Economics-Paper-X-Entrepreneurship-and-Small-Scale-Industries-Englsih-Version-munotes

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MODULE 1: ENTREPRENEURSHIP

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INTRODUCTION TO ENTREPRENE UR
AND ENTREPRENEURSHIP
Unit Structure
1.0 Objectives
1.1 Concept of Entrepreneur and Entrepreneurship
1.2 Qualities of successful entrepreneurs
1.3 Role and function of entrepreneurs in economic dev elopment
1.4 Summary
1.5 Questions
1.6 References
1.0 LEARNING OBJECTIVE Entrepreneurship is the key to economic growth. A Country that fosters
innovation and Entrepreneurship will emerge the strongest in the future.
On completion of this chapter you sho uld be able to
● Concepts: entrepreneur and entrepreneurship
● Distinguish between the entrepreneur and entrepreneurship
● Understand the role and function of entrepreneurs in economic
development
1.1 CONCEPT OF ENTREPRENEURS AND ENTREPRENEURSHIP 1.1.1 Entrepr eneur:
Entrepreneurship introduces a critical element of dynamism into the
economic system. The word „ entrepreneur‟ has been taken from the
French language where it cradled and originally meant to designate an
organizer of musical or other entertainments. Oxford English dictionary(in
1897)Also defined an entrepreneurs . Any similar way as “ the director or
a manager of a public musical institution, one who gets up entertainment,
space musical performances”. It was only in the beginning of the
eighteenth c entury that the word was used to refer to economic aspects. In
this way the evolution of the concept of entrepreneurs is considered over
more than four centuries. Since then the term interpreter is used in various munotes.in

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2 Introduction to Entrepreneur and Entrepreneurship ways and various views. These views are br oadly classified into three
groups namely risk bearer organiser and innovators.
Richard cantillon, an Irish man Living in France, was the first who
introduced the term „entrepreneur, And his unique risk bearing function in
Economics in in the early 18th century. He defined entrepreneur as an
agent who by factors of production at certain prices in order to combine
them into a product with a view to selling it in it uncertain prices in future.
Knight also described Entrepreneur to be a specialised group of persons
who wear uncertainty. Uncertainty is defined as a risk which cannot be
insured against and is incalculab le .He thus , Draws a distinction between
ordinary risk and uncertainty. are risk cannot be reduced through the
insurance principle where the dis tribution of the outcome in a group of
instances is known full stop on the contrary, Uncertainty is the risk which
cannot be calculated. The entrepreneur , According to Knight ,is the
economic functionary Who undertakes such responsibilities of uncertainty
which by its very nature cannot be insured nor capitalised nor salaried
too.
Jean-Baptiste Say , an aristocratic industrialist ,with his unpleasant
practical experiences developed the concept of Entrepreneurs .His
definition Associates Entrepreneurs With the function of coordination,
organisation and supervision .
Joseph A Schumpeter ,For the first time in 1934 , assigned a crucial role of
innovation to the entrepreneurs in his magnum opus‟ theory of economic
development‟ Schumpeter Considered economic dev elopment as a
discrete dynamic Change bought by the entrepreneurs by instituting new
combination of production i .e. Innovation. The introduction of new
combination of factors of production, according to him, MI roca in any
one of the following five forms :
1. The introduction of new products in the market.
2. The instituting of a new production Technology which is not attested
by experience in the branch of manufacture concerned.
3. The opening of a new market into which the specific product has not
previously entered.
4. The discovery of a new source of supply of raw material.
5. The carrying out of the new form of organisation of any industry by
creating a Monopoly position for the breaking up of it.
In some the concept of entrepreneur is intimately associated with the three
elements - wrist wearing, organising and innovating. Thus, an entrepreneur
can be defined as a person who tries to create something new, organizes
products and undertakes risk and handles economic uncertainty involved
in Enterprise .
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3 Entrepreneurship and Small Scale Industries 1.1.2 Entrepreneurship :
In a Conference on entrepreneurship held in the United States, the term
entrepreneurship was defined as follows;
Entrepreneurship is the attempt to create value through recognition of
business opportunity, the management of ris k-taking appropriate to the
opportunity, and through the communicative and management skill to
mobilize human, financial and material resources necessary to bring a
project to fruition.‟‟
In the opinion of A.H. Cole,” Entrepreneurship is the purposeful act ivity
of an individual for a group of associated individuals, undertaken to
initiate, maintain or aggrandize Profit by production distribution of
economic goods and services.‟‟
According to Schumpeter ,‟‟Entrepreneurship is based on purposeful and
systemat ic innovation . it included not only the independent businessman
but also company directors and manager who actually carry out innovative
functions.‟‟
In all above definitions, entrepreneurship refers to the functions
performed by entrepreneurs in establ ishing an enterprise. Just as
management is regarded as what managers do, entrepreneurship may be
regarded as what entrepreneurs do. In other words, entrepreneurship is the
act of being and intrapreneur. Entrepreneurship is a process involving
various acti ons to be undertaken to establish an enterprise .It is ,thus, the
process of giving birth to a new enterprise.
Innovation and risk taking are regarded as the two basic elements involved
in entrepreneurship. lyrics understand what these terms actually mean.
Innovation - innovation means doing something new or something
different in a necessary condition to be called a person entrepreneur.
Risk--Bearing -Starting a new enterprise always involves this and trying
for doing something new indifferent is also risky. An Entrepreneur needs
To be bold enough to assume the risk involved in the Enterprise. Infect he
needs to be a risk -taker, not a risk -avoider. is the risk -taking ability and
enable him even if he fails in one time or one venture to persist on and on
which ultimately helps him succeed. the Japanese proverb applies to him ‟‟
fall seven -time, stand up eight ‟.
1.1.3 Relationship between Entrepreneur and Entrepreneurship :
The term entrepreneurs is often used interchangeably With
entrepreneurship but conceptual ly they are different, they are just like the
two sides of a coin. Entrepreneurs and entrepreneurship are correlated. An
entrepreneur is a person and Entrepreneurship is a verb or action we can
easily understand the difference between these two concepts by the
following table:
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4 Introduction to Entrepreneur and Entrepreneurship Table No. 1.1 SR No. Entrepreneur (PERSON) Entrepreneurship (ACTION, ACTIVITY) 1 Administrator administration 2 able ability 3 Aimer Aim 4 analyzer analyst 5 adopter adopting 6 accelerator accelerating 7 accountant accounting 8 Builder building 9 balanced balancing 10 Believer belief 11 brilliant brilliance 12 Bold Boldness 13 creator of value and trust creativity 14 character values 15 Considerator consideration 16 Courageous courage 17 Communicator comm unication 18 competitor competitive 19 capitalist capital venture 20 confident cultured collaborative culture 21 dreamer dreams 22 designer designs 23 director direction 24 decision maker decision making 25 delegator delegation 26 dominant player focused 27 educator education 28 empowerer empowerment 29 excellor excelling 30 ethical ethics 31 Facilitator facilitating 32 foresighter foresight 33 Futurist futuristic 34 goal setting goal setting 35 growth fixer growth oriented 36 humble humanity 37 honest honesty 38 human humanity 39 initiator initiating 40 investor investing 41 innovator innovation 42 inspirer inspiring 43 integrator integrity 44 ignitor igniting munotes.in

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5 Entrepreneurship and Small Scale Industries 45 Imaginator Imagination 46 Intellectual intelligence 47 informar information 48 knowledged knowledge 49 leader leadership 50 leverager leveraging 51 learner learning 52 mentor confidence building 53 motivator motivation 54 marketier marketing 55 net-worker Net-working 56 nurturer nurturing 57 Organiser organisation 58 opportunist Opportunities 59 planner programming 60 producer production 61 Performer Performance 62 partner partnership 63 positioner Positioning 64 packager packaging 65 promoter promotion 66 passion- player passinate 67 Risk bearing risk taking 68 responsible responsibility 69 reinventor Re-Inventing 70 Re-engineer Re-engineering 71 skilled skills 72 Striver starving 73 Strategist Strategy 74 salesman selling 75 talented talent 76 trainer training 77 trendsetter trendsetting 78 technologist Technology 79 transformer transforming 80 venturist venturing 81 visionary vision 82 Visualizer visualisation 83 wealth creator wealth creation 84 wizard specialist
1.2 QUALITIES OF SUCCESSFUL ENTREPRENEUR The characteristics of an entrepreneurship that contribute to success are
the result of his achievement and motivation and entrepreneurs who has a
higher level of Administrative capability, Flair and ability for decision
making, computational skill, delegation skill, good at communication and
has a sound technical knowledge stands a much better chance of success munotes.in

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6 Introduction to Entrepreneur and Entrepreneurship than his counterpart who process is done or lower level of these basic
qualities.The entrepreneurial qualities are -
1. Mental ability :
Mental ability consists of Int elligence and creative thinking. Entrepreneurs
must be reasonably intelligent, and should have creative thinking and must
be able to engage in the analysis of various problems and situations in
order to deal with them.
2. Clear objectives :
In entrepreneur s should be a clear objective was to the exact nature of the
business, the nature of his goods to be produced and subsidiary activities
to be undertaken. A successful entrepreneur may have the objective to
establish the product, to make profit or to ren der social service.
3. Business secrecy :
An entrepreneur must be able to guard business secrets. leakage of
business secrets to trade competitions is a serious matter which should be
carefully guarded against by entrepreneurs .An entrepreneur Should be
able to make a proper selection of his assistants.
4. Human Relationship ability :
The most important personality factors contributing to the success of
entrepreneurs are emotional stability, personal relations, consideration and
tactfulness. in entrepreneur must maintain good relation with his
customers if he has to establish relations that will encourage them to
continue to patronise this business.
5. Communication ability :
This ability pertains to communicating effectively. Good communication
also means th at both the sender and receiver understand each other and are
understood. An entrepreneur who can effectively communicate with
customers, employees, suppliers and creditors will be more likely to
succeed than the Entrepreneur who does not.
6. Technical kno wledge :
An entrepreneur must have a reasonable level of technical knowledge.
This is the one ability that most people are able to acquire if they try hard
enough.
7 .Hard working :
Willingness to work hard distinguishes successful entrepreneurs from
unsucce ssful one. The Entrepreneur with his tedious, sweat -filled hours
and perseverance revive their business even from on verge of failure.
Most successful entrepreneurs work hard endlessly.
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7 Entrepreneurship and Small Scale Industries 8. Highly optimistic :
The successful entrepreneurs are not dist urbed by the present problems
faced by them. They are optimistic that the situation will become
favourable to business in the future. Thus they can run their Enterprise
successfully in future.
9. Good organizer:
Different resources required for production are divorced from each other.
It is the ability of the entrepreneurs that bring together all resources
required for starting up an enterprise and then produce goods.
10. Innovative :
Innovation in production is the main source of attraction for consumers. In
view of the changing taste of customers from time to time, entrepreneurs
initiate Research and innovative activities to produce goods to satisfy the
customers, changing demand for the products. The research institutions
established by Tata Birla Kirlo skar,etc. are examples of innovative
activities taken by the successful entrepreneurs in our country.
11. Self discipline :
Self discipline is the single most important quality for success in life and
business. If you can discipline yourself to do what you should do, whether
you feel like it or not, your success is Virtually guaranteed. self discipline
requires self mastery, self control, self responsibility and self direction
12. Persistence :
Persistence is the iron quality of character. Persistence is the character of
a man as carbon is to Steel. and indispensable qualities that go hand in
hand in hand with all great success in life. Here is one of the great secrets
to persistence and success. program your subconscious mind for
persistence well in advance of the setback and disappointment that you are
going to have on your upward Quest towards success.
There is a never ending debate on whether entrepreneurs are born or
made . What we can say that Successful entrepreneurs are never satisfied
and have the ha bit of work long hours. Entrepreneurs are usually pretty
disciplined about getting things done on their own terms.
1.3 ROLE AND FUNCTION OF ENTREPRENEURS IN ECONOMIC DEVELOPMENT Entrepreneurship has been identified by many economists as an important
force in the process of industrialization in particular and economic
development in general. Economic development essentially means a
change but at the same time, it is very difficult to define precise economic
development should be realized that the term econom ic development does
not express the idea of the total development of society. It focuses on only
one aspect. And a dimension of general development. Economic munotes.in

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8 Introduction to Entrepreneur and Entrepreneurship development can be defined as a step towards even more efficient and
differentiated ways of supply ing people with requirements for survival and
improvement. The entrepreneur is the key to the creation of new
enterprises. Activate the economy and rejuvenate established enterprises
that make up the economic structure. Entrepreneurs initiate and sustain t he
process of economic development in the following ways:
1. Wealth Creation and Sharing:
By establishing the business entity, entrepreneurs invest their own
resources and attract capital (in the form of debt, equity, etc.) from
investors, lenders and the public. This mobilizes public wealth and allows
people to benefit from the success of entrepreneurs and growing
businesses. This kind of pooled capital that results in wealth creation and
distribution is one of the basic imperatives and goals of economic
2. Create Jobs:
Entrepreneurs are by nature and definition job creators, as opposed to job
seekers. The simple translation is that when you become an entrepreneur,
there is one less job seeker in the economy, and then you provide
employment for multiple ot her job seekers. This kind of job creation by
new and existing businesses is again is one of the basic goals of economic
development. This is why the Govt. of India has launched initiatives such
as Startup India to promote and support new startups, and als o others like
the Make in India initiative to attract foreign companies and their FDI into
the Indian economy. All this in turn creates a lot of job opportunities, and
is helping in augmenting our standards to a global level.
3. Balanced Regional Developme nt:
Entrepreneurs setting up new businesses and industrial units help with
regional development by locating in less developed and backward areas.
The growth of industries and business in these areas leads to infrastructure
improvements like better roads a nd rail links, airports, stable electricity
and water supply, schools, hospitals, shopping malls and other public and
private services that would not otherwise be available.
Every new business that locates in a less developed area will create both
direct a nd indirect jobs, helping lift regional economies in many different
ways. The combined spending by all the new employees of the new
businesses and the supporting jobs in other businesses adds to the local
and regional economic output. Both central and stat e governments
promote this kind of regional development by providing registered MSME
businesses various benefits and concessions.
4. GDP and Per Capita Income:
India‟s MSME sector, comprised of 36 million units that provide
employment for more than 80 mil lion people, now accounts for over 37%
of the country‟s GDP. Each new addition to these 36 million units makes
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9 Entrepreneurship and Small Scale Industries and services that add to the national income, national product and pe r
capita income of the country. This growth in GDP and per capita income
is again one of the essential goals of economic development.
5. Standard of Living:
Increase in the standard of living of people in a community is yet another
key goal of economic dev elopment. Entrepreneurs again play a key role in
increasing the standard of living in a community. They do this not just by
creating jobs, but also by developing and adopting innovations that lead to
improvements in the quality of life of their employees, customers, and
other stakeholders in the community. For example, automation that
reduces production costs and enables faster production will make a
business unit more productive, while also providing its customers with the
same goods at lower prices.
6. Ex ports:
Any growing business will eventually want to get started with exports to
expand their business to foreign markets. This is an important ingredient
of economic development since it provides access to bigger markets, and
leads to currency inflows and access to the latest cutting -edge technologies
and processes being used in more developed foreign markets. Another key
benefit is that this expansion that leads to more stable business revenue
during economic downturns in the local economy.
7. Community Development:
Economic development doesn‟t always translate into community
development. Community development requires infrastructure for
education and training, healthcare, and other public services. For example,
you need highly educated and skilled worke rs in a community to attract
new businesses. If there are educational institutions, technical training
schools and internship opportunities, that will help build the pool of
educated and skilled workers.
8. Backward and Forward link :
An entrepreneur initia tes change in which there is a chain reaction. There
are many backward and forward linkages in establishing an enterprise. For
example, the setting up of a steel plant creates many ancillary units, and
the demand for iron ore, coal, etc. expands. There are backward
relationships. By increasing the supply of steel, the plant facilitates
machine manufacturing, tube making, vessel manufacturing, and the
development of other such units.
Entrepreneurs create an atmosphere of enthusiasm and express a sense of
purpose. They give an organization its momentum. Entrepreneurial
behavior is critical to the long -term vitality of every economy. The
practice of entrepreneurship is as important for established firms as it is
for newcomers.
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10 Introduction to Entrepreneur and Entrepreneurship 9. Reducing tension and unrest am ong youths :
Many problems associated with youth unrest and social tension are rightly
considered to be due to youth not being engaged in productive work. In
the changing environment where we are faced with the problem of
recession in wage employment opport unities, the alternative to a wage
career is the only viable option. the country is required to invert the youth
with latent entrepreneurial traits from wage careers to self -employment
careers. Such an alternate path through entrepreneurship could help th e
country in defusing social tension and unrest amongst youth.
10. Innovation in Enterprises:
Business enterprises need to be innovative for their survival and better
performance. It is believed that smaller firms have a relatively higher
necessity and cap ability to innovate. The smaller firms do not face the
constraints imposed by a large investment in existing technology. Thus
they are both free and compelled to innovate. The National Science
Foundation, an organization in the USA found that small compani es
produce four times more innovations per research dollar than do bigger
companies. Entrepreneurship development programs are aimed at
accelerating the pace of the small firm‟s growth in India. an increased
number of small firms is expected to result in m ore innovations and make
the Indian industry compete in the international market.
11. Reduces Concentration of Economic Power :
Economic power is the natural outcome of industrial and business activity.
Industrial development normally leads to concentrati on of economic
power in the hands of a few individuals which results in the growth of
monopolies. In order to redress this problem a large number of
entrepreneurs need to be developed, which will help reduce the
concentration of economic power amongst the population.
12. Wealth Creation and Distribution:
It stimulates equitable redistribution of wealth and income in the interest
of the country to more people and geographic areas, thus giving benefit to
larger sections of the society. Entrepreneurial activ ities also generate more
activities and give a multiplier effect in the economy.
13. Facilitates Overall Developmen t:
Entrepreneurs act as catalytic agent for change which results in chain
reaction. Once an enterprise is established, the process of indu strialization
is set in motion. This unit will generate demand for various types of units
required by it and there will be so many other units which require the
output of this unit. This leads to overall development of an area due to
increase in demand and setting up of more and more units. In this way, the
entrepreneurs multiply their entrepreneurial activities, thus creating an
environment of enthusiasm and conveying an impetus for overall
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11 Entrepreneurship and Small Scale Industries 1.4 SUMMARY Entrepreneurship Is an attitu de of the mind ca n take risks but calculate
ones, A true entrepreneur is one who can see possibilities in a given
situation Where others see none and has the patience to work out the idea
into a scheme to which financial support can be provided.
1.5 QUEST IONS Q1. Explain the concept of entrepreneurs and differentiate between
entrepreneur and entrepreneurship.
Q2. What are the main qualities of successful entrepreneurs?
Q3. What is the role and function of an entrepreneur in the economic
development of a co untry?
Q4. Give s hort notes on:
A. Concept of entrepreneurs
B. Concept of entrepreneurship
C. Main qualities of entrepreneurs
D. Role of entrepreneur
E. Functions of entrepreneurs.
1.6 REFERENCES  Dr. Desai Vasant , Small Scale Industries and Entrepr eneurship ,
HIMALAYA PUBLISHING HOUSE , New Delhi Second Edition -
2008. Page -332-505.
 Khanna C S, Entrepreneurship Development, S Chand and Company.
 Murthy C.S.V.Small Industries and Entrepreneurship Development
,Himalaya Publication.


