Entrepreneurial development

UNIT - I

UNIT - II

UNIT - III

UNIT - IV

Entrepreneurial traits, types and significance; definitions, characteristics of

entrepreneurial types, qualities and functions of entrepreneurs, role and importance of

entrepreneurs in economic growth.

Competing theories of entrepreneurship; entrepreneurial development programme in

India - history, support, objectives, stages of performances; planning and EDP -

objectives. target group, selection of centre, pre-training work; govt. policy towards

SSI’s; entrepreneurial input.

Entrepreneurial behaviour and entrepreneurial motivation; n-achievement and

management success, entrepreneurial success in rural areas; innovation and

entrepreneur; establishing entrepreneurs system.

Search for business idea, sources of ideas, idea processing, input requirments : sources

and criteria of financing, fixed and working capital assessment; technical assistance;

marketing assistance; sickness of units and remedial assistance; preparation of

feasibility reports and legal formalities and documentation.

MBA–4th SEMESTER, M.D.U., ROHTAK

SYLLABUS

External Marks : 70Time : 3 hrs.

Internal Marks : 30

ENTREPRENEURIAL DEVELOPMENT

169

Q. Define Entrepreneur. Explain the Characteristics ofAn Entrepreneur.

Ans. Meaning of Entrepreneur :

Diagram : Basics of An Entrepreneur

An Entrepreneur is a person who perceives a need and

then brings together manpower, material and capital required to meet that need. In other

words an entrepreneur is an individual or team that identifies the opportunity, gathers the

necessary resources, creates and ultimately responsible for the performance of the

organization.

An entrepreneur is a person who is able to express and execute the urge, skill,

motivation and innovative ability to establish a business or industry of his own, either alone

or in collaboration with his friends. His motive is to earn profit through the production or

distribution of goods or services. Adventurism, willingness to face risks, innovative urge and

creative power are the inborn qualities of entrepreneurship. Entrepreneurship can also be

explained as a process of executing a work in a new and better way.

Organisation

Urge Inovation

Skill Risk

Vision Enterprise

Growth

Management

MBA 4th Semester (DDE)


UNIT – I

170

Definition of Entrepreneur :

According to Harbison

Characteristics of an Entrepreneur :

(1) Vision :

(2) Knowledge :

(3) Desire to succeed :

(4) Independence :

(5) Optimism :

(6) Value Addition :

(7) Leadership :

(8) Hardworking :

(9) Risk-Taking Ability :

"An entrepreneur is not an innovation but an organization builder or one who has the

skill to build an organization and who must be able to harness the new ideas of different

innovators to the best of the organization."

Peter F. Drucker defines an entrepreneur as one who always searches for change,

responds to it and exploits it as an opportunity. Innovation is the specific tool of

entrepreneurs, the means by which they exploit change as an opportunity for a different

business or service.

An entrepreneur has a dream and he visualizes the ways and means to

achieve dream. In doing so he visualizes :

Market Demands

Soicio-Economic

Technological Environment

And then based on these dynamic, he visualizes a future for his business venture.

An entrepreneur has full knowledge about all the technicalities of his

business- be it technological, operational, financial or matket dynamic.

An entrepreneur has a strong desire to succeed in life. Their

dreams are not just limited to achieving one single goal but they constantly work to

achieve higher goals.

An entrepreneur needs independence in work and decision-making.

They don't follow the rules of thumb but make their own rules and destiny.

Entrepreneurs are highly optimistic about achieving their vision.

Entrepreneurs do not follow the conventional rules of thumb. They

have a constant desire to introduce something new to the existing business. They

create, innovate or even add value to the existing products/services.

An entrepreneur exhibits the qualities of leader. They are good planner,

organizers, have good communication skill, good decision0makers, take initiative to

implement plans and are result-oriented.

At times they are called workaholics. Work is worship for then. They

put in continuous efforts to achieve success and know that there is no substitute for

hark work.

Risk is an inherent and inseparable element of

entrepreneurship. He assumes the uncertainty of future. An entrepreneur guarantees

rent to the landlord, wages to employees and interest to the investor in the hope of

earning more than the expenses.

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Construction

Skill

Decision Strong desire to

reap benefits

Economic

ActivityInnovative

Urge

Management

SkillGap-Filing

Function

Dynamic

ProcessRisk-BearingLeadership

Quality

Entrepreneurship

Q. Define Entrepreneurship. Discuss the main Entrepreneurship Traits.

Ans. Meaning of Entrepreneurship :

Definition :

Concept of Entrepreneurship :

Concept of Entrepreneurship

Characteristics of Entrepreneurship :

Entrepreneurship refers to a process of action an

entrepreneur undertakes to establish his enterprise. It is a creative and innovative response

to the environment. In other words entrepreneurship can be defined as an ability to discover,

create or invent opportunities and exploit them to the benefit of the society, which in turn

brings prosperity to the innovator and his organization.

B. Higgins, in his book "The economic Development" has said. "Entrepreneurship is meant

the function of seeking investment and production opportunity, organizing an enterprise to

undertake a new production process, raising capital, hiring labour, arranging the supply of

raw materials, finding site, introducing a new technique and commodities, discovering new

sources of raw materials and selecting top managers of day to day operations of the

enterprise."

Concept of entrepreneurship can be explained with the

help of following diagram

Entrepreneur Entrepreneurship Enterprise

Person Process ofAction Object

The characteristics of entrepreneurship are:

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Entrepreneurship Traits :

(1) Mental Ability :

(2) Clear Objectives :

(3) Business Secrecy :

(4) Human Relations Ability :

(5) Effective Communication :

(6) Technical Knowledge :

(7) Decision-Making :

(8) Risk-Bearing :

(9) Self-Confidence :

Asuccessful entrepreneur must possess the following traits:

Mental ability consists of intelligence and creative thinking. An

entrepreneur should be intelligent and must have an analytical mine. He should have

the capacity to analyse the problem and able to study the various situation under

which decision have to be made.

An entrepreneur should have a clear objective. Without objective

an entrepreneur cannot success. So a successful entrepreneur must have the

objective to establish his product in the market, make profit and also render social

service.

An entrepreneur must be able to guard business secrets.

Leakage of business secrets to trade competitors is a serious matter. So the

entrepreneur should be able to make a proper selection of his subordinates.

An entrepreneur must have good relations with his

customers to earn profit and win their confidence in his product. He must also maintain

good relation with his employees.

Good communication also means that the entrepreneur

has the ability to put his point effectively and with clarity. Communication ability is the

secret of the success of most entrepreneurs.

The entrepreneurs are dealing with situations where

sophisticated technology is involved. The entrepreneur must have a reasonable level

of technical knowledge.

Running a business requires taking a number of decision. Hence

an entrepreneur should have the capacity to analyse the various aspects of the

business for arriving at a decision.

'No risk, no business' or 'no risk, no gains'. Risk is an inherent and

inseparable element of entrepreneurship. He assumes the uncertainty of future.

Entrepreneurs must have the mental capacity to face any situation.

They should also have the ability to inspire other. They must have the confidence in

themselves and the determination to achieve their goals.

Entrepreneurial Traits can be explained with the help of following diagram:

Mental

AbilityRisk

Bearing

Self

Confidence

Human

Relation Abilitv

Business

Secrecy

Effective

CommunicationDecision

Making

Clear

Objectives

Technical

Knowledge

Enterpreneurial

Traits

173


Q. Explain the Types of Entrepreneur.


Types of Entrepreneur :

(A) Classification on the Basis of Ownership :

(1) Founder or "Pure Entrepreneurs" :

Example :

(2) Second-generation operators of family-owned business :

Example :

(3) Franchisees :

Example :

(4) Owner-Manager :

Example :

(B) Classification on the basis of Personality Traits and their style of running the

business :

(1) The Achiever :

(2) The Induced Entrepreneur :





organization.

Types of entrepreneur are:

Those individuals who are the founder of the

business. They are the ones who conceptualize a business plan and then put in efforts

to make the plan a success.

DhirubhaiAmbani of the Reliance Group.

They are individuals

who have inherited the business from their fathers and forefathers.

Like Mukesh Ambani and Anil Ambani sons of Dhirubhai Ambani of the

Reliance Group now split into two: Reliance Industries Limited and Reliance-Anil

DhirubhaiAmbani Group.

It is a method of doing business wherein the parent owner licenses his

trademarks and tried and proves methods of doing business to a franchisee in

exchange for a recurring payment.

NIIT has given its franchisee operations to local players after thorough

scrutiny and proper training.

When a person buys a business from the founder and then invests

his time and resources in it he is called the owner-manager.

Like Sabeer Bhatia is the founder entrepreneur of Hotmail.

These types of entrepreneurs have personal desires to excel. The

only drive that pushes them is the desire to achieve something in life, the desire to

make a mark in society, the desire to prove their excellence. They do not need any

external stimulus but are self-driven.

These types of entrepreneurs are induced by some

external factors to start a business. The external factors could be like:

Government Policies

Unemployment

Family Support

Facilitating Institutional Support etc.

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(3) The Idea Generator :

(4) The Real Manager :

(5) The Real Achievers :

(C) Classification based on the type of Business :

(1) Industrial Entrepreneur :

(2) Trading Entrepreneurs :

(3) Corporate Entrepreneur :

(4) Agricultural Entrepreneur :

(D) Classification on the Stages of Development :

(1) First Generation Entrepreneur :

(2) Modern Entrepreneur :

(3) Classical Entrepreneur :

(E) Other :

(1) Innovative Entrepreneur :

These kinds of entrepreneurs are highly creative people who

are always in search of innovative ideas for setting up new business ventures. They

enjoy the First Movers'Advantage and are able to skim higher profits from the market.

The real managers run the business in a systematic manner.

They analyse business situation, assess the demands of future, both in terms of

opportunities and threats and then take actions based on the above assessments.

The real achievers are full of life. They are looking for the

achievement of not even their goals but also of people associated with themselves like

employees, suppliers and distributors.

Industrial entrepreneur is an entrepreneur who is into

manufacturing of a product. He identifies the needs and wants of customers and

accordingly manufactures products to satisfy these needs and wants.

Trading entrepreneur is one who undertakes trading

activities and is not concerned with the manufacturing of products. He identifies

potential markets, stimulates demands and generates interest among buyers to

purchase a product.

Corporate entrepreneur is a person who demonstrates his

innovative skill in organizing and managing a corporate undertaking which is

registered under some act that given it a separate legal entity.

Agricultural entrepreneurs are those entrepreneurs who

undertake business related to agricultural activities. Like farm equipments, fertilizers

and other inputs of agriculture.

A first-generation entrepreneur is one who starts an

industrial unit by means of an innovative skill. He is essentially an innovator combining

different technologies to produce a marketable product or service.

A modern entrepreneur is one who undertakes business to

satisfy the contemporary demands of the market. They undertake those ventures

which suit the current socio-cultural trends.

A classical entrepreneur a stereo-type entrepreneur is one

whose aim is to maximize the economic returns at a level consistent with the survival

of the firm, with or without element of growth.

Innovative entrepreneurs are full of creative ideas and

offer innovate products to the society. It is because of these innovative entrepreneurs

that many important changes occur in our society.

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(2) Imitative Entrepreneurs :

(3) Drone Entrepreneurs :

(4) Copreneurs :

Q. Explain the qualities and functions of the entrepreneurs


Qualities of An Entrepreneur :

1. Planner :

2. Technician :

3. Risk Bearing Ability :

4. Decision Maker :

5. Ability to Find and Explore Opportunities :

6. Motivator :

7. Future Oriented :

8. Interpersonal Skills :

Imitative entrepreneur adapt a successful innovation.

They are risk-aversive and so they do not try out new ideas or products.

Drone entrepreneurs are not open to creativity and change.

They do not like changing the working of organizations with the changing times.

When both husband and wife together start and run a business venture

then they are called copreneurs.





organization.

An entrepreneur is a person who takes risk of setting up his

own venture for perceived reward. He is a person who initiates the idea, formulates the plan,

organizes resources and puts the plan into action to achieve his goals. The entrepreneur

must have following qualities:-

Entrepreneur has a strong desire to achieve a higher goal and make their

dreams come true. So the entrepreneur must have these quality to achieve the target

an entrepreneur cannot achieve the target.

An entrepreneur must have the technical knowledge. He should know

that how to use the resources and achieve the target.

Risk is very important element. An entrepreneur must have

capacity to bearing risk an entrepreneur cannot success.

Decision making is the process of choosing best alternative among

various alternatives. An entrepreneur must have these qualities because decision

making affect the profitability and reputation of the enterprise.

Entrepreneurial persons are quick to

see and seize opportunities. They show an innovative turn of mind and convert

difficulties into opportunities.

An entrepreneur must have a motivator. He inspires the employees to

achieving the target. Without motivation an entrepreneur cannot achieve the target.

So motivation is very necessary for achieving the target.

Entrepreneur shows a high level of future orientation. They do not

allow the past to obsess them. They are oriented towards present and future.

An entrepreneur is a person who during the course of his

activities he should be a person who likes working with people and who has skills of

dealing with people.

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9. Facing Uncertainty :

10. Coordination :

Functions of Entrepreneur :

1. Risk taking and Uncertainty Bearing :

2. Taking Business Decisions :

3. Managerial Functions :

4. Innovation :

5. Coordination :

6. Maintain Good-Relations :

7. Analysis the Environment :

Internal Environment :

External Environment :

8. Planning :

An entrepreneur is a person who faces uncertainty. The future is

uncertain. So the decision of entrepreneur affects the profitability and reputation of the

enterprise.

An entrepreneur must have a coordinator. He allocates the resources

and utilizes the resources for achieving the target. Without coordination an

entrepreneur cannot achieve the target.

An entrepreneur has to perform the following function:

The future is unpredictable. The

entrepreneur has to take risks in these circumstances. If the venture succeeds, the

entrepreneur profits; if it doe not, losses occur. Thus, taking risks forms an important

entrepreneurial function.

All decision concerning business are taken by the

entrepreneur. He has to formulate an action plan regarding the product and quality of

the product to be produced. He has to evolve the best possible method of production

which would earn him a sizeable profit.

The entrepreneur performs various managerial functions.

The entrepreneur arranges finance, purchase raw materials, provides the necessary

infrastructure for production. The entrepreneur has a multifaced personality when he

undertakes managerial functions.

The most important function of an entrepreneur is innovation. He

introduces far-reaching improvements in the quantity and quality of production line.

He considers the economic viability and technical feasibility of an invention.

The entrepreneur coordinates the other factors of production.

Coordination involves selection of the right type of factors, employment of each factor

in the right quantity, use of the best technical devices, division of labour, reduction of

waste etc.

An entrepreneur must have good relations with his

customer to earn profit and win their confidence in his product. He must also maintain

good relations with his employees.

An entrepreneur analysis the environment. Environment

are those factor which affect the business. There are two type of environment:

Internal environment are controllable

External environment are beyond the control of the

business.

Planning is the first function of the management. Planning is deciding in

advance what is to be done, how is to be done, which is to be done, by whom is to be

done. It is very necessary function of entrepreneur. Without planning an entrepreneur

cannot achieve the target.

