entreprenue

PART I

LESSON NO. 1

ENTREPRENEUR AND ENTREPRENEURSHIP

WHO IS AN ENTREPRENEUR

• An economic agent.• Economic development of a nation depends upon entrepreneurs.• Has knowledge , skills, initiative, drive and spirit of innovation.• Achieving goals. • Seizes opportunities for economic benefits to oneself and to the society.

THE CONCEPT OF ENTREPRENEUR

The word "Entrepreneur" is derived from the French verb ENTREPREDRE. It means to undertake. According to Joseph Schumepeter, "An entrepreneur in an advanced economy is an individual who introduces something new in the economy a method of production not yet tested by experience in the branch of manufacture concerned, a product with which consumers are not yet familiar, a new source of raw material or of new markets and the like". The functions of an entrepreneur according to Schumepeter: - 1. Introduction of a new product, 2. Introduction of methods of production, 3. Developing new markets and finding fresh source of raw materials, and 4. Making changes.

According to Cantillon "An entrepreneur is the agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future".

To conclude an entrepreneur is the person, who bears risk, unites various factors of production, to exploit the perceived opportunities in order to evoke demand, create wealth and employment.

CHARACTERISTICS OF AN ENTREPRENEUR

•Action oriented.•Highly motivated individuals who takes risks to achieve goals.•Unwavering determination and commitment.•Creative and result oriented. They work hard in return for personal and financial rewards.•Accept responsibilities with enthusiasm and endurance.•Have self confidence, they are dedicated, setting self determined goals.•Thinkers and doers, planners and workers.•Depends on the intelligence, imagination and strength of purpose of the individual,

QUALITIES OF AN ENTREPRENEUREssential qualities of entrepreneurs are as follows: •Success and Achievement

Risk BearerOpportunity ExplorerPerseveranceFacing UncertainityFeedbackIndependenceFlexibilityPlanner. Self ConfidenceMotivator. Stress Taker

Above discussed qualities determines entrepreneurs are born not made. In other words business family background, knowledge and skills, education and experience is essential for a successful entrepreneur.

DISTINCTION BETWEEN AN ENTREPRENEUR AND A MANAGER

A manager executes the plans of the entrepreneur. Thus a manager translates the ideas into practice.

As an innovation he is called as change agent who introduces goods and services to meet changing needs of the customer

5. Innovation

A manager receives Salary as reward for service rendered which is fixed and regular can never be negative

Entrepreneur for his risk bearing role he receives profits. It is not only uncertain and irregular but can at times be negative.

4. Rewards

A manger being a servant does not bear any risk involved in the enterprise

An Entrepreneur bears all risks and uncertainty involved in the enterprise.

3.Risk

A manger is the servant in the enterprise.

Entrepreneur bears all risks and uncertainty involved in the enterprise.

2.Status

But the main aim of a manager is to render his service in an enterprise already set up by someone.

An entrepreneur starts a venture by setting up a new enterprise for his personal gratification

1.Goal Management

A ManagerEntrepreneurPoint or Distinction

10. Public bureaucracy

9. Customer relation

8. Management

7. Marketing

6. Parallel opportunities

5. New product5. Co-ordination with outside agencies

5. Innovation

4. Engineering 4. Tackling labour problem4. Management

3. Acquiring and assembly of the factory

3. Maintaining cordial employer and employee relation

3.Decision making

2. Dealing with public bureaucracy2. Expansion of the enterprise2. Organisation

1. Management of share resource1. Diversification of Production1. Planning

Function important for developing countries

Other FunctionPrimary function

FUNCTION OF ENTREPRENEUR

Planning process involves the following steps:

Scanning of the best suitable idea. Selection of product line. Determination of type of business organisation (Individual or partnership) Estimation of the capital needed. Selection of capital resources. Selection of location Studying the government, rules, regulation and policies. Selecting the way to fulfill the govt. formalities. Study of availability of labour force. Study of market and market strategy to be adopted.

ORGANISATION: Co-ordinates assembles and supervises land, labour and capital during the promotion stage and at the performance stage, for optimum utilisation of the resources. Efficient expansion and growth of the enterprise largely depends on the efficiency of the organisational network employed and monitored by the entrepreneur.DECISION MAKING Aruther H. Cole has described the entrepreneur as a decision maker. As a decision maker he takes various decisions regarding following matters:•Determination of the business objectives of the enterprise.•Decision regarding procurement of machine, material, men, money and market.•Decision regarding requisition of efficient technology and new equipments.•Decision regarding development of a market for the product.•Maintenance of good relations with public authorities and with society at large.

MANAGEMENT: The management with reference to entrepreneur stands for not only the working of the venture but also managing of the day-to-day problems. It includes future expansion and policies in the long run. Direction of men, machine, material, money, organising of land, labour and capital for the enterprise.

INNOVATION: Implies "doing of new things or doing of things that are already being done in a new way". Schumepeter considered economic development as a desire dynamic change brought by entrepreneur by instituting new combinations of production. According to him innovation may occur in any one of the following five forms.

Launching of new product in the marketIntroduction of new technology in the productionCreation of new marketDiscovery of new and better source of raw-materialCreation of monopoly or breaking up monopoly.

RISK BEARING: An entrepreneur undertakes the responsibility for loss that may arise due to unforeseen contingencies in future. He guarantees interest to creditors, wages to labour and rent to the landlord and risk can be insured.

UNCERTAINITY BEARING: Risk which cannot be insured against and it is incalculable. Entrepreneur bears uncertainity refers to the uncertain trends of market, trade credits etc. which by its nature cannot be insured, nor capitalised nor salaried too.Besides the above functions, the entrepreneur has to perform many other activities at the later stage

Diversification of production Expansion of the enterprise Maintaining cordial employer/employee relations Tackling of labour problems Co-ordination with outside agencies

The functions of an entrepreneur with reference to the underdeveloped countries include wide range of activities has been provided by Kilby.

Management of scarce resources. Dealing with public bureaucracy (concessions licenses, taxes) Acquiring and overseeing assembly of the factory. Industrial designing and engineering. Marketing of product and responding to competitions. Perception of market opportunities (novel or imitative). Financial and production management. Management of customers and supplier relations. Management of scarce resources. Innovation or creation of new product or service.

TYPES OF ENTREPRENEUR

Following are the classification of entrepreneurs on the basis of common characteristics.

Entrepreneur

4. Drone

3. Cognitive 3. Fabian

2. Large Scale 2. Public2. Rational 2. Imitative

1. Small Scale 1. Private 1. Empirical 1. Aggressive / innovative

D. On the basis of Scale of enterprise

C. On the basis of ownership

B. Arthur H. Cole Classification

A. Clarence Danhof. Classification

IVIIIIII

CONCEPT OF ENTREPRENEURSHIP

The term 'entrepreneurship' is often used synonymously with the term 'Entrepreneur' though, they are two sides of the same coin, conceptually they are different.

Entrepreneurship, as the indivisible process flourishes, when the interlinked dimensions of individual psychological entrepreneurship, entrepreneur traits, social encouragement, business opportunities, Government policies, availability of plenty of resources and opportunities converge towards the common good, development of the society and economy.

Entrepreneurship is the process of identifying opportunities in the market place, arranging the resources required to pursue these opportunities and investing the resources to exploit the opportunities for long term

gains. It involves creating wealth by bringing together resources in new ways to start and operate an enterprise.

According to Cole "Entrepreneurship is the purposeful activity of an individual or a group of associated individuals undertaken to initiate, maintain and aggrandise profit by production or distribution of economic goods and services".

According to Higgins "Entrepreneurship is meant to be the function of foreseeing investment and production opportunities, organising an enterprise to undertake a new production process, raising capital, hiring labour, arranging the supply of raw materials, finding site, introducing a new technique, discovering new resources or raw materials an selecting top managers for day to day operations of the enterprise.

The above definitions highlights risk bearing, innovating and resource organising aspects and an individual or group of people achieve goal through production or distribution of products or services.