*****
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12 2
FACTORS AND CHALLENGES OF
ENTREPRENEURSHIP
Unit Structure
2.0 Objectives
2.1 Factors influencing entrepreneurship
2.2 Challenges before women entrepreneurship.
2.3 Conclusion
2.4 Questions
2.5 References
2.0 OBJECTIVES  Discuss factors influencing en trepreneurship
 Describe challenges faced by women for entrepreneurship
development.
2.1 FACTORS INFLUENCING ENTREPRENEURSHIP Entrepreneurship Development makes a powerful impact on the economic
development of the country. The success of the entrepreneur de pends on
the environmental factors such as social, economic, legal, political and
technological factors which influence their activities thus leading to
successful entrepreneurship. The socio -economic factors are the major key
factors influencing the entre preneurial behavior and operation of the
business and thus the need for the study and the due influence.
Emergence and development of entrepreneurship is not a spontaneous but
a dependent phenomenon of Economics, social, political and
psychological factor s Aur treated as supporting condition to
entrepreneurship development. These conditions may have positive and
negative influence on the emergence of entrepreneurship whereas
negative influences create inheritance due to the emergence of
entrepreneurship. For Analytical purpose These factors are grouped under
two categories -
1. Economic factors
2. Non economic factors
1. Economic factors :
The factors which promote economic development account for the
emergence of entrepreneurship from economic point of view are following
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13 Factors and Challenges of Entrepreneurship A. C apital :
Capital is one of the most important prerequisites to establish an enterprise
availability of capital facilitates the entrepreneurs to bring together the
land of one machine to another and from itself off at another to combine
them through them to produce goods. Capital is therefore regarded as
lubricant to the process of production.
B. Labour :
Quality that point of labour is another factor which influences the
emergence of entrepreneurship. Adam Smith also considered division of
labour as an important element in economic development.According to
him, division of labour which itself depends upon the size of the market
leads to improvement in the productive capacity of labour due to an
increase in the dexterity of labour.
C. Raw material :
The necessity of raw material hardly needs any emphasis on establishing
any industrial activity and, therefore, its influence in the emergence of
entrepreneurship. In the absence of raw material, neither any enterprise
can be established nor ent repreneurs can emerge. Of course in some cases
technological innovation can compensate for raw material inadequacies.
D. Market :
The fact remains that the potential of the market constitutes the major
determinant of probably rewards from entrepreneurial f unction.The size
and composition of market both influence entrepreneurship in their own
way. Practically, monopoly in a particular product in a market become
more influential for entrepreneurship than a competitive market .Whether
or not the market is exp anding and the rate at which it is expanding is the
most significant characteristics of the market for entrepreneurial
emergence.
E. Lack of basic infrastructure :
Basic infrastructure facilities like transportation, communication, banks,
insurance, water, electricity, raw materials, stock exchange, Marketing
Services, capital market, organised marketing etc. have not been up to the
mark in India.
F. Unproductive expenditure :
The Indian capital has always been Sahi. Indian people either keep their
savings head and or spend it for unproductive purpose ,Like on marriages,
religious festivals, and occasions feast on death, birthday celebration fix
property, luxury goods and likewise .As a result capital resourcesRequired
for the establishment of new and indust ries are not sufficiently available
and it blocks the entrepreneurship development.
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14 Entrepreneurship and Small Scale Industries
14 G. Lack of education training facilities :
Education and training facilities related to entrepreneurship skills lack in
India. Although some training Institutions and Tech nical Education
institution have been established a private and government sector after
independence these are not any adequate to prepare a new entrepreneurs,
Because the type of Education and Training provided there in is like that
of degree providing i nstitutions .
H. Deficiency of capital :
As compared to the people Western countries Indian people at large are
not capable of maintaining their living standard due to price rise only the
capitalist class has the courage to establish industries. The contri bution of
the banks and Financial Institutions in establishment and expansion of
industries in India has also been insufficient. Loans given to the
establishment of industries are not easy terms and conditions, interest rates
are also very high.
I. Competi tion with big industrial houses :
In India business activities are centralized in the hands of few industrial
houses. They have a Monopoly in business, similarly priorities are being
accorded only to public sector industries in the country, Hence the
entrance of new entrepreneurs remains Limited.
J. Lack of technostructure :
Professional managers, experts and trained employees are required for
efficient operation of the companies and public sector enterprises it termed
as technostructure, in India lack of technostructure makes the
entrepreneurs feel hesitation of taking risk of the big business.
K. Low expenditure on research and development :
The entrepreneurs regard expenditure on research and investigation is
unnecessary. As a result Innovations do not g et encouraged. The Indian
entrepreneurs incur Expenditure on research and development only for
strategy formation for competitions, whereas expenditure incurred on
research and development is a long term investment in the real sense.
L. Insufficient gover nment facilities and incentives :
In India the development of infrastructure facilities is quite inadequate, in
backward areas the entrepreneurs are unable to establish Industries
because sufficient incentives are not being provided by the government to
the entrepreneurs in the form of allotment of suitable land sources of
energy and other required infrastructure facilities.
M. Competition with big industrial houses :
In India business activities are centralised in the hands of few industrial
houses. They ha ve a Monopoly in business, similarly priorities are
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15 Factors and Challenges of Entrepreneurship of establishing a new industry, the reason being that he is not in a position
to compete with the big industrial houses hence the entrance of new
entrepreneurs remains Limited.
2. Non -Economic factors:
Sociologists and psychologists advocate that economic factors may be
necessary conditions, but they are not sufficient conditions for the
appearance of entrepreneurship. The influence of economic factors on
entrepreneur emergence largely depends upon the existence of non -
economic factors i. E., Social and psychological factors in society. some
major non -economic factors are listed to influence the emergence of
entrepreneurship can be li sted as follows -
A. Social conditions :
Legitimacy of entrepreneurship in the degree of approval or disapproval
granted entrepreneurial Behaviour influences its emergence and
characteristics if it does not emerge. While Schumpeter Recognises the
importance of such legitimacy in terms of appropriate social climate for
entrepreneurship. The social status of those playing Entrepreneurial roles
has been considered one of the most important cont ents of entrepreneur les
B. Social mobility :
Social mobility involve s the degree of mobility, both social and
geographical, and the nature of the mobility channel within a system. The
opinion that social mobility is a procedure for entrepreneur emergence is
not unanimous send holds the view that a high degree of mobility i s
conducive to entrepreneurship.
C. Social Marginality :
A group of Scholars holds I strongly believe that social marginality also
promotes entrepreneurship. We believe that individuals or groups on the
perimeter of a given social system or between the tw o social systems
provide the person to assume the entrepreneurial roles. They may be
drawn from religious, cultural, ethnic, or migrant minority groups, and
their marginal social position is generally believed to have psychological
effects which make entre preneurship particularly attractive for them.
D. Cultural v alues:
The cultural values have negotiated the entrepreneurship development and
growth. in Indian culture most IMP faces has not been given on material
gains, personal wealth, economic changes and high living standard and
hence Our ideal has always been simple living and high thinking. It has
proved to be an obstacle for entrepreneurship development.


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16 Entrepreneurship and Small Scale Industries
16 Many Entrepreneurial theories have pronounced theories of
entrepreneurshi p that concentrate especially on psychological factors be
considered this theory separately for that reason -
Need Achievemen t:
To the best of our knowledge, the best known primary psychological
theory is David McClelland's Theory of need achievement. acco rding to
David McClelland,

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17 Factors and Challenges of Entrepreneurship In 1988, for the first time, the definition of women entrepreneurs,
enterprise was evolved that turned age small scale industry unit managed
by one or more women entrepreneurs in propri etary concerns, in which sea
individually or jointly have a share capital of not less than 51 % as
partners/ Shareholders/ directors of a private limited company/ members
of a cooperative society as a women Enterprise.
Women entrepreneurs have been on the Indian business scene for quite
some time now and have achieved remarkable success. women
entrepreneurs as a group come into prominence in the late 1970 is. the
information contained in the second all India SSI Census,19 87 -88 shows
that about 7.7% Of the small Enterprises were owned by women. Industry
group -wise, The most popular activity of women entrepreneurs was food
processing followed by garment making. Realising the great untapped
potential, The government has been making concerted efforts to
chann elize the skills and talent of women towards economic and business
generating activities. But woman faces a lot of challenges to start their
own business.
The emergence of entrepreneurs in a society Depends to a great extent on
the economic, social, religi ous, cultural, and psychological factors
prevailing in the society. Women entrepreneurs have been making a
significant impact in all segments of the economy in Canada, Great
Britain, Germany, Australia, and the United States. The areas where
women particip ate are retail trade, restaurants, hotels, education, culture,
cleaning, insurance, and manufacturing. I have made their marks in
business for the following reasons :
I. They want new challenges and opportunities for self -fulfillment.
II. They want to prov e their mettle in innovation and competitive jobs.
III. They want the change to control the balance between their family
responsibilities and their business lives.
Although Some women entrepreneurs have excelled in their Enterprise,
the fear of success o n women in general. Some psycho -social factors
impeding the growth of women related in shape are as follows -
1. The problem of finance
2. The poor self -image of women -
3. Inadequate motivation
4. Discriminating treatment
5. Faulty socialization
6. Role conflict
7. Cultural value
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18 Entrepreneurship and Small Scale Industries
18 9. Inadequate encouragement
10. lack of social acceptance
11. Unjust social, economic, and cultural system
12. Afraid of failure and criticism
13. Lack of freedom of expression
14. Susceptible to the negative attitude
15. Non-persistent attitude
16. No dignity of labor
17. Lacking in leadership qualities
The new industrial policy of the Government of India has especially
highlighted the need for a special entrepreneurship deve lopment program
for Women entrepreneurs in the nature of product process -oriented
courses to enable them to start small -scale industries. It further adds that
the objective of this course is to give a representation of two women in the
field of small indus try development with a view to uplifting their status in
the economic and social field. Adequate infrastructural support by one
single coordinating or nodal agency to facilitate the flow of advocate
working capital, Technology, electricity, land, and marke ting for rural
women entrepreneurs may be helpful and mobile training centers should
be opened. Post -training follow -up is vital for the success of
entrepreneurship development programs.
2.3 CONCLUSION Today, there is a great awakening among women. given an opportunity,
they will deliver the results. In education, we have not only excelled but
also become top makers. Likewise, in office and industry, many have
shown brilliant results. Even in rural India with education, Women have
shown better performance. Educating women is absolutely essential in
straightening her personality. The need of the hour is to provide an
opportunity in a conductive atmosphere free from gender differences. The
need for awareness, motivation to be an active member of society, and
courage to correct the faults of male counterparts are great challenges
today.
2.4 QUESTIONS 1. What are the economic factors affecting entrepreneurship
development in India?
2. What are the non economic factors affecting entrepreneurship
development in I ndia? munotes.in

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19 Factors and Challenges of Entrepreneurship 3. What are the main challenges faced by women in India to start
entrepreneurship?
2.5 REFERENCES  Dr. Desai Vasant , Small Scale Industries and Entrepreneurship ,
HIMALAYA PUBLISHING HOUSE ,New Delhi Second Edition -
2008.Page -332-505.
 Khanna C S, Ent repreneurship Development, S Chand and Company.
 Murthy C.S.V. Small Industries a nd Entrepreneurship Development ,
Himalaya Publication.


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20 MODULE 2 : STARTING A NEW
VENTURE
3
PROJECT IDENTIFICATION AND
REGISTRATION OF SMALL SCALE
ENTERPRISE
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 Small scale enterprise: meaning and definition
3.3 Project identification, Selection and Formulation
3.4 Project Report
3.5 Registration of a new Small Scale Enterprise
3.6 Sources of Finance for a Business
3.7 Questions
3.8 References
3.1 OBJECTIVES After going through this chapter you will be able to understand the
following features:
By the end of this unit you will be able to :
 Understand the importance of small scale industries for Indian
Economy
 Understand the process of project identification and the steps involved
in project selection and formulation
 Understand the process of how to s tart a small scale business and get
it registered with the concerned authorities
 Understand how business organizations raise funds for operations and
expansion of business.
3.2 INTRODUCTION Small scale industries are playing a vital role in the economics g rowth and
development of our nation. For a developing country like India with a vast
population; small scale industries are very essential as it provides
employment to many people and has potential to fulfill demand for
various goods and services in the ma rket. Currently India needs job
providers more than job seekers and hence this chapter will help students munotes.in

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21 Project Identification and Registration of Small Scale Enterprise to get insight about how to identify, select and formulate a feasible project.
Further this chapter also discusses about the procedure that one can fo llow
to register and start his own small scale business. Information regarding
how funds can be raised to start, operate and expand a business
organization is also discussed in this chapter.
3.3. SMALL SCALE ENTERPRISE: MEANING AND DEFINITION According to the MSME Act 2006, a small scale enterprise is a business
unit in which investment in capital should not be less than Rs.25 lakhs and
should not exceed Rs.5 crore if involved in manufacturing business. If the
small -scale enterprise is not a manufacturing unit but rather a service
provider then its investment in capital should not be less than Rs.10 lakhs
and should not exceed Rs.2 crore.
However as per the revised classification of the MSME act 2006 w.e.f. 1st
July 2020 the distinction between service prov ider and manufacturing unit
is removed. According to the revised classification; a small -scale
enterprise should have more than Rs.1 crore invested in capital but not
exceeding Rs.10 crore. Also the annual turnover should be more than Rs.5
crore but should not exceed Rs.50 crore.
3.4 PROJECT IDENTIFICATION - SELECTION AND FORMULATION Project identification necessitates the steps involved in acquiring
knowledge about the project and identifying the same. The way a project
is to be formulated and the format f or preparing a detailed report of the
project are also to be developed in a proper manner. The identification of
the project is done through analysing the problem which is being
discussed in the project, also by examining the feasibility and scrutinizing
the framework. The process of project identification means the findings
related to the practicality and readiness of the project. Some of the
important factors which help in project identification would include:
Analysis of the situation:
This plays an impo rtant role in understanding the problem or situation for
which the project is being proposed and whether the outcome of the
project would help in solving the problem or the situation that prevails
therein.
Feasibility:
According to Bisht and Pattanaik, fe asibility of the project is whether the
company can work out into something which would be financially and
logistically suitable for them or not. This involves analysing and
inspecting the physical locations, layout plans, logistics, finances and
many othe r factors that are available. Besides this, checking whether the
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22 Entrepreneurship and Small Scale Industries
22 Potential:
It is also pertinent to find out whether the raw materials, manpower,
human resources and other energy would be available for the project to be
potentially successful.
Verification of reports:
There are reports from various organizations, researchers, government and
non-government organizations and these reports have to be taken into
account while identif ying the project so as to ensure that the project does
not become futile and also to examine the benefits the said project would
ensure to address the situation or problems.
The major issues related to the policy -making of the project and the
outcome of i t have to be recognised and made sure that they cater to as the
most suitable solution. Thereafter the costs and other financial aspects
have to be finalised and in case of any future delay, probable issues which
might cause delay of the finalisation of th e project should also be
approximately analyzed. Lastly, scrutiny has to be made as to whether the
project would face any political or bureaucratic hurdles and how to come
out from such problems giving a sense of relief to the beneficiaries and
other stake holders involved in the project.
Project formulation requires the drafting of a proposal for the project in
order to approach the sponsors for the said project, the said proposal shall
consist of the project ideas, the strategies behind working out the pr oject,
the related activities which shall be involved and the results which are
being expected after the successful completion of the project.
The preparation and formulation of the project involve the fulfilment of
the various essential requisites of the various stakeholders, beneficiaries
and other agencies related to the said project. In short, the project
formulation involves the cumulative test of the feasibility of the factors
which include economic, technical, institutional and environmental
factors .
Economic factors involve the testing of the marketability of the project,
the competitors prevailing in the markets who would adopt the same
project, the potential sources of revenue and future markets and sales
projection. According to Kurosaki, the te chnical factors would be the
physical location, availability of raw materials, human resources and
effective management. Institutional factors are that of the development
schedule, delivery timings, business culture etc. Lastly, the environmental
factors l ike the resources required, sustainable modes of development,
reasons of pollution etc.
Thus, while incorporating a project all these factors and situations are to
be kept in mind, especially in a populous country like India wherein the
economic, social an d political factors play an important role in
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23 Project Identification and Registration of Small Scale Enterprise 3.5 PROJECT REPORT A business requires a complete analysis and documents that provide a
complete understanding of its business plan. It gives an account f or project
reports and ensures the procedure of a proposed business. In India, around
63.4 million SMEs are stimulating business which contributes around 30%
of GDP. It has been seen that project reports follow a basic structure that
incorporates the funda mental knowledge regarding an organization.
There are a few things that need to be included while making a project
report. First, giving general information regarding the purpose of the
report is essential. Afterwards, having a summary of overall findings can
provide a briefing which is highly essential for readers. A project report
particularly based on an MSME, which must be introduced in the initial
part of the writing. Then it is essential to describe the project, including its
location, promotional st rategy, resources, and others. The marketing plan
description is also essential, incorporating target audience, segmentation,
budget, target market, and others. Denoting operating costs is also
important as it showcases an estimated budget of the project.
It should also consist of financial aspect of the proposed plan by an SME.
Such as cash flow statement and fund flow statement. This keeps
preparing a company for the next 2 to 3 years. In addition, an
implementation plan of project brief after considerin g all factors of a
project.
3.6 REGISTRATION OF A NEW SMALL SCALE ENTERPRIS In a developing economy like India, MSME plays an important part as it
contributes highly to the economic growth and development. In India, it
has been identified that MSME has bec ome operational in the year 2006
and develops, facilitates, and promotes competitiveness in business. There
are many benefits of getting registered under the MSME act like, it
provides loans with rates of 1% to 1.5%. It allows a credit of “Minimum
Alternat e Tax (MAT)” for 15 years with several concessions for new
businesses. It also helps acquire government tender easily, barcode
facilities and exemption scheme for direct tax.
Nearly 460 million people are employed in MSMEs that produce around
33.4% of Ind ia’s total output. Currently, MSME follows an online
registration process found in the Indian governmental portal, which is
“Udyam portal (udyamregistration.gov.in)”. There are mainly two
categories of registration. First one is for new entrepreneurs who a re not
registered yet. They need to go to the online portal and register themselves
to click “generate One Time Password (OTP) button.” Then it generates
the “Permanent Account Number (PAN)” verification page and needs to
write the organisation type and va lidate the PAN. Later, entrepreneurs are
required to fill up their details as well as brief regarding their organisation.
Some of the documents required for the registration are Aadhaar Card of
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24 Entrepreneurship and Small Scale Industries
24 record for business registration. Other than that, PAN needs to be linked
with “Goods and Services Tax (GST)” for registering it. However, GST
registration is not a mandatory for registering an MSME business. In
India, the Udyam portal is completel y free for registering new
entrepreneurs’ businesses to promote start -up culture among people. After
completing this registration, getting an online registration certificate is
another significant part of starting a business. Entrepreneurs are required
to open a portal and log in by entering their credentials to get the
certificate for future facilities.
3.7 SOURCES OF FINANCE FOR A BUSINES S The major sources of finance for a business in India can
be classified into:

1. Loans from Bank s:
The banking sec tor acts as the major source of finance for a business
organization. The commercial Banks in India provide funds to the
businesses against any mortgage like guarantee of Government securities,
company stocks etc. it is found that banks also invest in purchasi ng
debentures from the companies, but the banks are very less inclined to
invest in company shares because these debentures can be sold by the
banks at the time of need to recover the said money left to the business.
These loans are given on the basis of c redit or sometimes through
overdraft facilities. Bank loans are very much helpful for the business
enterprise to lay a strong foundation and once it gets a good holding in the
market, then the credit facilities and overdraft limits are also enhanced by
the banks depending upon the repayment structure and credit score of the
business.
2. Self-finance :
The smartest and easiest way of investing by the business enterprise is
self-funding. The funds are not only limited to what these enterprises can
invest o n their own but also includes money lent from banks and other
financial institutions. Sometimes Governments fund certain businesses. By
using self -finance there is every possibility of savings and smart
investments. According to a study conducted by a rese archer named
Srikanth, there is substantial cost reduction and cost -cutting by the
business which relies heavily on self -financing. The main disadvantage of
this source is that there is every possibility that the enterprise would fall
short of the investme nt opportunities and there are bound to be shortages
of funds for expansion of the business.
3. Equity and Bonds :
For fixed investments in assets like buildings, machinery, equipment etc
the businesses rely heavily upon equity shares, preference share s or bonds.
These shares can be ordinary, cumulative or non -cumulative preference
shares. The shares are issued on very low face value so as to ensure that a
large number of people could participate in providing finance to the munotes.in

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25 Project Identification and Registration of Small Scale Enterprise business. The investment of p romoters in the company depends upon its
performance in the market, and thereby the industries are not
overburdened with interest. Those who are buying these debentures and
bonds are actually providing credit facilities to the company, and they also
get fi xed interest for their investments in the business.
4. Foreign Investments :
Yadav in his study conducted in 2020 found that along with domestic
investments and credit facilities, businesses these days rely heavily upon
foreign capital. There are often inve stments from foreign governments
through Indian Government aided projects and also investments from
institutions like the World Bank, International Monetary Fund etc. Apart
from these many Multinational Companies have invested in their Indian
counterparts through mergers and collaborations, thus providing financial
aids to the businesses in India. Also, the Non -Resident Indians (NRIs) are
often investing in the Indian economy through business enterprises.
Provisions for loans from foreign banks and markets are also available
these days thus providing an impetus to the domestic industries to expand
their business opportunities
5. P2P Lending :
The peer -to-peer lending platforms are very much in the market these
days. These platforms are making sure that t he investors can invest by
lending money to business enterprises via digital platforms. The credit
worthiness of the prospective lenders is assessed by taking into account
various risk factors involved therein and on the basis of such assessment,
the busin ess enterprises can outsource funds in the way of investment.
This medium is easy, hassle -free and decisions can be taken quickly hence
approvals are generally quick for the loans. These loans are mainly
required to ensure the availability of working capit al for small -scale
business enterprises.
6. Other Finance Institutions :
These institutions have been established by the Government to cater to the
needs of the small and medium scale industries in India. These include the
Industrial Development Bank of I ndia, Small Industrial Development
Bank of India, Industrial Finance Corporation of India, Industrial
Reconstruction Bank of India, State Financial Corporations, and State
Industrial Development Corporations etc. which provide industrial finance
to the bus iness enterprises in India. The modern concept of industrial
development is what these institutions thrive to ensure and they contribute
significantly to the economic development of the industrial sectors by
providing large sums of loans to the Small Scale and Medium Scale
Industries. Not only do these institutions provide them with money but
also monitor the expenditures of the businesses so that the industrial
development norms remain intact.
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26 Entrepreneurship and Small Scale Industries
26 7. Crowd funding :
This concept is pretty new in the Indian eco nomic scenario, mostly the
start-ups and other projects rely on this source of finance for the business.
Herein the individuals who are interested in the new idea of the start -up
generally start investing in it to provide money. Such crowdfunding can be
categorised into equity -based, wherein the investor gains a share in the
business by investing; debt -based, wherein the investors invest money
with an assurance of getting it paid back along with some interest; reward -
based, wherein the investors invest with an interest of getting some
rewards like a prototype of the final products or free services or other
incentives.
7. Individuals/ Money lenders :
Though this particular source is in decline these days from the Indian
economic scenario, there are still cas es of finances being made available
by individual money lenders to business enterprises. The reason for the
decline is that these are unsecured loans with high rates of interest being
charged by the moneylenders. This is in no way advantageous for business
enterprises, so this particular model of business finance in India has been
largely replaced by non -banking financial institutions. The small -scale
industries are the ones that have relied on individuals or other money
lenders to provide the funds at time s of crisis, both in terms of f ixed as
well as working capital .
3.8 QUESTIONS Q1. Write a short note on project identification, selection and
formulation.
Q2. Explain the steps involved in registration of a new small -scale
enterprise.
Q3. Explain various sources of finance available to business
organization.
Q4. Write a short note on project report .
3.10 REFERENCES  Desai Vasant, Dynamics of Entrepreneurial Development and
Management, Himalaya Publication
 Barra G.S, Dangwal R.C. Entrepreneurship and Small Scale Industries
New Potentials - Deep & Publication 1999
 Bisht, N. an d Pattanaik, F., 2020. Youth labour market in India:
education, employment, and sustainable development goals.
In International perspectives on the youth labor market: Emerging
research and opportunities (pp. 172 -196). munotes.in

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27 Project Identification and Registration of Small Scale Enterprise  Iqbal, H. and Vishal, S., 2019. Empl oyee Relations In Micro Small
And Medium Enterprises In India. International Journal of Scientific
and Technology Research.
 Kurosaki, T., 2019. Informality, micro and small enterprises, and the
2016 demonetisation policy in India. Asian Economic Policy
Review, 14(1), pp.97 -118.
 Singh, J. and Yadav, A.N. eds., 2020. Natural bioactive products in
sustainable agriculture. New York: Springer Nature.
 Srikanth, R., 2018. India’s sustainable development goals –glide path
for India’s power sector. Energy policy, 123, pp.325 -336.
 Yadav, A.N. ed., 2020. Agriculturally important fungi for sustainable
agriculture. Cham: Springer.


