Entrepreneurship Management - 18th Jan 2011

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ENTREPRENEURSHIPMANAGEMENT

Mrs. Juilee Katkar


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Small scale industries

Small scale industries are the backbone of Indian industry

Crucial role in the economic development by value addition,

employment generation, equitable distribution of national

income, regional dispersion of industries, mobilisation of capital

and entrepreneurial skills and contribution to export earnings

Contribution next only to agriculture as dynamic and vibrant

sector of the economy


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Micro, Small, and medium Enterprise development Act, 2006

Small industries comprises tiny, cottage, traditional, village and

modern enterprise

Fragmented across various ministries for the purpose of development

and concessions

Handloom, powerloom, handicrafts,khadi suffered neglect compared

to manufacturing and service based enterprise

To correct discrepancies, MSMED Act was acted on June 16, 2006

First ever legal framework recognizing the concept of enterprises and

defining and integrating three tiers; micro, small and medium


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Micro, Small, and medium Enterprises

Provide livelihood

Check rural and urban migration

Generates export earnings

Touch upon the lives of the remotest and the most marginalised people

MSMEs often act as ancillary industries for the large scale industries

providing them with the raw material, vital components and linkages

Manufacturing of engineering and automobile products due to their

expertise in supplying assemblies and subassemblies, components etc


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Concept and definition of SSI

Small scale industries

Is broadly based on the original value of plant and machinery

Any enterprise with the capital investment of Rs. 1.5 cr.

To facilitate technology upgradation and enhance competitiveness ,

the investment limit is increased to Rs. 5 cr in respect of 71 hi-tech

export oriented items in the hosiery, knitwear, hand tool, drug

pharmaceuticals, stationery and goods sector

Also includes small scale service and small scale business

enterprises


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Tiny enterprise

Investment limit is Rs. 25 lacs, irrespective of the location of the unit (Prior to this it was

industries situated in villages with a population of less than 5000 and should also cover cottage industries in rural and semi urban area)

Exportoriented Unit

Investment in fixed assets in plant and machinery whether held on ownership terms, or on lease

or on hire-purchase does not exceed Rs. 100 lacs and has an obligation to export 30 percent of

production

Women Enterprises

Small scale units where one or more women entrepreneurs have not less than 51% financial

holding


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Artisans, village and cottage

Defined as Artisans irrespective of the location

Small industries activities (viz; manufacturing, processing preservation

and servicing) in villages and small towns with a population not exceeding

50,000 involving utilization of locally available resources and or human

skills ( where individual credit requirements do not exceed Rs. 50,000

Small scale service and business( industry related) enterprises

Investment in fixed assets excluding land and building upto Rs. 10 lakhs

irrespective of locations as on 31stMarch 2001

Eg: advertising agencies, beauty parlours, documentary filming, creches


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Micro enterprises Small and medium enterprises

Generally artisan based , located mostly in

rural and semi urban areas

Use local skills and resources and sell their

products locally

Lower level investment in machinery

Provide largely part time employment

Mostly involved in activities such ashandloom, khadi, handicrafts, sericulture,

bidi making, embroidery, knitting, wood

carving

Use power driven machines and possess

some technological sophistication

Markets are relatively wide and quite

often include export market

Located close to or in urban areas

including large industrial centres

Products include hosiery goods, ready

made garments, motor parts,

electronics, sports goods, rubber goods

and engineering goods

Differences between Micro, small and medium enterprises


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Cottage Industries Small scale industries

Produce mainly traditional goods

Use pre dominantly manual labour

Technically backward

Derive raw materials from local

sources

Household enterprises employing

very little hired labour

Cater to the needs of the local

market

Produce a variety of non-traditional products

such as electrical, engineering goods,

chemical products

Use of power and modern techniques

Use modern methods of production and are

technically advanced

Raw materials from a wide marketing area

Skilled and non-skilled labour

Cater to the needs of national as well as

international market

Cottage V/s Small scale industries


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Ancillary Industries Small scale industries

