese as the four C’s.Shortly after McCarthy developed the four P’s, Borden devised a model with twelve decision variables. They •were product planning, pricing, branding, channels of distribution, personal selling, advertising, promotions, packaging,display,servicing,physicalhandling,andfactfinding.Against McCarthy’s four P’s, some claim that they are too strongly oriented towards consumer markets and •is not an appropriate model for industrial product marketing. Others claim it has too strong a product market perspective and is not appropriate for the marketing of services. The 4P’s are:

Product1. Price2. Place3. Promotion4.

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Marketing Mix

ProductProduct variety,Quality Design Features Brand namePackagingSizesServicesWarranties Returns

Place Channels Coverage Assortments LocationsInventory Transport

PriceList price DiscountsAllowancesPayment PeriodCredit Terms

PromotionSales promotionadvertisingSales ForcePublic RelationsDirect Marketing

Target Market

Fig. 5.1 The four P’s of marketing mix

5.4.1 The Product

The term product includes physical objects or services being sold along with packaging, image, brand name and •warranty.Inaddition,productsincludephysicalattributesthatinfluenceconsumers’perceptions,suchascolours,shapes, sizes, and materials. A product can also relate to the ‘business concept,’ such as fast food franchising.A product can be anything that is tangible or intangible, favourable or unfavourable, that a consumer attributes •to a purchase. Marketing niches are developed around these packages of attributes like form, function, utility, realandperceivedbenefits.An entrepreneur must keep in mind that the consumer is not buying a mere product with a bundle of attributes; he •isbuyingforsatisfactionintheformofbenefitsbackedbythefeaturesexpectedtobepartofproductpurchased.Broadly, products are divided in two categories:

Product

Consumer products

Industrial products

Fig. 5.2 Types of product

Consumer products: convenience goods, shopping goods, and sociality goods.•Industrial products: these include direct/indirect materials, capital assets, contract services and MRO products •i.e., maintenance, repair and operation supplies.

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5.4.2 Price

From a customer’s viewpoint, price is the monetary chapter required for the purchase of a utility that will satisfy •the want.From the entrepreneur’s point of view, price is the chapter of income. Prices communicate information about •value, image, competition, and they influence decisions about distribution,market segmentation, productcharacteristics, etc.Also,inturn,allthesefactorsinfluencepricingdecisions.Forexample,pricesconveysomethingaboutimage,•but the image of a cafeteria will convey something about its prices.Prices are also known by other names, including fares, fees, interest, tips, tuition, taxes, etc. All these are prices •for different types of products/services. Prices communicate perceptual messages to consumers.Hence, prices must coincide with strategies that reinforce the entrepreneur’s business and reputation. There may •bevariousobjectivesforpricinglike:profitmaximisation,salesmaximisation,survival,returnoninvestmentbased pricing, etc.Themostimportantpricingobjectiveistoprovidepositivecashflow.Therecanbeanumberoffactors,which•willinfluencepricingbeyondanentrepreneur’sobjectives.Thesepriceconsiderationsare:

price range acceptable to consumers and expectations of channel partners �promotional mix �competition �legal considerations �

5.4.3 Place

The place/distribution function is concerned with how products or services are made available to customers. •Distribution can mean the physical channels of transporting products from manufacturers to end users, warehousing, wholesaling and retailing.It can also relate to marketing systems such as catalogues, telemarketing, franchising, and computer-based •network markets.A few points about distribution to be addressed by an entrepreneur are:•

Is the exchange of the product made in a store, through the mail or through a direct sales representative? �What are the production and inventory capacities? �Aretherecyclicalfluctuationsorseasonaldemandsfortheproducts?Forexample,ifoneproducesDiwali �decoration material, how he/she will manage peak production and sales periods as well as slow periods?Does the entrepreneur sell to individuals or to re-sellers? The company may use more than one method. For �example, one may sell directly to customers who place large orders, but also to customers who buy small quantities of products through retail outlets.

Based on the answers to the above questions, the distribution channels and network must be set-up and •maintained.Conventional goods can go in many ways to the consumer: directly from the producer to the end-user-in case •of high-value products, industrial products, and hi-tech products or from a producer to another intermediary B-2-B.

5.4.4 Promotion

The act of communication that provides consumers with information about a company’s products, its services, •or the venture itself and attracts them is called promotion, the fourth P.It includes advertising, personal selling, direct marketing, public relations, and other creative methods of bringing •buyers and sellers together. A promotion plan describes the tools or tactics used to accomplish the enterprise’s marketing objectives.

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For example:

Marketing Objective Create awareness of baby products Increase sales of hair shampoos

Promotional tools used

Advertise in baby care or motherhood magazines, distribute productSamples, and offer free baby care seminars.

Distribute free samples, give discounts to parlors, advertise in malls, and sponsor an event attended by teens.

A promotional mix is the result of a conscious effort to select these promotional methods to reinforce the •marketing strategy of the enterprise.The entrepreneur’s task is to make decisions about allocations of time and money to each facet of promotion •consistent with the marketing strategy. There are no prescribed mixes one can use because there are too many considerations that change rapidly in dynamic markets.

5.5 Market ResearchEntrepreneurs have to do a great deal of market research to understand who their customers are, what are their •needs and how best to serve them. The research activities should take place before opening the new venture, and should continue throughout the enterprise’s existence.According to the American Marketing Association, marketing research is the systematic gathering, recording, •and analysing of data about problems relating to the marketing of goods and services.Every entrepreneur must consider the following questions to devise effective marketing strategies:•

Who are my customers and potential customers and where do they live? �Can and will they buy my product? �Am I offering the kinds of goods or services they want - at the best place, at the best time and in the right �amounts?Are my prices consistent with what buyers view as the product’s value? �Are my promotional programmes working? �How does my business compare with my competitors? �

Toconductmarketingresearch,onemustgatherfactsandopinionsinanorderly,objectivewaytofindout•what people want to buy, not just what one wants to sell. Learning what customers want, and how to present it attractively drives the need for marketing research.Small-scale entrepreneurs are close to their customers and can learn much more quickly about their buying •habits.

Small business owners have a sense of their customers’ need from years of experience, but the information may not be relevant to the current market.

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Following are the six steps of market research:

Definemarketingproblemsandopportunities

Set objectives, budget and time tables

Select research types, methods, techniques, resrach instruments

Collect data by survey

Organise and analyse the data

Presentandusemarketresartchfindings

1

2

3

4

5

6

Fig. 5.3 Steps in market research

5.5.1 Secondary Research

Secondary research exploits published sources like surveys, books, and magazines, applying or rearranging the •information in them to bear on the problem or opportunity at hand.A tyre sales business owner might guess that a present retail sale of tyres is strongly correlated with sales of •new cars three years ago. To test this idea, it’s easy to compare new car sales records with replacement tyre sales three years later. Done over a range of recent years, this should prove or disprove the hypothesis and help marketing efforts tremendously.Localisedfigurestendtoprovidebetterinformationaslocalconditionsmightbucknationaltrends.Newspapers•and other local media are often quite helpful.There are many sources of secondary research material. It can be found in libraries, colleges, trade and general •business publications, and newspapers. Trade associations and government agencies are rich sources of information.

5.5.2 Primary Research

Primary research can be as simple as asking customers or suppliers how they feel about a business or as complex •assurveysconductedbyprofessionalmarketingresearchfirms.Direct mail questionnaires, telephone surveys, experiments, panel studies, test marketing, and behaviour •observation are all examples of primary research.Those who can’t afford high-priced marketing research services should consider asking nearby college or •university business schools for help.

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5.6 Market SegmentationAfter knowing the needs of the target market post market research, the entrepreneur has to divide the target •customers into different groups based on some common needs and wants, for planning the customer-group specificmarketingstrategy.Thisprocessistermedasmarketsegmentation.Market segmentation is the process of grouping a market (i.e., customers) into smaller sub-groups, termed niche •markets or speciality markets.These segments are fairly homogeneous in their attitudes about certain variables. Because of this intra-group •similarity, they are likely to have similar feeling and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way.The purpose of segmentation is to identify and target prime customer groups (example: the 20% that account •for 80% of the sales) so that the entrepreneur gets the maximum return from a limited marketing budget and plans the strategy accordingly.The requirements for successful segmentation are summarised as SADAM:•

S � ubstantial:Thesegmenthastobelargeandprofitableenough.A � ccessible:Itmustbepossibletoreachefficiently.D � ifferential: It must respond differently to a different marketing mix.A � ctionable: It should have a product for this segment.M � easurable: Size and purchasing power should be measurable.

The variables used for segmentation are shown in the following table

Geographic variables Demographic variables Psychographic variables Behavioural variables

Region of the world or country, country size and climate

Age, gender, sexual orientation, family size and life cycle, income, occupation, education, socioeconomic status, religion, and nationality/race

Personality, lifestyle, values and attitude

Benefitsought,productusage rate, brand loy- alty, product end use, readiness-to-but stage, and decision making unit

Table 5.1 Different variables for segmentation

When enough information is combined to create a clear picture of a typical member of a segment, this is referred •toasabuyerprofile.Whentheprofileislimitedtodemographicvariables,itiscalledademographicprofile(typicallyshortenedto•“ademographic”)Aclearunderstandingof thebuyers’profile isamust todesign themarketingstrategyof theenterprise.A•statisticaltechniquecommonlyusedindeterminingaprofileisclusteranalysis.

5.7 Marketing StrategyAmarketingstrategyidentifiescustomergroups,whichaparticularbusinesscanbetterservethanitstarget•competitors, and tailor’s product offerings, prices, distribution, promotional efforts and services towards those market segments.Ideally,thestrategyshouldaddressunmetcustomerneedsthatofferadequatepotentialprofitability.Agood•strategy helps a business focus on the target markets it can serve best.

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Strategicobjectives

Market research

Marketing Programme

Deployment of 4 Ps

Marketing objectives

Market research

Responsibility Allocation

Marketing control

Market feedback

ResourceAllocationProgrammeImplementation

Fig. 5.4 Strategic marketing process

A marketing strategy is a meticulously formulated plan that describes how the proposed enterprise will compete •in the ruthlessly competitive environment.Ithelpstheentrepreneurfocusonatargetmarkettofillagaporcreateaniche.Awellarticulatedmarketingstrategy•provides guidelines for the entrepreneur concerning expected results, allocation of resources, responsibilities for the marketing function, and ways in which the enterprise would be controlled.Expected results are expressed in sales forecasts and operating budgets, but more importantly, they constitute •theentrepreneur’sstrategicmarketingobjectives.Anallocationofresourcesinvolvestheresourcesthatafirmhas to use, and the tactics employed to achieve results.Allocations of responsibilities include the activities to be done to implement a marketing plan. Controls are •concerned with methods of feedback necessary to track performance. Feedback provides planning information for future decisions.The strategic marketing process is shown above as it relates to the overall strategic objectives of the •entrepreneur.

5.8 Marketing PlanAmarketing plan solidifies themarketing strategy by defining customers, sales forecasts, andmarketing•objectives. Consequently, the marketing plan synthesises market research and the entrepreneur’s strategy into a blueprint for action.The plan is implemented through a marketing programme, which addresses the marketing activities summarised •earlier—decisionsregardingproductorservicecharacteristics,pricing,promotionalactivities,andmethodsofdistribution.Amarketingplan isawrittendocument thatdetails theactionsnecessary toachieveaspecifiedmarketing•objective(s). It can be for a product or service, a brand or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 years. A marketing plan may be part of an overall business plan. A solid marketing strategy is the foundation of a well written marketing plan.While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little •use. The plan is variously called a ‘business plan,’ a ‘marketing plan,’ and sometimes a ‘battle plan.’ There are many formats for marketing plans and every company does it a little differently, but the outline is as follows

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Title page1. Executive summary2. Current situation3.

macro environment �market analysis �consumer analysis �internal situation analysis �

Summary of situation analysis4. Marketing research5. Marketing strategy6.

product �market share objectives �price �promotion �distribution �

Implementation7. Financial summary8. Scenarios9. Appendix10.

Each of these elements is described in brief herewith:

1. Title pageThe title page of a book, thesis or other written work is the page at or near the front which displays its title, and author, as well as some other information.

2. Executive summaryThe executive summary section of the marketing plan allows the entrepreneur to introduce his company and explainthemajorpointsofthemarketingplan“inanutshell.”Anumberofpeoplelackthetimeandinteresttoreadtheentiremarketingplan;nonetheless,theyneedtobe“onboard.”The executive summary helps the senior management to grasp the plan’s major thrust. It is to be written after the other sections have been written, since it’s a summary of their major points.

3. Current situationThissectionexplainsthecurrentmarketsituation,likeabackdroporcanvasonwhichthefirm’smarketingstrategy will be written. It includes:

Macro-environment � : The constituents of the macro-environment are the economy, legal; government, technology, ecological, socio-cultural, and supply chain are described.Market analysis � :This section includesmarket definition,market size,market segmentation, industrystructure and strategic groupings, competition and market share, competitors’ strengths and weaknesses, market trends and market analysis using Porter5 Forces Model.Consumer analysis � : The topics to be covered under this are–the nature of the buying decision, participants, demographics, psychographics, buyer motivation and expectations, loyalty segments.Internal situation analysis � : Company resources, corporate objectives, mission statement and vision statement, corporate culture and core values.

4. Summary of situation analysisThis section does a SWOT (strengths, weaknesses, opportunities, and threats) analysis of the enterprise and includes external threats, external opportunities, internal strengths, internal weaknesses, key success factors in the industry, our sustainable competitive advantage.

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5. Marketing researchThis includes information requirements, research methodology and results.

6. Marketing strategyThis section is broken down into sub-sections like:

Product: The variables to be covered are product mix, product strengths and weaknesses, product lifecycle •management and new product development, brand name, brand image, and brand equity, the augmented product, product portfolio analysis.Market share objectives: These are considered as product-wise, customer segment-wise and market-wise •objectives.Price: This includes pricing objectives, pricing method, pricing strategy, discounts and allowances, break-even •analysis at various prices.Promotion: The points described here are promotional goals, promotional mix, advertising reach, frequency, and •flights,theme,andmedia,salesforcerequirements,techniques,andmanagement,salespromotion,publicityand public relations, electronic promotion.Distribution: The aspects covered are geographical coverage, distribution channels, physical distribution and •logistics, electronic distribution.

7. ImplementationThis is where actionable points are described in detail. It includes numerous details like personnel requirements, like responsibility allocation, incentives, sales training, etc., financial requirements,management informationsystem requirements, month-by- month agenda, monitoring results and benchmarks, adjustment mechanism, contingencies.

8. Financial summaryThe points to be covered here are assumptions, pro-forma monthly income statement, contribution margin analysis, break-even analysis.

9. ScenariosThe discussion here is focused on predictions regarding future scenarios and plan of actions for each scenario.

10. AppendixThismayincludepicturesandspecificationsofthenewproduct,resultsfromresearchalreadycompleted.

5.8.1 Review Mechanism

Thefinalstageofanymarketingplanningistoestablishtargets(orstandards)againstwhichprogresscanbe•monitored. Accordingly, it is important to put both quantities and timescales into the marketing objectives (for example, to capture 20 per cent by value of the market within two years) and into the corresponding strategies.Changes in the environment mean that the forecasts often have to be changed. Along with these, the related •plans may well also need to be changed. Continuous monitoring of performance, against predetermined targets, represents a most important aspect of this.However, perhaps even more important is the enforced discipline of a regular formal review. Again, as with •forecasts, in many cases the best (most realistic) planning cycle will revolve around a quarterly review.Bestofall,atleastintermsofthequantifiableaspectsoftheplans,ifnotthewealthofbackingdetail,isprobably•a quarterly rolling review - planning one full year ahead each new quarter.Performance analysis: the most important elements of marketing performance, which are normally tracked, are: •salesanalysis,marketshareanalysis,expensesanalysisandfinancialanalysis.

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5.8.2 Use of Marketing Plans

A formal, written marketing plan is essential; it provides an unambiguous reference point for activities •throughouttheplanningperiod.However,perhaps,themostimportantbenefitoftheseplansistheplanningprocess itself.This typically offers a unique opportunity, a forum for ‘information-rich’ and productively focused discussions •between the entrepreneur and his team.The plan, together with the associated discussions then provides an agreed context for their subsequent •entrepreneurial activities, even for those not described in the plan itself.

5.9 Marketing BudgetThe entrepreneur has to estimate the cost of the marketing activities described in the marketing plan so that he •will have a budget to keep everyone on track over the course of the year. Typical marketing expense categories are marketing communications, market research, promotions, advertising, events and public relations.The marketing needs and costs vary widely, so there are no simple rules for determining what the marketing •budget should be. A popular method with small-scale businesses is to allocate a small percentage of gross sales for the most recent year.This usually amounts to about two percent for an existing business. However, if the entrepreneur is planning •onlaunchinganewproductorbusiness,hemayincreasethemarketingbudgetfigure,toasmuchas10percentof the expected gross sales.Another method is to analyse and estimate the competition’s budget and either match or exceed it.•

5.10 E-marketingE-marketing is essentially utilising the technology tools that are available right now to:

increase the information exchange between you and your marketplace•capture data that can be mined for opportunities•customisemarketingmessagestospecificindividuals•deliverfirm’sservicestoclients•effectively maintain stronger client relationships (customer relationship management)•

E-marketing techniques canhelp professional servicesmarketers and theirfirms effectivelymanage companyknowledgetosavetimeandmoney,minimisetheamountof“grunt”workintheirmarketingeffortsandmaximisethe“thought”work,thehigher-levelskillsrequiredtofocusoneffectivemessagesandmarketingstrategiestargetedat meeting corporate goals and objectives.

Thiswillnotonlyimprovefirm’sbottomline,butitwillalsoincreasemarketing’svaluetothefirmbymovingthemarketingstaffbeyond“proposal-writers”tovaluablestrategicassets.

5.10.1 E-marketing Techniques

Methodsofe-marketingareevolvingasrapidlyasnewtechnologiesaredeveloped,butmanyfirmsarestill•struggling with the basics of even getting started. An effective e-marketing program should consist of, at a minimum:

company website �email application capable of maintaining lists and groups �email application capable of sending and receiving html-formatted messages �shared company project, personnel and contact database �Adobe Acrobat software for producing universal-format electronic documents (PDF) �

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Points to consider when creating an e-mail newsletter:•HTML vs. plain text: Response rates for HTML newsletters are generally far higher than plain text, and �graphics and colours tend to make publications look far more professional. The downside is that HTML email is slower to download, and some e-mail providers may screen out HTML e-mail.Provideincentivetosubscribe:Advertisethebenefitsofreceivingthenewslettertogetcustomerstosign �upforyournewsletter,suchashelpfultips,informativecontentorearlynotificationofspecialoffersorcampaigns.Don’t just sell: Any studies suggest that e-mail newsletters are read far more carefully when they offer �information that is useful to the customers’ lives rather than merely selling products and services. Helpful tips, engaging content and humour are often expected to accompany email newsletters.

E-Commercehasredefinedthemarketplace,alteredbusinessstrategies,andallowedglobalcompetitionbetween•local businesses.The term“electroniccommerce”hasevolvedfrommeaningsimplyelectronicshopping to representingall•aspects of business and market processes enabled by the Internet and other digital technologies.Today’s business emphasis is on e-commerce - rapid electronic interactions enabled by the internet and other •connected computer and telephone networks.Rapid business transactions and unparalleled access to information is changing consumer behaviour and •expectations. The government is also reshaping its entrepreneurial development programmes to better serve small businesses that take advantage of the Internet and other emerging technologies.Many entrepreneurs assume that the internet has little value to them because they feel that their product or •service cannot be easily sold on-line. But inexpensive information processing and electronic media can help most small businesses provide better, faster customer service and communication.