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28 4
TRENDS AND CHALLENGES OF SMALL
SCALE INDUSTRIES IN EXPORT TRADE
Unit Structure
4.1 Objectives
4.2 Introduction
4.3 Export trade
4.3.1 Definition of Export trade
4.3.2 India ’s Export as a percentag e of GDP
4.3.3 Importance of Export Trade in India’s Economic Growth
4.4 Contribution and Trend of Small Scale Industries in Export Trade
4.5 Major Constraints in Export Trade Performance
4.6 Export Documents.
4.7 Export Procedure
4.8 Questions
4.9 References
4.1 OBJECTIVES After going through this chapter you will be able to understand the
following features:
 Significance of export trade for India and trends in export of small
enterprises.
Limitations and obstacles i n improving export performance of small
enterprises.
Export procedures and documents.
4.2 INTRODUCTION According to the revised classification of MSME act 2006 which came in
force w.e.f. July 2020, manufacturing or service enterprises having
investment o f not more than ¹ 10 crore in plant and machinery and/or
having an annual turnover of not more than ¹ 50 crore will be classified as
small enterprises. An increase in the export trade helps the country to earn
more foreign currency which further helps in i mproving our country’s
Balance of Payment condition and also increases the foreign exchange
reserve. Small scale industries in India have a great potential in export
trade especially in the export of manufactured goods. In this chapter we
will discuss in d etail what are the trends in export of small enterprises,
constraints faced by the small enterprises in export trade performance and munotes.in

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29 Trends and Challenges of Small Scale Industries in Export Trade export procedures & documents that are essential for one to know about to
work in export business.
4.3 EXPORT TRADE 4.3.1 Definition of Export Trade:
Export trade refers to an economic transaction, where goods produced in
one nation is sold into another nation or a service rendered in one nation
for a citizen of another nation such as insurance, communication services,
financ ial consultancies, information technology support etc. The service
renderer or the seller of the good is called as “exporter” and the buyer
located in some distant foreiountry is called as “importer”.
4.3.2 India’s Export as a percentage of GDP:
Export as a percentage of GDP refers to the contribution of export trade to
the overall GDP of the country in a given financial year. In the table
2.3.2(a) the data of export as a percentage of GDP along with the GDP at
current prices from F.Y.2016 to 2020 is given. Because of the global
pandemic India’s GDP took a hit from $2870.5 billion US dollars in 2019
to $2660.24 US billion dollars in 2020, however the export as a percentage
of GDP has almost remained unaffected at 18%. In the F.Y. 2020 the
highest value of ex port as a percentage to GDP was in Luxembourg
(214.53%) and Burundi recorded the lowest value of 4.98%. Our
neighboring country, China’s export as a percentage of its GDP was
18.50% in 2020 whereas as that of Bangladesh and Pakistan was 12.18%
and 9.58% re spectively.
Table no. 4.1
India’s Export as a percentage of GDP Sr. No. Year India’s Export as a Percentage of GDP India’s GDP in current prices (in billion US dollars No.) 1. 2016 19.16% 2,294.12 2. 2017 18.79% 2,651.47 3. 2018 19.94% 2,701.11 4. 2019 18.43% 2,870.5 5. 2020 18.08% 2,660.24 Source: GDP of India 1986 -2026| Statista (www.statista.com) and
Exports, percentage of GDP - Country rankings
(http://www.theglobaleconomy.com)
4.3.3 Importance of Export Trade in India’s Economic Growth :
a. To improve foreign exchange reserve:
Most of the developing countries including India are facing the problem of
high import bills which need to be paid. Also these countries borrow
heavily from international finance institutions for various development
projects like transportation, telecommunication, social infrastructure etc. It
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30 Entrepreneurship and Small Scale Industries
30 terms of foreign exchange and export is one of the most sustainable ways
of earning foreign exchan ge.
b. To Correct Balance of Payment Deficit:
Balance of Payment refers to the systematic recording of economic
transactions between citizens of one country with the rest of the world.
Whenever in the BOP, payments exceed receipts, the BOP is in deficit.
Exports help in earning more foreign exchange i.e. the receipts increases
which in turn helps to correct the BOP deficit situation to some extent. If
the BOP deficit is not corrected for a longer time it will increase the fiscal
deficit and indebtedness of the concerned country which can further lead
to an economic crisis.
c. To Repay Foreign Loans:
Till march 2009 foreign loans amounting to ¹ 11,42,618 crore has been
contracted by India for it economic and industrial development projects.
These loans have to be repaid along with interest in terms of foreign
exchange in the near future. Therefore it is very important that India’s
policy makers should focus on export promotion to earn foreign exchange
so that these loans can be repaid without defaulting.
d. To Strengthen Defense:
It is a known fact that India imports essential war equipment, arms and
ammunition etc. from the advanced countries. For example in 2016 central
government of India bought 36 Rafale fighter jet airplanes from Dassault
Aviation, a Fran ce based aviation company for ¹ 59,000 crore (approx.).
Therefore, to meet the cost of such purchases for the purpose of
strengthening our national security, India needs foreign exchange, this can
be earned by export trade.
e. Diversifying Market Opportun ities:
Sometimes the domestic economy begins to slow down due to various
reasons. It is very important for a developing country like India to have a
good hold over export trade to face such situations. At such difficult times
Indian enterprises can sell mo re goods in other countries and maintain
their annual turnover. This will also prevent the workers from losing their
jobs due to recession in the home country.
4.4 TRENDS IN EXPORT OF SMALL ENTERPRISES India’s major export comes from the “micro, small and medium
enterprises”, which is known as (MSME)”. It has been analyzed that the
MSME industry has significantly contributed to export which is nearly
5.7%. As a trend, collaboration with global transitional cooperation is a
vital process. In modern times, ex port business used to carry a portfolio of
the E -business to manifest the economic growth and merchandise growth
of business in India. It is outlined that regional export is known as a trend
as it used to work as an urgent action in the Indian economy. The use of munotes.in

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31 Trends and Challenges of Small Scale Industries in Export Trade indigenous technology has led to growth in the export business of India. It
can be suggested that government needs to provide more funding to the
export paradigm of small and medium companies.
Nearly 400 billion USD (in US economy) has been achiev ed by the Indian
SME, thus the manufacturing base of the country is improved. The holistic
trend in trade and export has manifested the manufacturing powerhouse of
India in an innovative way. As per the government report of India, it is
outlined that, MSME has a contribution of 40% in the Indian economy.
As a suggestion, it can be said that the internalization of a small and
medium enterprises needs to be reduced to improve the number of small
and medium companies. In India, there are nearly 50 million S MEs,
which need to be expanded globally. It is outlined that, trends in the export
of SME needs to follow a goal which is “think local, act global”. Thus,
rural as well as urban development can be improved in this lower -medium
economic country. Besides thi s, Sahoo and Ashwani found that in 2018
the economic growth was calculated to be 8.1% which resulted in an
income of $538.64 billion. However, in 2019 there was a decline in the
growth by 1.79% which resulted in a total income of $529.02 billion. The
MSME industry has contributed to 29% of the GDP growth of the country
through the import and export operations. During 2020 the export industry
suffered a huge loss due to the ongoing pandemic and it resulted in an
income of $474.15 billion which was a 10.73% d ecline.
4.5 MAJOR CONSTRAINTS IN EXPORT TRADE PERFORMANCE Even tough India’s export performance has improved significantly since
the post liberalization period; India’s share in total world trade is relatively
scanty. According to the WTO data released in April 2019, for the year
2018 the share of India’s merchandise export was recorded around 1.71%
of total global exports and the share of commercial service export of India
amounted to 3.52%.
Several factors are responsible for hindering the trade potenti als of India
in the global trade:
1. Internal issue of the country:
There are different set of challenges in the trade and export plan of India,
such as the lack of warehouse planning and logistics, Lack of adoption in
the export strategy, Non -price competit ion etc. which needs to be taken
into consideration. In addition to this due to Covid pandemic, the economy
is going through stagnation, which has decreased the export performance.
It has been analysed that India’s lagging economic performance is
responsib le for the poor export performance because, in this case, there is
a need for the investment which is not sufficiently fulfilled. The rate of
growth is lower than the planed target by 5%.
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32 Entrepreneurship and Small Scale Industries
32 2. Lack of policy effect:
Lack of internal economic stabilization cre ates issues that dampen the
trade rate of the Indian economy. Along with this, poor cross border
relationship is also a major limitation. The “Foreign Trade Policy, EXIM
Trade policy” has an impact on the performance of the trade growth.
Foreign policy is often considered to be evil by many exporters as it
imposes many restrictions on them. It has been outlined that in export
plan, financial risk is a major limitation that may shorten the graph of
business.
3. Lack of governmental action:
As per the report o f NITI AAYOG, 70% of the export of India is
dominated by five major countries. In that case, the government has taken
a strategy which is a “one -size-fit-all policy” that is not working now; it
needs to be reshaped as per the modern trend. The lack of an “ export
ecosystem” is not good and needs to be addressed for the better growth of
the country in export performance. As per the report of the Reserve bank
of India, in the trade rate, there is a deficit that needs to be covered up. It
can be recommended tha t the manufacturing sector needs to concentrate
exclusively on production of various goods for the purpose of export
taking into account the nature of demand by foreign buyers. Small and
medium size of companies and their lack of ability towards adoption o f
technology acts as a constraint in the export industry.
4. Poor trade rate:
The number of trade partners needs to be expanded in an effective way to
make the trade plan effective. High cost of the product used to be a reason
of the trade deficit in the dev eloping and underdeveloped countries. The
Un-Favorable Terms of Trade is a reason for the poor trade performance
of India. The lack of an effective export promotional program is also a
reason for the poor trade performance of India, which needs to be resol ved
through different strategies. The lack of export diversification is another
limitation faced by many developing countries including India. It can be
outlined that, global regulation needs to be reshaped to reduce all these
challenges. As per the report of, OECD, the export trend needs to be
verified in an authentic way to solve all the above -mentioned challenges in
the export and trade of India
4.6 EXPORT DOCUMENTS 1) Proforma Invoice:
The proforma invoice forms the basis of all export -import trade
transactions. Whenever a potential foreign buyer (importer) inquires about
the description of product and channel of delivery, the information is
provided by the exporter through proforma invoice. In simple words it is a
quotation given by the exporter to the foreign costumer as a reply to their
inquiry. Proforma invoice is the beginning point of export contract also the
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33 Trends and Challenges of Small Scale Industries in Export Trade 2) Commercial Invoice:
The commercial invoice is also called as ‘Document of Contents’ because
it consists of all the relevant information required for preparing other
export documents. It is a very important document as it is needed in
various export formalities like pre -shipment inspection, excise and
customs procedures, negotiat ion of documents for collection of export
proceedings, claim of incentives etc. The exporter prepares commercial
invoice after execution of export order, in which all details related to
goods shipped is mentioned precisely. The commercial invoice acts as a
prima facie evidence of the contract of sale/purchase and hence it needs to
be prepared strictly in accordance with the contract of sale and also the
document should bear the name of buyer or consignee same as mentioned
in the letter of credit.
3) Packing List:
It is prepared by the exporter to enable the buyer(importer) to check the
shipment. Important information such as quantity and description of goods
packed in each case/box, their net weight, gross weight etc. is mentioned
in the packing list. The e xporter prepares ten copies of packing list. Two
copies are sent to the importer in advance, one is sent with shipping
documents, one is given to shipping agent and remaining six are retained
by the exporter.
4) Mate’s Receipt:
The Commanding Officer of t he ship issues Mate’s receipt and hands it
over to the Port Trust Authority after loading the cargo on to the ship. The
exporter or his agent first has to clear the payment of all port dues to
collect the Mate’s receipt from the Port Trust Authority. Furth er the
exporter or his agent has to submit the Mate’s receipt to concerned
shipping company to obtain the bill of lading. In simple words Mate’s
receipt is a prima facie evidence that the goods are loaded on the ship.
There are two types of Mate’s receipt issued by the Commanding Officer
on the basis of quality of packing viz.
a) Clean Mate’s Receipt :
It is issued by the Commanding Officer when he is satisfied with the
packing of goods and believes that there are no defects in the packing of
the cargo
b) Qualified Mate’s Receipt :
It is issued by the Commanding officer when he is not satisfied with the
packing of the cargo and believes that there can be damage caused to the
goods in transit. In this case the shipping company takes no responsibility
of damage to the concerned goods of any kind during the transit.
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34 Entrepreneurship and Small Scale Industries
34 5) Bill of Lading:
It is an acknowledgement of receipt of goods on board by the shipping
company. The bill of lading issued by the shipping company is also an
undertaking where the shippin g company agrees to deliver goods in the
best condition as received to the consignee at the prescribed destination
provided that the freight and other shipping related charges are dully paid.
Last but not the least, it also serves as a document of title of the goods and,
as such, is freely transferable by endorsement and delivery.
Following are the types of Bill of Lading:
a) Clean Bill of Lading:
A bill of lading which acknowledges receipt of goods in good condition
and contains no negative remarks rega rding the quality of goods and
packaging is called clean bill of lading
b) Claused Bill of Lading:
In case the goods are improperly packed or the packing of cargo is not in
accordance with the Carriage of Goods by Sea Act, the shipping company
issues a cl aused bill of lading which contains negative remark about the
condition of goods.
c) Transhipment Bill of Lading:
It is issued when the carrier(shipping company) uses other transport
facilities such as road, rail or another steamship in addition to its own . It is
also called as through Bill of Lading.
d) Stale Bill of Lading:
The bill of lading is considered to be a very important document because
the exporter needs to pass it on to the bank for negotiation of documents in
order to claim his export proceedi ngs as will as to claim export incentives.
However if the bill of lading is held too long before submitting it to the
bank, it is called as stale bill of lading.
e) Freight Paid Bill of Lading:
If the freight and other charges are either paid in advance or at the time of
shipment of cargo, the shipping company issues a freight paid bill of
lading
f) Freight Collect Bill of Lading:
Sometimes the freight is not paid by the exporter at the time of shipment
but by the importer/consignee on arrival of goods. In such cases the
shipping company issues freight collect bill of lading, because the freight
of the shipment is to be collected on arrival of the goods to its final
destination.
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35 Trends and Challenges of Small Scale Industries in Export Trade 6) Certificate of Origin:
The Certificate of origin is a document required to c omply with the rules
and regulations framed under the foreign trade policy of the importing
country. For example a given importing country may have strictly banned
import of goods from a specific country or a specific group of countries.
Also it can be pos sible that goods produced in a particular country are
subject to preferential tariff rates. In such cases it is important for the port
authorities of importing country to know the country of origin of the goods
being imported. The certificate of origin ser ves the above purpose as it
clearly states that the goods exported are originally manufactured in the
country whose name is mentioned on the certificate.
Following are the types of certificate of origin:
a) Non-Preferential Certificate of Origin: It is iss ued by the authorized
Chamber of Commerce or the Trade Association of exporting country.
It is generally required by all countries for clearing of goods by the
importer and no preferential tariff is applicable here.
b) Certificate of Origin for availing co ncessions under GSP: Certain
countries like France, Italy, Germany, Australia, UK, USA Japan etc.
extend concessions under generalized system of preference (GSP).
The GSP programme promotes economic growth of least developed
and developing countries by enc ouraging these countries to boost up
their export trade. As a part of GSP programme, additional benefits
and preferential tariffs are given to product coming from least
developed and developing countries. This certificate can be issued
from:
Export inspection agencies
Commodity Boards and their regional offices
Development Commissioners of EPZs
Jt. Director General of Foreign Trade
Textile committees for Textile products
Marine Products Export Development Authority for marine produ cts
c) Certificate for availing concessions under Commonwealth
Preferences (CWP): In order to claim concession under
Commonwealth Preferences, the certificate of origin needs to be
submitted in a special format as prescribed by the High Commission
of the c oncerned country. It is also called as ‘Combined Certificate of
Origin and Value’.
d) Certificate for availing concessions under other systems of
preference: India grants and receives tariff concessions on import and
export under various trade preferences such as Global System of
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36 Entrepreneurship and Small Scale Industries
36 Preferential Trading Agreement (SAPTA) etc. for which certificate of
origin is required. The sole authority to print blank certificates of
origin under BA, SAARC and SAPTA is with Export Inspection
Council (EIC).
7) Shipping Bill:
Shipping Bill is the most important customs document. The exporter needs
to submit shipping bill to the customs authorities for obtaining permission
for the shipment of goods. Until the shipping bill is certified and duly
stamped by the customs authorities, the cargo cannot be moved inside the
dock area. Normally the shipping bill is prepared in five copies viz.
Customs copy
Drawback copy
Export promotion copy
Port trust copy
Exporter’s copy
The customs authority has introduced three types of shipping bill based on
incentives offered by the government. Following are the three types of
Shipping Bill:
a) Drawback Shipping Bill:
This document is used to claim customs drawback against exported
goods
b) Dutiable Shipping Bill:
It is required for goods which are subject to export duty
c) Duty -free Shipping Bill:
It is used for exporting goods on which no export duty is levied.
For the purpose of easy recognition and fast processing, following
colors are allocated to different kinds of shipping bill. Types of Goods By Waterways By Airways Drawback Shipping Bill Green Green Dutiable Shipping Bill Yellow Pink Duty Free Shipping Bill White Pink
8) Consular Invoice:
The consular invoice is requir ed by the authorities of importing country to
collect information related to the volume, quantity, value, grade, source
etc. of the goods imported. This information is further used to calculate
and levy appropriate import duties and also to maintain statis tical data.
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37 Trends and Challenges of Small Scale Industries in Export Trade like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Myanmar, Iraq,
Australia, Fiji, Cyprus, Nigeria, Ghana etc.
In order to obtain the consular invoice the exporter has t o submit three
copies of invoice to the consulate of he concerned importing country.
After certifying the invoice, the consulate sends one copy to the exporter
and remaining two copies are sent to customs of the importing country for
calculation of import duty. The copy of consular invoice with the exporter
is then sent to the importer along with other shipping documents. Once the
consular invoice is certified by the consulate of the importing country, the
exporter gets assurance that his payment will be ma de by the importing
country and the importer gets assurance that the goods being imported by
him are not banned.
9) Bill of Entry:
The importer or his agent prepares the bill of entry in a prescribed form
given by the Bill of Entry Regulations 1971. The c learance of the
imported goods is done on the basis of bill of entry.
When goods are imported, the customs authority levies import duty on the
importer. In order to calculate the appropriate import duty the customs
authority need to have precise informatio n about the quantity, volume,
grade, value of the goods being imported, this necessary information is
furnished in the bill of entry by the importer. The bill of entry is a
document which claims that goods of specified quantity, description and
stated valu e have entered the country from abroad. The bill of entry is
drawn in triplicate. Sometimes the customs authority may ask the importer
to submit other documents like invoice, insurance policy etc. to cross
verify the information provided in the bill of ent ry.
In order to provide information in the bill of entry form, goods are
classified into three categories:
a) Free Goods:
No custom duty is levied on goods falling in this category
b) Goods for home consumption:
These goods are imported strictly for home consumption and not for
reselling or any other commercial purpose.
c) Bonded Goods:
These goods attract import duty and will be kept in bond until the import
duty is paid.
Generally the importer has to fill separate bill of entry form for different
goods based on above classification. However in India the all entries are
recorded in the same bill of entry and filling of separate form is not
required.
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38 Entrepreneurship and Small Scale Industries
38 10) GR Form:
GR form is an exchange control document required by the RBI. According
to the export control regulations, the exporter has to realize the proceeds
of goods exported by him within 180 days of shipment of goods from
India. Therefore in order to ensure that the exporter realizes his sales
proceeds the RBI introduced the GR procedure.
According to th e GR procedure, the exporter is required to submit an
original and a duplicate copy of GR form at the port of shipment along
with the shipping bill. The customs authority will verify and certify the
GR form. After certification the customs authority will r etain the original
copy of the GR form to further transmit it to RBI and send the duplicate
copy to the exporter.
Then the exporter is required to lodge the duplicate copy of GR along with
the relevant shipping documents with the authorized dealer whose na me is
mentioned in the GR form for negotiation of export bill within 21 days
from shipment of goods.
The authorized dealer will report the transaction to the RBI after the
documents have been negotiated. The duplicate copy of the GR form
along with the cop y of invoice will be retained by the authorized dealer
until the exporter realises full export proceeds and thereafter the submit it
to RBI.
However due to digitalization and introduction of Electronic Data
Interchange (EDI) the use of GR form is considera bly reduced as it is now
replaced by a declaration in form SDF (Statutory Declaration Form) in
some customs offices where shipping bills are processed electronically.
4.7 EXPORT PROCEDURES Export procedure includes several commercial and regulatory forma lities
to be completed by the exporter during the course of export trade
transaction. These formalities include considerable documentation which
makes the process very complicated and time consuming. The exporter
must ensure that all the documents are prep ared and submitted to
concerned authorities also he must take care that the trade rules and
regulations of not only the exporting country but also of the importing
country is complied.
An export procedure can be further studies in following steps:
1) Regis tration Stage:
It is essential that the exporter should register his business organization
with several institutions and authorities. Registration of business
organization facilitates smooth conduct of export trade. The registration
stage includes:
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39 Trends and Challenges of Small Scale Industries in Export Trade i. Regi stration of the organization:
Depending on the form of the organization the exporter must get it
registered under the appropriate act of the country for example if it is a
joint stock company then it must be registered under Companies Act 1956,
a partners hip firm must be registered under the Indian Partnership Act
1932 etc.
ii. Opening Bank Account:
It is essential that the exporter should open an current account in a
scheduled commercial bank that also deals in foreign exchange. Opening
current account i n a bank which is authorized by RBI to deal in foreign
exchange will also act as source finance for pre -shipment and post -
shipment.
iii. Obtaining Importer -Exporter Code Number (IEC No.):
From 1st January 1997 it is obligatory for every exporter to obtain IEC
number. The IEC no. is issued by the Director General for Foreign Trade
(DGFT). The exporter can put an application to the DGFT along with a fee
of Rs.1000/ - for obtaining IEC number. Prior to 1st January 1997 the
exporter needed to obtain a CNX numbe r from the RBI which was
replaced by IEC number.
iv. Obtaining Permanent Account Number (PAN):
The income earned from export trade enjoys several tax exemptions and
deductions under different sections of Income Tax Act. In order to claim
these exemptions a nd deductions the exporter needs to register his
organization with the Income Tax Authorities by obtaining PAN. Also
PAN has been made compulsory by the government from 2007.
v. Obtaining Sales Tax Number:
Exportable goods are exempted from sales tax if the exporter has
registered his organization with the sales tax authorities. In order to claim
the exemptions the exporter needs to have a sales tax number which is
given to him by the Sales Tax Officer (STO) after registration and
verification of documents .
vi. Registration with Export Promotion Council:
It is mandatory for every exporter to get his organization registered with
the appropriate Export Promotion Council (EPC) and obtain RCMC
(Registration -cum-Membership Certificate). Only the exporters havi ng a
valid RCMC can enjoy benefits provided in the current EXIM policy.
vii. Registration with ECGC:
Export trade is risky business as export proceedings (payments to be made
by the importer) is subject to various political and commercial risks.
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40 Entrepreneurship and Small Scale Industries
40 Credit and Guarantee Corporation of India (ECGC) in order to secure
foreign payment receivable against political and commercial risks.
2) Pre -Shipment Stage:
Pre-Shipment stage consists of t he following steps:
i. Approaching Foreign Buyers:
An exporter can approach foreign buyers to get orders by using one or
more marketing and promotion techniques such as participation in trade
fairs and exhibitions, advertising in international media, publ ic relation,
publicity etc.
ii. Inquiry and Offer:
When an exporter conducts a marketing campaign many foreign buyers
come to know about the product and the interested ones raises inquiry to
know some additional information or confirm the conveyed informa tion in
the advertisements. The exporter should grab this opportunity and try to
convert the inquiry into sales by providing accurate information about
size, weight, quantity, terms of payment and channel of delivery of the
product by making an offer in th e form of proforma invoice.
iii. Confirmation of Order:
Once the negotiations are done and the deal is finalized the exporter sends
3 copies of proforma invoice to the importer for conformation. The
importer is required to sign all the copies and send 2 copies back to the
exporter as a proof of confirmation of order.
iv. Opening Letter of Credit:
When the export contract is finalized the importer opens a letter of credit
in favor of the exporter, if doing such is agreed upon by both the parties in
the co ntract. The letter of credit is considered to be the safest mode of
payment to settle international transaction.
V. Arrangement of Pre -shipment Finance:
After receiving the letter of credit from the importer, the exporter can
approach his bank for pre -shipment finance. This loan mount can be used
for production or procurement of goods, packaging and transportation of
goods to the port for shipment.