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177


9. Utilizes the Resources :

Q. Explain the Role and Importance of Entrepreneur in Economic Growth.


Role of Entrepreneur in Economic Growth :

Importance of Entrepreneur in Economic Development :

An entrepreneur allocates the resources and utilizes the

resources. An entrepreneur must utilize the resources for the achievement of the

objectives. If the entrepreneur doe not utilizes the resources he cannot become a

successful entrepreneur.





organization.

The position of the entrepreneur in modern

production is like that of the director of a play. Modern economic development is closely

linked with production. Modern production is higher complex. The entrepreneur directs

production and he must do whatever is necessary for its success. His role in modern

economic development has at least three aspects:

(1) The entrepreneur co-ordinates the other factors of production. This involves not only

assembling the factors, but also to see that the best combination of factors is made

available for the production process.

(2) The entrepreneur takes risks. This is the important function of the entrepreneur and

the quantum of profit he receives is directly proportionate to the risks he takes. Risks

are generally based on the anticipation of demand.

(3) Finally the entrepreneur innovates. Innovation is different from invention. Invention is

the work of scientists. Innovation implies the commercial application of an invention.

As an innovator the entrepreneur assumes the role of a pioneer and an industrial

leader. The entrepreneur can undertake anyone type of the following five categories of

innovation:

(i) The introduction of a new good or a new quality of a good

(ii) The introduction of a new method of production

(iii) The opening of a new market

(iv) The conquest of a new source of supply of raw materials

(v) The carrying out of a new organization of any industry.

Every country tries to achieve

maximum economic development. The economic development of a country to a large extent

depends on human resources. But human resource alone will not produce economic

development-there must be dynamic entrepreneurs. Importances of entrepreneurs in

economic development are:

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(1) Employment Generation :

(2) National Income :

(3) Dispersal of Economic Power :

(4) Balance Regional Development :

(5) Economic Independence :

(6) Reducing Unrest and Social Tension Amongst Youth :

Growing unemployment particularly educated

unemployment is an acute problem of the nation. If a hundred persons become

entrepreneur they not only create a hundred jobs for themselves but also provide

employment to many more. These enterprises grow providing direct and indirect

employment to many more. Thus entrepreneurship is the best way to fight the evil of

unemployment.

National Income consists of goods & services produced in the

country and those imported. The goods & services produced are for consumption

within the country as well as to meet the demand of exports. The domestic demand

increases with ever increasing population and standard of living. The export demand

also increases to meet the needs of growing import due to various reasons. An

increasing number of entrepreneurs are required to meet this increasing demand for

goods and services. Thus entrepreneurship increases the national income.

When a society produces a small number of

entrepreneurs the enterprise due to lack of competition grow into a few big business

houses. This results in concentration of wealth in a few families. This can have a

serious social and national implication. When the number of entrepreneurs increases,

a large amount of national wealth is also shared by a large number of entrepreneurs,

thus dispersing wealth. This dispersal of wealth promotes the real socialism and

makes the economy healthy.

The growth of industry and business leads to a

large number of public benefits like road, transport, health, education, entertainment

etc. A rapid development of entrepreneurship ensures a balanced regional

development. When the new entrepreneurs grow at a faster pace, in view of the

increasing competition in and around the cities, they are forced to set up their

enterprise in the smaller towns away from big cities. This helps in the development of

the backward regions.

Entrepreneurship is essential for national self-reliance.

Businessman export goods and services on a large scale and earn the scarce foreign

exchange for the country. Such import substitution and export promotion help to

ensure the economic independence of the country.

Many problems associated

with youth and social tensions 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 opportunities, alternative to wage career is

the only viable option. The country is required to divert the youth with latent

entrepreneurial traits from wage career to self employment career. Such alternate

path through entrepreneurship could help the country in defusing social tension and

unrest amongst youth.

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(7) Improvement in Living Standards :

(8) Harnessing Locally Available Resources and Entrepreneurship :

(9) Innovations in Enterprises :

Entrepreneurs set up industries which remove

scarcity of essential commodities and introduce new products. Production of goods on

mass scale and manufacture handicrafts etc. in the small scale sector help to improve

the standard of life of a common man. These offer goods at lower costs and increase

variety in consumption.

India is

considered to be very rich in natural resources. A few large scale industries started by

entrepreneurs from outside the state in economically backward areas may help as

models of pioneering efforts, but ultimately the real strength of industrialization in

backward areas depends upon the involvement of local entrepreneurship in such

activities. Increased activities of local entrepreneurs will also result in making use of

abundantly available local resources.

Business enterprises need to be innovative for their

survival and better performance. Entrepreneurship development programmes are

aimed at accelerating the pace of small firms' growth in India. Increased number of

small firms is expected to result in more innovations and make the Indian industry

compete in international market.

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ENTREPRENEUR DEVELOPMENTMBA 1st Semester (DDE)

Q. Explain the Theories ofAn Entrepreneurship.

Ans. Meaning of Entrepreneurship :

Theory of Entrepreneurship :

(1) Entrepreneurship :

According to Schumpeter

Entrepreneurship refers to a process of action an

entrepreneur undertakes to establish his enterprise. It is a creative and innovative response

to the environment. In other words entrepreneurship can be defined as an ability to discover,

create or invent opportunities and exploit them to the benefit of the society, which in turn

brings prosperity to the innovator and his organization.

Main theories of entrepreneurship are summarized as

follows:

A Function of Innovation: Joseph A. Schumpeter (1934), for the

first time, put the human agent at the centre of the process of economic development

and assigned a critical role to the entrepreneurship in his theory of economic

development. He considered economic development as a discrete technological

change. The process of development can be generalized by five different types of

events:

(i) Firstly, it can be the outcome of the introduction of a new product in the market.

(ii) Secondly, it can be the result of a new production technology.

(iii) Thirdly, it may arise on account of a new market.

(iv) Fourthly, it may be the consequences of a new source of supply.

(v) Fifthly, it may be due to the new organization of any industry.

(i) Development is not an automatic process, but it must be deliberately and actively

promoted by some agency within the system, Schumpeter called the agent who

initiates the above changes as an entrepreneur.

(ii) He is the agent who provides economic leadership that changes the initial conditions

of the economy and causes discontinuous dynamic changes.

(iii) By nature, he is neither technician, nor a financier, but he is considered an innovator.

(iv) Entrepreneurship is not a profession or a permanent occupation and therefore, it

cannot formulate a social class like capitalists.

(v) Psychological, entrepreneurs are not solely motivated by profit.

MBA 1st Semester (DDE)


UNIT – II

181





An Organisation Building Function: Fredrick Harbison states that

the 'organisation building' ability is the most critical skill needed for the industrial

development. According to him entrepreneurship means the skill to build an

organization. Harbison spots the crux of the entrepreneurship in his ability to multiply

himself by effectively delegating responsibilities to others. The main features are:

(i) Unlike Schumpeter, Harbison's entrepreneur is not an innovator but an

'organisation builder' who must be able to harness the new ideas of different

innovators to the rest of the organization.

(ii) Such persons are not always the men with ideas or men who try new

combinations of resources but they may simply be good leaders and excellent

administrators.

(iii) Harbison's definition of entrepreneurship lays more stress on the managerial

skills and creativity so far as organisation is concerned.

A Function of Managerial Skill and Leadership: Hoselitz states

that a person who is to become an industrial entrepreneur must have additional

personality traits. In addition to being motivated by the expectations of profit he must

also have some managerial abilities and more important he must have ability to lead.

Hoselitz maintains that financial skills have only a secondary consideration in

entrepreneurship.According to him managerial skills and leadership are the important

facts of entrepreneurship. He identifies three types of business leadership in the

analysis of economic development of under-developed countries:

The merchant money lender type

The managerial type

The entrepreneur type.

A Function of High Achievement: Mc Clelland states that a

business man who simply behaves in traditional ways is not an entrepreneur.

Moreover, entrepreneurial role appears to call for decision making under uncertainty.

Mc Clelland identified two characteristics of entrepreneurship firstly "doing things in a

new and better way" and secondly "decision making under uncertainty". Persons with

high achievement would take moderate risks. They would not behave traditionally (no

risk). The high achievement is associated with better performance at tasks which

require some imagination, mental manipulation or new ways of putting things together,

and such people do better at non routine task that require some degree of initiative or

even inventiveness. People with high achievement are not influenced by money

reward as compared to people with low achievement. People with low achievement

are prepared to work harder for money or such other external incentives. For people

with high achievement, profit is a measure of success and competency.

A Function of Social, Political and Economic structure: John

Kunkel states that the industrial entrepreneurship depends upon four structures which

are found within a society or community.

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(i) Limitation Structure: The society limits specific activities to members of

particular subcultures. This limitation structure affects all the members of a

society.

(ii) Demand Structure: The limitation structure is basically social and cultural but the

demand structure is mainly economic. The demand structure is not static, and

changes with economic progress and government policies. Demand structure

can be improved by providing material rewards.

(iii) Opportunities Structure: This structure is necessary to increase the probability

of entrepreneurial activity. The opportunity structure constitutes the availability

of capital, management and technological skills, information concerning

production methods, labours and markets. All the activities associated with the

effective planning and successful operation of industrial enterprises.

(iv) Labours Structure: Kunkel argues that the labours supply cannot be viewed on

par with the supply of other material conditions like capital. He states that

labours means 'men' and is a function of several variables. The supply of factory

labours is governed by available alternative means of livelihood, traditionalism

and expectations of life.

'Input Completing' and 'Gap filling' Function: Liebenstein

identified gap filling as an important characteristic of entrepreneurship. In economic

theory the production function is considered to be well defined and completely known.

But the theory is silent about the keeper of the knowledge of production function.

Where and to whom in the firm this knowledge is supposed to be available is never

stated. It is the entrepreneurial function to make up the deficiencies or to fill the gaps.

These gaps arise because all the inputs in the production function cannot be marketed

because some inputs like motivation, leadership etc. are vague in their nature and

whose output is underminate. This "gap-filling" activity gives rise to a most important

entrepreneurial function namely "Input-Completing". He has to marshal all the inputs

to realize final products.

AFunction of Group Level Pattern: Frank W. Young was reluctant

to accept the entrepreneurial characteristics at the individual level. According to him,

instead of individual, one must find clusters which may qualify itself as entrepreneurial

groups, as the groups with higher differentiation have the capacity to react. He defined

'reactiveness' or 'solidarity' as the degree to which the members of the group create,

maintain and project a coherent definition of their situation; and 'differentiation' is

defined as the diversity, as opposed to coherence, of the social meanings maintained

by the group, when a group has a higher degree of institutional and occupational

diversity, relative to its acceptance, it tends to intensify its internal communication

which gives rise to a unified definition of the situation.



Q. What are the objectives and Phases of Entrepreneurial Development

Programme.

183


Ans. Meaning of Entrepreneurial Development Programme (EDPs) :

Objectives or Need of EDPs :

(A) Initial or Pre-Training Phase :

Entrepreneurial

development programme means a programme designed to help a person in strengthing his

entrepreneurial motive and in acquiring skills and capabilities necessary for playing his

entrepreneurial role effectively. It is very necessary to promote his understanding to motives,

motivation pattern, their impact on behaviour and entrepreneurial value. A programme

which seeks to do this can qualify to be called as EDP.

In other words A EDP is primarily concerned with developing and motivating

entrepreneurial talent and growing him to be an effective entrepreneur. An entrepreneur

make use of the factors of production to the fullest advantage of the society, create

innovations, generate employment, improve the standard of living of people, develop

backward areas etc. EDP has an important role to play in solving the unemployment

problem.

(1) To formulate Project

(2) To select Project/Product

(3) To analysis the Environment

(4) To acquire the basic Managerial Skills

(5) To understand the process and procedure of setting up of enterprise

(6) Enable to communicate clearly and effectively

(7) Develop a broad vision about the business

(8) Enable to take decisions.

Phases of Entrepreneurial Developement Programme: An entrepreneurial development

programme consists of three broad phases:

This phase includes the activities and the preparations

required to launch the training programme. The main activities are:

(i) Creation of Infrastructure for training

(ii) Preparation of training syllabus

(iii) Tie up of guest faculty

(iv) Arrangement for inauguration of the programme

(v) Designing tools and techniques for selecting the trainees

(vi) Formation of selection committee

(vii) Publicity campaign for the programme

(viii) Development of application form

(ix) Pre-potential survey of environmental opportunities.

Thus, pre-training stage involves the identification and selection of potential entrepreneurs

and providing initial motivation to them.

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Selection of potential entrepreneurs has two essential components :

1. Identifying Entrepreneurial Traits :

(a) Socio-Personal Characteristics :

(i) Caste and Family Background :

(ii) Age :

(iii) Education :

(iv) Size and Type of Family :

(v) Working Hands :

(b) Human Resource Factors :

(i) Achievement Motivation :

(ii) Risk Taking Willingness :

(iii) Influence Motivation :

(iv) Personal Efficacy :

2. Identification of Enterprise :

(B) Training or Development Phase :

Every participant must have a minimum level of

eligibility for developing into an entrepreneur. Entrepreneurial traits include socio-

personal and human re-sources characteristics:

The most common socio-personal

characteristics are:

Caste and family background help create

entrepreneurial environment and occupational awareness for the

entrepreneurs.

Studies have revealed that younger people are more successful

entrepreneur.

A minimum level of education is essential to perform functions like

meeting officials etc.

The size of the family and the entrepreneur's status in

the family are important.

A small entrepreneur has generally to depend upon family

members as he cannot afford to hire workers.

These are:

It is the urge to improve one-self in relation to a goal.

It refers to seeking challenge in one's activity.

It has been defined as the desire for influencing other

people and surrounding environment.

It has been defined as the general sense of adequacy in a

person.

Once an entrepreneur having necessary socio-

personal and human resources characteristics is identified, it is necessary to identify s

suitable enterprise or project for him. The enterprise must be matched with the

potential entrepreneur. All the background information like his skills, experience in the

field, etc. should taken into consideration. The raw materials availability, the marketing

avenues and profitability of the enterprise have to be explored.

During this phase the training programme is

implemented to develop motivation and skills among the participants. The objective of

this phase is to bring desirable changes in the behaviours of the trainees. The trainers

have to judge how much, and how far the trainees have moved in their entrepreneurial

pursuit's.Atrainer should see the following changes in the behaviour of participants:

(i) Is he attitudinally tuned very strongly towards his proposed project ideas?

(ii) Is he motivated to plunge for entrepreneurial venture and risk that is expected of

an entrepreneur?

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(iii) Is there any change in his entrepreneurial outlook, role and skill?

(iv) How should he behave like an entrepreneur?

(v) What kind of entrepreneurial behaviours does the trainee lack?

(vi) Does he posses the knowledge of technology, resources and other related

entrepreneurial knowledge?

(vii) Is he skillful in choosing the right project, mobilizing the right resources at the

right time?

The main training inputs are as follows:

Once the entrepreneur selects a particular enterprise

the technical aspects of the trade is essential. He needs to also know the

economic aspects of the technology including costs and benefits.

In order to develop human resources,

development of achievement motive is essential. The purpose of AMT is to

develop the need to achieve, risk taking, initiative and other such behavioural

traits. A motivational development programme creates self awareness and self

confidence among the participants and enables them to think positively and

realistically.

The participants should be given opportunity to actually

conduct market surveys for their chosen project.