Investment in plant and machinery

can go upto Rs. 1 Cr

It supplies 50% of the production to

one or more parent units

Engaged in the manufacture of parts,

components, sub assemblies toolings

and render services to the parent unitsfor production purposes

Not controlled by any large unit

Investment in fixed assets in plant and

machinery not exceeding Rs. 1.5 Cr, 5 Cr in

respect of 71 hi-tech export oriented items

in the hosiery, knitwear, hand tool, drug

pharmaceuticals, stationery and goods

sector

No such restriction placed

Produce mainly consumer goods such as

watches, transistors

Is not a subsidiary to any large unit

Ancillary V/s Small scale industries


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Small scale units Large scale Units

Small fixed investment

Labour intensive

Personal character

Local area operation

Limited scope of expansion

Unorganised labour

Small uneconomic size

Proprietorship and partnership

Decentralized location

Independent management

Large investment

Capital intensive

Impersonal

Wider area

Economies of scale & great scope for expansion

Labour organised

Large economic size

Joint stock company

Centralized location

Divorce between ownership and management

Small scale units V/s Large scale units


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Relationship between small and large units

Supplementary

Fills in the gap between large scale production

Competitive

Industries such as tiles, perishable foods, bakery products require lessengineering skills and more craftsmanship

can co exist and compete with large scale sector

Complementary

Small units produce intermediate products for large units

Enjoy protected market under the cover of the large scale unit

Eg: Plastic dust cover for video recorders, electronic passive components


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Relationship between small and large units

Ancillarisation

Many small firms provide small components, parts, accessories to large firms

Eg: Tata motors, Bajaj

Jobbing

Large enterprises provide components and materials to small scale units.

Small units process these materials into finished parts or sub-assemblies

Merchandising

Small scale units produce products which are then marketed by large companies

Eg: Soaps, refrigerators etc

Servicing

Small firms are assigned the job of repairing and maintenance of products manufactured by large scale units

Eg: Acs , personal computers, etc


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Characterstics of small scale industries

Small capital investment

Cottage industries, artisans can start business with very less capital

Generates employment

Labour intensive and hence generate more employment Helps solve underemployment issues in an under developed economy like India

Personal contact

Personal supervision of all activities such as production, purhase etc is done by

the entrepreneur himself

Location

Generally located in rural and semi urban areas

Local raw material, labour and finance should be readily available


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Exploitation of human resources

Child and women are generally exploited

Entrepreneurial growth

Is a beehive for entrepreneurial growth

Technology

Less use of technology, labour intensive

Uses indigenous technology

Dispersal of manufacturing activity

No scope of manufacturing activity in large cities


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Poor organisation and management

No delegation of authority

Management is poor and negligible

Ownership

Organisations are mostly privately owned and organised as

sole proprietorship

Family forms the largest component of the small scale force


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Objectives of small scale industries

To create vast employment opportunities for the people

To effect decentralisation of industries by creating industrial estates

Redistribution of economic power and income

To raise the standard of living

To facilitate mobilisation of resources for capital and skill

To utilise the available resources

Promoting industrial development of backward areas

To bring about an integration of development of rural economy and

large scale industry

To tap latent resources like entrepreneurial ability, hoarded wealth etc


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Significance of small scale industries

Accounts for 40% of the total value of industrial production

Contributes directly about 33% of the aggregate exports

Labour intensive

Equitable distribution of income and wealth

Production of small sector contributes in large proportion of the national products

Dispersal of manufacturing activities results in balanced regional growth

Linkages creates opportunity for service industry to prosper due to large scale units

Own identity co-exist with the large scale units

Training ground for local entrepreneur

Mobilisation of service offers an opportunity for investment for people living in

under developed economy


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Significance of small scale industries

Facilitation of capital formation

Export potential

Nearly 20% of the total value of export is from small scale industry

Eg: leather, ready made cotton garment, pharmaceuticals etc

Innovative and productive

Products can earn a substantial foreign exchange

Favorable capital output ratio

Meet substantial part of increasing demand for consumer goods

including human consumption goods

Requires only a short gestation period


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Incentives available to SSI units in backward rural

industries project area

Allotment of factory or factory sheds in industrial estates/ areas and industrially

developed colonies on easy terms

An outrightsubsidy of 15% on the fixed capital investment up to a maximum of Rs

15 lakhs is admissible to new units being set up in backward areas

The central/ state government directly or through its subsidiary concern- the state

