ENTP

Entrepreneurship.

. Meaning of Entrepreneurship. Evolution of concept. Functions of

entrepreneur.

Contd.

• Entrepreneurial development is of special significance in any economy as it plays a vital role in industrial development, regional growth and employment generation.They are seeds of industrial development and fruits of industrial development are greater employment opportunities, increase in per capita income, higher standard of living, increased individual saving, revenue to government and balanced development.

Contd.

• Entrepreneurs have altered direction of national economies, industries, markets. New products, new technologies, reallocation of resources, innovations which have altered pattern of living. Entrepreneur is a manager but manager is not an entrepreneur. Entrepreneur is a person who create an enterprise. The process of creation is called ‘entrepreneurship’.

Why entrepreneur?

• Own boss make decisions that are crucial. Gets a chance to put own ideas into practice. Will make money for self/enterprise. Variety of disciplines. Satisfaction of creating and running one enterprise. Work in field and area you enjoy. Build own organization. CONCEPT: In economics and commerce an entrepreneur is an economic leader who possesses the ability to recognize opportunities for -

Contd.

• - for the successful introduction of new commodities, new techniques and new sources of supply, and to assemble the necessary plant and equipment, management and labor, and organize them to a running concern. Entrepreneurship is essential for economic development. Entrepreneurship can be defined as a process of action an entrepreneur undertakes to establish an enterprise.

Contd.

• Definition by D.C. McClelland, Peter F. Drucker. Knowledge in entrepreneurship is a means to an end. Walker’s views. Francis A. Walker: Is endowed with more than average capacities in the task of organizing and coordinating the various other factors of production. Amore efficient entrepreneur receive a surplus over and above the marginal wages and opportunity cost of capital due to superior talent.

New concept.

• One conceives of an enterprise, for the purpose, displays considerable imitative, grit and determination in bringing his project to fruition, and in the process, performs one or more of the following.(i) perceives opportunities for profitable investment. (ii). Explores the prospects of starting such a manufacturing enterprise. (iii) obtains necessary industrial licenses. (iv). Arrange initial capital.

Contd.

• (v). Arrange finance/ offer guarantee from FI. (vi). Meet shortfalls in project finance. (vii). Technical knowhow. Functions: The term entrepreneur is now attributed to all small industrialists, small business, traders and industrialists. All persons gainfully engaged in work, manufacturing, distribution, or service or other sectors are called entrepreneurs. Even founder creator and risk takers.

Contd.

• Each of these terms focus on some aspect of entrepreneur. Creators, risk takers, imitators. People indulging in unlawful activities. The term can be understood with a bearing on economic, psychological, sociological, and cultural bearing. Peter Kilby: Exchange relationship; perception of market opportunities (novel or imitative). Gaining command over scare resources. Purchasing input.

Contd.

• Marketing of the products and responding to competition. Political administration. Dealing with public bureaucracy. Managing human relations, Customer and suppliers. Financial management. Production management. Technology: Acquiring and overseeing assembly of the factors, industrial engineering, upgrading process and product quality, introduction of new technique and products.

Entrepreneurial development process.

• Stage. 1. perceiving, identifying and evaluating opportunity. 2. Drawing of business plan, 3. marshalling resources.4. creating enterprise. 5. consolidation and management. Characteristics of successful entrepreneur. Creativity, innovation, dynamism, leadership, team building, achievement motivation, problem solving, goal orientation, risk taking and decision making ability, commitment.

Classification of entrepreneurs.

• A. based on functional characteristics. 1. Innovative entrepreneur. 2. Imitative or adoptive .3. Fabian. 4. Drone. B. Based on development angle. 1. prime mover. 2. manager. 3. minor innovator. 4. satellite. 5. local trading. C. based on types of entrepreneurial business. 1. manufacturing. 2 wholesaling. 3. retailing. 4. service.

Based on personality.