Once a participant is able to start the enterprise he requires

managerial skills. Managerial skills are particularly essential for a small scale

enterprise who cannot afford to employ specialists in different areas of

management. The aim should be to enable the participant to look at an

enterprise in its totality and to develop overall managerial understanding.

A lot of time needs to be devoted to the actual preparation

of project. Their active involvement in this task would provide them necessary

understanding and also ensure their personal commitment.

This phase involves assessment to judge how

far the objectives of the programme have been achieved. Monitoring and follow up

reveals drawbacks in the earlier phases and suggests guidelines for framing the future

policy. In this phase infrastructural support, counseling and assistance in establishing

new enterprise and in developing the existing units can also be reviewed. Some

common activities in the monitoring and follow up process are as follows:

(1) Preparing and maintaining a separate file for each trainee.

(2) Ahistory card indicating the bio-date of each entrepreneur and the work done by him.

(3) Keeping in touch with every entrepreneur through letters.

(4) Passing the desired information to the entrepreneur will in time.

Content of Training Programme :

(i) Technical Knowledge :

(ii) Achievement Motivation Training :

(iii) Market Survey :

(iv) Managerial Skill :

(v) Project Preparation :

(C) Post Training or Follow-Up Phase :

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(5) Visiting every entrepreneur periodically.

(6) Follow up meeting and a follow up register to ensure the success of the

entrepreneurial development programme.

Some of the major institutions for EDPs in

India are as follows:

The entrepreneurship

development institute of India is an apex entrepreneurship institute promoted by

industrial development bank of India, Industrial credit and Investment Corporation of

India, Industrial Finance Corporation of India and state bank of India. The institute

enjoys acute support of government of Gujarat. The institute has been operating for

the past more than 15 years now. The institute undertakes entrepreneurship

development programmes to serve the following development objectives:

(i) Accelerated industrial development.

(ii) Industrial development of rural and less-developed areas.

(iii) Improving performance of small industries.

(iv) Diversifying sources of entrepreneurship.

(v) Enlarging the small and small medium enterprise sector.

The National Institute for entrepreneurship and small Business

Development is an apex body established by the ministry of Industry, government of

India for Coordinating and overseeing the activities of various institutions/agencies

engaged in entrepreneurial development in small industry and small business. The

main objective of the institute are explained as follows:

(i) To provide vital information support to trainers, promoters and entrepreneurs.

(ii) To identify train and assist potential entrepreneurs for setting up

entrepreneur/self employment ventures in small industries.

(iii) To help and affiliate institution/Organization in carrying out training and other

entrepreneurship development related activities with greater success.

(iv) To evolve standardized materials and processes of selection, training support to

potential entrepreneur.

Xavier Institute of Social Services,

Ranchi has been training rural entrepreneurs since 1974. Xavier Institute provides the

training and assists the trainees in drafting project proposals and obtaining the

required finance. It offers a six months programme to tribal with minimum literacy and

numeracy skills. The programme consists of:

Q. Explain the Entrepreneurial Development Programme in India.

Ans. Institutions Conducting EDPs in India :

(1) Entrepreneurial Development Institute of India :

(2) National Institute for entrepreneurship and small Business Development

(NIESBUD) :

(3) Xavier Institute of Social Services, Ranchi :

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(i) Identification and selection of candidates.

(ii) Motivation Training.

(iii) Managerial Training.

(iv) Placement and training for practical skills.

(v) Market survey and preparation of project report.

(vi) Financial assistance.

(vii) Follow up and Counseling.

This is a technical management

consultancy Organization. It was promoted by all-India financial institutions and state

Corporations. It undertakes assignments for project planning, detailed engineering,

market surveys, management surveys and entrepreneurship development

programmes. The programme consists of the following stages:

(i) Identification of industrial opportunities in the target area.

(ii) Advertising and promoting the programmes to attract applicants.

(iii) Selection of the participants.

(iv) Training, using lectures and practical instruction in the identified project.

(v) Follow up with industrial development and financial institutions.

This Centre was organized as registered

society by a number of prominent industrialists, businessman, bankers, professionals

and social workers. It was setup in response to rapidly increasing unemployment and

social unrest in Calcutta during the early 1970s. It began as a vocational programme to

provide self employment for educated youths. It has developed innovative

approaches to help people set up their own business. The main programme are

explained as follows:

(i) Training in producing enterprise.

(ii) Assistance in drawing up a business plan.

(iii) Assistance in securing bank loans.

(iv) Arranging initial business contacts for their service and production.

Access to high quality consultancy

services improves the operational efficiency of entrepreneurs. All India financial

institutions have set up TCOs to provide industrial consultancy and training to

entrepreneurs. These organizations provide a comprehensive package of services.

Ans. In an entrepreneurial development programmes, the target group refers to the group

of the persons for whom the programmes is design and undertaken. Every target group has

its own needs and constraints. Therefore, the programmes designed for one group might be

(4) Madhya Pradesh Consultancy Organization Ltd. :

(5) Calcutta "Y" Self Employment Centre :

(6) Technical Consultancy Organizations (TCOs) :

Q. Write a short note on Target Group.

188

inappropriate for others groups. Before the programmes is designed and started the target

group to be trained must be clearly defined.An executive development programmes may be

organized for any one of the following target groups:-

This group consists of those persons who

have pursued technical and allied courses of study. For instance degree/ diploma

holders in science, engineering and technology are in important group in India. The

training programmes for such people may be design to enable and assist them in

setting up their own manufacturing units. The industries selected for this purpose may

be directly related with their qualifications and experience.

Persons who have retired from the army, navy and air force

constitute an important group for entrepreneurial training. These persons have

acquired many useful skills and experience during their service period. They tend to

be highly disciplined, hardworking, engineering and innovative. Therefore they can

become successful entrepreneurs after proper entrepreneurial training.

Some business executives want to start their own

independent enterprise after getting sufficient business experience. Some of them

have certain innovative ideas which they are not able to try in their existing firms due to

lack of sufficient authority. Some among them are not satisfied with their present

economic and social status. After entrepreneurial training senior business executives

can become successful entrepreneurs.

Women are entering the business especially traditional

food processing industries like spices, agarbati, papad etc. Several Governments and

non- governments organizations organizing entrepreneurial training programmes for

women.

Government of India is committed to be upliftment of

scheduled castes (S.C) and Scheduled Tribes (S.T). Therefore specified percentage

of jobs has been reserved for these castes. But all persons from these groups cannot

be offered employment. Government agencies give preference to S.C and S.T

entrepreneurs in providing finance and other necessary facilities.

The government of India has been established

specialized agencies for training entrepreneurs. Special schemes have also been

launched to train, develop and assist entrepreneurs.

The government of India for the first time tabled the new small enterprise policy in titled

'Policy Measures for Promoting and Strengthening and Supplementing Small, Tiny and

Village Enterprise, in Parliament on August 6, 1991. The main thrust of the new small

1. Technical and other qualified Persons :

2. Ex- Serviceman :

3. Business Executives :

4. Women Entrepreneurs :

5. S.C and S. T Entrepreneurs :

6. Special agencies and Schemes :

Q. Explain the Government Policy towards Small-Scale Industries (SSI's).

Ans. Government Policy : An Effort to Strengthen the Small-Scale Industries in India

189


enterprise policy was to impart more vitality and growth impetus to the sector to enable it to

contribute its mite fully to the economy, particularly in terms of growth of output, employment

and exports. The sector had been substantially licensed and concerted efforts were made to

regulate and debureaucratize the sector with a view to remove all fetters on its growth

potential on the one hand and reposing greater faith in small and new enterprises on the

other.

1. Increasing in the investment limit in plant and machinery of tiny enterprises from Rs. 2

Lakhs to Rs. 5 Lakhs, irrespective of the location of the enterprise.

2. Inclusion of industry related service and business enterprises, irrespective of their

location as small-scale industries.

3. To introduce a limited partnership act. This would limit the financial liability of the new

enterprises to the capital invested.

4. Introduction of a scheme of integrated infrastructural development for small-scale

industries.

5. Introduction of factoring services to help solve the problems of delayed payments of

small-scale sector.

6. Market promotion of small-scale industries products through co-operative/public

sector institutions, other specialized professional/marketing agencies and the

consortium approach.

7. To set up a Technology Development Cell in the small industries development

organization.

8. To accord priority to small and tiny sector ion the allocation of indigenous raw

materials.

9. Setting up of an Export Development Center in the small industries development

organization.

10. To widen the scope of the National Equity Fund (NEF) to enlarge the single window

scheme and also to associate commercial banks with provision of composite loans.

The new policy was founded on a proper understanding of the fundamental problems

of the small-scale sector and the measures proposed by it have integrated the various

handicaps that face this sector.

Small-scale industries are characterized by their limited and

scarce resources/capital. These make them sensitive. In fact, small business in such a

sensitive field where Murphy's Law (if anything can go wrong, it will) seems to operate

without fail. The first thousand days seems to be as critical in small business as in

administration. The former needs support and the latter indoctrination for survival. In

the beginning, small industries have to incur more expenses, but the returns are either

The salient features of the price policy were :

Taxation Benefits : Boon for the Growth of SSI

(1) Need for tax benefits :

190

nil or nominal. If this becomes uncontrollable, the unit may fall sick and needs

rehabilitation before it is actually anticipated. Therefore, they need to be provided

support and assistance to tide over the crucial initial stages to enable them to survive.

Hence, the government needs to come forward with various benefits to offer to small-

scale industries in the country. One way to support the development of small-scale

industries by the government is to provide them tax benefits. The government either

exempts them from tax or provides concession in tax liability. This helps small

industries accumulate capital, on the one hand, and plough back profits in business,

on the other. The various tax benefits available to small-scale industries are now

enumerated and discussed one by one.

Under section 80J of the Income Tax Act, 1961, new industrial

undertakings, including small-scale industries, are exempted from the payment of

income-tax of their profits subject to a maximum of 6% per annum of their capital

employed. This exemption in tax is allowed for the period of five years from the

commencement of production. A small-scale industry has to satisfy the following two

conditions to avail of this tax exemption facility;

(i) The unit should not have been formed by the splitting or reconstitution of an

existing unit.

(ii) The unit should employ ten or more workers in a manufacturing process with

power, or at least twenty workers without power.

Under section 32 of the Income TaxAct, 1961, a small-scale industry is

entitled to a deduction on depreciation on block of assets at the prescribed rate. In the

case of the small-scale industry, deduction from the actual cost of plant and machinery

is allowed subject to a maximum of rupees 20 Lakhs. The amount of depreciation is

calculated by the diminishing balance method. In case of an asset acquired before the

accounting period, depreciation is calculated on its written down value. For plant and

machinery that are used in manufacturing in double or triple shift, an additional

allowance called 'Extra Shift Allowance' is available. A small-scale industry should

satisfy the following conditions before it becomes eligible for deduction in

depreciation:

(i) The asset must be owned by the assessee.

(ii) The asset must actually be used for the purpose of the assessee's business of

profession.

(iii) Depreciation allowance or deduction is allowed only on fixed assets, i.e.,

building, machinery, plant and furniture.

(iv) All the prescribed particulars must be furnished to the income-tax officer as

required under section 34(1) of the Income-TaxAct, 1961.

A rehabilitation allowance is granted to small-scale

industries under section 33-B of the Income-Tax Act, 1961. The allowance is give to

those small businesses that had to suffer on account of the following reasons:

(2) Tax Holidays :

(3) Depreciation :

(4) Rehabilitation Allowance :

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(i) Flood, Cyclone, earthquake or other natural upheavals.

(ii) Riot or civil disturbanceAccident fire or explosion

(iii) Action by an enemy or action taken in combating an enemy.

The rehabilitation allowance should be used for the business purposes within three

years of the unit's re-establishment reconstruction of revival. The rehabilitation

allowance is allowed to the unit equivalent of 60% of the amount of the deduction

allowable to the unit.

The investment allowance was introduced way back in 1976

to replace the initial depreciation allowance. The investment allowance under the

section 31A of the Income-tax Act, 1961, is allowed at the rate of 25% of the cost of

acquisition of new plant or machinery installed. Although the investment allowance

has been made available for the article or things except certain items of low priority,

yet, as per the 11th schedule to the Income Tax Act 1961, a special dispensation has

been provided for the plant and machinery installed in small-scale industries. In

comparison with other industries are at an advantage in claiming a deduction of

investment allowance.

A small-scale industry can avail of investment allowance provided it has put to use

machinery or plant either in the year of installation or in the immediate following year,

falling which the benefit will be forfeited.

Under the section 35 of the Income Tax Act

1961, the following deductions in respect of expenditure on scientific research are

allowed:

(i) Any revenue expenditure incurred on scientific research related to the business

of the assessee in the previous year.

(ii) Any sum that it pays to a scientific research association or a university, college,

institutions or to a public company which has as its object, the undertaking of

scientific research.

(iii) Any capital expenditure incurred on scientific research related to the business of

the assessee subject to the provision of section 35(2) of the Income Tax Act,

1961.

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 about by liberalization, globalization and privatization

of the Indian economy. The small businesses generally lose out on this platform. Only

those enterprises can survive that possess enough strength to face the stiff and

complex competition. Further, small enterprises find it more difficult to face

competencies, etc, and become weaker. The question then arises-how to develop

competitive strength among small enterprises to meet competition effectively? The

answer to this question is 'quality'.

(5) Investment Allowance :

(6) Expenditure on Scientific Research :

(7) Greater Attention on TQM in Small Enterprise :

192

In aggregate, TQM can help strengthening of small enterprises in the following

manner:

(i) By increasing efficiency in processes.

(ii) By providing more time for innovation and creativity.

(iii) Boosting the morale of employees

(iv) Improving the quality of products and services

(v) Enhancing customer satisfaction

(vi) Snatching higher market share

(vii) Generating higher productivity

(viii) Achieving higher profits, etc.

A quality certification scheme was launched in 1994 to improve the quality standards

of SSI products which are to be assisted by awareness programmes and financial

support to acquired ISO 9000 or similar international quality standards.

Various entrepreneurial inputs influencing the

entrepreneurship are as follows:

Economic environment exercises the most direct and immediate

influence on entrepreneurship. The economic factors that affect the growth of

entrepreneurship are the following:

Capital is one of the most important perquisites to establish an enterprise.

Availability of capital facilitates for the entrepreneur to bring together the land of one,

machine of another and raw material of yet another to combine them to produce

goods. Capital is therefore, regarded as lubricant to the process of production. Our

accumulated experience suggests that with an increase in capital investment, capital-

output ratio also tends to increase. This results in increase in profit which ultimately

goes to capital formation. This suggests that as capital supply increases,

entrepreneurship also increases.

The quality rather quantity of labour is another factor which influences the

emergence of entrepreneurship. Most less developed countries are labour rich

nations owing to a dense and even increasing population. But entrepreneurship is

encouraged if there is a mobile and flexible labour force. And, the potential

advantages of low-cost labour are regulated by the deleterious effects of labour

immobility. The considerations of economic and emotional security inhibit labour

mobility. Entrepreneurs, therefore often find difficulty to secure sufficient labour.

