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  • 1. SYLLABUSENTREPRENEURIAL DEVELOPMENT MBA–4th SEMESTER, M.D.U., ROHTAK External Marks : 70 Internal Marks : 30 Time : 3 hrs. UNIT - IEntrepreneurial traits, types and significance; definitions, characteristics ofentrepreneurial types, qualities and functions of entrepreneurs, role and importance ofentrepreneurs in economic growth. UNIT - IICompeting theories of entrepreneurship; entrepreneurial development programme inIndia - history, support, objectives, stages of performances; planning and EDP -objectives. target group, selection of centre, pre-training work; govt. policy towardsSSI’s; entrepreneurial input. UNIT - IIIEntrepreneurial behaviour and entrepreneurial motivation; n-achievement andmanagement success, entrepreneurial success in rural areas; innovation andentrepreneur; establishing entrepreneurs system. UNIT - IVSearch for business idea, sources of ideas, idea processing, input requirments : sourcesand criteria of financing, fixed and working capital assessment; technical assistance;marketing assistance; sickness of units and remedial assistance; preparation offeasibility reports and legal formalities and documentation. 169
  • 2. ENTREPRENEURIAL DEVELOPMENT MBA 4th Semester (DDE) UNIT – IQ. Define Entrepreneur. Explain the Characteristics of An Entrepreneur.Ans. Meaning of Entrepreneur : An Entrepreneur is a person who perceives a need andthen brings together manpower, material and capital required to meet that need. In otherwords an entrepreneur is an individual or team that identifies the opportunity, gathers thenecessary resources, creates and ultimately responsible for the performance of theorganization. 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 aloneor in collaboration with his friends. His motive is to earn profit through the production ordistribution of goods or services. Adventurism, willingness to face risks, innovative urge andcreative power are the inborn qualities of entrepreneurship. Entrepreneurship can also beexplained as a process of executing a work in a new and better way. Organisation Urge Inovation Skill Risk Vision Enterprise Growth Management Diagram : Basics of An Entrepreneur 170
  • 3. ENTREPRENEURIAL DEVELOPMENTDefinition of Entrepreneur :According to Harbison "An entrepreneur is not an innovation but an organization builder or one who has theskill to build an organization and who must be able to harness the new ideas of differentinnovators 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 ofentrepreneurs, the means by which they exploit change as an opportunity for a differentbusiness or service.Characteristics of an Entrepreneur :(1) Vision : An entrepreneur has a dream and he visualizes the ways and means to achieve dream. In doing so he visualizes : Ø Market Demands Ø Soicio-Economic Ø Technological Environment And then based on these dynamic, he visualizes a future for his business venture.(2) Knowledge : An entrepreneur has full knowledge about all the technicalities of his business- be it technological, operational, financial or matket dynamic.(3) Desire to succeed : 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.(4) Independence : An entrepreneur needs independence in work and decision-making. They dont follow the rules of thumb but make their own rules and destiny.(5) Optimism : Entrepreneurs are highly optimistic about achieving their vision.(6) Value Addition : 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.(7) Leadership : 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.(8) Hardworking : 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.(9) Risk-Taking Ability : 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. 171
  • 4. Q. Define Entrepreneurship. Discuss the main Entrepreneurship Traits.Ans. Meaning of Entrepreneurship : Entrepreneurship refers to a process of action anentrepreneur undertakes to establish his enterprise. It is a creative and innovative responseto 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 turnbrings prosperity to the innovator and his organization.Definition :B. Higgins, in his book "The economic Development" has said. "Entrepreneurship is meantthe function of seeking investment and production opportunity, organizing an enterprise toundertake a new production process, raising capital, hiring labour, arranging the supply ofraw materials, finding site, introducing a new technique and commodities, discovering newsources of raw materials and selecting top managers of day to day operations of theenterprise."Concept of Entrepreneurship : Concept of entrepreneurship can be explained with thehelp of following diagram Entrepreneur Entrepreneurship Enterprise Person Process of Action Object Concept of EntrepreneurshipCharacteristics of Entrepreneurship : The characteristics of entrepreneurship are: Decision Strong desire to Construction reap benefits Skill Innovative Economic Urge Activity Entrepreneurship Management Gap-Filing Skill Function Leadership Dynamic Risk-Bearing Quality Process 172
  • 5. ENTREPRENEURIAL DEVELOPMENTEntrepreneurship Traits : A successful entrepreneur must possess the following traits:(1) Mental Ability : 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.(2) Clear Objectives : 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.(3) Business Secrecy : 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.(4) Human Relations Ability : 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.(5) Effective Communication : 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.(6) Technical Knowledge : The entrepreneurs are dealing with situations where sophisticated technology is involved. The entrepreneur must have a reasonable level of technical knowledge.(7) Decision-Making : 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.(8) Risk-Bearing : No risk, no business or no risk, no gains. Risk is an inherent and inseparable element of entrepreneurship. He assumes the uncertainty of future.(9) Self-Confidence : 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: Technical Self Human Knowledge Confidence Relation Abilitv Business Clear Enterpreneurial Secrecy Objectives Traits Effective Decision Risk Mental Communication Making Bearing Ability 173
  • 6. Q. Explain the Types of Entrepreneur.Ans. Meaning of Entrepreneur : An Entrepreneur is a person who perceives a need andthen brings together manpower, material and capital required to meet that need. In otherwords an entrepreneur is an individual or team that identifies the opportunity, gathers thenecessary resources, creates and ultimately responsible for the performance of theorganization.Types of Entrepreneur : Types of entrepreneur are:(A) Classification on the Basis of Ownership :(1) Founder or "Pure Entrepreneurs" : 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. Example : Dhirubhai Ambani of the Reliance Group.(2) Second-generation operators of family-owned business : They are individuals who have inherited the business from their fathers and forefathers. Example : Like Mukesh Ambani and Anil Ambani sons of Dhirubhai Ambani of the Reliance Group now split into two: Reliance Industries Limited and Reliance-Anil Dhirubhai Ambani Group.(3) Franchisees : 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. Example : NIIT has given its franchisee operations to local players after thorough scrutiny and proper training.(4) Owner-Manager : When a person buys a business from the founder and then invests his time and resources in it he is called the owner-manager. Example : Like Sabeer Bhatia is the founder entrepreneur of Hotmail.(B) Classification on the basis of Personality Traits and their style of running the business :(1) The Achiever : 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.(2) The Induced Entrepreneur : These types of entrepreneurs are induced by some external factors to start a business. The external factors could be like: Ø Government Policies Ø Unemployment Ø Family Support Ø Facilitating Institutional Support etc. 174
  • 7. ENTREPRENEURIAL DEVELOPMENT(3) The Idea Generator : 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.(4) The Real Manager : 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.(5) The Real Achievers : 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.(C) Classification based on the type of Business :(1) Industrial Entrepreneur : 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.(2) Trading Entrepreneurs : 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.(3) Corporate Entrepreneur : 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.(4) Agricultural Entrepreneur : Agricultural entrepreneurs are those entrepreneurs who undertake business related to agricultural activities. Like farm equipments, fertilizers and other inputs of agriculture.(D) Classification on the Stages of Development :(1) First Generation Entrepreneur : 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.(2) Modern Entrepreneur : 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.(3) Classical Entrepreneur : 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.(E) Other :(1) Innovative Entrepreneur : 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. 175
  • 8. (2) Imitative Entrepreneurs : Imitative entrepreneur adapt a successful innovation. They are risk-aversive and so they do not try out new ideas or products.(3) Drone Entrepreneurs : Drone entrepreneurs are not open to creativity and change. They do not like changing the working of organizations with the changing times.(4) Copreneurs : When both husband and wife together start and run a business venture then they are called copreneurs.Q. Explain the qualities and functions of the entrepreneursAns. Meaning of Entrepreneur : An Entrepreneur is a person who perceives a need andthen brings together manpower, material and capital required to meet that need. In otherwords an entrepreneur is an individual or team that identifies the opportunity, gathers thenecessary resources, creates and ultimately responsible for the performance of theorganization.Qualities of An Entrepreneur : An entrepreneur is a person who takes risk of setting up hisown 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 entrepreneurmust have following qualities:-1. Planner : 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.2. Technician : An entrepreneur must have the technical knowledge. He should know that how to use the resources and achieve the target.3. Risk Bearing Ability : Risk is very important element. An entrepreneur must have capacity to bearing risk an entrepreneur cannot success.4. Decision Maker : 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.5. Ability to Find and Explore Opportunities : Entrepreneurial persons are quick to see and seize opportunities. They show an innovative turn of mind and convert difficulties into opportunities.6. Motivator : 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.7. Future Oriented : Entrepreneur shows a high level of future orientation. They do not allow the past to obsess them. They are oriented towards present and future.8. Interpersonal Skills : 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. 176