vi. Production or Procurement of Goods:
The exporter either manufactures the goods or procures it from the
domestic market as per the description given to the importer. For the
producing or procurement of goods the exporter can either use his own
funds or can also apply for pre -shipment finance on the basis of letter of
credit.
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41 Trends and Challenges of Small Scale Industries in Export Trade vii. Packing and Marking:
After the procurement/production of goods, the exporter should ensure
that goods are properly packed and marked with necessary information
like port of shipment, destination, net weight, gross weight, country of
origin etc. only if the goods are packed properl y, the Commanding Officer
will issue a clean bill of lading at the time of loading the cargo on to the
ship. If the Commanding Officer of the ship finds that packing is improper
a claused bill of lading is used under which the shipping company takes no
responsibly of any damage caused to goods in transit.
viii. Pre -Shipment Inspection:
Exportable goods are subject to compulsory quality control inspection as
well as pre -shipment inspection. Before shipment the exporter should
contact the Export Inspection Agency (EIA) for the inspection of goods.
After the inspection EIA will issue an inspection certificate.
ix. Central Excise Clearance:
Exportable goods are fully exempted from payment of central excise duty.
However the exemption should be claimed either under ‘Export under
Rebate’ or “Export under Bond’ which is further discussed in detail.
x. Obtaining Insurance Cover:
The exporter must take ECGE policy to cover the credit risk and marine
policy to cover the risk of loss in transit.
xi. Appointment of C&F Agent:
Since export procedure is a complex and time consuming activity, the
exporter has an option to appoint a Clearing and Forwarding agent (C&F)
for the smooth clearance of goods from customs and flawless
documentation.
3) Shipment Stage:
Goods ca n be exported to foreign buyers by sea, air, or land. However
shipment by sea is mostly preferred as it is comparatively cheaper and due
to the ship’s large loading capacity makes it perfect for transportation of
bulky goods. On the other hand airways is g enerally used for the
transportation of light weight and expensive articles like gold, diamonds,
silver etc.
Following are the steps included in shipment stage:
i. Reservation of Shipping Space:
After the export contract is finalized the exporter approach es any shipping
company of his choice and reserves the required space in vessel. Once the
shipping company accepts the request of exporter, a shipping order is
issued in duplicate. The original copy of the shipping order is sent to the
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42 Entrepreneurship and Small Scale Industries
42 The Shipping order acts as an instruction to the Commanding Officer to
load goods of the prescribed specification on to the vessel for shipment.
ii. Arrangement of Internal Transportation up to the por t of
Shipment:
After receiving the Shipping order from the shipping company the
exporter makes arrangement for transportation of goods from his place to
the port of shipping by road or by rail. If goods are transported by railway,
the railway authority is sues a Railway Receipt which serves as a title of
the goods. The exporter can endorse the Railway Receipt in the name of
his C&F agent so that he can receive the delivery of goods at the port of
shipment.
iii. Preparation and processing of shipping documen ts:
The exporter should convey all the necessary instructions along with
necessary document to his C&F agent before he takes the delivery of
goods at the port of shipment. Following are the documents needed to be
given to the C&F agent by the exporter:
Copy of Export Contract
Letter of Credit
Two copies of Commercial invoice
Packing list
GR Form (Both original and Duplicate)
ARE -I Form
Certificate of Inspection
Marine Insurance Policy
iv. Customs Clearance:
In order to clear the cargo fr om the customs and load it on to the ship, all
the above mentioned documents along with 5 copies of shipping bill have
to be submitted to the Customs Appraiser. After verification the Customs
Appraiser retains original GR, Original copy of shipping bill, a nd one
copy of commercial invoice rest all other documents are returned to C&F
agent.
v. Obtaining ‘Carting Order’ from Port Trust Authorities:
After customs clearance the C&F agent goes to the concerned Port Trust
Authority to obtain the carting Order. O nce the Carting Order is received
the goods can be physically moved inside the port area and stored till
shipment.
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43 Trends and Challenges of Small Scale Industries in Export Trade vi. Issue of Let Export Order:
The Customs examiner physically examines the goods and seals the
packages I his presence. If the Customs Exam iner is satisfied he issues a
Let Export Order which is a formal permission for loading of cargo on the
ship.
vii. Obtaining Let Ship Order from Customs PO:
The ‘Let Export Order’ must be supplemented by the ‘Let Ship Order’.
The ‘Let Ship Order’ is iss ued by the Customs Preventive Officer (PO).
The C&F agent submits the duly endorsed (by Customs Examiner)
duplicate copy of the shipping bill to the Customs Officer, who further
endorses it with the ‘Let Ship Oder’
viii. Obtaining Mate’s Receipt and Bill o f Lading:
Once the goods are loaded on the ship the Commanding Officer of the
ship issues a Mate’s receipt and hands it over to the port trust authorities.
After clearing the port charges and other charges the port superintendent
hands over the Mate’s rec eipt to the C&F agent. Now the C&F agent
submits the Mate’s receipt to the shipping company for obtaining the bill
of lading.
4) Post -Shipment Stage:
The post Shipment Stage consists of the following steps:
i. Submission of Documents by C&F Agent to the E xporter:
The C&F agent submits the following documents to the exporter after
completion if export process
A copy of invoice dully attested by the customs
Drawback copy of the shipping bill
Export promotion copy of the shipping bill
A full set of negotiable and non -negotiable copies of bill of lading
The original export contract
Duplicate copy of AR E-I form
ii. Shipment Advice to Importer:
After the shipment of goods the exporter updates necessary information to
importer such as date of shipment, name of vessel, destination of arrival
etc. The exporter is also expected to send one copy of non -negoti able bill
of lading to the importer.

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44 Entrepreneurship and Small Scale Industries
44 iii. Presentation of Documents to the Bank for Negotiation:
“Negotiation of Documents” refers to the process of submission of below
listed documents to the bank for getting the payment credited from the
bank.
The docum ents that are presented to the bank for aforesaid purpose is
called “Negotiable Set of Documents” which include:
Bill of Exchange
Full set of Bill of Lading
Original Letter of Credit
Customs invoice
Commercial invoice including one copy duly cert ified by the Customs
Packing list
GR form
Exchange control copy of Shipping Bill
Certificate of Origin
Marine Insurance Policy.
iv. Dispatch of Documents:
The Exporter’s bank verifies the documents to check if all formalities have
ben complied w ith and all documents are complete. After verification
these documents are negotiated to the importers bank in a manner
specified in the L/C. the bank then sends the bank certificate and attested
copies of commercial invoice to the exporter.
v. Acceptance of Bill of Exchange:
The bill of exchange which is accompanied by other export transaction
related documents is called ‘Documentary Bill of Exchange’ which is of
two types viz.:
a) Documents against payment (Sight Draft):
In case of sight draft, the impo rter can get the documents only after
making the full payment to the bank.
b) Documents against Acceptance (Usance Draft):
In case of Usance Draft the importer can collect the documents from the
bank just by accepting the bill of exchange i.e. full paymen t at the time of
receiving documents is not required.
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45 Trends and Challenges of Small Scale Industries in Export Trade vi. Letter of Indemnity:
In case the exporter cannot wait for the importer to honor the bill of
exchange and needs urgent money, he can get it from his bank by signing
the letter of indemnity. By signi ng this letter the exporter indemnify the
bank in the event of default of payment by the importer along with
accrued interest.
vii. Realization of Export Proceeds:
Depending on the type of bill of exchange the exporter’s bank receives
payment from the imp orters bank and then the money is credited to the
exporter’s account. In case of Sight Draft the importer has to make the full
payment in order to receive the export documents hence the money is
received immediately. However in case of Usance Draft the mon ey will be
received at a future date of the maturity of the bill of exchange.
viii. Processing of GR Form:
The exporters bank intimates RBI about receipt of payment from the
importer’s bank by recording the detail on the duplicate copy o the GR
form. RBI who has already received the original copy of the GR form
from the customs cross verifies it with the copy sent by the exporter’s
bank. If no discrepancies is found, RBI declares the transaction as
completed.
ix. Realization of Export Incentives:
The exp orter is eligible for many export incentives as per the foreign trade
policy of India. In order to realise the incentives the exporter is required to
claim for the same to the concerned authorities along with bank certificate.
4.8 QUESTIONS Q.1. Discuss the importance of export trade in India’s e conomic
development.
Q.2. What are the major constraints in development of export trade of
India
Q.3. Write a note on export procedure.
Q.4. Write a short note on export documents.
4.10 REFERENCES  Khushpat S. Jain House Export I mport Procedures and
Documentation ‘Himalaya Publishing House
 Murty C.S.V. Small Industries & Entrepreneurship Development,
Himalaya Publication
 Baker, H.K., Kumar, S. and Rao, P., 2020. Financing preferences and
practices of Indian SMEs. Global Finance J ournal , 43, p.100388. munotes.in

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46 Entrepreneurship and Small Scale Industries
46  Khan, M. and Abasyn, J., 2017. An exploratory evidence of the types
of challenges and opportunities perceived by the Small and Medium
Enterprises (SMEs) in the apparel export sector of
Pakistan. University Journal of Social Sciences , 10(2), pp.373 -395.
 Sahoo, P. and Ashwani, 2020. COVID -19 and Indian economy:
Impact on growth, manufacturing, trade and MSME sector. Global
Business Review , 21(5), pp.1159 -1183.
*****


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47 MODULE 3 : SMALL SCALE INDUSTRIES
5
INTRODUCTION TO SMALL SCALE
INDUSTRIES
Unit Structure
5.0 Objectives
5.1 Meaning of Small -Scale Industries
5.2 Scope of Small -Scale Industries
5.3 Importance of Small -Scale Industries
5.4 Problems faced by Small -Scale Industries
5.5 SWOT Analysis of Small -Scale Industries
5.6 Forms of Business Organization
5.7 Questions
5.0 OBJECTIVES  To know the meaning and scope of small scale industries.
 To know the problems faced by small scale industries .
 To study the SWOT analysis of small scale industries.
 To study the forms of business organiza tion.
5.1 MEANING OF SMALL -SCALE INDUSTRIES To define a small -scale industry effectively, it is imperative to first learn
about the meaning of industry. The term industry refers to a group of
companies that are related to each other, based on the primary business
activities they undertake. Small scale industries, thus, refer to those
partnerships, corporations, or sole proprietorships that function on a lower
scale, employing a small er workforce and generating less revenue than
that by normal -sized industries or businesses.
Small scale enterprises can also refer to those businesses that apply for
government support or avail preferential tax policies, depending on their
area of operati on.
Small Scale Industries (S SI):
These are those industries in which the manufacturing, production and
rendering of services are done on a small or micro scale. These industries
make a one -time investment in machinery, plant, and equipment, but it
does no t exceed Rs. 10 crore and annual turnover does not exceed Rs. 50
crores. These industries work on a medium resource platform. They have munotes.in

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48 Entrepreneurship and Small Scale Industries
48 limited labour, capital, as well as machinery. Small Scale Industry are
those industries in which start business on a sm all scale or micro scale as a
manufacturing, providing, servicing etc.
Small Scale Industries play an important role in social and economic
development of India. They are a very important sector of the economy
from a financial and social point of view.
These are generally labor -intensive industries, so they create much
employment.
Examples and Ideas of Small -Scale Industries:
 Bakeries
 School stationery
 Water bottles
 Leather belt
 Small toys
 Paper Bags
 Photography
 Beauty parlours
5.2 SCOPE OF SMALL -SCALE INDU STRIES In accordance with the small -scale business meaning, such industries are
characte rized by the following points
1. Ownership:
Generally, such businesses are sole proprietorships or, in some cases,
partnerships. It means that the ownership of the b usiness rests on a single
individual, in most cases.
2. Labor Requirements:
Since capital investment in such industries is comparatively lower than
that of the large -scale ones these mostly rely on manpower, to carry out
production activities.
3. Manageme nt:
One of the most significant characteristics of SSI is that both the control
and management of such businesses lie with owners. The owner, thus,
participates actively in the day -to-day business conduction.