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SummaryTheAmericanMarketingAssociationdefinesmarketingastheprocessofplanningandexecutingtheconception,•pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisationalgoals.Themarketingconceptsays,“Consumerisking.”The marketing mix approach to marketing is a model of crafting and implementing marketing strategies. It •stressesthe“mixing”orblendingofvariousfactors/marketingtoolsinsuchawaythatbothorganisationalandconsumer(targetmarkets)objectivesareattained.ThemodelwasdevelopedbyNeilBordenwhofirststartedusing the phrase in 1949.Market segmentation is the process of grouping a market (i.e., customers) into smaller sub-groups termed niche •markets or speciality markets.Amarketingstrategyidentifiescustomergroups,whichaparticularbusinesscanbetterservethanitstarget•competitors, and tailor’s product offerings, prices, distribution, promotional efforts, and services towards those market segments. A good strategy helps a business focus on the target markets it can serve best.Amarketing plan solidifies themarketing strategy by defining customers, sales forecasts, andmarketing•objectives. Consequently, the marketing plan synthesises market research and the entrepreneur’s strategy into a blueprint for action.One of the most important plans for an entrepreneur is the marketing plan. The contents of this plan have been •described along with the concept of marketing budget.According to the American Marketing Association, marketing research is the systematic gathering, recording, •and analysing of data about problems relating to the marketing of goods and services.In this age of computers and internet, the entrepreneurs should leverage the power of Information Technology to •achieve success in their business. With this view in mind an introduction is given to the concept of E-marketing, which is a powerful marketing tool for the modern day entrepreneurs.

ReferencesSingh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi. Londre, L.S., 2009. • Marketing, Londre Marketing Consultants. LLC.StrategicMarketing,[Online]Availableat:<http://media.wiley.com/product_data•excerpt/51/04708498/0470849851.pdf> [Accessed 12 September 2012].McCreesh, J., • Open Office conference,[Online]Availableat:<http://www.openoffice.org/marketing/strategy/v0.5.pdf> [Accessed 12 September 2012].Internet Marketing strategy• , [Video Online] Available at: <http://www.youtube.com/watch?v=aphTUxtjw-s> [Accessed 12 September 2012]Jobs,S., • Steve Jobs on Marketing, [Video Online] Available at: <http://www.youtube.com/watch?feature=fvwp&NR=1&v=cNeLKAoMyCM>[Accessed 12 September 2012].

Recommended ReadingEhmke, C., Fulton, J. & Lusk, J. • Marketing Four P’s – First Steps for New Entrepreneurs (EC-730). Purdue Extension.Kumar, N., 2000. • Marketing as Strategy. Harvard Business School Press, Boston, Nelson, R., 2001. • E-marketing: The Way Forward, SMPS” Marketer” Magazine.

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Self AssessmentAs per the 1. , consumers prefer widely available and inexpensive products.

product concepta. production conceptb. selling conceptc. marketing conceptd.

__________assumesthatconsumersshowbuyinginertiaandmustbecoaxedtobuy.2. Product concepta. Production concept b. Selling conceptc. Marketing conceptd.

______________believesthatthekeytosuccessisincreating,deliveringandcommunicatingsuperiorcustomer3. value to the chosen target customer.

Selling concepta. Production concept b. Customer concept c. Marketing conceptd.

Which is a model of crafting and implementing marketing strategies?4. Marketing plana. Marketing mixb. Marketing systemc. Marketing strategyd.

___________________canbeanythingthatistangibleorintangible,favourableorunfavourable,thataconsumer5. attributes to a purchase.

Producta. Advertisingb. Pricec. Promotiond.

Inessencethemarketingconceptsays,“______________isking.”6. suppliera. entrepreneurb. partnerc. consumerd.

The act of communication that provides consumers with information about a company’s products, its services, 7. ortheventureitselfiscalled_____________.

marketing system a. market researchb. productc. promotiond.

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________________istheprocessofgroupingamarketintosmallersub-groups.8. Market segmentationa. Marketing mixb. Marketing planc. Market researchd.

Which of the following statements is true?9. Marketing segmentation is awritten document that details the actions necessary to achieve specifieda. marketing objectives.Amarketingresearchisawrittendocumentthatdetailstheactionsnecessarytoachievespecifiedmarketingb. objectives.Amarketingplanisawrittendocumentthatdetailstheactionsnecessarytoachievespecifiedmarketingc. objectives.Amarketingmixisawrittendocumentthatdetailstheactionsnecessarytoachievespecifiedmarketingd. objectives.

WhohadfirstsuggestedthefourP’sofMarketing?10. Philip Kotlera. Robert Lautherbornb. Neil Bordenc. Jerome McCarthyd.

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Chapter VI

Sources of Finance

Aim

The aim of this chapter is to:

explorestagesofentrepreneurialfinancing•

determinesourcesforentrepreneurialfinance•

explain about the venture capital investment process•

Objectives

The objectives of this chapter are to:

explainthefinancialassistanceprovidedbycommercialbanks•

examine role of venture capital investor•

explore venture capital funding•

Learning outcome

At the end of this chapter, you will be able to:

identifyfinancialdecisionstomakebeforestartinganenterprise•

identify schemes offered by various banks•

understand the advantages of venture capital•

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6.1 IntroductionMichaelDellhasrightlysaid,“The secret to start-up success is not to tap into the best source of capital, but rather to tap into every source of capital.” Successful entrepreneurs study every conceivable source of capital. They then creativelydesignadiversemixtureoffinancingtechniquestokick-starttheirventure.Oftenthiscallsformouldingthebusinessmodeltofitthefinancingavailableratherthantryingtofitthefinancingtothemodel.Thiscallsforgenuineflexibilityonthepartoftheentrepreneur.Manyofthemostsuccessfulentrepreneurshavedemonstratedthisflexibilityearlyoninordertoachievesuccess.

Jeff Bezos, Michael Dell, and Henry Ford are just a few of the many entrepreneurs who adapted their business model toutilisecashfloatswheninvestorcapitalwasunavailableorundesirable.Cashfloatsareasophisticatedmethodofcreatingstart-upfinancing“outofthinair”.Theyutiliseddifferentfundingtechniquestogatherthenecessarystart-upfinancing.

6.2 Financial Decisions to Make Before Starting a BusinessTherearecertaincrucialfinancialdecisionsthatentrepreneursmustmakebeforestartingtheirownbusinesses.Afew of these are discussed below: How long can an entrepreneur live on his savings?

Most small-business start-ups include the disturbing feature of declining personal bank balances in the early •going.It’s usually emotionally easier to review the personal budget and tighten expenses while contemplating a new •venturethanitistocutbackafterstartingthenewventure.Thefirstpathtendstofeelvoluntary;thesecondfeels imposed by an economic struggle.

How deeply in debt is the entrepreneur willing to go?Businessloanscanfundexpansion,helpimproveprofitratiosandoverallcash-on-cashreturns.Inshort,business•debt can be good.For the smallest entrepreneurs, however, business debt is often personal debt. Many people start a venture by •lending money to their business or by simply deferring any payments for their own labour.Lenders may make loans to a business, but the business owner will often be required to personally guarantee the •loan. So although the debt is on the business’ books, the entrepreneur will ultimately be personally responsible if the enterprise goes sour.

Has the entrepreneur lined up his credit options in advance?Banks and other lenders are, for obvious reasons, more willing to grant loans to someone who possess job with •a steady pay check for several years than to someone who has just quit entering the wild, wonderful world of self-employment.If someone has an excellent credit rating, one can probably get a secured loan with a minimal amount of •paperwork. Once they are self-employed, they’ll probably have to provide at least the most recent tax return and other documentation before getting approval.

6.3 Stages of Entrepreneurial FinancingThe enterprise business plan will show how much money will be needed, if it should be debt or equity, and at •what stage or time period it’s needed to accomplish what tasks.Theentrepreneurhastodevelopthefinancialplan,whichinturnwillhelphimtonarrowinonthetypeof•financesourcehewillbeseeking.Forseedconceptcompanies,thisinvariablymeanstheentrepreneurstartswith“familyandfriends”money,•andthenproceedsontoobtaininginformalinvestorfinancingpriortoattractingtheinterestofthemoreformalinvestorssuchasventurecapitalfirms.Itwillbehelpfultogothroughtheaccepted“stagesofgrowth”usedbyallfinancingsources.

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Priortodelvingintothedetailsofentrepreneurialfinancing,weshouldhaveare-lookatthetraditionalstages•ofdevelopmentforentrepreneurialcompanies.Theseare;seedorconcept,start-up,first,second,third,andfourth or harvest stages.

Theyarebrieflydescribedwithstatus,tasks,andfinancingasfollows:

Seed or conceptStatus: This is the inventor stage. There is an idea, a concept, no management team, no prototype, and patentability •has not been determined. No business plan, timetable, or market research has been assembled.Tasks: To begin development of a prototype, assemble some key management, develop a business plan, assess •market potential, structure the company, and assess patentability or proprietary standing.Financing:Traditionalsourcesoffinance likeBanks,VentureCapitalfirmshave little interest infundinga•company at this stage. The risk level is just too high, and the time for achieving a payout or harvest is not determinable. Personal savings or friend and family money funds this stage. It ends with the completion of a seed stage business plan and the formation of the company.

Start-upStatus: At least one principal person of the company is pursuing the project on a full-time basis. The prototype •isbeingdeveloped,thebusinessplanisbeingrefined,amanagementteamisbeingidentified,marketanalysisisbeingundertaken,andinitialcustomersareidentified.Moreformalfundingisbeingaccomplished.Tasks: Complete and test the prototype and obtain evidence of commercial interest. Assemble and identify •an initial management team, complete the business and marketing plans, establish manufacturing and initiate sales.Financing: Traditional sources like banks may show an interest at this stage, assuming that a top-rated management •team is assembled, patentability or proprietorship is proven, and marketability is demonstrated. Fund raising is a major effort at this stage and it may take from several months to a year or more.

First stageStatus:TheCompanyisnowagoingconcern.Theproducthasbeenprovenasfitformanufacturingandselling.•Themanagementteamisinplace,thecompanyhasexperiencedsomesetbacks,customerscanconfirmproductusage,marketingisbeingrefined,adjustmentsarebeingmadeinthebusinessplanandthemoneyraisingeffortscontinue.Tasks: To achieve market penetration and initial sales goals, reach close to break-even, increase productivity, •reduce unit costs, and build the sales and distribution system.Financing:At this stage,venture capitalfirmsare interested in investment. It is themostpreferable stage.•Financing is needed to get the production bugs worked out and to support initial marketing efforts.

Second stageStatus:Significantsalesaredeveloping,asareassetsandliabilities.Thecompanyissporadicallyachieving•breakeven,andcashflowmanagementbecomescritical.Second-levelmanagementisbeingidentifiedandhired.Export marketing is being explored and more sophisticated management systems are being put into place.Tasks:Toobtainconsistentprofitability,addsignificantsalesandbackorders,expandsalesfromregionalto•national, identify international marketing plans, and obtain working capital to expand marketing, accounts receivable, and inventory.Financing:Moresophisticatedandsecond-roundventurecapitalfinancingorevenlistingofcompanycomes•into play at this stage. The founders and investors are forming plans for the harvest.

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Third stageStatus: All systems are really good and the potential for a major success is beginning to be apparent. Snags are •being worked out in all areas from the design and development of second-generation products; to marketing and distribution; to management.Tasks: To increase market reliability, begin export marketing, put second level management in place, begin to •“dressup”thecompanyforharvest.Financing:Atthisstage,thecompanymayneedtoobtain“bridge”financingtocarryincreasedaccountsreceivable•and inventory prior to harvest. There is a great amount of pressure to prove second and third generation products, increaseprofitabilityrecords,improvethebalancesheet,andfirmlyestablishmarketshareandpenetration.

Fourth stage or harvestThe end may be near for entrepreneurial companies. The company is sifting and sorting out its options including •going public, being acquired, selling out, or merging.The next challenge is to start all over again, but this time with a pocketful of money.•

6.4 Equipment Leasing or Equipment FinancingInstead of an entrepreneur at start-up buying equipment, he can lease it. Under a lease contract, one has to pay a monthlyrentalfeeforitsuse.Equipmentleasingisavailableforalltypesofequipmentfrombanksandfinancecompanies as well as from equipment manufacturers and dealers.

Start-ups should explore leasing if they:•wish to avoid blocking funds on the down payments for equipment purchase �need a soon-to-be-obsolete equipment �have funds to cover the monthly payments but don’t have funds for a major capital investment budget �havetheordersbutlacktheequipmenttofillthe �whentherearetaxbenefits �

Start-upfirmsshouldavoidleasingwhen:•they can afford to purchase the asset �the cost of purchasing is substantially lower than that of leasing �they can pay for the acquisition with a line of credit �the principal’s credit rating is low and it is likely to be refused �therearetaxbenefitstopurchasingratherthanleasing �

Drawbacks to leasing:•entrepreneur can’t use a leased asset as collateral for a future loan �interest rates can be very high �some lease terms are longer than the life expectancy of the asset, so it should be made sure that one doesn’t �get stuck making payments on obsolete equipmentone missed payment can trigger repossession �a thorough examination of enterprise’s credit history should be done �there is a requirement to pledge additional collateral to secure the equipment �

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6.5 Inventory FinancingInventoryfinancingisbank’screditoptionsecuredbythecompany’sinventory.Thistypeoffinancingcanhelptofree up some of the cash tied up in inventory for more pressing needs. The lender requires a track record of sales; hencethestart-upfoundershouldbeawareofthistypeoffinancingforconsiderationlaterdowntheroad.Start-upswhichcanuseinventoryfinancinginclude:

those with tangible inventory•those with a proven sales history and good credit history•

Inventoryfinancingmakessensewhen:the company enjoys a high inventory turnover rate but is short of the cash needed to replenish its supply•small business has a warehouse of goods ready to ship, but is short of cash to buy supplies for the next production •cyclehaving to maintain high levels of inventory ties up much of the cash.•

Drawbackstoinventoryfinancing:

Lenders will most likely need additional security in place for assurance•Mostbanksarenotfamiliarwithinventoryfinancing,whichmeansonehastoputinextraefforttofindabanker•who is comfortable with itThe credit may have to be paid off in full every 12 months and then not used at all for one month•If sales suddenly decline, two problems arise:•

company may have to unload the inventory at a loss, thereby undermining its ability to stay current on the �credit ratingthe interest on the loan may sap company’s ability to keep production on schedule �

It leads to high interest rates and other fees.•

6.6 Factoring Accounts ReceivablesWhen an up-market mall accepts a credit card as a mode of payment, it also pays a fee to the credit card company/ •bank.Inexchangeforgettingthemoneytransferredimmediatelyintoitsaccount,themall“sells”theinvoiceto that credit card company for a discount. This is an example of a true factor.A factor buys the current accounts receivables of any company at a discounted rate. This means that the •entrepreneur gets the money from an invoice immediately, instead of waiting 30, 60 or even 90 days for the customers to pay.Depending on the size of the company and the customers, and the average amount of time taken to pay invoices, •a discount rate can range from 2 to 15 percent.Factorsfirststartedintheapparelandtextileindustries.Today,theyarecommoninmanyindustries.Unlikebank•loans, which a company can outgrow because banks have a maximum cap on their loans, once the company grows andentrepreneurneedsahigheramountofmoney,itisalwaysavailable—justaslongastherearecustomersthat are creditworthy and the entrepreneur submits those receivables.

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Factoring makes sense in the following situations Factoring can be avoided in following situations

The company is too new for other types of •borrowingBusiness customers have good credit ratings•The sales cycle is long, requiring the company to wait •30, 60, or 90 days to receive paymentWhen there is a large purchase order that can’t be •fulfilledwithout having up-frontmoney for rawmaterials, cash payments to vendors, assemblies, etc.Entrepreneur doesn’t want to create additional debt •by obtaining a loan.All other traditional routes to working capital are •exhausted

It is possible to get a loan at low interest rate from •one of the traditional sourcesCompany’s outstanding orders or accounts •receivable are somewhat unreliableBusiness has customers that pay immediately or •within a reasonable time frame

Table 6.1 Factoring situations

6.7 Bank Finance through Commercial Banks and Financial InstitutionsApart from providing assistance for working capital requirements of Small Scale Industries (SSI’s), commercial •bankshavealsostartedgivingtermfinance.Further,RBIhasintroducedthe‘LeadBankScheme,’accordingtowhich one scheduled commercial bank has been started in each district to develop banking facilities.In1960,the“CreditGuaranteeScheme”wasintroducedinthefieldofcommercialbanksforfinancetoSSI’s.•RBIsetupacommittee,whichlookedintofinancingSSI’sandadvisedbankstotakevariousmeasuresaimedatincreasingthecreditflowtoSSI’sandthusminimisingtheproblemofsicknessinthesmallsector.According to the Industrial Development Bank of India (IDBI), bank credit to the small sector as compared •to total bank credit is on the increase year after year. First, let us have a look at a broad description about the different funding facilities provided by banks.

6.7.1 Fund Based Bank FacilitiesFollowing are the points discussed

Term loan• : It is an installment credit repayable over a period of time in monthly/quarterly/half yearly/yearly installments.Termloanisgenerallygrantedforthecreationoffixedassetsrequiredforlongtermusebytheunit.Thesearefurtherclassifiedinthreecategoriesdependingupontheperiodofrepaymentasunder:

Short term loan: repayable in less than three years �Medium term loan: repayable in a period ranging from three to seven years �Long term loan: repayable in a period over seven years. �

Cash credit facility• : A major part of the working capital requirement of any unit would consist of maintenance ofinventoryofrawmaterials,semi-finishedgoods,finishedgoods,storesandspares,etc.Inatradingconcern,the requirement of funds will be to maintain adequate stocks in trade. Finance against such inventories by banks is generally granted in the shape of cash credit facility where drawings will be permitted against stocks of goods. It is a running account facility where deposits and withdrawals are permitted. Cash credit facility is of two types:Cash credit - • pledge: The possession of the goods is with the bank and drawings in the account are linked with the actual movement of goods from/to the possession of the bank. The bank exercises physical control of the goods.

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Cash credit - • hypothecation:Whenthepossessionofthegoodsremainswiththeborrowerandafloatingchargeover the stocks is created in favour of the bank. The borrower has complete control over the goods and the drawings in the account are permitted on the basis of stock statements submitted.Overdraft facility• : Overdrawing permitted by the bank in the current account is termed as an overdraft facility. Overdraft may be permitted without any security as ‘clean overdraft’ for temporary periods to enable the borrowertotideoversomeemergentfinancialdifficulty.‘Securedoverdraft’facilityisagainstfixeddeposits,NSC, and other securities.Billsfinance• : This facility is against bills of sales raised or book debts.Exportfinance• :Banksgrantexportcreditonveryliberaltermstomeetallthefinancialrequirementsofexporters.The bank credit for exports can broadly be divided in two groups as under:

Pre-shipment advances/packing credit advances:financial assistance sanctioned to exporters to enable �them to manufacture/ procure goods meant for exports and arrange for their eventual shipment to foreign countries.Post-shipment credit: he bills purchase/discount facility granted to exporters. �

6.7.2 Non-fund Based Bank FacilitiesCredit facilities, which do not involve actual deployment of funds by banks but help the obligations to obtain certain facilities from third parties, are termed non-fund based facilities.These facilities include issuance of letter of credit, issuanceofguarantees,whichcanbeaperformance/financialguarantee.

6.8 Schemes offered by Various Banks and Financial InstitutionsThe schemes offered by banks and institutions to SSI’s for entrepreneurship development are discussed as follows:6.8.1 Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established on 1st July 1964, under the Industrial •Development Bank of India Act, 1964. In 1975, IDBI was separated from the Reserve Bank of India (RBI) and subsequently started functioning as an independent statutory organisation. It is now fully owned by the Government of India. IDBI is the tenth largest bank in the world in terms of development.

IDBI’s schemes to promote entrepreneurshipDirect Assistance to industries for Modernisation, Equipment Financing, Technology Implementation•Indirect Assistance to industries through SFCs, SIDCs, Commercial Banks and State Cooperative Banks with •EquipmentRefinanceSchemes,SeedcapitalSchemes,etc.Financial assistance to industrial units in the public sector, private sector, joint sector and co-operative sector •for the establishmentofnew industries, expansion,diversificationandmodernisationof existingunits andrehabilitation of sick industrial units.Soft Loan Scheme to selected industry sectors like cotton textiles, jute, cement, sugar to enable them to keep pace •with modernisation, plant and machinery renovation, etc. IFCI and ICICI are also participants in this scheme.

IDBI’s entrepreneurship development activitiesEntrepreneurship Development Institute: IDBI played a prime role in setting up of the Entrepreneurship •Development Institute of India for fostering entrepreneurship in the country.Technical Consultancy Organisations (TCO’s): IDBI in collaboration with other All-India Financial Institutions •hassetupanetworkofTechnicalConsultancyOrganisations(TCOs).TCOsofferdiversifiedservicestosmallandmedium enterprises in the selection, formulation and appraisal of projects, their implementation and review.Training cum Development Centres (TCD’s): The IDBI has set up TCD centres in north-eastern states like •Manipur, Nagaland and Arunachal Pradesh to provide facilities for running programmes designed to improve skills and crafts of the local people.