  • 9. ENTREPRENEURIAL DEVELOPMENT9. Facing Uncertainty : 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.10. Coordination : 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.Functions of Entrepreneur : An entrepreneur has to perform the following function:1. Risk taking and Uncertainty Bearing : 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.2. Taking Business Decisions : 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.3. Managerial Functions : 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.4. Innovation : 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.5. Coordination : 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.6. Maintain Good-Relations : 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.7. Analysis the Environment : An entrepreneur analysis the environment. Environment are those factor which affect the business. There are two type of environment: Ø Internal Environment : Internal environment are controllable Ø External Environment : External environment are beyond the control of the business.8. Planning : 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. 177
  • 10. 9. Utilizes the Resources : 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.Q. Explain the Role and Importance of Entrepreneur in Economic Growth.Ans. Meaning of Entrepreneur : An Entrepreneur is a person who perceives a need andthen brings together manpower, material and capital required to meet that need. In otherwords an entrepreneur is an individual or team that identifies the opportunity, gathers thenecessary resources, creates and ultimately responsible for the performance of theorganization.Role of Entrepreneur in Economic Growth : The position of the entrepreneur in modernproduction is like that of the director of a play. Modern economic development is closelylinked with production. Modern production is higher complex. The entrepreneur directsproduction and he must do whatever is necessary for its success. His role in moderneconomic 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.Importance of Entrepreneur in Economic Development : Every country tries to achievemaximum economic development. The economic development of a country to a large extentdepends on human resources. But human resource alone will not produce economicdevelopment-there must be dynamic entrepreneurs. Importances of entrepreneurs ineconomic development are: 178
  • 11. ENTREPRENEURIAL DEVELOPMENT(1) Employment Generation : 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.(2) National Income : 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.(3) Dispersal of Economic Power : 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.(4) Balance Regional Development : 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.(5) Economic Independence : 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.(6) Reducing Unrest and Social Tension Amongst Youth : 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. 179
  • 12. (7) Improvement in Living Standards : 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.(8) Harnessing Locally Available Resources and Entrepreneurship : 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.(9) Innovations in Enterprises : 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. 180
  • 13. ENTREPRENEURIAL DEVELOPMENT ENTREPRENEUR DEVELOPMENT MBA 1st Semester (DDE) MBA 1st Semester (DDE) UNIT – IIQ. Explain the Theories of An Entrepreneurship.Ans. Meaning of Entrepreneurship : Entrepreneurship refers to a process of action anentrepreneur undertakes to establish his enterprise. It is a creative and innovative responseto 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 turnbrings prosperity to the innovator and his organization.Theory of Entrepreneurship : Main theories of entrepreneurship are summarized asfollows:(1) Entrepreneurship : 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.According to Schumpeter(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. 181
  • 14. (2) Entrepreneurship : 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, Harbisons 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) Harbisons definition of entrepreneurship lays more stress on the managerial skills and creativity so far as organisation is concerned.(3) Entrepreneurship : 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: Ø The merchant money lender type Ø The managerial type Ø The entrepreneur type.(4) Entrepreneurship : 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.(5) Entrepreneurship : 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. 182
  • 15. ENTREPRENEURIAL DEVELOPMENT (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.(6) Entrepreneurship : 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.(7) Entrepreneurship : A Function 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
  • 16. Ans. Meaning of Entrepreneurial Development Programme (EDPs) : Entrepreneurialdevelopment programme means a programme designed to help a person in strengthing hisentrepreneurial motive and in acquiring skills and capabilities necessary for playing hisentrepreneurial role effectively. It is very necessary to promote his understanding to motives,motivation pattern, their impact on behaviour and entrepreneurial value. A programmewhich seeks to do this can qualify to be called as EDP. In other words A EDP is primarily concerned with developing and motivatingentrepreneurial talent and growing him to be an effective entrepreneur. An entrepreneurmake use of the factors of production to the fullest advantage of the society, createinnovations, generate employment, improve the standard of living of people, developbackward areas etc. EDP has an important role to play in solving the unemploymentproblem.Objectives or Need of EDPs :(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 developmentprogramme consists of three broad phases:(A) Initial or Pre-Training Phase : 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 entrepreneursand providing initial motivation to them. 184
  • 17. ENTREPRENEURIAL DEVELOPMENTSelection of potential entrepreneurs has two essential components :1. Identifying Entrepreneurial Traits : Every participant must have a minimum level of eligibility for developing into an entrepreneur. Entrepreneurial traits include socio- personal and human re-sources characteristics: (a) Socio-Personal Characteristics : The most common socio-personal characteristics are: (i) Caste and Family Background : Caste and family background help create entrepreneurial environment and occupational awareness for the entrepreneurs. (ii) Age : Studies have revealed that younger people are more successful entrepreneur. (iii) Education : A minimum level of education is essential to perform functions like meeting officials etc. (iv) Size and Type of Family : The size of the family and the entrepreneurs status in the family are important. (v) Working Hands : A small entrepreneur has generally to depend upon family members as he cannot afford to hire workers. (b) Human Resource Factors : These are: (i) Achievement Motivation : It is the urge to improve one-self in relation to a goal. (ii) Risk Taking Willingness : It refers to seeking challenge in ones activity. (iii) Influence Motivation : It has been defined as the desire for influencing other people and surrounding environment. (iv) Personal Efficacy : It has been defined as the general sense of adequacy in a person.2. Identification of Enterprise : 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.(B) Training or Development Phase : 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 pursuits. A trainer 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? 185
  • 18. (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?Content of Training Programme : The main training inputs are as follows: (i) Technical Knowledge : 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. (ii) Achievement Motivation Training : 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. (iii) Market Survey : The participants should be given opportunity to actually conduct market surveys for their chosen project. (iv) Managerial Skill : 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. (v) Project Preparation : 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.(C) Post Training or Follow-Up Phase : 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) A history 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. 186
  • 19. ENTREPRENEURIAL DEVELOPMENT(5) Visiting every entrepreneur periodically.(6) Follow up meeting and a follow up register to ensure the success of the entrepreneurial development programme.Q. Explain the Entrepreneurial Development Programme in India.Ans. Institutions Conducting EDPs in India : Some of the major institutions for EDPs in India are as follows:(1) Entrepreneurial Development Institute of India : 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.(2) National Institute for entrepreneurship and small Business Development (NIESBUD) : 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.(3) Xavier Institute of Social Services, Ranchi : 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: 187
  • 20. (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.(4) Madhya Pradesh Consultancy Organization Ltd. : 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.(5) Calcutta "Y" Self Employment Centre : 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.(6) Technical Consultancy Organizations (TCOs) : 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.Q. Write a short note on Target Group.Ans. In an entrepreneurial development programmes, the target group refers to the groupof the persons for whom the programmes is design and undertaken. Every target group hasits own needs and constraints. Therefore, the programmes designed for one group might be 188
  • 21. ENTREPRENEURIAL DEVELOPMENTinappropriate for others groups. Before the programmes is designed and started the targetgroup to be trained must be clearly defined. An executive development programmes may beorganized for any one of the following target groups:-1. Technical and other qualified Persons : 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.2. Ex- Serviceman : 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.3. Business Executives : 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.4. Women 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.5. S.C and S. T Entrepreneurs : 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.6. Special agencies and Schemes : The government of India has been established specialized agencies for training entrepreneurs. Special schemes have also been launched to train, develop and assist entrepreneurs.Q. Explain the Government Policy towards Small-Scale Industries (SSIs).Ans. Government Policy : An Effort to Strengthen the Small-Scale Industries in IndiaThe government of India for the first time tabled the new small enterprise policy in titledPolicy Measures for Promoting and Strengthening and Supplementing Small, Tiny andVillage Enterprise, in Parliament on August 6, 1991. The main thrust of the new small 189