The necessity of raw materials hardly needs any emphasis for

establishing any industrial activity and its influence in the emergence of

Q. Write a note on Entrepreneurial Input.

Ans. Entrepreneurial Input :

(A) Economic Inputs :

(1) Capital :

(2) Labour :

(3) Raw Material :

193


entrepreneurship. In the absence of raw materials, neither any enterprise can be

established nor can an entrepreneur be emerged. Of course, in some cases,

technological innovation can compensate for raw material inadequacies.

The fact remains that the potential of the market constitute the major

determinant of probable rewards from entrepreneurial function. Frankly speaking, if

the proof of pudding lies in eating, the proof of all function lies in consumption, i.e.

marketing. The size and composition of market both influence entrepreneurship in

their own ways. Practically, monopoly in a particular product in a market becomes

more influential for entrepreneurship than a competitive market.

Expansion of entrepreneurship presupposes properly developed

communication and transportation facilities. It not only helps to enlarge the market, but

expend the horizons of business too. Take for instance, the establishment of post and

telegraph system and construction of roads and highway in India.

Social factors can go a long way in encouraging entrepreneurship. In

fact it was the highly helpful society that made the industrial revolution a glorious

success in Europe. The main components of social environment are as follows:

There are certain cultural practices and values in every society which

influence the actions of individuals. These practices and value have evolved over

hundred of years. For example, consider the caste system (the varna system) among

the Hindus in India. It has divided the population on the basis of caste into four

divisions:

The Brahmana (Priest)

The Kshatriya (Warrior)

The Vaishya (Trade)

The Shudra (Artisan)

It has also defined limits to the social mobility of individuals. By 'social mobility' we

mean the freedom to move from one caste to another. The caste system does not

permit an individual who is born a Shudra to move to a higher caste.

This facto includes size of family, type of family and economic

status of family. In a study by Hadimani, it has been revealed that Zamindar family

helped to gain access to political power and exhibit higher level of entrepreneurship.

Backgroud of a family in manufacturing provided a source of industrial

entrepreneurship. Occupational and social status of the family influenced mobility.

Education enables one to understand the outside world and equips him

with the basic knowledge and skills to deal with day-to-day problems. In any society,

the system of education has a significant role to play in inculcating entrepreneurial

values.

(4) Market :

(5) Infrastructure :

(B) Social Inputs :

(1) Caste Factor :

(2) Family Background :

(3) Education :

Ø

Ø

Ø

Ø

194

(4) Attitude of the Society :

(5) Cultural Values :

(C) Psychological Inputs :

(1) Need Achievement :

(2) Withdrawal of Status Respect :

(a) Retreatist :

Arelated aspect to these is the attitude of the society towards

entrepreneurship. Certain societies encourage innovations and novelties, and thus

approve entrepreneurs' actions and rewards like profits. Certain others do not tolerate

changes and in such circumstances, entrepreneurship cannot take root and grow.

Similarly, some societies have an inherent dislike for any money-making activity.

Motives impel men to action. Entrepreneurial growth requires

proper motives like profit-making, acquisition of prestige and attainment of social

status. Ambitious and talented men would take risks and innovate if these motives are

strong. The strength of these motives depends upon the culture of the society. If the

culture is economically or monetarily oriented, entrepreneurship would be applauded

and praised, wealth accumulation as a way of life would be appreciated.

Many entrepreneurial theorists have propounded theories of

entrepreneurship that concentrate especially upon psychological factors. These are

as follows:

The most important psychological theories of entrepreneurship

were put forward in the early 1960s by David McClelland. According to McClelland

'need achievement' is social motive to excel that tends to characterize successful

entrepreneurs, especially when reinforced by cultural factors. He found that certain

kinds of people, especially those who became entrepreneurs, had this characteristic.

Moreover, some societies tend to reproduce a larger percentage of people with high

'need achievement' than other societies. McClelland attributed this to sociological

factors. Differences among societies and individuals accounted for 'need

achievement' being greater in some societies and less in certain others.

There are several other researchers who have tried

to understand the psychological roots of entrepreneurship. One such individual is

Everett Hagen who stresses the psychological consequences of social change.

Hagen says, at some point many social groups experience a radical loss of status.

Hagen attributed the withdrawal of status respect of a group to the genesis of

entrepreneurship. He postulates that four types of events can produce status

withdrawal:

(a) The group may be displaced by force;

(b) It may have its valued symbols denigrated;

(c) It may drift into a situation of status inconsistency; and

(d) It may not be accepted the expected status on migration in a new society.

He further postulates that withdrawal of status respect would give rise to four possible

reactions and create four difference personality types:

He who continues to work in a society but remains different to his

work and position;

195


(b) Ritualist :

(c) Reformist :

(d) Innovator :

(3) Motives :

(4) Others :

He who adopts a kind of defensive behavior and acts in the way

accepted and approved in his society but no hopes of improving his position;

He is a person who foments a rebellion and attempts to establish a

new society; and

He is a creative individual and is likely to be an entrepreneur.

Other psychological theories of entrepreneurship stress the motives or

goals of the entrepreneurs. Cole is the opinion that besides wealth, entrepreneurs

seek power, prestige, security and service to society. Stepanek points particularly to

non-monetary aspects such as independence, person's self-esteem, power and

regard of the society.

On the same subject, Evans distinguishes motive by three kinds of entrepreneurs.

(a) Managing entrepreneurs whose chief motive is security.

(b) Innovating entrepreneurs, who are interested only in excitement.

(c) Controlling entrepreneurs, who above all otter motives want power and

authority.

Thomas Begley and David P. Boyd studied in details the psychological roots

of entrepreneurship in the mid 1980s. They came to the conclusion that

entrepreneurial attitudes based on psychological consideration have five dimensions:

(i) First came 'need-achievements' as described by McClelland.

(ii) The second dimension is that Begley and Boyd call 'locus of control' This means

that the entrepreneur follows the ideas that he can control his own life and is not

influenced by factors like luck, fate and so on.

(iii) The third dimension is the willingness to take risks.

(iv) Tolerance is the next dimension of this study.

(v) Finally, here is what psychologists call 'Type A' behavior. This is nothing but "a

chronic, incessant struggle to achieve more and more ion less and less of time"

Entrepreneurs are characterizing by the presence of 'TypeA' behavior in all their

endeavors.

196

Q. Explain that key to entrepreneurial behaviour is entreprenurial motivation.

Ans.

1. NEED FORACHIEVEMENT

The following psychological factors contribute entrepreneurial motivation:-

Psychology can be distinguished from other behavioral sciencesby its emphasis on

the behavior of the individual person. Behavior, in turn is influenced by the way in which the

external world is represented in the mind, and by the individual's exercise of choice.following

are the points which explains that how entrepreneurial motivation influences entrepreneurial

behavior.

David McCelland has developed an Achievement Motivation Theory in the early

1960.According to this theory an individuals need for achievement refers to the need for

personal accomplishment .It is the drive to excel , to strive for success and to achieve in

relation to a set of standards. People with high achievement motive like to take calculated

risk and want to win. They like to take personal responsibility for solving problems and want

to know how well they are doing . High achievers are not motivated by money . Such people

strive for personal achievement rather than the rewards of success. They want to do

something better and more more efficiently than it has done before . This drive is the

achievement need (n-ach) .From the researches into the area of achievement need

McCelland found that high achievers differtiate themselves from others by their desire to do

things better. They seek situations where they can attain personal responsibility for finding

solutions to problems , where they can receive rapid feedback on their performance so they

can set moderately challenging goals . High achievers are not gamblers, they dislike

succeeding by chance. They prefer the challenge of working at a problem and accepting the

personal responsibility for success or failure, rather than leaving the outcome to chance or

the actions of others.

1. Need for achievement through self study, goal setting and interpersonal support

2. Keen interest in situations involving moderate risk.

3. Desire for taking personal responsibility.

4. Concrete measures of task performance.



UNIT – III

197

5. Anticipation of future possibilities.

6. Energetic or novel instrumental activity.

7. Organisational skill

Closely related to the concept of a high need for achievement is the belief in an internal

locus of control. Individuals who are reluctant in believing in their ability to control the

environment though their actions, would also be expected to be reluctant to assume the

risks that starting a business entails

Rotter (1966, as cited in Chell, Haworth and Brearley, 1991) developed the notion of

control of reinforcement reinforcement /re·in·force·ment/ (-in-fors´ment) in behavioral

science, the presentation of a stimulus following a response that increases the frequency of

subsequent responses, whether positive to desirable events, or as part of a wider social

learning theory of personality. Rotter believed that the need for achievement is related to the

belief of internal locus of control. People with an internal locus of control are those

individuals who also believe themselves to be in control of their destiny (Chell, and

colleagues, 1991). In contrast, people with an external locus of control sense that fate, in the

form of chance events outside their control, or powerful people, has a dominating influence

over their lives (Chell and Colleagues, 1991). Rotter hypothesized that individuals with

internal beliefs would more likely strive for achievement than would individuals with external

beliefs.

Risk bearing is a prime factor in the entrepreneurial character and function. In

particular, Hull and colleagues (1980) found that the personality characteristics most

important in identifying entrepreneurial types of individuals are (1) functional task

preference and (2) personality constructs of creativity, risk and flexibility.

Researchers such as Palmer (1971, as cited in Kent and Sexton, 1982) and Likes

(1974, as cited in Shabbir and Gregorio, 1996) speculate that in becoming an entrepreneur,

an individual risks financial well-being, career opportunities, family relatives and psychic

well being. The level of uncertainty involved in an entrepreneurial venture indicates that

individuals drawn to such lines of business will possess a certain level of risk taking

propensity.

Any consideration of personality characteristics of the entrepreneur must entail

restriction of inheritance to a limited class of descendants for at least several generations.

The object of entail is to preserve large estates in land from the disintegration that is caused

by equal inheritance by all the heirs and by the ordinary an examination of their value

systems. Value orientation- the principles of right and wrong that are accepted by an

individual or a social group; "the Puritan ethic"; "a person with old-fashioned values" ethic,

moral principle, value-system

2. LOCUS OF CONTROL

3. RISK TAKING

4. VALUES

198

One of the major studies of personal values of entrepreneurs was done by Hornaday

and Aboud (1971, as cited by Sexton and Smilor, 1982). The researchers found that

entrepreneurs scored significantly higher than the general population reflecting the need for

achievement,

Thus it is concluded that values may be effective in distinguishing successful

entrepreneurs from the general population.

Gartner (1989) refers to innovation as the central value of the entrepreneurial

behavior, since it is successfully taking an idea or invention to market. Innovation and

problem solving capabilities are expected to be the core of the entrepreneurial capability of

an entrepreneur. But the level of innovation is dependent upon the entrepreneur's formal

education and managerial experience. Their study of 184 firms in the Midwest showed a

correlation between a higher level of managerial experience and more years of education

with a higher level of innovation

David McCelland has developed an Achievement Motivation Theory

in the early 1960.According to this theory an individuals need for achievement refers to the

need for personal accomplishment .It is the drive to excel , to strive for success and to

achieve in relation to a set of standards. People with high achievement motive like to take

calculated risk and want to win. They like to take personal responsibility for solving problems

and want to know how well they are doing .

High achievers are not motivated by money . Such people strive for personal

achievement rather than the rewards of success. They want to do something better and

more more efficiently than it has done before . This drive is the achievement need (n-ach).

From the researches into the area of achievement need McCelland found that high

achievers differtiate themselves from others by their desire to do things better. They seek

situations where they can attain personal responsibility for finding solutions to problems ,

where they can receive rapid feedback on their performance so they can set moderately

challenging goals .

High achievers are not gamblers, they dislike succeeding by chance. They prefer the

challenge of working at a problem and accepting the personal responsibility for success or

failure, rather than leaving the outcome to chance or the actions of others.

1. Need for achievement through self study, goal setting and interpersonal support

2. Keen interest in situations involving moderate risk.

3. Desire for taking personal responsibility.

5. PROBLEM SOLVING STYLEAND INNOVATIVENESS

Q. Discuss that n- achievement theory of motivation is the key to management

success.

Ans. Introduction :

The following psychological factors contribute entrepreneurial motivation :

199


4. Concrete measures of task performance.

5. Anticipation of future possibilities.

6. Energetic or novel instrumental activity.

7. Organisational skill

The researchers have criticized McClelland's achievement motivation theory of

entrepreneurs over the last three decadOes. Most notably, Brockhaus (1982, as cited in

Sexton and Smilor, 1986) questioned the predictive power. The predictive power of a

scientific theory refers to its ability to generate testable predictions. Theories with strong

predictive power are highly valued, because the predictions can often encourage the

falsification of the theory. of the theory. The author has pointed out that McClelland's

empirical research did not directly connect need for achievement with the decision to own

and manage a business.

Other criticisms of McClelland's achievement motivation theory on entrepreneurs look

at the attempt to relate economic development to the prevalence of achievement imagery

(Chell, Haworth and Brearley, 1991). The cultural basis of the achievement is motive .In

some cultures, failure is seen as a positive learning experience, while in others it has a

certain negative stigma

There is however some empirical support for the idea that entrepreneurs have a

higher motive to achieve compared to non-entrepreneurs. Begley (1995) and Hornaday and

Aboud (1971) consistently found that the achievement motivation exists as a stable

characteristic and is more prevalent among entrepreneurs when compared to others.

Ans. The traditional approach to rural development was 'top-down' meaning that central

development authorities designed programmes which brought in infrastructure, human

capital and investment from outside the rural community. While the investment in

infrastructure and extension services was clearly beneficial in attracting basic commercial

activities and increasing the quality of life in rural areas, it did not necessarily provide a long

term growing economic base. Many rural areas were not beneficiaries of such schemes,

since many projects were too expensive to implement in all rural areas.

The new approach which emerged over the past decade is the development 'from

below'. It stressed the importance of community development based on local

entrepreneurial initiatives, with the explicit goal to ensure balanced technological

development of rural areas which would offer adequate employment opportunities and a

quality of life comparable to urban areas. This approach assumes that the development of

rural areas is based on stimulating local entrepreneurial talent and subsequent growth of

indigenous companies. Specifically, to accelerate economic development in a rural area, it

is necessary to increase the supply of entrepreneurs that is to build up the critical mass of

first generation entrepreneurs who will take risks and accept the uncertainties of new

Q. Explain the concept of entrepreneurial success in rural area in detail.

200

venture creation and who will by their example stimulate an autonomous entrepreneurial

process thereby ensuring continuous rural development. To support such development, the

community must develop links among key institutions, a vibrant entrepreneurial spirit and a

commitment and dedication to risk taking and risk sharing. following are the requirements of

entrepreneurial success in rural area:

One of the principal challenges of economic development of rural areas is the

development of a socio-economic environment that would be attractive to people.

To meet this challenge, all available and hidden development potential of the local

community must be mobilised. This in turn requires an environment favourable to

entrepreneurship which a community basically can create in two ways. First, the community

should utilise all the available incentives provided by the government to stimulate the

development of economically depressed areas. These incentives usually include

favourable investment conditions, low interest rates, tax concessions, guarantees, export

subsidies, employment provisions, subsidies on public utility charges and the like.

Second, the community should create and foster the development of institutions and a

variety of partnerships to support local development. As experience shows, personal and

organizational networks are very effective in achieving broad and fast growing regional

economic development.