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Small Farmers Agri-business Consortium (SFAC): SFAC was incorporated in order to support innovative ideas for •generating income and employment in rural areas through support to various types of agricultural businesses.

6.8.2 State Bank of India (SBI)State Bank of India has been playing a vital role in the development of small-scale industries since 1956.Schemes offered by SBI

Equity fund scheme• :Under thisscheme, theSBIgrantsfinancialassistancebywayof interest-free loansrepayable over a long period to entrepreneurs who are not able to meet their share of equity fully. This type ofassistancefillsinthegapbetweenthemarginrequirementsintheprojectandthecapitalcontributedbythepromoter. The Equity Fund assistance can be normally repaid over 5 to 7 years after the moratorium period.Liberalised credit• : SBI extends liberalised credit facilities to small-scale industries, cottage industries in rural areas. The interest rates of the loan are based on credit assessment. No collateral security is required for loans up to Rs. 5, 00,000. Composite term loans with working capital can be sanctioned up to Rs. 25, 00,000. For requirements up to Rs. 25,000, no margins are involved. For limits ranging from Rs. 25,000 to Rs. 5 crores, the margin is 20%.Entrepreneur scheme• : SBI grants financial assistance to technically qualified trained and experiencedentrepreneurs, who are unable to meet the normal margin requirements under the liberalised schemes, for setting upnewviableindustrialprojects.Theborrowerhastobeatechnicallyqualifiedperson.Loansgivenare:termloans,workingcapitalandequityfundfinance.ForrequirementsuptoRs5lakhs,nomarginsareinvolved.Forneeds ranging from Rs 5 lakhs to Rs 20 lakhs, 10% margins are applicable.General purpose term loans• : These loans are for meeting general commercial purposes like substitution of high cost debt, research and development, shoring up net worth and funding business expansion. The tenure of theloanisnormally3years,andthepricingisfine-tunedtosuittheriskprofileoftheborrower.Therepaymentis structured in monthly or quarterly instalments.Stree Shakti Package: The Stree Shakti Package is aimed at promotion entrepreneurship among women. An •enterprise should have more than 50% of its share capital owned by women to qualify for the scheme. The concessions offered are:

The margin will be lowered by 5% as applicable to separate categories. �The interest rate will be lowered by 0.5% in case the loan exceeds Rs 2 lakh. �No security is required for loans up to Rs. 5 lakh in case of tiny sector units. �

6.8.3 Industrial Credit and Investment Corporation of India (ICICI)The Industrial Credit and Investment Corporation of India (ICICI) was set up as a private sector development bank in1955,withmajorfocusonprovidingdevelopmentfinancetotheprivatesector.

ICICI’s role in entrepreneurship promotionCredit Rating Information Services India Ltd. (CRISIL)• : ICICI supported in the establishment of CRISIL, a specialised agency that studies various issues of debentures and bonds. CRISIL rating is helpful to entrepreneurs astheycangetanideaaboutthesafetyandprofitabilityintheinvestment.Ithelpsintakingproperdecisionsabout investments and the best time and the right market for making those investments.Institute for Financial Management and Research• :Byidentifyingtheneedofadvancedfinancialtechniquesinthe management of enterprises, ICICI set up the Institution for Financial Management and Research in Chennai in 1970. The Institute conducts specialised courses and potential research work in Financial Management for budding entrepreneurs.Institute for Foreman Training• : With the Government of Orissa and the corporate sector’s assistance, ICICI establishedtheinstituteforforemantraininginthestatetoprovidetrainingtoshopfloorsupervisors.International Journal of Development Banking• : The ICICI publishes the International Journal of Development Banking. It is published half yearly and provides a medium for exchange of information and views among development bankers and extends knowledge pertaining to developments in the banking sector.

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6.8.4 Small Industries Development Bank of India (SIDBI)Small Industries Development Bank of India (SIDBI) was established in April 1990 under an Act of Indian Parliament as a wholly owned subsidiary of Industrial Development Bank of India.

The SSI sector, which is a vibrant and dynamic sub-sector of India’s industrial economy, is the focus area of SIDBI’s business. The objective of SIDBI is to impart vitality and growth impetus to the SSI sector by removing bottlenecks that affect the growth potential.

Role of SIDBI in the promotion and development of entrepreneurshipSIDBI undertakes a number of schemes for entrepreneurship promotion and development like:

Debtrefinancing•Directfinance•Foreign currency loans•Development and support services, these include:•

Enterprise promotion with emphasis on rural industrialisation �Human resource development of the ssi sector �Technology up-gradation programmes �Quality and environment management programmes �Information dissemination �

6.8.5 State Financial Corporation (SFC)TheSFCwassetupin1951tocatertothefinancialrequirementsoftheSSI’s.SFCsoperateatstatelevelandexistinalmosteverystateandunionterritoryofthecountry.TheSFC’smainroleistoprovidelong-termfinancetothesmall and medium sized industrial undertaking.

Role of SFC in entrepreneurship promotion and developmentTermloans,directsubscriptiontoequityanddebentures,billdiscounting,financialassistanceforacquisition•offixedassets.Schemestoprovidefinancialassistanceforpurchaseofnewequipment,technologicalup-gradation,development•of transport and medical facilities, and for helping ex-servicemen and women entrepreneurs, etc.Seedcapitalassistancetonew/firstgenerationentrepreneurs,intheformofsoftloanorequity.Itisalsogiven•forexpansion,modernisationanddiversification.Financing projects with large capital outlay (i.e. total project cost up to (Rs. 5 crore) in participation with •SICOM, All India Financial Institutions and Commercial Banks, etc. but, in such cases, assistance is limited to only Rs. 90 lakhs.

6.8.6 The Maharashtra State Financial Corporation (MSFC)

The Maharashtra State Financial Corporation (MSFC) has been set up under the State Financial Corporations •Act, 1951. The corporation is operating in the State of Maharashtra since 1962 and in the State of Goa and Union Territory of Daman & Diu since 1964.Established in 1953 as Bombay State Finance Corporation; the Maharashtra State Financial Corporation has •been playing a pivotal role in Maharashtra’s industrial growth.Function• : The main function of MSFC is to provide Term Loan assistance to small and medium-scale industries.Achievements of MSFC• : Some creditable achievements of MSFC are:

Total sanction: Rs.3688 Cr. Including term loans of Rs. 3414 Cr. �Major share to small-scale units �Encouragementtofirstgenerationentrepreneurs �

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dispersal of industries/service units to the backward and developing areas �generated employment opportunities for about 14 lakh persons �catalysed additional investment of about Rs. 6670 crores �co-founded the well-known Maharashtra Centre for Entrepreneurship Development, Aurangabad �

MSFC’s role in small-scale sector growth• : Total term loans sanctioned is Rs. 2542 crores. Accounting for 74 percent amount wise and 94 percent number wise respectively have been directed in favour of the small-scale sectors.

6.8.7 National Bank for Agriculture and Rural Development (NABARD)NABARD was established as a development bank for providing and regulating Credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts, rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas.

Role of NABARDItservesasanapexfinancingagencyfortheinstitutionsprovidinginvestmentandproductioncreditforpromoting•various developmental activities in rural areas.It takes measures towards institution building for improving absorptive capacity of the credit delivery system.•NABARDco-ordinatestheruralfinancingactivitiesofallinstitutionsengagedindevelopmentalworkatthefield•level and maintains liaison with the Government of India, State Governments, Reserve Bank of India (RBI).Itundertakesmonitoringandevaluationofprojectsre-financedbyit.•

6.8.8 Other Banks offering Financial Assistance

Bank of India•Canara Bank•Corporation Bank•Indian Bank•Indian Overseas Bank•IndusInd Bank Ltd.•State Bank of Travancore•Syndicate Bank•UCO Bank•Union Bank of India•

6.9 Venture Capital Funding (VCF)Venturecapitalisameansoffinancingfast-growingprivatecompanies.Withthis,theventurecapitalistacquires•an agreed proportion of the equity of the company in return for the requisite funding and is also exposed to the risk of the company failing.As a result, venture capitalists look to invest in companies that have the ability to grow very successfully and •give higher-than-average returns to compensate for the risk.Professional venture capitalists act as mentors and aim to provide support and advice on a range of management •and technical issues to assist the company to develop its full potential.This experienced management input is gained by helping many other companies successfully conquer the •inevitable problems and growing pains.

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Equity Capital

Large Businesses

SMEs

Micro Businesses

Ideas

Debt

Capital Markets,“PublicEquity”

“PrivateEquity”

Venture Capital

Businessmen, Friends,“Angel”Investors

Term loan of Banks/FIs

Mezzanine Debt and quasi-equity (VC)

Microcredit

Family, Friends and Relatives

VentureCapitalisoneofthemostappropriatewaysoffinancingstart-ups

Fig. 6.1 Venture capital funding(Source: http://www.amity.edu/SVCL.pdf)

6.9.1 Characteristics of Venture Capital Funding

Spirit of partnership (risk-reward sharing)•Active participation and value addition•Long term perspective•Investment and not assistance•Returns linked to performance•Expects high returns•

6.9.2 Advantages of Venture Capital

Finance• :Theventurecapitalistinjectslong-termequityfinance,asolidcapitalbaseforfuturegrowth.Itmayalso be capable of providing additional funding if needed.Business partner• : It is a business partner, sharing the risks and rewards. Venture capitalists are rewarded by business success and capital gain.Mentoring• : It is able to provide strategic, operational andfinancial advice to the companybasedonpastexperience with other companies.Alliances• : The venture capitalist also has a network of contacts in many areas that can add value to the company, such as recruiting key personnel, providing contacts in international markets, introductions to strategic partnersand,ifneeded,co-investmentswithotherventurecapitalfirmswhenadditionalroundsoffinancingare required.Facilitation of exit• : The venture capitalist is experienced in the process of preparing a company for an Initial Public Offering (IPO) and facilitating in trade sales.

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6.9.3 The Venture Capital Investment Process

Preliminary Screening

Negotiating Investment

Approivals and Investment Completed

Fig. 6.2 Venture capital investment process

The venture capitalist meets the entrepreneur and key members of the management team to review the business •plantodetermineifitfitswiththecapitalistfirm’sinvestmentcriteriaandconductinitialduediligenceontheproject.Here the management team should demonstrate their understanding of their business and ability to achieve the •strategies outlined in the plan. The venture capitalist will look carefully at the team’s skills and backgrounds.

Negotiating investmentThis involves an agreement between the venture capitalist and the management of the terms of the memorandum •of understanding. The venture capitalist will then study the viability of the market to estimate its potential.Often they use market forecasts that have been independently prepared by industry experts. The venture capitalist •also carefully studies the industry to obtain information about competitors, entry barriers, the potential to exploit substantial niches; product life cycles, distribution channels and possible export potential.

Approvals and investment completedThe process involves exhaustive due diligence and disclosure of all relevant business information.•Final terms can then be negotiated and an investment proposal submitted to the board of directors. If approved, •shareholders’ agreement is prepared.The investment process can take up to three months, and sometimes longer. It is advisable to plan the business •financialneedsearlyontoallowappropriatetimetosecuretherequiredfunding.The shareholders’ agreement contains the rights and obligations of each party, which may include:•

amount and terms of investment and dividend policy �composition of the board of directors �reporting - management reports, monthly accounts, annual budgets �liquidity (exit) plan �warranties �matters requiring venture capitalist approval, such as auditors, employment contracts, major asset purchases, �major debt obligations and so on

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6.9.4 Role of Venture Capital Investor

Strategic roles Social/supportive roles Networking rolesSounding Board•Buisness consulatnt•Financer•

Coach/ Mentor•Friend/Confident•

Management•Recruiter•Professional Contact•Industry Contract•

Table 6.2 Role of venture capital investor

Venture capital organisationsSome of the VCs in India are:

IFCI Venture Capital Funds Ltd. (IVCF)•IL & FS Group Businesses•ICICI Venture Funds Management Company Ltd.•SIDBI Venture Capital Ltd. (SVCL)•Gujarat Venture Finance Ltd. (GVFL)•

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SummaryAfter the marketing plan is frozen, or may be simultaneously the entrepreneur has to think about the sources of •financeforhisenterprise.Typically,small-scalebusinessesaresetupwithinternalfundingorsupportfrompeersorrelatives.Butthesystematicwayofraisingentrepreneurialfinancehastobeknownbyeveryentrepreneur.Thetraditionalstagesofdevelopmentforentrepreneurialcompaniesare–seedorconcept,start-up,first,second,•third, and fourth or harvest stages.Thevariousfinancialdecisionsbeforestartingthebusiness,sourcesoffinanceandtechniqueslikeequipment•leasing,inventoryfinancing,factoring,shouldbeconsideredbeforestartinganenterprise.Inventoryfinancingisbank’screditoptionsecuredbythecompany’sinventory.Thistypeoffinancingcanhelp•to free up some of the cash tied up in inventory for more pressing needs. The lender requires a track record of salesEquipmentleasingisavailableforalltypesofequipmentfrombanksandfinancecompaniesaswellasfrom•equipment manufacturers and dealers.A factor buys the current accounts receivables of any company at a discounted rate. This means that the •entrepreneur gets the money from an invoice immediately, instead of waiting 30, 60 or even 90 days for the customers to pay.Throughvariousbanksandfinancialinstitutions,thegovernmentishelpingentrepreneursraisefundsforsetting•up businesses. Various schemes have been introduced according to the sectors considering various sectors like small scale industries, women entrepreneurs, and so on.Venturecapitalisameansoffinancingfast-growingprivatecompanies.Withit,theventurecapitalistacquires•an agreed proportion of the equity of the company in return for the requisite funding and is also exposed to the risk of the company failing.The characteristics of venture capital funding includes spirit of partnership (risk-reward sharing), active •participation and value addition, long term perspective, investment and assistance, returns linked to performance, high returns expectations and so on.

ReferencesWelsch, H. P., 2004. • Entrepreneurship: The Way Ahead, Routledge.Findlay, L. 2006, • Improving Access to Finance. CBI, Enterprise Brief.Prof. Loyd, B., • sources of finance, [Pdf] Available at: <http://www.birmingham.ac.uk/Documents/students/pg-sources-finance-2012.pdf>[Accessed13 September 2012].Sources of Finance• ,[Online]Availableat:<http://www.ngfl-cymru.org.uk/vtc/bus_studs/members/downloads/sources%20of%20finance.pdf>[Accessed13September2012].2008, • Accounting and finance, [Video Online] Available at: <http://www.youtube.com/watch?v=5ll0mKg6-yI> [Accessed 13 September 2012].Rawat, 2009, • Sources of finance, [Video Online] Available at: <http://www.youtube.com/watch?v=D1G8Y1Ob3Co> [Accessed 13 September 2012].

Recommended ReadingSingh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi.Bygrave, W. D. & Zacharakis, A., 2010. • Entrepreneurship, 2nd ed., Wiley.Hisrich, R., Peters, M. & Shepherd, D. 2009. • Entrepreneurship, 8th ed., McGraw-Hill/Irwin.

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Self AssessmentForseedconceptcompanies,typicallyanentrepreneurstartshisbusinesswithmoneyfrom__________.1.

venture capitalists a. governmentb. bank loanc. family and friendsd.

Traditionalsourceslikebanksshowinterestinfinancinganenterpriseatits______________stage.2. start-up a. firstb. secondc. thirdd.

IntheInventoryFinancingScheme,thebank’screditissecuredbythecompany’s____________.3. assetsa. working capital b. personal equity c. inventoryd.

Under which scheme, the entrepreneur can pay a monthly rental for equipment rather than buying it?4. Equipment leasing a. Hire purchaseb. Hypothecationc. Buyoutd.

Which of the following aims at promoting entrepreneurship among women?5. Stree Shakti Package a. Soft Loan Schemeb. Equity Financingc. Entrepreneur Schemed.

Which bank was set up as a private sector development bank in 1955, with major focus on providing development 6. financetotheprivatesector?

SBIa. ICICI b. SIDBI c. SFCd.

The____________ conducts specialised courses andpotential researchwork infinancialmanagement for7. budding entrepreneurs.

CRISILa. Institute for Foreman Trainingb. Entrepreneurship Development Programmec. Institute for Financial Management and Researchd.

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Over-drawingpermittedbythebankinthecurrentaccountistermedas______________.8. cash credit facility a. overdraft facilityb. term loanc. billsfinanced.

Whichtypeoffinancingcanhelptofreeupsomeofthecashtiedupininventoryformorepressingneeds?9. Inventoryfinancinga. Factoringb. Equipment leasingc. Equipmentfinancingd.

What does the Entrepreneurship Development Institute of India focus on?10. SBIa. MEMFDb. IDBI c. SIDBId.

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Chapter VII

Human Resource Aspects

Aim

The aim of this chapter is to:

explain the entrepreneurial team formation process•

elucidate the recruitment process•

examine the training methods in an enterprise•

Objectives

The objectives of this chapter are to:

explain the need for human resource planning•

explicate the employee recruitment procedure in SSIs•

elucidate training and motivation programmes for employees•

Learning outcome

At the end of this chapter, you will be able to:

understand the employee recruitment and training process•

identify various dynamics of employee motivation•

describe the role of entrepreneur in entrepreneurial team formation•

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7.1 IntroductionThe important facet of any enterprise is the human resource. Mr. Narayan Murthy, the Chairman of Infosys says, “ThesuccessofInfosyswasdueto,aboveallelseitsabilitytoattract,developandretainoutstandinghumancapital.Given the nature of its business and its aspirations, Infosys had to compete on the strength of people.” This example clearly proves the point that the success of an enterprise is more often determined by the quality of people who lead the enterprise forward than by its products or services.

It is the creativity and hard work of the entrepreneurial team that transforms creative ideas into commercial realities. Venture capitalists also say that they would prefer a grade ‘A’ entrepreneurial team with a grade ‘B’ idea, rather than the other way around.

Themessageisclearenough—entrepreneursmustprovideinspirationanddirection,andtheymustbeabletocreateorganisations to sustain growth. This is exactly where the Human Resource skills of an entrepreneur come into the picture.

Foranewstartupbusiness,theownerhastoplaymultiplerolesatonetime—leader,managerandalsoanad-ministration for the new enterprise. For large companies and corporate ventures, a champion must assemble a team of like-minded people capable of breathing life into an innovation, much similar to the role of an intrapreneur.

Forthepotentiallyhigh-growthnewventures,anentrepreneurmusthavetheforesighttofindpartnersorhirepeoplewith complementary skills needed to guide the enterprise toward success. In this chapter, we would discuss the formation of an entrepreneurial team followed by the recruitment process, training and motivational aspects.

7.2 Human Resource PlanningHuman resource planning is the process by which an organisation ensures that it has the right number and right •quality of people at the right place and at the right time. Two basic human resource-planning strategies are staffingandemployeedevelopment.Humanresourceplanningmaybedefinedas theprocessofforecastingthefuturemanpowerrequirements,•analysing the present manpower resources to determine their adequacy both qualitatively and quantitatively and planning the necessary programs of recruitment, selection, training, development, motivation and compensation to meet the future workforce requirements.

Need for human resource planningThe need for human resource planning arises because of following reasons:

Organisation needs human resource planning to meet the demand of changing job requirements due to rapidly •changing technology.Technological changes create demand for new professionals who specialise in high skilled jobs. Planning is •essential to train existing employees to acquire new skills.Human resource planning provides a competitive edge to employees and organisations.•Itisneededtomeetthedemandofchangingjobrequirementsduetoanticipateexpansionanddiversification.•

7.3 Formation of Entrepreneurial TeamHuman resource needs and requisite skills

The skills and performance of entrepreneurs are largely responsible for the success or failure of new ventures. •For instance, an exceptionally innovative product positioned in the best possible target market has no life of its own without a skilled founder.It would fail in the ruthlessly competitive market like a storm struck ship without a skilled sailor. The strength •of an entrepreneurial team backed by the capability of a determined and foresighted entrepreneur breathes life into an enterprise.

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Even venture capitalists and bankers carefully evaluate the leader or the initiating team while determining the •chances of success of an enterprise.