  • 22. enterprise policy was to impart more vitality and growth impetus to the sector to enable it tocontribute its mite fully to the economy, particularly in terms of growth of output, employmentand exports. The sector had been substantially licensed and concerted efforts were made toregulate and debureaucratize the sector with a view to remove all fetters on its growthpotential on the one hand and reposing greater faith in small and new enterprises on theother.The salient features of the price policy were :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.Taxation Benefits : Boon for the Growth of SSI(1) Need for tax benefits : 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 Murphys 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 190
  • 23. ENTREPRENEURIAL DEVELOPMENT 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.(2) Tax Holidays : 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.(3) Depreciation : Under section 32 of the Income Tax Act, 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 assessees 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-Tax Act, 1961.(4) Rehabilitation Allowance : 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: 191
  • 24. (i) Flood, Cyclone, earthquake or other natural upheavals. (ii) Riot or civil disturbance Accident 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 units 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.(5) Investment Allowance : 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.(6) Expenditure on Scientific Research : 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.(7) Greater Attention on TQM in Small Enterprise : 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. 192
  • 25. ENTREPRENEURIAL DEVELOPMENT 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.Q. Write a note on Entrepreneurial Input.Ans. Entrepreneurial Input : Various entrepreneurial inputs influencing theentrepreneurship are as follows:(A) Economic Inputs : Economic environment exercises the most direct and immediate influence on entrepreneurship. The economic factors that affect the growth of entrepreneurship are the following:(1) Capital : 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.(2) Labour : 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.(3) Raw Material : The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and its influence in the emergence of 193
  • 26. 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.(4) Market : 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.(5) Infrastructure : 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.(B) Social Inputs : 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:(1) Caste Factor : 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: Ø The Brahmana (Priest) Ø The Kshatriya (Warrior) Ø The Vaishya (Trade) Ø 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.(2) Family Background : 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.(3) Education : 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. 194
  • 27. ENTREPRENEURIAL DEVELOPMENT(4) Attitude of the Society : A related 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.(5) Cultural Values : 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.(C) Psychological Inputs : Many entrepreneurial theorists have propounded theories of entrepreneurship that concentrate especially upon psychological factors. These are as follows:(1) Need Achievement : 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.(2) Withdrawal of Status Respect : 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: (a) Retreatist : He who continues to work in a society but remains different to his work and position; 195
  • 28. (b) Ritualist : 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; (c) Reformist : He is a person who foments a rebellion and attempts to establish a new society; and (d) Innovator : He is a creative individual and is likely to be an entrepreneur.(3) Motives : 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, persons 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.(4) Others : 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 Type A behavior in all their endeavors. 196
  • 29. ENTREPRENEURIAL DEVELOPMENT MBA 1st Semester (DDE) UNIT – IIIQ. Explain that key to entrepreneurial behaviour is entreprenurial motivation.Ans. Psychology can be distinguished from other behavioral sciencesby its emphasis onthe behavior of the individual person. Behavior, in turn is influenced by the way in which theexternal world is represented in the mind, and by the individuals exercise of choice.followingare the points which explains that how entrepreneurial motivation influences entrepreneurialbehavior.1. NEED FOR ACHIEVEMENT David McCelland has developed an Achievement Motivation Theory in the early1960.According to this theory an individuals need for achievement refers to the need forpersonal accomplishment .It is the drive to excel , to strive for success and to achieve inrelation to a set of standards. People with high achievement motive like to take calculatedrisk and want to win. They like to take personal responsibility for solving problems and wantto know how well they are doing . High achievers are not motivated by money . Such peoplestrive for personal achievement rather than the rewards of success. They want to dosomething better and more more efficiently than it has done before . This drive is theachievement need (n-ach) .From the researches into the area of achievement needMcCelland found that high achievers differtiate themselves from others by their desire to dothings better. They seek situations where they can attain personal responsibility for findingsolutions to problems , where they can receive rapid feedback on their performance so theycan set moderately challenging goals . High achievers are not gamblers, they dislikesucceeding by chance. They prefer the challenge of working at a problem and accepting thepersonal responsibility for success or failure, rather than leaving the outcome to chance orthe actions of others.The following psychological factors contribute entrepreneurial motivation:-1. Need for achievement through self study, goal setting and interpersonal support2. Keen interest in situations involving moderate risk.3. Desire for taking personal responsibility.4. Concrete measures of task performance. 197
  • 30. 5. Anticipation of future possibilities.6. Energetic or novel instrumental activity.7. Organisational skill2. LOCUS OF CONTROL Closely related to the concept of a high need for achievement is the belief in an internallocus of control. Individuals who are reluctant in believing in their ability to control theenvironment though their actions, would also be expected to be reluctant to assume therisks that starting a business entails Rotter (1966, as cited in Chell, Haworth and Brearley, 1991) developed the notion ofcontrol of reinforcement reinforcement /re·in·force·ment/ (-in-fors´ment) in behavioralscience, the presentation of a stimulus following a response that increases the frequency ofsubsequent responses, whether positive to desirable events, or as part of a wider sociallearning theory of personality. Rotter believed that the need for achievement is related to thebelief of internal locus of control. People with an internal locus of control are thoseindividuals who also believe themselves to be in control of their destiny (Chell, andcolleagues, 1991). In contrast, people with an external locus of control sense that fate, in theform of chance events outside their control, or powerful people, has a dominating influenceover their lives (Chell and Colleagues, 1991). Rotter hypothesized that individuals withinternal beliefs would more likely strive for achievement than would individuals with externalbeliefs.3. RISK TAKING Risk bearing is a prime factor in the entrepreneurial character and function. Inparticular, Hull and colleagues (1980) found that the personality characteristics mostimportant in identifying entrepreneurial types of individuals are (1) functional taskpreference 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 psychicwell being. The level of uncertainty involved in an entrepreneurial venture indicates thatindividuals drawn to such lines of business will possess a certain level of risk takingpropensity.4. VALUES Any consideration of personality characteristics of the entrepreneur must entailrestriction 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 causedby equal inheritance by all the heirs and by the ordinary an examination of their valuesystems. Value orientation- the principles of right and wrong that are accepted by anindividual or a social group; "the Puritan ethic"; "a person with old-fashioned values" ethic,moral principle, value-system 198
  • 31. ENTREPRENEURIAL DEVELOPMENT One of the major studies of personal values of entrepreneurs was done by Hornadayand Aboud (1971, as cited by Sexton and Smilor, 1982). The researchers found thatentrepreneurs scored significantly higher than the general population reflecting the need forachievement, Thus it is concluded that values may be effective in distinguishing successfulentrepreneurs from the general population.5. PROBLEM SOLVING STYLE AND INNOVATIVENESS Gartner (1989) refers to innovation as the central value of the entrepreneurialbehavior, since it is successfully taking an idea or invention to market. Innovation andproblem solving capabilities are expected to be the core of the entrepreneurial capability ofan entrepreneur. But the level of innovation is dependent upon the entrepreneurs formaleducation and managerial experience. Their study of 184 firms in the Midwest showed acorrelation between a higher level of managerial experience and more years of educationwith a higher level of innovationQ. Discuss that n- achievement theory of motivation is the key to management success.Ans. Introduction : David McCelland has developed an Achievement Motivation Theoryin the early 1960.According to this theory an individuals need for achievement refers to theneed for personal accomplishment .It is the drive to excel , to strive for success and toachieve in relation to a set of standards. People with high achievement motive like to takecalculated risk and want to win. They like to take personal responsibility for solving problemsand want to know how well they are doing . High achievers are not motivated by money . Such people strive for personalachievement rather than the rewards of success. They want to do something better andmore 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 highachievers differtiate themselves from others by their desire to do things better. They seeksituations where they can attain personal responsibility for finding solutions to problems ,where they can receive rapid feedback on their performance so they can set moderatelychallenging goals . High achievers are not gamblers, they dislike succeeding by chance. They prefer thechallenge of working at a problem and accepting the personal responsibility for success orfailure, rather than leaving the outcome to chance or the actions of others.The following psychological factors contribute entrepreneurial motivation :1. Need for achievement through self study, goal setting and interpersonal support2. Keen interest in situations involving moderate risk.3. Desire for taking personal responsibility. 199