• 1. Improver. 2. adviser. 3. superstar. 4. artist. 5. visionary. 6. analyst. 7. fireball. 8. hero. 9. Healer. Thus entrepreneur must be a leader, able to define a vision of what is possible and attract people to rally around that vision and transform it into reality.

• The Intrapreneurship school of entrepreneurship. This is evolved in response to lack of innovativeness within organization.

Contd.

• Intrapreneurs, to the limited extent that they possess discretionary freedom of action, are able to act as entrepreneurs and implement their ideas without themselves being owners. Alertness to opportunities is one dimension of intrapreneurial activity. Such strategic behavior provides the means for extending the organization’s activities and discovering opportunities.

Contd.

• This allows existing organizations to develop and diversify. To develop independent units designed to create a market and expand innovative services, technologies or methods within the organization. Some of them also become entrepreneurs in semi autonomous units. Sometimes they will not be in conformity with normal managerial activity. Intrapreneurship is a tem model whre by -

Contd.

• -individuals are asked to work together to solve problems and create opportunities. Balanced team requires the ability to use people effectively in groups, where task requires different inputs from team members. Sometimes intrapreneurial activities may require the input of professionals, while in others support and assistance of operational workers may be needed.

Contd.

• Itrapreneurial activities can focus on strategic redirection, organizational duplication, product development and operational efficiency.

Role of entrepreneurs in economic development.

• They are prime movers of innovation and growth. 1. Innovator in economic growth. (a). Brings about new ideas, combinations, product techniques, organizations, markets etc..(b). Making full use of technical knowledge for progress. (c). Systematic innovation. (d) implementation of mechanical skill. The technology innovations and creativity played the crucial role in economic development.

Contd.

• Growth in the following areas. Improvement of per capita income, increase in capital formation, generation of employment, balanced growth. Improvement in standard of living, economic independence, backward and forward linkages, technological advancement, establishment of new form of organization, entrepreneurial competency development.

Contd.

• 2. Generation of employment opportunities. (a). Establishing new units in manufacturing, trading, and service sectors. (b). Laying emphasis on village and cottage industries. (c). Utilizing the surplus labor force in varied industrial/service activities. (d). Upholding self-employment as a core objective. 3. Complementing and supplementing economic growth. Generation if income, capital formation.

Contd.

• Increasing in per capita income. Improvement in physical quality of life. Improvement in standard of living. Growth of industrial facilities. Initiating changes in economy. Forward and backward linkages. Economic independence. 4. Bringing Social and Balanced Regional development of Industries. Social stability and balanced regional development. Absorption of workforce in industries.

Contd.

• Alleviation of poverty. Improving health and education. Glorification of self help. Checking monopolies. Equitable distribution of income. Creation of social infrastructure. Empowering women and weaker sections of society. Supply of quality goods/services. Indian IT sectors, Pharma sectors operating in global market. IT has shown that they can create wealth for themselves, employees, customers in honest and transparent manner.

Contd.

• 5. Export promotion. Export opportunities have opened up after LPG. Establishing new industries for export. Exploring new market. Earning foreign exchange. Harnessing available resources, men materials. 6. Import substitution. Self reliance in production of as many goods as possible. Saving of FE. 7. Augmenting and meeting local demands. Entrepreneurs play significant role in -

Contd.

• - augmenting local demands and meeting them squarely. Products/services through indigenous technology, local skill, local resources and local experience. Important role in society. The inventions of great entrepreneurs have revolutionized life style of men and society. Wright brothers, Henry Ford. Their role vary from economy to economy and country to country. Raw materials, industrial climate, political system.

Contd.

• They are key drivers of growth but also under threat due to globalization. They are barometer of overall economic, social and industrial growth.( Mentors/ incubators.) Large scale production has led to large scale distribution of goods/services. Study of entrepreneurship has become an important area in management study, due to their role in economic, social and industrial development.

Test Questions.

• Short questions• 1.Expand: MSME, NASSCOM.• 2. Why should one become an entrepreneur?.