To conclude entrepreneurship is set of activities performed by an entrepreneur. Thus, entrepreneur precedes entrepreneurship.The relationship between entrepreneur and entrepreneurship is given in the following table. ENTREPRENEUR ENTREPRENEURSHIP

Person ProcessVisualiser VisionOrganiser OrganisationDecision maker Decision makingInnovator InnovationRisk bearer Risk bearingMotivator MotivationCreator CreationLeader LeadershipManager ManagementInitiator InitiationPlanner PlanningTechnician TechnologyCommunicator CommunicatorAdministrator Administration

NATURE AND CHARACTERISTICS OF ENTREPRENEURSHIP

Above study of entrepreneurship has shown that the process of entrepreneurship is indeed complex and also when we say entrepreneur is what an entrepreneur does experts have enlisted the characteristics of entrepreneurship.

Ability to create enterprise Organising function Innovation Risk bearing capacity Managerial and leadership-functions Gap filling

Managerial and leadership activity

Organising factors of production

Entrepreneurship character

Ability to create enterprise

Risk bearing capacity

Innovative ideas

Gap filling function

SCOPE OF ENTREPRENEURSHIP

Entrepreneurship and the economic development compliment each other. An economic system of country determines the nature and scope of entrepreneurship. Entrepreneurship can bring about drastic changes in the very structure of the economy.

Entrepreneurship works in different ways in different economic systems such as capitalism, socialism and mixed economy.CAPITALISM A capitalist economy represents free enterprise, means freedom to save and invest, free competition, consumer sovereignty and very less interference from the government.Price of the product will be determined on the basis of the force of demand and supply with reference to cost of production. The entrepreneur controls all the activities with reference to the process of production and distribution. Entrepreneurs play vital and prominent role in the enterprise because, he controls domestic market by assuming the role of a competitor .

SOCIALISM Private entrepreneurship is absent in a socialist economic system. Economic and financial experts play important role in the development of entrepreneurship in the system. Such entrepreneurship mainly to serve the society not to mint money or to make profit only.

CENTRAL AUTHORITY in the socialism economy is appointed by the Governmental to make policies, frame plans and procedures for the proper and efficient mobilisation of resources, and mobilisation and allocation of resources into those industries of national prominence. In this system of economy private entrepreneur has neither a role or responsibility.

MIXED ECONOMY The mixed economy is characterised by co-existence of both the private and public sectors in, the same line of production. Consumer goods are left to the private enterprises. Government undertakes the production of capital goods.

In a mixed economy, restrictions are placed by the Government to eliminate the problems of monopoly capitalism. Government under this type of economy curbs the growth of monopolies and encourage competition.

Mixed economy has built in stabilisers which solve the problems of production, pricing and distribution in a better manner, apart from satisfying and helping in the various enterprise goals, mixed economy also helps in reducing of inequality of incomes among people, fixation of minimum wages etc. in an efficient and effective way.

Thus entrepreneurship plays a great and vital role in all major economic systems. Its importance stands beyond challenges and making of huge profit in every economic system.

Scope of entrepreneurship

Enterprise

CapitalismSocialism

Mixed Economy

Fig: Scope of Entrepreneurship

FACTORS AFFECTING ENTREPRENEURIAL GROWTH

Following are the factors of environment affecting entrepreneurial growth. These conditions are grouped under two categories.• Economic conditions• Non economic conditions

ECONOMIC CONDITIONS

Economic conditions includes the capital, labour, raw material and market.• Capital• Labour • Raw material • Market

NON-ECONOMIC CONDITIONS

Socio-cultural norms and values Degree of approval or disapproval of entrepreneurial behavior. Family background, standard of education, technical knowledge and in formation. Financial stability, caste and religious affiliation.

Psychological conditions are as follows.•David McClelland's 'Theory of need achievement’ According to him a constellation of personality characteristics, and high need achievement is the major determinant of entrepreneurship.•Individual works in the society but remains different.•Impact of achievement motivation and training programmes influence development of entrepreneurship.

POLITICAL/GOVERNMENT ACTION.

1.Government encourage entrepreneurship by creating basic facilities, utilities and services and by providing incentives and concessions.

2.Government provides the prospective entrepreneurship a facilitative socio-economic setting.3.Entrepreneurship development is based on the Government interest in economic development of the society.

Above discussed factors influence the emergence of entrepreneurship. These factors are interlocking, mutually dependent and mutually reinforcing.

LESSON NO. 2

ENTREPRENEURSHIP MOTIVATION AND ENTREPRENEURSHIP DEVELOPMENT PROGRAMME

INTRODUCTION TO MOTIVATION

•Human behaviour is governed by needs and desires. •Entrepreneurs feel motivated when their needs and expectation are satisfied as a result of working for the enterprise.

MEANING OF MOTIVATION

The term 'motivation' has been derived from the word motive. "Motive' may be defined as an inner state of our mind that moves or activates or energies and directs our behaviour towards our goals. Motives are expression of a person's goals or needs. They give direction to human behaviour to achieve goals or fulfill needs, motive arouse and energize a persons activities.

Motivation may be defined as a process of stimulating someone to adopt a desired course of action. In order to intensify the willingness of a person to work hard for achievement of organisational objectives, his motive must be satisfied by offering incentives. An incentive is something an individual perceives as helpful towards achieving his goals. Incentives exist to satisfy human needs.

DEFINITION OF MOTIVATION

According to Robert Dubin "something that moves the person to action and continues him in the course of action already initiated.

According to Dalton E McClalland "motivation refers to the way in which urges, drives, desires, striving, aspirations or needs direct control or explain the behaviour of human being"

MOTIVATIONAL PROCESS

Motivation is the result of an interaction between human needs and incentives., A person feels motivated when available incentives lead to the satisfaction of his motives or needs. Various steps in the process of motivation are described below.

Motive

GoalBehaviour

Fig: Motivational Process

Awareness of need is the first step in the motivational process. Motives are directed towards the realisation of certain goals, which in turn determine human behaviour. This behaviour leads to goal directed behaviour. In, order to satisfy and achieve goal. Individual looks for a suitable action. He develops certain goals and makes an effort to achieve them.

MOTIVATION THEORIES

Motivation explains about human nature and human need. Maslow's needs of hierarchy and McClelland acquired needs theory are prominent theories among these theories which has relevance to entrepreneurship.

MASLOW'S NEED OF HIERARCHY THEORY

Psychological needsSafety and security needsSocial needsEsteem needs

•Self Actualisation

McCLELLAND'S ACQUIRED NEED THEORY (OR ACHIEVEMENT – MOTIVATION THEORY)

As a result of ones life experience a person experiences three types of needs.

Need for affiliation Need for power Need for achievement

MOTIVATING FACTORS

Following are the factors motivate an entrepreneur. They are of two types

Internal External

INTERNAL FACTORS

Desire to do something new Educational qualification Technical background No. of years of experience Occupational background

EXTERNAL FACTORS

Government support and assistance Availability of factors of production Encouragement from already established business house Promising demand for the product

ENTREPRENEURSHIP DEVELOPMENT PROGRAMME

ENTREPRENEURSHIP DEVELOPMENT: INDIA'S EXPERIENCE

Based on the belief that potential entrepreneurs can be identified and trained, the entrepreneurship development programme (EDP) has been designed to promote small enterprises by tapping this latent talent. The programmes uniqueness lies in its integrated approach, which provides instructions and counseling from selection through the actual operation of enterprises.

In India in the 1960's a great deal of discussion centered up on whether growth could resolve income and regional disparities and whether the fruits of development were being concentrated in a few areas and classes. India's development strategy was altered in 1969, to give particular emphasis to industrial promotion in relatively backward states and districts. It was soon clear, however, that fiscal and financial incentives by themselves would be insufficient.

Technical assistance will also be required if non-traditional sources of entrepreneurial talent were to be tapped. It was in response to this need that Gujarat's financial institutions evolved a practical, result-oriented programme to develop such entrepreneurs.