  • 32. 4. Concrete measures of task performance.5. Anticipation of future possibilities.6. Energetic or novel instrumental activity.7. Organisational skill The researchers have criticized McClellands achievement motivation theory ofentrepreneurs over the last three decadOes. Most notably, Brockhaus (1982, as cited inSexton and Smilor, 1986) questioned the predictive power. The predictive power of ascientific theory refers to its ability to generate testable predictions. Theories with strongpredictive power are highly valued, because the predictions can often encourage thefalsification of the theory. of the theory. The author has pointed out that McClellandsempirical research did not directly connect need for achievement with the decision to ownand manage a business. Other criticisms of McClellands achievement motivation theory on entrepreneurs lookat 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 .Insome cultures, failure is seen as a positive learning experience, while in others it has acertain negative stigma There is however some empirical support for the idea that entrepreneurs have ahigher motive to achieve compared to non-entrepreneurs. Begley (1995) and Hornaday andAboud (1971) consistently found that the achievement motivation exists as a stablecharacteristic and is more prevalent among entrepreneurs when compared to others.Q. Explain the concept of entrepreneurial success in rural area in detail.Ans. The traditional approach to rural development was top-down meaning that centraldevelopment authorities designed programmes which brought in infrastructure, humancapital and investment from outside the rural community. While the investment ininfrastructure and extension services was clearly beneficial in attracting basic commercialactivities and increasing the quality of life in rural areas, it did not necessarily provide a longterm 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 frombelow. It stressed the importance of community development based on localentrepreneurial initiatives, with the explicit goal to ensure balanced technologicaldevelopment of rural areas which would offer adequate employment opportunities and aquality of life comparable to urban areas. This approach assumes that the development ofrural areas is based on stimulating local entrepreneurial talent and subsequent growth ofindigenous companies. Specifically, to accelerate economic development in a rural area, itis necessary to increase the supply of entrepreneurs that is to build up the critical mass offirst generation entrepreneurs who will take risks and accept the uncertainties of new 200
  • 33. ENTREPRENEURIAL DEVELOPMENTventure creation and who will by their example stimulate an autonomous entrepreneurialprocess thereby ensuring continuous rural development. To support such development, thecommunity must develop links among key institutions, a vibrant entrepreneurial spirit and acommitment and dedication to risk taking and risk sharing. following are the requirements ofentrepreneurial success in rural area:Public-private institutions partnership One of the principal challenges of economic development of rural areas is thedevelopment of a socio-economic environment that would be attractive to people. To meet this challenge, all available and hidden development potential of the localcommunity must be mobilised. This in turn requires an environment favourable toentrepreneurship which a community basically can create in two ways. First, the communityshould utilise all the available incentives provided by the government to stimulate thedevelopment of economically depressed areas. These incentives usually includefavourable investment conditions, low interest rates, tax concessions, guarantees, exportsubsidies, employment provisions, subsidies on public utility charges and the like. Second, the community should create and foster the development of institutions and avariety of partnerships to support local development. As experience shows, personal andorganizational networks are very effective in achieving broad and fast growing regionaleconomic development. Today we are witnessing many examples of institutional developments that arefostering businesses and community collaborative efforts-while nurturing positivegovernment/academic/business relationships in promoting economic growth. Suchinstitutions and their collaborative efforts should play a significant role in ruralcommunities/regions where the development strategy of the rural community placesentrepreneurship in the centre of economic development. Among the most important are:institutions of education and training; inter-firm institutions and financial institutions.Institutions of Education The role of institutions of education in rural development is of crucial importance. Theyhelp to create a capable labour force and to maintain a skilled work force in the community. Inrural 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 201
  • 34. 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.Inter-firm Institutions Efforts to support and enhance existing businesses within a community and topromote new enterprises in a community can be most successfully earned out throughdifferent inter-firm institutions. Among different inter-firm institutions, business incubators,industrials parks, different non-profit seeking organizations facilitating networking andbusiness support centres are one of the most successful ones promoting the growth of newand existing enterprises. These institutions can significantly contribute to rural developmentbecause of the following:Business Incubators Business incubators are a facility designed to assist the development of newenterprises (Smilor, R.W., 1987). They help entrepreneurs by providing them with serviceswhich support and compliment their own talents and abilities. Their support system usually includes secretarial, administrative and businessexpertise and facilities which are available to entrepreneurs below or at market rates. Theentrepreneurs receive not only help regarding the management of their enterprises but alsoother services such as provision of financial assistance and training. They organizeconferences, business luncheons and different types of activities for the purpose ofnetworking. They create a good business climate inside the incubator and ensure a constantinflow 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 ofincubating enterprises. The business incubator has emerged as a solution to the highfailure rates among new firms. Many new firms fail, not because they are not innovativeenough but because in their early stage they have difficulty in competing. Therefore, thebasic 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 entersuccessfully into the competitive business environment. The business incubator industry was one of the fastest growing industries in the lateeighties in the U.S.A. Nearly every regional development programme includes thedevelopment of the incubator network, especially in those regions which had experiencedeconomic 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 andpublic funds covered practically all investment and start-up costs. 202
  • 35. ENTREPRENEURIAL DEVELOPMENTIncubators in a rural area can be designed for a number of purposes to:• 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 financialassistance from the federal, state and local governments and private sector contributions.Industrial Parks As an unemployment-reducing effort and/or for revitilizing the community economicbase, communities could establish industrial parks by purchasing marginal agriculturalproperty at the market price and converting it to industrial purposes in order to accelerateentrepreneurial restructuring of rural communities. Communities could increase theattractiveness of industrial parks to potential entrepreneurs by delivering conventionalcommon infrastructural services, by customisable layouts that could be rearranged overtime to meet user needs in a flexible way and by the final price which should be much lowerthan the price of equivalent buildings in other, especially urban, areas. Networking among firms in the industrial park is a common outcome. The firms in theindustrial park benefit in several ways through networking. The benefits could be groupedinto 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 networkare shared and those due to the aggregation of production of small firms with the same orcompatible production and due to large scale purchases of equipment and raw material.Institutions Facilitating Networking These are non-profit seeking associations, registered or non-registered whichfacilitate networking between small firms located in the same region2. They usually performthe following tasks: 203
  • 36. • 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 scalepurchases, enables specialised firms jointly to manufacture finished products, facilitatesshifts from product to product and market to market and leads to important economies ofscale as overhead functions are shared (Hatch, 1989, p.6).Business Support Centres Business support centres can be established to meet the needs of start-ups, emergingor established businesses. They provide different types of services according to the needsof the three different clients (Small Business Administration, 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.Financial Institutions Communities should support the development of a strong venture capital base andrisk capital networks specialising in funding new entrepreneurial activities. Seed financingcould be an important bottleneck for new enterprise creation. For this reason, specialattention 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 forsuch institutions to be attractive to a rural community, the community leadership mustencourage existing institutions to link new start-ups or potential entrepreneurs with suchinstitutions outside the community. They should also be responsible for screening allfinancial schemes existing in the country for the development of new enterprises and for thegrowth 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, 204