Askilledteamguidingthenewventureisalwayspreferredoveranindividualperformer,yetsignificantweightageis given to the leadership role of the entrepreneur who has dreamt of the idea and is trying to set up the venture.

Important criteria for setting up an entrepreneurial teamThe entrepreneurial team, to ensure that the business is successful, must meet with the following criteria:

Exceptionally good personnel skills and commitment of the entrepreneur is necessary to lead the new •enterprise.A highly motivated group of people on the team or entrepreneur should be able to identify people needed on •the team for launching the new business.The team must have a share in the success of the new business.•

Proprietary Firm

Owner Sales Partner Finance PartnerTechnical Partner

Champion or Coach

Product Designer

Engineer

Marketer

Planner

Family Members, mentors and

advisors

Partners’ network: friends, family,

members, advisors, mentors, etc.

Team members’ network: sponsors, staff, co-workers,

etc.

Partnership Firm Intrapreneurial Firm

Fig. 7.1 Formation of the entrepreneurial team

The role of the entrepreneurInitially, the entrepreneur has to identify the human resource requirements based on the business plan of the •venture.Priortothis,theentrepreneurhastofirstunderstandhisownskillsandlimitationsthenhavetheabilityto attract people to his business. An extremely talented electronics engineer may develop innovative gadgets, which may bring a revolution in the industry, but if he does not have the requisite marketing skills, his gadgets may never be commercially developed.

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Similarly, a very good marketer with great marketing acumen is likely to fail in the market without a strong •business idea. A combination of an inventor and marketer may be a good team, but they will still lack the leadershipandfinancialskills.These examples prove the point that even if the entrepreneur has capabilities in all areas of business, he will •still need the help of a team. Thus, since an entrepreneurial team is needed, the entrepreneur must have the human resource skills to form the entrepreneurial team and direct it towards achieving the goals and objectives of the business.Atthepre-start-upstageitself,theentrepreneurmustdefinetheteammembers’rolesandtheskillsneeded,in•thebusinessplan.Asandwhenrequired,thesemembersshouldbeidentifiedandtheirrolesshouldbeclearlystated. The entrepreneur is expected to be in the leadership role, but he may also act in the background as a technical advisor.If the new venture is intrapreneurial in nature, then the intrapreneur’s role is that of a champion or coach who •brings people together to form a corporate team. The intrapreneur must provide the motivation, encouragement to team efforts and convince the management that the new product or concept is worth giving some attention.The intrapreneurial team has to work late hours, without extra compensation, and under cover to transform •the idea to a commercial success. Under these conditions, the intrapreneur’s role as a motivator is even more pronounced. If a new product is involved, then product designers, market researchers, engineers and support staff are also a part of the team.When the new venture is a small proprietary business, the entrepreneur may have to play all the above-described •roles himself. Incidentally, one of the major reasons for small businesses to fail initially is the reality that only few of these entrepreneurs are capable of performing all these multiple roles successfully.Hence, bankers and other investors clearly mention that these small-scale entrepreneurs should assess their •particular skills honestly, and then should identify ways in which they can obtain help.

The role of the entrepreneurial team membersEntrepreneurial team members are partners, not employees. They are emotionally bound and have come together •to pursue a dream that they have seen. They have a common vision, a common purpose and common goals.Ideally, team members should have some stake in the business as partners, shareholders or employees who will •get a share in the success by way of stock options or bonus. Venture capitalists become active team members by positions on board and value added consulting. In an intrapreneurial venture, employee teams are formed through the friendship route and later become united through commitment towards the common goal.Initially, all team members assume responsibilities for their individual functional specialisations like marketing, •product development, customer service, logistics, etc. along with the general management roles of planning, scheduling and problem solving. These are close associates who will together create their dream into reality and develop a unique entrepreneurial culture. They will face crises together, share in the wealth of success and also bear the pain of failure.Once a business is set and starts growing, the roles of team-members change, the ability of members to build •the organisation becomes more crucial than their individual roles as founders. Now they must be capable as mangerstobuildandleadanefficientstaff.They must transform themselves from emotional dreamers who initiated the business to professional managers •who can make the business grow in leaps and bounds.Research has shown that the small entrepreneurs and their team members tend to focus on operational issues •and immediate problems while professional manager focuses on issues related to long-term strategic goals of the company. Difference is also observed in the decision-making behaviour. This implies that entrepreneurs and their initial team members may not be able to lead the ventures in the ‘growth stage’ and hence their roles must be described in context of the development stage of the venture and the functional skills of the team members. This also calls for hiring of the right talent to take over the mantle.

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7.4 The Recruitment ProcessRecruitment is the process of identifying the sources for prospective candidates and encouraging them to apply •for a particular job or jobs in an organisation. It involves placing right person on the right job.It aims at stimulating and attracting job applicants for positions on the organisation. It requires careful planning, •especiallywhenunusualjobaretobefilled.

Purpose of recruitmentThepurposeofrecruitmentistoprovideasufficientlylargegroupofeligiblecandidatesinordertohavewidechoicefor the organisation in the selection of the most suitable candidate.

The aim of recruitment it develops and maintains adequate human resource upon which an organisation can •depend.Itinvolvesseekingandattractingapoolofpeoplefromwhichqualifiedcandidateforjobvacanciescanbe•chosen and on which an organisation can depend.Accordingly, the purpose of recruitment is to locate sources of human resource to meet job requirements and •jobspecification.Anynewventureneedsthreethingstogetabusinessstartedgoodproductbasedoncompany’svision,sufficient•financetopursuethatvision,andgoodpeople.Thetypicalpatternofemploymentforsmall-scaleindustriesisthat owners will initially hire one or two full-time people and supplement busy seasons with part timers.One may be skilled in the trade and other needs to be trained. Many full time employees are hired from among •friends or family members. This practice provides no assurance of having employees with required skills or commitment to make a new venture a success.

Job description

Seek talent

Employee selection

Acts as guidelines for entrepreneurs and alos for prospective candidates for identificationofrequiredskills,personalattributes,tasks,andjobexpectations

Advertisementinlocalnewspapers,listingwithemploymentoffices,recruitmentagencies,campus placement cells, social networks, Vocational Training Programs.

Direct interviews, through recruitment agencies, campus selection, contract employees through associations, employee-leasing agencies

Fig. 7.2 Employee recruitment at SSIs

Job description• :Entrepreneursmustfirstwritejobdescriptionsthatidentifythetypeofemployeesneeded,theirskills,pastexperience,anddutiesatthenewjob.Thishelpstoidentifyqualifiedcandidates,interviewthem and select the best.Seek talent• : Potential candidates can be hunted for from several sources like:

employee references/ recommendations �advertisements �consultants �

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campus interviews �job portals �corporate website �

Employee selection• : In selecting and hiring people, any or all of the conventional selection steps can be employed. Personal interviews, personal history evaluation, and personal reference check are the generally used methods of selection of personnel. The entrepreneurs must look out for technical knowledge, willingness, and long-term commitment. They should look out for achievers and not grasshoppers.Some different types of interview techniques are:

personal interviews �multiple and panel interviews �patterned or structured interviews �realistic job previews and auditioning �

7.5 Training the EmployeesTraining is a teaching and learning activity carried on for the purpose of helping a newly recruited employee •acquire and apply the knowledge, skills, abilities and attitude in order to perform better. Employee training can be of two types:

the initial induction training given to new employees who have been recruited by the entrepreneur as �discussed in the preceding sectionstraining given to existing employees in order to keep them updated with respect to new technological �advances, skills required to do the job better and so on

To prevent employees from going stale or outdated, ongoing training should also be provided. The era of short •product life cycles, technological obsolescence and fast introduction of innovations have driven training needs to the fore.Training is fastest in IT, followed by consumer electronics, materials technology, medical and biosciences. •Unfortunately, experienced members are usually the forgotten entities in an enterprise. Recurring training throughout the employees’ career not only rejuvenates their self-motivation, it is also necessary as new processes and products are developed, or when business environment changes.Effective decisions about training can be made by following a simple process as shown:•

Training needs identification

Training methods

Resources required

Job descriptions, performance evaluations, gap analysis for skills mapped, new skills to be acquired

Trainig by proprieter, hired consultants, mentoring, seminars, coures, apprenticeships, formal education

Time, money, skills of entrepreneur or mentor, facilities, equipment, nature of business

Fig. 7.3 Employee training at SSIs

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The training programmes can be divided into a sequential process as described above.Trainingneedsidentification• :Thefirststepistoidentifythetrainingneeds.Jobdescriptions,performanceevaluations of existing employees, competency mapping and gap analysis for skills mapped, new skills to be acquired can give the entrepreneur an idea of the training needs of existing as well as new employees.Training methods• : Now the entrepreneur has to study the possible training methods. Training by proprietor, hired consultants, mentoring, seminars, courses, apprenticeships, formal education are some of the options available. The entrepreneur has to select the best possible option based on the need, resource availability and so on.Resources required• : After identifying the training method, the entrepreneur has to make available all the required resources. Some of these can be time, money, skills of entrepreneur or mentor, facilities, equipment, nature of business.

Nowtheentrepreneurhastomatchtheidentifiedtrainingneedswiththemethodsoftrainingavailableandconductthe training programme accordingly. The following example will illustrate the process further: if a wholesaler needs an employee to be skilled in accounting software and has employees capable of learning this skill, and if the owner himself is not skilled in the software but can afford to hire a trainer, then he can send the employee to a professional accounting system trainer and train the employee in the accounting package which will be used in his business.

7.6 Employee MotivationInitially, while discussing the process of formation of the entrepreneurial team, it was stated that the team •members should not be mere employees but they must be partners in the business and should be emotionally bound to the vision, the dream that they want to co-create. The same spirit should be inculcated in the employees down the line.Thus,employeemotivationisaveryimportantresponsibilityofentrepreneurs,especiallywhenthefirmisin•the growth stage. Some issues related to employee motivation are:

Encourage innovation and creativityThe creativity and innovation of an entrepreneur is the reason for the birth of an enterprise. Creativity drives the •businessforward.Somethinkerhasrightlysaid,“Creativityisonequalitythatseparatesusfromanimals.”Entrepreneurs must foster the creativity culture in the organisation. They should give employees autonomy to •be creative enough while working, make them feel important and give them opportunity to self-actualise while working.This will make the workplace more enjoyable to them. The entrepreneur should give rewards and recognitions •for innovative improvements and suggestions from his employees.Innovativecompetitionslike“IdeaMela”canbeconductedtofosterinnovativeideasfromemployees.This•will give personal job satisfaction for the employees and boost the motivational levels of the team.

Reward qualityIn addition to providing autonomy to employees, an entrepreneur should ensure quality in his products and •services.This can be ensured by rewarding quality performances. For instance the entrepreneur can give monetary rewards, •start awards such as ‘employee of the month’, company parties, picnics, etc. to recognise individual and team performances. Rewarding quality performance will help to reinforce positive behaviour.

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ShareofprofitsandgainsOnewaytomotivateemployeesisgainsharing.Itinvolvessharingofincreasedprofits,income,orcostsavings•with employees as recognition of their good performance.One of the initiatives that can be undertaken is establishing employee stock ownership plans, or ESOPs, which •involves selling of the shares of corporate stocks to all employees.

Thus, we have studied the importance of entrepreneurial team formation in an enterprise. The recruitment process plays a vital role for the enterprise as the employees need to be further trained and motivated to accomplish the business activities.

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SummaryThe entrepreneur has to play multiple roles while setting up his new venture. One of the vital roles played by •an entrepreneur is of the human resource manager.Forthepotentiallyhigh-growthnewventures,anentrepreneurmusthavetheforesighttofindpartnersorhire•people with complementary skills needed to guide the enterprise toward success.Human resource planning is the process by which an organisation ensures that it has the right number and right •quality of people at the right place and at the right time. Two basic human resource-planning strategies are staffingandemployeedevelopment.The entrepreneurial team, to ensure that the business is successful, must have exceptionally good personnel skills •and commitment of the entrepreneur to lead the new enterprise, and highly motivated group of people on the team or entrepreneur should be able to identify people needed on the team for launching the new business.The employee recruitment and training process are the crucial aspects of developing an effective human resource. •Recruitment is the process of identifying the sources for prospective candidates and encouraging them to apply for a particular job or jobs in an organisation. It involves placing right person on the right job.The effective steps to recruit good employees include job description, talent seeking and employee selection.•Training is a teaching and learning activity carried on for the purpose of helping a newly recruited employee •acquire and apply the knowledge, skills, abilities and attitude in order to perform betterEmployeemotivationisaveryimportantresponsibilityofentrepreneursespeciallywhenthefirmisinthegrowth•stage.Somewaystoboostemployeemoralecouldbe—encouraginginnovationandcreativity,rewardingquality,sharingprofitsandgainsandsoon.

ReferencesSingh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi. Size, M., • Human resource management, [Online] Available at: <http://www.csb.gov.hk/english/publication/files/e-hrmguide.pdf>[Accessed14September2012].Mc Connel, T., 2009, • Succession Planning HR strategy, [Video Online] Available at: <http://www.youtube.com/watch?v=96mnrtVlDVo> [Accessed 14 September 2012].Dr. Vardaman, 2010, • Human resources lecture 1, [Video Online] Available at: <http://www.youtube.com/watch?v=Tty5XVL0Ks4> [Accessed 14 September 2012].Welsch, H. P., 2004. • Entrepreneurship: The Way Ahead, Routledge.Human Resources• , [pdf] Available at: <http://www.slideshare.net/pritishsuman/aspects-of-hr> [Accessed 8 November 2012].

Recommended ReadingJackson, S. E. & Schuler, R. S., 1990. • Human Resource Planning, American Psychologist.Horner, W. G., 1998. • Employee Training and Development, Human Resource Division, Eastern Services Branch.Oxlade, L. & Brend, M., 2003. • Exploring the Training Process. Healthlink Worldwide Newsletters.

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Self AssessmentThe skills and performance of ____________ are largely responsible for the success or failure of new1. ventures.

team membersa. venture capitalists b. entrepreneursc. employeesd.

Entrepreneurhastoidentifythehumanresourcerequirementsbasedonthe_____________oftheventure.2. business plana. marketing plan b. operational plan c. financepland.

In an intrapreneurial venture, the entrepreneur’s role is that of a3. _____________or a coach.leadera. champion b. guidec. teacherd.

Which of the following statements is true?4. Twobasichumanresource-planningstrategiesarestaffingandemployeedevelopment.a. Twobasichumanresource-planningstrategiesarestaffingandteamformation.b. Two basic human resource-planning strategies are team building and salary.c. Two basic human resource-planning strategies are planning and employee development.d.

Entrepreneurialteammembersare__________,notemployees.5. workersa. leaders b. partnersc. followersd.

Whatidentifiesthetypeofemployeesneeded,theirskills,pastexperience,andduties?6. Recruitmenta. Job descriptionsb. Jobdefinitionsc. JobProfiled.

Traininggiventonewemployeeswhohavebeenrecruitedbytheentrepreneuristermedas____________.7. induction training a. on job trainingb. internshipc. summer trainingd.

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Which is the teaching and learning activity carried on for the purpose of helping a newly recruited employee to 8. acquire and apply the knowledge, skills, abilities and attitude in order to perform better?

Traininga. Recruitment b. Motivation c. Selectiond.

Which is the process of identifying the sources for prospective candidates and encouraging them to apply for 9. a particular job or jobs in an organisation?

Traininga. Recruitment b. Motivation c. Selectiond.

Which of the following statements is true?10. Employee development is the process by which an organisation ensures that it has the right number and a. right quality of people at the right place and at the right time.Recruitment is the process by which an organisation ensures that it has the right number and right quality b. of people at the right place and at the right time.Training is the process by which an organisation ensures that it has the right number and right quality of c. people at the right place and at the right time.Human resource planning is the process by which an organisation ensures that it has the right number and d. right quality of people at the right place and at the right time.

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Chapter VIII

The Legal Procedure for Setting up an Enterprise

Aim

The aim of this chapter is to:

explore the permission and clearances required for an enterprise•

study the process for registration of SSI units•

understand the features of different legal acts•

Objectives

The objectives of the chapter are to:

determine the legal rules and regulations to set up an enterprise•

understand objectives of registration scheme•

examine various labour laws•

Learning outcome

At the end of this chapter, you will be able to:

identify and list types of business ownership•

describe permissions and clearances required•

understand registration of SSI Units•

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8.1 IntroductionIn this chapter, we will see the legal aspects involved in setting up a new venture. The minute details in the process for the registration of a small-scale unit, the numerous clearances and permissions to be obtained and the various laws that govern the operations of an enterprise are also discussed. This chapter is of immense importance for potential entrepreneurs since statutory compliance is a must for any business to run smoothly. Thus, we can realise the critical legal aspects faced by the emerging and growing business of our country.

8.2 Type of Business OwnershipWe have studied the types of enterprises before. Thus, it is necessary to understand the forms of business organisation again. There are three basic forms of business based on the ownership of the business which are shown in the table below.

Sr. No. Form of Business Description

1. Sole proprietorship The proprietor is the only one individual who owns and operates the venture.

2. PartnershipIn partnership, business will be owned and operated by two or more people. Partnerships come in two varieties: general partnerships and limited partnerships.

3. CorporationA corporation is an independent legal entity, separate from its owners, and as such, it requires compliance with more regulations and tax requirements.

Table 8.1 Forms of business organisation

8.3 Registration of SSI UnitsAll industrial units are required to be registered with the Secretariat for Industrial Assistance [SIA], which are •subjecttocompulsorylicensing.ThoseexemptedarerequiredtofileanIndustrialEntrepreneur’sMemorandum[IEM] with the SIA.Small Scale and ancillary units (i.e. undertaking with investment in plant and machinery of less than Rs. 60 •lakhs and Rs. 75 lakhs respectively) should seek registration with the Director of Industries of the concerned state government.The main purpose of registration is to maintain statistics and maintain a roll of such units for the purposes of •providing incentives and support services. We would discuss the process of registration for small-scale units specifically.

BenefitsofregistrationUnitswouldnormallygetregisteredtoavailsomebenefits,incentivesorsupportgiveneitherbygovernment•orotheragencies.Someofthesebenefitsare:

Credit prescription (Priority sector lending), differential rates of interest, and so on �Excise Exemption Scheme and Exemption under Direct Tax Laws �Statutory support such as reservation and the Interest on Delayed Payments Act �

States/UTs have their own package of facilities and incentives for small scale. They relate to development of •industrial estates, tax subsidies, power tariff subsidies, capital investment subsidies and other support.Both, the Centre and the State, whether under law or otherwise, target their incentives and support packages •generally to registered units.

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Objectives of the registration scheme are to:enumerate and maintain a roll of small industries to which the package of incentives and support are targeted•provideacertificateenablingtheunitstoavailstatutorybenefitsmainlyintermsofprotection•create nodal centers at the centre, state and district levels to promote the SSI•serve the purpose of collection of statistics•

Salient features of the schemeDIC is the primary registering centre.•Registration is voluntary and not compulsory.•Two types of registrations are done in all States:•

Aprovisionalregistrationcertificateisgiven. �Aftercommencementofproduction,apermanentregistrationcertificateisgiven. �

Registration procedureUnit applies for PRC in prescribed application form.•NofieldenquiryisdoneandPRCisissued.•PRCisvalidforfiveyears.Iftheentrepreneurisunabletosetuptheunitinthisperiod,hecanapplyafreshat•theendofthefiveyearperiod.Once the unit commences production, it has to apply for permanent registration on the prescribed form.•

Basis of evaluationThe unit has obtained all necessary clearances whether statutory or administrative, e.g., drug license under drug •control order, NOC from pollution control board.Unitdoesnotviolateanylocationspecificrestrictionsinforce,atthetimeofevaluation.•Value of plant and machinery is within prescribed limits.•Itisnotowned,controlledorsubsidiaryofanyotherindustrialundertakingaspernotification.•

De-registrationA Small Scale Unit can violate the regulations in the following ways which makes it liable for de-registration:

It does not satisfy the condition of being owned, controlled or being a subsidiary of any other industrial •undertaking.It crosses the investment limits.•It starts manufacturing any new item or items that require an industrial license or other kind of statutory •license.

