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An Entrepreneurial Perspective

Entrepreneurship is one of the four mainstream economic factors viz land, labour, capital and entrepreneurship. The word is derived from French entreprendre that refers to individuals who were undertakers meaning those who undertook the risk of new new enterprise. They were the contractors who bore the risk of profit or loss. Many early entrepreneurs were adventurers, builders, and merchants. Early references to entreprendeur in the 14th century literature speak about tax contractors- individuals who paid a fixed sum of money to the government for the 1 license to collect taxes in their region.

Tax entreprendeurs bore the risk of collecting individual taxes and if they collected more than the sum paid for their licenses, they made profits and keep the excess. If they failed to collect enough to match the cost of their licenses, the loss was theirs as government officials already had their money from license fees.

Economics and Entrepreneurship

Concept of entrepreneurship plays a central role in economics. 1. Richard Cantillon, a French economist describes an entrepreneur as a person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using resources while assuming the risk of enterprise. - The critical point in above definition is that entrepreneurs consciously make decisions about resource allocations and then seeking best opportunities for using these resources to get the maximum commercial yield.
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Cantillons Early View of Entrepreneurial Behaviour


Investment Transformation Profit or loss

Entrepreneur buys farm produce at a certain price

Entrepreneur repacks and transports farm produce to market

Entrepreneur sells Food produce in city at uncertain price

2. Adam Smith in 1776 spoke of an enterpriser as an individual who undertook the formation of an organization for commercial purposes. - He viewed the entrepreneur as a person who could recognize potential demand for goods and services. - In Smiths view, entrepreneurs reacted to economic change, thereby becoming the economic agents who transformed demand into supply. 3. French Economist Jean Baptiste Say, has described an entrepreneur as one who possesses certain skills of creating new economic enterprises, has an exceptional insight into societys needs and is able to fulfill them. - Jean Say thus, combined the economic risk taker of Cantillon and the industrial managerof Smith into an unusual character. 5

- Jean Says entrepreneur influenced the society by creating new enterprises and at the same time was influenced by society to recognize needs and fulfill them through judicious management of resources. 4. John Stuart Mill, a British economist, in 1848, elaborated on the necessity of entrepreneurship in private enterprise. - Entrepreneur became a common description for business founders. - Entrepreneurship became a fourth factor of economic activity encompassing the ultimate ownership of a commercial enterprise.
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5. Carl Menger, an Austrian economist propounded that economic change arises out of individuals awareness and understanding of the circumstances. - The entrepreneur becomes a change agent who transforms resources into useful goods and services. - An entrepreneur often creates circumstances that lead to industrial growth. - An entrepreneur adds value to the original resource and this enhanced value is rewarded through profits. - According to Menger Profit is the incentive needed to pursue the transformational activities. - For example, an entrepreneur who invents a way to harvest grain more efficiently or to grind grain into flour more rapidly adds more value to the product because the consumer benefits from more bread at a lower cost. 7

Entrepreneurship as a Process
Joseph Schumpeter described entrepreneurship as a process of creative destruction whereby established ways of doing things are destroyed by the creation of new and better ways to get things done. According to Joseph Schumpeter entrepreneurship is a process and entrepreneurs as innovators who use the process to shatter the status quo through new combinations of resources and new methods of commerce.
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Schumpeter provides a framework for understanding entrepreneurship and entrepreneur in terms of a process. (a) The entrepreneur seeks to reform or revolutionize the pattern of production by exploiting an invention or any untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products. (b) The entrepreneurs are not equated with inventors as inventors might only create a new product whereas an entrepreneur will gather resources, organize talent, and provide leadership to make it a commercial success. Peter Drucker also viewed entrepreneurship in similar fashion.
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Though Peter Drucker also viewed entrepreneurial role as one of gathering resources but he added that resources to produce results must be allocated to opportunities rather than to problems. In Druckers view, entrepreneurship occurs when resources are redirected to progressive opportunities instead of using these to ensure administrative efficiency. The above redirection of resources distinguishes the entrepreneurial role from a that of the traditional management role.
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How do we define Entrepreneurship?


Entrepreneurship is the dynamic process of creating incremental wealth. This wealth is created by individuals who assume the major risks in terms of equity, time, and/or career commitment of providing value for some product or service. - The product or service itself may or may not be new or unique but value must somehow be infused by the entrepreneur by securing and allocating the necessary skills and resources. 11

Who is an Entrepreneur?
How do we identify entrepreneurs, find them, or determine what they do? Is a local petrol pump owner, a realtor, the butcher, the franchise computer retailer an entrepreneur? Are there entrepreneurs in corporations? In schools?In government? (a) In fact, there are no answers to these questions and there are no formal guidelines for classifying entrepreneurs. (b) There is no entrepreneurial licensing procedure and no evidence of professional status.
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The research has shown that the nature of entrepreneurship is often a matter of individual perception; as indicated under: (a)Economists endorse Schumpeters viewpoint that entrepreneurs bring resources together in an unusual combination to generate profits.
(b)Psychologists tend to view entrepreneurs in behavioural terms as achievement oriented individuals driven to seek challenges and new accomplishments.
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(c)Marxists see entrepreneurs as exploitative adventurers, representative of all that is negative in capitalism. (d) Corporate managers view entrepreneurs as small businesspersons lacking the potential needed for corporate management. (e) Those strongly favouring a market economy view entrepreneurs as pillars of industrial strength-the movers and shakers who constructively disrupt the status quo.
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Characteristics of Successful Entrepreneurs


Researchers have sought to define traits common to majority of individuals who start and operate new ventures.
Self confident Able to take calculated risk Respond positively to challenges Flexible and able to adapt. Knowledge of markets. Able to get along well with others. Independent minded Versatile knowledge Energetic and diligent Creative, need to achieve. Dynamic leader. Responsive to suggestions Take initiative Resourceful and persevering Perceptive with foresight Responsive to criticism.
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(a)

(b)
(c)

(d)

This list has an important limitation of relating only to highly successful entrepreneurs and there is no way of knowing how these traits relate to majority of entrepreneurs. Some people may have the creative talent to generate new ideas but lack the ability to organize resources. Others may have a high need to achieve but lack the resourcefulness to create a new venture. Many individuals with limited profile based on these traits will start new businesses and succeed. Many individuals with majority of traits may start new businesses and fail. The issue that needs to be addressed is whether those amongst us who do not choose to be entrepreneurs have similar traits Put another way, can a nonentrepreneur also be achievement oriented,persistent, and creative.
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David Silver, a successful venture capitalist described the entrepreneur as energetic, single-mindedand having a mission and a clear vision: he or she intends to create out of this vision a product or service important enough to improve the life of millions. It is also felt that entrepreneurs venture out on their own from a sense of dissatisfaction with their organizations, but they are not necessarily unhappy with their career fields. The above is illustrated by proliferation of I.T. firms established by professional engineers, scientists, and computer wizards who left established companies to pursue private enterprise. They did so within the scope of their profession. 17

(a)

(b) (c)

(d)

Research has been undertaken to explain Entrepreneurship from a sociocultural standpoint by making comparative studies between nations, people, ethnic groups and historical trends. The outcome of such studies can be summarized as: Individuals often become entrepreneurs by being thrown into situations that force them to fashion their own means of economic livelihood. Refugees and immigrants fit this model well. In India, many leave their home states such as A.P., Bihar, U.P. etc because of lack of opportunities and poor economic conditions and arrive in Mumbai, Bangalore, Delhi etc. Most lack technical/commercial skills necessary to find decent jobs. 18

(e) Circumstances afford few options for these displaced personswho frequently establish independent ventures. (f) A high correlation has been found between increase in the new ventures and rising unemployment. (g) Many individuals become economically displaced i.e,. unemployed or find themselves disillusioned with their careers and for these individuals starting a new venture can be exhilarating, a breadth of fresh air into an otherwise stale life. (i) Individuals who retire, particularly those who retire early are seldom ready to quit working , and for many starting a business is an exciting opportunity.
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Entrepreneur versus Enterprise.


Entrepreneur Entrepreneurship Enterprise

Person

Process of Action

Object

Entrepreneur precedes Entrepreneurship

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Entrepreneurship in Indian Context.


Changing Business Scenario

Customer

Competition

Change

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India' economic progress is closely linked to its capabilities to manufacture and export quality products in a highly competitive global market. Economic growth is a means to change thereby leading to better living standards. Economic development is always accompanied by social change. Economic development also reflects the urge of the society for self-reliance and willingness to observe rigorous self-discipline i.e. Social 22 Law.

Social Law of Economic development

Urge for development

Efforts towards self-reliant

Self-discipline

Undeveloped and underdeveloped sectors need to be given priority in development plans and these should be resolved by the political leadership of the country.
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Entrepreneurship is one of the most important inputs in the


economic development of a country or a region as it helps in solving problems relating to: Employment generation When government creates say a hundred jobs in various departments, 100 persons get employed and the vacancies are filed for thirty years or so, till these people retire and the vacancies reemerge. If hundred persons become entrepreneurs they not only create hundred jobs for themselves but also provide employment to many more. Thus, entrepreneurship is the best way to fight unemployment.
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Entrepreneurship the Dynamic Need

National Income - National income consists of goods and services produced in the country and imported to meet the consumption within the country as well as to meet the demand for exports. - As domestic as well as export demand increases an increasing number of entrepreneurs are required to meet the increasing demand. - Thus, entrepreneurship increases the national income. Balanced Regional Development - The growth of industry and business leads to a large number of public benefits like road transport, health, education, entertainment etc. - When industries are concentrated in selected cities, the development gets restricted to these cities.
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- Once the competition increases in and around the cities, the new entrepreneurs would set up their enterprises in smaller towns away from bigger cities. - Thus, entrepreneurship helps in the development of backward regions. Dispersal of Economic Power - Industrial development can lead to concentration of economic power in a few hands that has its own evils in the form of monopolies. - Developing a large number of entrepreneurs helps in dispersing the economic power amongst population, thus causing hindrance to the growth of monopolies. - As monopolies grow partly due to lack of sufficient number of entrepreneurs, setting up of large number of enterprises help in weakening the harmful effects of monopoly.
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Major Trends Affecting Economic Development


(a) Technology as a resource Competition, both domestic as well as international. Government as a stimulator. Innovative entrepreneurship. Entrepreneurial and Intrapreneurial development. Active financial sector Innovative methods of capital formation provide catalyst for entrepreneurial process. (b) Methods of providing seed capital as well as expanding venture capital industry are helping to build new 27 ventures.

Supremacy of consumer Progressive management Collaborative relationships Creative collaborative relationships between business, government and academic are accelerating the process of commercialization and technology transfer process.

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Entrepreneurship through HRD.


The potential of economic development remains dormant because of undeveloped or underdeveloped human resources. In fact, man is much more crucial to development than any other economic factors. The sufficiency of other resources, without the necessary human development will does not lead us anywhere. Resources to be developed may exist in plenty but if development-linked human minds are absent, hardly any economic development will take place. Thus the creation of the development will is the key 29 factor, which engineers the economic progress.

Types & Nature of Entrepreneurs


The Entrepreneurs have broadly been classified according to:
(a) (b) (c) (d) (e) (1) Types of business Use of professional /technical skills Motivation Growth Stages of development Entrepreneurs according to types of business. Business entrepreneurs. Individuals who conceive a new idea for a new product or service and then translate in to business reality. Tap both production and marketing resources to develop a new business opportunity and set up small or medium enterprises. Found mainly in small trading and manufacturing businesses such as ready made garments, retail outlets, advertising agencies etc.
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(2) Industrial Entrepreneurs - Essentially a manufacturer who identifies potential needs of customers and develops a product or a service to meet the marketing needs. - Converts economic resources and technology into a profitable venture. - Establishes industrial units such as electronic industry, textile units, machine tools, Computer peripherals etc. (3) Corporate Entrepreneurs - Known as Intrapreneur, who demonstrates his innovative skill in organizing and managing corporate undertaking. - Plans, develops and manages a corporate body. 31

(4) Agricultural Entrepreneurs - They are the ones who are motivated to improve agriculture through mechanization, irrigation, and application of technologies for dry land agriculture products. - Engaged mainly in the business of crops, fertilizers and other inputs of agriculture. Entrepreneurs according to use of professional/ technical skills. (1) Technical Entrepreneurs - Are essentially craftsmen. - Develop better quality of products because of craftsmanship and concentrates more on production than marketing. - Demonstrate their innovative capabilities in matter of 32 production of goods and rendering of services.

(2) Non-technical Entrepreneurs - Not much concerned with the technical aspects of the product in which they deal. - Concerned only with developing alternative marketing and distribution strategies to promote their business. (3) Professional Entrepreneurs - Are interested in establishing a business but do not have interest in managing and operating it once it is established. - May sell out the running business and start 33 another venture with the sale proceeds.

Entrepreneurs and motivation (1) Pure Entrepreneur - An individual who is motivated by psychological and economic rewards and undertakes entrepreneurial activity for his personal satisfaction in work, ego and status. (2) Induced Entrepreneur - An individual who is induced to take up entrepreneurial task due to policy measures of the government that provides assistance, incentives, concessions and other necessary facilities to start a venture. - He enters business due to financial, technical and other facilities provided to him by the state 34 agencies to promote entrepreneurship.

(3) Motivated Entrepreneur - Starts business because of the challenges involved in developing and marketing a new product for the satisfaction of consumers. - If the product succeeds, the entrepreneur is further motivated for launching of newer products. Growth oriented Entrepreneur - The one who takes up a high growth industry, which has a substantial growth prospects. - Show enormous growth or performance in their venture.
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Entrepreneur and stages of development (1) First generation Entrepreneur - One who starts an industrial unit by his innovative skill and who combines different technologies to produce a marketable product or services. (2) Modern Entrepreneur - One who undertakes those ventures, which go well with the changing demand in the market particularly those that suit the current market needs. (3) Classic Entrepreneur - One who is concerned with maximizing the economic returns at consistent level. - Concerned more about the survival of the firm with or without an element of growth.
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Corporate Entrepreneurship
The concept of entrepreneurship includes intrapreneurship and entrepreneurial organizations. Connotes an urge to take risks in the face of uncertainties and a capacity to be proactive. An organization can create an environment in which all the members can contribute in one way or the other to the entrepreneurial function. An organization creating such an internal environment is known as an entrepreneurial organization. 37

In large organizations under the realm of globalization, a need has been felt to spread the entrepreneurship culture among all members to develop a higher order of risk-taking capability, total business orientation, and utmost customer satisfaction. Organizations are increasingly looking for people who have the ability and confidence to work independently and in a team so that they can excel during times of rapid change. Working within the organizations, intrapreneurs demonstrate leadership. Calculated risks are taken by them on behalf of their organizations.
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The Framework of Corporate Entrepreneurship


Corporate Entrepreneurship

Independent New Business

Corporate Venturing

Internal Internationali External Resources zation Networks

Birth of a New Business with Existing Companies

Strategic Renewal

Changing Rules of Competition in the Market


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Corporate entrepreneurship can be conceptualized from the perspective of four domains viz. corporate venturing, internal resources, internationalization, and external networks. The four domains will lead to an outcome in the form of a new business within the company. External networks help in strategic expansion and growth of business. For example, a manufacturing company starts selling its expertise as consultancy services in addition to the product it manufactures.
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What is strategic renewal? The new economic order and business environment has created a pace of change which requires businesses to adapt more frequently and rapidly than ever before. The changes could involve corporate structure, mergers and acquisitions,addressing new market opportunities, changing product portfolios, repositioning, developing infrastructure, or adopting new technology. Managers in an organization must be able to take stock of its situation under changing market conditions and agree on coherent new strategy that will meet the challenges of the present as well as of the future. This process of setting new directions for the enterprise is called strategic renewal.
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Strategic renewal involves knowledge, creativity, critical analysis, communication, leadership, evaluation, of alternatives and concurrence. Many management teams, practicing the art of managing status quo, are not used to the process of strategic renewal. The strategy is created by the management team in an entrepreneurial enterprise and thus they become committed to the success of its implementation.
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Strategic renewal may result in restructuring, higher productivity, cost-effectiveness, new sourcing of raw materials, rightsizing of organization, increased market share, penetration in existing markets, and creating new markets. All such changes will facilitate the improvement in performance of the organization on financial parameters. The birth of a new business within the existing enterprise and strategic renewal are the two outcomes of corporate entrepreneurship. 43

New Dimension to Competition


Corporate entrepreneurship adds new dimension to competition and changes the rules of competition in the market. The company operates under newly created favourable environments but it starts fading away soon because others also learn the new ticks of the trade and outsmart them with their own entrepreneurial ventures. Another domain is the creation of independent business, fueled mainly by economic liberalization and globalization.
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Many national level companies are going international by operating their business in other countries through acquisitions, expansions, joint ventures, and new ventures. These developments are the outcome of entrepreneurial initiatives taken by managers who now keep an eye on opportunities and seek opportunities beyond national boundaries.

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Entrepreneurship & Innovation


Creativity is a prerequisite to innovation, though these terms are often used to mean the same thing. Creativity is the ability to bring something new into existence. This definition emphasizes the ability, not the activity,of bringing something into existence. A person may conceive of something new and visualize how it will be useful, but not necessarily take the necessary action to make it reality. Innovation is the process of converting ideas into new products, services, or processes. Thus, innovation is the transformation of creative ideas into useful applications, but creativity is a prerequisite to innovation. 46

The Creative Process


Idea germination: The seeding stage of a new idea Recognition Preparation: Conscious search for knowledge Rationalization Verification: Application of Test to prove Idea has value Validation Incubation: Subconscious assimilation of information Fantasizing

Illumination: Recognition of idea as being feasible Realization


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Most social scientists agree on five stages in the creative process i.e. idea germination, preparation, incubation, illumination and verification. Idea germination. - The germination stage is a seeding process, more like the natural seeding that occurs when flower seeds scattered by the wind find fertile ground to take root and unlike planting seed by the farmer to grow corn. - For instance, Nolan Bushnell founded Atari Corporation and video game industry by trying to create a way to use micro-electronic circuitry to convert home television sets into interactive media.
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Preparation - Once the seed of curiosity becomes the focused idea, the next step is to embark on a conscious search for answers. - If it is an idea for a new product or a service, the business equivalent is market research. - Inventors will set up laboratories experiments, designers will begin engineering new products ideas, and marketers will study consumer buying habits. - In rare instances, the preparation stage will produce results.
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Incubation - Process of allowing ideas, time to grow without intentional effort. - The idea, once seeded and given substance through preparation, is pt on a back-burner. - The sub-conscious mind is allowed time to assimilate information. - During incubation, the sub-conscious mind assumes control of the creative process. - When we consciously focus on a problem, we behave rationally to attempt to find systematic resolutions. - When we rely on subconscious processes, our minds are not constrained by limitations of human logic and thus open to unusual information and knowledge that 50 we cannot assimilate in conscious state.

Illumination - This stage occurs when the idea resurfaces as a realistic creation e.g. Alexander Graham Bell heard the twang of the steel reed, Fleming watched his penicillin attack infectious bacteria under the microscope,etc. - Illumination may be triggered by an opportune incident, as Bell discovered harmonic telegraphy in the accidental twang created by his lab assistant Watson. - The trigger would perhaps have occurred by another incident as well or simply through sheer hard work. - This stage is critical for entrepreneurs because ideas by themselves have no meaning and only through illumination the creative people translate ideas into value.
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Verification - An idea once illuminated in the mind of an individual still has no meaning until verified as realistic and useful. - Verification is the development stage of refining knowledge into application. - This is often the most tedious part and requires perseverance by an individual committed to harvest the practical results of his or her creation. - Many times an entrepreneur may find that the idea has already been developed or that competitors might exist. - Inventors may experience while seeking to patent their products that similar inventions are already registered. 52

Invention versus Innovation


Invention
The creation of something new Results in new knowledge

Innovation

The transformation of an idea or resources into useful applications.

Results in new products, services or processes

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If creativity is the seed that inspires entrepreneurship, innovation is the process of entrepreneurship. According to Drucker Innovation is the means by which the entrepreneur either creates new wealthproducing resources or endows existing resources with enhanced potential for creating wealth. Innovation implies action, not just conceiving new ideas. Thus, when people pass through illumination and verification stages of creativity, they may become 54 inventors, but not innovators.

Innovation is the process of development of an idea into developing product design or service, to develop marketing, obtain finances, and plan operations. If an entrepreneur is going to manufacture a product, the process includes obtaining materials and technical manufacturing capabilities, staffing operations, and establishing an organization.
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Technological Innovation
Creative source

Champion

Sponsor

Inventor or originator who creates something new through personal vision and effort.