EDP was initiated in 1970 under a sponsorship of a state financial cum promotional institution, the Gujarat industrial and investment corporation. The programme was run by GHC, and its basic elements and its characteristics were crystalised through repeated experience experiments until 1987, when Gujarat's financial and institutions and industrial promotions agencies jointly sponsored a separate centre for entrepreneurship development to administer the programme. The centre's success in turn convinced India's national financial institutions that the programme was relevant for other states and a national agency would be needed. The entrepreneurship. Development Institute of India (EDI-I) was set up in 1983 to conduct research offer consultancy and training and assist state level agencies in carrying out their programme.

Throughout the programme's evolution its approach has remained grounded in the belief that effective psychological behaviour testing can identify potential entrepreneurs and that careful guidance in the selection of suitable enterprises and appropriate practical training can develop successful entrepreneurs. The programme has been designed to strengthen potential entrepreneurs confidence in their own ability, impart necessary skills and knowledge about financial, technical and managerial aspects of business; to provide information and assistance in identifying formulating and implementing projects to help secure the required financial and technical assistance; and finally to offer follow up services to assist them with the teething problems that accompany the operation of new company.

EDP is characterised by an emphasis on operational rather than academic training, flexible design of training programmes to meet the specific need of the participants and active involvement of the financial and business communities. The programme directly ties its training to the setting up of enterprises and tailors, its techniques and strategies to the socio-economic and cultural contexts in which it operates. Costs are kept down and training kept practical through the participation of established entrepreneurs, businessmen and others within the field experience, who participate in the programme at their own cost.

While each programme is adapted to local needs, the basic aspects of EDP are the same and are summersied here. Selection of trainees is the initial step in the entrepreneurial development the identification process is supervised by the programme's trainer motivators work in a very personal manner. By contacting social workers, teachers, bankers and other socially respected but non-political person, they develop a list of suitable candidates.

Application are distributed personally and individually interviews are conducted. In urban areas newspapers advertisements or poster notices might be used to attract application and forms are often distributed through the mail.

At successive stages, applicants are evaluated, on the basis of behavioral science techniques to determine the extent of their entrepreneurial capacity. Testing is meant to measure, among other things, candidates motivation to achieve, their capacity to take risks and resolve problems, the extent of their positive self image, and their interest in setting up business by trying something new or unconventional. Personal interviews conclude the selection process, permitting a committee that includes trainer and business and academic experts to make a final assessment of entrepreneurial aptitude and a determination of what will be needed in training.

Training EDP emphasises practical hands on experience. It is designed to motivate participants, guide them in the selection of appropriate opportunities and develop their management skills. The programme used behavioral and psychological techniques to intensify the desire to achieve, to develop the ability to define goals realistically and to fulfill them, and to increase self awareness and confidence. In helping trainees find appropriate enterprise EDP counsels trainees on available opportunities and helps them to turn their interests with projects that may already have been identified by technical consultancy agencies or are known to be candidates for start up funding. Participating ,experts from management schools and entrepreneur are on hand to explain to trainees what will be required to manage a small business.

The training process is centered around a subject exercise, which involves participants in the conduct of market surveys and the preparation of project plans. Trainees are exposed to the thought processes and field experience necessary to make a rational choice of business product line, market mix, and related aspects of the projects. The exercise culminates with the completion of a project report.

Ideally commercial banks and other supporting institutions are brought into this process at an early stage. Finance can thus be raised for the project, and a link thereby established between the completion of training and support of financial institution for the implementation of the project.

At the meeting of the senior executives of the All India Financial Institution held on 19 May 1979, it was felt that state level institution can be the best agency for conducting EDP's. The state level inter institutional group (IIG) would, therefore appear to be a suitable agency to co-ordinate, monitor and follow up the entire programme at the state level. As suggested at this meeting an advisory board of 10/12 persons could be set up at the state level comprising representatives of the state government, IDBI, IFCI, ICICI state level institutions, SISI, major nationalised banks and DIC's to work out the detailed programme and review progress. This body could at best be a subcommittee of IIG, on which all the institutions referred to above are represented. This plan presuppose an adequate number of trained trainers to execute the plan.

A "lead" institution, for a start, could commence with a few of the districts under its charge and as it gains experience could gradually cover the other districts for which it is responsible.

The activities of the state level committees will be supervised and monitored by an All India Advisory Body. To prevent the body from being too unwieldy it is suggested that it may comprise a representative each from the DIC. SSI. The all India Financial institutions and a zonal representative from the northern southern/eastern and western zones. An organisational chart of the operational machinery is given below:

Advisory body at the all India level coordinating body at the state level (preferably a sub-committee of IIG) "lead" institutions at the regional/district level.

The "lead" institution in turn will have their own organisational structure. It may be mentioned that SBI has an EDP cell in each circle. "Lead" institutions could form similar cells. ,

The contribution of entrepreneurship development programmes is very uneven among different regions and definite programmes need to be chalked out to bring about some degree of uniformity and upgradation. Before these problems are tackled, some important issues need immediate attention for e.g. (1) structure and composition of entrepreneurship development prograrnmes (2) area of operations (3) fixing of priorities (4) follow up (5) spatial dispersal of the entrepreneurship development programmes (6) training of trainees (7) financing pattern.

Apart from these some of the operational problems experienced in the course of implementing the entrepreneurship development programmes are listed below:Past experience has shown that the supporting agencies \ organisations either tend to be slipshod in the first or are less interested in the third phase which means that the programme fails to tap the entrepreneurial potential of the area or trained entrepreneurs do not receive the support and counseling which they need most.

Most of the existing support organisations meant for maintenance operation are not for innovative functions. There is also an element of cynicism. A re-orientation in the attitude of supporting organisations is called forth.

Post investment on the part of institutions as also trainees and wrong selection of target groups contributed largely to the failure of a number of entrepreneurship development programmes.

Experience revealed that entrepreneurial failures are mostly due to incompetence and poor management.

It is also said that there is an inherent inability to identify the needs of instructions and differences of opinion prevailed amongst the trainees.

It is also stated that there is a low institutional commitment for local support to the entrepreneurs. There is also a very low level of involvement in the marketing of the products of the units.

Non availability of various inputs i.e. raw materials, power etc. and, infrastructure support combined with poor follow up by the primary monetary institutions resulted in the failing the entrepreneurship development programmes. It is also stated that there is ill planned training methodology inconsistency in the programme design, its content sequence and theme and the focus of the programme is not clear. Training institution do not have much concern for the objective identification and selection of entrepreneurs and the follow up after training. Some of the institutions are still debating whether to have proper identification and selection of entrepreneurs for preparing successful entrepreneurs. Those involved in and concerned with the selection and follow up activities have either limited manpower support or a narrow linkage with other support agencies.

• It is also said that there is no standard curricula even in terms of a broad module being adopted by interventions.

• A majority of institutions engaged in the entrepreneurship development programmes are themselves not convinced of what they are doing as the task is delegated by the government. As a result the social objective aimed at is not achieved.

• Perpetual ambiguity in the objective of entrepreneur development programmes seems to have percolated to the grass root level with a significant deterioration in terms of content and interest.

Entrepreneurs are not necessarily born they can be developed through education, training and experience. Entrepreneurs talent exists in every society and in all sections of the society. In India socio-economic environment hinders the emergence of entrepreneurial talent. In India tremendous talent exists if it is properly harnessed, can help accelerate the pace of socio-economic development, balanced regional growth, self and gainful employment such as realisation on the part of planners and policy formulators has resulted in the emergence of Entrepreneurship Development programme, Development of entrepreneurs means inculcating entrepreneurial skills required for setting up and operating business units. Entrepreneurship Development is an organised and on going process. It's basic purpose is to motivate person for entrepreneurial career.Entrepreneurial development programme is a process which involves the various steps.•In the pertaining phase selection of persons with the required potential in terms of knowledge attitudes and motivation.

•Creating of infrastructure for training programme such as NIESBUD •Designing techniques for training•Selection and training process•Survey of environment•Various strategies to make entrepreneurship development more effective

Success lies in providing each of the development point in a integrated manner. Any partial assistance either in the form of finance or training done would not bring the desired result.