8.4 Permissions and ClearancesBefore starting an SSI, the following permissions are to be sought by the entrepreneur:

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Regulatory or Taxation Clearances

Environment and Pollution Related Clearances

ProductSpecificClearances

Labour Laws

Fig. 8.1 Steps for permissions and clearances

8.4.1 Regulatory or Taxation Clearances

RegistrationunderSalesTaxAct–CommercialTaxOfficer•Registration under Central Excise Act – Collector of Central Excise•PaymentofIncomeTax–IncomeTaxOfficer•Registration of Partnership deed – Inspector General of area concerned•Calibration of weights and measures – Weights and Measures Inspector of State•PowerConnection–DesignatedOfficerofStateElectricityBoard•Employee strength exceeding 10 with power connection or 20 without power – Chief Inspector of Factories•

8.4.2 Environment and Pollution Related Clearances

Pollution control: • StatePollutionControlBoard’sNoObjectionCertificate(NOC)shouldbeobtainedbeforecommencementofconstructionactivity.Incasetheindustryisofthehighlypollutingcategory,afull-fledgedorrapid Environmental Impact Assessment (EIA) study has to be carried out and submitted to the State Pollution Control Board for approval, after which the construction can commence.Industriesrequiringwaterandaffectingeffluentdisposal• : State Pollution Control Board’s No Objection Certificate(NOC)shouldbeobtainedbeforecommencementofconstructionactivity.For units functioning outside industrial area• : Permission from Municipal Corporation/Municipality/Panchayat. In case private agricultural 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 before the actual startoftheconstructionfromthelocalofficeoftheDirectorateofTownandCountryPlanning.Registration and licensing of a boiler• : The safety clearance of the Chief Electrical Inspector and the Chief Inspector of Boilers is required before commencing operations with electrical and pressure vessels (boilers) respectively.For registration as a 100% export oriented unit (EOU) which can enjoy many additional concessions, the •clearance of the Development Commissioner of the Export Processing Zone (EPZ) would be required. If the company wishes to offer equity shares to the public, the clearance of the Stock Exchange Board of India (SEBI) has to be taken.

8.4.3ProductSpecificClearances

Establishing a printing press District Magistrate•LicenseforcoldstorageconstructionDesignatedOfficialinState•Pesticides – Central/State Agricultural Department Ministry of Agriculture•Drugs and Pharmaceuticals Drug license from State Drug Controller•

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Safetymatches/fireworksLicenseunderExplosivesActfromtheDirectorateofExplosives,Nagpur•Household electrical appliances License from Bureau of Indian Standards•Woodworkingindustrywithin8kmfromforestDistrictForestOfficer•Milk processing and milk products manufacturing units Approval under Milk and Milk Products Order from •State Agricultural/Food Processing Industries department above a designated capacity

8.4.4 Labour LawsTheLabourActhasbeensimplifiedin1988toassistthesmallestablishments.TheAct,namely“LabourLaws(exemptionfromfurnishingreturnsandmaintainingregistersbycertainestablishments)Act,1988”coverslabourrelatedactsandthusprovidesfollowingspecifications:

Establishments employing 10-19 persons are required to maintain only 3 registers and to submit only an annual •core return.Establishments employing less than 10 persons to maintain only 1 register and submit only an annual core •return.Only one inspector will be responsible for various labour laws, except in case of the Factory Act and the Boiler •Act.

8.5 Legal Acts Governing an EnterpriseAn entrepreneur needs to follow the rules and regulations made by the Central or State Government. Some of the acts governing the small-scale enterprises are:

The Factories Act, 1948•Payment of Wages Act, 1936•Workmen’s Compensation Act, 1923•Minimum Wages Act, 1948•Income Tax Act, 1981•The Industrial Employment (Standing Orders) Act, 1956•Employees Provident Fund Act, 1952•Employees State Insurance Act, 1948•Industrial Disputes Act, 1947•The Payment of Bonus Act, 1978•State Industries Act•Shops and Establishment Act, 1948•

The salient features of some of the most important regulations governing the SSI’s are summarised below:8.5.1 Factories Act, 1948

Factory is any place wherein ten or more persons are working and in which manufacturing process is carried •on with the aid of the appropriate power machinery and infrastructure.Premises in which power is not used come under the term of a factory if twenty or more persons are working •in them.Employment of children below age of 14 is prohibited.•Work hours are limited to 9 hours per day for adult men and 8 hours per day for adult women workers. Act •provides for an interval or rest of at least half an hour after every 5 hours of work.The Act lays down that those workers who are made to work for more than 8 hours a day shall be paid for the •extra hours at the rate of twice their ordinary rates of wages.The Act prohibits employment of women in factories in night shifts. Children between the ages of 14–17 should •work only 4.5–5 hours a day and are prohibited from doing night shift.

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The Act places legal responsibility on the management for the maintenance and use of safety guards. They •have to supervise the use of these guards by the workers. In every factory, all dangerous parts of all machines, suchasthemovingpartsofprimemovers,flywheels,electricgenerators,motors,rotaryconverters,etc.,shallbe securely fenced by safety guards of substantial construction which shall be kept in position while the parts of machines are in motion.Adequate provision shall be made in a factory where dangerous fumes are present in any chamber, tank, pipe, •etc., for egress of such fumes. If, in any factory, the manufacturing process raises dust, gas, fume or vapours, which are likely to explode on ignition, all measures shall be taken to prevent the explosion.First-aid boxes, equipped with the prescribed contents, which will be readily accessible during all working •hours, shall be provided and maintained in every factory. The number of such boxes shall not be less than one foreveryonehundredandfiftyworkers.It is thedutyof themanagementofafactorytomaintainsufficientsuitablelighting,naturalorartificialor•both, in a factory and in all the workrooms. All glazed windows and sky-lights shall be kept clean on both the inner and outer surfaces, and effective measures shall be taken for the prevention of glare and formation of any shadows which may cause eye-strain or create risk of accidents.In every factory, effective arrangements shall be made to provide, at suitable points conveniently situated for •allworkersemployed,therein,asufficientsupplyofwholesomedrinkingwater.TheActsignifiesthateveryfactoryshallbekeptcleanandfreefromeffluviaarisingfromanydrain,privyorother•nuisance.Accumulationofdirtandrefuseshallberemoveddailyfromthefloorandthebenchesofworkrooms,fromstaircasesandpassages,anddisposedofinasuitablemanner.Thefloorofeveryworkroominfactoryshallbe cleaned once a week. All inside walls, ceilings and partitions shall be white washed at least once in fourteen months;iftheyarepaintedorvarnished;theyshallberepaintedorre-varnishedonceinfiveyears.For any contravention of the Act, the occupier and the manager of a factory shall each be guilty of an offence and •bepunishablewithimprisonmentforatermnotexceedingthreemonthsorwithafineuptoRs.500orboth.

8.5.2 The Payment of Wages Act, 1936

The payment of wages to factory workers in a particular form and at regular intervals without any unauthorised •deductions is the objective of this Act.The wages of every person employed in a factory, industrial establishment, or a railway, where less than 1,000 •persons are employed, shall be paid before the expiry of the seventh day after the completion of wage period, generally a month.In the factories in which more than 1,000 persons are employed, the wages shall be paid before the expiry of •the tenth day of the next month.The wages of a person whose services have been terminated shall be paid on the next working day after such •termination.The Act authorises the employer to make deductions from wages in the wake of:•

fines �absence from duty �damage to or loss of goods or money, if it is due to the negligence or default on the part of the employee �housing accommodation supplied by the employer �such amenities and services supplied by the employer as the State Government may authorise �

8.5.3 The Workmen’s Compensation Act, 1923

If a worker has met with accident, resulting in physical impairment or death while working on machines in a •factory, this results in loss of earnings for his/her immediate family.If any such injury is caused to a worker by an accident arising out of and in the course employment, his employer •shall be liable to any compensation in accordance with the provisions of this Act.The employer, however, shall not be liable if:•

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Injury results in a partial or total disablement of the worker for less than three days. �Injurycanbedirectlyattributedtotheworkerhavingbeenundertheinfluenceofdrinkordrugs. �If the injury can be directly attributed to the willful disobedience by the worker of an order expressly given; �or to the willful removal or disregard by the worker of any safety guard or other device, which he knew to have been provided for the purpose of securing his safety.

If a worker engaged in any employment which involves the handling of wool, hair bristles or animal carcasses •or loading or unloading of such merchandise, or in processes carried on in compressed air, or in processes which involve the use of lead or tetraethyl or in processes involving exposure to nitrous fumes, contracts diseases like anthrax, compressed-air illness, lead poisoning, or poisoning by nitrous fumes respectively; contracts any disease; the contracting of such a disease shall be regarded as an injury by accident and shall be deemed to have arisen out of and in the employment. The Act provides compensation for these categories of injuries.

8.5.4 The Industrial Employment Act, 1946

This Act provides for the forming of standing orders in all establishments employing 100 or more people.•It requires employers to submit within six months of enactment of the law standing orders covering the •classificationofworkmen(permanent,temporary,etc.),themannerofintimatingtothemtheirhoursofwork,holidays, pay-days and wage rates, the procedure to be followed while applying for leave and holidays, the termination of employment of notice of discharge and for disciplinary action.InMaharashtra state, it has beenmade applicable to establishments inwhich fifty ormore persons are•employed.

8.5.5 The Employees State Insurance Act, 1948

Sicknessbenefits:periodicalpaymentstoanyinsuredpersonincaseofsicknesscertifiedbyadulyappointed•medical practitioner.Maternitybenefits:periodicalpaymentsincaseofconfinementtoaninsuredwomancertifiedtobeeligiblefor•suchpaymentsbyanauthorityspecifiedinthisbehalfbytheregulations.Disablementbenefits:periodicalpaymentstoaninsuredpersonsufferingfromdisablementasaresultofan•injury sustained in the course of his employment.Dependants’benefits:periodicalpaymentstosuchdependantsofaninsuredpersonwhodiesasaresultofan•injury sustained in the course of his employment.Medicalbenefits:periodicaltreatmentforandattendanceonaninsuredperson.TheCorporationmayatthe•requestoftheGovernmentofIndia,extendmedicalbenefitstothefamilyoftheinsuredperson.

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SummaryWhile setting up a new enterprise, an entrepreneur has to diligently follow the legal rules and regulations. The •governmenthassimplifiedtheprocessofregistrationforanewventure.All industrial units are required to be registered with the Secretariat for Industrial Assistance (SIA), which are •subject to compulsory licensing.The main purpose of registration is to maintain statistics and maintain a roll of such units for the purposes of •providing incentives and support services.There are three types of business organisation including sole proprietorship, partnership and corporation.•Clearances are required from various government boards and departments, before setting up the new enterprise. •Theseregulatory,taxrelated,environmental,andproductspecificclearancesaredescribed.Factory is any place wherein ten or more persons are working and in which manufacturing process is carried on •with the aid of the appropriate power machinery and infrastructure. Premises in which power is not used come under the term of a factory if twenty or more persons are working in them.The Industrial Employment Act, 1946 requires employers to submit within six months of enactment of the law •standingorderscoveringtheclassificationofworkmen(permanent,temporary,etc.),themannerofintimatingto them their hours of work, holidays, pay-days and wage rates, the procedure to be followed while applying for leave and holidays, the termination of employment of notice of discharge and for disciplinary action.There are a number of legal acts, which govern the daily operations of enterprises or factories, providing various •guidelines and rules to be followed by owner as well as the worker/employee.

ReferencesGopinath, D., 2000. • Workers Rights and Labour Laws. India Centre for Human Rights and Law, Mumbai.Singh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi. Handbook of community state aid rules• ,[Pdf]Availableat:<http://ec.europa.eu/competition/state_aid/studies_reports/sme_handbook.pdf>[Accessed14September2012].Starting a business, • [Online] Available at: <http://www.doingbusiness.org/methodology/~/media/FPDKM/Doing%20Business/Documents/Annual-Reports/English/DB12-Chapters/starting-a-business.pdf> [Accessed 14 September 2012].Atkins, C., 2010, • Your business planning process, [Video Online] Available at: <http://www.youtube.com/watch?v=VEkB2r6iI9g> [Accessed 14 September 2012]. Tarrant, M., 2011• , Business Planning Process, [Video Online] Available at: <http://www.youtube.com/watch?v=AmhuGRQ4YSg>[Accessed 14 September 2012].

Recommended ReadingBarringer, B. R. & Ireland, D., 2009. • Entrepreneurship: Successfully Launching New Ventures, 3rd ed., Prentice Hall.Mariotti, S. & Glackin, C., 2009. • Entrepreneurship: Starting and Operating a Small Business, 2nd ed., Prentice Hall.Kathleen, A., 2000. • Entrepreneurship For Dummies, 1st ed., For Dummies.

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Self AssessmentWhich of the following is not a form of business?1.

Sole proprietorship a. Partnershipb. Shareholderc. Corporationd.

The___________musthaveashareinthesuccessofthenewbusiness.2. Shareholder a. Partnerb. Team c. Proprietord.

It is the creativity and hardwork of the_____________ that transforms creative ideas into commercial3. realities.

board of directors a. managerb. entrepreneurial teamc. managing directord.

Small scale and ancillary units should seek registrationwith the____________of the concerned State4. Government.

Ministry of Commerce a. SIDOb. Director of Industriesc. SISI Departmentd.

TheProvisionalRegistrationcertificateisvalidfor__________years.5. 10a. 7b. 12c. 5d.

AspertheFactoriesAct,1948,theemploymentofchildrenbelowtheageof__________isprohibited6. 13a. 14b. 10c. 8d.

Which of the following Acts provides for the forming of standing orders in all establishments employing 100 7. or more people?

The Workmen’s Compensation Act, 1923 a. The Industrial Employment Act, 1946b. The Employees State Insurance Act, 1948 c. The Factories Act, 1948d.

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Workhoursarelimitedto_________hoursperdayforadultmenand__________hoursperdayforadult8. women workers.

9, 8a. 10, 9b. 8, 7c. 9, 9d.

Themainpurposeof__________istomaintainstatisticsandmaintainarollofsuchunitsforthepurposesof9. providing incentives and support services.

clearancesa. lawsb. registrationc. legal Actsd.

Which of the following statements is false?10. The Payment of Wages Act, 1936 authorises the employer to make deductions from wages in the wake of a. fines.The Payment of Wages Act, 1936 authorises the employer to make deductions from wages in the wake of b. fight.The Payment of Wages Act, 1936 authorises the employer to make deductions from wages in the wake of c. absence from duty.The Payment of Wages Act, 1936 authorises the employer to make deductions from wages in the wake of d. damage to or loss of goods or money.

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Chapter IX

Role of Government in Entrepreneurial Development

Aim

The aim of this chapter is to:

explain the role of government in entrepreneurial development•

elucidate the importance of incentives•

enlist the agencies that promote entrepreneurship development•

Objectives

The objectives of this chapter are to:

determine the role of government in supporting start up entrepreneurs•

explain incentive schemes and their importance•

describe various agencies promoting entrepreneurship development•

Learning outcome

At the end of this chapter, you will be able to:

understand the role of government in entrepreneurial development•

identify and list activities and functions of various agencies•

recognise the importance of incentives•

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9.1 IntroductionWe have studied the concept of entrepreneurship in previous chapters. It is a process of identifying opportunities in the market place, assembling the resources required to pursue these opportunities and investing the resources for long term gains.

Entrepreneurship is obligatory for economic development, improving the standard of living of people; and most importantly for ensuring balanced growth of all regions within the country.

Keeping this in mind, the Government of India has undertaken several policy decisions to promote entrepreneurship. Government is investing in research and development, bringing in new technology, developing our capital markets, increasingcompetitiveness,simplifyingtheregulatorysystem,etc.forthebenefitofentrepreneurs.TheGovernmentis actively promoting industrialisation in lesser-developed areas of the country through appropriate incentives, and infrastructure investments. For example, tax sops are announced for setting up industrial units in Himachal Pradesh, Uttaranchal and so on.

The government has undertaken ambitious projects like the Golden Quadrilateral project to give a boost to the country’s infrastructure development. The government is lending a helping hand to the small-scale sector so that it flourishesandwithitwillflourishtheeconomy.Highlevelsofefficiencyandcontinuoustechnologicalupgradationis required for this and hence the role of government in entrepreneurial development government has set up a number ofagencieswhichhelpthesesmallscaleunitsinfieldslikemarketing,technology,finance,informationandsoon.TheGovernment is encouraging foreign investment and technology collaboration to obtain the latest technology at our export oriented units. This will help us to be more competitive in the global markets and lead to rising exports.

9.2 IncentivesIneconomics,anincentiveisanyfactor(financialornon-financial)thatprovidesamotiveforaparticularcourse•of action, or counts as a reason for preferring one choice to the alternatives.Inthefieldofentrepreneurship,thetermincentivereferstothevariousschemesofbenefits,allowancesand•concessionsofferedbythecentralorstategovernmentstotheenterprise.Itisabenefitofferedtoencouragepeopleinordertoactinspecificwaysi.e.,topromoteentrepreneurship.

9.2.1 Importance of IncentivesFor promoting entrepreneurship

Inadequate infrastructure is a major problem faced by upcoming entrepreneurs in the beginning stage. Usually •thereisadeficiencyofvarioussupportserviceslikebankingfacilities,technicalsupport,marketintelligence,entrepreneurialguidanceandtraining,insufficientorientationofpromotionalinstitutionsandsoon.Thus,variousincentivesintheformofestablishmentofindustrialestatesorcomplexes,financeatlucrative•interest rates, capital investment subsidy, transport subsidy, availability of power, etc. are provided to promote entrepreneurship.

A tool for reducing regional imbalancesGovernment offers incentives and concessions for setting up enterprises in underdeveloped areas to foster •balanced economic growth.Itidentifiesprospectiveentrepreneursintheseareasandprovidesthemwithrelevantinformationandsuitable•incentives to encourage entrepreneurship.The industrial policy aims at encouraging entrepreneurs to locate their industrial units in areas selected by the •government for development. Thus, through incentives, regional balances can be brought about which lead to the effective use of regional resources, equalities in income and standard of living and contribute to an integrated society.Forexample,theUttaranchalGovernmenthasrecentlyshoweredaslewoffinancialincentivesforpromoting•industrial growth in the state.

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To provide competitive strength, survival and growthSome incentives aim at establishment of industries while others are provided for survival and growth of •industries.Fore.g.thereservationpolicyforSSIshelpsasmallfirmtocompeteinthemarketbecauseentrybylargerunits•is barred. The handicraft and handloom industry is given incentives to help in its survival and growth.

9.3 Various Incentives given by the Government of India to Small Scale EntrepreneursFinancial assistance

Institutions like IDBI, SFCs, SBI provide equity or seed capital assistance. Equity capital is given to new •entrepreneursforuniqueproducts,whichisupto20%ofthefixedassets.Specialsubsidyupto50%isgivento SC/ST entrepreneurs for small projects.NSIC makes special arrangement for the supply of machinery on hire-purchase basis. It also offers marketing •and technological support to entrepreneurs.StatelevelfinancialinstitutionsandbanksprovidetermloansandworkingcapitaltoSSI’s.Thelong-termloans•are also offered with 20 to 35% margin.

TaxIncentive/deductionfromprofitsandgainsDeduction of 20% (under Sec 80 HHA of LT. Act) is allowed to SSI units established in the rural areas.•Deductionsof20%fromprofits(underSec.80HHofIncomeTaxAct1961)toindustries,whichareestablished•in the backward areas, for a period of 10 years.20% deduction (LT. Section 801) for a period of 7 to 9 years for industries established under the Factories •Act.25% deduction for a period of 11 years for co-operative societies.•

Exemption from sales taxNo liability under State Sales Tax Law for import of the goods into or export of goods out of territory of •India.Export sales have been exempted from imposition of sales tax under Central Sales Tax Act, 1956.•

Exemption and preferential treatment from excise dutiesTheSSIshavingclearancesintheprecedingfinancialyearnotexceedingRs.3,00,000,theexcisedutyislevied•as under from 1st April, 1998.ModifiedValueAddedTax(MODVAT)credit isallowedat100%of thedutypaidon inputs,whether it is•excise duty, special duty or additional duty of customers. It also includes capital goods purchased and used by the manufacturer.

Credit policiesprovides scheme of priority-sector lending•gives concessional rates of interest for loans up to Rs. 2 lakhs•40% advances to SSI sector is reserved for tiny sector and for village and cottage industries•sanctions loan under ‘Prime Minister Rojgar Yojana’•

General incentives for Small Scale Industries (SSI’s)Items reserved for SSIs to manufacture: Government has reserved certain items/ products exclusively to be •manufactured by SSIs. By now there are more than 800 such items to be manufactured by SSIs.Discount on purchase: All the Government departments and public sector undertakings offer 15% discount •on any purchase by small-scale industries as compared to those purchased by other medium and large-scale industries.