Entrepreneur or manager who pursues the idea, providing leadership for applications

Person or organization that backs innovation with finances, advice and contacts.
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A number of industrial studies have revealed that for a technological innovation to succeed, the three key people are creative source, the champion, and the sponsor. The roles of these key people ar: Creative source The inventor or the originator of the idea that led to the knowledge or vision of something new: the artist of creative endeavour. Champion The entrepreneur or manager who pursues the idea, planning its application, acquiring resources, and establishing its markets through persistence, planning, organizing, and leadership.
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Sponsor
The person or organization that makes possible the champions activities and the inventors dreams though support, including finances, contacts, and advice. The creative source is an individual as organizations do not create ideas or incubate fantasies. The champion is also an individual - creative sourcean entrepreneur or a corporate manager having insight to pursue a creative idea. The sponsor is an investor such as venture capitalist or an organization where corporate resources are allocated to innovate projects.
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Entrepreneurial Environments
Entrepreneurial environments refers to the various facets within which enterprises-big, medium, and small have to operate. By and large, entrepreneurial environments can be classified into six important segments, namely 1. Political environments. Political atmosphere Quality of political leadership. 2. Economic environments Economic policies Labour Trade 59

Tariffs Incentives Subsidies. 3. Social envionments. Consumers attitudes Labour Opinions and motives. 4. Technology environment. Competition and risk Efficiency Productivity Profitability

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5. Legal environments. Rules and regulations. 6. Cultural environment. Structures Aspirations and values. Entrepreneurship and economic system Economic systems grow and take shape under the influence of industrial policy, economic policy, sociocultural and political ideals of leadership. Economic system is a basic structure consisting of capitalism, socialism, an mixed economy in which a certain level of entrepreneurship is found.
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(A) Entrepreneurship versus Capitalism The characteristics of capitalism are free enterprise, freedom to save, invest or spend, free and healthy competition, lack of dominance of central plan and consumers sovereignty. Entrepreneur has complete control of production and distribution of goods, mobilizes resources to maximize the profits. Profit motive is the main aim of the entrepreneur in free market mechanism under capitalism. The entrepreneur distributes the goods according to different market conditions both in domestic and overseas markets.
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(B) Entrepreneurship versus Socialism Under socialism it is the responsibility of the economic and financial experts in the central authority to design a strategy to utilize the resources resulting into equitable distribution of goods without any profit motive but for social good. The responsibility for mobilization of resources, allocation and reallocation of the same is not shared by the private entrepreneur and these are channelized towards industries of national importance. The role of the entrepreneur under socialism is negligible.
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(C) Entrepreneurship versus Mixed economy The entrepreneurs also have an important role in the production and distribution of goods in mixed economy. Government undertakes the production of capital goods while the production of consumer goods is left to the private enterprises. The private entrepreneurs not only produce life style goods for the classes but also the basic requirements meant for masses. Similar to capitalist economy, mixed economy tries to solve the basic problems with the help of price mechanism. 64

When the problem of production is not solved satisfactorily by the private entrepreneur, the state intervenes by increasing the production of essential goods and discouraging that of less essential or nonessential goods. In mixed economy, the government encourages the private producers to increase the production of most essential goods and in case their production still lags behind the demand, it undertakes the production of such goods and increase the same by giving top priority in its economic programme. The role of entrepreneur in mixed economy is quite significant as it permits the growth of both private and public sector. 65

Entrepreneurship and social structure & culture


Research indicates that entrepreneurs are apparently motivated by combination and interaction of the following factors. - Social environments - Family background - Standard of education and technical knowledge. - Financial stability - Caste and religious affiliations. - Availability of supporting facilities - Achievement motivation 66 - Personality and personal skills.

Business culture and culture of society


Business culture has similar features as the culture of the society. Culture becomes alive and vibrant as it evolves and changes constantly whether it is in business or in society. When cultures adapt a change, great progress occurs in a civilization or in a company. Like in case of religious or political groups people in business firms also try to preserve the original 67 set of beliefs.

These fundamentalists often take irrational pride in the traditions of the firm although changed circumstances would have made such traditions irrelevant and sometimes counterproductive. Changes in the culture of a firm occur when an entrepreneur provides stimulation with ideas that challenge tradition. Creations of hybrid cultures by multinational companies by combining the strong cultural characteristics of parent company with those of the local market turnout to be much stronger than the original monocultural organizations.
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Entrepreneurial versus Administrative culture


Administrative culture focuses on Existing opportunities Organizational structure Human resources Control Entrepreneurial culture is governed by Perception of opportunity Vision

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Social values Burning ambition Will to do something unique during his lifetime. Which culture should an organization imbibe? Organizations must contain both entrepreneurial and administrative cultures for excellence and success. How do we create an entrepreneurial culture? Following ten steps will help an entrepreneur to create a culture supportive of change. (1) Lead the enterprise. (2) Attune to the culture of innovation. 70

(3) Remove the hidden obstacles. (4) Create an integrated enterprise culture. (5) Create a marketing culture. (6) Create a listening environments. (7) Absorb contemporary technologies and involve people. (8)Continuously undertake product innovations. (9) Be open for diversification and new ideas. (10) Always be ready to to change culture.
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Entrepreneurial Culture in an organization


Hidden elements Fundamental assumptions, and Values. Visible elements Artifacts and symbols Patterns of behaviour How culture gets its roots? Culture is basically determined by patterns of 72 behaviour and artifacts and symbols.

Behavioural norms influence behavioural patterns. Fundamental assumptions and values are at the core of culture. Entrepreneurs introduce change conducive to the organization to foster an entrepreneurial culture. Entrepreneurs self confidence and commitment gives him the courage to introduce changes in the organizational environments. Changes introduced through entrepreneurial creativity form the entrepreneurial culture in the organizations. 73

Entrepreneur and Entrepreneurial Culture


Entrepreneur Change-conducive organization Entrepreneurial culture

Courage

Creativity

Self-confidence

Commitment
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Features of an Entrepreneurial Culture

(1) (2) (3) (4)

An entrepreneurial culture is one in which all employees think and act as entrepreneurs. The following behaviour is expected from the members of an entrepreneurial organization. Risk taking Earning respect. Emotional commitment. Considering work as fun. 75

Building trust. Using creativity. Being innovative. Creating value Tolerating failures. Showing drive. Motivational levels of an Entrepreneur - Research has indicated that Entrepreneurs are high achievers with a psychological make up of creativity and innovation. They work long hours bearing their goals constantly in their mind. Thereby proving that they have a high achievement orientation. 76

Experiments in the field of psychology have brought out that achievement orientation can be induced in people through achievement motivation training. - Successful entrepreneurs not only have a high achievement-orientation but they also rope in others with their skill of influencing. The need for power is another drive which helps people to effectively influence others. Not much can be achieved individually. With a high need for achievement and power, an individual may turn out to be a self-centered autocrat. 77

Entrepreneurs also show third human need and that is need for affiliations and show a genuine concern for their employees and fellow entrepreneurs. This concern will not be based on emotional bondage but on the need for seeking the contribution of every employee towards fulfilling organizational goals. A concern for others coupled with a concern for larger organizational goals characterize extension motivation. This type of motivation is very helpful to be an effective entrepreneur.
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It has been observed that some societies are more entrepreneurial than others. These societies promote and encourage entrepreneurial behaviour and as a result they throw up more number of entrepreneurs as compared to other societies. All governments encourage and promote entrepreneurship in all sections of the society but sometimes inspite of all their efforts some societies are unable to produce sufficient number of entrepreneurs. There are certain factors which either support entrepreneurship or act as barriers to entrepreneurship. Such factors are economic, social,political and psychological as their negative influence inhibits emergence 79 of entrepreneurship.

Barriers to Entrepreneurship

Economic Barriers
Primarily there are three economic factors whose inadequacy is the cause of lack of entrepreneurship in certain regions. (1) Capital As capital is the most important prerequisite for setting up the new enterprise, lack of availability of the same in any society or nation acts as a serious barrier for promoting in entrepreneurship in that society. Entrepreneurship in any society increases with the increase in the supply of capital. 80

(2) Labour It is the poor quality of labour rather than inadequate quantity of labour that acts as real barrier to entrepreneurship. Cheap labour of a developing country may prima-facie appear to be strength in promoting enterprises but the fact is that cheap labour is often unproductive or has a low level of productivity. Thus unskilled and low productive labour acts as barrier in setting up the modern enterprise. However, by using labour saving innovations, the innovative entrepreneurs have been able to overcome the disadvantage of high cost labour in developed economies.
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(3) Raw materials The lack of raw materials is normally the greatest economic barrier for growth in entrepreneurship. Due to non-availability of raw materials, enterprises cannot be established and hence emergence of entrepreneurship gets inhibited.

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Non-economic Barriers
Many societies and regions endowed with skilled labour and natural raw materials have remained devoid of entrepreneurship because of certain sociological and psychological factors. Such non-economic factors that prevent the emergence of entrepreneurs can be classified as environmental and personal barriers. Environmental barriers Deep rooted in the society, also known as societal barriers.
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(1) Cultural Block Every society lays down some unwritten norms of acceptable behaviour and all members of that society are required to follow these norms. If such norms are broken, the society does not approve of the resultant behaviour and exert indirect pressure on the individual to conform to a particular way purely because it is customary. Even in schools and colleges the support and approval of others is conditional on maintaining certain standards of good behaviour, good exam results etc.
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As against this an entrepreneur is required to be innovative thus conformity and enterprise seldom go hand in hand. Enterprise needs the status quo to be investigated , challenged and if necessary changed. The dilemma for the would be entrepreneurs lie in balancing the creative urge to improve something with the natural human need for the acceptance by others. Many people are sensitive to the reaction of those around them and therefore do not like to be too unlike their peer thus having a latent desire to conform to an accepted pattern. Such desire and cultural block prevent persons from setting up their own ventures in non- entrepreneurial societies. 85

(2) Practical values Children are more creative than adults and as person grows and matures, more stress is placed on practical aspects of the achievement and as a result mental playfulness, fantasy and reflectiveness are driven out. Thus, instead of finding innovative alternative solutions, adults normally end up with derivative innovations that are based on logic, existing systems and products. When the new system is close to the existing one it is easier to understand and work with, and people feel more secured as compared to the more imaginative innovations. Prevalence of practical values prevents innovation and act as a barrier to entrepreneurship.
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(3) Respect for entrepreneur The society which tends to view the entrepreneurs as role models and accord due status to the entrepreneurs, encourage their people to choose entrepreneurial careers. In most Indian societies businessmen and entrepreneurs are not accorded a high status. Business is considered as profession of lower hierarchy and risk taking attitude is always met with comments like must have got lower grades and could not get into good college. This lack of legitimacy to entrepreneurship and lower social status of entrepreneurs in society is a major barrier to entrepreneurship.
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(4) Importance to logic Many people give more importance to reason and logic as compared to intuition and subjective evaluation. Males use more of the left brain, the logical part and as men have dominated the society for long it is this type of thinking which is identified as more valuable, the right brain thinking where women excel is not given importance in the society. As entrepreneurship requires a high level of creativity, an area in which right brain dominates, too much importance to logic i.e. left brain is barrier to entrepreneurship.
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(5) Traditional Attitudes Some cultures place a great deal of emphasis on the preservation of traditional ways of life at the expense of innovation and development. Thus tradition bound cultures are barier to entrepreneurship. (6) Emotional Block Besides financial risk every entrepreneur runs an emotional risks as well. Number of productive tools like sales forecast, market research, and budgets etc are used and in case of a decision going wrong, one can defend it by claiming that high level of prudence was exercised. People are afraid of not only making mistakes but more so appearing foolish because of such mistakes and this emotional fear acts as a barrier to entrepreneurship. 89

Personal Barriers
1. 2. 3. 4. 5. Factors that act as a personal barrier to entrepreneurship are: Lack of sustained motivation Difficulty with ambiguity Inability to dream Impatience in solving problems. Lack of clean perception.
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Lack of sustained motivation Maintaining a pace for entrepreneurship requires emotional qualities of toughness and persistence, which are normally at odds with enthusiastic personalities that are best suited for initial phase. People normally lack motivation to initiate a new venture and take the risk of setting up an enterprise. However, those cross these hurdles have a more difficult task of maintaining this motivation while facing different obstacles in setting up the new enterprise.
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Difficulty with ambiguity Most people are at ease with certainty than with uncertainty. When a new method of working is initiated, it is not possible to foresee every eventuality and predict the exact outcome. In fact, some of things cannot be simulated and have to tested only by experience as in many situations the data collected will be hazy or imperfect and ultimate decisions will be based upon opinion and value judgments. People who excessively depend on structured information will find the situation quite ambiguous. Entrepreneurs need ability to bring an order to chaos and their first requirement is to be able to tolerate chaos.
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Inability to dream and use Subconscious The entrepreneur needs to use both parts of his intellect, the sub conscious for incubation of ideas and conscious for resolution of problems. The subconscious intellect facilitates day dreaming. Entrepreneurs are day dreamers and a few of them in our society have ability to day dream and use their subconscious intellect. Impatience in solving problems Setting up an enterprise needs a lot of patience and an eye for details by the entrepreneur. The attitude of finding quick solutions prevents people from setting up the enterprise and act as barrier to entrepreneurship.
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Lack of clear perception An entrepreneur can easily identify an opportunity and exploit it for commercial gain. Many times one is swayed by irrational prejudice and tries to impose ones preconceived ideas as a solution. This behaviour is a major barrier to entrepreneurship.

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Women Entrepreneurs-Gender Issues in Entrepreneurship


Women entrepreneurs have been making a significant impact in all segments of the economy in Canada, Great Britain, Germany, Australia and the U.S. In the U.S., women own 25% of entrepreneurial ventures even though their sales on an average are less than 40% of those of other small businesses. The areas chosen by women are retail trade, restaurants, hotels, education, cultural and cleaning, insurance and light manufacturing. 95

In Indian context, participation of women in entrepreneurship is relatively a recent phenomenon. There are more than 2,95,680 women entrepreneurs claiming 11.2% of the total 2.64 million entrepreneurs in India. The majority is concentrated in low-paid, low-skilled, low-technology, and low-productivity enterprises in rural and unorganized sectors. How do we define Women Entrepreneurs? An enterprise owned and controlled by a woman having a minimum financial interest of 51% of the capital and giving at least 51% of employment generated in the enterprise to women. This definition has come in for severe criticism on the condition of employing more than 50% women workers.
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Significance of Women Entrepreneurs


In context of India Poised it is imperative that we mobilize and fully utilize all its resources including human resources. The womens participation in the economic activities is not only necessary from human resource point of view but essential even for raising the status of women in the society. Today, the economic status of women is accepted as an indicator of a societys stage of development and therefore it becomes important for the government to frame policies for the development of entrepreneurship among women. 97

The long term objectives of the development programmes for women should aim to raise their economic as well as their social status in order to bring them in forefront of development. In order to achieve the above, due recognition has to be given to the role and contribution of women in the various social, economic, political and cultural activities. The Industrial Policy Resolution of 1991 has highlighted the need to provide special training programmes to develop women entrepreneurship.
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Types of Women Entrepreneurs


Dr.V.G.Patel, Ex-Director EDII, has identified three types of women who take to entrepreneurship. (1) Chance entrepreneur - Those who start business without any preparation, clear goals or plans and are lucky to come across opportunities that they grabbed. (2) Forced entrepreneur - Those who were compelled by circumstances such as death of husband or father with responsibilities falling on them to take over the existing business.
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Created entrepreneurs - Ones who were properly identified, motivated, encouraged and developed through EDPs as a part of strategy to develop women as competent entrepreneurs. - They are the ones for whom various schemes are being designed by financial institutions and commercial banks.

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Development of Women Entrepreneurs-Recent Trends

(1) (2) (3) (4) (5)

A special chapter in the seventh plan covers the integration of women in economic development. Regarding the development of women entrepreneurship, the plan document has suggested the following: Treat women as specific target group in all development programmes. Increase womens participation in decision making. Provide marketing assistance at the state level. Properly diversify vocational training facilities for women to suit their needs and skills. Encourage appropriate technologies, equipments and practice for reducing their drudgery and increase their 101 efficiency and productivity.

The new industrial policy of the government has recommended that product and process oriented courses may be conducted to enable women to start small-scale industries. The objective of these courses should be to give representation to women in the field of small industry development with a view to uplift their status in economic and social field. Hence promotion of women entrepreneurship should become integral part of overall development leading to two fold advantages namely, economic growth and women development. Banks and Financial Institutions to provide credit to women entrepreneurs on concessional terms and on priority basis.
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The following are the arrangements in Indian context, to protect and develop women entrepreneurship. (a) The nationalized banks and State Financial Corporations advance loans to women entrepreneurs on preferential basis. (b) State Industrial Development corporations, District Industries Centres provide loans and subsidies to small-scale women entrepreneurs. (c) Several voluntary agencies like NAYE (National Alliance of Young Entrepreneurs) assist women entrepreneurs.
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(d) Government has implemented the Rural Employment Generation Programme- a credit-linked subsidy programme, through the Khadi and Village Industries Corporation (KVIC), to provide self-employment opportunities to unemployed person in rural areas, including women. (e) Under REGP, women entrepreneurs are entitled to margin money assistance as compared with general category entrepreneurs. (f) Around 24747 village industry units were set up by women entrepreneurs, under the REGP programme, with margin money assistance from KVIC and loans from banks, during 2003-04.
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Features of Women Entrepreneurs in India


(1) A majority of women entrepreneurs are married. (2) Unmarried women face difficulties in getting financial support in order to launch their enterprise. (3) Available data on women entrepreneurs show that many women entrepreneurs belong to low income group. (4) Women with small families are more likely to become entrepreneurs. (5) Most of the women entrepreneurs lack vocational training.
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(6) Many women become entrepreneurs out of economic necessity. (7) Gender discrimination is encountered at every stage of business development. (8) Women prefer diversification to specialization. (9) Women entrepreneurs are security-oriented rather than growth-oriented. (10) Often women entrepreneurs prefer stabilization of income and minimization of risk over maximization of income.
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Family Responsibilities

Problems faced by Women Entrepreneurs

In India the involvement of a women in the family leaves little time and energy for business. Since the success of a married woman depends upon supporting husband and family, role conflict may arise preventing them to take prompt decisions in business. Social Attitudes In a tradition bound society, women suffer from male reservations. In rural areas women face resistance not only from males but also from elderly females who have accepted 107 inequality.

Low Mobility Women on their own find it difficult to get accommodation in towns. One of the biggest handicaps for women entrepreneurs is mobility of travelling from place to place. High Cost of Production Lack of knowledge about cost reduction techniques leading to high cost of production undermine the efficiency and restricts the development of women entrepreneurs. Lack of Education Due to low literacy levels amongst women in India, majority of women are unaware of technological development, marketing etc. Lack of information creates problems in setting up and running a business enterprise. 108

Low Need for Achievement Need for achievement, independence, and autonomy are pre-requisites for success in entrepreneurship and in absence of the required need to achieve, few women succeed as entrepreneurs. Shortage of Finance Women entrepreneurs lack access to external funds due to lack of any tangible security and credit in the market. Women entrepreneurs also face difficulties in obtaining working capital for financing day to day operations of their enterprise. 109

Inefficient Arrangement for Marketing In order to market their product women entrepreneurs are often at the mercy of the middlemen who pocket the chunk of profit. Though middlemen exploit the women entrepreneurs, the elimination of middlemen is difficult because it involves a lot of running around. Shortage of Raw Materials Women entrepreneurs find it difficult to develop new sources of supply as it happened in case of women cooperatives engaged in basket making. The failure was mainly due to inadequate availability of forest based raw materials. Stiff Competition * Severe competition from organized sector quite 110 often impedes the growth of women entrepreneurship.

Change in Social Attitude through Education &


Awareness It is necessary to change negative social attitude towards women. Elders, particularly Mothers and Mothers-in-laws need to be made aware of the potential of girls and their due role in the society. Better Time Management Shouldering the dual responsibilities of an entrepreneur and a homemaker can be effectively undertaken by the woman entrepreneur through better time management. With tact and diplomacy, the other members of the family 111 can also be involved in the business.

Strategies for the Development of Women Entrepreneurs

Set-up Home-based Business A woman can set-up home based business and by operating her business from home, she can coordinate her household and business responsibilities in a better way. Efficient Use of Information Technology Efficient and effective use of Information Technology can help in obtaining information about variety, quality, promotion and distribution of competing products and services. Organize workshops and seminars * Workshops and seminars should be organized more frequently for the officials of financial as well as other support agencies and also for women entrepreneurs
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Cooperative Entrepreneurship Group Entrepreneurship is a viable option for weaker sections of the society and it helps empower women and provides necessary confidence for entrepreneurship. Womens organization, womens cooperatives and NGOs should be promoted to create selfemployment for poor women. Simplified procedures Procedures for financial assistance by banks and government organization must be simplified and if possible, women inspector should be asked to inspect Women Enterprises. 113

Dispense Collateral Security Collateral security should be dispensed with in case of women entrepreneurs as women have hardly any property or other assets in their name to keep as guarantee. Margin money for projects to be undertaken by women entrepreneurs should not exceed 10 percent. Subsidies should be given to women entrepreneurs at the inception stage itself. Finance Cells Finance cells may be opened in various public financial institutions and banks for providing sy finance to women entrepreneurs. Finance may be provided at concessional rates of interest 114 and on easy repayment basis.

Training Facility
Training schemes should be so designed that women can take full advantage. Mobile Training Centres, part time training facilities, especially during afternoons will attract more women to acquire skills.