Give three reasons.• 3.Give three difference between a Manager

and Entrepreneur.• 4. State 3 classification of entrepreneurs

based on functional charactors.

Contd.

• 5. Give three classifications of entrepreneurs based on development angle.

• 6. Give three services and three industries under SME. : Assignment.

• 1. Discuss in detail role played by an entrepreneur in economic development of a country. Or Define intrapreneur and discuss his contribution for growth of an industrial group. How he differs from an entrepreneur.

Entrepreneurial Development models.

• 1. Psychological models. 2. Sociological models. 3. Integrated models. 1. significant lead in identification of determinants of entrepreneurship. This model ascribes more importance to achievement motives, which earlier related to child rearing practices. Now change in motivation is seen primarily as a result of ideological arousal of latent need of achievement.

Psychological.

• Identifying achievement orientation as a key variable in ED. Mc Clelland suggested motivation program as policy measure. Creative personality. Behaviorist model. Entrepreneurial behavior is a function of surrounding social structure, both past and present and can really be influenced by manipulating economic and social incentives. Kunkel’s model. Sociological variables as determinants.

Sociological Models.

• 2. Frank W Young’s theory. Society’s incorporation of relative sub-groups. The irrelativeness of a sub group which has a low status in a larger society will lead to entrepreneurial behavior if the group has better institutional resources than the society at the same level. Creation of supporting institutions in society as the determinant of entrepreneurship.

Integrated model.

• T.V.Rao. 1975. i. need for motive for prospective entrepreneur. Largest possibility of achieving goal if one performs those activities. ii. Long term involvement is the goal either at thinking level or at activity level, in entrepreneurial activity that is viewed as target to be fulfilled. Iii. Personal, social and material resources which, he thinks are related to entry and success in entrepreneurial activity.

Contd.

• (iv). Socio-political system to be perceived as suitable for establishment and development of his enterprise. B.S.Venkata Rao described the following five stages for promoting small entrepreneurships. 1. stimulation. Industrial atmosphere, positive policy, wide publicity of programmes, special schemes and support of institutions. Stimulate interest for development of industry in backward regions.

Contd.

• 2. Identification. Identify prospective entrepreneurs, they can be rural artisans, factory workers, trained people in engineering, technology or management. 3. development. Organization motivation and managerial training programmes, along with advice on technology, formulation of bankable project, location and so on etc. 4. Promotion. Government policy initiatives for small enterprises.

Contd.

• M.P. Akhori. Three main pillars: Stimulating activities, Support activities, Sustaining activities. 1. Entrepreneurial education, planed publicity of opportunities, identification of potential entrepreneurs, motivational training, help and guidance in selecting products and preparing project report, making available techno-economic information of product profiles.

Stimulatory activities.

• Evolving locally suitable new products and processes. Local agencies with trained personnel for counseling and promotion. Creating entrepreneurial forums. Recognition of entrepreneurs. SUPPORT ACTIVITIES: registration of units, arranging finance, providing land shed, power, water etc., guidance for selecting procuring machinery, supply of scarce raw materials, licenses for import.

Contd.

• Providing common facilities, granting tax relief or other subsidy, offering management consultancy services, help in marketing, providing information on services available. SUSTAINING ACTIVITIES: Help modernization, diversification/expansion/substitute production, additional finance for full capacity, balancing equipment, deferring repayment/interest, diagnostic industrial extension/consultancy.

Sustaining activities.

• Legislation/policy changes. Product reservation creating new avenues for marketing, quality testing and approving services, need based common facilities centers.

Problems faced by entrepreneurs.

• Entrepreneurs face number of problems in the promotion of units and during productions, marketing, distribution, procurement of raw materials, and availability of incentives offered by government. Can be divided into two. External and internal. Organized sectors have capacity to tide over due to financial strength. They can influence supply chain, government policy but SME requires special treatment.

Internal problems.