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Reservation of products for purchases by government: The Government of India has reserved almost 409 items •that any government department or public undertaking will purchase only from SSIs.Priority in telephone connections: As per the recommendation of District Industries Centre (DIC), SSI’s situated •in district places get priority in being sanctioned the telephone connection.Export promotions: To support small-scale industries in export promotion, State International Development •Organisation (SIDO) has been providing assistance towards handling, clearing, insurance, publicity, freight and so on.State Capital Investment Subsidy: State Government provides State Capital Investment Subsidy to priority •sector industries. This scheme is available in states like U.P., Karnataka, Rajasthan, Kerala, Haryana, Himachal Pradesh, Manipur, etc.

Subsidised consultancy services for entrepreneursAll India Financial Institutions in association with State Level Institutions and Banks have set up 18 State level •Technical Consultancy Organisations, of which 9 have been lead sponsored by IDBI, 5 by IFCI and 3 by ICICI and one by the Govt. of Karnataka.Ingeneral,theoperationsandprofitabilityofTCOsareataverymodestlevelandtheyprovideconsultancy•services at subsidised rates to entrepreneurs who want to establish small-scale units or for those entrepreneurs, who want to expand/diversify/modernise their existing unit’s.

TCO’s provide the following services to SSIs:Project conceptualisation and other related services such as:•

guidance regarding the selection of projects �preparation of feasibility studies and detailed project reports �capital structuring �project appraisals and risk analysis �project management design �

Credit syndication:•preparationofapplicationforassistancefromfinancialinstitutions/banks,offerdocumentsandinformation �memorandumsyndication of domestic and foreign loans and post sanction follow-up �

Documentation of project reports:•assistanceinpreparingvariousprojectspecificagreementsincludingcreditdocuments �

Re-structuring of projects:•turnaround strategy design including rehabilitation �mergers and acquisitions, assistance in BIFR approvals, assistance in striping/sale of units/management �tie-uppurchase, sale and transfer of assets �separation, liquidation, disposal of non-strategic ventures �

management consultancy and corporate planning•valuation of assets•stock audits•assessment of working capital•project monitoring consultancy•

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FiscalandtaxationbenefitsExemption on income tax: Any newly established industrial undertaking (including SSIs) is exempted from the •paymentofincometaxontheirprofitssubjecttoamaximumof6%p.a.oftheirtotalcapitalemployed.Thisexemptionfromtaxlastsforaperiodoffiveyearsfromthecommencementofproduction.However,toenjoythis tax concession, SSI has to satisfy the following two conditions:

The unit should not be formed by the splitting/reconstitution of an existing unit. �The SSI unit should at least employ 10 or more workers in manufacturing process with power or at least �20 workers without power.

Depreciation allowance: All SSI units get deduction up to Rs. 20 Lakhs on actual cost of plant and machinery •as depreciation allowance. The depreciation is calculated on the reducing balance system. Full depreciation is available for a year irrespective of the actual number of days for which the assets have been used. However, to enjoythisbenefit,SSIhastosatisfythefollowingconditions:

The assessee must be the owner of the asset. �The asset must be actually used for the purpose of the assessor’s business or profession. �Depreciationallowanceisalloweddulyinrespectoffixedassets. �AlltheprescribedparticularsmustbefurnishedtotheIncomeTaxOfficeras �

Amortisation of preliminary expenses: Under Section 35 D of the Income Tax Act, 1961, where an assessee is an •Indian company or a person who is a resident of India, acquires preliminary y expenses before the commencement of the business or for expansion of the industrial undertaking or for setting up of new industrial undertaking, then the person shall be allowed a deduction of an amount equal to 1/5th (20%) of such expenditure for each ofthefivesuccessivepreviousyears.Tax concessions to SSIs in rural areas: The owner of the SSI unit in rural area is entitled for a deduction of •20%oftheprofitsandgainsoftheunit.Thisdeductionisallowedforaperiodof10yearsfromtheyearofcommencementofmanufacturingactivity.TheSSIunit,however,enjoysthistaxconcessiononlyafterfulfillingthe same conditions mentioned above for Income Tax Exemption.Rehabilitation allowance: Under Section 33 B of the Income Tax Act, 1961, a rehabilitation allowance is granted •to a SSI unit, if the business of SSI is discontinued due to the following reasons:

flood,typhoon,hurricane,cyclone,earthquakeoranyothernaturalcalamity �risk or civil disturbance �accidentalfireorexplosion �action by enemy �

This allowance should be used within 3 years from the date of its section for the purpose of re-establishment, reconstruction or revival. It is allowed to the unit equivalent of 60% of the amount of deduction allowance to the unit.

9.4 Incentives given to Export Oriented UnitsThe Government gives special incentives to enterprises set up in Export Oriented Units (EOUs). These units are one of the attempts to foster overall entrepreneurial development leading to accelerated economic growth. Some of these incentives are:

Import Export Pass Book Scheme: Under this scheme, manufacturers and exporters having good track record •and even well established manufacturers can buy duty free raw material.Exemption from excise duty: Finished products get exemption from payment of excise duty for exports. •Exemption can be either by way of rebate of duty on goods exported or by export under bond.Underthefirstsystem,themanufacturerhastopaydutyinitiallywhichwillberefundedsubsequentlyonthe•export of relevant goods.Under the second system, the manufacturer can export goods without prior payment of duty but subject to the •execution of a bond with security for a sum equal to the duty chargeable on the goods exported.

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Import replenishment licenses: Importers are entitled for this license to replenish the raw materials and components •required for manufacturing those products, which are to be exported. The policy contains the list of items for which the license is granted.Deemedexportbenefits:Manufacturerswhosupplyinputstofinalexportersareconsidereddeemedorindirect•exporters.Thustheyarealsoeligibleforcertainbenefitslike-theyalsogetgrantsorREP(ReplenishmentLicense)anddischargeofexportobligation,butnootherbenefits.Import of capital goods: An actual user can also use REP license for the import of capital goods like Import of •samples up to Rs. 75,000 and import of tools up to 10 percent of the value of the license.Exemption for 100% export-oriented units: 100 % export-oriented units are exempted from import licensing •formalities. They may import capital goods, raw materials, components, consumables and spares under Open General License on the condition that their entire production is exported and operations are under customs bounded factory.Duty drawback and excise rebate: Under the duty drawback scheme, export products get relief of incidence of •customs and excise duties paid on raw materials and components used at various stages of production. Drawback implies rebate of duty chargeable on any imported or excisable material used in the manufacture of goods exported from India. No duty drawback is paid on claims where there are negative export earnings.Duty Exemption Scheme: This scheme allows import of raw materials, components, consumables and spares •meant for export-production. It covers 3 groups namely, advance license, blanket advance license and advance customsclearancepermits.ThelicenseholderofthisschemeisalsoeligibletoREPlicense.Itprovidesbenefitsto indirect exporter.Cash assistance: This scheme enables exporters to meet competition in foreign markets by overcoming price •disparities due to fall in the value of the domestic currency (Rupee).

9.5 Incentive Schemes by Maharashtra State GovernmentThe incentives given by the state government vary slightly depending on the zone in which the enterprise is located. A list of these schemes is as follows:

exemption from electricity duty•waiver of stamp duty and registration fees•octroi refund•Special Capital Incentives (SCI) for SSI units•interest subsidy to new textile, hosiery and knitwear SSI units•exemption from sales tax for Khadi Village Industries•minimised sales tax on IT products•re-scheduling of arrears for sick SSI units•

9.6 Agencies Promoting Entrepreneurship Development in IndiaFollowing are the agencies that are working towards promoting of entrepreneurship development in India

9.6.1 Entrepreneurship Development Institute of India (EDII)

The Entrepreneurship Development Institute of India (EDII) was set up as an autonomous body under the •Societies Registration Act on April 20, 1983. It was sponsored by Industrial Development Bank of India (IDBI), the Industrial Finance Corporation of India (IFCI), the Industrial Credit and Investment Corporation of India (ICICI) and State Bank of India (SBI).In line with its Mission statement, EDII is committed to entrepreneurship education, training and research. The •institute strives to provide innovative training techniques, competent faculty support, consultancy and quality training material.

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Objectives of EDIIThe main objectives of EDII are to:

create a multiplier effect on opportunities for self-employment•create competent entrepreneurs through training•participate in institution building efforts•inculcate the spirit of entrepreneurship in youth•promote microenterprises at rural level•develop and disseminate new knowledge and insights in entrepreneurial theory and practice through research•facilitate corporate excellence through creating intrapreneurs (entrepreneurial managers)•improve managerial capabilities of small scale industries•sensitise the support system to facilitate potential and existing entrepreneurs establish and manage their •enterprisescollaborate with similar organisations in India and other developing countries to accomplish the above •objectives

The focus areasInordertofulfilltheobjectives,EDIIfocuseson:

entrepreneurship education•Micro Enterprise and Micro Finance Development (MEMFD)•performance and growth of enterprises•strengthening ED organisations and ED programmes•entrepreneurship environment and support system•strategic international programmes•innovation centre•

9.6.2 National Small Industries Corporation Ltd. (NSIC)

NSICisanISO9001certifiedcompany,establishedin1955.Itisworkingtofulfilitsmissionofpromoting,•aiding and fostering the growth of small-scale industries and industry related small-scale services / business enterprises in the country.NSICoperatesthrough6ZonalOffices,26BranchOffices,15SubOffices,5TechnicalServicesCentres,3•Extension Centres and 2 Software Technology Parks, supported by a team of over 500 professionals spread across the country.NSIC carries forward its mission to assist small enterprises with a set of specially tailored schemes designed •to put them in a competitive and advantageous position. The schemes include – facilitating marketing support, credit support, technology support, international support and other support services.

Marketing: These schemes are as mentioned below:Consortia and Tender Marketing•Single Point Registration for Government Purchase•Buyer -Seller Meets, Exhibitions and Technology Fairs•Export of Products and Projects•

Credit support: NSIC facilitates credit requirements of small enterprises in the following areas:equipmentfinancing•financingforprocurementofrawmaterial(shortterm)•financingformarketingactivities(shortterm)•

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financethroughsyndicationwithbanks•Performance and credit rating scheme for small industries.•

Technology support: NSIC offers small units the following support services through its technical services centres and extension centres:

advising on application of new techniques•material testing facilities through accredited laboratories•product design including CAD•common facility support in machining, EDM, CNC, and so on•energy and environment services at selected centres•classroom and practical training for skill up-gradation•

Infomediary services:Besides hosting aweb site,NSIChosts sector specificportals for focused informationdissemination. Under this scheme, small units can become members and avail a number of value added services. Some important services are:

supplier database•market intelligence•technology providers•information providers•linkages with relevant institutions•B2B services•

Other services: NSIC also provides services like:mentoring and advisory services•software technology Parks•science and technology park/technology business incubators•international co-operation•international consultancy services•

9.6.3 National Entrepreneurship Development Board (NEDB)Department of Science and Technology, Government of India established the National Entrepreneurship Development Board (NEDB) in January 1982.

ObjectiveThe main objective of the National Entrepreneurship Development Board (NEDB) Scheme is promotion of entrepreneurship for encouraging self-employment in small-scale industries and small business.

Functions of NEDBThe main functions of NEBD are to:

Identifyandremoveentrybarriersforpotentialentrepreneurs(firstgenerationandnewentrepreneurs)including•study on Entrepreneurship development.Focus on existing entrepreneurs in small sector and identify and remove constraints to survivals, growth and •continuously improve performance.Facilitatetheconsolidation,growthanddiversificationoftheexistingentrepreneurialventureinallpossible•ways.Support skill up-gradation and renewal of learning processes among practicing entrepreneurs and managers of •small and medium enterprises.

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Support agencies about the current requirement of growth in the area of entrepreneurship.•Act as catalyst to institutionalise entrepreneurship development by supporting and strengthening state level •institutions for entrepreneurship development.Setting up of incubators by entrepreneurship development institutions and other organisations devoted to the •promotion of entrepreneurship development.

EligibilityAny institution seekingfinancial assistance for the activitiesmentionedabove relating to entrepreneurship•development under the NEDB Scheme has to send their application giving details including objective, activities proposed to be covered, cost break-up, funding arrangements, details of the organisation including audited accounts of the last 3 years, etc. to the Joint Secretary, Ministry of Small Scale Industries.

9.6.4 Small Industries Service Institute (SISI)Functions of SISI

Technical consultancy services include:•technical guidance �identificationandpreparationofprojectprofiles/reports �selection of equipment, machinery and raw materials �technical up-gradation/quality control �technical seminar/workshop/clinic �prepare technical literature/papers and so on �

Managerial consultancy services like:•conductvariousindustrialmanagementcoursese.g.personnel,finance,marketing,taxation,exportandso �forthimprove of quality, productivity of labour �techno-economical and managerial appraisal �reportstobanks/financialinstitutions �technical training courses on product development �short term/tailor-made technical courses �

Economical investigation services like:•industrial potential surveys/market surveys �feasibilityreports/stateindustrialprofile �sample survey/collection of statistics �SSI census �review report/production index �assistance and rehabilitation of sick units �advise/guidance on policy issues �guidanceonfacilitiesavailablewithbanks,financialinstitutionsandsoforthentrepreneurialdevelopment �programmes like:one month EDP courses �product and process EDP programmes �one week EDP for self-employed youth �EDP for women entrepreneurs �product /process demonstration �implement the Prime Minister’s Rojgar Yojana for educated, unemployed youth �assist various institutions and Agencies for EDP �

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Ancillary Development Programmes such as:•identificationofAncillaryitemsforlarge/smallscaleindustries �interaction with public/private sector undertakings �preparation of Ancillary report �organising State Level Ancillary Development �committee and participation in PLC meeting �organising buyers-sellers meet, vendor development �programme–cum–exhibition �

Marketing assistance and services:•provide market information �assist to prepare market feasibility report �indirect marketing support through Sub-Contract Exchange �marketing assistance for Govt./Semi-Govt. purchase �programme through Single Point NSIC registration �marketing buyer-sellers meet–cum–exhibition �

Export promotion services include:•export market information �export process and procedures information �export management training �export packaging training �seminar/workshop on export related procedures �arrange and forward exhibits to foreign trade fairs �preparation of export directory and reports �

Modernisation/technology up-gradation services such as:•undertaking in-plant studies �conduct cluster studies �programmes on technology up-gradation/quality – up-gradation and ISO-9000 �conducting awareness programmes/seminars/workshops on pollution control �undertaking industry status studies �co-ordination of modernisation activities �role of government in entrepreneurial development �

Common facility services like:•workshopfacilitiesforundertakingjobs,jigsandfixtures,processtools,complicatedjobsandsoon �product development �industrial design �on the job 6 month training to industrial workers �short term training courses �Technical assistance to various central government agencies like DGFT, NSIC, Excise, BIS, CSIR, etc. �all sorts of assistance and support to various NGOs, associations and institutions involved in the promotion �and development of industries

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Activities of SISIsThere are 30 SISIs and 28 Branch SISIs set up in state capitals and other industrial cities all over the country. The main activities of these institutions are as follows:

Assistance/consultancy to prospective entrepreneurs•Assistance/consultancy rendered to existing units•Preparationofstateindustrialprofiles•Preparation/updation of district industrial potential surveys•Projectprofiles•Entrepreneurship development programmes•Motivational campaigns•Production index•Management development programmes•Skill development programmes•Energy conservation•Pollution control•Quality control and up-gradation•Export promotion•Ancillary development•Common facility workshop/lab•Preparationofdirectoryofspecificindustry•Intensive technical assistance•Coordination with dics•Linkage with state govt. Functionaries•Market surveys•Other action plan activities assigned by headquarters•

SISIs and its branches have common facility workshops in various trades. There are, at present, 42 such common facility workshops attached to SISIs/ Branch SISIs.

9.6.5 National Institute of Entrepreneurship and Small Business Development (NIESBUD)The National Institute for Entrepreneurship and Small Business Development (NIESBUD) was established in 1983 by the Ministry of Small Scale Industries, Govt. of India, as an apex body for coordinating and overseeing the activities of various institutions/agencies engaged in entrepreneurship development, particularly in the area of small industry and small business. The goal of NIESBUD is to promote, support and sustain entrepreneurship and small business through training, education, research and consultancy.

Functions of NIESBUDAssisting/supporting edp’s•Training of trainers/promoters•Evolving standardised material and research publications•Developing entrepreneurial culture•National/international forum for exchange of ideas/experiences•Sustaining entrepreneurship•

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Activities of NIESBUDEvolving effective training strategies and methodologies•Standardising model syllabi for training various target groups•Formulatingscientificselectionprocedure•Developing training aids, manuals and tools•Facilitating and supporting central/state/other agencies in organising entrepreneurship development •programmesConducting training programmes for promoters, trainers and entrepreneurs besides providing counselling and •consultancyCarryingshortdurationtrainingprogrammesonworkingcapitalmanagement,marketing,projectidentification,•accounting, etc. On campus while providing on and off campus counselling/consultancy

9.6.6 District Industries Centre (DIC)The Govt. of India introduced the District Industries Centre during 1978, with a view to develop and promote Cottage and Small Scale Industries at district level. The activity of DIC is to survey the existing as well as new Industries and also to check the availability of raw materials and human resources and make arrangements for training facilities in production/management of small units of entrepreneurs.

Functions of DICTraining unemployed youth in basic skills to enable them to take up self-employment and other jobs in industrial •unitsConducting entrepreneurial motivation programmes throughout the district especially in small towns•Offer technical advice to new entrepreneurs for the selection of projects suitable to them•To issue provisional ssi registration•Sponsor the loan applications to sidco (small industries development corporation) banks for the purchase of land •andbuildingsandsanctionmarginmoneyunderruralindustriesprojectloanschemepayabletootherfinancialagencies for the purchase of plant and machineryTake initiative to get clearances from various departments and speedy power connection•Makenecessaryrecommendationstotheconcernedrawmaterialsuppliersandissuetherequiredcertificates•for the import of raw materials and machinery, whenever necessaryArrangefinancialassistancewiththenationalisedbanksoftherespectiveareas•Assists ssi units and rural artisans to get subsidies such as power subsidy, interest subsidy, etc. From various •institutions

The activities of DICRegistration of ssi units (permanent/provisional)•Granting of subsidies to ssi units•Training for entrepreneur development programme•Project/scheme vetting for technical feasibility•Distributionofprojectprofilesamongentrepreneurs•Preference for power connections•Organisation of industrial cooperative societies•Raw material assistance through sidco•Pollution clearance to ssi units•Allotment of sheds in electrical and electronic industrial estates•Marketing assistance through SIDCO, TANSI, and TALCO•

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Clearance of licenses•Rehabilitation of sick SSI units•National Project of Biogas Development (NPBD)•Recommendation of loan applications to banks•Conducing industrial facilitation council•Implementation of Prime Minister’s Rozgar Yojana•Registration of handicrafts/cottage industries•

9.6.7 Prime Minister’s Rozgar Yojana (PMRY) for Educated, Unemployed YouthThe PMRY scheme is a self-employment scheme for educated unemployed youth. A maximum assistance of Rs.2 lakhs on industry service ventures and Rs. 1 lakh in case of business ventures is given. The scheme also seeks to associate reputed non-governmental organisations in implementation of the PMRY scheme especially in the selection, trainingofentrepreneursandpreparationofprojectprofiles.