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Seed Capital Scheme Government provides seed capital @10% to 15 % of the total cost of the project to unemployed youth and women subject to maximum of Rs 5 lakhs. The percentage of seed capital is 22.5% for backward class candidates. The woman is treated as unemployed even if her husband is doing business or service. To be eligible she should have passed at least VIIth standard and should be in the age group of 18-50 years. The seed capital granted must be repaid within 7 years. More details can be had from District Industries Centres. 116

Special Schemes for Women Entrepreneurs

Women Industries Fund Scheme


Under this scheme, women entrepreneurs get 15% seed capital of the total cost of project for starting a new business subject to maximum of 1.5 lakhs. Women entrepreneurs are expected to contribute at least 10% of project cost. For availing this facility an application must be made to nationalized bank or State Finance corporation. Single Window Scheme To facilitate women entrepreneurs in getting term loan and working capital from one and the same institution, SIDBI (Small Industries Development Bank of India) has started this scheme that is applicable to both male and female entrepreneurs. Applicable to the projects where total expenses are up to 117 Rs20 lakhs (excluding working capital and margin money).

The loan is to be repaid within a period of 10 years. Implemented through State Finance Corporation. Artisans Loan Scheme Under this scheme, the artisans living in rural areas, where the population is up to 5 lakhs, get the loan to purchase instruments and working capital. 100% financial assistance is available up to Rs 50,000 with minimum rate of interest. There is no restriction on age or educational qualification and the loan granted is to be repaid 118 within a period of 8 years.

District Industries Centre Scheme Objective is to start industries in rural areas where population is less than 1 lakh. The industries with an investment in machinery not exceeding Rs 2 lakhs are eligible for financial assistance under this scheme. 20% of 2 lakhs for general category and 30% in case of backward people are granted as seed capital from the district industries centre. The remaining amount of loan is granted by financial corporations or banks. The rate of interest on seed capital is 4%. The scheme is implemented by the district industries centre and the applicant has to apply to them for financial assistance.
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Training and Extension Services The programme for training and extension services for women entrepreneurs is organized by IDBI through designated / approved agencies independently and/or in association with other development agencies like Entrepreneurship Development Institute of India, Technical Consultancy Organizations, Central/ State Welfare Boards and KVIC. Financial assistance to training/development agencies cover rental for training programmes, course material, industry/ market visits, and post training follow-up. The total amount of subsidy from IDBI for such services would be a maximum of Rs 10,000 per beneficiary.
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Scheme for Refinance Assistance to Women Entrepreneurs. All projects in SSI sector including cottage, village, and tiny industries promoted and managed by women entrepreneurs are eligible for assistance under this scheme. The promoters contribution would be minimum 12.5% of the project cost for units set up in category A backward districts and 15% of the project cost in all other cases, irrespective of location. Debt to Equity Ratio: 3:1 121

The rate of interest of the primary lenders not to exceed 12.5% whereas the rate of interest on IDBI refinance @ 9%. The loan is repayable over a period not exceeding 10 years, including a moratorium of 2 years. Refinance will be provided by IDBI to the extent of 100% of the loan amount disbursed by SFCs/SIDCs and to the extent of 85% in case of nationalized banks etc. However, in case of projects set up in A category backward districts , the extent of refinance by IDBI will be 90% of loan disbursed by SFCs/SIDCs and to the extent of 75% in case of loans disbursed by nationalized banks.
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Primary lenders may also stipulate security for the loan as they deem appropriate. However, no collateral security need to be obtained. In many cases, loans to women entrepreneurs may be covered under Credit Guarantee Scheme of District Industries Centre. Scheme of Interest Subsidy for Women Entrepreneurs. The objective is to provide incentives to women having business acumen and entrepreneurial traits to contribute their mite to the industrial development programme of the country leading to avenues of self-development and selfemployment. All industrial projects irrespective of size and location having a minimum financial stake of 51% in the unit will be covered under this scheme. 123

The scheme is operated through the State Financial Corporation (SFCs)/ State level financial institutions / Banks granting assistance to women entrepreneur for setting up the industrial ventures in the rural, cottage, tiny and small sectors with a project cost up to Rs 10 lakhs. The assistance is in the form of one-time subsidy, determined on case to case basis and is equivalent to the amount of interest payable by the industrial unit set up woman entrepreneur to SFC or state level financial institution. The ceiling is Rs 20,000 per annum provided the 124 unit is promoted wholly by woman entrepreneur.

The disbursement of subsidy is made by IFCI upon receiving an application for interest subsidy with due recommendation and certificates from SFC/Bank. The actual disbursement of the subsidy is made to SFC/Bank which acknowledges the amount and certifies that the same has been utilized for setting-off the interest on the loan amount granted to the unit. Here the Bank includes any Scheduled Bank, Co-operative Bank, Regional Bank and Nationalized Bank.
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Entrepreneurship in a Globalized Era


Looking at volume of trade,capital flows across borders,and the movement of labour across the borders relative to GNP, the period of globalization preceding World War I was quite similar to what is being experienced today. Countries like Great Britain were huge investors in emerging markets, there were few currency controls and people moved freely. Other than in wartimes, countries did not require passports for travel before 1914. Immigrants moved into America without visas.126

The inventions of steamship, railroad, telegraph and telephone helped to shrink the world significantly. Important differences between previous era of globalization and the current one. The degree and intensity of today's globalization is much higher. During the pre-1914 era of globalization, many developing countries were left out and it was miniscule in absolute terms compared to what is happening today. Daily foreign exchange trading in 1900 could be measured in millions of dollars and in 1992 it was US$820 billion a day and by April, 1998 it had risen to US$ 1.5 trillion a day.
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The previous era of globalization was built around falling transportation costs, due to the invention of the railroad, the steamship and the automobile. Todays globalization is being driven by falling telecommunication cost, thanks to microchips, satellites, fiber optics, and the Internet. The earlier era was dominated by British power, the British Pound and the British Navy and todays era is dominated by American power, American culture and the American dollar.
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Impact of Globalization It is being perceived that the technological advances and rapid expansion of global markets would promote economic efficiency, generate growth, yield profits and provide equal opportunity and prosperity to the entire worlds population. The growing wedge between richer and poorer individuals and countries is both fundamentally unfair and destabilizing. The future cannot rest on accumulation of wealth by a few and one has to recognize the human face at the centre of globalization leading to appropriate approach to threat posed by marginalization, poverty and human right abuses. 129

The benefits of globalization have to be shared equitably. The challenge of globalization is to have new sense of global responsibility implying therein that the innovations must balance concern for profits with concern for people. Role of governments Much of the commerce, learning and sharing of information is happening in a place that has no place on the map at all-cyberspace. The role of national governments in the era of transnational corporations and instantaneous communications is undergoing a change. 130

The emphasis is on the governments need to provide security and predictability for citizens i.e. providing a stable environments for all citizens to participate fully in commercial and political life. The role of national and local governments in a world of fuzzy borders is to create a conducive environment for business consequently improving the lives of their citizens. Multinational corporations can create prosperity only in stable economies and new markets and this will be impossible without social stability.
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Impact of Government, NGOs and Corporations on business. Due to increased connectivity people in less developed countries and particularly in rural areas become more aware of the overall progress and whether they can share the benefits of the progress. For those left on margins, desperation can breed resentment and if markets are left to function without any concern for human beings, the results can be counterproductive. MNCs are realizing that it makes sense to give something back to the society by joining with international NGOs. NGOs maintain pressures on national governments, international agencies and corporations to live up to their commitments, to protect environments and human rights.
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An alliance between the three prongs viz governments, NGOs, and business (local firms and multinational corporations) can foster cooperation in the developmental process and promote human welfare everywhere. Thus, to harness fully the advantages of globalization, every prong has to be involved. By joining forces and taking advantage of each other's strength, these institutions can create a sophisticated we, strong, flexible and responsive enough to find solutions to the global challenges currently being faced. 133

An Example Noor Al Hussein Foundation (NHF) has established Hweitat Weavers Society in Jordan where to begin with only 25 women were trained in weaving, dyeing and basic business management. The enterprise now employs 1200 women and supplies to the markets all over the world.

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A New Enterprise
As globalization is more about networks it needs to be perceived as an opportunity to gain from the unique wisdom of all its disparate parts. Difference is the essence of entrepreneurship. With productivity becoming detached from the physical resources, the uniqueness of each countrys contribution depends more on the distinctness of cultures and innovation of individuals. In fact, raw materials are human minds and the ideas are the products. An important irony of globalization is that small changes 135 can make big difference.

Small web sites can get the message out to the world. Micro financing can turn small farmers or craftsmen into entrepreneurs with global market. To ensure advantages of globalization reach everyone, two important things required are: (1) Communications technology, which is the infrastructure of information superhighway. (2) Education, which is the infrastructure of the human mind. What the governments and entrepreneurs must do? Make it a priority to address the challenges of meeting international standards in technology, education, and production to reap the full benefits of globalization.
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LDCs will not be able to meet these challenges without the support of the corporations and countries already leading in the globalization race. It needs to be emphasized that new global working capital is wealth of information such as technological expertise and intellectual property. Government and entrepreneurs need to have strong interest in promoting communications infrastructure to connect everyone to the global economy. Government and NGOs can work together to provide education, from village training programmes to comprehensive primary schools.
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Business and government can join forces to create cutting-edge universities, the breeding ground for new technology. As a consequence of the above, regardless of location on the map, everyone can become full participant in the global community and reap the benefits.

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Technology driven entrepreneurship


Challenges thrown by technological changes and globalization to marketers are to offer customized products for several small market segments, economically and efficiently; referred to as mass customization. The Internet is facilitating mass customization by processing the information quickly and efficiently. Internet is enabling companies to collect information and use it to make what the customers want at a fast pace. 139

Internet is also facilitating excellent customer relationship management and one-to-one marketing. Idtown.com, a Hong Kong based company sells wide range of watch designs, assembled from standard parts, at no extra cost. Dells website allows customers to choose their own configuration. Automobile companies like General Motors is looking seriously at the possibility of offering customized cars, using Internet. By reducing transaction costs the Net is ensuring that the size is no longer a critical success factor in globalization.
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The competitive advantages of a low-cost, knowledge rich enterprises have become critical success factors in the emerging global scenario. These enterprises need strong incubation for growth, harnessing innovative technologies and e business. University, Industry and Government are attempting innovative methods to create an environment for interchange of knowledge conducive to increased productivity and growth. It is increasingly being advocated that higher educational and research institutions should act as seedbeds for technological innovations and new 141 industrial ideas.

Indian Initiatives
India has a vast pool of Scientific and Technological (S&T) infrastructure with over 800 technical institutions including 200 universities. The estimated annual turnout of engineering graduates is around 0.2 million and in addition it has a critical mass of cutting edge research through 400 National laboratories, over 1300 in house R&D units in corporate and other sector. However, there is a lot of delay in commercializing of R&D outputs and in majority of cases the R&D outputs do not get commercialized for want of initial investment, 142 the needed environment and the networking.

In recent past, Ministry of Science and Technology, GOI, has initiated a number of programmes such as Science &Technology Entrepreneurs Park (STEP). A recently launched scheme is Technology Business Incubator (TBI), which is basically a mechanism promoted by DS&T in and around the academic institutions of excellence and selected R&D institutions for offering needed environment, networking and the linkages to promote technopreneurs.
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Other initiatives of DS&T include Patent Facilitation Cell and Drugs and Pharmaceutical Programmes Biotechnology Parks are being promoted by Department of Bio Technology (DBT). Various State Governments and other agencies in private sector are aiming for establishment of property based initiatives such as Info Park, Knowledge Park, Agro Park, Tidel Park etc and the incubators promoted by private industrial houses.
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Mechanism for promoting techno-entrepreneurship


(A) STEP concept The National Science and Technology Entrepreneurship development Board (NSTEDB) initiated the Science and Technology Park (STEP) programme in 1984 with the following objectives. (1) To forge a close linkage between Universities/ academic institutions on one hand and industry on the other.
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(2) To promote entrepreneurship among S&T persons. (3) To provide R&D support and other facilities to small-scale industries. (4) Generates conducive environments for sharing of ideas, experiences and facilities thereby opening up avenues for students, teachers, researchers, and industrial managers to grow in a trans-disciplinary culture. (5) Helps in understanding each others inputs for starting a successful economic venture. (6) STEPs are functioning in 15 locations primarily in engineering colleges and technical universities 146 throughout the country.

(7) Salient achievements include conversion of 750 S&T persons into job generators by way of starting industries, capital mobilization of Rs 500 million through promotion of new enterprises with estimated annual turn over of Rs 90 million. (8) STEPs have also been instrumental in development of 150 new improved products and commercialization of 80 products. (B) Technology Business Incubators (TBI) (1) TBI nurtures new enterprises that may otherwise fail due to lack of adequate support by reducing risks associated with the business. 147

(2) TBI helps in incubating knowledge based startups into sustainable businesses by providing guidance, critical support services, financing and affordable work space. (3) TBI aims to reduce the time lag between the development and the commercialization of new technology/idea. (4) Useful not only for new start up enterprises but also for an existing enterprise seeking to venture into a new product line or an upgraded technology/product line.
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(5) A TBI provides workspace with low cost office facilities and business and professional services necessary for nurturing and supporting early stage growth of technologies and technology based enterprises. (6) The services include modern communication and information services, access to R&D, testing, design and engineering facilities etc. (7) Other services provided by TBI may include business planning and managerial advice, finance and accounting, access to business networks, and legal services.
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A Few Objectives of TBIs


(1) NSTEDB has initiated establishing of TBIs around academic/R&D institutions in India with the following objectives: Catalyze development and growth of technology led enterprise. Speed up commercialization of technologies. Provide an interfacing and networking mechanism between Academic, R&D institutions, Industries and Financial institutions. Provide services to the tenant companies as well as to existing technology dominated small ventures.
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(2) (3)

(4)

Major Objectives of TBIs


Technology Commercialization: Most universities, R&D institutions and technical institutions like IITs/ BITS/ IISc have technologies, which have a potential to be commercialized. These institutions have a critical role in the supply of future business know how for industry. Economic Development: TBIs are tool for promoting new business. The underlying goal for supporting new business formation is economic 151 development through job generation.

Property Venture: TBIs create lucrative property based venture. Entrepreneurship Development: One of the main goals of technology incubators in developing economies has been the development of an entrepreneurial culture and the creation of small enterprise. - Incubators in the university premises can act as a training ground for entrepreneurs, especially the technopreneurs. R&D for Industry:Create awareness among academic institutions about the requirements of industry and reorient their research and development programmes to suit the need of the industry.
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Assumptions of TBIs
Strong R&D and technological capabilities in academic institutions and R&D organizations thereby associating R&D results with commercial potential and encouraging potential entrepreneurship among students and faculty. Potential technopreneurs including researchers, who are willing to translate their ideas/ high technology into products and services, are available. Strong linkages with academic and financial institutions.
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Local Economic Development Incubators


Established by local government/establishments with appropriate networking with financial institutions, marketing organization, and industry associations. ICICI Knowledge Park has been established in Hyderabad by ICICI Bank in collaboration with the State Govt. of Andhra Pradesh. WEBEL, a unit of West Bengal State Govt. has set up a state-of-art IT incubator. A number of incubators have been set up in and around Bangalore with a view to harness the skills of artisans and craftsmen and integrating the technological inputs/ knowledge. 154

Innovative Financing Mechanism


For speedy commercialization of indigenous R&D efforts and for supporting innovative ideas DST has created a Technology Development Board (TDB) in 1997. The other initiative include creation of Home Grown Technology (HGT) under the Technology Information Forecasting and Assessment Council (TIFAC). DST has also set up a National Innovation Fund for supporting grass root level innovations. Financial institutions have also introduced funds such as SIDBI venture fund; ICICI venture fund for supporting the knowledge based start-ups. In addition, privately managed venture capitalists and angel investors are also financing the start-ups having potential 155 for faster growth.

Creating Indian Entrepreneurs in Globalized Era


A recent Mckinsey & Company-Nasscom report estimates that India needs at least 8,000 new businesses to achieve its target of building a US$ 87 billion IT sector by 2008. In next ten years, 110-130 million Indian citizens will be searching for jobs including 80-100 million looking for their first jobs. This does not include disguised unemployment of over 50% among 20 million employed in rural 156 India.

Since traditional large employers including the government and old economy players may find it difficult to sustain this levl of employment in future, it is the entrepreneurs who will create these new jobs and opportunities. Knowledge based economy is fertile ground for entrepreneurs and considering an extraordinary talent pool in the country it is important to create right environments to develop successful entrepreneurs. The major focus should be on the following areas: (1) To create a handful of areas of excellence- the breeding ground where ideas grow into business such as Bangalore and Hyderabad for IT, Mumbai for Financial services, Gurgaon and Delhi for Retail, Lucknow for Biotech etc.
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(2) To build centres of entrepreneurial excellence in institutes that will actively assist entrepreneurs. (3) To ensure that Entrepreneurs have access to Smart capital . - Associations such as TIE are seeking to bridge the gap by creating a global support netwrk of angels willing to support young business. (4) To enable networking and exchange so that entrepreneurs learn from experience-theirs and that of others. (5) Each State Government to develop its own statesponsored venture funds, where a percentage of it will have to be invested in ventures in the state. (6) Finally, large companies to show interest in their entrepreneurship-intrapreneurship linkages. 158

Govt. of Indias Policy Perspective


Small enterprises, over a period of time, have emerged as the driver of economic development. Recognizing this GoI announced policy measures for promoting and strengthening small,tiny, and village enterprises on 6th August, 1991 for the first time in post-independence period. The primary objective of small-scale industrial policy during nineties was to impart more vitality and growth to this sector so that this sector can contribute in terms of output, employment and export. 159

The other objectives are: To decentralize and delicence the sector To deregulate and debureaucratise it. To promote small enterprises, especially industries in the tiny sector. To involve traditional and reputed voluntary organizations in the intensive development of Khadi and Village Industries through area approach. To industrialize backward areas of the country. To accelerate the process of development of modern small enterprises, tiny enterprises and village industries through appropriate incentives, institutional support and infrastructure investments. The total approach of new policy is towards creating an atmosphere conducive to the development 160 of entrepreneurship and technological progress.

Salient Features of New Policy Equity participation up to 24% by other industrial undertaking including foreign companies. Hike in investment for tiny sector from Rs 2 lakh to Rs 5 lakhs. Service sector to be recognized as tiny sector. Support from National Equity Fund for projects up to Rs 10 lakhs. Single window loans to cover projects up to Rs 20 lakhs. Banks to be involved too. Relaxation of certain provisions of labour laws.
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Sub-contracting exchanges be set up by industry association. Easier access to institutional finance. Factoring services though SIDBI to overcome the problem of delayed payments. Also, legislation to ensure payment of bills. Marketing of mass consumption items by National Small Industries Corporation under common brand name. Tiny sector to be accorded priority in govrnment purchase programme. Priority to SSIs and tiny units in allocation of 162 indigenous raw materials.

Compulsory quality control for products that pose risk to health and life. Legislation to ensure payment of small-scale industries bills. A special monetary agency to be set up for smallscale sectors credit needs. A technology development cell to be set up. Incentives and services package to be delivered at the district level. An export development cell to be set up. Investment limit of ancillary units and exportoriented units to be raised to Rs 75 lakhs.
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Thrust Areas of the Policy for Small Enterprises.


A. Payment Mechanism The new policy seeks to improve the payments mechanism and introduce legislation to enforce payments on time. This is to ensure that small industries do not get into the grip of the large buyer enterprises which may also control them through equity and technology. The new policy insists on industry associations to be involved in ensuring smooth payments by their member constituents to the weaker partners in the economic development. 164

B. Factoring Services Factoring has recently been introduced by the State Bank of India in Western India in collaboration with Small Industries Development Bank of India (SIDBI). Similar service has been set up in the South by Canara Bank in collaboration with SIDBI. At present, these factoring services accept only receivables against first rate large and medium enterprises. In this context, promised legislation to ensure prompt payment of bills will meet one of the acutely felt needs of small suppliers of goods and services to both private an public enterprises.
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C. Resources for SSIs An important change for the modern small-scale sector is the provision of additional finance by permitting up to 24% equity investment by other large industrial undertakings. This could encourage indirect ownership of small units by large corporate entities. To a substantial extent this exists today as companies trying to cut costs, outsource production to small units and also circumvent the reservation policy with regard to small units. In fact, the new policy legitimatize this activity and therefore needs to be questioned. 166

No doubt, there is a merit in encouraging ancilliarization as it promotes the greater use of labour-intensive techniques of production and also broad-bases entrepreneurship. But care should be taken that we do not encourage small-scale units which actually operate as a part of large industrial conglomerates while enjoying all the benefits meant for small-scale units. Is this aspect of policy meant to help small or large ones?
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C. Timely and Adequate Credit The new policy recognizes the fact that small units require timely credit and financing arrangement rather than cheap credit. The scope of single window clearance, which has been enlarged to cover project costs up to Rs 20 lakhs and working capital up to Rs 10 lakhs make things easier at the entry point. It will ensure that units once set up are allowed t function smoothly by timely provision of additional credit. However, policy is silent on methodology to ensure this. Setting up a special monitoring cell will of little help unless it has the powers to force commercial banks to lend the additional credit required. 168

D. Formation of Nodal Agency The Small Industry Development Organization (SIDO) has been recognized as the nodal agency to support the SSI in export promotion. Setting up of export development centre has been planned to further augment export activities of this sector. A technology development cell would also be set up in SIDO to provide technology inputs for improving productivity and competitiveness of SSI products. To facilitate location of industries in backward areas and to promote stronger linkages between agriculture and industry, a new scheme of integrated infrastructural development for small-scale industries would be implemented with the active participation of state governments and financial institutions.
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E. Marketing The National Small Industries Corporation (NSIC) would concentrate on marketing of mass consumption items under a common brand name. An export development centre would be set up in SIDO to serve the small-scale industries through its network of field officers to promote exports. F. Raw Materials Based on the capacity needs, tiny/ small scale units would be given priority in the allocation of indigenous raw materials. In addition, adequate and equitable distribution of imported raw materials would also be ensured for this 170 sector.