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49 Introduction to Small Scale Industries 4. Flexible:
Since they operate on a smalle r scale, these industries are more privy to
sudden and unforeseen developments on the business front. They are more
adaptable to changes in the business environment.
5. Optimal Usage of Resources:
Since they do not have excess resources at their disposal, small -scale
industries make optimal usage of the available resources without wastage.
6. Operation Restrictions:
Most small -scale businesses are limited in their area of operation. As a
result, they only operate either locally or regionally. These are a few of the
characteristics of a small business that helps to effectively gauge its
operation, administration, and scope.
The scope of small -scale industries is quite vast covering a owed range of
activities. These characterized by labour intensive, need less capital and
require less sophisticated technology. Among them are important activities
are :
 Manufacturing activities
 Servicing/repairing activities
 Retailing activities
 Financial activities
 Whole -sale activities
 Construction activities
 Infrastructura l activities like transport, communication etc.
The Government of India has announced reservation policy for small
sector in the country.It is also important to note that the performance of
reserved small -scale industries does not outshine that of non -reserved
small industries.
According to J.C. Sandesara has found that ”the easy entry into SSI
sector has intensified competition within the sector, and resulted in
excess supply, and thus, a fall in profitability.”
Government SSI policy Framework - Latest Amen dment :
In line with new economic policies, a policy document for SSI was
announced on 6th August 1991.
 It continued priority sector lending to SSI by banks/Financial
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50 Entrepreneurship and Small Scale Industries
50  Reservation of items for exclusive production
 Price a nd purchase preference.
 Uniform package of incentives of the entire sector
It introduced new measures like:
 Removal of location restrictions
 Enhancement of coverage, limits
 Shift towards infrastructural development support
 Inclusion of services in this sec tor
 Allowing equity investment in SSI
 Shift from protection/regulation to promotion of equality, technology
and deficiency
 Substantial de -regulation and simplification of rules and procedures.
At last words, the small -scale industries sector plays a vital role in the
growth of the country. These industries are usually started by the lower or
middle -class public. They have an opportunity to earn wealth and
employee other people. It helps with income distribution and contributes
to social progress.
5.3 IMPORT ANCE OF SSI 1. SSI Increases Production :
India is one of the world’s fastest growing economies in the world.
Consequently, its production output is massive. It is pertinent to note that
SSIs contribute almost 40% of India’s gross industrial value.
These i ndustries produce goods and services worth over Rs. 40 lakhs for
every investment of Rs. 10 lakhs. Furthermore, the value addition in this
output increases by over 10%.
Here is another interesting statistic about Small scale industries. The
number of Small Scale Industries in India increased from around 8 lakhs
in 1980 to over 30 lakhs in 2000.
This figure has grown even more in recent years owing to the
government’s ‘Ease of Doing Business’ policies.
As a result of this, the total industrial production out put rose tremendously
in the last few years. SSIs are, therefore, strongly responsible for the
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51 Introduction to Small Scale Industries 2. SSI Increases Export :
Apart from producing more goods and services, SSIs have been able to
export them in large numbers as well.
Almost half of India’s total exports these days come from small -scale
businesses.
35% of the total exports account for direct exports by SSIs, while indirect
exports amount to 15%.
Even trading houses and merchants help SSIs export their goods and
services t o foreign countries.
3. SSI Improves Employment Rate :
It is important to note firstly that Small Scale Industries employs more
people than all industries after agriculture.
Almost four persons can get full employment if Rs. 10 lakhs are invested
in fixed a ssets of small -scale sectors.
Furthermore, SSIs employ people in urban as well as rural areas.
Consequently, this distributes employment patterns in all parts of the
country and prevents unemployment crisis.
4. SSI Open New Opportunities :
Small -scale indus tries offer several advantages and opportunities for
investments.
For example, they receive many tax benefits and rebates from the
government. The opportunity to earn profits from SSIs are big due to
many reasons.
Firstly, SSIs are less capital intensive. They even receive financial support
and funding easily.
Secondly, procuring manpower and raw materials is also relatively easier
for them. Even the government’s export policies favour them heavily.
5. SSI Advances Welfare :
Apart from providing profitable o pportunities, Small Scale Industries play
a large role in advancing welfare measures in the Indian economy as well.
A large number of poor and marginalized sections of the population
depend on them for their sustenance.
These industries not only reduce pov erty and income inequality but they
also raise standards of living of poor people. Furthermore, they enable
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52 Entrepreneurship and Small Scale Industries
52 5.4 PROBLEMS FACED BY SMALL SCALE INDUSTRIES The following are the problems faced by Small Scale Industries
1. Poor capacity utilization:
In many of the Small Scale Industries, the capacity utilization is not even
50% of the installed capacity. Nearly half of the machinery remains idle.
Capital is unnecessarily locked up and idle machinery also occupies space
and needs to be serviced resulting in increased costs.
2. Incompetent management:
Many Small Scale Industries are run in an incompetent manner by poorly
qualified entrepreneurs without much skill or experience. Very little
thought has gone into matters such as demand, production level and
techniques, financial availability, plant location, future prospects etc.
According to one official study, the major reason for SSI sickness is
deficiency in project Management i.e., inexperience of promoters in the
basic proc esses of production, cash flow etc
3. Inadequate Finance:
Many Small -Scale Industries face the problem of scarcity of funds. They
are not able to access the domestic capital market to raise resources. They
are also not able to tap foreign markets by issuin g ADR’s (American
Depository Receipts) GDR’s (Global Depository Receipts) etc because of
their small capital base. Banks and financial institutions require various
procedures and formalities to be completed. Even after a long delay, the
funds allocated are inadequate.
Bank credit to the small -scale sector as a percentage of total credit has
been declining. It fell from 16% in 1999 to 12.5% in 2002. Small Scale
Industries are not able to get funds immediately for their needs. They have
to depend on private m oney lenders who charge high interest. Finance, as
a whole, both long and short term, accounts for as large as 43% of the
sector’s sickness.
4. Raw material shortages:
Raw materials are not available at the required quantity and quality. Since
demand for r aw materials is more than the supply, the prices of raw
materials are quite high which pushes up the cost. Scarcity of raw
materials results in idle capacity, low production, inability to meet demand
and loss of customers.
5. Lack of marketing support:
Small Scale Industries lack market knowledge with regard to competitors,
consumer preferences, market trends. Since their production volume is
small and cannot meet demand for large quantities their market is very
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53 Introduction to Small Scale Industries are facing competition from local industries as well as foreign competitors
who sell better quality products at lower prices. For e.g. heavily subsidized
but better quality imports from China has made most of the Indian SSI
units producing toys, electronic goods, machine tools, chemicals, locks
and paper etc., unviable.
6. Problem of working capital:
Many Small -Scale Industries face the problem of inadequate working
capital. Due to lack of market knowledge their production excee ds
demand, and capital gets locked in unsold stock. They do not have enough
funds to meet operational expenses and run the business.
7. Problems in Export:
They lack knowledge about the export procedures, demand patterns,
product preferences, international currency rates and foreign buyer
behavior. Small Scale Industries are not able to penetrate foreign markets
because of their poor quality and lack of cost competitiveness. In countries
like Taiwan, Japan etc. products produced by Small Scale Industries ar e
exported to many foreign countries. But in India not much thought and
focus has gone into improving the export competitiveness of Small -Scale
Industries.
8. Lack of technology up -gradation:
Many Small -Scale Industries still use primitive, outdated techno logy
leading to poor quality and low productivity. They do not have adequate
funds, skills or resources to engage in research and development to
develop new technologies. Acquiring technology from other firms is
costly. Therefore, Small Scale Industries ar e left with no choice but to
continue with their old techniques.
9. Multiplicity of labo ur laws:
One of the merits of Small Scale Industries are that they are labo ur
intensive and can provide employment to a large number of people. But
the multiplicity of labour laws, need to maintain several records (PF, ESI,
Muster Rolls etc .), fines and penalties for minor violations etc . place Small
Scale Industries at a great disadvantage.
10. Inability to meet environmental standards:
The government lays down strict e nvironmental standards and Courts have
ordered closure of polluting industries. Small Scale Industries which are
already facing shortage of funds to carry out their business are not able to
spend huge sums on erecting chimneys, setting up effluent treatmen t
plants etc.
11. Delayed payments:
Small Scale Industries buy raw materials on cash but due to the intense
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54 Entrepreneurship and Small Scale Industries
54 selling on credit itself places a great strain on finances. The greater
proble m is payments are delayed, sometimes even by 6 months to one
year. It is not only the private sector but even government departments are
equally guilty. Delayed payments severely impact the survival of many
Small -Scale Industries.
12. Poor industrial relat ions:
Many Small -Scale Industries are not able to match the pay and benefits
offered by large enterprises, because their revenues and profitability are
low and also uncertain. This leads to labor problems. Employees fight for
higher wages and benefits whic h the SSI is not able to provide. This may
lead to strikes, resulting in damage to property in case of violence by
employees, production losses etc.
13. Strain on government finances:
Marketing of products manufactured by Small Scale Industries is a
proble m area. The government has to provide high subsidies to promote
sales of products produced by Khadi and Village Industries. This places a
great strain on government finances.
14. Concentration of industrial units:
There is high concentration of small -scale industrial units in a few states.
Of the estimated 1.37 million registered units as on 2020 -21, nearly 35%
were located in three states. Uttar Pradesh, Tamil Nadu and Kerala alone
account for 35% of Small -Scale Industries. Due to concentration, there is
high competition among them to procure raw materials and other
industrial inputs. This leads to high costs and scarcity of raw materials and
other inputs affecting their production and increasing costs.
15. Inadequate dispersal:
One of the objectives of the government in promoting Small Scale
Industries was to increase industrial development and employment
opportunities throughout the country. Since nearly 60% of the Small -Scale
Industries are concentrated in few states, the objective of balanced
regional de velopment and promotion of backward areas has not been
achieved. Further majority of Small -Scale Industries are located in urban
areas and the aim of industrial development in rural areas has also been
defeated.
16. Widespread sickness:
Sickness among Smal l Scale Industries is widespread. Sickness is not
detected in the initial stages and large amount of funds are locked in them.
Due to these new entrepreneurs are not able to get loans, workers in the
sick units lose their jobs and industrial and economic d evelopment is
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55 Introduction to Small Scale Industries 17. Lack of awareness:
The government has set up many organizations to support and provide
assistance to Small Scale Industries. But, many of the entrepreneurs
running Small Scale Industries are not aware of the various support
services.
18. Government interference:
Small Scale Industries have to maintain a number of records and there are
endless government inspections. A lot of time, money and effort is wasted
in complying with various inspections and records verification. This
prevents Small Scale Industries from fully concentrating on their business
activities.
5.5 SWOT ANALYSIS OF SMALL -SCALE INDUSTRIES 5.5.1 MSMEs sector are enormous due to the following factors:
 MSMEs can be started at a very low cost. Adapting to change is
crucial in these sectors; not being tied to any bureaucratic inertia, it is
typically easier to respond to the marketplace quickly.
 Good customer relation results in greater accountability and maturity.
Customers who are treated like family are more likely to r eturn to that
business in the future.
 Independence to work for own firm is another advantage of these
sectors.
 Ability to innovate and create new products and services more rapidly
and creatively than larger companies that are delayed in bureaucracy.
 A small firm has also the ability to modify its products or services in
response to unique customer needs.
 The average entrepreneur or manager of a small business knows his
customer base far better than in a large company.
 Cater to customer needs. If a mod ification in the products or services
offered or even the business’s hours of operation would better serve
the customers, it is possible for a small firm to make changes.
 The people involved – the entrepreneur, any partners, advisers,
employees, or even f amily members – have a passionate, almost
compulsive, desire to succeed. This makes them work harder and
better.
5.5.2 Weaknesses:
i. It can be difficult to reach enough potential customers to establish a
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56 Entrepreneurship and Small Scale Industries
56 ii. Potential customers mi ght be less likely to do business with a small
business that does not offer a well known brand of products or
services. •
iii. One of the largest weaknesses for small business owners is to raise
finance.
iv. Many business owners invest their own money at the start of a
business or if the business falls upon hard times because institutional
lenders like banks and government financial corporations are
generally reluctant to advance money to these small units
v. Small business owner has to bear high cost of production, which acts
as one of the weakness for the small businesses.
vi. Most of small scale businesses do not have skilled personnel.
vii. Due to which these businesses lack in identification of industrial
projects for development consultancy and counseling services and
providing industrial training and skill formation .
viii. Small businesses do not use Information technology and its
applications such as the designing of prototype machines for product
identified according to country resources and requirements.
ix. Many times it becomes very difficult to obtain the permission of and
licence from, the Industrial Development of the state, local bodies
etc.
x. Marketing is one of the weaknesses for small businesses. ’” Besides
these, the entrepren eurs face many problems in marketing due to ’”
Lack of standardization ’” Poor designing ’” Poor quality ’” Lack of
quality control ’” Lack of precision ’” Poor finish ’” Poor bargaining
power ’” Lack of service after sales ’” Scale of production ’” Brand
preferences ’” Distribution contacts ’” Lack of knowledge of
marketing ’” Competitive marketing ’” Ignorance of potential
market
5.5.3 Opportunities:
i. Major Policy Initiatives by Government of Odisha towards enhancing
the opportunity for growth of MSMEs are: •! Government of Odisha
formulated Odisha Industrial Policy in March 2007 which aimed at
reinforcing and further expanding for industrial promotion and
investment facilitation in the State, including creation of an enabling
environment.
ii. In March 2009, Government of Odisha announced the “Odisha
MSME Development Policy, 2009” to broad base the growth of
MSMEs.
iii. The policy aimed at the development of infrastructure to support the
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57 Introduction to Small Scale Industries Capit al Scheme), assistance to improve the marketing facilities,
technology up gradation and sourcing of raw materials.
iv. The policy also emphasized on the rehabilitation and revival of sick
units with enabling institutional arrangements.
v. It also emphasi zed on single window mechanism, entrepreneurship
development, skill development, and promotion of clusters etc., for
the comprehensive development of the sector. • ! Government of
Odisha in February 2010 notified that Common Facility Centres
(CFCs) set up b y Special Purpose Vehicles (SPVs) of MSME clusters
shall be entitled for allotment of land on free of cost basis at locations
earmarked for the purpose by IDCO which shall be treated as the
StateGovernment’s share. • ! Government of Odisha has issued
guidel ines (in 2013) for procurement of goods from local MSEs with
a price preference of 10 per cent vis -à-vis local medium and large as
well as outside industries. Local MSEs having ISO/ISI certifications
are given additional 3 per cent price preference.
vi. It was also notified to undertake a comprehensive district wise drive
for identification and rehabilitation of potentially viable units on a fast
track mode.
vii. Recently, Government of Odisha released Draft Industrial Policy 2014
with an objective of maki ng Odisha a favorable destination for the
investors by providing infrastructure and institutional support and pre
and post -production incentives.
viii. The policy has sought to provide institutional mechanism in the form
of single window clearance, simplif ication and rationalization of
regulatory mechanisms; financial support measures by means of
incentives, interest subsidy at 7% per annum for term loans availed by
MSEs, reimbursement of VAT for new units (for a period of five
years), stamp duty exemption for land leased by Government / IDCO,
certain exemption from payment of electricity duty, employment cost
subsidy etc.
ix. This policy intends to encourage linkage between MSME and large
industries and make focused efforts for development of ancillary and
downstream industries.
5.5.4 Threats:
i. Some of the threats related to MSMEs are: Slow Payment : While
large corporations and banks have been fortified with ample low -cost
cash to buy small businesses products and services, they continue to
pay slowly, bargai n harder and demand more concessions from
powerless small businesses who are selling their souls “where the
money is.” ! Ne w costs, taxes and compliance.
ii. As social causes like sustainability, diversity, healthcare and fair
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58 Entrepreneurship and Small Scale Industries
58 favorable terms for corporations, small business is getting choked.
Now, the new costs, taxes and compliance rules are sapping the will
of owners to believe that they should risk, invest and remain confident
in their busine sses.
iii. “Approved” vendor programs force buying solely on price : ! To shift
responsibility and outsource their liability, corporations and
governments are hiring third party sourcing companies whose
objective is to reduce small business vendor power and commodit ize
their products and services.
5.6 FORMS OF BUSINESS ORGANISATION Business organizations, as known, are the places where the businesses are
conducted. What is probably not known is – there can be a varied type of
10 business structures! While the most prevalent six to seven forms of
business organizations will be prioritized in this discussion.
Business Organisation is an entity that is formed for the purpose of
carrying on the commercial enterprise of selling and buying. These
organisations a re based on the systems of law that governs contract and
this exchange, property rights, and incorporation.
The Business Organisation system is concerned with the management and
planning of different activities. This is an accumulation and coordination
of the resources such as men, material, money, machine to produce the
goods and services, the business organisation works to coordinate and
control all these factors of production.
5.6.1 Meaning of Business Organisation :
Business organisation is defined as an entit y which is structured for the
purpose of carrying on the commercial system of enterprise. The
organisation is governed under principles and laws governing contract and
exchange of goods and services.
Knowing about the business organization is the utmost fo r a business
aspirant student as this is the basic fundamental by which he or she may
decide to structure his or her own business. Thus, let us delve into the
subject matter and know the various forms of business organizations.
5.6.2 Factors affecting the Bu siness Forms :
Business organizations can be of different types, depending upon factors
like their nature, the extent of operation, ownership, legalities, terms,
financial structure, liabilities, etc. The form of a business is likely to have
long-term impa cts on the company. Thus, the members of an organization
must choose wisely as to which sort of business would be ideal for them.
The primary aspect, based on which forms of business organizations are
decided, is its characteristics. Various factors determ ining the character of
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59 Introduction to Small Scale Industries 1. Ease of Formation
2. Capital or Financial Requirements
3. Nature of Liability
4. Control
5. Stability and Continuity
6. Flexibility to Conduct Operations.
7. Secrecy
8. Legal Aspects
5.6.3 The Types of Business Structu res:
Depending on the factors mentioned above, there can be seven different
forms of business organizations. They are as follows:
1. Sole Proprietorship
2. Hindu Undivided Family
3. Company
4. Partnership
5. Corporations or Statutory Bodies
6. Co-operative Societies
7. LLP (Limited Liability Partnerships)
But if we are to consider the three major forms of business organizations,
it would include sole proprietorship, corporations, and partnerships.
The One Who goes Solo - Sole Proprietorship :
The sole propr ietorship of a company suggests that the complete
ownership of that organization lies with a single person. This is one of the
primary forms of business organizations where an individual not only
owns the company wholly but also manages it single -handedly. Here, the
business organization and the owner are a single entity.
A sole proprietorship is among the simplest forms of business
organization, which is why it has minimal or no registration formalities.
This is the ideal form of organization for small or medium -scale
businesses. The biggest advantage of these business organizations is that
the owner gets to access the entire incentive. He is not liable to share the
profits with anyone else. However, a huge amount of personal liability can
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60 Entrepreneurship and Small Scale Industries
60 The Bodies Formed By The Parliament Of India - Corporations Or
Statutory Bodies :
A statutory body means any such authority or organization which is non -
constitutional. Such bodies have been set up by the parliament, an d hold
power to take decisions on behalf of an entire nation. Some notable
examples of statutory bodies in India are:
 National Green Tribunal
 National Commission for Women
 National Human Rights Commission
 National Commission for Backward Classes
 National L aw Commission
 Armed Forces Tribunal
On the other hand, corporations are such forms of business organizations
that consist of many shareholders. A corporation has the legal authority to
act as a single entity. It usually has a board of directors (elected by all the
shareholders), led by a president. The board of directors is authorized to
make management decisions. To set up this legal form of business
organization requires proper paperwork and lawful proceedings.
The Partners Business – Partnerships :
If we consider the corporate scenario in India, companies set up on
partnership deals are the most popular and basic form of business
organization. A partnership is a mutual agreement between two or more
parties that agree to carry out a common business. Parties entering into a
partnership could include individuals, companies, schools, governments,
etc.
This form of business organization has to follow the norms specified
under the Indian Partnership Act of 1932. Such entities are known as
partnership firms. Here, the partners work towards the common goal of
business, which is profit.
Businesses run on charitable or non -profit causes cannot be considered
partnership firms. Partnerships happen to be among the 3 main forms of
business organizations, and their nature is determined by the types of
partners included.
Exists Only in India - HUF or Hindu Undivided Family Business :
This is a special form of business entity that is limited only to India. Such
forms of business organizations are governed by the Hindu law prev alent
in the country. Any member of a Hindu Undivided Family can co -own the
business owned by that family. These members will be known as
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61 Introduction to Small Scale Industries called the ‘Karta’. He usually holds full control of the management and
finance of the business.
Sharing the Bread - Companies :
“Com” means ‘together’ and “Panies” means ‘bread’. The Indian
Companies Act of 2013 defines different types of companies as different
forms of business organizations. It is not mandatory for a company to be
multinational or operate in different locations. It can be a small -scale
business or even a start -up initiative.
As per the Indian Companies Act, a company can either be private or
public. Private companies are the one s in which the minimum paid -up
share capital has to be Rs.1 lakh. On the other hand, public companies are
separate legal entities that must have a paid -up share capital of at least
Rs.5 lakh. The shares of these companies can be owned by members of the
public

5.8 QUESTIONS Q.1. Explain the meaning and scope of small scale industries.
Q.2. Give the meaning of small scale industries
Q.3. What are the problems faced by small scale industries.
Q.4. Explain the forms of business organization.




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62 6
BASIC CONCEPTS RELETES SMALL
SCALE INDUSTRIES
Unit Structure
6.0 Objectives
6.1 Introduction
6.2 Sole Proprietorship
6.3 Partnership
6.4 Joint Stock Company
6.5 Cooperative Society
6.6 Questions
6.0 OBJECTIVES  To know the advantages and dis advantages of sole proprietorship.
 To study the types and features of sole proprietorship.
 To study the advantages and disadvantages of partnership.
 To study the joint stock companies.
 To study about the cooperative society.
6.1 INTRODUCTION A sole propri etorship business venture is one of the most typical and
easiest commercial forays not only in India but also across the world.
Some of India’s largest existing enterprises, including Flipkart, started
operating as solely -owned firms.
Globally, some of the most famous names in business started with a single
owner. Familiar names like Coca -Cola, Amazon, the Walt Disney
Corporation and toy -major Mattel are excellent sole proprietorship
examples. Historically, these are some of the oldest businesses that have
been owned and operated by a lone individual, making them sole
proprietorship ventures.
This chapter will help you understand what these types of businesses
mean, what their characteristics are and some of the advantages and
disadvantages of a sole proprie torship.
Defining Sole Proprietorship:
Such a firm is a one -person operation. “Sole” means only and “proprietor”
refers to the owner. When any natural person, and not a ‘legal’ person or
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63 Basic Concepts Reletes Small Scale Industries proprietorship enterprise. Both the owner and his/her business are the
same.
They have no separate legal bearing.
A sole owner is automatically the custodian of all profits of the
organization. However, he is also liable to suffer the most should the
busine ss nosedive in perilous economic times, making risk -taking a part of
owning a business entity.
A one -person operation allows the owner to employ whoever he desires.
Termination of employment is also his executive domain, provided the
terms and conditions l aid out during hiring are maintained. His authority
and discretion are also final.
Of all the various types of business organizations, this is the simplest. A
solely -owned entity need not always be registered or even incorporated.
However, registering a bu siness venture has certain advantages which
have been mentioned later.
Most of the small -scale businesses we see around us in our day -to-day
lives are businesses with single owners. These can range from spas and
beauty parlors to a medicine outlet and any local grocery store.
For advanced commerce students: Walt Disney was a struggling artist
before his Mickey Mouse line of animated characters took off, and his
name became globally known. You can research his failures, how he dealt
with them, and how he lat er developed a global reputation for himself and
his company.
6.2 SOLE PROPRIETORSHIP 6.2.1 Types of Sole Proprietorship Businesses:
These are the existing types.
1. An Independent Contractor:
A contractor is hired by business houses or other, more promin ent
contractors at predetermined income levels or profit -sharing margins. But
this does not make an independent contractor an employee, for he has the
freedom to say ‘no’ to an engagement.
2. Self-Employed Owner:
Someone who acts both as the owner and an employee of his business is a
self-employed owner. In this digital age, someone who sells goods on an
E-commerce firm is self -employed. He owns an enterprise but also has to
look after his day -to-day operations like an employee. Other examples can
be a pai nter and a shopping assistant.