  • 37. ENTREPRENEURIAL DEVELOPMENTdirect loans to smaller enterprises or to Consortia of enterprises? What type and how manyeconomic development funds are available? Who provides favourable investment financingfor the equipment and working capital? Which development corporations finance new andexpanding businesses? What state funds are available for small and medium sizedenterprise development, etc.?Public-Private Partnership The impact of institutions discussed earlier on rural economic development willincrease 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 amongdifferent institutions supporting rural development, both public and private, in order todevelop 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 communityinfrastructure, inability to encourage new enterprise formation, inability to increase localeconomic opportunities, etc. The key to the evolution of economic development based on a partnership approach isthe leadership that could come either from the local government or from already existingsuccessful private companies, local development private or public agencies, communitycivic organizations, educational institutions and the like. What is crucial is the developmentof personal and organizational networks which combine otherwise individual efforts into acomprehensive approach to regional development of rural areas. Therefore, it is importantto identify or to establish the principal community civic agency, the lead organizationresponsible for designing and carrying out the development strategy based uponidentification of an areas major problems (lack of job opportunities, substandard housing,deteriorated social infrastructure, etc.). This organization should act as a planning andbrokering organization, bringing together public and private initiative to attain commoncommunity goals. It should support the creation of new agencies if ongoing implementationof a development strategy so requires. Personnel should also include representatives of themajor enterprises in the region, universities and research and development institutions. Itshould focus on broad community concerns and co-ordination of separate efforts in theregion.Conclusions Economic development in general requires more than just a proper macro economicenvironment. In addition it demands institutional framework conducive to economicdevelopment, practical mechanisms for risk taking and risk sharing in the early and mostuncertain stages of entrepreneurial ventures and an organizational system conducive togrowing new and existing businesses. It takes cross-institutional networking. The role ofpublic policy is therefore to continually find ways to implement critical success factors ofeconomic development. Economic development of rural areas cannot be an exception inthis respect. 205
  • 38. Q. How an entrepreneurial system can be established?Ans. An entrepreneur perceives an opportunities for marketing a product or services. Thenhe establishes a business unit on the basis of his/her perception. Finally he manages hisenterprise expanding, growing or diversifying over a period of time. In order to establish anentrepreneurial system an entrepreneur needs to take the following steps:-1. Search for Bbusiness Ideas : 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.2. Sources of Ideas : A business idea may be discovered from the following sources:- (i) Observing Markets : 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. (ii) Prospective Consumers : 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. (iii) Development in other Nations : 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.3. Study of Projects Profiles : 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. (i) Government Organizations : Several government organizations now-a-days assist entrepreneurs in discovering and evaluating business ideas. Development banks, state industrial development/investment corporations, 206
  • 39. ENTREPRENEURIAL DEVELOPMENT 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. (ii) Trade Fairs and Exhibition : 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.4. Process the Ideas : 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.5. Technical Feasibility : 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.6. Commercial Viability : 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.7. Idea Selection : 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. 207
  • 40. (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.8. Input Requirement : 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:- (i) Information and Intelligence : 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:- Ø Size and nature of demand for the product/service. Ø Volume and source of supply. Ø Price cost volume relationship. Ø Sources of raw material. Ø 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.9. Personnel : 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. Ø Number of personnel required for management, technical and other positions in the enterprise. Ø Qualifications and experience required in the personnel to perform the jobs effectively. Ø Sources of recruitment form which the needed staff will be procured. Ø Procedure and methods of selecting the best candidates. Ø System and criteria for evaluating the performance of employees. Ø Procedure and methods of selecting the best candidates. 208
  • 41. ENTREPRENEURIAL DEVELOPMENT Ø Policies and methods for remunerating the personnel. Ø Facilities to be provided by the safety, health, welfare of the staff.10 Establish the Enterprise : 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.Q. Write a short note on innovation related to entrepreneurAns. Gartner (1989) refers to innovation as the central value of the entrepreneurialbehavior, since it is successfully taking an idea or invention to market. Innovation and problem solving capabilities are expected to be the core of theentrepreneurial capability of an entrepreneur the vast majority of entrepreneurs studiedwere characterized by sensation-thinking problem solving styles. Such individuals wereshown to be short-term oriented dealing with immediate problems. Entrepreneurs are facedwith a number of challenges as they try to implement new ideas "Iinnovation is one of thecentral characteristics of entrepreneurial endeavor. Looking at history, entrepreneurialactivity is most active during periods of upheaval: economic, social, or political . This isusually when traditional systems and ways of doing business are no longer affective. Thosewho survive the changes will be the businesses that act entrepreneurially Entereneurs are not uniformly innovative. The level of innovation is dependent uponthe entrepreneurs formal education and managerial experience. Their study of 184 firms inthe Midwest showed a correlation between a higher level of managerial experience andmore years of education with a higher level of innovation.Features of InnovationØ Innovations are the harbingers of change.Ø Innovations can take place at the spark of light or can take a generation of experiments.Ø Innovations can be both revolutionary as well as an extension to the existing products.Ø Innovations provide a USP to a business.Ø Innovations are action oriented i.e active and searching new ideas.Ø Innovations help in making the product, service or process simple and understandable.Ø innovations help in making the product, service or process customer based.Ø Innovation is all about trying, testing and revising.Ø Thus innovation refers to a process of creation of a product that can solve existing problems or tap opportunities.Sources of Innovation :Ø Present and potential customerØ Existing companies 209
  • 42. Ø Raw material providerØ Distributors and retailersØ Research and developmentØ Existing employeesQ. How entrepreneurial support system can be established.?Ans. Introduction : It is very difficult and complicated to create a system forentrepreneurs. While public officials and service providers understand the differencesbetween, say, a Small Business Center and a Small Business Technology DevelopmentCenter and the services they offer, entrepreneurs do not. Nor should we expectentrepreneurs to understand these differences. Thus, when an entrepreneur seeksassistance and is referred to "some other office," her typical response is intense frustration. These problems emerge because most service providers focus - correctly - on marketniches. Small business development centers (SBDCs) focus on growth businesses, thecooperative extension service focuses on agriculture, and micro loan programs providemore general support to new entrepreneurs. While there are efficiencies that arise from thisspecialized approach, the systems specialization often gets lost in translation to theentrepreneur. Most entrepreneurs simply want help. They do not care which agency orprogram provides it. These challenges of fragmentation are not new to economic developmentprofessionals. The traditional solution has been to create a "one-stop shop," where a wholehost of services for small business can be accessed in one place. These one-stop shops canexist in physical space Creating a one-stop shop should be viewed as a first step, not the endof the process. Such sites offer user-friendly access to information, but they still requiresignificant knowledge from the aspiring entrepreneur or business owner. Can the businessowner find the right services and support that will "fix" his current problems? Researchshows that many entrepreneurs cannot leap this hurdle. In many cases, they face difficultiessimply identifying their own business challenges. For example, they may recognize thatbusiness 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.From One-Stop Shop to no Wrong Door This type of sophisticated business diagnosis system does not really exist today formost entrepreneurs. High-growth technology businesses can receive such support fromventure investors and others, but most entrepreneurs make do with one-size-fits-allprograms for training, financing, and the like. In practice, this means that business ownersoften receive the services that are available instead of the services that are needed. Forexample, a potential high-growth business may be referred to a loan program even though itreally needs some form of equity financing. 210
  • 43. ENTREPRENEURIAL DEVELOPMENT A reformed systems approach is needed. At the outset, the system should offer anentry-level package of services that entrepreneurs receive no matter where they enter thesystem. The system would be defined by the concept of "no wrong door." Every part of aregions small business support network should provide an initial assessment of theentrepreneurs skills and needs and identification of the best place for the entrepreneur toreceive services to address those needs. This new system would move the burden ofunderstanding how best to access support services from the entrepreneur to the systemitself. Upon completion of this initial diagnosis, more specialized services can be delivered. In addition to improving services for the entrepreneur, this system also offers benefitsto service providers. A systems approach allows service providers to "segment" theirmarket. They can truly specialize in serving certain types of entrepreneurs, and feel assuredthat other providers are effectively serving other market segments. Their productivity andefficiency will improve as they can focus personnel and resources on their own marketniche. Service providers can now focus on "quality" instead of "quantity" of services.What does an entrepreneur support system look like? Many regions claim that they have a small business support system in place, but, inmost cases, these "systems" are simply a loose federation of non-profits and other supportproviders. A true system links all relevant service providers, operates according to commonprocedures, and offers a customized and comprehensive set of public and private servicesfor local entrepreneurs. Several characteristics are essential: Common intake procedures: All local service providers are trained to perform a briefintake and diagnosis of an entrepreneurs issues and service needs. Thus, when anentrepreneur calls a service provider, she is not given an immediate referral. Instead, herbasic information is obtained and entered into the system. At that point, she will be referredto the appropriate local service provider. For example, if her firm is looking for exportopportunities, she will be referred to a local expert in that process. Clear referral systems: Referrals are the cornerstone of the system. The process mustbe clear to both entrepreneurs and service providers. This requires that service providersexplicitly state their specific areas of expertise. They can no longer simply serve allentrepreneurs; they must focus on a specific set of issues or types of businesses. Forexample, a non-profit might identify its niche as "training entrepreneurs to work withinstitutional venture capitalists." Effective referrals also mean that providers mustunderstand the system and each organizations role within it. Clear guidelines for entrepreneurs: As noted above, the system must beunderstandable to entrepreneurs. They must understand the purpose of the initialdiagnostic 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. 211