G. Quality Industry Associations would be encouraged and supported to establish quality counselling and other testing facilities. Technology Information Centres would be set up to provide up-to- date knowledge on technology and market. Compulsory quality control would be enforced. IITs and certain selected NITs and other engineering colleges would serve as technological information, design and development centres for the SSIs in their respective areas. 171

H. Missing Aspects The most regrettable feature of the new policy is the absence of any provision for restoring health and vitality to viable sick units. The policy is also silent about the future of young men and women, who staked everything that their parents or guardians could mobilize for setting up units which had to be closed down for bonafide reasons. While, in most industrialized countries, entrepreneurs whose units had to be closed, can start up again with financial support of institutions including commercial banks, in India, this is impossible.
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National Alliance of Young Entrepreneurs (NAYE) has, therefore, recommended that a statutory Board of Settlement or Board of Litigation be set up to arbitrate and decide as to the extent and manner in which an entrepreneur can be called upon to finally discharge liabilities decided by it. If banks and large undertakings, which are declared insolvent, can get away by paying only 10 or 15 % of their accepted liabilities, there s no reason why small entrepreneurs cannot be given similar benefits. The policy is silent on price preference to small-scale and tiny industries by Central, State Governments and Public sector enterprises.
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Tiny Sector
The policy statement gives a new thrust for the development of tiny enterprises which accounts for nearly 90 per cent of all small scale units. The investment ceiling has been raised from Rs 2 lakhs to Rs 5 lakhs. The tiny enterprises will be eligible for additional support on a continuing basis including easier access to institutional finance, priority in government purchase programme and relaxation from certain provisions of labour laws. 174

Handloom Sector
Substantial funds have been earmarked for modernization of looms, training, provision of better designs, provision of better dyes and chemicals and marketing assistance. Increase in the spinning capacity in the cooperative sector. National Cooperative Development Corporation will provide for more assistance in the form of seed money, for cotton growers, spinning mills and weaving units. The Janata cloth scheme which sustains weavers on a minimum level of livelihood to be phased out and new scheme to be introduced under which provision for financing and marketing assistance including exports through trading companies and department stores will be 175 made.

Cluster development, Technology support,


Infrastructure development and SSI associations related issues. Cluster Development State Governments to identify existing clusters and promote joint ventures between themselves/local authorities and business associations. Technological Support The Department of Science and Technology to initiate a scheme in the Ninth Five Year Plan to form 50 R&D associations with interested smallscale units as members, based around identified clusters and provide funding. 176

Another recommendation is to establish a National Research Institute to promote schemes for assisting technology up gradation and research and development for small enterprises. This institute would operate as networking institution and a clearing house for policy studies an technology issues that are raised by the small-scale industry. Infrastructure Development Private sector to be encouraged in the development of industrial parks. States to provide an opportunity by inviting private sector participation in up gradation and management of existing industrial parks.
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State Governments to set up State Industrial Parks Promotion Authorities (SIPAs) which would regulate the setting up of these parks an assist and negotiate with the private sector for their participation. SSI association related issues Dissemination of information/ advisory services through the centres which may be set up in collaboration with SIDBI/State Government particularly with the objective of tapping export potential of SSI sector. Formation of common facility at district/cluster level to help small units especially in respect of savings on costs. Setting up of companies to market products of member units, common testing centres etc.
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Small Industry Clusters In India


A. Tamil Nadu Artificial Diamonds (Tiruchirapalli), Hosiery (Tirupur), Leather (Chennai), Match Box/ Fireworks (Sivakasi), Engineering Industry (Tiruchirapalli), Agricultural Pumps (Coimbatore), Diesel Engines (Coimbatore). B. Haryana Automobile Components (Gurgaon/ Faridabad), Handloom (Panipat), Scientific Instruments (Ambala), Shoddy Yarn (Panipat),Nuts/Bolts (Rohtak), Mushroom Cultivation (Sonipat). 179

C. Uttar Pradesh Electronics (Noida), Sports Goods (Meerut), Brassware (Moradabad), Carpets (Badhoi), Glass works (Shikhohabad/Ferozabad), Hosiery (Kanpur), Leather (Kanpur), Leather footwear(Agra), Ceramic Industry(Khurja), Petha Sweets (Agra), Locks (Aligarh). D. Gujarat Petrochemicals (Vadodara), Brass parts (Jamnagar), Diamonds(Surat), Machine Tools (Rajkot), Readymade Garments(Ahmedabad), Chemicals (Vapi/Ankleshwar), Flooring Tiles (Morbi), Diesel Engines (Rajkot), Textiles 180 (Surat), Wall Clocks (Morbi)

E. Maharashtra Automobile Components (Aurangabad/Pune), Brass goods (Bhandara), Electronics (Pune/Mumbai)), Food Products (Pune), Ganesh Statues (Pen/Panvel), Kumkum(Kem-Solapur District), Readymade Garments (Mumbai), Beedi(Bhandara/Sinnar), Foundry (Kolhapur), Chappals (Kolhapur), Diesel Engines (Kolhapur), Power looms (Bhiwandi), Sarees (Paithan, Sarees power looms (Nagpur), Shipping industry (Malegaon).
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F. Punjab Agriculture Implements (Patiala), Automobile Components (Ludhiana), Electrical Fans (Ludhiana ), Machine tools (Batala), Hosiery (Ludhiana ), Shoddy Yarn (Amritsar), Sports Goods (Jallandhar), Woollen Shawls (Amritsar), Bicycle Parts (Ludhiana ), Diesel Engines (Phagwara), Sewing Machine Components (Ludhiana ). G. Delhi Hosiery, Readymade Garments, Stone Crushers. H. Karnataka Electronics (Bangalore),Food Products (Mysore), Silk (Mysore), Hand made Garments (Bangalore).
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I.

Rajasthan Handmade Paper (Jaipur), Lacquer Craft (Jaipur), Marble Cutting (Kishangarh), Screen Printing (Balhotra/Pali), Woollen Carpets (Jaipur), Cement(Sirohi), Gems&Jewellery (Jaipur), Oil Mills(Alwar), Spinning & Textile Processing (Bhilwara) J. Madhya Pradesh Readymade Garments (Indore), Engineering Industry(Bhopal) K. Andhra Pradesh Electronics (Hyderabad) L. Kerala Sea Food Processing (Coastal Kerala), Rubber 183 (Kottayam).

M. Himachal Pradesh Paper (Solan), Food Products (Kullu & Sirmaur), Woollen Shawls (Kullu), Light Engineering (Parwanoo), Textiles (Baddi Barotiwala-Solan), Cement (Sirmaur), Induction Furnace (Solan & Sirmaur). N. Assam Brass and Bell Metal (Hajo) O. Orissa Handmade Silver Jewellery (Cuttak), Handicrafts (Pipli), Tusser Silk(Sambhalpur).
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P. West Bengal Electric Fans (Kolkatta), Fishing Hooks (Bankura), Handlooms (Agar Purulia District),Hosiery (Kolkatta), Leather (Howrah), Wooden Handicrafts (Bankura), Foundry(Howrah), Locks (Howrah), Battery Units (Howrah).

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Entrepreneurial Opportunities in Service Industry


The complexity of services range very widely; from local beauty saloons to International Consulting Groups. Some rely mainly on individual skills of an entrepreneur and grow in accordance with the owners talent such as Music tutor. Many other enterprises grow through a service organizations that provide services for many customers in variety of markets such as a Chain of 186 Hotels.

Key Success Factors in Service Ventures Service enterprises face the same challenges as manufacturers with the exception of actual production. As service enterprises deal directly with the customers, they emphasis more on human resources. As most of the services have close contact with the customer therefore it is cucial to have good employee relations. During start-up phase an entrepreneur must establish sound policies for customer service and identify the critical success factors.

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The following are some of the success factors in service ventures Effective hiring and training Motivating employees in a growth environment Profit sharing and employee equity plans. Effective Human Resource Development- creating in employees a sense of excitement. Some of the business opportunities waiting to be to be tapped by potential as well as existing entrepreneurs are given below: A. Event Management With increasing affluence and disposable incomes, more number of people are trying to have elaborate events.
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The Event industry is using state-of-art technology and newer training opportunities are emerging. In India, currently Event Industry is worth Rs 500 crore and according to FICCI estimates it has a potential to cross more than Rs 4,000 crores in less than five years from now, emerging as a new growth industry capable of generating economic benefits and employment Organizing events also helps to generate investment, in building infrastructure, accessing new technologies and establishing business and professional contracts. Events also create employment through Direct and Indirect jobs in the form of Event organizers and managers, transport services, security services, catering management, sound and light technicians. 189

Indirect jobs like advertising , souvenir making, designing and printing of stationery, flower vendors, mehendi designers and so on thus creating employment for large number of people. B. IT Enabled Services Apart from traditional customer interaction centres newer internet based customer services like e-mail and web-chat response are becoming significant part of customer interaction services provided from India. Other business segments adding to the export volumes are medical transcriptions, financial and accounting services and Geographic information system.
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C. Courier Services Virtually, worldwide, an effective door-to-door courier service plays an important role in the success of any business. Courier services provide a vital link between the suppliers and the consumers and ring about a costeffective distribution of time-critical documents. With accelerated growth of global integration there is need for courier service that sets the pace especially in a country like India that is large, diverse and economically vibrant. Looking at the recent tends in the growth of Indian economy, courier services both in organized and 191 unorganized sector ensures a promising future.

D. Telecom Sector The mobile expansion is helping improve telecom penetration, bringing economic benefits of enhanced accessibility and at the same time generating employment and fostering a shift in investment to the private sector and consumers. As of now, 5000 tehsil towns and thousands of villages have been connected via optical fibre cables and it is this type of connectivity that is helping rural India open up economic activity and prosperity. The launch of private franchises for public call offices (PCOs) handling both domestic and long distance services.
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E. Insurance Sector The insurance sector is exposed to new challenges of competition and deregulation in the globalized era. In days to come, insurance industry will provide ample business opportunities to insurance brokers, agents, insurance surveyors who will provide indirect support to the industry. F. Travel and Tourism Services Tourism includes transportation, accommodation,food, catering, tour organizers like tour operators and travel agents. Tourism is the second largest foreign-exchange earner in the country today at Rs 14,000 crores annually, second only to gems and jewellery.
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The vast potential that this sector has to offer remains largely untapped because of delay in government granting concessions, poor infrastructure, and bad packaging of destinations in the country. In the year 2003 GoI has proposed a comprehensive tourist development package that will concentrate on improving infrastructure. A number of entrepreneurial opportunities exist in the tourism sector viz development of proper lodging and infrastructural facilities near the tourist spots so that the tourists who visit these places can have a comfortable stay.
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Quick Routes to Entrepreneurship


A. Ancillarization Acquisition Franchising Ancillary industries- How do we define? An industrial undertaking having investment in fixed assets in plant and machinery whether held on ownership or on hire purchase not exceeding Rs 100 lakhs and engaged in: Manufacture of parts and components, subassemblies, tooling or intermediates, and 195

Rendering of services and supplying or proposing to render or supply not less than 50% of its production or the services, as the case may be to one or more of the industrial undertakings for production of other articles. Ancillary units can also take up subcontracting as a part of their business activity catering to a large industrial undertaking. Major benefits are: 1. Growth of employment 2. Growth of GDP. 3. Growth of entrepreneurship.
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A few Examples 1. Public sector undertakings, under the guidelines of government, procure items from ancillary units and other SSI units. 2. Private sector units manufacturing automobiles, diesel engines, pumps, textile machines, plastic machinery and other industrial equipments, machine tools etc rely heavily on the supplies from their ancillary and subcontracting units. 3. Industries such as bicycle industry, sewing machines, machine tools, diesel engines, footwear, readymade garments source in large measures the parts and components from ancillary units for manufacturing end products and marketing under their own brand e.g. Bajaj for electrical appliances.
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Advantages of Ancillarization
Minimizes investments of setting up of large units as the required production can be sourced at lower rate with same quality through sub-contracting from an ancillary unit. Dedicated ancillary units with just in time concept helps the large companies to bring down the inventory level hence saves a lot of money. Sourcing from an ancillary unit is normally economical as the units are located in proximity to the company. Ancillary units also work along with parent company in the process and product design and development that is 198 an immense help to the parent company.

Disadvantages of Ancillarization
Delay in payment from the parent companies puts ancillary industry in big trouble. Sometimes, if parent company is very large,the ancillary company finds it difficult to take any legal action in case of delayed payments. When the parent companies revise the specifications, captive ancillary units are sometimes not given the expected support by the former for adopting the higher technology. Many times ancillary units are not given sufficient time to bring the necessary changes in technology to match 199 that of the parent company.

Sometimes , multiplication of suppliers by the parent company makes the ancillary units operate below break-even point. As a result these units incur losses because of capacity underutilization. Public sector enterprises insist on earnest money deposits/ security deposits from SSI units even though they are enlisted with NSIC (National Small Industry Corporation). Such practices put stress on the financial capability of some of the SSI units.

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Legal Aspects of Ancillarization


An important issue to consider is The interest on Delayed Payment to Small Scale and Ancillary Industrial Undertaking Act. Launched in 1993, the major objective of the same is to tackle the problem of settlement of dues from the companies. Amended to avoid delays in settlement of dues from larger companies.
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The amended act provides for: Change in the penal rate of interest from 5% to 150% of prime lending rate (PLR) of SBI. The agreed date of settlement of dues must not exceed 120 days from the date of acceptance of goods by the large companies. A mechanism of arbitration and conciliation to resolve disputes between the SSI supplier and the large scale buyer. - The arbitration council will be composed of Director of Industries, State Govt., and Representatives from bank, financial institutions, industry association and an expert from the industry having knowledge of industry and/ or 202 law.

B. Acquisitions-What is an Acquisition? - An acquisition is the purchase of a company or a part of it so that the acquired company is completely absorbed and no longer exists as a separate business entity. - It may become the core of the business or represents the needed capability such as a distribution outlet, sales branch or production facility. - However, an acquired business must fit in the overall direction, structure and strategic plan of the present business venture.
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Advantages of Acquisition
Invariably the acquired firm has an established image and track record and therefore an entrepreneur needs to continue the existing strategy. A well established customer base is ensured through acquisition. By acquiring a firm, the entrepreneur gets easy assess to well-established channel, sales structure, known suppliers, wholesalers, retailers and other representatives of the firm.
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Cost of acquiring a business can be lower than other methods of expansion. The employees of the acquired business can prove to be useful assets as they already have established relationships with customers, suppliers and other channel members and thus an entrepreneur can devote more time on assessing newer business opportunities or strengthening existing business.

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Disadvantages of an Acquisition
Ventures available for sale might have had an erratic, marginally successful,or even unprofitable track record. Sometimes, acquisition may result into loss of key employees that may have an adverse impact on the enterprise, as the value of the enterprise is often reflection of the efforts of the employees. Purchase price may be inflated due to due to the established image, customer base, channel members, or the suppliers. Due to high purchase price the return on investment may not be adequate and hence unacceptable.
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Factors influencing the Price of an Acquisition


One Person Management Poor corporate communication Insufficient financial/ managerial controls. Growth in sales with no increase in profits. Outdated and poor inventory management. Ageing receivables. No new product launches/ market development.
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Fixing the Price of an Acquisition


Assets Approach
The worth of the target enterprise depends upon the tangible and intangible assets of the business. - The assets valuation of the enterprise to be bought may be based on one of the three methods: (a) Book Value of assets- balance sheet method/ net worth approach. The value of the various assets given in the latest balance sheet of the firm is taken as worth of the assets.
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From the total of the book value of the assets, the amount of external liabilities is deducted to find out the net worth of the enterprise. This is the value of the business without considering the goodwill. Demerits The assets valuation is based upon the historical values and costs which may be irrelevant at present e.g. in case of land and building , the present cost may be much higher than the historical values appearing in the balance sheet.
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Book Value of a Business Assets Fixed Assets Plant & Equipment

Value in Rupees

50,00,000

Less Depreciation

12,50,000
37,50,000

Current Assets
Inventory, Receivable & Cash Total Assets Liabilities Long term liabilities (Term Loan) 20,00,000
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25,00,000 62,50,000

Current Liabilities

Value in rupees

A/c payable

5,00,000

Total Liabilities

25,00,000

Net Worth

(62,50,000- 25,00,000)

Book Value of Business

37,50,000
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(b) The Adjusted Book Value Method The book value is not a fair value for buying or selling a business as all tangible assets are required to be evaluated so as to correct the inaccuracies in the book of accounts. There could be unrealistic depreciation, bad debts, and write offs (uncollectable and overdue payments). Inventories may be overvalued because of slow moving and obsolete stocks. Allowances due to poor quality, and breakages should also be considered. Book value of plant and equipment needs to be adjusted to reflect their real valuation.
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For instance, a poorly maintained machine may be worth much less than its book value and an old machine having nearly zero value in the books may have a useful life residual life of several years. Facilities like land and building that are depreciated in the account books often appreciate in real life. Thus, the book values of assets and liabilities are adjusted so as to reflect reflect their realizable value. The value of total assets is increased by adding the value of intangible assets, namely goodwill. The valuation based on adjusted book value gives the current and close approximation of the worth of the target enterprise.
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Adjusted Book Value of a Business Unadjusted book value of the business (Plus) Increase in the value of plant and equipment (Less) Provision for unsaleable inventory (Less) Provision for bad debts Adjusted book value of the business

Value in Rupees 37,50,000 30,000 2,00,000 2,50,000

33,30,000
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(c) Selected assets Method Herein, the buyer selects only those assets of the seller that he believes are needed. The unwanted equipments and inventories remain with the seller. Similarly only those of intangible assets like particular patents or goodwill that are needed by the buyer are considered. Thus, only a part of the target business and not all of it is evaluated.
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Earnings approach The target enterprise can also be valued on the basis of its earning capacity. With reference to the funds invested in the business to be bought, the enterprise value will have a positive correlation with the profits of the enterprise. The profits of the enterprise can either be past profits or future expected profits. Obviously,future expected profits are preferred as the entrepreneurs interested in buying in an enterprise are interested in its future potential. Thus, future expected earnings of buy-in gives a better enterprise valuation.
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Two traditional methods of fixing the price of an enterprise base on earnings are: (a) Multiple of Earnings Used to capitalize net income by multiplying the net income by a factor. The multiplier factor combines the risk perception, future earning potential, and returns expected by the entrepreneur. The factor is low for the businesses that are considered risky, and have a low potential for growth and hence the entrepreneur wants the pay back in short period. - For instance, if the valuation multiple is 3 it means that business has low growth, is considered risky and the entrepreneur expects to recover his investment in 3 years.
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On the other hand, if the multiplier is 8, the business is considered as less risky with high potential for growth and entrepreneur will be satisfied if investment is recovered in period of 8 years. - Expert analysts and accountants use specialized techniques to fix the multiplier. Entrepreneurs choosing this approach use either of the two methods: (1) Capitalizing profits, or (2) Personal returns. The capitalizing profits is a popular method for evaluation of the business. Traditionally, profits (after tax) of the last year or the average profit of several previous years are 218 considered.