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64 Entrepreneurship and Small Scale Industries
64 3. Franchise:
A franchise is also considered a form of a sole proprietorship. The owner
decides to rent a franchise from a leading brand and pours in the requisite
capital. Note that the franchisee has to pay royalties to the franchisor. This
type of business is an excellent starting point for first -time business
owners, as he does not have enough experience to run a full -fledged firm
but can still bank on the reputation of his franchisor.
6.2.2 Features of Sole Proprietor ship:
1. Lack of prison Formalities :
A sole proprietorship does not have a separate regulation to govern it. And
so there are not many special policies and rules to comply with. moreover,
it does no longer require incorporation or registration of any kind. In
reality, in maximum instances, we want only the license to perform the
desired enterprise.
2. Liability:
On the grounds that there is no separation among the proprietor and the
enterprise, the private liability of the proprietor is likewise unlimited. So if
the enterprise is unable to satisfy its very own debts or liabilities, it’ll fall
upon the proprietor to pay them. As an example, he may additionally sell
all of his private property (like his car, house, other properties and many
others) to fulfill the money owed or liabilities of the enterprise.
3. Threat and income :
The enterprise owner is the simplest threat bearer in a sole proprietorship.
given that he’s the simplest one financially invested within the enterprise.
As a result, he ought to additi onally undergo all of the danger. In different
words, if the enterprise fails or suffers losses he might be the one affected.
But, he also enjoys all the earnings from the business. He does not must
proportion his income with some other stakeholders in vie w that there are
none. So he ought to endure the overall threat in trade for playing full
profits.
4. No Separate identification :
In prison terms, the commercial enterprise and the proprietor are one and
the same. No separate criminal identity will be best owed upon the sole
proprietorship. So the proprietor can be chargeable for all the sports and
transactions of the commercial enterprise.
5. Continuity :
As seen above the commercial enterprise and the owner have one identity.
So a sole proprietorship is tot ally dependent on its owner. The loss of life,
retirement, bankruptcy. madness, imprisonment and so forth may have an
impact on the sole proprietorship. In such conditions, the proprietorship
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65 Basic Concepts Reletes Small Scale Industries 6.2.3 Advantages of Sole Proprietorship :
 A proprietor will have the entire manager of the complete enterprise.
consequently this could facilitate quick selections and freedom to do
commercial enterprise
 Law does not require a proprietorship to put up its eco nomic debts or
other such files to any members of the public. As a end result, there is
sufficient confidentiality that is critical inside the commercial
enterprise world
 The enterprise owner derives the maximum incentive from the
business. because he shou ld not share any of his earnings. So the work
he puts into the business is absolutely reciprocated in incentives
 Being your very own boss is an extraordinary experience of pleasure
and fulfillment. Furthermore, you’re answerable only to yourself.
consequen tly it’s far a super improve to your self esteem as nicely
6.2.4 Negative aspects of Sole Proprietorship :
 One among the largest limitations of a sole proprietorship is the
limitless personal legal responsibility of the owner. If the enterprise
fails it cou ld wipe out the personal wealth of the owner as well as
affect his future business possibilities too
 Every other problem is that a sole proprietor has to get entry to a
confined capital. The cash he can borrow from his own private
savings may not be suffic ient to enlarge the enterprise. Moreover,
banks and financial establishments are also wary of lending to
proprietorships.
 The existence cycle of a sole proprietorship is not sure and connected
to its proprietor. An incapacitated proprietor may have a terri ble
impact on the business, and it is able to even cause the closure of the
enterprise. A sole proprietorship can’t keep on without its proprietor.
 A sole proprietor additionally has restrained managerial potential. He
can not be a professional in all the fields of the business. Furthermore,
limited resources may additionally mean that he can not hire able
humans to help him out. As a result, the commercial enterprise might
also suffer from mismanagement and bad selections.
6.3 PARTNERSHIP A partnership is a kind of business where a formal agreement between two
or more people is made who agree to be the co -owners, distribute
responsibilities for running an organization and share the income or losses
that the business generates.
In India, all the aspects and functions of the partnership are administered
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66 Entrepreneurship and Small Scale Industries
66 partnership is an association between two or more individuals or parties
who have accepted to share the profits generated from the busin ess under
the supervision of all the members or behalf of other members.
6.3.1 Indian Partnership Act 1932 :
Most of the businesses in India adopt a partnership business, so to monitor
and govern such partnership The Indian Partnership Act was established
on the 1st October 1932. Under this partnership act, an agreement is made
between two or more persons who agrees to operate the business together
and distribute the profits they gain from this business.
6.3.2 Partnership Examples:
Few co -branding partners hip examples are listed below:
 Red Bull and GoPro
 Spotify and Uber
 Levi’s & Pinterest
 Maruti Suzuki
 Hindustan Petroleum
6.3.3 Features of Partnership :
The Essential Features And Characteristics Of A Partnership Are:
1. Agreement : The partnership arises o ut of an agreement between two
or more persons.
2. Profit sharing : There should be an agreement among the partners
to share the profits of the business.
3. Lawful business : The business to be carried on by a partnership must
always be lawful.
4. Mem bership : There must be at least two persons to form a
partnership. The maximum number is 20. But in case of banking
business the maximum is 10 members.
5. Unlimited liability : The liability of every partner is unlimited, joint
and several.
6. Principal -agent relationship : Every partner is an agent of the firm.
He can act on behalf of the firm. He is responsible for his own acts
and also for the acts done on behalf of the other partners.
7. Collective management : The firm and the partners are one. When a
contract is made in the name of the firm all the partners are
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67 Basic Concepts Reletes Small Scale Industries 8. Non-transferability of shares : A partner cannot transfer his share of
interest to others without th e consent of the other partners
6.3.4 Advantages of Partnership :
The following are the advantages of partnership business:
1. Easy to form : A partnership firm can be formed without any legal
formalities and expenses. Even if the fum is to be registered, the
expenses are not much compared to co mpany form of organization.
2. Access to more capital : A firm consists of more than one person.
Therefore it can secure more capital from combined resources.
3. Skill and talent : Talented persons may be taken as partners. More
skill and talent will be av ailable..
4. Division of labor : Division of labor can be introduced which
increases the efficiency in the management. One partner may take
care of purchases, another sales, a third accounts and so on.
5. Contact with customers : All the partners in a firm may take part in
the management of the business. So, they get in touch with the
customers during the course of the business. It enables them to study
the tastes and needs of the customers.
6. Borrowing capacity : The creditors will lend Loans not only on the
basis of the firm’s assets but also based on the personal properties of
the partners. So the borrowing capacity of a firm is more.
7. Incentive to work hard : Every partner is liable for the debts of the
firm. Also every partner has a share in the prof its. This makes them to
work hard for the success of the business.
8. Expansion of business : Due to the availability of sufficient finance
and skill the business can be expanded very easily.
9. Wise decisions : In partnership, decisions are taken with the
consultation of all the partners. So naturally the decisions are wiser
and more beneficial.
10. Co-operation between partners : The partnership enables partners to
provide mutual help to each other. Partners behave as members in a
joint family.
11. Flexi bility : Changes in the business can be adopted easily. There are
no legal restrictions.
12. Economy in operation : If there is co -operation among the partners
the firm can be run efficiently. A good number of economies in
management can be derived.
13. Division of risks : All losses and risks of the business are shared by all
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68 Entrepreneurship and Small Scale Industries
68 14. Maintenance of secrets : Business secrets can be maintained easily if
the number of partners in a firm are limited.
15. Incid ence of tax : Compared with company form of organization the
tax payable on the incomes of the partners will be less.
6.3.5 Disadvantages of Partnership :
The following are the disadvantages of a partnership firm:
1. Division of responsibility : In a partner ship the management is
divided. As such responsibilities are also divided. Every partner might
try to shift the burden on to the shoulders of others; finally none takes
the responsibility properly.
2. Delay in decisions : Sometimes the partners may not agr ee with one
another in taking decisions. As a result partners will not be in a
position to take quick decisions.
3. Lack of continuity : A partnership gets dissolved on the death,
insolvency, insanity or retirement of any partner. So, there is no
guarantee for the continuity of the firm.
4. No transferability of share: In a firm the partner cannot transfer his
share of interest to others without the consent of the other partners.
5. Lack of secrecy: It may not be possible to maintain secrecy in
partnershi p because of the number of partners.
6. Unlimited liability: The creditors of a firm can recover their loan
amounts from the personal properties of the partners when the firm’s
sources are not enough. Therefore the personal properties of the
partners are not safe..
7. Joint and several liability: Every partner is jointly and separately
liable for the firm’s debts. In case of insolvency of partners, the
solvent partners have to pay the debts of the insolvent partners also.
8. Internal conflicts: Differenc es and disputes among the partners are
very common. These conflicts harm the firm as a whole.
9. Misuse of assets: The partners may use the assets of the firm for their
personal purposes. Misuse of assets is harmful to business interests.
10. Lack of pub lic confidence: A partnership firm is purely a private
organization. It is not controlled or regulated by the Government. As
such public may not have confidence in the firm.



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69 Basic Concepts Reletes Small Scale Industries 6.4 JOINT STOCK COMPANY The simplest way to describe a joint stock company is that it is a business
organisation that is owned jointly by all its shareholders. All
the shareholders own a certain amount of stock in the company, which is
represented by their shares.
Professor Haney defines it as “a voluntary association of persons fo r
profit, having the capital divided into some transferable shares, and the
ownership of such shares is the condition of membership of the company.”
Studying the features of a joint stock company will clarify its structure.
6.4.1 Features of a Joint Stock Company :
1] Artificial Legal Person :
A company is a legal entity that has been created by the statues of law.
Like a natural person, it can do certain things, like own property in its
name, enter into a contract, borrow and lend money, sue or be sued, etc. It
has also been granted certain rights by the law which it enjoys through
its board of directors.
However, not all laws/rights/duties apply to a company. It exists only in
the law and not in any physical form. So we call it an artificial legal
person.
2] Separate Legal Entity :
Unlike a proprietorship or partnership, the legal identity of a company and
its members are separate. As soon as the joint stock company is
incorporated it has its own distinct legal identity. So a member of the
company is not liabl e for the company. And similarly, the company will
not depend on any of its members for any business activities.
3] Incorporation :
For a company to be recognized as a separate legal entity and for it to
come into existence, it has to be incorporated. Not r egistering a joint stock
company is not an option. Without incorporation, a company simply does
not exist.
4] Perpetual Succession :
The joint stock company is born out of the law, so the only way for the
company to end is by the functioning of law. So the life of a company is in
no way related to the life of its members. Members or shareholders of a
company keep changing, but this does not affect the company’s life.
5] Limited Liability :
This is one of the major points of difference between a company and
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70 Entrepreneurship and Small Scale Industries
70 company is limited. The personal assets of a member cannot be liquidated
to repay the debts of a company.
A shareholders liability is limited to the amount of unpaid share capital. If
his shares are fully paid then he has no liability. The amount of debt has
no bearing on this. Only the companies assets can be sold off to repay its
own debt. The members cannot be made to pay up.
6] Common Seal :
A company is an artificial person. So its day -to-day functions are
conducted by the board of directors. So when a company enters any
contract or signs an agreement, the approval is indicated via a common
seal. A common seal is engraved seal with the company’s name on it.
So no document is lega lly binding on the company until and unless it has a
common seal along with the signatures of the directors.
7] Transferability of Shares :
In a joint stock company, the ownership is divided into transferable units
known as shares. In case of a public compa ny the shares can be transferred
freely, there are almost no restrictions. And in a public company, there are
some restrictions, but the transfer cannot be prohibited.
6.4.2 Advantages of a Joint Stock Company :
 One of the biggest drawing factors of a joint stock company is
the limited liability of its members. their liability is only limited up to
the unpaid amount on their shares. Since their personal wealth is safe,
they are encouraged to invest in joint stock companies
 The shares of a company are transfe rable. Also, in the case of a listed
public company they can also be sold in the market and be converted
to cash. This ease of ownership is an added benefit.
 Perpetual succession is another advantage of a joint stock company.
The death/retirement/insanity/ etc does affect the life of a company.
The only liquidation under the Companies Act will shut down a
company.
 A company hires a board of directors to run all the activities. Very
proficient, talented people are elected to the board and this results in
effective and efficient management. Also, a company usually has
large resources and this allows them to hire the best talent and
professionals.
6.4.3 Disadvantages of a Joint Stock Company :
 One disadvantage of a joint stock company is the complex and
lengthy p rocedure for its formation. This can take up to several weeks
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71 Basic Concepts Reletes Small Scale Industries  According to the Companies Act, 2013 all public companies have to
provide their financial records and other related documents to the
registrar. These documents ar e then public documents, which any
member of the public can access. This leads to a complete lack of
secrecy for the company.
 And even during its day to day functioning a company has to follow a
numerous number of laws, regulations, notifications, etc. It not only
takes up time but also reduces the freedom of a company
 A company has many stakeholders like the shareholders, the
promoters, the board of directors, the employees.
the debenture holders etc. All these stakeholders look out for their
benefit and i t often leads to a conflict of interest.
6.5 CO-OPERATIVE SOCIETY A co – operative society is a voluntary association of persons of moderate
means, who unite together to protect and promote their common economic
and social interests. It is based on the p rinciples of collective effort,
mutual self – help, equality, democracy, distributive justice and freedom.
It represents an attempt by poor and weaker persons to protect themselves
against the exploitation and oppression of the economically strong . The
term cooperation is derived from the Latin word ‘co -operari’, where the
word “co” means ‘with’ and “operari” means ‘to work’. Thus, the term
cooperation means working together. So those who want to work together
with some common economic objectives can form a society, which is
termed as cooperative society
6.5.1 Features Atures of Cooperative Societies:
1. Voluntary Association :
The membership of cooperative societies is voluntary. A person can join
cooperative society anytime or leave as per his desire. Reli gion, gender &
caste do not matter in cooperative society. Membership is open to all the
people.
2. Number of Members :
A minimum of 10 members are required to form a cooperative society. In
multi -state cooperative societies the minimum numbers of member is 50
from each state in case the member are individuals. The Cooperative
Society act does not specify the maximum numbers of the cooperative
society members.
3. Registration of The Cooperative Society :
In India the cooperative societies registered under Coo perative Societies
Act 1912 or the state Cooperative Societies Act. The Multi -state
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72 Entrepreneurship and Small Scale Industries
72 Societies Act 2002. Once the society registered, the Society becomes a
separate legal entity.
4. State Control :
Since registration of cooperative societies became compulsory. From that
period the every cooperative society came under the control and
supervision of the government.
5. Return on Capital Investment :
The members get return on their capital inve stment in the form of
dividend. When the new member joins the society he/she needs to give
some registration fees and needs to deposit some mandatory amount every
month. At the end of financial year members get some return on their
capital investment.
6. Democratic Management :
The management of co -operative society is based on democratic lines. A
body of members is elected to conduct and control the business. The body
is elected through ‘one -man-one-vote-system’. Members can give their
suggestions, opinions and problems.
7. Service Motive :
The formation of co -operatives is based on service motive rather than a
profit motive. Its objects to serve their members and not to maximize the
profits. These societies provide different types of service to their members .
8. Equality of Voting Rights :
The main principle of co -operative society is “one man one vote”.
Irrespective management of a co -operative society is democratic. All
important decisions are taken by majority.
6.5.2 Types of Co -Operative Societies :
1. Consumers’ Co -Operative Societies :
Such Societies are organised by the consumers to avoid exploitation by the
middleman and to ensure steady supply of consumer goods and services at
fair prices. A consumer’s co – operative store purchase the consumers
good ei ther from the manufacturers or the wholesalers and then sells them
to its members at reasonable prices. The profits made by the society
during a year are utilized for strengthening the reserve fund of the society,
for declaring a moderate rate of dividend and for declaring a bonus to
members according to the purchases made by them from the cooperative
store.
2. Producers’ Co -Operative Societies :
The societies are by the small producers to fight against the big producers.
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73 Basic Concepts Reletes Small Scale Industries their skills for the production of goods and services. The society supplies
these things to the members and takes over their purchases for sale. Thus,
a producers ‘society not only provides money and materials to the sma ll
artisans but also undertakes to sell their products.
3. Co-Operative Marketing Societies :
Co-operative marketing societies are voluntary associations of small
producers, who find it difficult to individually sell their products at a
profit. The main pur pose of such a society is to ensure a steady and
favourable market for the output of its members. The output is pooled
together and sold at the best price. The sale proceeds are distributed in
proportion to the contribution of the members to the pool. Mark eting co -
operatives eliminate middleman and ensure honest trading practices in
weighing, measuring and accounting.
4. Credit Co -Operative Societies :
Such societies are formed to provide financial help in the form of loans to
members. The funds of these soc ieties consist of share capital contributed
by the members and the deposits made by them and outsiders. The funds
are used in giving loans to needy members on easy terms. Thus, the
members are protected from the exploitation of money lenders, who
charge ex orbitant rates of interest Another important purpose of creditco –
operatives is to encourage the habit of thrift among their members.
5. Farmers’ Co -Operative Societies :
In co -operative farming societies, small farmers join together and pool
their resourc es for cultivating the land collectively. Their object is to
achieve economies of large scale farming and maximising agricultural
output. Such societies are particularly important in the case of countries
like India, where agriculture suffers from excessiv e sub – division and
fragmentation of land . Co – operative farming makes it possible for
members to use modern tools and equipments good seeds, fertilizer and
irrigation facilities in order to achieve higher production.
6. Cooperative Housing Societies :
Cooperative housing societies are established to help people with limited
income to construct houses or flats at reasonable costs. The members of
these societies consist of people want residential accommodation at lower
costs. The aim is to solve the housing problems of the members by
constructing and giving the option of paying in installments. These
societies procure land from the government and construct flats or provide
plots to members on which the members themselves can construct the
houses as per their choice.


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74 Entrepreneurship and Small Scale Industries
74 6.5.3 Advantages of Co -Operative Societies:
1. Ease of Formation :
A co – operative society is a voluntary association and may be formed
with a minimum of ten adult members. Its registration is very simple and
can be done without much legal for malities.
2. Open Membership :
Membership in a co -operative organisation is open to all having a
common interest. A person can become a member at any time he likes and
can leave the society by returning his shares without affecting its
continuity.
3. Democr atic Management :
A co -operative society is managed in a democratic manner. It is based on
the principle of one – man-one-vote. All members have equal rights and
can have a voice in its management.
4. Limited Liability:
The liability of the members of a co – operative society is limited to the
extent of capital contributed by them. They do not have to bear personal
liability for the debts of the society.
5. Stability:
A co – operative society has a separate legal existence. It is not affected by
the death, i nsolvency, lunacy or permanent incapacity of any of its
members. It has a fairly stable life and continues to exist for a long period.
6. Promotion of Social Values:
The cooperative societies promote social justice and mutual cooperation.
They promote self help, moral value among the members. They also help
to prevent concentration of economic power in few hands.
6.5.4 Disadvantages of Co -Operative Societies:
1. Limited Capital:
The cooperative organisation is formed by the people who have limited
resources and there is no compulsion to buy more than one share by each
member.
2. Inefficiency in Management:
Cooperative societies are unable to attract and employ expert managers
because of their inability to pay them high salaries. The members who
offer honorar y services on voluntary basis are generally not professionally
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75 Basic Concepts Reletes Small Scale Industries 3. Lack of Motivation:
In cooperative organisation, there is no direct link between efforts and
reward. Hence, members are not inclined to put their best efforts . There is
no incentive for working efficiently.
4. Conflicts among Members:
The members are from different sections of society. They may have
difference of opinion and if any member follows rigid attitude, it can lead
to conflict s. Generally, the selfish motive of members starts dominating
and they forget the service motive
6.7 QUESTIONS Q.1. What is the meaning of sole proprietorship ? What are the types of
sole proprietorship.
Q.2. What are the advantages and disadvantages of s ole proprietorship ?
Q.3. Explain the types of partnership
Q.4. Write down advantages and disadvantages of partnership
Q.5. What are the features of joint stock companies?
Q.6. What are the advantages and disadvantages of joint stock companies
Q.7. Write d etail note on cooperative societies.


