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Entrepreneurial Management (EM 03) starting a small industry


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This is part of a course on Entrepreneurial Management that I taught at the Bangalore University last spring. This particular deck is on Starting a small scale industry

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Entrepreneurial Management (EM 03) starting a small industry

  1. 1. Management 03 – Starting a small industry Suhas Dutta
  2. 2. Syllabus coverage • Small Scale Industries oTiny Industries, Ancillary Industries and Cottage Industries oDefinition, Meaning • Product Range • Capital Investment • Ownership Patterns • Importance and Role played by SSI in the development of the Indian Economy • Problems faced by SSI’s and the steps taken to solve the problems • Policies Governing SSI’s Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.2
  3. 3. Small scale industries • The definition oVaries from country to country oBut usually dependent on size of employment it generates and the investment that is required Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.3 Type of Industry Capital Investment required Small scale industry Not exceeding 100 lacs Tiny industry < 25 lacs Ancillary industry Not exceeding 100 lacs 100% Export Oriented Unit As permitted by Govt. of India Mega project 100 crores and above Year Capital Investment in plants and machinery (lacs) 1950 5 (fixed assets) 1960 5 1966 75 1975 10 1980 20 1985 35 1991 60 1997 100
  4. 4. Small scale industries Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.4 SMALL TINY ANCILLARY • Industries producing components in support of other industries COTTAGE • Employs traditional labour intensive methods to produce traditional products, largely in village households
  5. 5. Product range • Food preserve products • Industrial products • Service products • Recreation products Small scale industries • Tools • Jigs • Moulds • Spare parts etc. Ancillary industries • Conventional products • Agro-based products • Forest based products • Chemical based products Khadi and village industries Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.5
  6. 6. Ownership patterns Depends on: • Nature of business • Size of business • Capital required • Ownership rights • Anticipated profits Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.6 Types of ownership Sole Proprietorship Partnership Joint stock company Co-operative
  7. 7. Sole proprietorship • G S Gerstenberg defines it as “that form of business organization which is started and run by one person who bears profit and losses of it” Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.7 Features • Sole ownership • No separate entity • No legal formalities • Limited capital • Unlimited liability • All profits to proprietor • Ownership and management are different Pros Cons Easy and simple to form Limited financial resources Personal touch with customers Limited managerial ability Smooth management Unlimited liability Quick and prompt decisions Lack of continuity Secrecy Limited size Social advantages Tax advantages Easy dissolution Incentive to work
  8. 8. Partnership • Sec 4, of Indian partnership act, 1932 – “the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all” Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.8 Features • Two or more persons • Sharing of profits and losses • Unlimited liability • Voluntary agreement • Mutual agency • Existence of lawful business • No separate legal entity Pros Cons Easy formation Unlimited liability Flexibility Limited resources Pooling of resources and skills Limited life Division of risks Divided authority More capital Danger of personal disagreements Tax advantages Encouragement of mutual trust
  9. 9. Joint stock company • Could be private or public companies per sections 3(i)(iii) and 3(i)(iv) of the companies act 1956 Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.9 Features • Artificial person created by law • Perpetual succession • Common seal • Limited liability • Large membership • Voluntary association • Transferability of shares • Separation of ownership from management Pros Cons Limited liability Lack of secrecy Perpetual succession Legal restrictions Representative management Heavy taxation Expansion potential Legalities of formation Transferability of shares Management mischiefs Diffusion of risk Lack of personal interest
  10. 10. Public vs private companies Area Public companies Private companies Formation • At least 7 members • Formation is difficult • Min 3 directors • No restriction on number of members • At least 2 members • Formation is simpler • Min 2 directors • Maximum 50 members Prospectus • Required with registrar of companies Documents • Members have to sign memorandum • Same • Articles of association not required if table A of companies act adopted • Required Shares • Cannot be allotted till maximum subscription is reached • Can issue only equity and preference shares • Same, but with option of disproportionate voting rights • Invitation to public for shares, debentures or deposits • No public invitation Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.10 And similarly modalities across transfer of shares, directors, statutory meetings
  11. 11. Co-operative society • Per section 4, Indian co-operative act 1912, “society which has its objectives, the promotion of economic interests of its members in accordance with co-operative principles” Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.11 Features • One man one vote • Voluntary organization • Democratic management • Service motive • Governance control • Distribution of surplus Pros Cons Social service Corruption State assistance Lack of mutual trust Democratic management Lack of interest Perpetual existence Lack of secrecy Tax benefits Lack of managerial expertise
  12. 12. Small scale industries and the society • Generate of employment • Promote of balanced regional development, and increase of national incomes • Reduce concentration of economic progress (equitable distribution of national wealth) • Promote capital formation • Develop villages, brings backward areas into mainstream • Increase level of standard of living • Scope for widening of markets • Compliments agricultural activities, accelerates industrial growth • Encourages indigenous entrepreneurship • Labour intensive and more suitable for developing countries Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.12 Please look up the data around SSIs provided in your books
  13. 13. Problems faced by SSIs Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.13 RAW MATERIALS • Scarcity • Poor quality • High cost FINANCE • Scarcity • Weak credit MARKETING OTHERS • Tech obsolescence • Knowledge deficit (marketing, channels, managerial and technical skills) • Infrastructure UNDER UTILIZATIONOF CAPACITY POLITICAL CLIMATE
  14. 14. Policies governing the small scale industries sector • Various policies and resolutions by the government over years to nurture and protect SSIs around areas of: Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.14 Small scale industries Tiny industries Policy Infrastructural Policy Fiscal Credit Credit Streamlining rules & regulations Entrepreneurship development Infrastructure Technology & quality improvement Facilitating prompt payment Technology Promoting rural units Rehabilitation of sick units Marketing Marketing Improving database Please read up details on policy initiatives in the course book
  15. 15. SSI policy statement Tiny industries Village industries Financial support measures • Credit / access to finance • Access to capital market • Delayed payments issue Handlooms sectors Infrastructural facilities • Facilitate in backward areas • Promote stronger links between primary and secondary sectors Handicrafts sector • Raw material • Market development • Training • Push exportsMarketing and exports • Marketing as an issue • Market promotions Modernization and technological upgradation Other village industries Promotion of entrepreneurship • Especially for women entrepreneurs Simplification of rules and procedures Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.15 Please read up on Karnataka state’s policies, developments etc in these sectors
  16. 16. Further readings / viewings • php • • small-scale-industries • 14624041?related=1 Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.16