The limitation is that the profits are historical and ignore changes in the business environments. The other approach is to use projected profits for next several years which again has a limitation in determining the future profits particularly at a stage when the entrepreneur has not yet taken over and developed a complete understanding of the enterprise and business. Limitation of the capitalizing profits method It considers the buy-in of the venture from an investors point of view and not that of an entrepreneur. 219

Personal return method Considers the buy-in from the perspective of an entrepreneur. Distinguishes between the business earnings that of an entrepreneurs. Relates the total income which the entrepreneur receives from the buy-in (including salary, dividends, interest, perquisites etc.) to what he personally invested and not the total cost of the buy-in as explained that follows.
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Example A person buys an enterprise for Rs 5 lakhs which is financed as stated: Equity of Rs 3 lakhs and loan of Rs 2 lakhs. The entrepreneur sells 50 per cent of the stock to friends and relatives at a premium of Rs 5 and thus collects Rs 2.25 lakhs for 50 per cent share capital and is required to put in Rs 75,000 for personal 50 per cent stake. The entrepreneur also advances loan of Rs 2 lakhs to the business at 15 per cent. He earns a salary of Rs 20,000 per month and avails perks, like provident fund, car, telephone and club membership, valued at 50 per cent of the salary. His return can be calculated as: 221

Salary per annum


Perks per annum Annual interest on term loan of Rs 2 lakhs @ 15% Total Annual Income

Rs 2,40,000
Rs 1,20,000 Rs 30,000 Rs 3,90,000

Entrepreneur Investment
Equity Loan Total Investment Personal Return Personal Investment Personal return on investment Rs 75,000 Rs 2,00,000 Rs 2,75,000 Rs 3,90,000 Rs 2,75,000 3,90,000/275,000
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=141.81% per year

The capitalization of profits emphasizes on the after tax profits of the total business investment. Personal return method stresses the entrepreneurs personal return expressed as a percentage of personal investment. (b) Discounted Cash Flow Method Also called present value method as it uses net present value (NPV) technique to set the price of the enterprise based upon its future earnings. The expected future earnings are discounted to reflect their present value.
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The process involves:

(1) Estimating the future cash flow i.e. (profit after tax+non cash expenses) (2) Find the total present value of all these cash flows by discounting at an appropriate rate. (3) The liabilities of the target enterprises are treated as outflow at time zero and are deducted from the present value of all future cash flows. (4) The balancing figure is the NPV of the enterprise and is maximum purchase price which an entrepreneur should pay for the buy in. Maximum Purchase Price= ni=1{ Ci (1+ki)i} - L Ci=Cash flow over different years, L= Current value of liabilities and k= Approximate discount rate.
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Locating Acquisition Candidates


Professional brokers similar to estate agents representing sellers find buyers though referrals, advertising or personal contacts. The other sources may include accountants, attorneys, bankers, business associates and consultants. Quite often the information is obtained through Business Opportunities in classified sections of newspaper or trade magazines. Merits/Demerits are (a) The parties will be unknown, and (b) Probably, the units can be acquired at a lower cost.
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A constructive decision by thorough information gathering, consultation with advisers & experts and initial screening is taken to locate the right acquisition candidates. ( C) Franchising- How do we define franchising? An arrangement whereby the manufacturer or the sole distributor of a trade marked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.
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The participants in the franchise system are:


1. The franchiser, who lends his trademark/trade name and a business system, 2. Franchisee, who pays a royalty and often an initial fee for the right to do business under the franchiser's name and system. Types of Franchising 1.Product franchising Selling of the finished goods by mere display of goods, thereby facilitating easy accessibility of the product to the customer and the actual sales 227 transaction, without any value addition.

2. Process Franchising Outlets are permitted to use the brand name, formulations and the business processes of the franchiser. The company generally patents the process and the formulation 3. Business Format Franchising The name, the method of doing business and knowledge of managing the outlet are transferred with effective follow up mechanism by the franchiser.
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Advantages to the Franchisee


Entrepreneur does not have to incur all the risks that are often associated with starting a business from scratch. The franchisee usually enters into business that has an accepted name, product or service and the franchiser provides managerial assistance on need basis. Each new franchisee is often required to undergo a training programmes on all aspects of operating franchise. Some franchisers require new franchisee to work with an existing franchise owner or at a company owned facility to get on the job training.
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Toll free numbers are provided so that the franchisee can ask questions at any time. Local officers of the franchiser regularly visit the franchisee to offer advice an keep track of the development. Franchise arrangement offers an opportunity to start a new venture with up front support thus helping the entrepreneur significantly. Some franchisers conduct location analysis and market research of the area where they want to start franchise thereby reducing the risk for franchisee to a large extent. 230

Sometimes franchisers also finance the initial to start the franchise and support in terms of lay out, procurement and inventory control resulting into substantial savings for the franchisee. Franchisers also identify suppliers who generally meet the quality standards. In some cases franchisers themselves supply to franchisee, in addition to providing administrative controls involvin costs, inventory, cash flow, personnel, training and development to ensure consistent service to the customers. These details are outlined in the manual supplied to franchisee on entering into a contract.
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Advantages to the Franchiser


Franchiser can expand a venture quickly nationally or even internationally, with little capital by authorizing and selling franchise in certain selected locations. Franchised business requires fewer employee thus allowing franchiser to maintain low payrolls, and minimum personnel issues. Many franchisers produce parts, accessories, packaging and raw materials in large quantities and in turn sell these to franchisees at a lower price. The biggest cost advantage of franchising is the ability to commit large amount of money to advertising because each franchisee contributes a certain percentage 232 of sales to the advertising pool.

Disadvantages of Franchising
Many times the franchiser is unable to provide services and advertising support. In the event of noncompliance to the terms of franchise agreement , franchisee may be left without any support. Franchisee may face a problem when a franchiser fails or bought out by another company. Franchiser may find it difficult to find a quality franchisees. 233

Information an Entrepreneur should seek from a Franchiser


Financial statements of the franchiser for at least three previous years. Initial franchise fee and other payments including security deposit that may be payable. Item wise estimate of franchisees initial investments i.e. opening inventory, working capital, fixed assets, real estate expenses, furnishing, dcor etc. Royalties and profit sharing arrangements. Audited performance data e.g. sales volume, costs and profits.
234

A list of names and addresses of other franchisees. Support services to be provided by the franchiser i.e. training of staff, merchandising and advertising programmes, equipment purchase or lease options, on site consultancy etc. Details about the agreements including legally binding documents that the parties are required to sign.

235

Guidelines used for the assessment of franchiser


The profile of the franchiser and its affiliates and their business experience. Business experience of each of the franchisers officers, directors and management personnel responsible for franchise service, training, and other aspects of franchise programmes. The lawsuits in which the franchiser and its officers, directors and management personnel have been involved. Any previous bankruptcy in which the franchiser and its officers, directors and management personnel have been involved. 236

The initial franchise fee and other initial payment that is required to be obtained from the franchisee. The continuing payments that franchisees are required to make after the franchise offer. Any restrictions on the quality of goods and services used in the franchise and from where they may be purchased, including restriction requiring purchase from the franchiser or its affiliates. Any assistance available from the franchiser or its affiliates in financing the purchase of franchise. Restrictions on the goods and services, that 237 franchisees are permitted to operate.

Any restrictions on the customers with whom franchisees may deal. Any territorial protection that will be granted to the franchisees. The condition under which the franchise may be repurchased or refused renewal by the franchiser, transferred to the third party by the franchisee and terminated or modified by the either party. The training programme provided by the franchiser. Any assistance in selecting site for the franchise that will be provided by the franchiser. 238

Statistical information about the present number of franchisees, the no. of franchisees projected in to future, the no. of franchises terminated, no. of franchises decided not to renew and no. of repurchased in the past. The financial statement of the franchiser. The extent to which the franchiser may personally participate in the operations of the franchise. A statement of earnings achieved by the existing franchisees. A list of the names and addresses of other franchisees.
239

Contents of Franchise Agreement


Requirements and obligations of the franchiser. Territory coverage. Length of contract. Initial price of the franchise, schedule of payments, and royalties to be paid. Requirement for the termination of the franchise. Provisions indicating what would happen when franchisee becomes disabled or dies including provision made for the families. Provision for obtaining fair market value for the franchise in the event the franchise is sold. 240

Franchise- A Relationship with a trade-off.


The franchiser gives up his precious assets, the brand. Franchisee forgoes his independence and right to operate alone. The stakes on both the sides are high. It is the implicit trust that is the corner stone of the relationship between the franchiser and franchisee.
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Rural Entrepreneurship
According to Khadi and Village Industries Commission (KVIC) Village Industry or rural industry means any industry located in rural area, population of which does not exceed 10,000 or such other figure which produces any goods or renders any services with or without the use of power and in which the fixed capital investment per head of an artisan or a worker does not exceed a thousand rupees. GoI has modified this definition and included any industry located in rural area; village or town with a population of 20,000 and below and an investment of Rs. 3 crores in plant and machinery.
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(a) (b) (c) (d) (e) (f)

The investment limit has been lowered to Rs 1 crore and with the wider definition a total of 41 new village industries have been classified into the following six categories. Service industry Textile industry including khadi Light Engineering industry Mineral base industries. Forest base industries. Agro-based industries
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Benefits of Rural Entrepreneurship


Provide employment opportunities, improve economic condition and raise production in rural areas. Being labour intensive ensure decentralization economic power and eliminate monopolistic exploitation. Provide scope for the promotion of artistic achievement and creativity. Leads to development of rural areas thereby reducing infrastructural pressure and pollution in large cities. Improves network of well knit industries and reduces cost on account of distribution and other overheads.
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Importance of Rural Entrepreneurship


Rural Industries have the capacity to correct the regional imbalances by initiating industrial activities that are geographically widespread. Rural industries require much less gestation period, less overheads and produce goods of common necessities. Being small/tiny maximum participation is ensured thus developing a feeling of involvement. Key to rural development and prosperity thereby contributing in the process of socio-economic transformation of rural areas. Maximum participation of women folk can be ensured.
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Predominantly use manual labour and hence require less capital investment.

Characteristics of Cottage Industries

Borrowed capital is relatively insignificant and the availability of institutional finance negligible.
Being more labour intensive , tangible assets of these units are limited. Management and maintenance of records are rather poor. Produce mainly traditional goods with old techniques.

Cater to the needs of local market.


Derive raw materials from local sources and market is local in character. 246

Financial Assistance Scheme


A. Consortium Bank Credit (CBC) Scheme. Where the investment for project is in excess of Rs 1 lakh the project reports submitted by the entrepreneurs are scrutinized from technical point of view and if the project reports are found viable, the guidelines for financial assistance is given by KVIC as under For individual entrepreneur the limit of investment for the project is Rs 10 lakhs. The limit for societies is Rs 25 lakhs. The beneficiary has to bear his stake in the project @ 10% of total investment in the project.
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Schedule Castes/schedule tribe, women entrepreneurs, minority segment, ex-servicemen, an handicapped are given concessions in investment and they should invest 5% of total investment in the project. Interest free loan @25% of investment in the project is granted by way of margin money where total investment does not exceed Rs 10 lakhs by KVIC. Reserved categories as mentioned above get 30% margin money from KVIC funds. The amount granted under CBC scheme is to be repaid within 5 to 7 year after the expiry of moratorium period of 1 year.
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Margin Money Scheme through Local Banks


Assistance granted under CBC scheme is disbursed through Nationalized banks or sponsored by the commission. The application has to be submitted to the bank through district office of the commission. The district office of the commission will forward these applications with the recommendations to the local banks. The beneficiary is expected to invest 5-10% contribution and the remaining 90-95% amount of the project is sanctioned and disbursed by the local bank.
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After the disbursement of 90-95% loan to the beneficiary, bank shall claim for margin money at 3035% of the total cost of project. The claim will be made with the Khadi Commission. After receiving the amount of margin money from Khadi Commission, bank shall credit the said amount in time deposit. The interest payable on time deposit shall be adjusted with the interest to be paid on loan granted to the beneficiary. On repayment of 65% of loan amount in stipulated period, 25-30% of margin money shall be converted into grants and shall be credited to the loan account of the beneficiary towards recovery of last installment.
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Rural Employment Generation Programme (REGP)


On the recommendation of the GoI, KVIC has launched a massive REGP on 2nd October, 1994 for generation of employment under KVI sector in rural areas of the country. The eligible agencies under the scheme are (a) Individuals for projects up to Rs 10 lakhs. (b) Institutions, cooperative societies, trusts for projects up to Rs 25 lakhs.
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(c) In case of weaker section beneficiary viz. SC/ST/OBC/Women/ Physically handicapped/ Exservicemen and minority community beneficiary/ institution and for hill, border and tribal areas, northeastern region, Sikkim, Andaman and Nicobar Islands, Lakshadweep; margin money grants will be at the rate of 30 percent of the project cost up to Rs 10 lakhs. (d) Under the scheme, the borrower is required to invest his own contribution of 10 per cent of the project cost. (e) In case of SC/ST and other weaker sections borrowers, the beneficiary contribution will be 5% of the project cost.
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Presently, KVIC is implementing REGP through Public Sector Banks, Regional Rural Banks sponsored by Nationalized Banks and on selective basis through Cooperative Banks and Private Sector Scheduled Commercial Banks. In order to promote REGP and to ensure wide publicity workshops are being conducted at State/ Regional/ District levels. The commission has also provided funds for promotional activities under REGP to all State/UT level KVI Boards.
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Social Entrepreneurship
While a business entrepreneur may thrive on competition and profit, a social entrepreneur has a different motivation. A commitment to leading through all the segments of society and a dedication to changing the systems and patterns of society. Social entrepreneurs are driven by creative individuals who question the status quo, exploit new opportunities and their ultimate goal is to remake the world for better. These entrepreneurs thrive on challenges related mainly to health, education, labour conditions or human rights.
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Definition of Social Entrepreneurship


The factors that define social entrepreneurship are: - Adopting a mission to create and sustain social value, not just private value. - Recognizing and relentlessly pursuing new opportunities to serve that mission. - Engaging in a process of continuous innovation, adaptation, and learning. - Acting boldly without being limited by resources currently in hand. - Exhibiting a heightened sense of accountability to the segments served and for the outcomes created 255

ASHOKA - A global organization that identifies and invests in leading social entrepreneurs, describes social entrepreneurs as one who combine the pragmatic and result-oriented methods of a business entrepreneur with the goals of a social reformer. Thus, social entrepreneurs are people who bring about the social change. - For instance, Dr. Verghese Kurien, founder of Amul Dairy Project, is the classical example of a social entrepreneur in India. - He has revolutionized the diary industry by creating a distinctive supply chain and business proposition culminating in White Revolution. - The drive was social, and the result was a unique and sustainable business model. 256

Evolution of Social Entrepreneurs


Social entrepreneurship has been in existence ever since human beings formed communities. Concept of social entrepreneurship has become more significant with the economic boom and the governments inability to solve social problems. By playing an important role in the social, political and economic growth of poor and marginalized groups, social entrepreneurs have transformed the lives of thousands of people across the globe.
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Difference between Social Entrepreneurs & NGOs.


Social entrepreneurs are focused on outcomes while NGOs are wedded to the process. The task of a social entrepreneur is to recognize where a part of the society is stuck and to provide new ways to solve the problem by changing the system, spreading solution and persuading the entire society to take new routes. For example, social entrepreneurs are not satisfied just to teach how to educate slum children, they will not rest until they have revolutionized the primary education industry so as to reach the poor children. 258

Social entrepreneurs undertake both public and private sector functions and work along with people whom the governments have been unable to reach effectively, with basic goods and services. They address market failures effectively by providing access to private goods and services to markets where business does not operate because the risks are too high and rewards are very low.

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Business Models
Social entrepreneurs cannot be classified easily into either the non-profit or for-profit activities. Though more and more social entrepreneurs are being formed as for profit organizations, most are still considered as non-profit organizations. Many social entrepreneurs focus on combining commercial enterprises with social impacts by using business skills and knowledge to create enterprises that accomplish social purpose in addition to being commercially viable. Mission related impact becomes the central principle becomes the central principle, not wealth creation. Wealth creation is just a means to an end. 260

Social entrepreneur differs from traditional entrepreneur in two important ways: (1)A social entrepreneurs earned income strategies are tied directly to his mission and services that directly impact on a specific social cause. (2)Unlike traditional entrepreneur who is measured by financial results only, the social entrepreneur is driven by both financial and social results. - Profitability is still a goal , but not the only goal. - Profits are reinvested in the mission rather than being distributed to the shareholders. 261

Different School of Thought


One school of thought is every entrepreneur is a social entrepreneur. A successful entrepreneur creates wealth and without wealth there is no surplus capital to turn over to charitable activity. Being an entrepreneur means being high risk taker, but a high risk of failure would be the last thing that many non-profit organizations need.
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Ashoka- A Force Behind Social Entrepreneurship


Backed by Ashokas efforts, social entrepreneurs are working together with privileged business and political organizations across the globe. Some of the top social entrepreneurs are: (1)Freeplay- a company dedicated to the spread of cheap, sustainable energy for all. (2)Benetech Initiative- a non profit organization that makes technology available to disadvantaged communities. (3)OneWorld Health- works with Gates Foundation to make low-cost drugs available in poor countries.
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Leading Social Entrepreneurs


Organization Jeroo Billimora Somsook Boonyabancha Peter Eigen Oded Grajew David Green Alice Tepper Marlin ChildLine India Foundation Community Development Institution Transparency International Institutional ethos Project Impact Social Accountability International Nationality India Thailand Background Children's rights Land rights

Germany Brazil United States United States

Anti-corruption Citizen sector Public health Labour


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A New Breed of Entrepreneurs


As social entrepreneurs closely work with community group, they have the trust of local people and by joining these new-class entrepreneur, companies can easily reach the untapped markets. In customer driven environments, companies are discovering that consumers expect them to pay some regard to the social effects of their operations. Social entrepreneurship is also expected to bring about productivity improvement by bringing public, private sector as well as non-profit organizations.
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Challenges Ahead
Government has a crucial role to play in supporting social entrepreneurs by providing better fiscal and legislative environments and eliminating cumbersome regulations. Government and its foundations must provide medium to long term funds required by social entrepreneurs. Even venture capital firms dedicated to investing in portfolios in business can deliver commercial solutions to social problems. 266

Conclusion
Across the globe, more and more social entrepreneurs are solving the problems where bureaucracies have failed. Social entrepreneurs are seen as the ones causing a social change. Businesses that proactively understand and engage in social issues will benefit most as they can easily identify the path for creating values from the opportunities and also the risks arising from socio political issues. 267

Organizations Involved in Entrepreneurship Development Programmes There are around 700 organizations which are engaged in conducting EDPs in the country and these can be classified a under: A. National Level Organizations Entrepreneurship Institute of India (EDII), Ahmedabad- Training the trainers. National Institute of Entrepreneurship and Small Business Development (NIESBUD, New Delhi- Training the trainers.
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State Bank of India (SBI). Khadi and Village Industries Commission. Management Development Institute (MDI), Gurgaon. Technical Teachers Training Institutes. B. State Level Organizations All Districts Industries Centres Small Industry Service Institute Technical Consultancy Organization Centre for Entrepreneurship Development State Financial Corporations Small Scale Industrial Development Corporation.
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C. Non Government or Voluntary Organizations National Institute for Motivation & Institution Development (NIMID), Mumbai Indian Council for Women International Centre for Entrepreneurship and Career Development National Alliance of Young Entrepreneurs (NAYE). Association of Women Entrepreneurs of Karnataka (AWEK).
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Centre for Rural Entrepreneur Development, Ranchi Association of Women Industrialists and Entrepreneurs of Maharashtra (WIMA). Xavier Institute of Social Services. Indian Institute of Youth Welfare. National Entrepreneurs Chemical Park, Mumbai D. Educational Institutes Several educational institutes at school and university level have introduced courses on entrepreneurship across the country.
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Focus of National Organizations viz. EDII and NIESBUD


Institutional entrepreneurial activities. Generating, consolidating an sharing knowledge though research and publications. Creating and developing professionals in the field of entrepreneurship. Developing new products and pursuing market segmentation for carrying the entrepreneurship development in priority areas and section of 272 people.

Focus of State Level Institutes viz. CEDs


To provide grass root support of human resources to state level organizations engaged in entrepreneurship. To provide guidance in business opportunities, project counseling and conduct seminars and conferences for training of entrepreneurs.
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Management Development Institute (MDI)


MDI has been sponsored by IFCI in 1973 and was established at Gurgaon near Delhi. Primarily involved in improving managerial effectiveness in industry or government and banking sectors of economy. Research studies undertaken by MDI are both in Macro areas of economic and industrial development as well as micro areas relevant to 274 specific industry or economic activity.

MDI conducts Management Development Programmes for the officers of Indian Economic Services, Indian Administrative Services and for the executives of PSUs like ONGC, BHEL, ECGC, Bureau of Indian Standards, UPSIDC, MPFC etc.. MDI has been regularly conducting programmes on identification, promotion and implementation of industrial projects particularly catering to the officers of District Industries centres, State level Promotional and Financial Institutions and Commercial Banks etc.

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Specific Programmes conducted by MDI


Strategic Planning New product Development Marketing & Sales. Strengthening of short-term credit system. Management consultancy. Development Banking Labour management relations. Human resource development.
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Evaluation of small industries financing performance. Role of Directors. Merchant Banking. Leasing. Working capital financing. Technology transfer. Recovery practices of financial institutions.

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Consultancy and Research Wings extensive of MDI have done extensive work in areas like Corporate planning Evaluation of appraisal system. Feasibility studies Job structuring. Management Information System. Manpower Planning. Capital Markets. Seed Capital. 278 Relevance and assessment of technology.

The National Institute of Entrepreneurship and Small Business Development (NIESBUD)


The Delhi based NIESBUD, established by GoI is an apex body for coordinating and overseeing the activities of various institutions and agencies engaged in entrepreneurial development. The objectives are: To accelerate the process of entrepreneurial development throughout the country and among all segments of the society. To help or support institutions & agencies in carrying out activities relating to entrepreneurship development 279 with greater success.