*****


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76 MODULE 4 : MANAGEMENT AND
INCENTIVES FOR SMALL SCALE
INDUSTRIES
7
MANAGEMENT FOR SMALL SCALE
INDUSTRIES
Unit Structure
7.0 Objectives
7.1 Introduction
7.2 Fundamentals of Management
7.3 Productions & Operations Management
7.4 Working Capital Management
7.5 Marketing Management
7.6 Questions
7.7 References
7.0 OBJECTIVES After going through this unit, you must be able to:
 Explain the fundamentals of management
 Describe the functions of management
 Explain the concept of production
 Describe the scope o f production & operations management
 Explain the concept of working capital management
 Explain the concept of marketing management
7.1 INTRODUCTION In today’s challenging time it has become a quiet difficult task to develop
business. The need of existence of management has increased
tremendously.
Let us take the example of a school teacher who is given the responsibility
of taking children for picnic. The teacher has to decide number of things
like- where to go(place), when to go(time), total number of stu dents and
total number of teachers are going for picnic, how much money is
required(budget), where to get such money(resources), Time schedule,
how to collect students from home & drop them & so on. Then teacher has
to assign the task to other for arrangin g a bus for conveyance, collecting
money from students, make a group for food arrangement & its
distribution & so on. Again, every school teacher if assigned a similar munotes.in

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77 Management for Small Scale Industries. exercise may handle it in his/her own way depending upon the capability
& interest of th e teacher as well as a number of other factors.
Management plays a vital role not only for business concerns but also for
banks, schools, colleges, hospitals, hotels, Charitable trusts, etc. Every
business unit has some objectives of its own. These objecti ves can be
achieved with the coordination & efforts of several persons.
There are four factors of production, namely, land, labour, capital and
entrepreneurship. Without these factor co -ordination & combination, there
is no possibility for production. Prod uction is the outcome of their
combined efforts. Thus, the success of production depends upon the
success of their effective combination & co -operation.
To develop a business in current global competitive world, it requires a
special skill & knowledge as w ell as how to seek their fullest co -operation
to achieve the objectives set by an enterprise. Such skills /knowledge is
called ‘management’.
7.2 FUNDAMENTALS OF MANAGEMENT Management refers to the process of using men, machines, money,
material & processe s through proper direction, coordination & integration
of several activities. So as to produce desired results & attain
predetermined goals.
Management plays very important role in economic life of man, which is
an organized group activity. It is considere d as the indispensable
institution in the modern social organization marked by scientific thought
and technological innovations.
One or the other form of management is important wherever human
efforts are to be undertaken collectively to satisfy wants thro ugh some
productive activity, profession or occupation. Management has achieved
an enviable importance in recent times.
Management is the integrating force in all organized activity. Whenever
two or more than two people work together to attain a common goa l/
objective, they have to coordinate their activities. They also have to
organize & utilize their resources in such a way as to optimize the results.
Thus, management is not only unique and important for business
organizations but common to all kinds of s ocial organizations.
Management is not only important for business but it is important for all
organizations. To run any organization, management is important It is the
specific organ of all kinds of organization. Since they all need to utilize
their limit ed resources most effectively & efficiently for the achievement
of their goals.
The emergence of management in modern times may be regarded as a
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78 Entrepreneurship and Small Scale Industries
78 Western countries have reached the stage of m ass consumption societies
through the achievements of modern management.
We can improve the quality of life of our people through more effective
management of our economic & social institutions.
7.2.1 Definition of Management:
Management, unlike other soc ial science subjects such as economics,
philosophy, political science, is of a recent origin & a relatively new
subject. It is still in its developing stage.
Many management experts have tried to define management.
According to Henry Fayol, who is consider ed the father of principles of
management, ‘‘To manage is to forecast, to plan, to organize, to
command, to co -ordinate & to control.’’1
Peter F. Drucker defines, ‘‘Management is a multi -purpose organ that
manages a business, manages manager, & manages wor kers & work.’’2
According to George R. Terry, ‘‘Management is a distinct process
consisting of planning, organizing, actuating & controlling performance to
determine & accomplish the objectives by the use of people & resources.’’
Frederick Winslow Taylor, ‘‘Management is knowing exactly what you
want men to do & then seeing that they do it in the best & cheapest way.’’3
Having gone through the above definitions of management, it can be
defined as getting things done through subordinates/others.
Management i s the sum total of all those activities that:
(i) Determine objectives, plans, policies & programmes;
(ii) Secure men, material, machinery cheaply.
(iii) Put all these resources into operations through sound organization
(iv) Direct & motivate the men at work,
(v) Supervises & control their performance &
(vi) Provide maximum prosperity & happiness for both employer &
employees & public at large.
7.2.2 Features / Characteristics of Management:
1) Management is Goal -oriented.
2) It is a distinct process.
3) It is a fast developing profession.
4) Management is a dynamic concept which adapts itself to changing
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79 Management for Small Scale Industries. 5) Management is multi -disciplinary subject.
6) Management is an integrating process.
7) Management is both science as well as an art.
8) Management rela tes to decision -making.
9) Management is universal in application.
7.2.3 Functions of Management:
In 1916, Henri Fayol provided a ‘functional approach to management’ in
his book. ‘‘Industrial and General Management.’’
Fayol’s list of managerial functions i nclude planning, organizing,
commanding, coordinating & controlling.
In 1930s. Luther Gullick states the seven functions of management in one
word -POSDCORB -Planning, Organizing, Staffing, Directing, Co -
ordinating, Reporting & Budgeting.
The important func tions of management are explained as follows: -
1] Planning:
Planning is the most basic/primary function of all management functions.
Planning is always pre - determined course of action to accomplish the
desired objectives, Planning is concerned with ‘Wha t’, ‘How’, & ‘When’
of performance. It is deciding in the present about future objectives & the
course of action for their achievements. E.g. Your own study time -table is
the best example to explain the importance of planning.
The Main Stages/Steps in plan ning are stated as follows: -
1) Determination of Short -term & Long -term objectives.
2) Setting rules & procedure.
3) Determining projects.
4) Setting procedures.
5) Policies & Strategies.
6) Budgeting, etc.
Every Manager has to perform all these planning f unctions, or contributes
to their performance. It is performed in all kinds of organizations by all
managers at all levels of hierarchy.
2] Organizing:
After the planning have been completed, management has to organize the
activities. Organizing also inc ludes bringing together the executive
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80 Entrepreneurship and Small Scale Industries
80 other things to execute plans. Every manager has to decide what activities
have to be undertaken in his department for the achievement of the goa ls
entrusted to him.
Organizing function involves the following Steps:
1) Identification of activities required for the achievement of objectives
& implementation of plans.
2) Collaborating of the related activities of various positions into
departments.
3) Assigning different positions to the managers.
4) Delegating authority to each manager to accomplish the work in a
planned manner.
5) Coordination of activities in the organization.
Organizing aims at combining employees & interrelated tasks in an
orderl y manner so that organizational work is performed in a coordinated
manner & all efforts & activities pull together in the direction of
organizational goals.
3] Staffing:
Staffing play a very important role & it needs to be given manpower
planning & manpow er management. A major aspect of staffing is to select
the right person for the right job. The objective of staffing is to ensure that
suitable people have been appointed for different positions. Staffing
function is performed by every manager of the enter prise. Staffing
function is a challenging & difficult function as it concerned with
selection of those persons who are properly qualified & mentally rich for
business requirement.
Staffing also involves:
1) Placing the right person at right job
2) Periodi c appraisal
3) Motivation of employees
4) Promotion & transfer
5) Training & development
6) Retention of employees
4] Directing:
The directing deals with guiding, teaching, stimulating, & actuating the
members to work efficiently. Directing is the function of guiding the
employees to perform efficiently, & contribute their best to the
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81 Management for Small Scale Industries. Directing involves telling the employees what work & how they have to
do. Once the employees are oriented to jobs, they need continuo us
guiding, communicating, motivating & leading.
5] Co -ordination:
Co-ordination is the process of tying together all the organizational
decisions, operations, activities & efforts so as to achieve unity of action
for the accomplishment of organizational o bjectives. There is need for
coordination at all levels of management. E.g. The Top level coordinates
planning & controlling activities of middle level managers. Middle level
(Production manager) coordinates activities of the lower level (Factory
superviso rs) at different shifts or units. The lower -level managers
coordinate the activities of the subordinates.
6] Controlling:
In controlling, manager has to monitor actual performance, & takes
corrective measures if needed.
Controlling involves the following steps:
1) Determination of Objectives or goals
2) Measurement of actual performance
3) Composition of actual performance with the objectives set
4) Taking corrective measures so that the objectives are attained
All the above mention management functio ns tends to grow together, & it
sometimes becomes difficult to separate one from the other. For e.g.,
When the top -level manager is discussing work problems with one of
his/her subordinates, it is difficult to say whether he is communicating,
guiding or do ing all these things simultaneously. Moreover, top level
managers perform more than one function simultaneously.
7.3 PRODUCTIONS & OPERATIONS MANAGEMENT Production is the creation of goods & services. It is transformation of
physical input into output.
Production is done in factories which have manufacturing processes. The
basic inputs of production process are men, machines, plant, services &
methods.
Production involves the step -by-step conversion of raw materials into
finished products through processing to create the utility of the product or
services.
7.3.1 Meaning Of Production & Operation Management:
Production Management refers to the application of principles of
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82 Entrepreneurship and Small Scale Industries
82 the job of c ontrolling & coordinating the activities required for making a
product, which involves control of cost, schedule, performance, quality &
waste requirements.
Production Management means planning, organizing, directing &
controlling of production activities. It involves application of planning,
organizing, directing & controlling in the production process.
7.3.2 Definitions:
According to A.W. Field, “Production Management is the process of
planning & regulating the operations of that part of an enterprise wh ich is
responsible for actual transformation of materials into finished products.’’
According to H. A. Harding, “Production Management is concerned with
those processes which convert the inputs into outputs. The inputs are
various resources like raw materi als, men, machines, methods, etc., &
outputs are goods & services.’’
7.3.3 Objectives Of Production & Operation Management:
1) Optimum utilization of resources & available production capacity.
2) Improve productivity of all inputs.
3) Produce goods at rig ht quality, right quantity, right time, & at minimum
cost.
4) Flexible working conditions.
5) Produce required quantities at a required quality.
6) Ensure maximum capacity utilization.
7) Minimum raw -material, labor cost & maintenance cost.
8) Minimum stor age, material handling & inspection.
7.3.4 Scope of Production & Operation Management:
Production & Operation management are concerned with the conversion
of inputs into outputs, so as to provide the desired utilities to the customer
while meeting the other organizational objectives of effectiveness,
efficiency & adoptability.
Following are the activities which are listed under production & operation
management functions:
1) Location of facilities
2) Plant layouts & material handling
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83 Management for Small Scale Industries. 5) Production & planning control
6) Quality control
7) Material management :
1) Location of facilities:
It is an important strategic level decision -making for an organization. The
selection of location is a key -decision as large investmen t is made in
building plant & machinery. An improper location of plant may lead to the
waste of all the investment made in the plant & machinery equipment. The
reason of location is to find the optimal location that will result in the
greatest advantage to the organization.
2) Plant layout & material building:
Plant layout refers to the physical arrangement of facilities. The overall
objective of the plant layout is to design a physical arrangement that meets
the required output quality & quantity most eco nomically.
Material handling is defined as ‘the art & science of moving, packing &
storing of products in any form’.
3) Product design:
It deals with conversion of ideas into reality. Every business organization
has to design, develop & introduce new products as a survival & growth
strategy. Developing the new products & launching them in the market is
the biggest challenge faced by the organization.
4) Process design:
It is a macroscopic decision -making of an overall process route for
converting the raw -materials into finished goods. These decisions
encompass the selection of a process, choice of technology, process flow
analysis & layout of the facilities.
5) Production planning & control:
Production planning & control can be defined as the process of planning
the production in advance, setting the exact route of each item, fixing the
starting & finishing data’s for each item, to give production orders to
shops & to follow up the progress o f products according to orders. Main
functions of production planning & control includes planning, routing,
scheduling, dispatching & follow -up.
6) Quality control:
Quality control may be defined as ‘a system that is used to maintain a
desired level of qu ality in a product or service.’ Quality control aims at
prevention of defects at the source, relies on effective feedback system &
corrective action procedures.
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84 Entrepreneurship and Small Scale Industries
84 7) Material management:
It is that aspect of management function which is basically concerned
with the acquisition, control & use of materials needed & flow of goods &
services connected with the production process having some
predetermined objectives in view.
7.3.5 Importance of Productio n & Operation Management:
1) Accomplishment of firm’s objec tives.
2) Enhances reputation, goodwill & image.
3) Helps to introduce new products.
4) Supports other functional areas.
5) Helps to face competition.
6) Optimum utilization of resources.
7) Minimizes cost of production.
8) Expansion of the firm.
Reasons for Production & Operation Management:
1) Helps in understanding the role played by the people in producing
goods & services.
2) Helps in getting a clear picture about the factory.
3) Helps in selecting a career.
4) It has strategic use to the executive s.
5) Helps to understand how important it is to nation.
7.4 WORKING CAPITAL MANAGEMENT An enterprise requires two types of capitals - Fixed capital & Working
capital. Fixed capital is needed to acquire fixed assets & working capital is
that amount of fund s which is required to carry out its day -to-day
operations.
Working capital management is important for small scale industries owing
to resource crunch. Working capital can be gross or net working capital.
Gross working capital refers to the total amount o f current assets whereas
net working capital means current assets minus current liabilities.
7.4.1 Definition:
The Accounting Principles Board of the American Institute of Certified
Public Accountants, U.S.A., has defined Working capital as follows:
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85 Management for Small Scale Industries. the excess of current assets over current liabilities & identifies the
relatively liquid portion of total enterprise capital which constitutes a
margin of buffer for maturing obligations within the ordinary operating
cycle of the business.’’
7.4.2 Objectives of Working Capital Management:
A necessary pre -condition for successful financial management is the
establishment of sound & consistent asset management policies, covering
fixed as we ll as current assets.
An effective utilization of working capital results in the maximization of
productivity & profits. There are two objectives of working capital
management i.e., Profitability & Solvency & these can be achieved by
trying to maintain a c orrect ratio between fixed & working capital. Such
ratios will ensure a smooth & fast flow of funds & enhance the
profitability & efficiency of enterprise.
A proper management of working capital synchronizes the cash receipt &
cash expenditure, & a unit ma y function with minimum cash reserves.
The primary or fundamental objective of working management is to
ensure a smooth operating cycle of the business. Secondary objective are
to optimize the level of working capital & minimize the cost of funds.
The sup erior objective of financial management is wealth maximization &
that can be gained by profit maximization accompanied by sustainable
growth & development.
For sustainable growth & development, the objectives of all stakeholders
including customers, suppli ers, employees, etc. should be aligned to the
growth of the organization.
Working capital management is a business strategy designed to ensure that
a company operates efficiently by monitoring & using its current assets &
liabilities to the best effect.
The basic purpose of working capital management is to enable the
company to maintain sufficient cash flow to meet its short -term operating
costs & short -term debt obligations
7.4.3 Factors Influencing the Amount/Quantity of Working Capital:
The working capit al requirements of small -scale industries differ from one
unit to another & from one type of unit to another type.
Small -scale units, which are located in rented premises & are engaged in
processing works, need a larger amount of capital than other units.
The other important determinants influencing the amount of working
capital are:
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86 Entrepreneurship and Small Scale Industries
86 1) Size of the small -scale Unit:
The amount of working capital depends directly upon the volume of
business. The bigger the size of a unit, the larger the amount of the
worki ng capital & so on.
2) Process of production:
Simple short -period processes of production require a smaller amount of
working capital & so on.
3) Proportion of Raw materials to Total cost:
The price of raw materials & quantity determine the amount of work ing
capital.
4) Terms of purchase & sales:
The amount of working capital changes directly with the use of credit &
so on.
5) Turnover of inventories:
If inventories are large & their turnover is slow, a small scale industry
will need a bigger amount of w orking capital. If they are small & their
turnover is quick, the unit will require a smaller amount of working
capital.
6) Importance of labor:
Small scale & Cottage industries are labor intensive units & therefore
require a larger amount of working capit al.
7) Cash requirement:
The amount of working capital required varies directly with cash
requirement of a unit.
8) Seasonal variations:
Seasonal small scale industries require a large amount of working capital.
9) Banking facilities:
If a small scale uni t has a good banking connection, it may have minimum
margin of regular working capital over current liabilities.
10) The requirement of working capital changes directly in proportion to
the growth & expansion of a small scale unit.
Working capital manageme nt is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities & the
interrelationships that exist between them.
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87 Management for Small Scale Industries. 7.5 MARKETING MANAGEMENT Marketing is very much integral to market. Market is a place where buyers
& sellers come together to exchange their products for money & vice
versa. The concept of marketing has also different from one point to
another.
7.5.1 These concepts are broadly classified into two categories:
1) Traditional concept
2) Modern co ncept
1) Traditional concept:
This concept corresponds to the early production phase when there was a
general scarcity of manufactured goods in the market. The major function
of marketing was to make the products easily available to the customers at
an af fordable/cheaper price.
According to American Accounting Association, ‘‘Marketing is the
performance of those business activities that direct the flow of goods &
services from producers to consumer or user.’’4
Thus, the traditional concept of marketing is product -oriented.
2) Modern concept:
The modern concept of marketing can be understood in a better way by
going through the following definitions.
Kotler opines, ‘‘Marketing is a social & managerial process by which
individuals & groups obtain what they ne ed & want through creating &
exchanging products & values with other.’’5
The traditional concept of marketing focusses on the needs of the
producers, i.e., the seller, the modern concept concerns the needs of the
consumer, i.e., buyer.
7.5.2 Problems of Ma rketing:
Production has no meaning without market. The most important purpose
of an enterprise is to produce what the buyer will buy. Each & every
industry has to face problems in marketing their products or services. But
small -scale enterprises has more m arketing problems. There are two main
reasons of marketing which small enterprises has to face. First, it is
difficult for small enterprises to stand in the cut -throat competition with
respect of quality, cost, standardization of the products with medium &
large -scale enterprises. Second, the small enterprises of our country have
recognition of the importance of marketing nor had they employed &
implemented effective marketing techniques in their enterprises.
Small scale enterprises in backward area faces t hree major problems of
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88 Entrepreneurship and Small Scale Industries
88 1) Competition with Modern sector:
The traditional distinctive feature of the small scale industries are slowly
changing, but there is an assumption of poor quality for goods
manufactured in small enterprises. This sector needs to cater to wide
diversity & changing tastes & preferences of their buyers.
2) Lack of sales promotion:
Advertisement of the products through sales promotion methods such as
posters, papers, magazines, advertisements in cinema halls & so on has
become increasingly fashionable particularly in the case of medium &
large scale industries. But, small -scale industries has less amount of
resources as well as knowledge to practice the methods of sales
promotion. In the case of the products of sm all-scale industries, at least at
their initial stage, effective capacity of the dealer plays an important role
in influencing their sales. In such cases dealers & producers are bound to
pay a relatively higher rate of commission than those paid by the lar ge-
scale producers.
3) Weak in bargaining power:
In case of small scale enterprises, the price realized is usually better when
the sales are made at the place of production itself than when these
products are marketed in the fairs & exhibitions. The man ufacturers are in
a better bargaining position at home than in other locations like fairs &
exhibitions where they take their products for selling.
Marketing is a process of discovering the consumer’s needs, converting
them into products or services & movi ng the product or services to the
final consumer to satisfy his needs & wants. Thus, the concept of
marketing is consumer -oriented, i.e., produce what consumers actually
want or demands. Small scale enterprises face several problems in
marketing their prod ucts.
7.6 QUESTIONS 1) Explain the functions of management.
2) Explain the scope of production and operation management.
3) What are the factors influencing quantity of working capital.
4) Write a note on marketing management.
7.7 REFERENCES Citat ions:
 Henry L. Fayol: ‘General & Industrial Management, Sir Issac
Pitman & Sons, London, 1949. munotes.in

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89 Management for Small Scale Industries.  Peter F. Drucker: Practice of Management, Allied Publishers, New
Delhi, 1970.
 Frederick Winslow Taylor: Principles of Scientific Management,
Harper & Brothers, New York, 1947.
 American Accounting Association, Journal of Accounting, p.202.
 Philips Kotler: Marketing Management: Analysis, Planning,
 Implementation and Control, 6th. Ed. Printice Hall of India Private
Limited, New Delhi, 1988, pp.12 -13. Www. nsam.ac. in
 Desai Vasant, Small scale Industries and Entrepreneurship,
Himalaya Publications.
 Khanka S.S., Entrepreneurial Development, S. Chand and Company.