  • 44. Regular collaboration: The system will work if the partners effectively collaborate withone another. They must meet on a regular basis, and regularly review how the system isserving local businesses. In addition, service providers must create a single "brand" for thesystem so that entrepreneurs are supported by the "system" and not by a single serviceprovider.."Program Offerings Every region must develop its own set of program offerings targeted to the needs oflocal entrepreneurs. some of the key program offerings to be found in comprehensiveentrepreneur development systems: Entrepreneurship education - including the introduction of entrepreneurship conceptsin K-12 and more advanced adult education and training in community colleges, collegesand universities.Access to Capital - sources of capital to match the financing needs of entrepreneurs atvarious stages of development, from seed capital to loans to equity.Access to Networks - opportunities for entrepreneurs to connect with peers and mentorsand to form strategic alliances to benefit their businesses.Entrepreneurial Culture - a culture that recognizes, embraces and celebratesentrepreneurs, creating a place where entrepreneurs choose to live, work and play.The Benefits Creating an effective entrepreneur support system can generate huge benefits forlocal business owners and aspiring entrepreneurs. It can also stimulate a transformation foreconomic developers. By promoting real collaboration, it improves productivity and programeffectiveness while also generating improved outcomes in terms of jobs, new businessesand overall quality of life. 212
  • 45. ENTREPRENEURIAL DEVELOPMENT MBA 1st Semester (DDE) UNIT – IVQ. Explain the various steps of setting an enterprise Discuss.Ans. Introduction : An entrepreneur perceives an opportunities for marketing a product orservices. Then he establishes a business unit on the basis of his/her perception. Finally hemanages his enterprise expanding, growing or diversifying over a period of time. In order toestablish an entrepreneurial system an entrepreneur needs to take the following steps:-1. SEARCH FOR BUSINESS IDEAS : The first step of entrepreneurial system is search for business ideas. The idea mayoriginate from various sources e.g. success story of a friend or relative, demand for certainproducts, visits to trade fairs and exhibitions, study of project profiles and industrial potentialsurveys, meetings with government agencies etc. The idea may relate to the starting of anew business or to takeover of an existing enterprise, the idea should be sound andworkable, so that it may be exploited.2. SOURCES OF IDEAS : A business idea may be discovered from the following sources :(i) Observing Markets : Careful observation of markets can reveal a business idea. Market surveys can alsoreveal the demand and supply position for various products. It is necessary to estimatefuture 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 productsindustries which are in demand and which require increase in supply. A promoter can thenfind out the most profitable line of business.(ii) Prospective Consumers : Consumers knows best what he wants and the habits/tastes which are going to bepopular in near future. Contacts with prospective consumers can also reveal the featuresthat should be built into a product/service. These days good business firms generallyconduct a survey among prospective consumers before choosing the product to bemanufactured. 213
  • 46. (iii) Development in other Nations :People in underdeveloped countries generally follow the fashion trends of developedcountries for example video, washing machines, micro ovens etc. which are now the "Inthings" in India were being used in the united states and Europe. Therefore, an entrepreneurcan discover good business idea by keeping in touch with developments in advancednations.3. STUDY OF PROJECTS PROFILES :Various government and private agencies publish periodic profiles of various projects andindustries. These profiles describe in detail the technical, financial and market requirementand prevailing position a careful scrutiny of such project profiles is very helpful in choosingthe line of business.(i) Government Organizations :Several government organizations now-a-days assist entrepreneurs in discovering andevaluating business ideas. Development banks, state industrial development/investmentcorporations, technical consultancy organizations, export promotion council etc. provideadvice 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.(ii) Trade Fairs and Exhibition :National and international trade fairs are a very good source of business ideas. A visit tothese fairs provides information about new products/machines. Trade fairs and exhibitionsprovide opportunities for assessing the market trends in terms of demand potential and typeof products required. It also assessing the attitude of the competitors in a particular productor marketing area.4. PROCESS THE IDEAS :Once business ideas are discovered, screening and testing of these ideas is done. Thefollowing considerations are significantly in the evaluation and testing of business ideas.5. TECHNICAL FEASIBILITY :It refers to the possibility of producing the product. Technical feasibility of an idea is judged interms of availability of necessary technology, machinery and equipment, labour skills andsaw materials. The advice and assistance of technical experts may be necessary to judgethe technical feasibility of various business ideas.6. COMMERCIAL VIABILITY :A cost benefit analysis is required to ascertain the profitability if the ideas. An elaborate studyof market conditions and prevailing situation is made to assess the viability and prospectusof 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
  • 47. ENTREPRENEURIAL DEVELOPMENTAfter preliminary evaluation of the idea, the promising idea is subjected to a thoroughanalysis from all angles. Full investigation is carried out in the technical feasibility andeconomic viability of the proposed project. Financial and managerial feasibility of the ideaare tested. At this stage a lot of information is required. Consultations with experts in variousareas 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 ofa report known as "feasibility report" or project report. This report helps in the final selectionof project. It is also useful for procuring licenses, finance etc from governmental agencies.7. IDEA SELECTION :The feasibility report is analyzed to finally choose the most promising idea. Generally thefollowing 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 countrys 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 andcons. A selection matrix may be prepared for this purpose. The matrix indicates the type ofdiverse data that needs to be collected for each project. It also throws light on how each itemcan hold out some encouraging and some discouraging factors. The entrepreneurialselection needs to take all these factors into account.8. INPUT REQUIREMENT :Once the promoter is convinced of the feasibility and profitability of the project he assemblesthe necessary resources to launch the enterprise. He has to choose partners/collaborates,collect the required finances and acquire land and buildings, plant and machinery, furnitureand 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. Themain inputs required for launching an enterprise are as follows:-(i) Information and Intelligence :In the turbulent business environment, information and intelligence have become the keyinput in entrepreneurial success. An entrepreneur requires relevant data on the followingaspects:-• Size and nature of demand for the product/service.• Volume and source of supply.• Price cost volume relationship. 215
  • 48. • 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.9. PERSONNEL :People are the most valuable asset of an enterprise and this asset does not depreciate. Anentrepreneur has to make the following decisions concerning the personnel.Number of personnel required for management, technical and other positions in theenterprise.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.Procedure and methods of selecting the best candidates.Policies and methods for remunerating the personnel.Facilities to be provided by the safety, health, welfare of the staff.10. ESTABLISH THE ENTERPRISE :This is the last step of entrepreneurial system. It is very important step. In this phase theentrepreneur integrate their resources and establish the enterprise.Q. Explain the Sources and function of the finance.Ans. Introduction : After formulating & evaluating the project, the next step is to draw out afinancial plan to meet project costs. The financial plan should deal with two importantaspects-: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 appropriatecapital structure with right quantum of capital which will minimize the cost of funds obtainedfrom different sources and minimises the value of the firm. Hence it is part of financialanalysis to study the various sources of finance available to the project and suggest anappropriate capital structure with adequate amount of capital.Sources of Long Term & Short Term Finance :(a) Long Term Sources:-1. Equity Shares : 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 216
  • 49. ENTREPRENEURIAL DEVELOPMENT & 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.2. Preference Shares : 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.3. Debentures : 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.4. Term Loans : 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.5. Retained Earning : 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.6. Deferred Credits : Sometimes the suppliers of machinery provide deferred credit facility under which payment for the machinery may be made over a period of time. 217