Today we are witnessing many examples of institutional developments that are

fostering businesses and community collaborative efforts-while nurturing positive

government/academic/business relationships in promoting economic growth. Such

institutions and their collaborative efforts should play a significant role in rural

communities/regions where the development strategy of the rural community places

entrepreneurship in the centre of economic development. Among the most important are:

institutions of education and training; inter-firm institutions and financial institutions.

The role of institutions of education in rural development is of crucial importance. They

help to create a capable labour force and to maintain a skilled work force in the community. In

rural areas they can act as agents of change, such as:

• redesigning curricula to teach students high level skills and those skills that would help

to up-grade businesses;

• developing technical training programmes to provide people with basic skills for jobs

required by local businesses;

• developing and implementing programmes to improve the competitiveness of local

firms and their ability to expand into new markets; and

• developing links with other higher educational institutions, especially with universities

outside the rural region in order to bring into the region technical expertise available

Public-private institutions partnership

Institutions of Education

201


outside the region and which could be beneficial to the existing businesses in the

region, to new community enterprises, or to stimulate new entrepreneurship in the

community.

Efforts to support and enhance existing businesses within a community and to

promote new enterprises in a community can be most successfully earned out through

different inter-firm institutions. Among different inter-firm institutions, business incubators,

industrials parks, different non-profit seeking organizations facilitating networking and

business support centres are one of the most successful ones promoting the growth of new

and existing enterprises. These institutions can significantly contribute to rural development

because of the following:

Business incubators are a facility designed to assist the development of new

enterprises (Smilor, R.W., 1987). They help entrepreneurs by providing them with services

which support and compliment their own talents and abilities.

Their support system usually includes secretarial, administrative and business

expertise and facilities which are available to entrepreneurs below or at market rates. The

entrepreneurs receive not only help regarding the management of their enterprises but also

other services such as provision of financial assistance and training. They organize

conferences, business luncheons and different types of activities for the purpose of

networking. They create a good business climate inside the incubator and ensure a constant

inflow of moral and financial support. As such, they thus seek to give form and substance,

structure and credibility to emerging ventures.

The business incubator presents a rather unique approach to economic development.

Unique in the sense that it is an independent enterprise whose business is the process of

'incubating' enterprises. The business incubator has emerged as a solution to the high

failure rates among new firms. Many new firms fail, not because they are not innovative

enough but because in their early stage they have difficulty in competing. Therefore, the

basic concept of the incubator is to nurture entrepreneurial activities so as to provide start-

ups with the necessary services and support until they mature and are ready to enter

successfully into the competitive business environment.

The business incubator industry was one of the fastest growing industries in the late

eighties in the U.S.A. Nearly every regional development programme includes the

development of the incubator network, especially in those regions which had experienced

economic decline and severe job losses due to the closing down of industries. Initially,

practically all incubators in the U.S.A. were publicly supported by communities or states and

public funds covered practically all investment and start-up costs.

Inter-firm Institutions

Business Incubators

202

Incubators in a rural area can be designed for a number of purposes to:

Industrial Parks

Institutions Facilitating Networking

• Encourage skilled and professional people who have left the community to come back

to the region to start new companies;

• Attract to the area, laid-off skilled labour from nearby town;

• Promote specific types of businesses;

• Nurture a pool of potential growth enterprises through equity investments;

• Meet particular local employment needs;

• Help develop flexible manufacturing networks of co-operatives and other

manufacturing businesses;

• Develop and produce a particular product that none of the firms could manufacture

alone;

• Foster greater access to capital for start-up firms;

• Intensify training programmes to build the vocational skills of its members;

• Provide job opportunities for high-tech graduates; and

• Develop ways by which technical engineering and management expertise from

outside the enterprise can help start-ups to develop, diversify product lines and

markets and expand.

Business incubators are usually established by private initiative with the financial

assistance from the federal, state and local governments and private sector contributions.

As an unemployment-reducing effort and/or for revitilizing the community economic

base, communities could establish industrial parks by purchasing marginal agricultural

property at the market price and converting it to industrial purposes in order to accelerate

entrepreneurial restructuring of rural communities. Communities could increase the

attractiveness of industrial parks to potential entrepreneurs by delivering conventional

common infrastructural services, by customisable layouts that could be rearranged over

time to meet user needs in a flexible way and by the final price which should be much lower

than the price of equivalent buildings in other, especially urban, areas.

Networking among firms in the industrial park is a common outcome. The firms in the

industrial park benefit in several ways through networking. The benefits could be grouped

into those resulting from reducing the problems of isolation in the process of starting-up,

those resulting from economies of scale as overhead functions among firms in the network

are shared and those due to the aggregation of production of small firms with the same or

compatible production and due to large scale purchases of equipment and raw material.

These are non-profit seeking associations, registered or non-registered which

facilitate networking between small firms located in the same region2. They usually perform

the following tasks:

203


• Promote co-operation between small firms in the network, thus promoting their

competitive efficiency;

• Provide different services in the areas of finance, marketing, research and

development;and

• Provide common services of daily matters in production and administration in order to

reduce transaction costs.

Networking among small firms permits aggregation of production, large scale

purchases, enables specialised firms jointly to manufacture finished products, facilitates

shifts from product to product and market to market and leads to important economies of

scale as overhead functions are shared (Hatch, 1989, p.6).

Business support centres can be established to meet the needs of start-ups, emerging

or established businesses. They provide different types of services according to the needs

of the three different clients (Small BusinessAdministration, p. 19):

• Assistance to start-ups: business planning and finance.

• Assistance to emerging and established businesses: management skills in the areas

of finance, sales, marketing and administration.

• Assistance to business partnership: sub-contracting of local firms with larger

enterprises outside the community; attracting spin-offs from fast growing firms or firms

who are rationalising, production by spinning off auxiliary production units; identifying

franchising opportunities to the potential local entrepreneurs.

Business support centres can be part of the local government or semi private

institutions or for non-profit private organizations. They can also be established at the

community colleges or at the university to help small business owners learn necessary

business skills at low cost.

Communities should support the development of a strong venture capital base and

risk capital networks specialising in funding new entrepreneurial activities. Seed financing

could be an important bottleneck for new enterprise creation. For this reason, special

attention must be given to the creation of institutions that provide seed financing and start-

ups targeted venture capital and are engaged in equity financing. If it would be difficult for

such institutions to be attractive to a rural community, the community leadership must

encourage existing institutions to link new start-ups or potential entrepreneurs with such

institutions outside the community. They should also be responsible for screening all

financial schemes existing in the country for the development of new enterprises and for the

growth of existing ones. Potential entrepreneurs must have access to information such as:

which are the state financial agencies, banks that provide guarantees, issue tax free bonds,

Business Support Centres

Financial Institutions

204

direct loans to smaller enterprises or to Consortia of enterprises? What type and how many

economic development funds are available? Who provides favourable investment financing

for the equipment and working capital? Which development corporations finance new and

expanding businesses'? What state funds are available for small and medium sized

enterprise development, etc.'?

The impact of institutions discussed earlier on rural economic development will

increase if the individual efforts of those institutions are combined into a co-ordinated action.

Therefore, the task of community leadership is to encourage close co-operation among

different institutions supporting rural development, both public and private, in order to

develop programmes that would address the key barriers to community development:

human and financial capital drain, inefficient use of natural and productive resources,

inability to meet the local business needs, inability to create effective community

infrastructure, inability to encourage new enterprise formation, inability to increase local

economic opportunities, etc.

The key to the evolution of economic development based on a partnership approach is

the leadership that could come either from the local government or from already existing

successful private companies, local development private or public agencies, community

civic organizations, educational institutions and the like. What is crucial is the development

of personal and organizational networks which combine otherwise individual efforts into a

comprehensive approach to regional development of rural areas. Therefore, it is important

to identify or to establish the principal community civic agency, the lead organization

responsible for designing and carrying out the development strategy based upon

identification of an area's major problems (lack of job opportunities, substandard housing,

deteriorated social infrastructure, etc.). This organization should act as a planning and

brokering organization, bringing together public and private initiative to attain common

community goals. It should support the creation of new agencies if ongoing implementation

of a development strategy so requires. Personnel should also include representatives of the

major enterprises in the region, universities and research and development institutions. It

should focus on broad community concerns and co-ordination of separate efforts in the

region.

Economic development in general requires more than just a proper macro economic

environment. In addition it demands institutional framework conducive to economic

development, practical mechanisms for risk taking and risk sharing in the early and most

uncertain stages of entrepreneurial ventures and an organizational system conducive to

growing new and existing businesses. It takes cross-institutional networking. The role of

public policy is therefore to continually find ways to implement critical success factors of

economic development. Economic development of rural areas cannot be an exception in

this respect.

Public-Private Partnership

Conclusions

205


Q. How an entrepreneurial system can be established?

Ans.

1. Search for Bbusiness Ideas :

2. Sources of Ideas :

(i) Observing Markets :

(ii) Prospective Consumers :

(iii) Development in other Nations :

3. Study of Projects Profiles :

(i) Government Organizations :

An entrepreneur perceives an opportunities for marketing a product or services. Then

he establishes a business unit on the basis of his/her perception. Finally he manages his

enterprise expanding, growing or diversifying over a period of time. In order to establish an

entrepreneurial system an entrepreneur needs to take the following steps:-

The first step of entrepreneurial system is search for

business ideas. The idea may originate from various sources e.g. success story of a

friend or relative, demand for certain products, visits to trade fairs and exhibitions,

study of project profiles and industrial potential surveys, meetings with government

agencies etc. The idea may relate to the starting of a new business or to takeover of an

existing enterprise, the idea should be sound and workable, so that it may be

exploited.

Abusiness idea may be discovered from the following sources:-

Careful observation of markets can reveal a business

idea. Market surveys can also reveal the demand and supply position for various

products. It is necessary to estimate future demand and to take into account

anticipated changes in fashions, income levels, technology etc. competition and

price trends can also be found through market surveys. From the data collected

through market observation, one can identify the products industries which are

in demand and which require increase in supply.Apromoter can then find out the

most profitable line of business.

Consumers knows best what he wants and the

habits/tastes which are going to be popular in near future. Contacts with

prospective consumers can also reveal the features that should be built into a

product/service. These days good business firms generally conduct a survey

among prospective consumers before choosing the product to be

manufactured.

People in underdeveloped countries

generally follow the fashion trends of developed countries for example video,

washing machines, micro ovens etc. which are now the “In things” in India were

being used in the united states and Europe. Therefore, an entrepreneur can

discover good business idea by keeping in touch with developments in

advanced nations.

Various government and private agencies publish

periodic profiles of various projects and industries. These profiles describe in detail the

technical, financial and market requirement and prevailing position a careful scrutiny

of such project profiles is very helpful in choosing the line of business.

Several government organizations now-a-days

assist entrepreneurs in discovering and evaluating business ideas.

Development banks, state industrial development/investment corporations,

206

technical consultancy organizations, export promotion council etc. provide

advice and assistance in technical, financial, marketing and other areas of

business. Government also identifies the priority sectors for investment through

five year plans, industrial policy resolution guidelines for industry.

National and international trade fairs are a very

good source of business ideas. A visit to these fairs provides information about

new products/machines. Trade fairs and exhibitions provide opportunities for

assessing the market trends in terms of demand potential and type of products

required. It also assessing the attitude of the competitors in a particular product

or marketing area.

Once business ideas are discovered, screening and testing of

these ideas is done. The following considerations are significantly in the evaluation

and testing of business ideas.

It refers to the possibility of producing the product. Technical

feasibility of an idea is judged in terms of availability of necessary technology,

machinery and equipment, labour skills and saw materials. The advice and assistance

of technical experts may be necessary to judge the technical feasibility of various

business ideas.

A cost benefit analysis is required to ascertain the profitability

if the ideas.An elaborate study of market conditions and prevailing situation is made to

assess the viability and prospectus of the proposed projects. A number of calculations

have to made about the likely demand, expected sales volume, selling price, cost of

production, break even point etc.

After preliminary evaluation of the idea, the promising idea is subjected to a thorough

analysis from all angles. Full investigation is carried out in the technical feasibility and

economic viability of the proposed project. Financial and managerial feasibility of the

idea are tested.At this stage a lot of information is required. Consultations with experts

in various areas of the industry may be necessary to carry out the detailed analysis.

After the evaluation of a business idea is completed, the finding are presented in the

form of a report known as “feasibility report” or project report. This report helps in the

final selection of project. It is also useful for procuring licenses, finance etc from

governmental agencies.

: The feasibility report is analyzed to finally choose the most promising

idea. Generally the following considerations influence the selection of idea for a

product or service:-

(i) Products whose imports are banned or restricted by the government.

(ii) Products which can be exported exceeds easily and profitability.

(iii) Products whose demand exceeds their supply so that there exists ready

demand.

(ii) Trade Fairs and Exhibition :

4. Process the Ideas :

5. Technical Feasibility :

6. Commercial Viability :

7. Idea Selection

207


(iv) Products which showed high profitability.

(v) Products for which incentives and subsidies are available.

(vi) Products favoured by the country’s industrial/licensing policy.

(vii) Products based on the expansion or diversification plans of existing firms of the

family/friends/relatives.

After considering the various factors a entrepreneur should analysis and compare

pros and cons. A selection matrix may be prepared for this purpose. The matrix

indicates the type of diverse data that needs to be collected for each project. It also

throws light on how each item can hold out some encouraging and some discouraging

factors. The entrepreneurial selection needs to take all these factors into account.

Once the promoter is convinced of the feasibility and profitability

of the project he assembles the necessary resources to launch the enterprise. He has

to choose partners/collaborates, collect the required finances and acquire land and

buildings, plant and machinery, furniture and fixtures, patents, employees etc.

Decisions have to be made about the size, location, layout etc. of the enterprise. The

form of ownership organization has to be selected. The main inputs required for

launching an enterprise are as follows:-

In the turbulent business environment,

information and intelligence have become the key input in entrepreneurial

success.An entrepreneur requires relevant data on the following aspects:-

Size and nature of demand for the product/service.

Volume and source of supply.

Price cost volume relationship.

Sources of raw material.

Nature and degree of competition.

(ii) Number and type of personnel required and their sources.

(iii) Amount and sources of funds required for the enterprise.

People are the most valuable asset of an enterprise and this asset does

not depreciate. An entrepreneur has to make the following decisions concerning the

personnel.

Number of personnel required for management, technical and other positions in

the enterprise.

Qualifications and experience required in the personnel to perform the jobs

effectively.

Sources of recruitment form which the needed staff will be procured.

Procedure and methods of selecting the best candidates.

System and criteria for evaluating the performance of employees.


8. Input Requirement :

(i) Information and Intelligence :

9. Personnel :

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

208

Policies and methods for remunerating the personnel.

Facilities to be provided by the safety, health, welfare of the staff.

This is the last step of entrepreneurial system. It is very

important step. In this phase the entrepreneur integrate their resources and establish

the enterprise.

Ans. Gartner (1989) refers to innovation as the central value of the entrepreneurial

behavior, since it is successfully taking an idea or invention to market.