Various organisations are working to promote entrepreneurship development programme. National Institute for Entrepreneurship and small Business Development (NIESBUD) co-ordinates activities of various institution or agencies engaged in entrepreneurship development of particularly in small industries. Industrial activities include effective training strategies and methodology, standardising model syllabi for training group

OBJECTIVES OF ENTREPRENEURSHIP DEVELOPMENT PROGRAMMES

Following are the important objectives:-

•Analyse the environmental set up relating to small industry and small business.

•Selection of product and project

•Develop and strengthen entrepreneurial qualities.

•Understand procedure of small scale industries.

•Develop wide vision about the business.

•Develop passion for integrity and honesty.

•Understand the need of entrepreneurial discipline.

STRATEGY FOR ENTREPRENEURSHIP DEVELOPMENT

Keeping this background in view, the following strategies for entrepreneurship development in India may be suggested.

Public entrepreneur should remain confined only to those industries and sectors where private enterprises, individual or corporate is generally not attracted. Existing public entrepreneur be improved through better management and by putting relatively greater emphasis on R& D. There is need to streamline the R & D wing of public sector enterprises.All possible efforts made seriously for the development of an industrial culture. It should be realised that the central core of entrepreneur is the motive force, since by its very nature entrepreneurship implies positive action and initiative. Motivated individuals with the right kind of combination of abilities and attributes can pursue their goal with unremitting courage and enthusiasm.

There is need to develop management education and industrial training in modern times, management education is being viewed as an effective supplement. Facilities should be provided on an increasing scale for sending talented young men and women to business schools abroad. New industrial training congress well equipped may as well be established. Quite often the entrepreneur transforms himself to a manager.

The development of backward regions/areas constitutes a new challenge. Programmes for their development be drawn up and should be effectively implemented. Such programmes await new entrepreneurs whose technical expertise and managerial competence would bring about the desired development and fulfill social needs.

Economic administration by the state should be improved, made more effective so that economic policies may fully achieve the objective in the overall interest of the economy administration and in ensuring and increasing the supply of entrepreneurship. Monopoly benefits to a few big entrepreneur is an evil and must be checked. The, general policy of encouraging the small entrepreneur will go long way in the activising and broadening the leadership potential. Improvement in business climate by state through its well designed economic policies be it fiscal, commercial, industrial or agricultural will benefit humble entrepreneur in changing society and would facilitate healthy development of entrepreneurship.

Greater emphasis should be laid on search from within the emphasis be put on research relating to processes and enhancement of the value of indigenous techniques. This would have an encouraging impact on entrepreneurship and technology at home.

LESSON NO. 3

ENTREPRENEURIAL VALUES AND ATTITUDES

ENTREPRENEURIAL VALUES

Values are generalised and organised conception influencing the behaviour and nature of human beings. It is a set of beliefs about various aspects of the world. Values provide standards that guide behaviour. Values are also reflective of a culture and are widely shared by those belonging to that culture. Accordingly, values are the inner most layer of the self which provides the goal and direction to an individual.

In terms of entrepreneurship, it means the cognitive functioning of entrepreneurship. Values are also responsible for the selectively organised perception and inter action which an individual has with his outside world or the environment.

Akhorie and Mishra (1988) considered the following four values prominent among entrepreneurs. These are directed towards

•Innovativeness•Independence•Outstanding performance•Respect for work

These values are important to distinguish between entrepreneurs and nonentrepreneurs. We can develop entrepreneurship in the society by introducing these values and strengthening them through organised training.

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ENTREPRENEURIAL ATTITUDE

Those who have imbibed the above mentioned values generally develop common 'tendencies' to act in any given situation. For example, those who value innovativeness develop tendency to use imagination for sensing opportunities. In selecting a goal or line of action or means of tackling a situation they show a tendency to take certain amount of risk. The tendencies to act in response to stimulus is called attitude.

A group of persons may decide similar or different course of action (Or a given situation depending upon similar or different attitudes. Accordingly, the attitude is defined as "an enduring organisation of motivational, emotional, perceptual and cognitive process with respect to some aspect of individual's work". Attitudes that show the entrepreneurial pre-dispositions play a significant part in making a successful entrepreneur. The genesis of such attitudes, however, can be traced to the Value system.

Akhori and Mishra have considered the following attitudes as closely related to entrepreneurship:

Tendency to take moderate risk. An eye for economic opportunity. Imaginative. Initiative. Believe that they can change the environment. Enjoy freedom of expression. Analysing situation and planning action. Satisfaction from successful completion of task.

LESSON NO. 4

ACHIEVEMENT MOTIVATION WORK DONE BY D. McCLELLAND (Also known as “The Kakinada Experiment”)

The need for achievement plays an. important role making an entrepreneur as successful. It is a spirit that activates an entrepreneur to strive for success. In simple terms, need for achievement is the desire to do well. The empirical evidences support the hypotheses that need for achievement contributes to entrepreneurial success. Hence, thin is ft need for developing achievement motivation for developing entrepreneurship in an economy.

develop achievement motivation? David McClelland, a well-known behavioural scientist of USA holds the view that achievement motivation can be developed through. ft" and experience. For this, McClelland conducted his experiments with -•Groups of businessmen in three countries, i.e., Malawi, India and Equator.

•carried out a separate full-fledged training programme in India to instill achievement motivation in the minds of entrepreneurs

•His successful experiment is popularly known as 'Kakinada Experiment'.

•Kakinada is an industrial town in Andhra Pradesh. The experiment started in January 1964.

•main objective of the experiment was to break the barrier of limited aspirations by inducing achievement motivation.

•A total of fifty-two persons were selected from business and industrial community of the town.

•They were given an orientation programme at Small Industry Extension Training Institute (SIET), Hyderabad.

•The participants were grouped into three batches.

•Training programme was designed in such a way that it could help the trainees improve imagination and enable them introspect their motivation Accordingly, the programme included the following items:

•The individuals strived to attain concrete and regular feedback.•The participants sought models of achievement to emulate.•The participants thought of success and accordingly set plans and goals.•The participants were encouraged to talk to themselves in a positive manner.

•The impact of this training programme on the participant’s behaviour was observed after a period of two years.

•The observations were encouraging. It was found that those attended the programme performed better than those did not.

•The participants need for using Thematic Apperception Test (TAT) assessed achievement. In this TAT, ambition related pictures were displayed to the trainees and then they were asked to interpret the picture and what is happening in the picture. Thereafter, all the themes related to achievement were counted and, thus, the final score represented one's need for achievement.

•McClelland reached to this conclusion that the training programme positively influenced the entrepreneurial behaviour of the participants. As regards caste, the traditional beliefs and imitation of western culture, they did not determine one's behaviour as an entrepreneur. That the need for achievement motivation can be developed more especially in younger minds is well supported by the cross country experiments.

For example, a junior Achievement Programme' is started in the United States of America with a view to instill achievement motivation in the minds of younger generation.

Similarly, in United Kingdom, 'Young Enterprise" programme has been started with the same objective of inducing achievement motivation in younger minds.

The above said experiments / programmes have made us to realise that entrepreneurship is to be developed from a very young age. Accordingly, efforts have been made to develop a school curriculum that would result in a high need for achievement among the students. For this purpose, the success stories drawn from history and legends of the indigenous culture are introduced in course curriculum to induce in young minds the 'need for achievement 'and strong desire to do something good/great they grow up. This is because the younger minds are mom susceptible to change.

LESSON NO. 5

INTRAPRENEURIAL LEADERSHIP CHARACTERISTICS

Within this overall corporate environment, there are certain individual characteristics identified for a person to be a successful entrepreneur. As summarized in Table, these include understanding the environment, being visionary and flexible, creating management options, encouraging teamwork while employing a multidiscipline approach, encouraging open discussion, building a coalition of supporters, and persisting.

An entrepreneur needs to understand all aspects of the environment. Part of this ability is reflected in the individual's level of creativity. Creativity, perhaps at its lowest level in large organizations, generally tends to decrease with age and education. To establish a successful entrepreneurial venture, the individual must be

INTRAPRENEURIAL LEADERSHIP CHARACTERISTICS

Understands the environment. Visionary and flexible. Creates management options. Encourages teamwork. Encourages open discussion. Builds a coalition of supporters. Persists.

creative and have a broad understanding of the internal and external environments of the corporation. The person who is going to establish a successful new intrapreneurial venture must also be a visionary leader.