To evolve standard process of selection and training enabling entrepreneurs to set up and run their enterprises successfully. To provide information support to trainers involved in entrepreneurship development. To provide forums for interaction and exchange of experiences. To act as a catalyst in ensuring the effectiveness of all organizations engaged in promoting the self-employment and entrepreneurship in the country.
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Functions of NIESBUD
To serve as an apex national level institute. To organize and conduct training programme. To coordinate the training activities of various institutes and organizations in the country imparting training in entrepreneurship. To identify, train and assist potential entrepreneurs amongst technical and nontechnical personnel in setting up self employment ventures in small industries including service industries. To undertake research in the field of entrepreneurship and small business development.
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To conduct workshops, seminars and conferences etc. for promotion and development of entrepreneurship in small scale industries and small businesses. To publish relevant literature for furthering the cause of entrepreneurship and small business. To provide a forum for interaction and exchange of views with different agencies engaged in various aspect of entrepreneurship in small industries and small business development.
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Entrepreneurship Development Institute of India- Features


Has developed an experimental EDP for women keeping in view their special needs. Carried out experiments in rural entrepreneurship development in a cluster of villages of U.P. and Orissa in collaboration with a voluntary organization. Has developed a video cassette on focussed behaviour interview technique for assessing entrepreneurial potential. Offers its services to Sri Lanka, Nepal, Kenya, Ghana and other African Commonwealth Countries.
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Institute of Entrepreneurship Development


Has been set up by IDBI in association with banks and the State Governments in Uttar Pradesh,Bihar, Orissa, and Madhya Pradesh. The functions are: Besides training state level trainers it conducts programmes on motivation,business opportunity guidance and project counseling for women. Conducts entrepreneurial awareness workshop for exservicemen, state level meet of EDP conducing agencies. In Orissa it has conducted a lecture-cum-discussion seminar on Problems an Prospects of Indo-US Trade and Investment.
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Have done a remarkable job in the following areas. Development of unique technology for automatic wire length measurement system. Import substitution of stainless steel wire screen. Preparation of project of elected imported drugs. Development of technology for hi-tech paints for nuclear applications. Development of fibre reinforced concrete and plastic components.
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Science and Technology Entrepreneurs Parks (STEPs)

Centre for Entrepreneurship Development (CED)-Features


The State Government and the public sector corporations have sponsored CED, Ahmedabad. Conducting survey of investment opportunity by identifying industries having good scope in the area. Developing linkages with various agencies providing support and services to entrepreneurs in getting finance, readymade sheds, raw materials and other inputs.
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Selection of entrepreneurs through behavioural tests. Arranging for visits to industrial units consistent with items identified by the entrepreneurs. Follow up action for each entrepreneur.

287

The Entrepreneurial Motivation Centre


Set up in Assam,the centre acts a link agency helping entrepreneurs from Northeastern region of India. Helps obtaining finance from banks and other institutions. Obtaining readymade sheds as working space. Providing 10% of sanctioned amount as a seed money wherever necessary.
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The Xavier Institute of Social Service


Set up in Ranchi for training tribal and people from villages to become entrepreneur. Entrepreneurs are trained in conducting market surveys and prepare project proposal for financing. A continuous follow up by the project officer is ensured.
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Role of Development Banks


Providing equity assistance to the new and technically skilled entrepreneurs who lack financial resources of their own, by giving seed capital. Carrying out industrial surveys. Identification of potential entrepreneurs. Conducting EDPs Providing technical consultancy services.
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SIDBIs Strategy for Entrepreneurship Development


Involves support to Rural poor Women Scheduled castes and tribes. Ex-servicemen Thrust is on promoting rural entrepreneurship by compiling project profiles on viable project ideas suitable for tiny and rural entrepreneurs such as food processing and agro-based industries. 291

Role of Commercial Banks


State Bank of India (SBI) has formulated number of schemes, as mentioned below, catering to the needs of small-scale sector. Liberalized scheme of financing small-scale industries wherein 75% of the project cost is met as a bank loan. Scheme for financing technically qualified persons where entire project cost is financed by way of term loan. Equity fun scheme for providing interest fee loan to meet the gap up to Rs 1 lakhs. 292

Role of National Alliance of Young Entrepreneurs (NAYE)


Pioneer in promotion and development of entrepreneurship among women. Assists women entrepreneur in Getting better access to capital, infrastructure and markets. Development of management and production capabilities. Identifying investment opportunities. Attending to problems by taking up individual cases with appropriate authorities. Sponsoring delegations, participation in trade fairs, exhibitions, buyer-seller meet, specialized conference. 293

Organizing seminars, workshops, and training programmes for giving them wider exposure to available facilities and developing their entrepreneurial capabilities. Lobbying for them in Press, Parliament, State legislatures, and other forums. Advocating effectively for securing their rightful place in Indian economy.

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Phase of Entrepreneurship Development


Initiation Phase: Creating awareness about the entrepreneurial opportunities. Development Phase: Imparting thorough training programmes in developing motivation and management skills. Support Phase: Supporting in terms of counselling, encouragement, and infrastructure for establishing and running the enterprise. For the success of the project the man behind the project is more important than the fixed assets; so that development and training of the entrepreneur is 295 extremely important.

Non Financial Support.


Industrial and Technical Consultancy Organization Limited (ITCO), a subsidiary of IDBI has been conducting EDPs with the following objectives: Assess and develop entrepreneurial abilities. Dissemination of information on the various procedures and documentation to b followed for starting small scale industries. Guidance in selecting projects suitable for different trainees based on their investment, educational background, technical expertise, 296 proficiency, aptitude etc.

Acting as a liaison between various officers or organizations engaged in industrial industrial promotion activities in the State and trainees for availing necessary facilities available for these projects. Dissemination of information on how to plan and manage a small-scale industry successfully.

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Legal Framework for Starting a Small Scale Industrial Unit


Registration Procedure for SSI
Small-scale industrial units are required to be registered with the State Directorate of Industries/ District Industry Centre. The registration entitles them to obtain certain facilities from the Government like quota of raw materials. Stages of Registration Provisional registration can be obtained before a unit is actually set up and is valid for six months subject to renewal thereafter. Permanent registration can be obtained after the 298 commencement of production.

Separate forms have been prescribed for provisional and permanent registration. Application form for provisional registration is filled in duplicate. One copy, duly endorsed, is given to the applicant. The other copy is retained by the district industries centre/ registering authority for record. Application form for permanent registration is filled in triplicate. One copy, duly endorsed, is given to the applicant. The second copy is retained by the DIC/ registering authority for record and the third copy is forwarded to the director of industries to facilitate maintenance of consolidated records in a computerized data base. Both the forms are computerized and the codes are filled in by the officers of registering authorities. 299

The filled in application form, duly endorsed in case of both provisional and permanent registration is a part of the registration certificate. Units are expected to retain the whole form along with the certification to constitute the registering certificate. The registering authority will visit once a year, all small-scale units within their jurisdiction. In case the investment in plant and machinery has crossed the prescribed limit or there is a change in location or constitution, the registering authority will immediately de-register the unit.
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In the event of deregistration, the following actions are required to be taken: (a) The units will obtain industrial licence in case they are manufacturing reserved items. (b) The unit may be asked to file an Industrial Entrepreneurs Memorandum (IEM) with the Secretariat of Industrial Approvals, Ministry of Industry, Udyog Bhavan, New Delhi- 110 011. Certificate of registration is valid for the items of manufacture/ activity indicated in the registration certificate. No affidavit is required to be submitted by the 301 unit while applying for provisional registration.

Export Oriented Units/ Export Processing Zones Units undertaking to export their entire production of goods may be set up under the EOU scheme. Units may be engaged in manufacture/ production of software, horticulture, agriculture, animal husbandry or similar activity. Units engaged in service activities may also be considered on merits. FTZ or EPZ is an industrial estate, cordoned off from domestic tariff area, where trade barriers applicable to the rest of the economy do not apply. Such units can operate free of import duties or quantitative restrictions and are given other advantages 302 including tax exemptions.

Facilities for Units in the EPZ


Automatic approvals of proposals by the Development Commissioner of SSI within 40-65 days. Ready developed plots/ buildings to suit project requirements. No import licence required for import of capital goods, raw materials, consumables, spares etc. Second hand capital goods allowed to be imported. Exemption from Central Excise Duties and other levies on products manufactured within the zone.
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Foreign equity participation up to 100% permissible. Remittance of profits and dividends by foreign investors/NRIs allowed fully after payment of taxes. Preferential power connection and assured power supply. Supplies from DTA units in the Zone, treated as Deemed Exports. Banks extend Export Finance;Pre-shipment as well as Post-shipment at a concessional rate of interest. Private bonded warehouses permissible for stock and sale of duty free materials, components, etc to EPZ units.
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Laws enacted to regulate, protect and promote the growth of SSI sector in India
A. The Factories Act, 1948 A Factory is defined as any premises including its boundary line wherein (a) A manufacturing process is carried on, and (b) The specified number of workers employed are 10 in case where manufacturing is carried on with aid of power and 20 if carried on without power . The Act contains following provisions to safeguard the health of workers. (a) Cleanliness 305 (b) Disposal of wastes and effluents.

(c) Ventilation and temperature (d) Prevention of dust and fumes. (e) Artificial humidification. (f) Prevention of overcrowding. (g) Lighting. (h) Drinking water (i) Wash rooms. (j) Spittoons. *In order to ensure safety of the workers, the Act provides for: (a) Fencing of machinery (b) Only trained males wearing tight fitting clothing to work on or near moving machines. 306

(c) Prohibition of employing young persons to work on dangerous machines. (d) Maintenance of devices for cutting-off power. (e) Casing of power driven machinery. (f) Prohibition of employing women and children near cotton openers. (g) Use of properly maintained hoists and lifts. (h) Safety on revolving machinery, power plants, floor and stairs, pits and openings. (i) Protection against dangerous fumes. (j) Appointment of safety officers. The Act provides following facilities towards Welfare of Workers. 307 (a) Washing, storing & drying of clothes.

(b) First-aid appliances. (c) Canteen, where 250 or more workers re employed. (d) Shelters, rest rooms, lunch rooms. (e) Crches, where 30 or more women are employed. (f) Appointment of Welfare Officers , where500 or more workers employed. Other provisions (a) The Act regulates hours of work, holidays and leave with wages etc. 308

(a)

(b)
(c)

(d)

(e)

Under the Act, every employer or occupier of the factory is required to: Obtain, where necessary, approval for location and construction of the factory. Procure license and registration for operating the factory. Send in written notice to the Chief Inspector of Factories at least 15 days before occupying or using any premises as factory. Display notice, maintain registers and recods prescribed under the Act and submit the necessary returns to the Government. Report fatal and other accidents and occupational diseases, if contracted by any workmen, to the prescribed authority. 309

B. The Employees Provident Fund And Miscellaneous Provisions Act, 1952 The Act is applicable to (a) Every establishment which is a factory engaged in any industry specified in Schedule I n which twenty or more persons are employed. (b) Any other establishment which the Central Government by notification in the Gazette, specify. The act provides that both the employee and the employer will contribute 8 to 10 per cent of basic wages and dearness allowance to a provident fund. Under the Act, the employer is required to (a) Send to the P.F. Commissioner within 15 days of the commencement or application of the scheme a consolidated return specifying the employees 310 entitlement to become members.

(b) Show complete details such as basic pay, dearness allowance etc. (c) Submit a report within 15 days of the close of each month of the employees qualifying to become member for the first time during the preceding month. (d) Send to the P.F. Commissioner within 15 days of the close of each month, a monthly consolidated statement showing the recoveries made from the wages of each employee and the amount contributed by the employer in respect of each employee. (e) Furnish to the Regional P.F.Commissioner particulars of owners, occupiers, directors, managers, partners or other persons having the ultimate control over the affairs of the establishment and intimate any any change in these particulars by registered post within 15 days of the date of change. 311

(f) Prepare and maintain contribution cards in respect of every employee who is member or is entitled to become member of the Provident Fund. (g) Transfer within the specified time, the accumulation to the credit of an employee who is member of P.F. if he leaves the employment and obtains re-employment in another establishment.

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C. The Employees State Insurance Act, 1948 Provides for benefits to the employees and their dependents in event of sickness, maternity and employment injury in the form of periodical payment and/ or medical treatment. The Act covers all persons employed irrespective of whether they are manual, supervisory or salaried provided their remuneration does not exceed Rs 10,000 per month. The Act is not applicable to (a) Seasonal factories (b) Factories working with the aid of power wherein less than 10 persons are employed. (c) Factories working without the aid of power wherein 313 less than 20 persons are employed.

(d) Any member of Indian Naval, Military or Air force. (e) Railway running sheds. Benefits Available to Workers are: (a) An insured and his dependents are provided medical treatment and attendance at the State Insurance Dispensaries. (b) An insured person is entitled to periodical payment in case of certified sickness. (c) An insured woman employee is given periodical payments in the event of confinement. This benefit is available for a period of 12 weeks of which not more than 4 weeks shall precede the expected date of confinement. 314

(d) Disablement benefit is paid periodically in case of permanent or temporary disablement of an insured person due to employment injury. (e) Dependents of an insured person, who dies as a result of an employment injury, are entitled to periodical payments . Obligations of the employer are: (a) To get his factory or establishment registered within 15 days after the Act becomes applicable to him. (b) To assist employees in completing and filling in their declaration forms and obtaining their identity cards. (c) To pay to the corporation the employees and the companys own weekly contribution. (d) To arrange for the injured employee first aid and also 315 transport for obtaining medical care.

(e) Not to reduce wages or discontinue or reduce any benefit which a worker is entitled to under the conditions of service. D. The Industrial Disputes Act, 1947 The Act Seeks to (a) Provide a suitable machinery for the just, equitable and peaceful settlement of industrial disputes. (b) Promote good relations between employers and employees and to prevent illegal strikes and lockouts. (c) Provide relief to workers against layoffs, retrenchment, wrongful dismissal and victimization. (d) To promote collective bargaining.
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(a) (b) (c) (d) (e) (f) (g) (h)

The Act provides for the setting up of following or effective investigation and settlement of disputes. Works Committee Conciliation officer. Board of conciliation. Courts of inquiry. Labour courts. Industrial Tribunals National Tribunal. Grievance Settlement Authority in an industrial establishment in which fifty or more workers have been employed in the preceding 12 months.
317

Under the Act, the employer is required (a) To implement all agreement, settlements and awards, and render assistance for conciliation and adjudication of disputes. (b) To desist from declaring any illegal lockout. (c) Not to layoff or retrench workmen or close undertakings without prior permission of the government. (d) To pay compensation for lay off and retrenchment and closure, and to reemploy retrenched workmen. (e) To avoid any change in service and employment conditions without notice. (f) To report to the government or its designated authority any any notice of strike/ lockout received/given within 5 days of receiving/giving the notice.
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E. The Payment of Wages Act, 1936 The object is to ensure the workers payment of wages at regular intervals, without unauthorized deductions. Covers persons employed in a factory or industrial undertaking whether directly or indirectly through a subcontractor. Wages must be paid before the expiry of the seventh day after the last date of wage period. All wages shall be paid in coins/currency notes or both.After obtaining the written authorization of workers, the employer wages either by cheque or by crediting the wages in their bank accounts.
319

(a) (b) (c) (d) (e) (f) (g) (h)

The Act allows deductions from wages only in respect of fines, absence from duty, damage/loss of goods or of money entrusted to the employee, Housing accommodation and amenities provided by the employer, Recovery of loans, Contribution to and repayment of advances from provident fund. Income tax, Deduction of payment of premiums on his life insurance policy or purchase of securities. 320


(a) (b) (c) (d) (e) (f)

Before imposing fines, the employees shall be given opportunity of showing cause. Act requires every employer to Ensure that workers are paid wages regularly and in time, Fix wage periods which shall not exceed one month,] Make only authorized deductions, Impose fines only as per the rules, Maintain the necessary and prescribed registers. Display notices as prescribed.
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F. The Minimum Wages Act, 1948 The objective is to prevent exploitation of workers by fixing minimum wage rates in certain employments mentioned in the schedule attached to the Act. The obligations of the Employer are: To pay the wages fixed by the government without any unauthorized deductions. To observe directions in regard to normal working hours, weekly day of rest with wages and overtime rate. To maintain registers and records as required by the Government showing particulars of employees,work performed by them, wages paid to them and the receipt given by them.
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G. The Payment of Bonus Act, 1965 The Act imposes a statutory obligation on the employer to pay bonus to his workers and lays down a formula for calculation of minimum and maximum bonus. The act applies to every factory as defined under the Factories Act and to every other establishment in which twenty or more persons are employed on any day during an accounting year. However, government may, after giving a two months notification in the official gazette, make the act applicable to any factory or establishment employing less than twenty but not less than ten persons. An employee who has worked for not less than thirty working days in an accounting year shall be entitled to payment of bonus. 323

Under the Act, an employer is under obligation To work out and pay annual bonus to his employees as per the as per the provisions of the act. To maintain such registers and records as prescribed in the Act. To furnish information to the inspector and allow him to enter the premises as and when required. To permit the inspector to examine any person or document for ensuring the proper implementation of the Act and the rules made under it. 324

H. The Workmens Compensation Act, 1923 The object is to secure payment of compensation by an employer for injuries sustained by an employee in an accident, which has occurred in the course of employment. An employer is liable to pay compensation when (a) A personal injury has been caused to the workmen. (b) The injury has been caused by an accident. (c) The accident has arisen out of and in course of employment. (d) The injury has resulted either in the death of the workman or in total or partial disablement for more 325 than three days.

The employer is not liable to pay compensation in the following cases: If the injury, does not result in the total or partial disablement of the workman for a period exceeding three days. If the injury, not resulting in death which is directly attributable to: (a) The workman having been at the time of the accident under the influence of drinks or drugs; or (b) The willful disobedience by the workmen to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of workmen; or (c) The willful removal or disregard by the workmen of any safety device provided for his safety.
326

If the injured workman has instituted a civil suit for damages in respect of the injury against the employer. If the accident causing death or injury did not arise out of and in the course of employment. Obligations of the employer are: Not to deduct from the compensation payable any amount paid to the workman for his medical treatment. To pay compensation as soon as it falls due. To deposit compensation with the Commissioner in respect of workman whose injury has resulted in death and also to deposit lump sum compensation payable to workman. To notify the Commissioner or any prescribed authority of any accident occurring on his premises which results in death or serious bodily injury, within seven days of the occurrence. 327

I.

The Payment of Gratuity Act, 1972. The objective is to provide for payment of gratuity to an employee at the time of his/her retirement in recognition of the long and meritorious services rendered by the employee. The Act is applicable to: Every factory, mine, oilfield, plantation, port and railways. Every ship or establishment in which ten or more persons are/ were employed on any day of the preceding twelve months. An employee who has rendered continuous service for five years or more. 328

Payable at the rate of fifteen days wages as last drawn for every completed year of service or part thereof in excess of six months. Obligations of Employer (a) To determine the gratuity as soon as it becomes payable and pay the same to the worker concerned. (b) In case of any dispute, deposit the amount of gratuity with the authority. (c) In case the controlling authority decides that any more gratuity is due, the same to be deposited with the authority. 329

J. The Trade Union Act, 1926 Act seeks to protect trade unions from civil or criminal prosecution so that the unions could carry on their legitimate activities for the benefit of working class. Act is applicable to unions of workers as well as to association of employers. The Act lays down (a) The rights and liabilities of registered trade unions. (b) The purposes for which general fund of registered trade unions may be spent. (c) Constitution of separate fun for political purpose.
330

K. The Indian Boilers Act, 1923 Lays down regulations for the use of a boiler in a manufacturing process and the main provisions are: (a) Employer must get a permit for the use of boiler, by applying to the inspector and getting the boiler registered. (b) The transfer of boiler from one state to another must be reported to prescribed authority. (c) The boiler must not be operated at more than maximum pressure recorded in the permit. (d) The boiler engineer must be holding a certificate of competency.
331

L. The Employment of Children Act, 1938 The objective is to regulate and protect child labour and the main provisions are: (a) A child below 14 years is not to be employed in bidimaking, carpet weaving, cement manufacturing, cloth printing, dyeing and weaving, math manufacturing, explosives and fireworks, mica-cutting, soap manufacturing, tannin, wool cleaning etc. (b) A child below 14 years is not to be employed in any occupation connected with transport of passengers, goods or mails by railway or connected with a port authority. (c) For children who have completed 15 years but not 17 years, the working hours should include 2 hours rest period during night shifts i.e. 2 hours between 10 p.m.and 7 a.m.
332

M. The Industrial Employment (Standing Order) Act, 1946 The objective is to make the employers define the terms and conditions of employment and make the same known to the workers. The Act is applicable to every industrial establishment employing 100 or more workmen. The following are required to be specified in the standing order: (a) Classification of workmen into categories like permanent, temporary probationers etc. (b) Hours of work, holidays, pay days and wage rates. (c) Shift working. (d) Attendance and late coming.
333

(e) Procedure to be followed while applying for leave and holidays, and the authority to which application is to be made. (f) Closing and reopening of sections of industrial establishment, temporary stoppages of work and rights of employer and workmen arising there from. (g) Termination of employment and the notice thereof to be given by the employer and workmen. (h) Means of redress for workmen against unfair treatment by the employer. 334

N. The Maternity Benefit Act, 1961 The objective is to regulate the employment of women in certain establishments for certain periods before and after childbirth and to provide for maternity benefits. Applicable to shops, establishments, factories,mines, plantations employing ten or more persons.

335

Launching a New Enterprise


An important entrepreneurial function calls for the ability and eagerness to perceive and receive curious signals, sieve and process them for arriving at a final decision in favour of an idea/ enterprise. An entrepreneur searches for and identifies an opportunity and subsequently works energetically to convert it into a business reality. What is an opportunity? Opportunity is a result of interaction between the need of the society, capability of the entrepreneur and resources available in the environment.
336

Opportunity Sensing
The process of opportunity sensing involves the following: (a) Scanning the Environment (b) Product Development (c) Project Report Preparation. (d) Project Appraisal (e) Resourcing A. Scanning the Environment Refers to the understanding of socio-cultural, economic, technological, fashion and even changing life style and 337 aspirations of local people.