Innovation and problem solving capabilities are expected to be the core of the

entrepreneurial capability of an entrepreneur the vast majority of entrepreneurs studied

were characterized by sensation-thinking problem solving styles. Such individuals were

shown to be short-term oriented dealing with immediate problems. Entrepreneurs are faced

with a number of challenges as they try to implement new ideas "Iinnovation is one of the

central characteristics of entrepreneurial endeavor. Looking at history, entrepreneurial

activity is most active during periods of upheaval: economic, social, or political . This is

usually when traditional systems and ways of doing business are no longer affective. Those

who survive the changes will be the businesses that act entrepreneurially

Entereneurs are not uniformly innovative. The level of innovation is dependent upon

the entrepreneur's formal education and managerial experience. Their study of 184 firms in

the Midwest showed a correlation between a higher level of managerial experience and

more years of education with a higher level of innovation.

Innovations are the harbingers of change.

Innovations can take place at the spark of light or can take a generation of

experiments.

Innovations can be both revolutionary as well as an extension to the existing products.

Innovations provide a USP to a business.

Innovations are action oriented i.e active and searching new ideas.

Innovations help in making the product, service or process simple and

understandable.

innovations help in making the product, service or process customer based.

Innovation is all about trying, testing and revising.

Thus innovation refers to a process of creation of a product that can solve existing

problems or tap opportunities.

Present and potential customer

Existing companies

Ø

Ø

Ø

10 Establish the Enterprise :

Q. Write a short note on innovation related to entrepreneur

Features of Innovation

Sources of Innovation :

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

Ø

209


Ø

Ø

Ø

Ø

Raw material provider

Distributors and retailers

Research and development

Existing employees

It is very difficult and complicated to create a system for

entrepreneurs. While public officials and service providers understand the differences

between, say, a Small Business Center and a Small Business Technology Development

Center and the services they offer, entrepreneurs do not. Nor should we expect

entrepreneurs to understand these differences. Thus, when an entrepreneur seeks

assistance and is referred to "some other office," her typical response is intense frustration.

These problems emerge because most service providers focus - correctly - on market

niches. Small business development centers (SBDCs) focus on growth businesses, the

cooperative extension service focuses on agriculture, and micro loan programs provide

more general support to new entrepreneurs. While there are efficiencies that arise from this

specialized approach, the system's specialization often gets lost in translation to the

entrepreneur. Most entrepreneurs simply want help. They do not care which agency or

program provides it.

These challenges of fragmentation are not new to economic development

professionals. The traditional solution has been to create a "one-stop shop," where a whole

host of services for small business can be accessed in one place. These one-stop shops can

exist in physical space Creating a one-stop shop should be viewed as a first step, not the end

of the process. Such sites offer user-friendly access to information, but they still require

significant knowledge from the aspiring entrepreneur or business owner. Can the business

owner find the right services and support that will "fix" his current problems? Research

shows that many entrepreneurs cannot leap this hurdle. In many cases, they face difficulties

simply identifying their own business challenges. For example, they may recognize that

business is slowing, but may not know whether the slowdown is caused by marketing,

financial or operational challenges. A more sophisticated diagnosis of the issues is needed.

Then, a quality menu of support options can be developed.

This type of sophisticated business diagnosis system does not really exist today for

most entrepreneurs. High-growth technology businesses can receive such support from

venture investors and others, but most entrepreneurs make do with one-size-fits-all

programs for training, financing, and the like. In practice, this means that business owners

often receive the services that are available instead of the services that are needed. For

example, a potential high-growth business may be referred to a loan program even though it

really needs some form of equity financing.

Q. How entrepreneurial support system can be established.?

Ans. Introduction :

From One-Stop Shop to no Wrong Door

210

A reformed systems approach is needed. At the outset, the system should offer an

entry-level package of services that entrepreneurs receive no matter where they enter the

system. The system would be defined by the concept of "no wrong door." Every part of a

region's small business support network should provide an initial assessment of the

entrepreneur's skills and needs and identification of the best place for the entrepreneur to

receive services to address those needs. This new system would move the burden of

understanding how best to access support services from the entrepreneur to the system

itself. Upon completion of this initial diagnosis, more specialized services can be delivered.

In addition to improving services for the entrepreneur, this system also offers benefits

to service providers. A systems approach allows service providers to "segment" their

market. They can truly specialize in serving certain types of entrepreneurs, and feel assured

that other providers are effectively serving other market segments. Their productivity and

efficiency will improve as they can focus personnel and resources on their own market

niche. Service providers can now focus on "quality" instead of "quantity" of services.

Many regions claim that they have a small business support system in place, but, in

most cases, these "systems" are simply a loose federation of non-profits and other support

providers. A true system links all relevant service providers, operates according to common

procedures, and offers a customized and comprehensive set of public and private services

for local entrepreneurs. Several characteristics are essential:

Common intake procedures: All local service providers are trained to perform a brief

intake and diagnosis of an entrepreneur's issues and service needs. Thus, when an

entrepreneur calls a service provider, she is not given an immediate referral. Instead, her

basic information is obtained and entered into the system. At that point, she will be referred

to the appropriate local service provider. For example, if her firm is looking for export

opportunities, she will be referred to a local expert in that process.

Clear referral systems: Referrals are the cornerstone of the system. The process must

be clear to both entrepreneurs and service providers. This requires that service providers

explicitly state their specific areas of expertise. They can no longer simply serve all

entrepreneurs; they must focus on a specific set of issues or types of businesses. For

example, a non-profit might identify its niche as "training entrepreneurs to work with

institutional venture capitalists." Effective referrals also mean that providers must

understand the system and each organization's role within it.

Clear guidelines for entrepreneurs: As noted above, the system must be

understandable to entrepreneurs. They must understand the purpose of the initial

diagnostic process and why they have been referred to a certain service provider. Finally,

the type and level of support to be provided must be clearly understood.

What does an entrepreneur support system look like?

211


Regular collaboration: The system will work if the partners effectively collaborate with

one another. They must meet on a regular basis, and regularly review how the system is

serving local businesses. In addition, service providers must create a single "brand" for the

system so that entrepreneurs are supported by the "system" and not by a single service

provider.."

Every region must develop its own set of program offerings targeted to the needs of

local entrepreneurs. some of the key program offerings to be found in comprehensive

entrepreneur development systems:

Entrepreneurship education - including the introduction of entrepreneurship concepts

in K-12 and more advanced adult education and training in community colleges, colleges

and universities.

sources of capital to match the financing needs of entrepreneurs at

various stages of development, from seed capital to loans to equity.

opportunities for entrepreneurs to connect with peers and mentors

and to form strategic alliances to benefit their businesses.

a culture that recognizes, embraces and celebrates

entrepreneurs, creating a place where entrepreneurs choose to live, work and play.

Creating an effective entrepreneur support system can generate huge benefits for

local business owners and aspiring entrepreneurs. It can also stimulate a transformation for

economic developers. By promoting real collaboration, it improves productivity and program

effectiveness while also generating improved outcomes in terms of jobs, new businesses

and overall quality of life.

Program Offerings

Access to Capital -

Access to Networks -

Entrepreneurial Culture -

The Benefits

212

Q. Explain the various steps of setting an enterprise Discuss.

Ans. Introduction :

1. SEARCH FOR BUSINESS IDEAS :

2. SOURCES OF IDEAS :

Abusiness idea may be discovered from the following sources :

(i) Observing Markets :

(ii) Prospective Consumers :

An entrepreneur perceives an opportunities for marketing a product or

services. Then he establishes a business unit on the basis of his/her perception. Finally he

manages his enterprise expanding, growing or diversifying over a period of time. In order to

establish an entrepreneurial system an entrepreneur needs to take the following steps:-

The first step of entrepreneurial system is search for business ideas. The idea may

originate from various sources e.g. success story of a friend or relative, demand for certain

products, visits to trade fairs and exhibitions, study of project profiles and industrial potential

surveys, meetings with government agencies etc. The idea may relate to the starting of a

new business or to takeover of an existing enterprise, the idea should be sound and

workable, so that it may be exploited.

Careful observation of markets can reveal a business idea. Market surveys can also

reveal the demand and supply position for various products. It is necessary to estimate

future demand and to take into account anticipated changes in fashions, income levels,

technology etc. competition and price trends can also be found through market surveys.

From the data collected through market observation, one can identify the products

industries which are in demand and which require increase in supply. A promoter can then

find out the most profitable line of business.

Consumers knows best what he wants and the habits/tastes which are going to be

popular in near future. Contacts with prospective consumers can also reveal the features

that should be built into a product/service. These days good business firms generally

conduct a survey among prospective consumers before choosing the product to be

manufactured.



UNIT – IV

213

(iii) Development in other Nations :

3. STUDY OF PROJECTS PROFILES :

(i) Government Organizations :

(ii) Trade Fairs and Exhibition :

4. PROCESS THE IDEAS :

5. TECHNICAL FEASIBILITY :

6. COMMERCIAL VIABILITY :

People in underdeveloped countries generally follow the fashion trends of developed

countries for example video, washing machines, micro ovens etc. which are now the "In

things" in India were being used in the united states and Europe. Therefore, an entrepreneur

can discover good business idea by keeping in touch with developments in advanced

nations.

Various government and private agencies publish periodic profiles of various projects and

industries. These profiles describe in detail the technical, financial and market requirement

and prevailing position a careful scrutiny of such project profiles is very helpful in choosing

the line of business.

Several government organizations now-a-days assist entrepreneurs in discovering and

evaluating business ideas. Development banks, state industrial development/investment

corporations, technical consultancy organizations, export promotion council etc. provide

advice and assistance in technical, financial, marketing and other areas of business.

Government also identifies the priority sectors for investment through five year plans,

industrial policy resolution guidelines for industry.

National and international trade fairs are a very good source of business ideas. A visit to

these fairs provides information about new products/machines. Trade fairs and exhibitions

provide opportunities for assessing the market trends in terms of demand potential and type

of products required. It also assessing the attitude of the competitors in a particular product

or marketing area.

Once business ideas are discovered, screening and testing of these ideas is done. The

following considerations are significantly in the evaluation and testing of business ideas.

It refers to the possibility of producing the product. Technical feasibility of an idea is judged in

terms of availability of necessary technology, machinery and equipment, labour skills and

saw materials. The advice and assistance of technical experts may be necessary to judge

the technical feasibility of various business ideas.

Acost benefit analysis is required to ascertain the profitability if the ideas.An elaborate study

of market conditions and prevailing situation is made to assess the viability and prospectus

of the proposed projects. A number of calculations have to made about the likely demand,

expected sales volume, selling price, cost of production, break even point etc.

214

After preliminary evaluation of the idea, the promising idea is subjected to a thorough

analysis from all angles. Full investigation is carried out in the technical feasibility and

economic viability of the proposed project. Financial and managerial feasibility of the idea

are tested.At this stage a lot of information is required. Consultations with experts in various

areas of the industry may be necessary to carry out the detailed analysis.

After the evaluation of a business idea is completed, the finding are presented in the form of

a report known as "feasibility report" or project report. This report helps in the final selection

of project. It is also useful for procuring licenses, finance etc from governmental agencies.

The feasibility report is analyzed to finally choose the most promising idea. Generally the

following considerations influence the selection of idea for a product or service:-

(i) Products whose imports are banned or restricted by the government.

(ii) Products which can be exported exceeds easily and profitability.

(iii) Products whose demand exceeds their supply so that there exists ready demand.

(iv) Products which showed high profitability.

(v) Products for which incentives and subsidies are available.

(vi) Products favoured by the country's industrial/licensing policy.

(vii) Products based on the expansion or diversification plans of existing firms of the

family/friends/relatives.

After considering the various factors a entrepreneur should analysis and compare pros and

cons. A selection matrix may be prepared for this purpose. The matrix indicates the type of

diverse data that needs to be collected for each project. It also throws light on how each item

can hold out some encouraging and some discouraging factors. The entrepreneurial

selection needs to take all these factors into account.

Once the promoter is convinced of the feasibility and profitability of the project he assembles

the necessary resources to launch the enterprise. He has to choose partners/collaborates,

collect the required finances and acquire land and buildings, plant and machinery, furniture

and fixtures, patents, employees etc. Decisions have to be made about the size, location,

layout etc. of the enterprise. The form of ownership organization has to be selected. The

main inputs required for launching an enterprise are as follows:-

In the turbulent business environment, information and intelligence have become the key

input in entrepreneurial success. An entrepreneur requires relevant data on the following

aspects:-

• Size and nature of demand for the product/service.

• Volume and source of supply.

• Price cost volume relationship.

7. IDEASELECTION :

8. INPUT REQUIREMENT :

(i) Information and Intelligence :

215


• Sources of raw material.

• Nature and degree of competition.

• Number and type of personnel required and their sources.

• Amount and sources of funds required for the enterprise.

People are the most valuable asset of an enterprise and this asset does not depreciate. An

entrepreneur has to make the following decisions concerning the personnel.

Number of personnel required for management, technical and other positions in the

enterprise.

Qualifications and experience required in the personnel to perform the jobs effectively.

Sources of recruitment form which the needed staff will be procured.


System and criteria for evaluating the performance of employees.


Policies and methods for remunerating the personnel.

Facilities to be provided by the safety, health, welfare of the staff.

This is the last step of entrepreneurial system. It is very important step. In this phase the

entrepreneur integrate their resources and establish the enterprise.

After formulating & evaluating the project, the next step is to draw out a

financial plan to meet project costs. The financial plan should deal with two important

aspects-:

Determinatin of the total amount of capital required for taping up the project.

Deciding about the composition of capital or financing mix.

The basic purpose of a well through out financial planis to suggest an appropriate

capital structure with right quantum of capital which will minimize the cost of funds obtained

from different sources and minimises the value of the firm. Hence it is part of financial

analysis to study the various sources of finance available to the project and suggest an

appropriate capital structure with adequate amount of capital.

The equirty shares are the main source of finance, & it is contributed

by the owners of the companies. Equity capital provides the strength to the financial

structure of the company. In the case of a new company the prmoters must contribute

to equity shares first then the balance of shares is issued to the public. Limited liability

9. PERSONNEL :

10. ESTABLISH THE ENTERPRISE :

Q. Explain the Sources and function of the finance.

Ans. Introduction :

Sources of Long Term & Short Term Finance :

(a) Long Term Sources:-

1. Equity Shares :

216

& voting rights are the two important features that confor special privilaged on equity

shareholders to restrict their liabilities and at the same time keep full control over the

company. However the cost of equity will be very high for their expectations will be high

as they provide risk capital to the ventures. Equity capital represents permanent

capital & there is no liability for repayment. No fixed obligation as to dividend or interest

is created.

Preference shares confor on prefrence shareholders two rights

viz. to receive the preference dividend & get back capital on priorty basis. Investors,

who like to earn a lmited but steady return on their capital, prefer prefrence shares

investment. A company can issue different types of prefrence shares as redeemable

preference shares, cumulative preference shares, participating preference etc. These

kinds confor special rights on preference shareholders as regards the repayment of

capital, payment of dividends and payment of surplus at the time of liquidation.

Debentures are very commnly used creditorship securities. Different

types of debentures are issued to mobilise the debt capital from the public. They are

secured and carry fixed percetage of interest. Registeredb debentures, redeemable

debentures, convertible debentures, mortgage or secured debentures, oOrdinary

debentures etc. are a few types of debentures. From investers point of view

debentures are less risky & contribute a regular income. Debentures with fixed rate of

interest enable the company to take advantage of financial leverage or trading on

equity. The shareholders can retain control and earnmore income on their investment.