Industrial Development Corporation-underwrites or participates in preference

shares of public limited companies on a selective basis for setting up medium and

large industrial units. State government also considers cases for setting up of joint

ventures with the private sector


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Loans and advances to SSI units under the State Aid to Industries

Act and Rules framed there under for the construction of factory

buildings, purchase of machinery and equipment and working

capital on easy terms

The state Financial Corporations grant loans of acquisition of

fixed asset up to Rs. 30 lacs in the case of limited companies

and registered co-operative societies and up to Rs. 15 lacs for

other at liberalised margins and rate of interest and this is

done over a longer span of repayment and moratorium

period


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New units are exempted from property tax for a period of 5 years

New units established in the districts are completely exempted from the

payment of electricity duly up to a period of 7 years

Industrial units set up within the municipal limits are exempted form

octroi on capital equipment and building materials subject to a

maximum period of 3 years from the date of regular registration

State government have set up independent testing laboratories on behalf of

the Indian Standard Institution, the export inspection Council, the department

of Defense, Govt of India and various other govt organizations for making

industrial products of good quality


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In order to provide some important and sophisticated common facilities, a

network of industrial development centres, heat treatment centres and

common facility workshops have been set up in the state to equip the SSI Units

with modern techniques and process of manufacturing

Provision of essential, controlled raw material to the SSI units on priority and

at very liberal terms

Interest free loans in lieu of inter-state sales tax paid / payable by SSI units are

available up to 7 years , provided the loan in particular year will not exceed

8% of the capital investment

Special incentives in the form of transport subsidy to concentrate partially of

the higher transport cost of established industries in hilly backward areas is

also being provided by the Union government


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Concessions to SSI

Reservation of products for small scale sector

836 items reserved for small scale sector

List available at the District Industries centre

Purchase of reserved products from SSI

400 items to be only purchased from small scale units

75 % things the government needs is purchased from small scale sector

Price preference to SSI products

15% price preference to assist small scale sector in marketing their products

Assistance for marketing

Govt institutes help the small scale industries in selling their products. Physically help is

given to DGS&D , NSIC, SSIDC, Directorate of Industries, Defence railway and Central

Govt purchase from SSI.

Industries need to register their names with these institutions


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Concessions to SSI- contd

National and International Exhibitions

Small scale sector is given concession in rent for space in exhibition

In Maharashtra , concessions are given by SSIDC, NSSIC

Other schemes for Assistance in Marketing

Tender forms are sent free of cost by DGS&D, Directorate of Industries to registered

small scale units

Concessions in security deposit

Priority is given to products manufactured by small scale sector

Orientation courses for entrepreneurs

Training is provided by the State and the Central government

Has started many institutes for giving guidance in respect of technology and orientation

courses for entrepreneurs


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Financial assistance

Gives loans to small scale sector at lower rate of interest

Govt gives assistance by way ofseed money and loans at lower rate of interest

State government also grants subsidy to this sector under its corporation schemes of

incentives

Grants lands on concessional rental basis or on lease to the SSIs

Place for small scale Industry

Industrial societies sponsored by local industrial estates are encouraged so as to enable

the SSI units to commence their units at earlier stage

At 142 places, SSI estates are established with the help of MIDC in the state of

Maharashtra


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Supply of electricity

MIDC shares part of expenditure on electricity for the units which require less than 100

H.P load for their industry who get the electricity at cheaper state

Concessions in Central Excise Duty

This duty is paid by industries for whom it is made applicable by the government

Small scale industries are exempted from paying any excise duty till their sale does not

exceed Rs. 30 lacs

Import of raw material and machinery

Special concessions are granted to SSI units for import of raw material and machineries

required for the industry


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Export of products of SSI Units

Various concessions for export of their products

Concessions in paying Income tax to SSI

Concessions in paying income tax, concessions in depreciation, capital investment in

their profits

Concessions in Stamp duty

On availing a loan , small scale units are required to mortgage their immovable

properties with such institutions

Govt of Maharashtra has granted concessions for stamp duty on Mortgage deeds to be

executed for that purpose

Documents

Entrepreneurship Management - 18th Jan 2011