Sickness Industry / Sick firm

Sick industry
Sick industry refers to the Sick units in a particular industry as a whole. Example
Sickness in Textile industry ( say the factories / units in the industry as a whole are Sick ) . Refers to the general phenomena and does not refer to any particular unit in the industry.

 Sickness in Industry could be compared with the Sickness in the community. Example Malaria fever in the community. This is happening to the people of a community of a particular area and could be considered as a general phenomena. Cause may be Mosquito bite. Industry Due to natural calamity happened ( heavy rain ) in a particular territorial area Industrial units might have become Sick

Sickness in Industry

 The Industrial units can do nothing of the happenings for which it has no control but can equip themselves prepared to protect to face such unfavorable happenings.
In the example given, the people of that community can use Mosquito nets to protect themselves from Mosquitoes. In the example given , the Industrial units can consider constructing the sheds well above the floor level at the time of construction to avoid water entering the shed during rainy season.

Remedies

 Normally entrepreneurs conduct environmental scanning to know and to implement suitable strategies for managing macro environment which influences the operations of the business in all the following stages of business to avoid unit becoming Sick,
Project Identification Project planning Project implementation Project management Project development

Unit Protecting from the influences of external environment

Sick firm
Sick firm refers to the Sick unit in a particular industry . Reserve Bank of India ( RBI ) defines Sick firm as the firm incurring cash loss for two consecutive financial years and erosion of net worth of the assets of the firm to the extent of 50%. Example
Sickness happening in a Textile firm ( say Binny Mills) . Refers to sickness happening in a firm and thus refer to a particular unit in the industry.

Causes for Sickness

Causes for Sickness in Industry could be termed as Industry Sickness and the Causes for Sickness of the Firm could be termed as Sick Firm. The Sickness in Industry may result in Firm Sickness but Sickness in any one firm may not make the Industry Sick. The Industry Sickness is viewed from the Macro angle but the Firm Sickness is viewed from the Micro angle. Nothing could be done by the Firms to change the Macro environment. They can do something to some extent adjust themselves and find ways to survive in the environment.

Causes for Industry Sickness

The causes for Sickness in the industry may be because of external reasons. EXTERNAL REASONS
Political and legal ( LPG ) Socio cultural preferences ( using Computers) Natural calamities ( tsunami ) Competition ( Substitute, Industry, Form ) Technology ( State of the Technology ) Economy ( boom, recession, depression ) The industrial sickness may lead to sickness of the units of the industry.

Remedial measure for Industry Sickness

If the Industry as a whole is Sick and there exists a need to revive the Industry by taking appropriate steps at the Macro level. In the example given earlier , burning a Mosquito coil to kill all the Mosquitoes to avoid malaria. Association of the Industry asking for Tax relief from Govt through Lobbying.

contd
When there is no Industry Sickness and if some units are Sick in the industry then we can come to a conclusion that there are some problems in the management of those units which need to be attended to avoid the units becoming Sick further and also to revive the Sick unit if feasible.

Causes for Firm Sickness

The causes for Sickness in the industry may also happen due internal reasons of the firm also. The reasons for Sickness of the firms can happen at any one or more of the following stages while performing the business functions viz Marketing, Production, Finance and Human Resource Management 1) Project Identification 2) Project Planning stage 3) Project implementation stage 4) Project Maintenance stage

Factors causing Sickness during Project Identification Stage - 1

Not performing the activity of Scanning the environment properly to know the Opportunities and Threats that exist in the environment, Not performing the activity of matching the Strengths and Weakness of the Promoters with the required Strengths to manage the Project efficiently and effectively ( in terms of Management personnel, Government formalities, Marketing , Production, Finance and Human Resource Management )

Factors causing Sickness during Project Planning Stage 2 ( at Planning stage )

Marketing not estimating the quantity of Sales properly and the Product mix In Planning the Branding strategy wrongly Not Understanding the competitors strengths and weakness properly Not Understanding consumer preferences in deciding the Product mix Assuming the price of the Product at a very high rate without obtaining the feedback from the Prospective Customers of the Product.

Technical ( at Planning stage )

Technical not choosing the right technology, going wrong in the Installed capacity, not ensuring availability of Raw material, labor, accessories, packing material, etc Not ensuring availability of Utilities requirement properly not ensuring equipments and man power to implement Quality control measures and taking steps to add in the facility proposed Not locating the project in the suitable area for the Project

Government Supports ( at Planning stage )

Not verifying from the concerned Government departments on the objections / un favorable policies that exist to the business projects of the nature proposed like, whether there will be delay in obtaining licenses from the Govt authorities like Production license, Sales Tax registration, etc. Objection from Pollution control Board availability of Infra structure facilities to be provided to the proposed business projects from the Government Authorities availability of Term loan from the State Financial Institutions and Banks Whether there will be any delay in disbursing Investment subsidy given Government

 Not arriving at the correct requirement of the funds for starting / establishing the business / project. Not making adequate reserve under the Head Contingency provision for cost escalation and un foreseen expenses in the Cost of the Project Not making adequate reserve under the Head Preliminary and Pre operative expenses ( start up expenses and initial expenses )in the Cost of the Project