The cost of debts is very klow because the interest on debentures is a tax- deductible

expense.

Terms loans are presently the most important source of finance. Loans

obtained from banks and financial institutions are generally secured loans.They carry

a fixed rate of interest & are payable in nstallments. Term loans are generally

repayable within a period of 10-25 years. Term loans are employed to finance the

aquasition of fixed assets & workng capital margin. Term loans provide the benefit of

trading on equity. The owner retain control of the enterprise. These loans can be rapid

whenever not required.As a result the financial structure remains flexible. Term loans

are comparatively less costly source of finance.

Reserves & surplus build over the past are called retained

earnings. These earning can be reinterested in business for moderenisation &

expansion. From the ownership as well as cost of capital point of view, it is as a source,

similar to equity share capital. However it should be noted that over a period of time,

the retained earnings get developed into working capital. The cost of retained earning

earning is very cheap compared to cost of equity. It is thebest to take up risky butvery

proftable projects.

Sometimes the suppliers of machinery provide deferred credit

facility under which payment for the machinery may be made over a period of time.

2. Preference Shares :

3. Debentures :

4. Term Loans :

5. Retained Earning :

6. Deferred Credits :

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The interest rate & period of payment very rather widely. Normally the supplier offering

deferred credit facility ask for bank guarantee from the buyer.

Central govt. provides capital subsidy to

industries set up in notifid bvackward area. Many state govt. or state development

agencies also provide development loans/ sales tax oans & state capital subsidies.

They provide this faclity for backward areas which are exclusively notified in their

states.

Unsecured loans are normally provided by the

promoters to fill the gap between the promoters contribution required by financial

institution & equity capital subscribed by the promoters. They carry a lower rate of

interest & cannot be taken back without the prior permission of financial institutions.

They are created when the fir purchase raw material, supplies

goods for resale on credit terms on openaccount. They are interest free & securities

free. Accounts payable is a legally binding obligation of a firm. They also includes bills

payable.

They are short term liabilities that arise when securities are received but

payment has not yet been made. Examples are wages & salaries payable, taxes

payable, expenses payable etc.

These consist of promisery notes with maturities of 3 to 270

days. Commercial paperis usually issued in higher denomination & can be used only

by large well known companies which enjoy a fairly high credit rating. Individuals,

insurance companies & other institutions also purchase commercial paper. This is a

very recently emerged source in India.

A customer may pay for all or portion of future

purchase before receiving the goods. Ths form of unsecured financing provides funds

to purchase raw material & produce the final products.

Bank credit is the major source of finance for working capital. Banks

offer both secured as well as unsecured loans to business firms such as cash credit,

overdraft, loans & advances & purchase & discounting of bills. They provide 100%

finance. They insist that the customers should bring a portion of finance from other

sources.

A short term unsecured loans may be obtained from a wealthy

shareholder, a mojor supplier, or other party interested in assisting the firm through a

short term difficulty.

LIC, GIC & UTI provide short term

loans to manufacturing companies with an excellent track record.They are

unsecuredloans&givenforaperiodofoneyear.Therateof interest isaround18%p.a.

7. Capitaal Subsidy & Develoment Loans :

8. Unsecured Loans & Deposits :

(B) Sources of Short Term Finance :

1. Account Payable :

2. Accurals :

3. Commercial Paper :

4. Cash Advance From Customers :

5. Bank Credit :

6. Private Loans :

7. Short term Loans From Financial Institution :

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8. Lease Finance :

Q. Describe the fixed capital? Also discuss the factor that affecting fixed capital

requirements.

Ans. Introduction :

Factors affecting fixed capital requirements :

(1) Nature of Business :

(2) Leasing Arrangement :

(3) Size of Business :

(4) Ancillary Units :

(5) Technology :

(6) Provision for Subcontracts :

(7) International Conditions :

Lease financing has emerged as one of the important sources of

industrialfinance in recent times. Lease contract is a contract between leaser & leasee

whereby t5eh formeracquires the equipments/ goods/plants as required & specified

by the leasee & passes on the goods to the leasee for use for a specific pace. The

leasee in consideration promises to pay the lessor a specifid sum in a specified mode

on specific interval & at a specified place.

Funds required to acquire fixed assets are termed as fixed capital. The

total amount of fixed capital is determined through project capital cost estimates.Any error in

the fixed capital estimation will have long-term adverse effect on the financial condition of

the enterprise and also its profitability. Wrong estimation of fixed capital may lead to over or

under-capitalization. A fixed capital requirement varies from business to business and is

influenced by a number of factors.

There are many factors which are affected fixed capital requirements, such as:-

The nature of business is one of the influencing factors. Public

utilities and capital intensive manufacturing concerns require large amount of fixed

capital. On the other hand concerns engaged in trading activities and in rendering

personal services need only small amount of fixed capital.

If assets are obtained through leasing then fixed capital

requirement would be less.

The fixed capital requirements of large units will be more units

producing single product may require lesser fixed capital than those producing more

number of products.

If an enterprise can purchase some of the components from units the

its fixed capital needs would be less.

If the production process requires modern technology or imported plant

and machinery then the fixed capital requirements would be more.

Instead of producing all the components which are

essential. For a product, the entrepreneur may think of allowing others to produce

such components and take up the assembling process alone such an attitude of the

entrepreneur will minimize the fixed capital requirements.

Some of the concerns may carry on business on the

international scale such concerns are very much interested in expansion plans if the

international conditions are conductive for sale promotion. Such expansion plans

demand for more fixed capital requirements. On the contrary an international crisis

may lead some companies to postpone their expansion plans.

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(8) Trends in the Economy :

Q. Explain the factors which affecting working capital requirements?

Ans. Introduction :

(1) Gross Working Capital :

(2) Net Working Capital :

Components of Working Capital:-

Cash

Operating Cycle :

Determinants or factors affecting working capital requirements :

(1) Size of the firm :

While assessing the fixed capital requirements, a study of

long run trends in the economy must is anticipated to be bright, it gives green signal to

the entrepreneur to carry out all sorts of expansion programmed of the firm. In that

case a large amount of funds has to be kept so as to invest in fixed assets.

Working capital is the amount of capital that is required by an

enterprise to carry out its day to day operations. In other words it is defined as all the short

term assets used in daily operations. They consist of primarily cash, marketable securities,

accounts receivables and inventory. There are mainly two type of working capital.

Gross working capital may be defined as the total

investment in current assets which can convert into cash with in the accounting year.

Net working capital may be defined as the difference between

current assets and current liabilities.

The components of working capital are:-

Inventories

Accounts receivable

Cash and bank balance

Advances paid for expenses and suppliers.

Debtors & B/R Raw Material

Finished Goods Work-in-Progress

Cash passes through various stages and finally gets converted into cash. In an industrial

unit, the operating cycle would manifest in various processes viz. purchase of raw material,

conversion of finished goods, and conversion of goods partly into cash through cash sales

and partly into accounts receivables through credit sales and finally conversion of debtors

into cash.

A Firm size either in assets or sales affect it need for working capital.

A small firm may have only limited resources for working capital Hence it may invest

more amounts in current assets. But large firms with many sources of funds may need

less working capital.

220

(2) Nature of the Business :

(3) Availabilities of Credit :

(4) Sales Volume :

(5) Seasonal and Cyclical Factors :

(6) Operating Cycle :

(7) Shift in Technology :

(8) Polices of the Firm :

(9) Activities of Firm :

Q. What is the requirement of technical assistance for a business enterprise?

Ans.

Nature of the business is also affecting the working capital

requirement. Public utilities and capital intensive manufacturing concerns require less

amount of working capital.

A firm with readily available credit from banks can get alone

with less working capital than a firm without such credit.

This is the most important factor affecting the size and components of

working capital. A rise in turnover ratio will reduce the length of operating cycle and

therefore the need for working capital.

Most firms experience seasonal fluctuations in

demand for their products and services. These variations in sales affect the level of

working capital.

Operating cycle affect the working capital requirement if the period

of operating cycle is long then the amount of working capital requirement would be

more depending upon the length of operating cycle the need of working capital will

vary from project to project and business to business.

Technological developments will affect the working capital

needs of a firm very much. For example If a firm uses highly advanced plant &

machinery which process more raw material at a faster rate then the working capital

need for inventory purposes would be more.

Many of the firm polices affect the level of working capital. For

example a change in credit policy will affect the working capital requirements of firm.

If a firm is to invest more in inventory or sell on relatively easy

credit term, its working capital needs would be more than of firms providing services or

making cash sales.

Production management is the process of converting the input into output through a

conversion process. The input are in the form of land, labour, raw material, machinery,

capital & information. Production/operation plan is the blue print to run the production

unit/operation activity of the business enterprise for optimum utilization of the soueces.

Production /oerational plan would lay down the detailed planning procedurs for the

strategies that would be utilize in runnng the operational/productionof the organi9zation.

Production & operational plan would be having dimension:-

• Plant location

• Plant layout

• Capacity planning

• Inventory Management

• Quyality management Sysdtem

• Budgeting the production plan

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(1) Plant location :

(2) Plant Layout :

(3) Capacity Planning :

The role of plant locationisvery important for the success of any

business enterprise, while choosing the business location, the following elements

should be taken into consaideration:-

Availability of raw material

Availab ility of power

Availability of labour

Proximity to the market

Climatic conditions

The cost of location

Tax holidays/ sibsidiary & loans availibility.

Plant layout is the pattern in which the space would be arranged in

order to utilize the machinery/ equipments & manpower optimally. Since it cannot be

changed easily, proper planning of the layout should be conducted.

The following variables should be kept in mind while planning the layout:-

Space is utilized properly.

There is proper light &&& ventiiilationnn in all the ares of the premises.

Smooth flow of operations can take place.

There is a flexibility to introduce changes in the future.

Supervision can be carriedout in all the dimensions with convenience.

There are provision for emergency exit.

There are provision for safe ty measures.

Cost of space, cost of pro duction dfelays, cost of movement of material from one place to

another place.

Capacity planning is the productive capability ofa facility. The

operation manager hasto planthe capacity in such a manner that the production/

operation has some degree of flexibility of expansion or reduction, depending on the

market demand.

Capacity planning should be done keeping following things in mind:-

Flexibility of flexibility of production/operation

Cost of maintaining capacity

Organisation's vision & objectives

Assessment of existing capacity.

Capacity planning can be divided into three types based on time period of which planning is

done.

Short ter capacity planning

Medium term capacity planning

Long term capacity planning.

222

Capacity planning from day to day , month to month up to a year is called short term capacity

planning. Medium term capacity planning is fromone year to five year . Long termcapacity

planning is planning operation above 5years. Major changes in capacity planning can be

introduced.

Inventory is managed for the smooth flow of work and for

making up the uncertainities in the availability of raw material & in the demand of final

goods. But keepinf inventory involves costs moreover it holds working capital & also

occupies space & therefore inventory needs to be planned. Inventory is managed at

three levels:-

The stock of raw material is kept tomeet the unforeseen hanges in the

market forces.

Inventory is managed at each level of work in progress

Inventory is also managed of the final goods.

But holding inventory involves cost & therefore inventory of only adequate amount

should be maintained at each level. There are two types fo inventories:-

The inventory ensuring availability of material at different

stages in normal condition is called normal inventory.

The inventory ensuring availability of material at the time of

uncertainty is called buffer inventory.

Quality comes first is the motto of highly

competitive & growth oriented companies. Quality is an important function of

production/ operation management. The importance of quality has improved today.

With the rising competition & wide variety of products/services the consumer have

become quality conscious. Quality is to be maintained at all the stages of production.

Budgeting the production plan is based on

following formula : Total production = sales in unit + desired ending inventory -

projected beginning inventory.

Once the production budget is prepared the other budgets like material purchase

budget, labor cost budget & factory maintenance budget can be prepared.

A marketing plan aims at panning the marketing Strategies for a

company its products or services. Marketing plan analyses the market opportunities through

market research, identifies profitable segment and Targets them through a compounded

marketing mix, strategy which involves Strategies for product price, place and promotion.All

(4) Inventory Management :

a. Raw Material :

Goods in Process Inventory:-

a. Finished Goods Inventory :

b. Normal Inventory :

c. Buffer Inventory :

5. Quality Management System :

6. Budgeting the Production Plan :

Q. Explain the concept of marketing assistance in detail.

Ans. Introduction :

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good marketing plans must evolve from and support the overall strategic plan of the

business. Marketing plan forms the backbone of any business enterprise A careful, well

crafted marketing plan is possible , if it is based on a through market research. Marketing

plan is critical element in ensuring the success of business ventureA marketing plan aims to

plan the ma4rketing strategies for a company its products or services. Based on the market

survey it identifies the strengths , weakness, opportunities and threats of the market, identify

and segments the target market and then plans the strategies for marketing mix of the

proposed business enterprise.

Marketing research is the process of collecting information of any facts relevant to

market. Market research is a systematic collection of information, its analysis and

interpretation to strategize. Some relevant business decision like whether one should enter

new markets , whether one should change premium prices, What kind of discount would be

more Attractive to the customer etc. The purpose of market research is not only to Assess

customers but also make decision in relation to the direction in which the business plan

should flow .The information collected from the market research is quite exhaustive and

hence strategic decision based on the market research can proper a business enterprise in

to a growth path.

1. Formulation Objective

2. Research design

3. Data collection and Tabulation

4. Data analysis

5. Documentation

6. Decision Making

Any business venture has limited resources and hence it can not satisfy the

needs and wants of all the customer . It is for this reason that segments are drawn.

Segmentation is the process of dividing the market/customer into similar characteristics or

behavior. for example the population of a city can be divided into toddlers, kids, teenagers,

youth, Middle age, old age. There are number of variables in which markets can be

segmented:-

When the target market is divided on the basis of population

it is called demographic segmentation. This can be further divided in to segments; such as

age segment, income segment, gender segmentation, educational qualification etc.

Segmentation that is based on lifestyle/personality of

individual is called psychographic segmentation.

When the segmentation is drawn on the basis of geographical

region it is called geographic segmentation. It can be northern, southern, western, eastern,

city or metro, urban or rural.

MARKETING RESEARCH :

Steps involved in conducting the market research are :

Segmentation :

Demographic Segmentation :

Psychographic Segmentation :

Geographic Segmentation :

224

Behavior Segmentation :

Market Targeting :

Market Evaluation :

Target Market Selection :

Single segment concentration :

Selective Specialization :

Product specialization :

Market Specialization :

Full Market Leverage :

Market Positioning :

When the segmentation is drawn on the basis of

behavior/attitude of consumer it is called behavioral segmentation. The behavior/attitude

vary on occasion, usage rate, benefits, loyalty status, buyers readiness & user status.

Market targeting is the process of evaluating various segments and

identifying the number and type of segments that the business venture would target. The

process of market targeting including following steps:-

It is the process of evaluating/assessing all the segments. This

assessment is done on the following criteria:-

Assessment of the size of each segment.

Assessment of segment growth

Companies strengths and weakness to suffice the needs of the segments.

Potential opportunities and threats from the competitors, substitutes, buyers, suppliers,

government.