  • 50. The interest rate & period of payment very rather widely. Normally the supplier offering deferred credit facility ask for bank guarantee from the buyer.7. Capitaal Subsidy & Develoment Loans : 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.8. Unsecured Loans & Deposits : 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.(B) Sources of Short Term Finance :1. Account Payable : 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.2. Accurals : 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.3. Commercial Paper : 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.4. Cash Advance From Customers : 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.5. Bank Credit : 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.6. Private Loans : 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.7. Short term Loans From Financial Institution : LIC, GIC & UTI provide short term loans to manufacturing companies with an excellent track record.They are unsecuredloans & given for aperiod of one year.The rate of interest is around 18% p.a. 218
  • 51. ENTREPRENEURIAL DEVELOPMENT8. Lease Finance : 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.Q. Describe the fixed capital? Also discuss the factor that affecting fixed capital requirements.Ans. Introduction : Funds required to acquire fixed assets are termed as fixed capital. Thetotal amount of fixed capital is determined through project capital cost estimates. Any error inthe fixed capital estimation will have long-term adverse effect on the financial condition ofthe enterprise and also its profitability. Wrong estimation of fixed capital may lead to over orunder-capitalization. A fixed capital requirement varies from business to business and isinfluenced by a number of factors.Factors affecting fixed capital requirements :There are many factors which are affected fixed capital requirements, such as:-(1) Nature of Business : 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.(2) Leasing Arrangement : If assets are obtained through leasing then fixed capital requirement would be less.(3) Size of Business : 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.(4) Ancillary Units : If an enterprise can purchase some of the components from units the its fixed capital needs would be less.(5) Technology : If the production process requires modern technology or imported plant and machinery then the fixed capital requirements would be more.(6) Provision for Subcontracts : 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.(7) International Conditions : 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. 219
  • 52. (8) Trends in the Economy : 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.Q. Explain the factors which affecting working capital requirements?Ans. Introduction : Working capital is the amount of capital that is required by anenterprise to carry out its day to day operations. In other words it is defined as all the shortterm assets used in daily operations. They consist of primarily cash, marketable securities,accounts receivables and inventory. There are mainly two type of working capital.(1) Gross 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.(2) Net Working Capital : Net working capital may be defined as the difference between current assets and current liabilities. Components of Working Capital:- The components of working capital are:- Inventories Accounts receivable Cash and bank balance Advances paid for expenses and suppliers. Cash Debtors & B/R Raw Material Finished Goods Work-in-ProgressOperating Cycle :Cash passes through various stages and finally gets converted into cash. In an industrialunit, 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 salesand partly into accounts receivables through credit sales and finally conversion of debtorsinto cash.Determinants or factors affecting working capital requirements :(1) Size of the firm : 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
  • 53. ENTREPRENEURIAL DEVELOPMENT(2) Nature of the Business : Nature of the business is also affecting the working capital requirement. Public utilities and capital intensive manufacturing concerns require less amount of working capital.(3) Availabilities of Credit : A firm with readily available credit from banks can get alone with less working capital than a firm without such credit.(4) Sales Volume : 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.(5) Seasonal and Cyclical Factors : Most firms experience seasonal fluctuations in demand for their products and services. These variations in sales affect the level of working capital.(6) Operating Cycle : 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.(7) Shift in Technology : 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.(8) Polices of the Firm : 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.(9) Activities 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.Q. What is the requirement of technical assistance for a business enterprise?Ans. Production management is the process of converting the input into output through aconversion 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 productionunit/operation activity of the business enterprise for optimum utilization of the soueces.Production /oerational plan would lay down the detailed planning procedurs for thestrategies 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 221
  • 54. (1) Plant location : 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.(2) Plant Layout : 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 toanother place.(3) Capacity Planning : 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/operationCost of maintaining capacityOrganisations vision & objectivesAssessment of existing capacity.Capacity planning can be divided into three types based on time period of which planning isdone.Short ter capacity planningMedium term capacity planningLong term capacity planning. 222
  • 55. ENTREPRENEURIAL DEVELOPMENTCapacity planning from day to day , month to month up to a year is called short term capacityplanning. Medium term capacity planning is fromone year to five year . Long termcapacityplanning is planning operation above 5years. Major changes in capacity planning can beintroduced.(4) Inventory Management : 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:-a. Raw Material : The stock of raw material is kept tomeet the unforeseen hanges in the market forces. Goods in Process Inventory:-Inventory is managed at each level of work in progressa. Finished Goods Inventory : 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:-b. Normal Inventory : The inventory ensuring availability of material at different stages in normal condition is called normal inventory.c. Buffer Inventory : The inventory ensuring availability of material at the time of uncertainty is called buffer inventory.5. Quality Management System : 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.6. Budgeting the Production Plan : 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.Q. Explain the concept of marketing assistance in detail.Ans. Introduction : A marketing plan aims at panning the marketing Strategies for acompany its products or services. Marketing plan analyses the market opportunities throughmarket research, identifies profitable segment and Targets them through a compoundedmarketing mix, strategy which involves Strategies for product price, place and promotion. All 223
  • 56. good marketing plans must evolve from and support the overall strategic plan of thebusiness. Marketing plan forms the backbone of any business enterprise A careful, wellcrafted marketing plan is possible , if it is based on a through market research. Marketingplan is critical element in ensuring the success of business venture A marketing plan aims toplan the ma4rketing strategies for a company its products or services. Based on the marketsurvey it identifies the strengths , weakness, opportunities and threats of the market, identifyand segments the target market and then plans the strategies for marketing mix of theproposed business enterprise.MARKETING RESEARCH : Marketing research is the process of collecting information of any facts relevant tomarket. Market research is a systematic collection of information, its analysis andinterpretation to strategize. Some relevant business decision like whether one should enternew markets , whether one should change premium prices, What kind of discount would bemore Attractive to the customer etc. The purpose of market research is not only to Assesscustomers but also make decision in relation to the direction in which the business planshould flow .The information collected from the market research is quite exhaustive andhence strategic decision based on the market research can proper a business enterprise into a growth path.Steps involved in conducting the market research are :1. Formulation Objective2. Research design3. Data collection and Tabulation4. Data analysis5. Documentation6. Decision MakingSegmentation : Any business venture has limited resources and hence it can not satisfy theneeds 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 orbehavior. 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 besegmented:-Demographic Segmentation : When the target market is divided on the basis of populationit is called demographic segmentation. This can be further divided in to segments; such asage segment, income segment, gender segmentation, educational qualification etc.Psychographic Segmentation : Segmentation that is based on lifestyle/personality ofindividual is called psychographic segmentation.Geographic Segmentation : When the segmentation is drawn on the basis of geographicalregion it is called geographic segmentation. It can be northern, southern, western, eastern,city or metro, urban or rural. 224
  • 57. ENTREPRENEURIAL DEVELOPMENTBehavior Segmentation : When the segmentation is drawn on the basis ofbehavior/attitude of consumer it is called behavioral segmentation. The behavior/attitudevary on occasion, usage rate, benefits, loyalty status, buyers readiness & user status.Market Targeting : Market targeting is the process of evaluating various segments andidentifying the number and type of segments that the business venture would target. Theprocess of market targeting including following steps:-Market Evaluation : It is the process of evaluating/assessing all the segments. Thisassessment is done on the following criteria:-Assessment of the size of each segment.Assessment of segment growthCompanies strengths and weakness to suffice the needs of the segments.Potential opportunities and threats from the competitors, substitutes, buyers, suppliers,government.Target Market Selection : After the target market evaluation is complete the company hasto decide which segments and how many segments it would target. It would depend onseveral factors like economies of scale, profitability, growth, size etc. There are five patternsavailable for selecting the target market.Single segment concentration : If a company decides to concentrates on a singlesegment only. Like junior horlicks is targeted only for kids.Selective Specialization : Selecting a number of segments that are attractive.Product specialization : The product that the company makes can be sold to severalsegments. For example-computer.Market Specialization : When the organization satisfies many needs of a particular grouplike big bazaar.Full Market Leverage : When the business tries to satisfy all the customers with entireproduct needs.Market Positioning : Market positioning can be defined as the out of projecting thecompanys 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 projectThe pricing strategyThe packaging of the productHoe competitors project themselvesThe type of productProduct lifecycle 225