• (a) Technical feasibility; inadequate technical know-how, locational disadvantage, outdated production process. (b) Economic viability: high cost of input, break-even point at high level, uneconomic size of project, choice of idea, feeble structure, faulty planning, lack of strategies, lack of vision, inadequate connection, lack of motivation, underestimation of financial requirement.

Internal.

• Unduly large investment in fixed assets, over estimation of demand. 2. Implementation; Cost overrun resulting from delays in getting licenses, sanction, power, and shortage of WC. 3. Production management; inappropriate product mix, poor quality control, poor capacity utilization, high cost of production, poor inventory management, timely moderni-zation, wastage, poor quality,

Production contd.

• Labor management; High wage structure, poor handling of labor problems, excess manpower, poor labor productivity, poor labor relations, lack of trained or skilled manpower. Marketing management.; Dependence on a single/limited customer, poor sales realization, defective pricing policy, accepting large orders at fixed price in time of inflation, lack of market feedback, overtrading etc.

Contd.

• Administrative management; over centralization, lack of professionalism, lack of feedback to management (MIS),timely diversification, excess expenditure in R&D. EXTERNAL PROBLEMS: Infrastructural; location,power,water, irregular supply of critical rawmaterials,transport bottlenecks. FINANCIAL; Capital, WC, long term funds, recovery, taxation, RM, regulations, technology, government policy.

Specific Management problems.

• Management deficiency; specific problems; Management deficiency: one of the prime reason of unit becoming sick. With growing sophistication and modernisation of market requirements for products it is important to employ modern management technique. Lack of professionalism. Finance; many units donot get timely credit resulting in cost and time overrun. Poor inventory management.

Contd.

• Manufacturing and technical problems. Raw material, skilled labor, product becoming obsolete, technology transfer, poor quality control. Product Planning; right selection of product, keeping in mind technical and managerial ability of entrepreneur. SELECTION OF PLANT AND MACHINERY. Economic feasible high tech equipment. Human resource development; Right person, right job. People behind machine.

Contd.

• Technical know-how. Entrepreneurs go by trial and error. Non profit government organizations help entrepreneurs. PREPARATION OF PROJECT REPORT; Pre investment feasibility study. Conceptual clarity, proper study to prepare DPR. Environmental problems. To overcome entrepreneurs to go for capacity building.

General problems of SME.

• 1.Inadequate technical support to entrepreneurs from SMESI. 2. Suitable updated handbooks about various industries in SME. Higher purchase scheme helps large industries than small ones. Delay in provision of common infrastructure. Payment of bills by large units not in time. Lack of coordination with different agencies. Plethora of laws. Timely assistance for revival of sickness.

Problems.

• Not maintaining of proper records. Capacity building. Positive attitude, learn to handle money intelligently. Do not get disheartened by no but put best foot forward. Be involved. Never expect business to come automatically. Ask. Be a goal setter. Be organized. Be enthusiastic. With opening of economy tremendous opportunities and challenges lie ahead for entrepreneurs.

Institutional Support.

• Central level institutions. MSME development act 2006. DC SSI, National Institute of Entrepreneurship and small business development Noida. National Institute of Micro Small Medium Enterprises Hyderabad. MSME development Institutes. ESDP. Tool rooms. Job of DC SSI; Enterprise and skill development, technology up gradation, Access to credit.

Finance to MSME.

• MSME Act 2006: Notified on 16.6.2006. Came into effect on 2.10.2006. This act introduces the concept of enterprises in place of industry. SSI is now SSE. Two categories manufacturing/ production of goods and those engaged in rendering services in relation to any industry. The act classifies all enterprises into micro, small and medium. Micro investment in plant and machinery up to 25. small 25 to 500 lakhs.

Contd.

• Medium 5 cores but not exceeding 10 cores. Servicing equipment 10 lac , 10 lac to 2 cores, 2 to 5 cores. For calculating investment in plant and machinery the cost of pollution control equipments, research and development equipments, industrial safety devices and such other items as may be specified in the notification will be excluded.