After the target market evaluation is complete the company has

to decide which segments and how many segments it would target. It would depend on

several factors like economies of scale, profitability, growth, size etc. There are five patterns

available for selecting the target market.

If a company decides to concentrates on a single

segment only. Like junior horlicks is targeted only for kids.

Selecting a number of segments that are attractive.

The product that the company makes can be sold to several

segments. For example-computer.

When the organization satisfies many needs of a particular group

like big bazaar.

When the business tries to satisfy all the customers with entireproduct needs.

Market positioning can be defined as the out of projecting thecompany's product/service in such a way that if appears attractive to them. It is an imagemaking exercise which helps the company to portray to the targeted segment in such a waythat it appears attractive to the customers. The following variables should be assured forpositioning the product/services.

What image the company wants to project

The pricing strategy

The packaging of the product

Hoe competitors project themselves

The type of product

Product lifecycle

225


Developing Marketing Mix Strategies :

Product Mix Strategies :

Pricing Mix :

Promotional Mix :

Distribution Mix :

Product is anything that can be offered to a market to satisfy the needs or wants.

Products that are marketed include physical goods, services, experiences, events, places,

organizations, information and ideas. The entrepreneur has to take many decisions

regarding the product such as product mix, branding decision etc. In product mix the

entrepreneur needs to decide the length, width, depth and consistency of the product

desired. A brand decision is very important decision. A brand creates an identify of quality,

reliability and confidence for its customers. Brands have become the image building tool for

any product. Branding is the process of building, maintaining, protecting and enhancing

identify of the product.

Pricing is that element of marketing mix that produces revenue. The pricing

decisions are based on these factors such as competitors price, cost of product/services,

demand of the product, availability of raw material and overall marketing objective of the

company. Pricing strategy has been divided into following kinds:-

Markup pricing

Target return pricing

Perceived value pricing

Value pricing

Going rate pricing

Geographical pricing

Skimming pricing

Promotional mix is the process of educating consumers through various

forms of media about all or some of the following:-

Product utility

Product quality

Product price

Promotional mix helps in building brand image in the minds of end consumers. Infact, it

plays a major role in positioning the product in the market. The various types of promotional

strategies are:-

Advertising

Directing marketing

Sales promotion

Public relation

The fourth process of marketing i.e. place (distribution) is the process

through which the product is physically delivered to the customer. Most companies used

intermediaries/middlemen to deliver the goods to the final customers and these

intermediaries are called distribution channels. There are different types of distribution

channels such as retailers, wholesalers, distributors and franchises. All the marketing

226

intermediaries that participate in the final delivery of the product to the customers are called

channel levels. Let us the customers are called few channel levels.

When no intermediaries exist as in direct marketing.

Manufacture Customers

When one marketing intermediary is involved in the final delivery of the product.

Manufacture Retailer Customers

When two marketing intermediaries are involved in the final delivery of the

product.

Manufacture Distributor Retailer Customers

When three marketing intermediaries are involved in the final delivery of the

product.

Manufacture Wholesaler Distributor Retailer Customers

Economic development of a country is directly related to the level of its industrial

growth. Expansion of industry leads to greater utilization of natural resources, production of

goods & services, creation of employment opportunities & improvement in the general

standard of living.An industrial unit is like a human body.A person become sick if any part if

body affected. Similarly, an industrial unit can become sick in a minor way when only one or

some aspect of its activity is affected like when its segment like production, finance,

marketing & personnel are affected, it gets into sickness.

Industrial sickness is a universally accepted term, root causes of which is directly or

indirectly related to finance. Govt. of India, RBI term lending financial institutions,

commercial banks are worried a lot about the rising trend of sickness prevailing in Indian

industries.

Channel O :

Channel 1 :

Channel 2 :

Channel 3 :

Q. Wrire a short note on Industrial sickness and its remedial measures.

Ans.

227


Concept :

Causes :

Revival Measures & Strategies :

The sickness of a firm has been defined as the situation where the rate of return

realized on invested capital, taking risk involvement into consideration, is significantly &

continuously less than the prevailing rates on similar investment. In other words we can say

that it is situation where the revenues of a firm are insufficient to meet the costs & the

average rate of return on investment is less than the firm's cost of capital.

Asick unit is unhealthy unit to common men, a dividend postponing unit to investors, a

losing or discouraging unit to industrialists, a doubtful debtor & a weak borrower to creditors

& bankers, an industrial problem unit to the govt., a victim of technological changes to

technicrats, a bad employer to workers & great wastage of technical & human resources to

the country.

To ascertaining the symptoms of the disease of industrial sickness. (a) the rate of

return on investment & capital cash flow, (b) ability to meet soci- economic obligation, (c)

capacity to redeem its debts,(d) Profitability, (e) ability to face competition, (f) ability to

acquire share in the market. etc are taken into account.

Factors causing industrial sickness can broadly be divided into two main categories:-

Internal cause

External cause

a. Internal causes are the factors which are within the control of the management of a

management of a unit.

b. The external are the factors which affect industrial group as a whole, and on these, the

industrial unit has no direct control.

Efforts have been made ti unearth various factors responsible for causing industrial

sickness in the country. Of the various factor the significany to quote are mis management or

inefficient management, non availability of quality raw material at right price & at right time,

power shortage, defective planningat initial stages, lack of marketing expertise, etc. Beside,

there are other factors which are equally responsible for industrial sickness. These may be

as wrong industrial location, improper estimation of capital cost, delays & cost escalation,

improper formation of inventory needs, marketing of finished goods at lower credit terms,

labour unrest, poor maintainance of plant & machinery, higher overhead expenses, demand

recession. Lack of research & development. Inadequate investment for modernization &

renovation& procedures delay in sanctioning loans by commercial banks & other

institutional agencies.

Sickness in small scale industriesis not confirmed to a particular product, state or

region. It is, more or less, uniformally spread over all states & regions, & thus a national

228

problem.Process of solution to this problem involves in two process:-

Identify th sickness in a unitas early as possible & to analyse & diagnosis its causes Nurse

the unit immediately with appropriate remedial measures with aview to turnaround the sick

unit to an economically viable one. Turnaround here means a substantial & sustained

positive change in the performance of the business entity.

Commercial banks & financial institution can detect the symptoms of sicknes through

periodical progress report including financial statement, stock statement & return under

periodical information system, plant visit, personnel discussion, report fron nominee

directors, etc. Guidelines have been issued by the RBI so that banks can analyse & interpret

the information received from assisted unit & test check their health.Similarly , the

establishment of management information system within the industrial unit will help its

management to detect the symptoms of the sickness & forward it to adopt remedial

measures.

A number of development institutions have been setup to support entrepreneurs.With

a view to prevent sickness particularly in SSI, Some of the institutions have been setup to

support entrepreneurs. Some of the institutions assisting entrepreneur include District

Industries Centres(DICs) and Industrial Estate, Small Industries Development

Organisation(SIDO) Small Scale Industries Service Institutes(SISI),Small Industry

Development Corporation(SIDCO),Entrepreneurial Guidance Bureau(EGB), National

Alliance of young Entrepreneurs(NAYE), National Productivity Council)and Venture capital

funds(VCF).In addition, all India financial institutions-IDBI,IFCI,ICICI-have promoted a

number of Technical Consultance Organisations(TCOs) to assist small entrepreneur in

different ways . Recently ,the Small Industries Development Bank of India(SIDBI) has been

setup to help small scale units.

To sum up ,the incidence of industrial sickness in general and in small industrial units,

in particular can be reduced if all the concerns(i.e,owner ,banker, labourers, ,management

financial institutions,government,etc.)make a concerted effort to study the causes of and

cures through their temporary sacrifices with a sense of dedication and belongingness.

A project report helps to understand the opportunities, problems And

weakness of the business. It guides the entrepreneur in actually starting up and running the

business venture.it help him to monitor whether the business is growing as was projected in

the business plan or note .It help in documenting the cost estimates of the business.it can be

used as a handy tool to persuade investors and financial institution to fund the project .it can

help in proper utilization of all the resources .it can keep the morale of employees owners

and investors up .it can finally lead to a sustainable development of the organization.

1. The project report should be sequentially arranged.

2. The project report should be covering all the details about the proposed project.

Q. Describe the preparations of the project report?and what is essential for good

project report.

Ans. Introduction :

Essential of a Project Report :

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3. The project report should not be very lengthy an subjective.

4 The projections should be appropriately be made from two ten years.

5. The project report should justify the financial needs and financial projection.

6. The project report should also justify market prospects and demands.

7. The project report should be attractive to the financial agencies and investors.

8. The project report should also have a high aesthetic value.

Cover sheet is like the cover pages of the book .it mentions the name of

the project ,address of the promoters.

The table of contents is like the table of contents of content

of a book .it guides the person reviewing the project report to the desired section

quickly.a good methodology would be to divide the project report into section and

number or label the section like 1,2,3,or a,b,c;

Executive summary is the first impression about the

business personal as the saying goes the first impression is the last impression a

careful presentation of information should be done to attract the more then two or three

pages .

This will give details about the business concept. it will discuss the

objective of the business a brief history about the past performance of the company,

what would be the form of ownership. It would also label the address of the proposed

headquarters.

The investors & financial institutions are one of the key

bodies examining the project report & it is one of the primary objectives of preparing

the project report, a careful, well- planned funding requirement should be

documented. It is also necessary to project how these requirements would be fulfilled.

A brief description of product/services is given in this sub

section. It includes the key features of product & the product range that would be

provided to the customers. It also gives details about the patents, trademarks

copyrights, franchises & licensing agreements.

Now t he functional plans for marketing, finance, human resources &

operations are to be drawn.

Marketing ix strategies are to be drawn based on the marketresearch. The market research provide information regarding the taste, needs,habbit of the customer market research is the backbone of success & failure ofany product in the market. Based on the information collected through marketresearch marketing mix strategies for product/ services, prices, promotion &distribution are prepared. The budget for the marketing plan are drawn at theend.

Format of a Project Report :

1. Cover Sheet :

2. TABLE OF CONTENTS :

3. EXECUTIVE SUMMARY :

4 THE BUSINESS :

5. Funding Requirement :

6. The Product of Services :

7. The Plan :

a. Marketing Plan :

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b. Operational Plan :

c. Organization Plan :

d.

8. Critical Risks :

9. Exit Strategy :

10. Appendix :

The operational plan would give information about plant

location & plant layout. When we choose a particular location so many factors

should be considered such as market suppliers, labour, transport facilities,

power supply, govt. etc. Plant layout is mentioned in the project report to

provide a pattern of mgt. of the organization & would indicate the exhaustive

planning for the business. Finally the budget for operational plan is drawn.

The organization plan indicate the pattern of flow of

responsibilities & duties amongst people in the organization it provides details

about the boards of directors, it can also enlist the manpower plan that would be

required to put life into the company & it would be required to put life into the

company & it would also enlist the details about the laws that would be

goverened in managing the employees of the organization. In the end the

organization plan is also budgeted.

The financial planis drawn for two or five years for an existing company. A

summary of previous financial data is given whereas for a new organization the

following projection are drawn-

1. Projected sales

2. Projected income & expenditure statement.

3. Projected break even point

4. Projected profit & loss statement

5. Projected balance sheet

6. Projected cqash flows.

7. Projected fund flows.

8. Projected ratios.

The investors are interested in knowing the tentative risks. To evaluate

the viability of the project & to measure the risks invo0lved in the business. This can

further give confidence to the investors as they can calculate the risks involved in the

business from their perspective as well.

The exit strategies would provide details about how the organization

would be dissolved,what would be the share of each stakeholder in case of winding up

of the organization. It further helps in measuring the risks involved in investing.

The appendix can provide information about the curriculum vitae of the

owners, ownership agreement, certificate from pollution board, Memorandum of

understanding, article of association & all the supporting agreements/documents that

can help in marketing the project viability at large.

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JAN 2009

UNIT - I

JULY 2008

1. Entrepreneurs are made not born’ Comment and discuss the types and traits of

Entrepreneurs.

2. Difine Entrepreneur. Discuss the role and significance of Entrepreneurs in the

economic development of India.

1. Explain the various Competing Theories of Entrepreneurship. What is the significance

of these theories?

2. Define the small scale Industry. Discuss the policy of government towards SSI

DURING POST LIBERALISATION period

1. Define Innovation. Distinguish between innovation and entrepreneurship. How are

innovations important in new economy?

2. Write short notes on :

(a) Achievement motivation

(b) Entrepreneurial success in rural areas

1. What are the various sources of getting business ideas? How do entrepreneurs

process business ideas?

2. What are the main causes for industrial sicknes? Discuss the various methods to solve

the problem of industrial sickness in India.

1. Define Entrepreneur. What are the qualities and characteristics of an entrepreneur?

2. Explain the role and significance of entrepreneurs in the economic development of a

country like India.

1. Discuss the evolution and objectives of Entrepreneurship Development Programmes

in India. How far these programmes are effective?

UNIT - II

UNIT - III

UNIT - IV

UNIT - I

UNIT - II

Past Year Question Papers


232

2. Explain the current policy of the Government towards Small Scale Industry (SSI).

What is the future of SSIs in India?

1. What isAchievenment Motivation? How is it getting promoted?

2. Criticall examine the entrepreneurial growth in rural sector in India. What steps should

be taken for its growth in rural India?

1. What are the factors that determine fixed and working capital requirments of a

business? Discuss the major sources of financing these rquirements.

2. Write short notes on :

(a) Causes of industrial sickness

(b) Types of feasibility studies

1. Define Entrepreneurship. Discuss the role of entrepreneurship development in the

economic development of a country.

2. “Entrepreneurs are made,not born.” Comment, and explain the qualities of an

entrepreneur.

1. What do you mean by EDPs? Explain the need for and objectives of EDPs in modern

organizations.

2. Critically examine government policy towards SSIs after post reform period.

1. What isAchievement Motivation? How can achievement motivation be developed?

2. What is meant by Innovation? Discuss the relationship between innovation and

entrepreneurs.

1. How will you prepare the feasibility report of an industrial unit? What type of legal and

documentation formalities are required for this purpose?

2. Write notes on the following :

(a) Maketing assistance in business

(b) Method of assessing working capitalrequirements

1. Who is an Entrepreneur? Discuss the characteristics and qualities of a good

entrepreneur.

UNIT - III

UNIT - IV

UNIT - I

UNIT - II

UNIT- III

UNIT - IV

UNIT - I

JAN 2008

JAN 2007

233


2. “The primary objective of developing countries like India is to achieve rapid, balanced

and sustained rate of economic growth”. In light of above statement explain the role

and importance of the Entrepreneurs.

1. Discuss the role of government with regards to regulatory framework for encouraging

development of entrepreeurship.

2. “Entrepreneurship development through training is a useful method for creating a

strong base for the country”. Discuss.

1. Describe the entrepreneurial success mode in the rural areas in the recent developing

era.

2. How an entrepreneurial systme is established in an economy? Suggest a model for

the same.

1. “Choosing an idea is quite difficult and the entrepreneur has to weight objectively his

intrisic capabilities in finalizing an idea.” Explain.

2. Discuss how entrepreneur can encourage personal service for customers and why it is

important to do so?

UNIT - II

UNIT - III

UNIT - IV

234

Investor Relations

Entrepreneurial development