  • 58. Developing Marketing Mix Strategies :Product Mix Strategies : 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 decisionsregarding the product such as product mix, branding decision etc. In product mix theentrepreneur needs to decide the length, width, depth and consistency of the productdesired. 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 forany product. Branding is the process of building, maintaining, protecting and enhancingidentify of the product.Pricing Mix : Pricing is that element of marketing mix that produces revenue. The pricingdecisions 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 thecompany. Pricing strategy has been divided into following kinds:-Markup pricingTarget return pricingPerceived value pricingValue pricingGoing rate pricingGeographical pricingSkimming pricingPromotional Mix : Promotional mix is the process of educating consumers through variousforms of media about all or some of the following:-Product utilityProduct qualityProduct price Promotional mix helps in building brand image in the minds of end consumers. Infact, itplays a major role in positioning the product in the market. The various types of promotionalstrategies are:-AdvertisingDirecting marketingSales promotionPublic relationDistribution Mix : The fourth process of marketing i.e. place (distribution) is the processthrough which the product is physically delivered to the customer. Most companies usedintermediaries/middlemen to deliver the goods to the final customers and theseintermediaries are called distribution channels. There are different types of distributionchannels such as retailers, wholesalers, distributors and franchises. All the marketing 226
  • 59. ENTREPRENEURIAL DEVELOPMENTintermediaries that participate in the final delivery of the product to the customers are calledchannel levels. Let us the customers are called few channel levels.Channel O : When no intermediaries exist as in direct marketing. Manufacture CustomersChannel 1 : When one marketing intermediary is involved in the final delivery of the product. Manufacture Retailer CustomersChannel 2 : When two marketing intermediaries are involved in the final delivery of theproduct. Manufacture Distributor Retailer CustomersChannel 3 : When three marketing intermediaries are involved in the final delivery of theproduct. Manufacture Wholesaler Distributor Retailer CustomersQ. Wrire a short note on Industrial sickness and its remedial measures.Ans. Economic development of a country is directly related to the level of its industrialgrowth. Expansion of industry leads to greater utilization of natural resources, production ofgoods & services, creation of employment opportunities & improvement in the generalstandard of living.An industrial unit is like a human body.A person become sick if any part ifbody affected. Similarly, an industrial unit can become sick in a minor way when only one orsome 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 orindirectly 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 Indianindustries. 227
  • 60. Concept : The sickness of a firm has been defined as the situation where the rate of returnrealized on invested capital, taking risk involvement into consideration, is significantly &continuously less than the prevailing rates on similar investment. In other words we can saythat it is situation where the revenues of a firm are insufficient to meet the costs & theaverage rate of return on investment is less than the firms cost of capital. A sick unit is unhealthy unit to common men, a dividend postponing unit to investors, alosing 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 totechnicrats, a bad employer to workers & great wastage of technical & human resources tothe country. To ascertaining the symptoms of the disease of industrial sickness. (a) the rate ofreturn 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 toacquire share in the market. etc are taken into account.Causes :Factors causing industrial sickness can broadly be divided into two main categories:-Internal causeExternal causea. 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 industrialsickness in the country. Of the various factor the significany to quote are mis management orinefficient 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 beas 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, demandrecession. Lack of research & development. Inadequate investment for modernization &renovation& procedures delay in sanctioning loans by commercial banks & otherinstitutional agencies.Revival Measures & Strategies : Sickness in small scale industriesis not confirmed to a particular product, state orregion. It is, more or less, uniformally spread over all states & regions, & thus a national 228
  • 61. ENTREPRENEURIAL DEVELOPMENTproblem.Process of solution to this problem involves in two process:-Identify th sickness in a unitas early as possible & to analyse & diagnosis its causes Nursethe unit immediately with appropriate remedial measures with aview to turnaround the sickunit to an economically viable one. Turnaround here means a substantial & sustainedpositive change in the performance of the business entity. Commercial banks & financial institution can detect the symptoms of sicknes throughperiodical progress report including financial statement, stock statement & return underperiodical information system, plant visit, personnel discussion, report fron nomineedirectors, etc. Guidelines have been issued by the RBI so that banks can analyse & interpretthe information received from assisted unit & test check their health.Similarly , theestablishment of management information system within the industrial unit will help itsmanagement to detect the symptoms of the sickness & forward it to adopt remedialmeasures. A number of development institutions have been setup to support entrepreneurs.Witha view to prevent sickness particularly in SSI, Some of the institutions have been setup tosupport entrepreneurs. Some of the institutions assisting entrepreneur include DistrictIndustries Centres(DICs) and Industrial Estate, Small Industries DevelopmentOrganisation(SIDO) Small Scale Industries Service Institutes(SISI),Small IndustryDevelopment Corporation(SIDCO),Entrepreneurial Guidance Bureau(EGB), NationalAlliance of young Entrepreneurs(NAYE), National Productivity Council)and Venture capitalfunds(VCF).In addition, all India financial institutions-IDBI,IFCI,ICICI-have promoted anumber of Technical Consultance Organisations(TCOs) to assist small entrepreneur indifferent ways . Recently ,the Small Industries Development Bank of India(SIDBI) has beensetup 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, ,managementfinancial institutions,government,etc.)make a concerted effort to study the causes of andcures through their temporary sacrifices with a sense of dedication and belongingness.Q. Describe the preparations of the project report?and what is essential for good project report.Ans. Introduction : A project report helps to understand the opportunities, problems Andweakness of the business. It guides the entrepreneur in actually starting up and running thebusiness help him to monitor whether the business is growing as was projected inthe business plan or note .It help in documenting the cost estimates of the can beused as a handy tool to persuade investors and financial institution to fund the project .it canhelp in proper utilization of all the resources .it can keep the morale of employees ownersand investors up .it can finally lead to a sustainable development of the organization.Essential of a Project Report :1. The project report should be sequentially arranged.2. The project report should be covering all the details about the proposed project. 229
  • 62. 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.Format of a Project Report :1. Cover Sheet : Cover sheet is like the cover pages of the book .it mentions the name of the project ,address of the promoters.2. TABLE OF CONTENTS : 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;3. EXECUTIVE SUMMARY : 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 .4 THE BUSINESS : 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.5. Funding Requirement : 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.6. The Product of Services : 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.7. The Plan : Now t he functional plans for marketing, finance, human resources & operations are to be drawn. a. Marketing Plan : Marketing ix strategies are to be drawn based on the market research. The market research provide information regarding the taste, needs, habbit of the customer market research is the backbone of success & failure of any product in the market. Based on the information collected through market research marketing mix strategies for product/ services, prices, promotion & distribution are prepared. The budget for the marketing plan are drawn at the end. 230
  • 63. ENTREPRENEURIAL DEVELOPMENT b. Operational Plan : 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. c. Organization Plan : 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. d. 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.8. Critical Risks : 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.9. Exit Strategy : 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.10. Appendix : 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. 231
  • 64. ENTREPRENEURIAL DEVELOPMENT Past Year Question Papers JAN 2009 UNIT - I1. 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. UNIT - II1. 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 UNIT - III1. 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 UNIT - IV1. 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. JULY 2008 UNIT - I1. 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. UNIT - II1. Discuss the evolution and objectives of Entrepreneurship Development Programmes in India. How far these programmes are effective? 232
  • 65. ENTREPRENEURIAL DEVELOPMENT2. Explain the current policy of the Government towards Small Scale Industry (SSI). What is the future of SSIs in India? UNIT - III1. What is Achievenment 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? UNIT - IV1. 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 JAN 2008 UNIT - I1. 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. UNIT - II1. 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. UNIT- III1. What is Achievement Motivation? How can achievement motivation be developed?2. What is meant by Innovation? Discuss the relationship between innovation and entrepreneurs. UNIT - IV1. 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 JAN 2007 UNIT - I1. Who is an Entrepreneur? Discuss the characteristics and qualities of a good entrepreneur. 233
  • 66. 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. UNIT - II1. 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. UNIT - III1. 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. UNIT - IV1. “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? 234