Although there are many definitions of leadership, the one that best describes that needed for Intrapreneurship is: "A leader is like a gardener. When you want a tomato, you take a seed, put it in fertile soil, and carefully water under tender care. You don't manufacture tomatoes, you grow them." Another good definition is that "leader ship is the ability to dream great things and communicate these in such a way that people say yes to being a part of ' the dream." Martin Luther King, Jr. said, "I have a dream," and articulated that dream in such a way that thousands followed, in spite of overwhelming obstacles. To establish a successful new venture, the intrapreneurial leader must have a dream and overcome all the obstacles to achieve it by selling the dream to others.

The third needed characteristic is that the intrapreneur must be flexible and create management options. An intrapreneur does not "mind the store," but is open to and even encourages change. By challenging the beliefs and assumptions of the corporation, an intrapreneur has the opportunity to create something new in the organizational structure.

The intrapreneur must possess a fourth characteristic: the ability to encourage teamwork and use a multi disciplined approach. This also violates the organizational practices and structures taught in most business schools and apparent in established corporate plans. Every new company formation requires a broad range of business skills: engineering, production, marketing, and finance. In forming a new venture, recruiting those in the organization usually requires crossing established departmental structure and reporting systems. To minimize the negative effect of any disruption caused, the intrapreneur must be a good diplomat.

Open discussion must be encouraged to develop a good team for creating something new. Many corporate managers have forgotten the frank, open discussion and disagreements that were a part of their educational process. Instead, they spend time building protective barriers and insulating themselves in their corporate empires.

A successful new intrapreneurial venture can be formed only when the team involved feels the freedom to disagree and to critique an idea in an effort to reach the best solution. The degree of openness among the team depends on the degree of openness of the intrapreneur.

Openness leads also to the establishment of a strong coalition of supporters and encouragers. The intrapreneur must encourage and affirm each team member, particularly during difficult times. This encouragement is very important, as the usual motivators of career paths and job security are not operational in establishing a new intrapreneurial venture. A good intrapreneur makes everyone a hero,

Last, but not least, is persistence. Throughout the establishment of any new intrapreneurial venture, frustration and obstacles will occur. Only through the intrapreneur's persistence will a new venture be created and successful commercialization result.

ESTABLISHING INTRAPRENEURSHIP IN THE ORGANIZATION

An organization desiring to establish an intrapreneurial environment must implement a procedure for its establishment. Although this can be done internally, frequently an organization finds it easier to use someone outside to facilitate the process. This is particularly true when the organization's environment is very traditional and has a record of little change and few new products being introduced.

The first step in this process is to secure a commitment to intrapreneurship in the organization by top, upper, and middle management levels. Without top management commitment, the organization will never be able to go through all the cultural changes necessary for implementation. Once the top management of the organization has committed to intrapreneurship for a sufficient period of time (1 to 3 years), the concept is introduced throughout the organization. This is accomplished most effectively through seminars, where the aspects of intrapreneurship are introduced and strategies are developed to transform the organizational culture into an intrapreneurial one.

General guidelines need to be established for intrapreneurial venture development. Once the initial framework is established and the concept embraced, intrapreneurial leaders need to be identified, selected, and trained. This training needs to focus on obtaining resources within the organization, identifying viable opportunities and their markets, and developing the appropriate business plan.

Second, ideas and general areas that top management are interested in supporting should be identified, along with the amount of risk money that is available to develop the concept further. Overall program expectations and the target results of each intrapreneurial venture should be established. As much as possible, these should specify the time frame, volume, and profitability requirements for the new venture, and the impact of the organization. Along with the intrapreneurial training, a mentor/sponsor system needs to be established. Without sponsors or champions, there is little hope that the culture of the organization can be transformed into an intrapreneurial one.

Third, a company needs to use technology to make itself more flexible. Technology has been used successfully for the past decade by small companies that act like they are big ones. How else could a small firm like Value Quest Ltd. compete against very large money management firms except through a state-of-the art personal computer and access to large data banks? Similarly, large companies can use technology to make themselves responsive and flexible like smaller firms.

Fourth, the organization can firmly establish an intrapreneurial culture by using a group of interested managers to train and share their experiences. The training sessions should be conducted one day per month for a specified period of time. Informational items about intrapreneurship in general and about the specifics of the company's activities in developing ideas into marketable products or services that are the basis of new business venture units should be well publicized. This will require the intrapreneurial team to develop a business plan, obtain customer reaction and some initial intentions to buy, and learn how to coexist within the organizational structure.

Fifth, the organization needs to develop ways to get closer to its customers. This can be done by tapping the database, hiring from smaller rivals, and helping the retailer (see Table). Pepsi Co., Inc., is spending about $20 million to create electronic profiles of about 9 million Pizza Hut customers. Dannon is sharing its research with retailers and tailoring much of its marketing effort to the individual chains.

Sixth, an organization that wants to become more entrepreneurial must learn to be more productive with fewer resources. This has already occurred in many companies that have downsized. Top heavy organizations are out of date in today’s hyper competitive environment. To accommodate the large cutbacks in middle management, much more control has to be given to subordinates at all levels in the organization. Not surprisingly, the span of control may become as high as 30 to I in divisions of such companies. The concept of "lean and mean" needs to exist if intrapreneurship is to prevail.

METHODS FOR GETTING CLOSER TO THE CUSTOMER

How Big Marketers Can Act as Deftly as Small Companies ...Tap the database Use purchase data to customize incentives and direct

mail based on demographics, location, product preference, and price.

Hire from They excel at "guerrilla marketing"using localpromotions to get smaller rivals closer to customersand break through advertising clutter.

Help your retailer Create store specific marketing programs as Dannondoes for retailers selling its yogurt will win retailerloyalty, differentiate your product, and bad local

sales.

………and Small Marketers Can Outwit the Giants

Find the missed Small marketers can often focus on a relatively neglected product-such opportunities as tduct tape or dental floss and take share from a bigger player or increase

sales in a tired category.

Apply the Smaller marketers can get a big payoff

when top executives pay personal personal touch attention to customers' letters, retailers’

queries, and sales staff's suggestions. Embrace technology The cost of database technology is

dropping, making direct-mail marketing a viable tactic for small

marketers with tight budgets.

Seventh, the organization needs to establish a strong support structure for intrapreneurship. This is particularly important, since intrapreneurship is usually a secondary activity in the organization. Since intrapreneurial activities do not immediately affect the bottom line, they can be easily overlooked and receive little funding and support. To be successful, these ventures require flexible, innovative behavior, with the intrapreneurs having total authority over expenditures and access to sufficient funds. When the intrapreneur has to justify expenses on a daily basis, it is really not a new internal venture but merely an operational extension of the funding source.

Eighth, the support must also involve tying the rewards to the performance of the intrapreneurial unit. This encourages the team members to work harder and compete more effectively, since they will benefit directly from their efforts. Because the intrapreneurial venture is a part of the larger organization and not a totally independent unit, the equity portion of the compensation is particularly difficult to handle.

Finally, the organization needs to implement an evaluation system that allows successful intrapreneurial units to expand and unsuccessful ones to be eliminated. Just as occurs in an entrepreneurial firm, when a good job is done, an intrapreneurial unit should be allowed to expand to fill market demands as warranted. The organization can establish constraints to ensure that this expansion does not run contrary to the corporate mission statement. Similarly, inefficient intrapreneurial venture units should not be allowed to exist just because of vested interests. To have a successful intrapreneurial environment, the organization must allow some ventures to fail even as it allows more successful ones to expand.

LESSON NO. 6

IDENTIFICATION OF BUSINESS OPPORTUNITIES

INTRODUCTION

Study government rules and regulations regarding different business opportunities. Extensive study of promising investment opportunity. SWOT analysis of business potential (strength, weakness, opportunities and threats)Market survey.