National Board for MSME.

• The act in its section 3, provides for formation of National Board for micro Small and Medium Enterprises which is the apex statutory body and will have HO at New-Delhi. Board will have 47 members with minister in charge MSME as ex-officio Chairman. The board will examine the factors affecting the promotion and development of MSEs, review the policy and programmes of government on MSEs.

Contd.

• Under section 12 of the act the board will advise GOI on the use of funds constituted. It is a statutory body will meet at least once in every quarter. Instead of registration filing of memorandum. This is optional for micro and small, but mandatory for medium. The act provides the authority before whom memorandum will be filed. Central for medium and state for micro and small.

Measures for development of MSM sector.

• Promotion and development: Credit facility. The facilities should be progressive as per guidelines issued by RBI from time to time. Timely and smooth flow of credit. Procurement policy of GOI. Government to notify a preference policy for procurement of goods and services produced by micro and small enterprises by government departments.

Grants.

• As per sec 12 of the act GOI may sanction grant for credit to the fund formed under the act. This fund will be used for promotion and development of enterprises under MSM sector. Payment of dues of suppliers belonging to MSM. Payment to be made before agreed date. It may be 15 days from acceptance. But period should not exceed 45 days. If not paid buyer has to pay compounded interest with 3 times bank rate.

Contd.

• Amount paid will not qualify as expenditure under IT act. As per sec 22 of the act the buyer company is required to mention unpaid dues of MSM in their financial statement. In case of dispute the matter be referred to MSEFC by either party. Act provides state government to set up such councils in each state under DI of the state. Decision within 90 days. It can work as arbitrator under Arbitration and Conciliation act 1996.

Contd.

• Any appeal only after 75% payment agreed. No court below Metropolitan magistrate or 1st class magistrate shall try any offence punishable under the act. National Board for micro, small and medium enterprises is the apex body for formulating and recommending all promotional and developmental measures. GOI has formed many institutions like SIDBI, NSIC, SMERA and CGTMSE.

Contd.

• RBI has directed that all credit to micro and small enterprises will be classified as finance to PS. Provision on standard asset at 0.25 against 0.40 for other sectors. SIDBI. Established in 2.4. 1990. Finance through 6 channels. (i). Direct finance. (ii). Indirect finance by way of refinance. (iii). Venture capital finance. (iv) factoring services. (v) Bill rediscounting. (vi).Seed capital assistance.

Contd.

• Factoring is a derivative of trading concept. The agent in buyer’s country known as factor used to take responsibility of collecting dues on behalf of seller, giving rise to concept of factoring. International factoring net work. Advantage. Immediate finance upto certain percentage of export receivables. No LC business. Credit checking of all prospective debtors by factor.

Contd.

• Maintenance of entire sales ledger of exporter, asset management function, ensuring faster collection and safeguarding financial costs. Bad debt protection up to full extent on agreed terms, ensuring smooth cash flow. Cover operation to minimize losses form possible exchange fluctuations. Efficient communication, consultancy services.

SIDBI.

• It acts as a nodal agency for subsidy programs of GOI like TUF for textiles/jute. Tannery modernization scheme. Credit linked capital subsidy scheme for technology up gradation in certain sectors related to small scale sector. It is the principal promoter of CGTMSE which operates a credit guarantee scheme. Up to 100 lac if sanctioned without guarantee/collateral.

SIDBI.

• It has formed the Technology Bureau of Small Enterprises jointly with Asian and pacific Centre for transfer of technology of UN, to help micro and small enterprises to arrange global technology and finance. It is also promoter of SME Rating Agency of India Ltd. SMERA which provides rating exclusively to S&ME. It has established many branches in SSE clusters called SEFC, for providing credits along with banks.

NSIC.

• NSIV was set up by central government for development of small scale sector. It provides plant and machineries to MSEs on lease or higher purchase basis. It provides scarce raw materials to them. It provides marketing support for goods produced to government public sector. It acts as nodal agency for implementing GOI subsidy to SME for obtaining credit rating.