Scanning of environment is done by collecting information from various sources as indicated below: (1) Personal Informal Sources Family Customers Friends Colleagues Salesmen Social Circles Employees. (2) Personal Formal Sources Bankers Business Consultants 338

(3) Impersonal Written Sources Magazines Journals Books Newsletter Newspapers Catalogues. (4) Impersonal Oral Sources Trade shows Seminars/workshops Professional Organizations Small Business Organizations Suppliers/Dealers.
339

B. Product Development and Selection (a) Solving peoples problems Listening to a housewife wishing for a water filter which should be attached to the tap to give direct supply of filtered water gives a business idea for a new water filter. (b) Combining two or more ideas Selling different items in one-shop presents the new idea of a department store. (c) New ways doing old things Popularizing gas lighter as substitute for match box for lighting gas stove gives the idea of a new product. Instead of selling pizza in a bakery shop the sale through mobile vans at different locations gives a 340 new idea for a product.

(d) Improving the product/service Milk which was traditionally supplied in bottles when packed in sachet or tetra-packs was seen as new idea. (e) Extending somebody elses successful idea to other settings The successful introduction of a new product /service in certain market may be repeated in growing market in some other area. For instance, electric mosquito repellant in most developing countries.
341

(f) Adding new value to an old product: Traditional ball point pens with cello point for smooth writing/ or with gel refill. (g) Doing market research Determining demand-supply gap though market research gives new ideas for products and services. (h) Use of Hobby Hobby of collecting flowers may give rise to a business idea of dried flower art objects.
342

(i) Turning waste materials into something useful Availability of waste paper gives rise to a business idea of an enterprising making paper products. (j) Bringing ideas home from holidays , visits Difficulties faced in arranging accommodation during holidays/visits may give rise to an idea of starting a travel agency providing these facilities. (k) Understanding what things do rather than what they are Attractive glass container has a function of carrying wine but often used as a decoration piece.
343

(m) Thinking of product use with change in size and shape Reduction in the size of plastic paper weight gives an idea of a dice; whereas an increase in size may lead to the idea of plastic stool for drawing room. (n) Changing fashion and life style Changes in fashion require new products and services e.g. short hair style for ladies leads to the need for more ladies hair cutting saloons.
344

Selection of Product- The factors influencing the entrepreneur in selecting the right product are: (a) The import restriction or whether the import of the selected item is banned. (b) Whether the entrepreneur or his partner(s) have substantial experience in the manufacture and/or marketing of certain products. (c) Concessions available from the government for producing a product in terms of incentives, concessions, liberal taxation etc.; if produced in free trade zone or backward area. (d) Products that are listed by the government for purchasing exclusively from the small-scale sector. (e) An export potential widens the scope of marketing and hence the success of the enterprise. 345

(f) Products serving a major OEM as it provides ready demand and hence ensures easy marketability. (g) Whether the machinery and/or raw materials required for manufacturing the product would be imported or indigenous. (h) Requirements of skilled/ unskilled labour. (i) Requirement of indigenous technical know-how or foreign collaboration.

346

C. Project Report Preparation A project report should normally cover the following: 1. Brief introduction of the proposed project. 2. Brief History: Why did the entrepreneur(s) decide to set up this particular project? 3. The Unit: (Attach relevant documents). (a) Constitution of the unit (proprietorship, partnership, private limited company etc.) Share of each partner in case of partnership concern should be mentioned. (b) Whether unit is ancillary to some large unit? (c) Details of associate concerns, if any.
347

4. The promoter (s) and key personnel (viz. Proprietor/ Partners/Directors) (a) Brief detail of the background with special reference to any experience in related fields and how it will help the promoter(s) in successfully running the unit. (b) Enclose bio-data (date-wise detail of education, jobs held and business/ industrial activities undertaken). 5. Product: (a) Product Range i.e. various types of products to be manufactured and description thereof. (b) Where is the product used or consumed?
348

6. Marketing and Competition (a) General market trends. (b) Estimated overall demand (c) Regions/ segments proposed to be covered by the unit. (d) Segmentation of estimated demand, the proposed share of the unit and projected sales for the first three years. (e) Competition and how does the unit propose to meet the competition? (f) How does the units product compare with those of its major competitors in terms of price and quality?
349

(g) Marketing strategy (1) If selling directly to customers, then tentative details of showroom, sales force etc. (2) If selling through agents their details,period of contract, commission payable, security etc. to be offered by them and payment terms. (h) Value of order in and (already received by the promoters) and expected shortly (correspondence going on). 7. Manufacturing process (a) Process flow chart, giving the manufacturing flow from one process to the next; from one machine to the next. (b) Sequence of operations and time taken for each operation. (c) Input/ Output ratios between raw materials and finished products. 350

8. Machinery and plant capacity (a) Details of machinery required for the project. (b) Capacity of each machine and power required for each. (c) Technical details and specifications of machinery. (d) Details of suppliers. (e) Price of each machine. (f) Procurement time and availability in market. (g) Spare parts required and their availability. (h) Quotations for each item from at least 2 or 3 different suppliers (not different firms under the 351 same control).

9. Raw Materials (a) Details of specifications of each type of raw materials. (b) Name of suppliers, availability and the prices. (c) Lead time for Procurement. (d) Minimum order quantity. (e) Whether any credit is available from the suppliers. (f) Details of consumables such as oil, lubricants, solvents etc. 10. Land and Building-in case own building is to be constructed. (a) Total area and cost of land required. (b) Cost of land development. (c) Covered and uncovered area. (d) Estimate of building including utilities i.e. water, 352 electricity etc.

11. General Management ad technical staff (a) Duties of promoter(s). (b) Indirect staff strength such as sales cum purchase assistant, accountant cum store keeper etc. (c) Direct labour strength such as skilled/ semi skilled/ unskilled workers. (d) Salary or wages, incentives, bonus etc of each worker. 12. Cost of project (a) Land, building, plant and machinery, furniture and fixtures, working capital required; with supporting details. 13. Means of Finance (a) Term loan from bank 353 (b) Government subsidy, if any.

(c) Promoters contribution. (d) Loans from friends an relatives. (e) Equity assistance 14. Working capital required (a) Anticipated monthly sales (b) Cost of raw materials consumed per month. (c) Total monthly production cost. (d) Average inventory level for various inputs. (e) Finished goods inventory. (f) Cash sales, credit sales an period of bill 354 realization.

15. Cost of production and profitability (a) Details of monthly expenditure. (b) Bifurcation of fixed and variable expenses. (c) Annual sales turnover (d) Break even point. (e) Total annual profit. 16. Project implementation schedule. 17. Repayment schedule 18. Internal rate of return. 19. Security offered. 20. Any other details specified by the financial institution. 355

D. Project appraisal The main objectives of project appraisal are to achieve: (1) An independent and objective assessment of various aspects of an investment proposal y way of which a lending financial institution arrives at the financing decision. (2) Quite often for reshaping the project so as to upgrade its viability.
356

Factors considered by institutions are:


Project Appraisal

Technical

Financial

Commercial Economic Managerial Ecological Organizational

Legal

Social

357

Technological & Engineering aspects include


Technical aspects Technical process Effluent Disposal & byproducts

Plant, equipment and suppliers Plant layout

Network analysis

Location and infrastructure

Competitive comparison

358

Economic aspects precede others as bank will not finance a project unless the project represents a high priority use of region's resources.
Economic aspects
Increased Output/ services

Increased employment

Higher Standard of living

Foreign exchange Earnings/ savings

Larger Government revenue

Improved Income distribution


359

Organizational aspects examine the recruitment of individuals/organizations qualified to run the organizations and emphasis is on training of local staff to fill positions at all levels.
Organizational aspects

Structure

Promoters profile

Past performance

Recruitment & Training

360

Financial aspects cover cost analysis, pricing decisions, income & expenditure.
Financial aspects

Cost of production

Return on investment

Pricing

Profitability

Budgeting

361

Commercial aspects cover distribution network, repayment schedules, collaborative arrangements, use of imported technology etc.
Commercial aspects

Marketing Plan

Marketing organization

Financing based on certificates of work done


Repayment schedules
362

Foreign collaboration

In case of foreign collaborations and technology imports, the appraising institutions examine the following in detail. (1) Technical & Engineering services. (2) Procurement of imported equipment and its price competitiveness with indigenously available equipment. (3) Performance guarantees by the collaborators. (4) Penalties for non-performance specified in their agreement. (5) Deputation of foreign experts during construction, initial and post operation period, provision of training of Indian technicians. (6) Reputation and past experience of the collaborators. 363 (7) Competitiveness of terms of collaboration.

(8) Costs by way of down payment and royalties and also restrictive clauses in regard to marketing areas. (9) Right of participation of foreign collaborator in management and future issues of share capital. (10) Free access of the borrower to the latest R&D that may take place at the collaborators end. (11) Provision of facilities by the collaborator to the borrower in establishing up-to-date R&D organization, both in terms of equipment and manpower.
364

Technical & Collaborative Arrangements


GoI has issued an illustrative list of industries where no foreign collaboration, financial or technical, is permitted in view of the ample technology base being available within the country. Foreign Investment Promotion Board (FIPB) may permit import of technology in those fields where: (a) Indigenous technology developed for the items in the list is not easily available for use by the new entrepreneurs on competitive terms.
365

(b)Technology is required for up gradation of the existing technology in India to meet the domestic requirements efficiently or to be competitive in the export market. (c) Import is required for the manufacture of items with substantial exports, backed by buy-back guarantees.

366

E. Resourcing To set up a business venture, particularly a manufacturing enterprise, an entrepreneur needs to develop a network of individuals/ organizations who can help in various stages of setting up an enterprising and running it. Typically, assistance may be sought from the following: Small Business Clubs/ Associations. Technical consultants College/ University Business Departments Chamber of Commerce Trade Associations Technical Training Institutes Small Business Development Organizations. 367

Categories of Resources (1) Physical Resources Premises, supplies of raw materials, tools, equipments and machinery. (2) Technical Resources Technical know-how, prototype, designs, technical training. (3) Financial Resources Funds needed for physical and technical facilities. (4) Human Resources Workers, Managers (5) Marketing/Logistics Resources Dealers, wholesalers, stockists, agents, transporters, Warehouses etc.
368

Business Plan for Electric Juicer Mixer Grinder


Introduction
An indispensable gadget for an urban housewife and specially for working women. As it is a consumer durable item, it should be very safe in operation, must be very efficient, should give trouble free services. Good after sales service will play a vital role in product differentiation and thus facilitate in improving brand image of the product.
369

The appliance is used to perform the following functions: - Mixing - Wet and Dry Grinding - Blending - Liquidizing - Kneading - Mincing - Juice extraction Presumptions It is not feasible to manufacture all the items in the unit itself especially those that require sophisticated technology such as high speed motor, injection moulded plastic items, aluminum die casting, rubber items etc that will be bought out or sub-contracted. 370

The blade-sets, its heat treatment and gear cutting are also to be given on sub-contract. As the dies and moulds for these items would be very expensive therefore in the beginning only dies and design of those parts that are easily available in the market will be manufactured. Product Description Product Model/Brand: Kitchens Pride Juicer Mixer Grinder. Power Consumption: 400W Voltage:230 V AC 50Hz. Motor Type: Universal 400W Basic Unit: High Quality: ABS plastic. 371

Flexible Cord Plug: PVC approx. 2 meters long with 3 pin. Juicer Body: High Quality ABS plastic. Juicer Top Cover: SAN plastic. Filter Mesh: Nickel Mesh moulded in ABS plastic. Blender/Mixer Jar: Stainless Steel Polished Material of Dome: Polycarbonate Grinding Cap: Polypropylene Blades: Hardened stainless steel Speed control: 5 speed with rotary type switch. Capacity: Dry Grinding-200 to 300 gms & Liquid/Mix- 0.5 to 1 litres. Net weight: 5.2 kgs. Carton: 49 cms x 24 cms x 31 cms. Safety switches: Micro switches provided on both Blender/ grinder and food processing sides to prevent accidents during use. 372

Market Demand The product has witnessed the following demand by volume:
Year
2000 2001 2002 2003

No. in Millions
1.53 1.68 1.75 1.87

2004
2005 2006

2.07
2.10 2.25
373

The

Mechanics of the Market-Demographic Distribution Consumption differentiates consumer segments. A six million strong high income class has emerged. Up to 20 million households are buying consumer durables. Comfort and personal convenience are most important criterion. The high income group is growing fastest in north and south. High income earners are growing much faster in mini metros and rural India. Urbanization is creating rural demand for urban products. 374

Lack of credit facilities and electrification in rural areas is choking the demand. Pricing Strategy: The objective being to stabilize profit and meet competition. The company will follow strategy of value for money given to customers as sales price is independent of cost calculation. The company expects a net sales realization of Rs 2000 per unit. The competitive scenario is as under.
375

Name of Competitor
Sumeet Gopi Maharaja Philips Lexus

Rate per unit No. of units Production sold per year base
3200 2300 2600 2800 2775 3.00 Lakhs 2.50 Lakhs 2.00 Lakhs 2.00 Lakhs 1.5 Lakhs Mumbai Jalandhar Delhi Mumbai Delhi
376

Distribution Channels
The firm will chose a marketing agency that specializes in similar products as the concerned agency has an expertise in making good widely available and is accessible to target markets. The marketing intermediary though its contacts, experience, specialization and scale of operation will offer the firm more than it can achieve on its own.

377

Manufacturing Process & Quality Specifications The parts to be manufactured are: (1) Shaft and other bar components from stainless steel bar with the help of precision automatic lathes, grinding machines etc. (2) Machining of die cast components such as housing for gearbox and cover are obtained from outside parties and finished in the unit. The major machining operations are turning, drilling of shaft, tapping the cover holes etc. Product will conform to BIS series standards. Tests will be carried out on 5 samples of mixer from the production line at random.
378

Land Location and Site Selection The site at Wagle Industrial Estate, Thane has been selected because of the following reasons. (1) Easy availability of raw materials. (2) Availability of skilled labour. (3) Transportation network is strong. (4) 85% of the suppliers are located nearby. (5) Proximity to market. (6) Availability of land for future expansion. Layout Plan The shed area is 20% more than the area required as shown in the layout plan and is considered sufficient for future expansion.
379

Cost of the Project


Particulars Land and site development Building & civil works Plant & Machinery Amount (Rs in Million) 9.6 2.0 2.0

Other Fixed Assets


Preliminary expenses

0.5
0.3

Contingency Margin
Working Capital Margin Total

0.2
1.4 16.0
380

Capacity Utilization and Income Estimate- 5 years (,000)


Description Installed capacity (units) %Capacity utilization Year 1 50.00 Year 2 50.00 Year 3 50.00 Year 4 50.00 Year 5 50.00

50.0

60.0

70.0

70.0

70.0

Production p.a. 25.00 (units) Net sales realization @Rs. 2000/unit 50,000

30.00 60,000

35.00 70,000

35.00 70,000

35.00 70,000

381

Working Capital Requirements (in Lakhs)


Item Norm in months Year 1 Year 2 Year 3

Raw Materials
Stock in progress Finished Goods Book Debts

1
0.05 0.05 1.0

2.33
1.17 1.46 4.17

2.80
1.40 1.75 5.00

3.27
1.63 2.04 5.83
382

Working Capital Requirements (in Lakhs) contd.


Total Current Assets Less Margin Money for Working Capital (25% of total current assets) Less:Trade credit for Raw Materials Bank finance for working capital Interest @10.5% 9.13 2.28 10.95 2.74 12.77 3.19

1.17
5.68 0.60

1.40
6.81 0.72

1.63
7.95 0.84
383

Interest on Term Loan (Rs in Million)


Year Loan o/s at the beginning Loan o/s at the end of the first half of the year 12 12 11.84 11.68 Loan o/s at the end of the Int. for first half of year Int. for the second half of the year 0.9 0.89 0.88 0.87 Total interest for the term loan 1.8 1.79 1.77 1.75

1 2 3 4

12 12 11.92 11.76

12 11.92 11.76 11.60

0.9 0.9 0.89 0.88

11.60

11.52

11.44

0.86

0.85

1.71
384

Depreciation schedule for company law


purpose (straight line method) (Rs in Million)
Building @4% 0.08

Plant and machinery @8%

0.16

Misc. fixed assets @5%

0.025

Annual Depreciation

0.265
385

Depreciation schedule for income tax purpose (written down value method) (Rs in Millions)
year1 Building @10% 0.20 year-2 0.18 year-3 0.16 year-4 0.15 year-5 0.13

Plant and 0.75 machinery and misc. fixed assets@30% Total 0.95

0.53

0.37

0.26

0.18

0.71

0.53

0.41

0.31
386

Profitability Estimate(Rs in Millions)


Particulars
Installed capacity %capacity utilization Production (A) Sales realization (B) Cost of Production Raw Materials 28.0 33.6 39.2 39.2 39.2

year-1
50000 50 25000 50

year-2
50000 60 30000 60

year-3
50000 70 35000 70

year-4
50000 70 35000 70

year-5
50000 70 35000 70

Power
Wages and Salaries

2.0
4.0

2.4
4.8

2.8
5.6

2.8
6.4

2.8
6.8
387

Factory overheads

1.0

1.2

1.4

1.4

1.4

(C) Administrative and selling expenses

4.0

4.8

5.6

5.6

5.6

(D) Gross Profit Before 11.0 Interest (E) Total Financial Expenses
Interest on term loan 1.8

13.2

15.4

14.6

14.2

1.79

1.77

1.75

1.71

Interest on bank borrowing


(F) Depreciation

0.60
0.265

0.72
0.265

0.84
0.265

0.84
0.265

0.84
0.265

(G) Operating Profit

8.34

10.43

12.53

11.75

11.39
388

(H) 0.06 Preliminary Expenses written Off (I)Profit/loss 8.28 Before Tax
(J) Provision 3.417 for Tax

0.06

0.06

0.06

0.06

10.37

12.47

11.69

11.33

4.466

5.492

5.195

5.078

(K) Profit after Tax

4.863

5.904

6.978

6.495

6.252
389

Tax Calculations (Rs in Millions)


Particulars Profit/loss before tax Year 1 8.28 Year 2 10.37 0.265 10.635 0.71 9.925 Year 3 12.47 0.265 12.735 0.53 12.205 Year 4 11.69 0.265 11.955 0.41 11.545 Year 5 11.33 0.265 11.595 0.31 11.285

Add: Dep. for 0.265 Com Law Purpose 8.545 Less:Dep. For tax purpose Gross Income 0.95 7.595

Income Tax @45%


Income after tax

3.417
4.178

4.466
5.459

5.492
6.713

5.195
6.35

5.078
6.207
390

Projected Balance Sheet (Rs in Millions)


Liabilities Reserve and surplus Secured Loans Term loans Working capital advances Current liabilities Trade credit 1.17 1.40 1.63 1.63 1.63 12 5.68 12 6.81 11.92 7.95 11.76 7.95 11.60 7.95 Year 1 5.44 Year 2 10.26 Year 3 14.56 Year 4 20.28 Year 5 25.39

Total

24.29

30.47

36.06

41.62

46.57
391

Assets

Year 1

Year 2

Year 3

Year 4

Year 5

Fixed assets

14.50

14.50

14.50

14.50

14.50

Less: accumulated dep.