SOURCES OF BUSINESS OR PRODUCT IDEAS

Market characteristics. Import and Exports Emerging new technology and scientific know how Social and Economic Trends Product profile Changes in consumption pattern Revival of sick units Trade fairs and Trade journals

IDENTIFYING A BUSINESS OPPORTUNITY

Two major characteristics of a business opportunity should be highlighted.•Good and wide market scope i.e. gap between present or likely demand and supply.•An attractive, acceptable and reliable return on investment

Business opportunity need to be analysed from the view points of production, commercial, managerial, potential and prospective demand for the product, technical viability etc.

STEPS IN IDENTIFICATION OF BUSINESS OPPORTUNITY

Identification of opportunity involves following steps.

• Preliminary evaluation• Selection of product or service• Conduct a market survey• Contactual programmes to collect sufficient information about proposed venture• Succeeding in the market

PRELIMINARY EVALUATION

As soon as entrepreneur realise regarding business opportunity, he has to evaluate investment opportunities against set of specific criteria to select those project ideas which are commercially feasible. The criteria’s are:

Is opportunity compatible with the promoter. Is opportunity compatible with government regulations and priorities. Whether raw materials are easily available. What is the size of the potential market. Whether cost justifies the project. What is the risk inherent in the project.

SELECTION OF PRODUCT OR SERVICE

Entrepreneur should identify the product, which he wish to manufacture. While deciding about the, product following points should be considered:

Potential demand for the product or service. Estimated volume of demand for the product Assess potential of existing competitor and estimate about probable competitors. Study the scope for future demand. Infrastructural facilities power, transport etc. Current status of technology and scientific development in the field. Availability of raw material and required labour. Government policies, legislation, controls. Environmental factor.

Degree of profitability for the product. Information regarding particular line of product. Locational advantage of the product. If product belongs to an ancillary unit and serves as major component for the parent industry. It provides a ready demand hence selection of this type of product entails easy marketability. Selection of a product would also be assessed in favour of availability of skilled and unskilled labour. Study the various characteristic of the proposed product to be produced.

CONDUCT A MARKET SURVEY OR PURPOSE OF MARKET SURVEY

Market survey with reference to the availability of raw material, equipments, marketing and distribution and consumer behaviour should be conducted.

Raw material availability: Equipment, availability: Marketing and Distribution: Consumer Behaviour.

CONTACT PROGRAMMES TO COLLECT SUFFICIENT INFORMATION ABOUT PROPOSED VENTURE

Entrepreneur often need information and guidance, particularly in the initial stages, on product potential, raw materials, policies, facilities, procedures, finance formalities, incentives etc. It can be collected through State Government agencies.

Contact with central and state level agencies set can be helpful in collecting sufficient information about proposed venture. Industrial Finance Corporation of India (IFCI) in collaboration with Industrial Development Bank of India (IDBI) Industrial Credit and Investment Corporation of India (ICICI), state organisations and banks, have set up a network of state level technical consultancy agencies. They offer a package of professional and consultancy services to stimulate industrial growth.

Entrepreneurship development programmes of 6 weeks duration are designed to impart following information:

How to develop entrepreneurial capabilities. Identify viable projects for potential entrepreneurs. Impart managerial skills. Help and secure necessary financial and infrastructural related assistance.

These technical consultancy agencies also monitor the progress of the unit.SUCCEEDING IN THE MARKET

There is no way your business will earn money and profit unless customers buy product or service. The secret formulae for an entrepreneur’s success is to produce what customers will buy.Following are the important characteristics, which help the entrepreneur to succeed in the market. • Study people and their needs before starting any project.

• Identify unsatisfied needs.• Design product in such a way that it should satisfy the customer better than the competitors product.• Ensure that what customer feet about the product which entrepreneur is offering.• Always look for newer and more effective ways of reaching a customer.

Entrepreneurs must have clear vision, goals and objectives, well defined mission, and employees participation about the proposed project.

Constant feed back of results as well as setting and adherence of high standards gives an organisation a cutting edge over others. Planning, foresight and analysis are also important qualities.

The process of systematic market research is used to develop products or process and to provide value for money to the customers. This helps to gain the market share.

Another important characteristic for successful business is a commitment to innovation which is vital in keeping ahead of the competition and perhaps the most difficult one to achieve yet most of the organisations just do not give due importance for the same.

LESSON NO. 7

MARKET SURVEY

INTRODUCTION AND MEANING

Although informal marketing research has been practiced ever since firms began to market their products, formal marketing research has developed only during die past six or seven decades. The key distinction is that the formal approach is systematic. It follows an orderly sequence in which each step is subordinated to a larger systematic whole to provide reliable information for decision making.

Marketing research therefore refers to the systematic collection, recording and analysis of data relevant to marketing problem of a business in order to develop an appropriate information base for decision making in marketing area.

DEFINITIONThe American Marketing Association (AMA) defines marketing research as "the systematic gathering, recording and analyzing of data about problems relating to the marketing of goods and services".

Richard D. Crisp defines Marketing Research as "the systematic objectives and exhaustible search for the study of facts relevant to any problem in the field of marketing".

Clark and Clark defines Marketing Research as "Marketing Research is the careful and objective study of product design, markets and such transfer activities as physical distribution, warehousing, advertising and sales management.Marketing Research is a continuous process of investigation, recommendation and follow up of marketing problems, which is conducted by the marketing researcher. The Entrepreneur obtains the information from the researcher and makes sound decisions.

PURPOSE OR OBJECTIVES

The contributions of market research are considerable. It facilitates both the decision making and the operational tasks of an entrepreneur. It contributes towards achieving both consumer satisfaction and sales profitability.The purpose of conducting. Marketing Research are to:

• Help in the selection of a right course of action.• Identify various opportunities or problems.• Evaluate the need of the customers.• Analyse the probable market for the product• Briefly study the competitors and the substitute products.• Identify the best sources of distributing the products.• Estimate future sales and expected share of the market.• Study the acceptance of the product, package, price, colour, etc. by the consumers• Analyse the effectiveness of advertisement.•Assess the sales representatives efficiency.

TECHNIQUES OF MARKET SURVEYThe following techniques can be adopted for conducting market research: Desk Research Observation Method Experimentation Depth Interviewing Projective TechniquesMARKET RESEARCH PROCEDUREMarket Research procedure or process may broadly be as follows:PROBLEM FORMULATIONIt involves developing and understanding of the problem which requires the attention of researchers. It may be either to identify the marketing problem area or to develop possible solutions or both. For Eg. The researchers have to identify whether they have to conduct research on the consumers, product, price, sales representatives, distribution channel members, etc.

MARKET RESEARCH PROCEDURE

Problem Formulation

Analysing the Sources of Information

Preparation of Data Collection Forms

Sample Designing

Collecting Data

Processing Data

Report Writing

ANALYSING THE SOURCES OF INFORMATION

The information may be collected in terms of primary data or secondary data. Primary sources provide data which are collected for some specific purpose. They are collected from consumers, salesmen or dealers through survey, observation, experimentation, etc.

The secondary source provide data which are collected not for specific research objective of the company. These are readily available from other sources like journals, government or private organisations, consumer complaints, company records, etc.

Therefore, depending on the need, cost, time and usefulness, the company decides upon the source of information.

PREPARATION OF DATA COLLECTION FORMS

A structured questionnaire has to be prepared which lists all relevant question in a serial depending on the nature of information sought, the kind of respondents, data collection method used by the company, etc. The questions should be framed in such a manner that it helps in cross checking and comparison.

Questionnaires can be an open ended or closed ended questionnaire. Openend questionnaire allows the respondent to answer in their own words. It often reveals more answers because respondents are not constrained in their answers. It is useful where explanations are required.

A closed end questionnaire gives options to the respondent, and, he can make choice among the possible answers. Here, the respondent need not think much as choices/options are given. It is easier for him to answer the questions. It gives answers that are easy to interpret and tabulate. It show how many people think in a certain way.

Mechanical Instruments like Eye Camera Psycho galvanometer, Audio meter, etc can be used for conducting research where questions are not asked, but the respondent is only observed.

SAMPLE DESIGNING

The researchers have to identify the respondents to be contacted & hence a sample of respondents from the universe have to be selected, as it is not easy to conduct an interview of the whole population.