EligibilityAnyunemployededucatedpersonlivinginanypartofthecountryruralorurban,fulfillingthefollowingconditionswill be eligible for assistance:

Age: Between 18 to 40 years (SC/ST - 45 years).•Qualification:SSC(passedorfailed)orITIpassedorhavingundergoneGovt.sponsoredtechnicalcoursefor•a minimum duration of 6 months.Residency: Permanent resident of the area for at least 3 years. Documents like Ration Card would constitute •enough proof for this purpose. In its absence any other document to the satisfaction of the Task Force should be produced.Family income: Upto Rs. 40, 000 per annum. Family for this purpose would mean spouse and parents of •thebeneficiaryandfamilyincomewouldincludeincomefromallsources,whether,wages,salary,pension,agriculture, business, rent, etc.Defaulter:Shouldnotbeadefaultertoanynationalisedbank/financialinstitution/co-operativebank.•

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SummarySmall scale enterprises are a driving force in the Indian economy. They have helped transform the social status •of millions of unemployed Indian youth by providing them employment. Therefore the government is and must actively support this entrepreneurial movement.Government is investing in research and development, bringing in new technology, developing our capital •markets,increasingcompetitiveness,simplifyingtheregulatorysystem,etc.forthebenefitofentrepreneurs.Itis actively promoting industrialisation in lesser-developed areas of the country through appropriate incentives, and infrastructure investments.Ineconomics,anincentiveisanyfactor(financialornon-financial)thatprovidesamotiveforaparticularcourse•of action, or counts as a reason for preferring one choice to the alternatives.There are various incentives given by the central as well as state governments to the small-scale units. There are •numerous governmental agencies which are playing a very crucial role in supporting these entrepreneurs.VariousincentivesgivenbytheGovernmentofIndiatoSmallScaleEntrepreneursincludefinancialassistance,•taxincentive,exemptionfromsalestax,creditpolicies,creditsyndication,andfiscalandtaxationbenefits.Agencies promoting entrepreneurship development in India include EDII, NCIS, NEDB, SISI, NIESBUD, DIC •and also the Prime Minister’s Rozgar Yojana.

ReferencesSunje, A., 2000• , The Role of Government in Supporting Entrepreneurship and SMEs, Sarajevo Graduate School of Business (SGSB). Singh, B., 2009.• Entrepreneurship Development. Wisdom Publications, Delhi. Lal, A., • Economic development in India: the role of individual enterprise (and entrepreneurial spirit), [pdf] Availableat:<http://www.unescap.org/pdd/publications/apdj_12_2/lal.pdf>[Accessed18September2012].Rashid, M., • Role of government in entrepreneurship, [pdf] Available at: <http://www.oecd.org/mena/investment/47246782.pdf> [Accessed 18 September 2012].Khanna, T., • Billions of entrepreneurs, [Video Online] Available at: <http://www.youtube.com/watch?v=8liTZBhDQ3o> [Accessed 18 September 2012].Story, J., 2012, • The executive lecture series, [Video Online] Available at: <http://www.youtube.com/watch?v=8SsoBWJGE8c> [Accessed 18 September 2012].

Recommended ReadingLal, A. K. & Clement R. W., 2005. • Economic Development in India: The Role of Individual Enterprise, Asia-PacificDevelopmentJournal.Hisrich, R., Peters, M. & Shepherd, D., 2006. • Entrepreneurship. 7th ed., McGraw-Hill/Irwin.Kathleen, A., 2000. • Entrepreneurship For Dummies, 1st ed., For Dummies

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Self AssessmentA/An____________isanyfactorthatprovidesamotiveforaparticularcourseofaction,orcountsasareason1. for preferring one choice to the alternatives.

subsidya. concessionb. incentivec. exemptiond.

Any newly established industrial undertaking (including SSIs) is exempted from the 2. •payment of income tax ontheirprofitssubjecttoamaximumof_______p.a.oftheirtotalcapitalemployed.

6%a. 5%b. 4%c. 21%d.

What is the equity capital given to new entrepreneurs for unique products?3. 20%a. 15%b. 10%c. 25%d.

For industries established under the Factories Act, what is the percentage of deduction (LT. Section 801) for a 4. period of 7 to 9 years?

25a. 20b. 15c. 30d.

_________________Providesconsultancyservicesatsubsidisedratestoentrepreneurswhowanttoestablish5. Small-scale units or for those entrepreneurs who want to expand/diversify/modernise their existing unit’s.

DIC a. SISI b. TCOc. Government of Indiad.

Finishedproductsgetexemptionfrompaymentofexcisedutyfor___________.6. exports a. imports b. tradingc. salesd.

Whosupplyinputstofinalexporters?7. Exporters a. Importers b. Partnersc. Deemed Exportersd.

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TheSSI unit should at least employ__________workers in themanufacturingprocess to get income tax8. exemptiononprofit.

150a. 15b. 10c. 25d.

Which of the following has the objective of creating a multiplier effect on opportunities for self-employment?9. EDIIa. DICb. SIDOc. SISId.

NSIChostssectorspecificportalsforfocusedinformationdisseminationunder________.10. marketinga. credit supportb. technology supportc. infomediary servicesd.

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Chapter X

Women Entrepreneurship

Aim

The aim of this chapter is to:

explain the concept of women entrepreneurship•

elucidate women entrepreneurs and their characteristics•

enlist barriers to women entrepreneurship and ways to overcome them•

Objectives

The objectives of this chapter are to:

determine the role of women in setting up enterprises•

explain the barriers to women entrepreneurship•

explore on NGO’s that support women entrepreneurs•

Learning outcome

At the end of this chapter, you will be able to:

understand the role of women in entrepreneurship•

identify characteristics of women entrepreneurship•

identify barriers to women entrepreneurship and ways to overcome them•

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10.1 IntroductionWomen constitute around half of the total world population, as also in India. They are therefore, regarded as the better half of the society. India has a rich history of women being actively involved in the freedom struggle, social movementsandalsointhefieldofscienceandtechnology.Thelate19thandearly20thCenturiesproducedneweducated women in India whose interests went beyond household activities.

Women started organising themselves into groups and formed associations and participated along with men, in the freedom struggle and social movements. Sarojini Naidu, Indira Gandhi, Vijayalaxmi Pandit, displayed immense courage and leadership qualities in these movements.

Since Independence, Indians have been promoting science and technology as one of the most important elements of national development. Women were and are resourceful, passionate and creative about their work as any other malecounterpart.Womenhavemadeinroadsintonewfieldslikeengineeringandinformationtechnology.

Thefieldofbiotechnologyhasrevolutionisedtheindustrialgrowthoftheworld.InIndia,KiranMazumdarisanexampleforwomenentrepreneurstofollowandemulate.WomenarestormingtheInformationandTechnologyfieldand in the late nineties the number of women in computing and internet industries has registered a sharp rise.

10.2DefinitionofaWomanEntrepreneurWomenentrepreneurshipmaybedefinedasagroupofwomenwhoinitiate,organiseandrunabusinessenterprise.•AccordingtoSchumpeterian,“Innovative entrepreneur women who innovate, imitate or adopt a business activity are called Women Entrepreneurs.”TheGovernmentofIndiahasdefinedawomanledenterpriseas,“ASmallScaleIndustrialUnit/Industryrelated•service or business enterprise, managed by one or more women entrepreneurs in proprietary concerns, or in which they individually or jointly have a share capital of not less than 51% as partners/shareholders/directors of private limited company/members of cooperative society.”India has a number of noted women entrepreneurs who have made a mark on the national and international scene, •and made a name for themselves. Some of the well-known women entrepreneurs in India are Kiran Mazumdar Shaw, Ritu Kumar, Ritu Beri, Shahnaz Hussain, Ekta Kapoor and so on.

10.3 Factors Supporting Women’s EntrepreneurshipThe journey of a woman: the deprived member of a male dominated society for decades, to the highly successful •woman entrepreneur of today has been through a number of hurdles and roadblocks. A number of factors have supported her in this conquest. Figure below shows some of the factors, which have promoted women’s entrepreneurship.

EducationIndustrialisation

Polotical FrameworkSocial & Cultural Changes

Women's Entrepreneurship

Fig. 10.1 Factors supporting women’s entrepreneurship

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Industrialisation and technological growthThe rapid growth of industrialisation has opened numerous avenues for women. Women have contributed in •all the spheres of technical advancement. There has been a recent spurt of women joining the engineering and informationtechnologyfields.Theworld’sfirstprogrammerwasLadyAugustaAdaLovelaceofEnglandin1852.Sheiscreditedwithtelling•a machine what to do by using punch cards to programme algebraic patterns.The IT landscape is full of women who are busy writing programmes, running network systems and delivering •applications to clients on time. Recently a Japanese magazine concluded that Indian women are number one amongst women from various countries in acquiring and applying IT knowledge.

EducationIndustrialisation has proved to be a boon to women’s entrepreneurship thanks to Education. Unlike the traditional •mindset that only males should be educated and female should learn only household chores, the women of today arewelleducatedinallfields.Even the government is taking special efforts to educate women right from the primary stage. Today Indian •women are successful doctors, lawyers, professors, industrialists, scientists, etc. thanks to education. Kiran Bedi, Kalpana Chawla, Kiran Mujumdar Shaw, Sulajja Firodia Motwani are just a few to name.

Social and cultural changeEvery country over centuries evolves a cultural heritage, which is a legacy carried forward by the people of the •society.Societydesignsanddefinestherolesofmenandwomenbothathomeandatwork.Butacrosscultures,there has been a sea change as far as the role of women is concerned.Today people accept the role of women to be at par with men at home a well as at work. Women are now •entering different areas like politics, media, innovation, science, technology, media, sports, etc. For example, Sonia Gandhi, Ekta Kapoor, Sania Mirza and others are role models for women and inspire them to show their true potential and prove their worth.

Political and legal frameworkThe new political and legal framework of our country emerged in the post-independence era. This political •framework had a clear ideology of supporting women’s entrepreneurship. Female leaders like Indira Gandhi, VijayaLaxmiPandithadalreadyshowntheirleadershipskills,courageandconfidenceduringthefreedomstruggle.Post independence, the government has undertaken several policy measures to support female education and •women entrepreneurs.Some other factors, which have supported women’s entrepreneurship, are globalisation, media and information •age, unanticipated events and changes across the globe, etc.

10.4 Characteristics of Women’s EntrepreneurshipPersonal characteristics of women entrepreneurs (age, education, marital status)

In India, a majority of women entrepreneurs in SMEs fall within the age group of 25- 40 years. Most SME •women owners are married. They have a good educational background, with most of them at least graduates, and have an above average record in education and participation in extra-curricular activities.Most have an urban background and have lived in small nuclear families, both before and after marriage. A •majority of women entrepreneurs in SMEs are from Hindu forward communities, with Brahmins being the largest proportion.Among the states, Gujarat, Maharashtra and Karnataka have more women entrepreneurs. These women are •either from families, which are already in business or have service backgrounds. They have highly educated fathers or husbands.

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In sum, the level of education in combination with a supportive family or social environment seems to be •important requisites for women entrepreneurship.

Ownership structuresStudies show that SMEs owned by women entrepreneurs mostly are of sole proprietorship in India. Proprietorship •ventures are popular because of lowerEntrepreneurship initial investments and availability of tax incentives. Some private limited companies and a •very small number of partnership concerns, mainly along with relatives also exist.

Major sectorsA majority of women entrepreneurs in India are concentrated in the light manufacturing sector (leather, garments, •engineering goods, beauty products).The second most common category is that of services (interior designing, management and placement, •consultancy, nursery school). This is followed by the retail trade sector including boutiques, home furnishing, automobiledealing,etc.Inthe1970sand1980swomenentrepreneurswereconfinedto“kitchen-enterprises”–thethreePs:pickle,powder(spices)andpapad–or“soft”traditionallyfeminineenterprises,suchasgarments,beauty care, etc.However, from the 1990s and onwards, more women have opted for entrepreneurial careers in plastics, electronics •and leather related industries. However, overall women entrepreneurs gravitate towards ventures with low investment and lesser technological barriers.Some studies also show that at the start-off stage, most are clustered in the service/trade sector, and only after •gaining experience here for 8-10 years, they exhibit entrepreneurial mobility to move to the manufacturing line.Moreover, women entrepreneurs in the service sector are more educated than those in the trading sector. Women •entrepreneurspreferenterpriseswithlessergestationperiodsandamajorityoftheunitsearnaprofitbeforethesecond year of operation.

MotivationStudiesfromdevelopingcountriessuggestthattherearethreecategoriesofwomenentrepreneurs–“chance”,•“forced”and“created”entrepreneurs–basedonhowtheirbusinessesgotstarted.Accordingtoonestudy,themostcommonreasonsgivenwereeither“financial”or“tokeepbusy.”Onlyabout•one-fifthofthewomenweredrawntoentrepreneurshipby“pull”factors,forinstance,theneedforachallenge,the urge to try something on their own and to be independent and to show others that they are capable of doing well in business.All the women entrepreneurs should be motivated to start an enterprise or to stay in it. Motivation has seen •women entrepreneurs escalating in various categories like:

organised and unorganised sector �traditional and modern industries �urban and rural areas �large scale and small scale industries �single women entrepreneurs and joint venture �

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10.5 Barriers to Women’s EntrepreneurshipThe list of barriers faced by women entrepreneurs is as given below:

socio-cultural barriers•lack of working capital•lackofconfidence•lack of education•family responsibilities•lack of experience and information•lesser risk bearing capacity•difficultytogetfinance/liquidityproblems•less freedom to take decisions•economic dependence/less autonomy•

10.5.1 Overcoming the Barriers

Target niche markets: This is the possible choice to make an inroad into a male-dominated business. For instance, •a female Chartered Accountant can start her own consultancy that streamlines accounting processes for SMEs. It can also help small enterprise with the paper work required during incorporation.Leverage technology: In the United States, women have ridden the crest of the Internet wave. Statistics show •that women entrepreneurs have started 47% of the new businesses in the United States. The internet business has served the needs of entrepreneurial women who stay at home, out of necessity.Choosetherightproduct:TheemergenceofmarketingmodelslikeOriflameandAmwaygavewomenaninsight•into the possibilities of business. A typical Indian woman entrepreneur may start an enterprise that manufactures Indian spices and caters not only to the needs of household kitchens, but also start hotel supplies. Word of mouth may help in the marketing effort. The Lijjat Papad success story is the best example.Government subsidies: Forwomenwho lack of financial resources or experience at start-up,NGOs and•government have mechanisms in place that help women raise resources collectively.

10.6 Promoting Women’s EnterprisesDescribed below are the ways by which women entrepreneurship can be encouraged.

10.6.1 Government’s Role in Promoting Women’s EnterprisesGovernment has been encouraging self-employment and has started several schemes to promote entrepreneurship among women. These schemes are as follows:

Various income-generating schemes like Support to Training and Employment Programme (STEP), Swawlamban, •Socio – Economic Programme, Pradhan Mantri Gram Swarozgar Yojana, Pradhan Mantri Shahri Swarozgar Yojana, etc. have been launched.Women are encouraged to organise and form Self Help Groups (SHGs) and Cooperatives, which undertake •activities to generate income for the most vulnerable groups of women.Rashtriya Mahila Kosh (RMK) was set up to provide loans to women, who could then become self-employed •by establishing their own businesses or small-scale enterprises. RMK gives loans to women through voluntary organisations who have experience in managing the Thrift and Credit Programme.Women’s Development Corporations, operating in a few states in India, are promoting entrepreneurship among •women at the grass root level.In this way, women at the grass roots and other levels, who are managing small-scale industries and enterprises, •are being economically empowered.

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FinancialinstitutionslikeIDBIhaveprovidedspecialloanrefinancingschemesatconcessionalratesforwomen•entrepreneurs.Alsoorganisationshavebeenidentifiedandencouragedtoprovideliaison,training,consultancyandextensionsupporttowomenentrepreneurswiththecostoftheseservicesbornebyIDBIsubjecttoaspecificceiling.

10.6.2 Supportive Measures for Women’s Economic Activities and EntrepreneurshipSome of the measures that can support women in her economic activities include:

Direct&indirectfinancialsupport•Yojna schemes and programs•Technological training and awards•Federations and associations•

10.7 NGOs Supporting Women EntrepreneursDifferent types of organisations provide either direct or indirect support to women entrepreneurs. These include: NGOs, credit providers, training and technical assistance centres, research institutes, professional organisations and private sector organisations.

10.7.1 Self-employed Women’s Association (SEWA)

SEWA, founded by Ela Bhatt, has pioneered an economic revolution amongst the poorest women of Gujarat •since1972.Providingmuch-neededfinancialindependenceandownershipofeconomicresources,SEWAhasbeen organising rural and urban impoverished women into workers’ groups and co-operatives.Members are engaged in jobs as diverse as head loading goods in markets, stitching clothes at home, and weaving •cloth. SEWA’s rural development programmes are active in nine dry, drought-prone districts of Gujarat.SEWA programmes are need-based and demand-driven. In the tobacco-producing area of Kheda, for instance, •women were organised into a local co-operative and alternative employment opportunities were provided through weaving, wastepaper picking and other related tasks.

10.7.2 Association of Women Entrepreneurs of Karnataka (AWAKE)

AWAKE – Established in 1983, AWAKE is devoted to Women Entrepreneurship Development. It is an ISO •9001-2000 accredited organisation. Empowering Women through entrepreneurship development to improve their economic condition and social status is the Mission of AWAKE.Voluntary efforts of successful women entrepreneurs adopting professional tools of counselling, training, •handholding and peer-group support to guide budding women entrepreneurs is the approach of AWAKE to fulfilitsmission.

10.7.3 Area Networking and Development Initiatives (ANANDI)

Formed inyear1998witheffortsoffiveenterprisingwomen,ANANDIbelieves thatsocialandeconomic•development can occur only when women play a pivotal role in it. ANANDI operating in the Saurashtra and the Panchmahals district of Gujarat is ensuring that women set the agenda for infrastructure development, food security and much more.The ANANDI women gave themselves a clear four-point agenda: to set up women’s self-help groups, to involve •women in the rural development process, to involve women in the planning of rehabilitation work following man-made and natural disasters, and to become a link between different organisations working for women’s welfare and health.

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10.7.4 Private Sector Organisations

There are quite a few private sector companies which are supporting women entrepreneurs. But the best example •here would be of ITC. ITC believes that economic empowerment of women transforms them into powerful agents of social change.ITC’s women’s empowerment programme is helping several thousand rural women add to their family income. •Increased income in the hands of rural women means better nutrition, health care and education for their children.This programme is helping women across Andhra Pradesh, Karnataka, Madhya Pradesh, Uttar Pradesh and •Bihar. Working with NGOs, ITC organises rural women into micro-credit groups and provides them funds to build and manage a revolving development fund used to extend soft loans to group members to set up small businesses, enabling them evolve into entrepreneurs.

Someotherorganisationsactiveinthisfieldare:National Association of Women Business Owners (NAWBO)•Centre for Women’s Development Studies, New Delhi•Nari Bikash Sangha (NBS) (Women’s Development Union,), West Bengal•Women Entrepreneurs Association of Maharashtra (WIMA)•

10.8 Leading Indian Women EntrepreneursSome of the leading businesswomen in India in alphabetical order are:

Akhila Srinivasan, Managing Director, Shriram Investments Ltd.•Chanda Kocchar, Executive Director, ICICI Bank•EktaKapoor,CreativeDirector,BalajiTelefilms•Jyoit Naik, President, Lijjat Papad•Kiran Mazumdar-Shaw, Chairman and Managing Director, Biocon•Lalita D Gupte, Joint Managing Director, ICICI Bank•Naina Lal Kidwai, Deputy CEO, HSBC•Preetha Reddy, Managing Director, Apollo Hospitals•Priya Paul, Chairman, Apeejay Park Hotels•Rajshree Pathy, Chairman, Rajshree Sugars and Chemicals Ltd.•

Shahnaz HussainShahnaz Hussain, a beauty therapist par excellence, was born in 1940. She is one of the most successful women •entrepreneurs in India. She started her enterprise with a small loan from her father and made it into the empire of $150 million.Her company, Shahnaz Hussain Herbals, is one of the largest manufacturers of herbal products in the world. It •formulates and markets over 400 products for various beauty and health needs and has a strong presence across the globe. It employs about 4200 people in 650 salons spread across 104 countries.She has started a new Ayurvedic Health Resort on the US island of Saipan, and another is planned near Delhi, •plus a chain of ‘Forever Beautiful’ shops. A number of awards, both national and international have been conferred on Shahnaz Hussain.Some of them are ‘The Arch of Europe Gold Star for Quality’, ‘One of the Leading Women Entrepreneurs of •the World’, ‘The 2000 Millennium Medal of Honour’ and many more.

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The Lijjat Papad storyThe Lijjat Papad story is an inspirational one, which has encouraged women to embark on the path of •entrepreneurial activity. Most of us are aware of the story of seven illiterate and poor women who borrowed Rs.80tostartapapadbusiness,andtookitsturnoverfromRs6,196inthefirstyeartoRs.300croreinthenextfour decades involving over 40,000 women on its revolutionary march.The story, which reads almost like a fairy-tale chronicles the growth of an exclusive women’s organisation run •and managed by them, producing a quality product and thereby empowering them.Jaywantiben Popat, one of the women involved with this phenomenal spirit, was honoured with the ET Award •for her outstanding achievements.