0.265

0.53

0.80

1.06

1.33

Net Fixed Assets 14.24

13.97

13.70

13.44

13.17

Current Assets, loans & advances Raw materials 2.33 2.80 3.27 3.27 3.27

Stock in progress

1.17

1.40

1.63

1.63

1.63
392

Finished Goods

1.46

1.75

2.04

2.04

2.04

Book Debts 4.17

5.00

5.83

5.83

5.83

Cash and 0.86 Bank Balance Preliminary 0.06 expenses Total 24.29

5.49

9.53

15.35

20.57

0.06

0.06

0.06

0.06

30.47

36.06

41.62

46.57
393

Projected Fund Flow Statement


Particulars Sources of Funds Profit before 10.68 taxation with interest added back Depreciation Preliminary expenses Increase in bank borrowing 0.265 0.06 5.68 12.88 15.08 14.28 13.88 Year 1 Year 2 Year 3 Year 4 Year 5

0.265 0.06 1.13

0.265 0.06 1.14

0.265 0.06 -

0.265 .06 -

Total (A)

16.69

14.34

16.55

14.61

14.21

394

Particulars Disposition of funds

Year 1

Year 2

Year 3

Year 4

Year 5

Increase in 5.68 working capital Decrease in term loan Interest on term loan 1.80

1.13 0.08 1.79

1.14 0.16 1.77

0.16 1.75

0.16 1.71

Interest on bank (wc) borrowing


Taxation Total (B)

0.60

0.72

0.84

0.84

0.84

3.42 11.50

4.47 8.19

5.49 9.40

5.20 7.95

5.08 7.79

395

Opening Balance of Cash in Hand/Bank

0.86

5.49

9.53

15.35 20.57

Net 5.19 Surplus/Deficit (A-B) Closing 6.05 balance of cash in hand/bank

6.15

7.15

6.66

6.42

11.64

16.68

22.01 26.99

396

Venture Capital Financing


An important tool in financing small-scale enterprises,particularly innovative businesses where the growth prospects are high but risk factor is equally high. Provided at any stage of implementation of the project between the start-up and commencement of commercial production. Venture capital providers offer following services: 1. Development of the business. 2. Approval of project ideas. 3. Financial assistance, nd 4. Management expertise.
397

Features of Venture Capital Financing


1. Long-term source of investment, usually 5-10 years. 2. Quite often V.C. firms insist on equity participation through direct purchase of shares or convertible securities. 3. Ensure continuous participation of Venture Capitalist in the management of the entrepreneurs business. 4. Venture Capitalist may provide services in regard to (a) Marketing (b) Management of technology. (c) Development of an appropriate organization structure.
398

5. Venture Capitalists is approached when it is not easy to access funds from the conventional sources. 6. Business must have a high potential of growth and Venture capitalist is not averse to the risk. 7. The flow of funds from V.C. is invariably in phased manner and can be in the form of debt in initial stages. 8. The Venture Capitalist is not a permanent equity holder. 9. The Venture Capitalist will ensure the exit route in the appropriate manner, ensuring the interest of the entrepreneur in the process.
399

Venture Capital-Process
1. The Preliminary Screening includes presentation of Business Plan from the entrepreneur to the venture capitalist giving therein details of: (a) An in-depth industry and market analysis. (b) Key financial statements. As a part of initial screening, the venture capitalist (a) Investigates the economy of the industry. (b) Ensures that he has an appropriate knowledge and ability to invest in the project. (c) Determines the ROI, the Payback period, the credentials and capability of the entrepreneur.
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2. The second step called Due Diligence involves Entering into agreement specifying major terms between the entrepreneur and V.C. Making major commitment of money, time and efforts. Detailed review of companys history, business plan, profile of the promoters and key managers. Scrutiny of financial background of the promoters and the target market. Risk analysis carried out jointly.
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3. Negotiations cover the Amount of initial investment to be made by both promoters and venture capitalists. Total funds to be made available by the venture capitalist in different phases. Interest rates for the loans, securities, equity and other convertible securities. Protective clauses. Right to control the business. Buy-back arrangements. Exit routes. 402

4. The Final Agreement MOU is signed between both the parties and periodic review is carried out at each stage of project implementation. 5. Exit may be through any of the following routes (a) Buy-back of the equity. (b) Initial public offerings (c) Mergers and acquisitions. Smooth transition is ensured.

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A Few Words of Caution for the Entrepreneur


1. Select the venture capitalist carefully. 2. Get all the facts and previous background of the venture capitalist. 3. Have an intermediary having pre-existing relationship with the venture capitalist. 4. Avoid lawyers, accountants or business advisors in the initial stages. 5. Ensure whatever is projected is accurate. 6. Disclose your strengths and weaknesses to build long term healthy relationship. 7. Be flexible, patient and build trust through 404 performance.

Indian Scenario
A large number of enterprises particularly in the field of Information Technology have been set up through venture capital financing. Most of the banks and financial institutions have promoted Venture Funds, namely 1. SIDBIs Venture Capital Fund. 2. Technology Development and Information Company of India Limited (TDIC). 3. Risk Capital and Technology Finance 405 Corporation Limited (RCTC)

4. SBI Venture Capital Fund. 5. Canbank Venture Capital Fund. 6. 20th Century Venture Capital Fund. 7. Indus Venture Capital Fund. 8. Andhra Pradesh Industrial Development Corporation-Venture Capital Fund 9. India Investment Fund In order to promote this concept, GoI is offering tax concessions to Venture Capital providing firms.
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Formation of New Venture and Managing its Early Growth Business Incubators
1. 2. 3. 4. The integrated method for facilitating the formation of new venture and its early growth is known as Enterprise Development Centre. The principle components are: The Intrapreneuship centre. The Venture Capital Exchange The Innovation Centre The Incubation Centre. 407

Engg. Industry Colleges

V.C. Firms

Financial Institutions

Potential Entrep.

Enterprise Development Centre

G O V T.

(2) Venture Capital Exchange (1) Intrapreneurship Centre New enterprise with in the parent company

(3) Innovation Centre


(4) Incubation Centre Ancillary Unit.
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N E W E N T

(1) The Intrapreneurship Centre conducts research, creates necessary skills and proper environments to facilitate setting up of new enterprises within the enterprise. (2) The venture Capital Exchange provides the needed seed capital for new enterprise. (3) The Innovation Centre provides entrepreneurial assessment, project planning, evaluation, commercial feasibility studies, product development assistance to entrepreneurs. (4) The Incubation Centre provides for and allocates necessary resources to new enterprises to succeed and grow.
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Incubating an Employee Idea


It is relatively easier to be creative in terms of producing new ideas but it is infinitely more demanding for creative thinking to result in practical innovation in terms of producing new goods and services.- Ramnath Narayanswamy, Professor-IIM, Bangalore. A common sentiment among junior employees is I have many great ideas, but my boss rejects them all. In fact some bosses have not been conditioned to accept ideas from their juniors. However, there are some employers who worship ideas and promote a culture of innovation within the company.
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Infosys has two channels to draw ideas from (a) The formal ones wherein the the board invites new business ideas every 3-4 years from unit heads and it trickles down to all. (b) The ad-hoc channel wherein anyone who sees an opportunity can take it up to his/her immediate superior and then to the board. The board works on different ideas to check on the viability and strategic directions that Infy would want to take. For instance, to have Independent Validation Serviceswas incubated for overhead costs, training costs etc. under the same unit where Mr. Arun Ramu, then Delivery Manager (now V.P.-Unit Head, 411 IVS) was working for, till it was out of pilot mode.

Ideas @ INFY

(a) IVS is a testing wing at Infosys which was not perceived as a stream warranting a separate unit, pre2000. (b) It was Mr. Arun Ramu a Delivery Manager at that time analyzed the importance of testing an realized that it had an immense potential to be an inependent sevice offering. The pilot unit which had four other senior colleagues and twelve others who believed in the idea grew into a business unit in three years and is growing at a rate of 100 percent every year currently. At Infy the belief is We are in a changing market today and to remain in the forefront of technology, we need to incubate ideas otherwise we would be left with commoditized services. 412

The criteria Infosys looks at while incubating ideas are: Size of the market an the opportunity that Infosys can grab in that market. Whether there can be expansion in the demand amongst existing customers. Viability-technically and financially.

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Spraying Innovation
Aerosol is an important category in the household insecticide business of Godrej Sara Lee Ltd. HIT aerosol as a category had two SKUs since its inception, namely the 500 ml priced at Rs 158/and 320 ml at Rs 115/-. While the former contributed to 25% of aerosol business, roughly 75% came from 320 ml sales. The problem was inadequate penetration and usage mainly due to its high price and also because of its familiarity only in elite households. 414 The usage was purely urban centric.

Mr. Manish Tipre , a research executive proposed to the M.D. to shed off all frills and re-engineer the product with just needed elements with an objective of introducing a SKU of 250 ml at a market price of Rs 60/- without significantly affecting the contribution. The following changes were incorporated: (a) Cap which was initially also the sprayer was modified into a normal cap with an ordinary deodorant nozzle inside. (b) Previously the rim at which the nozzle was affixed was lacarised to prevent rusting. (c) Now that half of the rim was inside the can, lacarisation was required on the upper sheet only.
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(d) New vendors were researched to provide raw materials at more competitive prices. The product was rolled out nationally in January 2001 and the price proposition was found to be more attractive to consumers. The company undertook an aggressive promotion resulting into increase of volume usage 60%. The average individual aerosol consumption went up by 50% from 800 ml/year to 1200 ml/year.

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Google Finance
Google is one of the few companies in the world known for its innovation and hunger for new ideas. Google engineers are provided 20 percent off time to work on their pet projects. This off time given to engineers to work on whatever drives them has resulted in some remarkable creations like gmail, orkut, Adsense, Google news amongst others. Google Finance was one such pet project that was proposed by two engineers from Googles Bangalore team. The core idea was to organize the worlds finance news onto a portal and make it available to the world. 417

The idea was appreciated by their peers and the same was presented to the founders who were impressed and instantly gave them a go ahead. It took fifteen months for idea to go to final execution. According to Mr. Arvind Jain, Centre Head, Google Bangalore R& D. We are a bottoms-up driven company. We believe that every employee at Google is capable to come up with an idea. The relevant forums review ideas and provide feedback and leads to improve the idea. Once a person is convinced that his/her idea is sound and is liked by most people in the company, he/she can go ahead and present to the executive team. They check the idea for business viability and it gets approved. The process is as simple as it can be for the person who creates the idea. 418

Benefits of Incubating An Employee Idea


Such a process can help in providing necessary support and guidance to good ideas. The employee feels valued, as his/her idea is being considered and acknowledged by the company. Being the employees own idea, he/she will be very passionate about it and this will ensure increased involvement and edication to the project in question.
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New Venture Expansion Strategies- Managing Growth


Growth is a natural and desirable outcome for entrepreneurial ventures. Entrepreneurial ventures pursue growth. How do we define growth? Organizational growth is any increase in the level, amount, or type of the organizations work and outputs. For instance, growth by increasing the production capacity, increasing the size of the staff, and increasing sales and marketing efforts. An organization that is growing is vibrant, flourishing and strives for excellence.
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The most commonly used financial variables in measuring organizational growth are: Increase in sales or revenue. Increase in venture capital. Increase in profitability. Growth can also be measured by increase in Number of customers. Number of products. Locations. Employees 421 Number of outlets opened

Pursuing Growth
Four possible strategies are:
Current Products New C ProductProduct Current Customer development exploitation

u
s

New

Customer development

ProductCustomer expansion
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A. Product-customer exploitation strategy Attempts to increase the sales of current products to current customers. Under this strategy, the entrepreneur might use incentives to get current customers to buy more of the ventures product(s). Through advertising and marketing function, the entrepreneur can get current customers to buy and use more of the current product(s). B. Product development strategy Involves creating new products for use by the current customers. A new product may include improved modified versions of existing product, new features, sizes, and ingredients. 423

C. Customer development strategy Attempts to sell current products to new customers. New customers might come from additional geographic areas or market segments not currently served. Decision to sell in foreign markets would be an example of market development because the venture is moving into additional geographic areas with its current products. D. Product-customer expansion strategy Venture attempts to expand both into new products and new customers. The riskiest growth strategy because entrepreneur is dealing with both new products and new customers.
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These strategies describe what an entrepreneur has to do in order to grow. If an entrepreneur wants to increase sales, he has to develop new products, pursue new customers, or both. The key challenges in organizing growth include finding capital, finding people, reinforcing organizational controls, and strengthening organizational culture.

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The Organizational Life Cycle


(a) (b) (c) (d) The organizational life cycle follows a pattern of Early growth Rapid growth Maturity, and Decline During the initial development period, a company with a successful innovation can be expected to experience slow growth. This period is followed by one of the rapid growth, which varies in both intensity and duration as company expands its customer base and product line. 426

The companys products or services meet rigorous competition that stifles the growth and as markets become saturated, maturity is reached. For many enterprises, the above stage is followed by a period of decline, which if not reversed, will result in termination. From an entrepreneurs perspective, the life cycle is identified with five stages, namely (1) Start-up (2) Expansion (3) Consolidation (4) Revival (5) Decline. 427

As the venture progresses from one stage to the next, conditions change, requiring different decisions for managing growth, developing products and markets, and organizing the company. Start-up Stage Growth is inconsistent and sales seldom meet the founders expectation and occurs haphazardly. The chaos can absorb entrepreneurs in daily struggle to survive. Entrepreneurs modify their products, change distribution systems, alter services and experiment with marketing tactics in attempt to survive.
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Organization is centralized and authority is vested in one person or a very small team of founders. Decision making and founders' personal preferences are undifferentiated. The organization is a personal expression of a single entrepreneur or a few partners. Research indicates a high mortality rate among new ventures during the start-up stage and unfortunately not many failed ventures can be studied as the entrepreneurs quietly disappear o find new challenges. Many family businesses are dissolved as the family members usually lack the skills to accept functional responsibilities required in growing organization. 429

A Few Examples:
A. Debbi Fields, Founder of Mrs. Fields Cookies, started with one product and no plan other than to offer delicious cookies to the public through a store in a mall.The only thing on her mind at start-up was to have a little fun while doing her own thing.At times, she had to stroll through the mall with a tray of cookies, hawking her wares like a street vendor. Her charm and marketing wit saved the venture, yet it was not until she and her husband Randy Fields developed a long term strategy for expansion and managing the venture that growth ensued. Debbi Fields began with a simple objective to have an interesting little business; she made the transition to managing a corporate network of stores with more than US$ 100 million in sales. 430

B. Dominos Pizza founder Thomas S. Monaghan started with a family restaurant in a Michigan Suburb. During the 1960s, Dominos remained a family business with little growth. Family members were interested in a small business that provided income and autonomy of ownership apart from a traditional jobs in local automotive factories. They did not envision generating millions of dollars or creating a nationwide enterprise. Monaghan, however, had other ideas, and Dominos pizza delivery system was launched. This event occurred after a decade in the family business, yet it signaled a major transition fostered by the vision of the founder.
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Expansion Stage The venture is transformed from a single-line enterprise operating in a limited market to a multiline company penetrating new markets.
Start-up Stage
Single product or restricted line of merchandise and service Positioned to compete in one market or to serve limited clientele

Expansion Stage
Multiple products or expanded line of merchandise and service Positioned in new markets and among a wider group of customers or clients432

Product and service lines are broadened through innovation and development, and the organization expands through functional authority. Decision making may be centralized during early growth, but departmentalization leads to dispersion of authority. To meet the above challenges, entrepreneurs must delegate authority for functional coordination.
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A Few Examples: A. Mrs.Fields Cookies became so popular that Debbi Fields was forced to take charge of a growing business. By transforming herself into a capable manager she led the company to success. B. Tom Monaghan specifically created a system of management and led Dominos Pizza towards rapid expansion through a unique approach for pizza delivery. C. ASK Computers, was a brain child of Sandra Kurtzig, who began with a start up niche in engineering applications for small computers, then broadened her line into scientific instrumentation and 434 integrated information systems.

Kurtzig drove her company through expansion stage and within two years of founding, she created departments, delegated responsibilities and positioned the company for public offering. By going public ASK Computers further diversified and achieved a sales turnover of US$ 20 million. When growth in the computer industry began to stabilize and company sales slowed down Sandra Kurtzig began to consolidate.
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Consolidation Stage
As competition intensifies within a growing industry, businesses are faced with marginally smaller incremental shares of markets. This results in competitive struggle at a slower rate of growth during what is often called an industry shakeout period. Weaker companies fail, some are sold or merged with others, and many consolidate to remain profitable. During consolidation phase, manufacturers may trim back operations, reduce product lines, or retreat from marginally profitable markets. Service companies reduce staff, streamline distribution systems, and withdraw from high risk markets.
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In all cases, entrepreneurs tend to shift authority downward as middle and higher level staff are reduced to improve efficiency. This leads to a flatter organization that is described as leaner and meaner. A consolidated company can successfully maintain this downsized posture for a prolonged period of time. An Example: A. Dave Bing, founded a steel company Bing Steelto high-quality rolled steel to Detroit Auto Industry. The company grew rapidly to more than US$50 million year in sales, then reached stagnation. Facing stiff competition, Bing focused on specialty steel supplies, subsequently settling into pattern of restrained growth leading to less-enthusiastic expansion and stable sales and profits in a turbulent industry. 437

Revival Stage This phase consists of rekindling organizational growth. Rapid growth can be achieved by clever repositioning of product lines and services through purposeful market segmentation. Repositioning sets the stage for a strategy of product or service diversification. Innovation becomes essential and the company is required to incubate new ideas. An entrepreneur attempts to revive the spirit of intrapreneurship in his operational managers by empowering them with authority for self direction. 438

This leads to restructuring of organization through product, geographic, or customer divisions and functional hierarchy is subordinated to divisional leadership. To the extent innovative products and services emerge, the company can experience a revival in growth. If repeated consistently , innovation results in a pattern of upward growth Organizations with strong performance records recognize this cycling of innovations and therefore commit significant resources to R&D. 439

Periodic cycles of Innovations

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An Example: Awadesh Shukla founder of Awadesh Auto Garage in Malad way back in 1989, after experiencing growth felt stagnated as most of his customers bought new cars and got their vehicles from the authorized service stations. His revival strategies included (a) Selling car accessories, Tyres and Batteries. (b) Car rental services to call centres situated in Malad. (c) Providing complete services to his clients in terms of maintenance contracts for both mechanical as well as electrical equipment including air-conditioners.
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Decline Stage Growth declines if revival strategies are short lived or ineffective. Companies in decline phase are often those that have diversified too widely or created excessively bureaucratic organization. Declining venture would have lost sight of its distinct competency in products or services that initially proved successful. Successful ventures will avoid decline as they would have enjoyed growth through product or market expansion, consolidated when necessary, and experienced a revival of growth consistent with their capabilities. This stage implies perpetuation of innovations through intrapreneurial process. 442

Organizing for Growth


Having enough capital is a major challenge facing growing entrepreneurial ventures. How much capital is necessary and from where it is going to come from. Whether enough cash reserves are there to support growth or one should attempt an initial public offering of the stock. The process of finding capital for pursuing growth is much like going through the initial financing of the venture. A successful track record helps in backing the request for additional financing and vice-versa.443

Another important issue that a growing entrepreneurial venture needs to address is finding people. Additional locations, increasing sales of current products or innovating, producing, and selling new products would need additional employees. Additional training may also be required to help employees handle the increased pressures associated with a growing organization. Maintaining good financial records and financial controls over cash flows, inventory, customer data, sales orders, receivables, payables, and costs should be priority of every entrepreneur to facilitate growth. 444

(a) (b) (c)

(d)
(e)

It is important to reinforce the controls when entrepreneurial venture is expanding. Employees values, attitudes, and beliefs i.e. the organizational culture gets reinforced during the growth for the entrepreneurial ventures continued success. Keep the lines of communication open Find out what employees are thinking and facing. Establish trust by being transparent about the challenges and rewards of being a growing organization. Provide consistent and regular feedback. Let the employees know the outcomes-good and bad. Continually train the employees enhancing their 445 capabilities and skills.

Restrained versus Rapid Growth


Restrained Growth
Restrained growth means making difficult choices about what to do, when to do, and how much to do. Restrain growth would mean, an entrepreneur may allow some opportunities to pass through because he is not prepared to exploit them. The issue that needs to be addressed would include : (a) Are you potentially forfeiting a financial goldmine? (b) Do you deliberately choose to limit your ventures financial gains now so that you can better position for the future? 446

Drawbacks of restrained growth


It might be difficult to hold on to talented people as the employees who are drawn to the excitement of a growing entrepreneurial venture might get bored or frustrated if there is a lack of innovative energy and a continual challenge to their skills and abilities. Venture may find itself quickly getting out of touch with changing technology and customer trends thereby leading to deterioration of capabilities in product innovation, customer service, marketing, or in any of the organizational functional areas, consequently heading for eventual demise.
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Rapid Growth When an entrepreneurial organization is growing at exponentials, the entrepreneur has some unique issues to deal with. Finding capital and people can be particularly difficult and frustrating. Efficiently managing cash flow, inventory, and other organizational areas becomes exceptionally important. Rapid growth can produce an organization that requires more sophisticated management, processes, procedures and infrastructure. At times, it can be chaotic and frustrating but rewards can be exhilarating. 448

Entrepreneur needs to have plans in place for securing finance, hiring employees, reinforcing a growthoriented organizational culture. Though organizational growth is desirable goal for entrepreneurial venture, growth strategies may not result in intended outcome and sometimes may result in decline in performance. Possible causes of organizational decline (1) Inadequate financial controls (2) Uncontrollable high costs. (3) New competitors. (4) No/Slow response to external/internal changes. (5) Over expansion or too rapid growth. (6) Culture clash 449

Signals of Potential Decline in Organizational Performance


1. Ineffective or poor communication within the organization. 2. Tolerance of work incompetence. 3. Fear of conflicts and taking risks. 4. Inadequate or negative cash flow

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Boiled frog phenomenon


A firm may be vulnerable to boiling frog phenomenon because the entrepreneur may not recognize the water heating up i.e. the subtly declining situation. When the changes in performance are gradual, a serious response may never be triggered or the response may be too late to salvage the situation. Entrepreneur needs to be alert to the signals of worsening situation. Dont wait until water has reached the boiling point. 451

Diversification Options for New Ventures


Market diversification 1. Expand into new customer niches with existing products. 2. Open new markets with similar products and customers in new geographic areas. 3. Expand overseas by exporting. 1. Develop new products through R& D for existing customers. 2. License or acquire products or expand merchandise line for specific market niche. 3. Expand services for clients. 4. Import products for domestic markets.
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Product diversification

Combined diversification

New products developed or acquired for new market niches in local or new geographic areas.

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References
Dynamics of Entrepreneurship Development and Management By Vasant Desai Small Scale Industries and Entrepreneurship By Vasant Desai Principles of Entrepreneurship By Satish Ailawadi & Romy Banerjee Entrepreneurship-New Venture Creation By David H. Holt Entrepreneurship in Action By Mary Coulter Entrepreneurship Development New Venture Creation By Satish Taneja & S.L.Gupta 454 Entrepreneurship By Romeo S. Mascarenhas