A sample is a small number of items, parts or respondents chosen at random from a large number and tending to have similar characteristics nearly in the same proportion as in the universe i.e., the sample should be representative and proportionate.

Some of the sampling techniques are:

RANDOM SAMPLE If a sample is drawn in such a manner that each time an item is selected, each item in the population or universe has an equal chance of being drawn, then the sample is a random sample.Stratified sample When a universe or population is known to be heterogeneous and when that heterogeneity has a bearing on the characteristics being studies, the population may be divided into strata and random samples of units drawn from each stratum. But to divide into strata, some information regarding the population and its strata studied should be available to the researcher.SYSTEMATIC SAMPLE When a sample is obtained by drawing every fifth item or every even item on a list, then the sample is systematic sample. Here the first item selected is at random. The list of samples may be from census, voters list, directory, etc.CLUSTER SAMPLE it is a group or a block or an area of respondents picked at random. It may be on the basis of area, age, income, colleges, standard of living, etc.

COLLECTING DATAAfter the selection of sample, the researcher has to appoint people or investigations to carry on investigation, They contact the respondents and gather data according to the method suggested and direction given.

PROCESSING DATAIt involves tabulation, analysis and interpretation of data. In tabulation the data collected are arranged in classes and are assigned weights or grades.

In Analysing, the tabulated data are examined. The data of tables are com and averages and percentages are computed by usage of statistical techniques. This helps in understanding the data and in easy interpretation.

In Interpretation, necessary conclusions are drawn according to the problem formulated.

REPORT WRITINGA report contains analysis and conclusions based on the research data. Depend on the quantity of report required, some reports may narrate the whole report procedure where as others concentrate on the analysis and conclusions gives recommendations relevant to the research objective.

CONSTRUCTING THE RESEARCH PLAN

Data sources Secondary/Primary dataResearch Approach Survey, observation, experimentation, depth interview Research Instruments Questionnaire or Mechanical instruments Sampling plan Sampling unit, sample size and procedure Contact Methods Telephone, mail, personal

LIMITATIONS OF MARKETING RESEARCHIn the fast changing Market environment the data collected becomes historic and the research finding based on them becomes irrelevant i.e. there will be time gap between collecting of information and actually putting it into practice.

It only provides a base for predicting future events and does not guarantee any certainty in the happening of the event.Some research conclusions may be of limitation as the tools and techniques may not be suitable i.e., it is difficult to convert some answers given in sentences into numerical terms.

Its use and effectiveness depends largely on the ability of the executives to get the most value out of it.

It is merely a tool for decision making and is not a substitute for decisions. It does not provide complete answer to marketing problems as the answers may be wague or irrelevant

LESSON NO. 8

PROJECT FORMULATION

INTRODUCTION

The basic necessity of an entrepreneur is to decide upon a project. The right project selected will lead an enterprise to a great success, while the wrong or infeasible project will lead to the complete downfall of an enterprise. Hence, a project is the foundation stone of a venture.

A project, generally, has been identified as any programme of action. Thus there are research projects, agricultural projects, sub projects and projects related to market equipment, technology, production, location, etc.

MEANING AND DEFINITION OF PROJECT

A project is a scientifically evolved work plan devised to achieve a specific objective within a specified period of time. It presupposes commitment to tasks to be performed with well defined objectives, schedule and budgets. Each project differ in size, nature, objectives and complexity.

Project management scholars emphasises that a project is an unique and non-repetitive activity which aims at systematically co-ordinating inputs in the direction of intended outputs. The Encyclopaedia of Management defines a project as an organised unit dedicated to the attainment of a goal, the successful completion of a developed project on time, within budget, in conformance with pre determined programme specifications. Another school of thought looks upon a project as a combination of interrelated activities to achieve a specific objective.

Several economists and bankers have defined a project in different ways. The World Bank defines a Project as "an approval for a capital investment to develop facilities to provide goods and services". Harrison defines a project as "a non-routine, non-repetitive, one off undertaking normally with discrete time, financial and technical performance goals." A project according to Little and Mirless is "any scheme or a part of a scheme for' investing resources which can be reasonably analysed and evaluated as an independent unit. It may be any item of investment activity which can be separately evaluated.

Thus, a project is a well-planned activity that includes a correct consideration of alternatives, identification of key issues, broad participation, compactness and enforceability. It should be neat, clear and specific, whose objective may be to create, expand or develop certain facilities to increase the production of goods or services to the community.An other simple definition is that a project is speculative imagination. It requires a person’s ability to speculate and imagine the future.

PROJECT FORMULATIONProject formulation is the systematic development of a project idea for the eventual purpose of arriving at an investment decision. It involves a step by step investigation and development of project idea. It is a process involving the joint efforts of a team of experts. Each member of the project team should be fully familiar with the broad strategy, objectives and others ingredients of the project.

PROJECT REPORT

A project report is a written document pertaining to any investment proposal. It contains relevant data, on the basis of which the project has been appraised and found relevant to the entrepreneur. This project report can be shown to the bankers ' or other financial institutions to acquire financial assistance. The efficiency of the project is decided by other organisations and suppliers on the basis of the project report. It is also used by the entrepreneur to check if he is deviating from what was decided earlier.

A project report is prepared by an expert after detailed study and analysis of the various aspects of' a project. It acts as a guide to management, specially at the initial stage to know whether the technical, commercial, financial and economic conditions are feasible or not.

Fig. Showing Project Report with its contents

Project Report

TechnicalEconomic

Production Managerial Financial

PREPARATION OF A PROJECT REPORT

A project report should consist of information on economic, technical, financial, managerial and production aspects.

Before the actual preparation of Project Report, the first step an entrepreneur should take is to choose an idea. This idea should not only be good for the market, but also for the enterprise. It means that the idea selected should be viable, profitable and socially good. The idea chosen is obtained from various sources like customers, competitors, distributors, company employees, journals, magazines and by research and development project, every, report must present the information on. Later, observations have to be made with regard to the availability of raw population, water, air, land, flora and fauna, effects material, labour, machinery, technology, demand in the market, etc. pollution, other environmental descriptions, etc.

The next stage is the scanning of Business Environment. The amount or quantity investment required have to be scanned. The location of the enterprise is also to be taken into consideration. The background and skill of the entrepreneur, the extent of marketing, possible chances of producing a substitute etc. should be scanned.

Finally, project is to be selected for conducting a detail study, for preparing a project report.

Choosing an idea

Observation Scanning of business

environment

Preparation of project report

STEPS OR GUIDELINES IN THE PREPARATION OF A PROJECT REPORT An entrepreneur, to get the projection. Information about all items of operating consults Commission. There are certain guidelines given by the Planning Commission for preparing a project report. The guidelines given by the Planning Commissions utilities, labour, repair and maintenance, setting or the steps in the preparation of a project report can be summarised as follows expenses.

• General Information• Preliminary Analysis of alternatives• Project Description• Marketing Plan• Capital Requirement and Costs• Operating Requirements and Costs • Financial Analysis• Economic Analysis• Miscellaneous Aspects

LESSON NO. 9

SELECTION OF PRODUCT

INTRODUCTION AND MEANING OF A PRODUCTPeople satisfy their needs and wants with goods and services. These goods, or services, or goods plus services, or just an idea refers to a product. Therefore, a Product refers to all the things offered to a market. Hence, product is one of important component of marketing in respect of which an entrepreneur is required to take crucial decisions in a company.

DEFINITIONA product may be defined as "a set of tangible, intangible and associated Attributes capable of being exchanged for a value with ability to satisfy consumer and business needs".

According to Alderson "Product is a bundle of utilities consisting of various product features and accompanying services".

Schwartz defines, as "A product is something a firm markets that will satisfy Personal want or fill a business or commercial need and includes all the factors that may contribute to consumer's satisfaction". For e.g.. While purchasing the tangible product i.e., a vehicle, we are also purchasing. The intangible services like free services, etc.