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90 8
MANAGEMENT AND INCENT IVES FOR
SMALL SCALE INDUSTRIES
Unit Structure
8.0 Objectives
8.1 Introduction
8.2 Human Resource Management
8.3 Total Quality Management
8.4 Management Information System (Mis)
8.5 Incentives to Small Scale Industries
8.6 Questions
8.7 Reference s
8.0 OBJECTIVES After going through this unit, you must be able to:
 Explain the nature & scope of Human Resource Management (HRM).
 Describe the concept of Total Quality Management (TQM).
 Explain the need for TQM in small -scale enterpr ises.
 Explain the overview of Management Information System (MIS).
 Explain the components of Management Information System (MIS).
 Explain the advantages & problems of incentives to small scale
industries.
8.1 INTRODUCTION In this Unit Two we will be studyi ng various concepts like Human
Resource Management (HRM), Total Quality Management (TQM),
Management Information System (MIS).We will be learning various
incentives to small scale industries. Human Resource Management is very
essential for an organization to place right person at right time. Quality is
very important in today’s competitive world. It is difficult to maintain
quality for continuous improvement. It is easy to start small enterprises but
difficult to make them survive without quality.
Manageme nt is primarily depended on information. Information is the
most important source of Management Information system. An incentives
or perks that motivates small -scale industries. An incentive is important
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91 Management and Incentives for Small Scale Industries . 8.2 HUMAN RESOURCE MANAGEMENT(HRM) Human beings are social animals & they can not live alone & work in
isolation. From childhood each & every individual acquire knowledge &
experience on understanding others & how to behave in each & every
situa tions in life.
The whole context of Human Resource Management depends on the core
matter of managing relations at work place. Since mid -1980’s HRM has
gained acceptance in both academic & commercial circle. HRM is a
multidisciplinary organization function that draws theories & ideas from
various areas such as management, economics, psychology & sociology.
Effective HRM depends very much on the causes & conditions that an
organizational setting would provide.
The goal of HRM is to maximize employees contribu tions in order to
achieve optimal productivity & effectiveness, while simultaneously
attaining individual objectives (such as legal compliance & demonstrating
social responsibility).
HRM is the study of activities regarding people working in an
organizatio n. It is a managerial function that tries to match an
organization’s needs to the skills & abilities of its employees.
8.2.1 Definitions:
HRM is a management function deals with hiring, motivating &
maintaining people in an organization. It focusses on pe ople in an
organization. HRM is designing management systems to ensure that
human talent is used effectively & efficiently to accomplish organizational
goals.
HRM is the personnel function which is concerned with development,
procurement, compensation, int egration & maintenance of the personnel
of an organization for the purpose of contributing towards the
accomplishments of the organization’s objectives. Therefore, the
personnel management is the planning, organizing, directing,& controlling
of the perform ance of those operative functions
(Edward. B. Philips).
According to Dessler (2008) the policies & practices involved in carrying
out the ‘‘people’’ or human resource aspects of a management position,
including recruiting, screening, training, rewarding & appraising
comprises of HRM.
HRM refers to the management of people in organizations. It consists of
the activities, policies, & practices involved in obtaining, developing,
utilizing, evaluating, maintaining & retaining the appropriate number &
skill mix of employees to accomplish the organization’s objectives.
The goal of HRM is to maximize employees contributions in order to
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92 Entrepreneurship and Small Scale Industries
92 attaining individual objectives (such as having a challenging j ob &
obtaining recognition), & societal objectives (such as legal compliance &
demonstrating social responsibility).
HRM can be defined as the art of procuring, developing & maintaining
competent workforce to achieve the goals of an organization in an
effective & efficient manner.
Small scale enterprises also need to draw plans to take various decisions &
perform multifarious activities.
8.2.2 Nature of Hrm:
HRM is a management function that helps manager’s to recruit, select,
train & develop members for an organization. HRM is concerned with
people’s dimension in organizations.
The following constitute the core of HRM:
1] HRM involves the application of management function & principles.
2] Decision relating to employees must be integrated.
3] Decision ma de influence the effectiveness of an organization.
4] HRM functions are not confined to business establishments only.
HRM refers to a set of programmes, functions & activities designed &
carried out in order to maximize both employee as well as organizati onal
effectiveness.
8.2.3 Scope of HRM:
The scope of HRM is vast. All major activities in the working life of a
worker from the time of his/her entry into an organization until he/she
leaves it comes under the purview of HRM.
The major HRM activities inclu de Human Resource Planning, job
analysis, job design, employee hiring, employee & executive
remuneration, employee motivation, employee maintenance, industrial
relations & prospects of HRM.
American Society for Training and Development (ASTD) conducted fai rly
an exhaustive study
In this area & identified nine broad areas of activities of HRM.
These are as follows:
a) HR planning
b) Design of the organization & job
c) Selection & staffing
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93 Management and Incentives for Small Scale Industries . e) Organizational Development
f) Compensation & Benefits
g) Emplo yee assistance
h) Union /labor relations
i) Personnel research & Information system.
a) HR Planning:
The objective of HR planning is to ensure that the organization has the
right types of persons at the right time at the right place. HR planning
develops strategie s both long -term & short -term to meet the man -power
requirement.
b) Design of the organization & job:
The task of laying down organization structure, authority, relationship &
responsibilities. This is done by ‘‘job description.’’ Another step is ‘‘Job
specif ication’’ Job specification means the attributes of persons who will
be the most suitable for each job which is defined by job description.
c) Selection & Staffing:
It is the process of recruitment & selection of staff.
d) Training & Development :
Training of the individual is needed not only to perform current job but
also to fulfill the future needs of the organization. Training improves
knowledge & skill of an individual.
e) Organizational Development :
Healthy interpersonal & inter -group relationship within the organization.
f) Compensation & benefits :
Wages & compensations are fixed scientifically to meet fairness & equity
criteria.
g) Employee assistance :
Each employee faces problems every day. Some are personal & some are
official.
h) Union - labor relations:
Healthy union & labor relations are very important for enhancing peace &
productivity in an organization.
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94 Entrepreneurship and Small Scale Industries
94 i) Personnel Research & Information system:
Research in HR must also take care for improving exchange of
information through effective communication systems on a continuous
basis especially on moral & motivation.
8.2.3 Objectives of HRM:
The primary objective of HRM is to ensure the availability of competent
& willing workforce to an organization.
The spec ific objectives are as follows:
1) Helping the organization in obtaining the right number & types of
employees to fulfill its strategic & operational goals.
2) Helping to create a climate in which employees are encouraged to
develop & utilize their skills to the fullest & to employ the skills &
abilities of the work force efficiently.
3) Helping to maintain performance standards & increase productivity
through effective job design; providing adequate orientation, training
& development; providing performance -related feedback; & ensuring
effective two -way communication.
4) Helping to establish & maintain a harmonious employer/employee
relationship.
5) Helping to create & maintain a safe & healthy work environment.
6) Developing programs to meet the economic, social & psychological
needs of the employees & helping the organization to retain the
productive employees.
7) To provide organization with well -trained & well -motivated
employees.
8) To increase the employees satisfaction & self -actualization.
9) To develop & maintain the quality of work life.
10) To communicate HR policies to all emplo yees.
11) To help maintain ethical policies & behavior.
12) To help the organization to reach its goals.
HRM is the management function that helps the managers to plan, recruit,
select, train, develop, remunerate & maintain members of organization.
An organizati on have set policies; definite procedures & well defined
principles relating to its personnel & these contribute to the effectiveness,
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95 Management and Incentives for Small Scale Industries . 8.3 TOTAL QUALITY MANAGEMENT (TQM) The word Total means whole or aggregate, Qu ality means degree of
excellence a product/ service provides, Management means act, art or
manner of handling, controlling, directing, etc.
Therefore, Total Quality Management is the art of managing the whole to
achieve excellence.
The golden rule is a sim ple but effective way to explain it: Do unto others
as you have them do unto you.
In today’s competitive & challenging time, only those businesses can
survive & thrive who possess strengths to overcome the challenges faced
by fast changing business world. Business strength do not happen
incidentally. Instead, these are acquired through continuous efforts made
for improving performance in all spheres of a business organization.
Improvement in performance corresponds to quality in goods produced &
services of fered by an organization.
As a matter of fact, quality, over the period, has become a hall -mark for
business success. Total Quality Management has become a buzzword of
the day in business organizations.
8.3.1 Meaning of Quality:
Quality has become so esse ntial in today’s competitive environment that
ignoring the quality issue is parallel to corporate suicide.
The concept of quality is an evolutionary, not a revolutionary one. Quality
indicates the level of commitment in doing our activity. Quality is a
continuous improvement in performance to satisfy the customer’s needs &
expectations.
Quality is the degree to which the inherent capabilities of the product
satisfy requirements. Quality is a customer’s determination, not the
manufacturer’s determination. Th e concept of Quality has expanded to
TQM.
According to Joseph M. Juran: ‘‘Quality is fitness for use or purpose.’’1
ISO has defined quality as, ‘‘The totality of features and characteristics of
a production or service that bear on its ability to satisfy st ated or implied
needs of customers.’’2
8.3.2 Meaning of Total Quality Management :
TQM is known by various names, such as Total Quality Improvement
(TQI) or Total Quality Control (TQC), or simply as total quality or as
Strategic Quality Management (SQM), & so on. All these terms mean the
same, i.e., continuous improvement in all parts of an organization with a
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96 Entrepreneurship and Small Scale Industries
96 British Quality Association defined TQM as ‘‘management philosophy &
company practices that aim to harness the hum an & material resources of
an organization in the most effective way to achieve the objectives of the
organization.’’
8.3.3 Confederation of Indian Industry (CII) defined TQM as follows :
Meeting the requirements of the internal & external customers consis tently
by continuous improvement in the quality of work of all employees.
TQM can be conceptualized into the following three processes:
1] Quality Process :
It is for concerning who the customer is, what are his/her needs taking
steps to completely satisf y the needs of this customer.
2] Management Process for Continuous Improvement:
The term management refers to managing continuous improvement &
does not address any specific organizational level. The process consists of
continuously developing policies, o bjectives & methods to achieve goals,
education & training, implementation, checking causes, checking effects,
taking appropriate action & preventing recurrence.
Management process addresses continuous improvement to keep pace
with the:
a) Changing requiremen ts
b) Competitive environment, &
c) Technological advances
3] People Process :
It is initiating & maintaining the TQM. It is carried out through
involvement of all employees on the basis of all the three values, namely,
intellectual honesty, self -control & respe ct for others.
TQM can be defined as an intensive, long -term effort to transform all parts
of the organization in order to produce the best product & service possible
to meet customer need .
8.3.4 Need For Tqm In Small Enterprises:
It is easy to start small enterprises but difficult to make them survive. It is
more so in the context of ever -increasing competition in business brought
by liberalization, globalization & privatization of the Indian economy.
Only those enterprises can survive possess strength to face the stiff &
complex competition.
Small enterprises find it more difficult to face competition due to their
small size in all respects such as finance, technology, managerial
competencies, etc. Quality is conformance to requirements. According to
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97 Management and Incentives for Small Scale Industries . that it has become the battlefield of nineties; only the fittest will survive
beyond 2000.
Quality serves as competitive advantage & enables small enterprises to
withstand the attack of compet itive environment. As competition always
keeps changing to more & more complex, so is required continuous
improvement in quality to face such ever complex competition effectively.
TQM strengthens the competitive strength of small enterprises to conform
to the changing requirements of business. The same underlines the need
for TQM in small enterprises.
8.3.5 TQM offers the following advantages to small enterprises :
 Increased efficiency in processes.
 More time for innovation & creativity.
 Higher spirit of emp loyees.
 Improvement in the quality of products & services.
 Increased customer satisfaction.
 Larger market share.
 Higher productivity.
 Higher profits.
8.3.6 TQM Process in Small -scale enterprises :
The purpose of TQM is to meet the requirements of customers
consistently by continuous improvement in the quality of work of all
employees. For this, TQM involves the following process: -
1) Customer satisfaction
2) Processes
3) Continuous improvement
4) Teamwork
5) Personal initiative
1) Customer satisfaction :
Customer is one who bu ys other’s goods & services. Today, customer
dictates production or market. The long -term success of any business,
depends on customer satisfaction. This is especially true for small
businesses where the impact of losing even a single customer can be
serio us. The first step in planning for customer satisfaction is to
understand what customers expect from the product or service is to be
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98 Entrepreneurship and Small Scale Industries
98 For any business, there can be two types of customers: internal & external.
Internal customers are those individuals or departments within an
organization to whom another department provides their products &
services. External customers are those who are the ultimate purchaser or
end-user of product or service.
The following steps can be followed to understa nd customer
requirements:
1) Document the results of the work performed.
2) Identify everyone (customer) who receives the outputs.
3) Pinpoint the output characteristics the customers want, require or
expect.
4) Verify output requirements, determine requirement imp ortance &
understand current level of satisfaction.
2) Processes:
Processes can be defined as a series of interdependent tasks that produce
results. This requires transformation of inputs into outputs. Processes exist
in all parts of an organization. As ever y part of an organization performs
work, all these should be systematically defined to include them in the
process. The different parts of organization are administration,
maintenance, billing, sales, recruitment, & training, etc. in which process
exists.
The different steps that can help to define the processes that any
organization performs are as follows: -
i) List team outputs (to document the results of the work performed.)
ii) Group similar outputs (to create an outline of the process.)
iii) Name the process (to allow it to be easily referenced.)
iv) Define process boundaries (to establish beginning & ending points).
v) List process activities (to provide examples of the tasks involved).
vi) Identify inputs (to determine the resources neede d).
3) Continuous Improvement in Processes :
The third step involved in TQM is putting efforts for continuous
improvement in performance/process. The first step in improving a
process is to remove the waste related with process. There are techniques
like valu e added assessment, minimize checks, & inspections, & minimize
administrative tasks help reduce waste in process.
Process simplification is the second step involved in improving process.
Simplification means to reduce complexity from the process. Experienc e
suggests that if a process is simpler than it is easier to learn & perform
consistently. To improve process, cycle time should be reduced. Cycle munotes.in

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99 Management and Incentives for Small Scale Industries . time means time required to deliver a good or service to customer. Cycle
time consist of delays, processing t ime, time required to check &
handover, & so on. Long cycle times not only prevent prompt deliveries to
customers, but also increase costs. Thus, there is need for reduction in
cycle time.
4) Teamwork:
The fourth step involved in TQM process is teamwork. A team is a group
of individuals who work together on one or more common processes.
These individuals may all be from the same department, represent several
departments, or involve an external supplier or customer. The Four faculty
members in the Department of Economics in the University responsible
for teaching post -Graduate programme is an example of team.
Effective teamwork has its foundations on consensus. Consensus is
general agreement by everyone involved. Consensus is arrived when all
members of a tea m understand a decision, & even, if they do not
completely agree with the decision, accept & support it.
5) Encouraging Personal Initiative:
TQM process completes with encouraging personal initiative in
organizational functioning. Empowerment reproduces perso nal initiative.
The key to preparing employees to take appropriate personal initiative is
to train them in the concepts & techniques of TQM process. Such a
training helps employees to manage the processes as they are responsible
for performing.
The whole T QM process discussed above is diagrammatically
presented as follows:

Fig. TQM Process munotes.in

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100 Entrepreneurship and Small Scale Industries
100 TQM is a continuous improvement in all parts of an organization with a
view to consistently satisfy customer needs. TQM differs from ISO -9000
in the sense tha t it is a finish less race for improvement whereas ISO -9000
is only a milestone in this race. TQM is needed to satisfy 3Cs, i.e.,
Custom, Competition & Cost. The five elements involved in TQM process
are customer satisfaction, processes, continuous improve ment, teamwork
& personal initiative.
8.4 MANAGEMENT INFORMATION SYSTEM (MIS) Management is basically dependent upon information, which is an
important component of any MIS. Information is the most critical resource
of MIS.
MIS is a system consisting of p eople, machines, procedures, databases &
data models, as its elements. The system gathers data from the internal &
external sources of an organisation.
8.4.1 Definition:
H. Weihrich and H. Koontz define MIS as a ‘‘a formal system of
gathering, integrating , comparing, & analysing, & dispersing information
internal & external to the enterprise in a timely, effective & efficient
manner.’’
8.4.2 Components of MIS:
MIS is an information system which process data & converts it into
information.
A MIS is made u p of six components - people, procedures, data resources,
network resources, hardware & software. These six components integrate
to perform input, process, output, feedback & control, so as to achieve
organisational objectives.
1) People:
People are the most important component for the successful operation of
all information system. People consist of End -users/ clients are people
who use an information it produces. The end users can be customers,
salespersons, engineers, clerks, etc. The end users use the proc essed data
for decision making.
Computer system specialist works in a different types industries providing
technical support for computer systems. He has complete technical
knowledge of the system operations. He may provide training to the
computer operato rs. A computer device operator is the employee of the
organisation, who operates the computer device.
The support staff are responsible for the monitoring the computer system
for smooth functioning. Support staff provide assistance to the computer
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101 Management and Incentives for Small Scale Industries . A network administrator/ systems administrator is responsible for keeping
an organisations computer network up to date & running smoothly. Any
company that uses multiple computers/software platforms needs a network
administrator to co -ordinate t he different systems.
2) Procedure s/ Processes/Methods:
Procedure refers to set of guidelines for the use of a computer -based
information system. Procedures can be laid down by the management
either on their own or with the help of consultants. Procedure depe nds on
the nature of the organization. Procedures are different for different
organizations. Procedures may differ from one department to another as
per their priorities. E.g., Sales department may need information on
number of units to be sold, the market areas where the goods to be sold,
etc., whereas, a production department needs information on raw -
materials, availability of machinery, etc. Therefore, different departments
have to lay down their procedures in different ways so that the MIS can
help in r etrieving the data as per need of a particular department.
3) Data resources:
It includes raw -data & processed data (database). Databases are processed
& organized data. Knowledge in the form of facts, rules, & case examples
about successful business pract ices. Data resources must meet the
following criteria:
a) Comprehensive: All the data about the subject are actually present in
the database.
b) Non-redundant: Each piece of data exists only once in the database.
c) Structured Data: The data are stored in a syste matic way so as to
minimize the cost of processing & storage.
4) Network resources:
Network resources consist of server computers, client computers, &
communication/ transmission media, Internet, intranet & extranet. A
server is a computer designed to proces s requests & deliver data to other
computers over a local network/ the internet.
A client computer refers to computer hardware or software that accesses
the data made available by a server.
Communication/ transmission media are the pathways used by servers &
client computers in a network. They may include wired/ wireless media.
The wired media include fibre optic & co -axial cables. The wireless media
include Wi -Fi, & mobile networks.
5) Hardware:
It consists of all physical devices & materials used in informat ion
processing. The input devices are keyboard, mouse, scanners, sensors, etc.
The output devices are monitor, printer, network devices, etc. The storage munotes.in

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102 Entrepreneurship and Small Scale Industries
102 devices are the hard drives, cloud storage, etc., which stores files,
directories, & other data. The p rocessors (Intel Pentium, i5, i7, etc) speeds
up the processing of data into information.
6) Software:
It consists of various programs & applications. The software is divided
into two major groups, (where in all programs fit in) - system software &
application s software.
System software:
It refers to the operating system, i.e., DOS, Windows, Mac OS, etc. The
operating system is the most important program that runs on a computer.
Every general computer must have an operating system to run other
programs & applic ations.
Application software refers to specialized software for accomplishing
specific tasks. Application software which are programs that direct
processing for a particular use of computers by end users. E.g., Sales
analysis program, a payroll program, & a word processing system.
MIS may comprise of only Four components - People, Hardware, Software
& Data. Procedures can be a part of data, & network resources are a part
of hardware & software.
8.5 INCEN TIVES TO SMALL SCALE INDUSTRIES An incentive is somethi ng that motivates or encourages one to do
something or behave in a certain way. It is a motivational force which
makes an entrepreneur take a right decision & act upon it. Incentives
consists of concessions, subsidies & rewards.
Economic incentives - both financial & non -financial -push an
entrepreneur towards decisive decision & action.
The objective/aim of incentives is to motivate an entrepreneur to set up a
new venture in the larger interest of the nation & the society.
8.5.1 Need for Incentives:
The n eed for incentives are as follows:
1] To assess regional imbalances in development:
The usual package of incentives & concessions has been available in
backward as well as developed regions. It has been, however the
experience of industrial administrati on, department of industries, district
level officers, development corporations, etc., that what is inadequate in
the backward districts is the overall existing environmental growth.
One of the ways is to identify pockets of savings of different activity
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103 Management and Incentives for Small Scale Industries . provide them with appropriate information as well as suitable incentives to
offset the disadvantages prevailing in such places.
Industrial policy uses incentives both to correct the ma rket imperfections
& to accelerate the process of industrialization so as to drive the forces of
supply & demand reach the equilibrium level. such a policy then aims at
inducing some entrepreneurs or sections of the community (e.g.,
technicians) to locate their industrial units in areas selected by govt. rather
than that of their own choice.
Regional imbalances can also lead to effective utilization of regional
resources, removal of disparities in income & levels of living & contribute
to a more integrated society.
2] To promote entrepreneurship by removing economic constraints:
As for the economic constraints, the new entrants in the field face many
obstacles on account of inadequate infrastructures. The new entrepreneurs
suffers because of distances sepa rating central administrative organs from
entrepreneurs & their projects, deficiency of various supporting services
such as market intelligence, entrepreneurial guidance & training, technical
consultancy & merchant banking facilities, etc.
The various ince ntives aim at reducing some or all of the problems by
several means. Industrial estates, industrial complexes, etc., availability of
power, concessional finance, capital investment subsidy, transport
subsidy, etc., are all but a few examples of incentives to solve obstacles
breaking the emergence of entrepreneurs in industry.
3] To provide competitive strength, survival & growth:
Some of the incentives are concerned with the establishment of industries
while others are concerned with the survival & growth of industries.
Several incentives are confined to the first few years of the establishment
of the unit while a few of them are made available over a long period.
Instances may be cited of the reservation policy for small scale industries
due to which a sma ll firm can hope to compete in the market to which
entry by larger units is barred.
If these units are already established & are brought under the reservation
policy later, it will be a case of incentive to support its competitive
strength. For a newcomer, the reservation is an incentive to enter the
industry itself. A price preference improves its competitive strength.
Thus, a creative & shrewd entrepreneur can set up a small -scale industry
&/or industries without putting a single pie of his own & even cap ital out
of it. Some successful entrepreneurs have built their own industrial
empire, acquired status & power.
8.5.2 Advantages of Incentives:
a) They act as a motivational force which makes the prospective
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104 Entrepreneurship and Small Scale Industries
104 b) They encourage the entrepreneurs to start industries in backward
areas.
c) By providing subsidies & incentives the govt. can,
i) Bring industrial development uniformly in all regions.
ii) Develop more new entrepreneurs which leads to entrepreneurial
developmen t.
iii) Increase the ability of entrepreneurs to face competition successfully.
iv) Reduce the overall problems of Small -scale entrepreneurs.
8.5.3 Problems of Incentives:
1) Incentives are being highly misused.
2) Incentives turned out to be grounds for disho nesty.
3) They have given scope for favoritism & rampant corruption.
4) They have become the seeds of unethical business practices.
5) Resulted in financial drain on the exchequer.
6) The aim of providing incentives & financial help is hardly achieved.
The Small -scale industries play strategic role in the economic
development & progress of the nation. These industries ensure equitable
distribution of national income & wealth.
Small -scale industries are the base industries for the better utilization of
local resources & self-sufficient village economy.
8.6 QUESTIONS Q.1 Explain the nature & scope of HRM.
Q.2 Write a note on objectives of HRM.
Q.3 Describe the need for TQM in small enterprises.
Q.4 Explain the components of MIS.
Q.5 Write a note on incentives to small sc ale industries.
Q.6 Explain the advantages & problems of incentives to small scale
industries.
8.8 REFERENCES Citations:
 Khanka S.S., Entrepreneurial Development, S. Chand and Company. munotes.in

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105 Management and Incentives for Small Scale Industries .  Joseph M. Juran: Quality Planning and Analysis, McGraw Hill,1970.
 ISO 8402: Quality Vocabulary.
 Desai Vasant, Dynamics of Entrepreneurial Development &
Management, Himalaya Publishing House.
 Sharma Sudhir, Entrepreneurship Development, Wisdom
Publications.
 Vaz Michael, Commerce III, Manan Prakashan.
 Uop.edu.pk
 Brauss.in/ hrm -basic -notes.

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