Financial aspects ( at Planning stage )

 Not making proper arrangement for initial Working capital funds with the commercial Bankers. Not maintaining the required Promoters capital funds in the readily available form to be brought in stages towards implementation of the Project. Not foreseeing and considering alternative arrangements in case of any delay in the release of the Govt financial support like Investment subsidy, Seed capital, etc. ( for this Bridge loan is provided by Banks as a stop gap arrangement )

contd

 Not assuming reasonable Selling price of the Product in the cost of Production and Profitability statement prepared for 5 years Not assuming reasonable Cost of the items which goes into the Production in the cost of Production and Profitability statement. Not arriving at the appropriate Debt Equity ratio for the means of finance Borrowing term loan at a very high rate of interest. Not calculating Profit After Tax to know the

contd

Factors causing Sickness Project Implementation stage

Delayed implementation compared to scheduled program Improper implementation compared to the designed program Cost escalation very much above the estimated cost of the program resulting in heavy financial strain for the Project at the initial stage itself. If the Project has not been implemented as per the set Plan it will become Born Sick Project and the Sickness will continue even after the project come into existence.

 Mal function of Marketing Function, Due to change in the external environment Marketing ,
Political and legal ( LPG ) - Ban on the Product by Govt Socio cultural preferences ( dressing style ) Natural calamities ( tsunami ) Competition ( Substitute, Industry, Form ) Technology ( State of the Technology ) land line phone to mobile Economy ( boom, recession, depression ) demand for real estate

Factors causing Sickness Project Management stage

 Mal function of Production Function,

Due to change in the external environment Production ,

Factors causing Sickness Project Management stage

Political and legal ( LPG ) Restriction on usage of Technology Socio cultural preferences ( Organic food ) Natural calamities ( climatic conditions ) Competition ( Substitute, Industry, Form ) Technology ( State of the Technology ) land line phone to mobile Economy ( boom, recession, depression ) demand for real estate during Boom period of the economy Supplier - inadequate supply of quality raw material and other materials

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

Political and legal ( LPG ) increase in Income Tax for the companies Socio cultural preferences - change in the attitude of the people towards saving from investing in business ventures Natural calamities ( need to carry more inventory due to heavy rains ) Competition ( Substitute, Industry, Form ) cost of capital Technology ( State of the Technology ) Collection of Bill through electronic media economy ( boom, recession, depression ) demand for money in the economy Supplier increasing cost of raw material ,other materials

 Mal function of H.R.Function,

Factors causing Sickness Project Management stage

Due to change in the external environment Human Resource Management,

Political and legal ( LPG ) change in the Reservation policy in the employee rolls of the company. Socio cultural preferences - change in the attitude of the women to go for employment Natural calamities (absenteeism of employees may be very high due to continuous heavy rains affecting production) Competition ( Substitute, Industry, Form ) when human resource prefers to start business of their own posing a challenge for the H.R department in mobilizing Man power resulting non availability of Man power. No rain situation for agriculture activity will result in labor force shifting to building construction activity

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Technology ( State of the Technology ) for the fast changing technology companies may find difficult to get Man power resulting in non availability of right work force economy ( boom, recession, depression ) demand for Man power becomes a major problem Supplier non availability of contracting work force may result in high labor cost for the company.

Factors causing Sickness Project Management stage

Mal function of Marketing Function, Due to change in the internal environment Marketing , Due to internal reasons
Lack of professionalism Shortage of funds for Marketing activity Product Quality problem Non cooperation of Distributors / Marketing middlemen Non cooperation of Sales personnel

Factors causing Sickness Project Management stage Mal function of Production Function,
Due to change in the internal environment production ,

Due to internal reasons

Lack of professionalism Shortage of funds for Production activity Product Quality problem Non cooperation of suppliers / service providers / middlemen Non cooperation of Production department personnel Machinery break down, Non availability of utilities, infra structure, etc

Factors causing Sickness Project Management stage

Mal function of Finance Function, Due to change in the internal environment Finance , Due to internal reasons
Lack of professionalism Shortage of funds for Finance activity Product Quality problem sales revenue and collection of Bills Non cooperation of suppliers in extending credit facility

contd
Non cooperation of Banks in extending credit facility to the company towards working capital Non cooperation of Finance department personnel

Factors causing Sickness Project Management stage

Mal function of Human Resource Management Function, Due to change in the internal environment H.R. Management , Due to internal reasons
Lack of professionalism Shortage of funds for H.R.D activity Non cooperation of Consultancy companies, etc

Remedial measure for Sick unit

If the Unit is Sick and there exists a need to revive the Industry by taking appropriate steps at the Micro level / studying the unit individually from all the angles of business, by taking up Case study research of the unit to find out what exactly went wrong in the unit and finding ways on how to overcome from the problems.

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In the example given earlier , to protect from the Mosquito bite people can use Mosquito net. Similarly Sick units can consider introducing new designs or new products to cater to the changing demand of the Customers when the Industry is facing the problem of Change in Customer preference in the Macro environment.