NSIC.

• SMEs are eligible for a subsidy of 75% of the expenses incurred. It acts as a nodal agency for arranging credit rating from CRISIL, ICRA, CARE, SMERA, Flitch, Dun & Bradstreet. As the rating terminology of these rating organizations are different, NSIC has introduced common scale ranging from 1 to 12 and converts the rating given by different agencies to this scale for uniformity in comparing ratings.

SMERA

• SME rating agency of India Ltd. Promoters SDBI, D&B Information Services India Pvt ltd, CIBIL, and few leading PSBs. Ratings provided are transparent, comprehensive, reliable. Reflect creditworthiness. Size indicator and Composite appraisal condition indicator. Fist is based on net worth of the unit. Composite Indicator varies from 1 to 8. A1 stands for net worth is above 20 cores and 1 indicates highest overall rating.

Contd.

• A better rating enables borrower to borrow on better terms, like lower collateral and lower interest rate. Many banks have entered agreement with SMERA for rating of their customers.

• DIC: All support for development of SME. Registration small optional medium mandatory. ( for filing of memorandum). Conduct feasibility study, recommend proposals to Fis.

SEFC.

• Small enterprises financial centers. These are branches of SIDBI which are located in industrial clusters. Synergy with CBs for timely credit. MOU with Banks. They provide term loan alone or with banks but WC through banks. They provide expertise in appraisal of loans, simplification of documents, application forms and other services to Banks on a nominal fees.

Other facilities.

• Preference in procurement price by central government. GOI notifies a preference policy for procurement of goods and services produced by micro and small enterprises by government departments. Presently price preference is 15%. SLIIC: State level inter institutional committees. Convened by RBI, Secretary/ Director of State government, representative of associations attend and problems sorted.

TREAD

• Tread related entrepreneurship assistance and development. For economic empowerment of women, through development of their entrepreneurship skill in non farm sector by proper training and finance through NGOs. Banks to NGO for onward lending to women groups, in small and micro sector. Ministry grants 30% of project cost for capacity building. Balance as loans by banks.

Contd.

• The ministry also provides grant up to 1lac under this scheme to training institute for conducting programs for ED. New debt restructuring scheme for SMEs. Like CDR this RBI scheme is from Sept 2005. Implemented by all PSBs. For DRM the unit should satisfy the following features. (i). Should be viable or potentially viable.(ii). For corporate SME with multiple banks fund and non fund limit be less than 10 cores.

DRM.

• For SMEs which are not corporate or corporate having finance from only one bank there is no restriction as to the level of dues to the bank. (iii). The borrower should not be willful defaulter. (iv). Account should not have been classified as loss asset. ( i.e. performing, substandard or doubtful). (v) if referred to BIFR permission from them. The unit should be in a position to be viable in 7 years.

Contd.

• And on implementation of proposed package the unit should be in a position to pay the restructured debt in 10 years. All banks are to formulate restructuring scheme for SMEs. Package to be finalized within 60 days on receipt of proposal. Credit linked capital subsidy scheme. This is extended to selected sectors. 15% of machineries with a cap of 15 lac. TUF and modernization of coir industry.

CGTMSE.

• On recommendation of S.L. Kapur committee an organization established for extending guarantee to banks against their lending to small enterprise. Credit Guarantee Fund Trust for small industries. 1.8.2000. Corpus of 2500 cores contributed by GOI and SIDBI. In 2007 the name of the trust changed to CGFT for micro and small enterprises. All activities as per Act of 2006.

Contd.

• Under the scheme trust provides guarantee to banks to the extent of 75/80/85 % of finance made to such units on fulfillment of terms and conditions. Eligible lending institutions: Scheduled commercial banks, selected RRBs. They are MLI. Three national level organizations SIDBI,NSIC,NEDFC have been specifically permitted by GOI to be MLI. Co-operative banks and NBFC are not covered.