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SummaryWomen entrepreneurshipmaybe defined as a groupofwomenwho initiate, organise and run a business•enterprise.AccordingtoSchumpeterian,“Innovative entrepreneurs, women who innovate, imitate or adopt a business activity are called women entrepreneurs.”Factors that support women entrepreneurship include industrialisation, education, political framework, and •social and cultural change.Government plays a vital role in supporting women entrepreneurs to start the business by offering various •incentives, training programs, economical support and so on.There are many problems faced by the Indian women entrepreneurs such as lack of working capital, lack of •confidence,lackofeducation,familyresponsibilities,lackofexperienceandinformation,lesserriskbearingcapacity,difficultyingettingfinance/liquidityproblems.However,thesebarrierscanbeovercomewithcertainmeasures and intervention of government and NGOs.Supportivemeasuresforwomen’seconomicactivitiesandentrepreneurshipincludedirect&indirectfinancial•support; Yojna schemes and programmes; technological training and awards, federations and associations.NGOs supporting women entrepreneurs include Self-Employed Women’s Association (SEWA), Area Networking •and Development Initiatives (ANANDI), and Private Sector Organisations.

ReferencesSingh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi.Sasikumar, K., 2000. • Women entrepreneurship,Vikas Pub. House.A path of poverty• ,[Online]Availableat:<http://www.unido.org/fileadmin/user_media/Publications/Pub_free/A_path_out_of_poverty.pdf>[Accessed25September2012].Women entrepreneurship: issues and policies, • [Online] Available at: <http://www.oecd.org/industry/smesandentrepreneurship/31919215.pdf> [Accessed 25 August 2012].Zafar, R., 2011, • Seminar on Women Entrepreneur Need of 21st Century by Roshaneh Zafar,[Video Online] Available at: < http://www.youtube.com/watch?v=v1nEVRVJwDU> [Accessed 25 September 2012].Becky, 2012, • Lectures in entrepreneurship, [Video Online] Available at: <http://www.youtube.com/watch?v=DVoOOjXPpnU> [Accessed 25 September 2012].

Recommended ReadingVillarosa, C. & Villarosa, A., 2009. • Down to Business: The First 10 Steps to Entrepreneurship for Women. Avery Trade.Singh, B., 2009. • Entrepreneurship Development. Wisdom Publications, Delhi.Thakur, A. K. & Rahman, R., 2009. • Women Entrepreneurship, Deep & Deep Publications

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Self AssessmentStatistics show1. thatwomen entrepreneurs have started __________ of the newbusinesses in theUnitedStates.

45%a. 47%b. 51%c. 40%d.

RashtriyaMahilaKosh(RMK)wassetuptoprovide___________towomen.2. partnership a. employment b. supportc. loand.

InIndia,amajorityofwomenentrepreneursinSMEsfallwithintheagegroupof_________years.3. 25-40 a. 20-35b. 18-45c. 30-50d.

InIndia,SMEsownedbywomenentrepreneursmostlyareof__________type.4. partnershipa. sole proprietorship b. corporationc. high growth ventured.

AmajorityofwomenentrepreneursinIndiaareconcentratedinthe_________sector.5. information technologya. agriculturalb. householdc. light-manufacturingd.

SEWAwasfoundedby________inGujaratintheyear1972.6. Chanda Kocchar a. Ela Bhattb. Lalita D Guptec. Rajshree Pathyd.

Financialinstitutionslike___________haveprovidedspecialloanrefinancingschemesatconcessionalrates7. for women entrepreneurs.

IDBI a. ICICI b. SBIc. Rationalised banksd.

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Which of the following statements is true?8. HLL organises rural women into micro-credit groups and provides them funds to build and manage a a. revolving development fund.TML organises rural women into micro-credit groups and provides them funds to build and manage a b. revolving development fund.ITC organises rural women into micro-credit groups and provides them funds to build and manage a revolving c. development fund.M & M organises rural women into micro-credit groups and provides them funds to build and manage a d. revolving development fund.

Which organisation believes that social and economic development can occur only when women play a pivotal 9. role in it?

SEWAa. ANANDIb. ITCc. AWAKEd.

Womenareencouragedtoorganiseandform_________andCooperatives,whichundertakeactivitiestogenerate10. income for the most vulnerable groups of women.

Self Help Groups (SHGs)a. Rashtriya Mahila Kosh (RMK)b. Yojana c. GOd.

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Case Study I

The Indian Entrepreneur

Dhirubhai Ambani: The Indian Entrepreneur who dared to Dream Big Dhirubhai Ambani was born into a Modh family on 28th December, 1932, in Chorwad, Junagadh. Junagadh is part of the state of Gujarat in India. Dhirubhai wastalentedandhighlyintelligent.HebuiltIndia’slargestprivatesectorcompany,theReliance,whichisthefirstIndian company to feature in Forbes 500 list. He was the most innovative Indian entrepreneur. His life journey is inspiring to all the start up entrepreneurs and is remembered as the one who re-wrote Indian corporate history and built a truly global corporate group.

Start of entrepreneurial careerDhirubhaiAmbani startedhisentrepreneurial careerby selling“bhajias” topilgrims inMountGirnarover theweekends. After doing his matriculation at the age of 16, Dhirubhai moved to Aden, Yemen. He worked there as a gas-station attendant and as a clerk in an oil company as well. He returned to India in 1958 with Rs 15,000 and set up a textile trading company.

The primary business was to import polyester yarn and export spices Dhirubhai set up the business in partnership withChampaklalDamanifromwhomhepartedwaysin1965.Dhirubhaiwasaknownrisktaker,self-confidant,optimisticandheconsideredthatbuildinginventories,anticipatingapricerise,andmakingprofitsthroughthatwasgoodforgrowth.HehadaclearvisionofbothexistingandpotentialcustomersandsoDhirubhaistartedhisfirsttextilemillatNaroda,nearAhmedabadin1966andstartedthebrand“Vimal”.Textilesweremanufacturedusingpolyesterfibreyarn.

Reliance set-upDhirubhai Ambani built India’s largest private sector company, Reliance India Limited, from a scratch. He was assisted by Mukesh and Anil and had all the entrepreneurial skills that are necessary to start up a new enterprise. HehadaclearbusinessplantostartReliance.Overtimehisbusinesshasdiversifiedintoacorespecialisationinpetrochemicals with additional interests in telecommunications, information technology, energy, power, retail, textiles, infrastructure services, capital markets, and logistics.

Impact on IndiaDhirubhai Ambani is credited with shaping India’s equity culture, attracting millions of retail investors in a market, whichwastillthendominatedbyfinancialinstitutions.Herevolutionisedcapitalmarkets.Fromnothing,hegeneratedbillions of rupees in wealth for those who put their trust in his companies. His efforts helped create an ‘equity cult’ in the Indian capital market. With innovative instruments like the convertible debenture, Reliance quickly became a favourite of the stock market in the 1980s.

Later stageDhirubhai Ambani was named the Indian Entrepreneur of the 20th Century by the Federation of Indian Chambers ofCommerceandIndustry(FICCI).ApollconductedbyTheTimesofIndiain2000votedhimas“greatestcreatorof wealth in the century.”

Source: http://www.scribd.com/doc/86934073/Entrepreneurs-1

QuestionsIdentify the entrepreneurial characteristics that were present in Dhirubhai Ambani?1. AnswerDhirubhaiwas a known risk taker, self-confidant, optimistic and he considered that building inventories,anticipatingapricerise,andmakingprofitsthroughthatwasgoodforgrowth.

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Which type of enterprise did Ambani set up in the beginning? What are the advantages of that form of 2. business?AnswerDhirubhai Ambani had set up Partnership business with Champaklal Damani.Advantages of partnership are as follows:

Opportunities for obtaining capital are usually favourable. �The decision making process is faster. �Thepartnersaretaxedintheirpersonalcapacityandnotcollectively,sotheprofitissharedandeachpartner’s �share is taxed separately.

What was the impact of the Reliance on Indian economy?3. AnswerDhirubhai Ambani is credited with shaping India’s equity culture, attracting millions of retail investors in a market,whichwastillthendominatedbyfinancialinstitutions.Dhirubhairevolutionisedcapitalmarkets.Fromnothing, he generated billions of rupees in wealth for those who put their trust in his companies. His efforts helped create an ‘equity cult’ in the Indian capital market. With innovative instruments like the convertible debenture, Reliance quickly became a favorite of the stock market in the 1980s.

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Case Study II

Barriers in Women EntrepreneurshipSwapna General Store is a typical grocery shop in the Kothrud area of Pune city. The second generation of the Mehta family is running the shop. Mr. Anand Mehta was running the shop successfully for 12 years after he took over from hisfatherintheyear1989.Thegrocerystorewasboomingwithsmoothflowofcustomers.

Unfortunately in Jan’2001, Mr. Anand died in an accident, after which, his wife Mrs. Vandana had to take up the responsibilityofthefamilyaswellasthebusiness.Afterinitialdifficulties,shecouldsmoothlyruntheshopsincethe customers had close association with the store and also they had workers working with them since 10-15 years. Hence, even after being only a HSC pass, Mrs. Vandana is running the business successfully till date.

But now, contradictorily enough, the business is declining and has come to the verge of closure. The reason is a new up-town supermarket located just 1.5 kms away from the shop. With aggressive marketing, the supermarket is attracting customers in the area. With lack of education, limited experience and resources, Mrs. Vandana is unable to compete with the lower prices being offered by the supermarket.

The supermarket is offering a complete product basket with consumer durables, clothing, cosmetics, snacks, etc. besides grocery items. It also provides a good shopping experience with superior display, convenient parking, self-service, children’s games, longer operating hours and credit card facility. Also, it is open for long hours, provides counter service, telephonic orders and also home delivery. From this, it appears that the only advantage that the small store has is its vicinity or closeness to the customer.

Mrs. Vanadana is clueless about how to compete with this threat of upcoming supermarket and feels that she should ask a consultant, who could help her to leverage the strength of the loyal customer base to counter this threat. Could we help her out?

QuestionsWhat are the barriers to success of Mrs. Vandana?1. How can Mrs. Vandana overcome the barriers?2. Explain the role of education in supporting any entrepreneurship.3.

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Case study III

A Case on Technology Development & Information Company of India Ltd.The venture capital investment helps for the growth of innovative entrepreneurships in India. Venture capital has developedasaresultoftheneedtoprovidenon-conventional,riskyfinancetonewbusinessenterprisebasedoninnovative entrepreneurship. Venture capital is an investment in the form of equity, quasi-equity and sometimes debt-straightorconditional,madeinneworuntriedconcepts,promotedbyatechnicallyorprofessionallyqualifiedentrepreneur. Venture capital means risk capital. It refers to capital investment, both equity and debt, which carries substantial risk and uncertainties. The risk predicted may be very high so as to result in total loss or very less so as to result in high gains.

Technology Development & Information Company of India Ltd (TDICI)TDICIwasincorporatedinJanuary1988,withthesupportoftheICICIandtheUTIbanks.Thecountry’sfirstventure fund managed by the TDICI called VECAUS (Venture Capital Units Scheme) was started with an initial corpusofRs20croreandwascompletelycommittedto37smallandmediumenterprises.ThefirstprojectoftheTDICI was loan and equity to a computer software company called Kale Consultants.

Present status: At present, the TDICI is administering two UTI-mobilised funds under VECAUS-I and II, totaling Rs120crore.TheRs20croreinvestedunderthefirstfund,VECAUS-I,hasalreadyyieldedreturnstotalingRs16crore to its investors.

SomeoftheprojectsfinancedbytheTDICIareasbelow:Mastek• ,aMumbaibasedsoftwarefirm,inwhichtheTDICIinvestedRs42lakhinequityin1989,wentpublicjust three years later, in November 1992. It showed an annual growth of 70-80 percent in the turnover.Temptation Foods,• located in Pune, which exports frozen vegetables and fruits, went public in November 1992. The TDICI invested Rs.50 lakh in its equity.Rishabh Instruments• of Nasik got Rs 40 lakh from the TDICI. It manufactures a range of meters used in power stations in collaboration with the ABB Metra Watt of Germany. After making cash losses totaling Rs 25 lakh in two bad years, it turned around in 1989 and showed an increase of over 70 percent in the turnover.Synergy Art Foundation,• which runs art galleries in Mumbai and Chennai and plans to set up in Pune and Delhi too, had received Rs 25 lakh from the TDICI as convertible loans which were converted into equity on March 31, 1994. Most of this money has been used for the company’s innovative art library scheme at least paintings to corporate clients.

QuestionsWhat are the advantages of venture capital?1. How was TDICI established?2. How has TDICI helped Synergy Art Foundation to set up business?3.

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com/watch?v=96mnrtVlDVo> [Accessed 14 September 2012].McCreesh, J., • Open Office conference,[Online]Availableat:<http://www.openoffice.org/marketing/strategy/v0.5.pdf> [Accessed 12 September 2012].Morelli, S., 2011, • Innovative thinking & entrepreneurship lecture, [Video Online] Available at: < http://www.youtube.com/watch?v=eYE9G6Hy2SU> [Accessed 5 September 2012]..Nieuwenhuizen, C. & Machado R., 2004. • Basics of Entrepreneurship, Juta and Company Ltd.Prof. Kanda, A., • Project and production management- an overview, [Video Online] Available at: < http://www.youtube.com/watch?v=obzp6biyAN0> [Accessed 12 September 2012].Prof. Loyd, B., • sources of finance, [Online] Available at: < http://www.birmingham.ac.uk/Documents/students/pg-sources-finance-2012.pdf>[Accessed13 September 2012].Prof. Sards, N., • Introduction to project management, [Video Online] Available at: < http://www.youtube.com/watch?v=5pwc2DYlKQU> [Accessed 12 September 2012]Rashid, M., • Role of government in entrepreneurship, [Online] Available at: < http://www.oecd.org/mena/investment/47246782.pdf> [Accessed 18 September 2012].Rawat, 2009, • Sources of finance, [Video Online] Available at: < http://www.youtube.com/watch?v=D1G8Y1Ob3Co> [Accessed 13 September 2012].Simonson, R., 2011, • Entrepreneurship 101,[VideoOnline]Availableat:<http://www.youtube.com/watch?v=tw_tVaUWPjk> [Accessed 6 September 2012].Singh, B., 2009, • Entrepreneurship Development, Wisdom Publications, Delhi.Size, M., • Human resource management, [Online] Available at: < http://www.csb.gov.hk/english/publication/files/e-hrmguide.pdf>[Accessed14 September 2012].Sources of Finance• ,[Online]Availableat:<http://www.ngfl-cymru.org.uk/vtc/bus_studs/members/downloads/sources%20of%20finance.pdf>[Accessed13 September 2012].Story, J., 2012, • The executive lecture series, [Video Online] Available at: < http://www.youtube.com/watch?v=8SsoBWJGE8c> [Accessed 18 September 2012].Strategic Marketing• ,[pdf]Availableat:<http://media.wiley.com/product_data/excerpt/51/04708498/0470849851.pdf> [Accessed 12 September 2012].Strydon, J., Antonites, A. & Beer, A., 2009. • Entrepreneurship & How to Establish Your Own Business. Juta and Company Ltd., Sunje, A., 2000, The Role of Government in Supporting Entrepreneurship and SMEs, Sarajevo Graduate School •of Business (SGSB). Available at: <http://www.ecorys.nl/dmdocuments/Sunje%20-%20Support%20to%20Entrepreneurship%20&%20SMEs%20BiH.pdf> [Accessed 8 December 2010].Tarrant, M., 2011• , Business Planning Process, [Video Online] Available at: < http://www.youtube.com/watch?v=AmhuGRQ4YSg>[Accessed 7 September 2012]. Toren, A., 2012• , Entrepreneur, [Online] Available at: < http://www.entrepreneur.com/article/224271> [Accessed 5 September 2012].Vilder, D., • Project Management, [pdf] Available at: < http://www.euromedyouth.net/IMG/pdf/tkit3.pdf> [Accessed 12 September 2012].Women entrepreneurship: issues and policies, • [pdf]Available at: <http://www.oecd.org/industry/smesandentrepreneurship/31919215.pdf> [Accessed 25 November 2012].Zafar, R., 2011, • Seminar on Women Entrepreneur Need of 21st Century by Roshaneh Zafar,[Video Online] Available at: < http://www.youtube.com/watch?v=v1nEVRVJwDU> [Accessed 25 September 2012].

Recommended ReadingBhide, A., 2004. • What Role for Entrepreneurship in India? Columbia University.Centre for Business Planning• . Available at: <http://www.businessplans.org>. Accessed 30 November 2010.Centre of Business Planning• . Available at: <http://www.businessplans.org> [Accessed 2 December 2010].

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Chatrapathy, M. M., 2007 • Basics of Business and Entrepreneurship. Asian Centre for Entrepreneurial Initiatives.Dr. Ambilikumar, V., • Entrepreneurship Development, Kerala Agriculture University Available at: <http://www. slideworld.com/slideshow.aspx/entrepreneurship-development> [Accessed 2 December 2010].Ehmke, C., Fulton, J., Lusk, J. Marketing Four P’s – First Steps for New Entrepreneurs (EC-730). Purdue •Extension. Available at: <http://www.extension.purdue.edu/extmedia/EC/EC-730.pdf > [Accessed 6 December 2010].Free Management Library• .Availableat:<http://managementhelp.org/risk_mng/risk_mng.htm>[Accessed3November 2010].Hisrich, R., Peters, M., Shepherd, D., 2006. • Entrepreneurship. McGraw-Hill/Irwin. 7th ed.Horner, W. G., 1998. • Employee Training and Development, Human Resource Division, Eastern Services Branch.International Labour Organisation• . Available at: <http://www.ilo.org> [Accessed 8 December 2010].Jackson, S. E., Schuler, R. S., 1990. • Human Resource Planning, American Psychologist.Kreisel, J., 2001. (International Consultant & Partner at GENES). • The Venture Capital Process, ESTEC, Noordwijk, 1721, the Netherlands.Kumar, N., 2000. • Marketing as Strategy. Harvard Business School Press, Boston, Printed in USA. Available at: <http://www.extension.purdue.edu> [Accessed 6 December 2010].Lal, A. K., Clement R. W., 2005. Economic Development in India: The Role of Individual Enterprise, • Asia-Pacific Development Journal. Lubbock, A., • Women and Rural Development, IFAD. Available at: <http://www.ifad.org/media/events/2010/ women_rural.htm>[Accessed8December2010].Nelson R., 2001. • E-marketing: The Way Forward, SMPS” Marketer” Magazine.Oxlade, L., Brend, M., 2003. • Exploring the Training Process. Healthlink Worldwide Newsletters.Singh, B., 2009. • Entrepreneurship Development. Wisdom Publications.Sources of Long Term Finance• , Module 4 Business Finance. Available at: <http://www.nos.org> [Accessed 6 December 2010].The Role of Government Policy in Entrepreneurial Activity• . Available at: <http://www.entrepreneur.com/ trade journals/article/185611022.html> [Accessed 8 December 2010].Tichapondwa S. M., Tichapondwa, S. P. • Successful Project Management, Bostwana College of Distance Learning.Villarosa, C., Villarosa, A., 2009. • Down to Business: The First 10 Steps to Entrepreneurship for Women. Avery Trade.

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Self Assessment Answers

Chapter Id1. b2. c3. b4. c5. c6. d7. b8. a9. d10.

Chapter IIb1. c2. a3. c4. d5. b6. c7. a8. b9. d10.

Chapter IIIa1. a2. d3. d4. c5. b6. c7. d8. b9. a10.

Chapter IVa1. d2. a3. d4. a5. b6. c7. a8. a9. d10.

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Chapter Vb1. c2. c3. b4. a5. d6. d7. a8. c9. d10.

Chapter VId1. a2. d3. a4. a5. b6. d7. b8. a9. b10.

Chapter VIIc 1. a2. b3. a4. c5. b6. a7. a8. b9. d10.

Chapter VIIIc1. c2. c3. c4. d5. b6. b7. a8. c9. b10.

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Chapter IXc1. a2. a3. b4. c5. a6. d7. c8. a9. d10.

Chapter Xb1. d2. a3. b4. d5. b6. a7. c8. b9. a10.