The associated attributes or peripheral factors may include reputation of the manufacturer, the. Warranty, credit facilities, delivery terms, the brand name. The courtesy of salesmen, etc. For e.g. Johnson & Johnson offers not just the soap or powder but also mother’s love.

Criteria for selecting a productInternal factors External factors1.Cost 1. Demand of consumers2.Experience 2. Competition :-3.Differentiation a. Pure4.Financial strength b. Monopoly5.Functional departments c. Oligopoly6.Personal factors of an entrepreneur 3. Suppliers

4. Technological improvement5. Demographic factors:-

- Size of population - Trends in birth and death rate

- A distribution - Educational group

- Geographical distribution - Occupation

6. Economic conditions7. Neutral environment8. Political and legal role9.Socio-cultural factor

CRITERIA FOR SELECTING A PRODUCT

1. INTERNAL FACTORSThe factors within the organisation are called as internal factors. The selection product, to a great extent depends upon the internal factors. They are:

• Cost• Experience• Differentiation• Financial strength• Functional Departments • Personal factors of an entrepreneur

2. EXTERNAL FACTORS

The forces outside the organisation also effect the decision for selecting a product by an entrepreneur. They are:-

(a) Demand of consumers (b) Competition

•Pure competition•Monopolistic competition •Oligopoly•Pure monopoly

(c) Suppliers Market structure No. of Sellers Size of sellers Control over Product Entry into

prices industry

i Pure competition Many Small None Homogeneous Easy

ii. Monopolistic Many Varies Depends on extent Differentiated Relatively Competition of differentiation easy

iii. Oligopoly Small Large Considerable ( Prices Fairly Difficult tend to be stable) homogeneous

iv. Pure monopoly One Varies Maximum control No close substitute Difficult

(d) Technological improvements(e) Demographic Factors

Size of population Trends in birth and death rate Age distribution Educational groups Geographical distribution Occupation

(f) Economic condition(g) Natural Environment(h) Political and Legal rules

Socio-Cultural Factors

BARRIERS TO THE SUCCESSFUL DEVELOPMENT OF NEW PRODUCTS/ WHY DO NEW PRODUCTS FAIL

The failure of a new product are generally considered on the basis of its lack of ability to generate the expected profit. Some of the reasons for the failure of a new product are as follows:

(1) TECHNICAL PROBLEMS:- Too complicated a product or poor performance of a product that is not superior to any of the existing products may fail.

(2) POOR TIMING:- Introducing a product when it is not required also leads to failure of a product.

(3) PROHIBITIVE COSTS OF DEVELOPMENT:- Many ideas are screened before selecting one good idea, which becomes very expensive.

(4) NICHE AND FRAGMENTED MARKETING :-Entrepreneurs now a days try to concentrate only on selected market segment, rather than mass market, which means lower sales and profit.

(5) DEVELOPMENT TIME :-Many individuals may be working on similar ideas. Only those who can develop these ideas faster than the competitors have a chance to succeed.

(6) COMPETITORS :-Generally competitors imitate a successful product, thereby reducing the sale of the product.

(7) GOVERNMENTAL CONSTRAINTS :-The rules and regulations imposed by the government are ever changing, which becomes difficult for an entrepreneur.

LESSON NO. 10

GOVERNMENT POLICY ON WOMEN ENTREPRENEURSHIP

Policies concerning Indian women would be in accordance with the provisions of the Constitution of India. The Constitution guarantees certain fundamental rights besides freedom of speech, protection of life, liberty and prohibition of discrimination or denial of protection etc.

Indian women enjoy these rights in the same manner as Indian men. For instance, Article 14 of the Constitution provides equality before law' and Article 15 'Prohibits any discrimination'. There is only one specific provision in Article 15(3) which empowers the state to make 'any special provision for women and children'. This is in violation of fundamental obligation of non discrimination among citizens, inter aIia of sex. Consequently, this provision has enabled the State to make special provision for women, particularly in the field of labour legislation like the Factories Act, the Mines Act and so forth.

Article 16(2) forbids discrimination "in respect of any employment of office under the State" on the grounds of "religion, race, caste, sex, descent, place of birth, residence or any one of them".

Some of the Directive Principles' are "women specific". Others concern women indirectly or by necessary implication. Among those which concern women directly and have a special bearing on their status include: Article 39(a) the right to an adequate means of livelihood for men and women equally; Article 39(d) equal pay for equal work for both men and women; Article 39(e) protection of the health and strength of workersmen, women and children from abuse and entry into avocations unsuited to their age and strength; and Article 42-just and humane conditions of work and maternity relief.

The report of working group on personnel policies for bringing greater involvement of women in science and technology- 1981 reviewed the extent of participation of women in scientific establishments and suggested measures for promoting greater involvement of women in science and technology.

In the Seventh Five Year Plan', the Chapter on Socio-Economic Programmes for Women- 1985-90 moved further away from a "welfare" approach to a more positive "developmental" approach to women.

INTEGRATING WOMEN INTO MAINSTREAM OF NATIONAL DEVELOPMENT

The review of,the disabilities and constraints on women, which stem from socio-cultural institutions, indicate that the majority of women are still very far from enjoying the rights and opportunities guaranteed to them by the Constitution. Society has not yet succeeded in framing the required norms or institutions to enable women to fulfil the multiple roles that they are expected to play in India today. On the other hand, the increasing incidence of practices like dowry indicates a further lowering of the status of women. The social laws, that seek to mitigate the problems of women in their family life, have remained unknown to a large mass of women in this country, who are as ignorant of their legal rights today as they were before independence.

The impact of transition to a modem economy has meant the. exclusion of an increasing number and proportion of women. from active participation in the productive process. A considerable number continue to participate for no return and no recognition. Legislative and executive actions initiated in this direction have made some impact in the organised sector, where only 6 percent of working women are employed, but in the vast unorganised sector, which engages 94 per cent of working women in this country', no impact of these measures have been felt on conditions of work, wages or opportunities.

The low status of women in large segments of Indian society cannot be raised without opening up opportunities of independent employment and income for them. 'The long-term objectives of the developmental programmes for women would be to raise their economic and social status in order to bring them into the mainstream of national life and development. Due recognition has to be accorded to the role and contribution of women in the various socio-economic, political and cultural activities.

The 'Seventh Five Year Plan' operated in keeping with the spirit of the decade which aimed at integrating women into mainstream of national development, emphasized the need to open new avenues of work for women and perceive them as a crucial resource for the development of the country.

The thrust was to provide five principal categories of services

Employment & income generation services; Education & training services; Support services; General awareness services Legal support services.

GOVERNMENT EMPHASIS ON SELF EMPLOYMENT AND ENTREPRENEURSHIP BY WOMEN

Promotion of trading/manufacturing/processing small scale industry by women need to be encouraged by ensuring a reasonable share of credit and other inputs. Self- employment generates economic activity and can be viewed as providing unlimited opportunities for participation by males and females so that participation by one does not result in deprivation of opportunities to the other, except in the sense that total organised financial and other supporting services are limited. Various programmes have been undertaken by Government to promote self-employment through training and credit assistance. All efforts should, therefore, be directed towards enhancing self-employment for the large masses of women.

Over the above constraints, which operate generally on all self -employment ventures, the significant constraints deterring women from self-employment are as follows:•Women's illiteracy•Attitude of women, men or society at large regarding women entrepreneurs resulting in inadequate motivation;•Inadequacy of facilities extended by credit institutions to business ventures organised by women.

One of the critical components of women's advancement in the economic field is the availability of credit. In the present system, the women do not have access to easy credit even if the amount is very small. In spite of the Reserve Bank's' instructions that no security is required for loans up to Rs. 5,000/-, collateral security is being asked for in the case of women.

The commission' constituted by the Government of India in 1987, to make a comprehensive study of the working and living conditions of poor women in poverty, recommended that attempts should be made to identify industries in the small scale sector which can help women to become self-employed, and industries based on labour intensive technology should be encouraged.

MEASURES FOR PROMOTING TINY AND SMALL ENTERPRISE

For promoting and strengthening small enterprises, Govt. of India announced policy measures for promoting and strengthening small, tiny and village enterprises on August, 1991. The salient features of the new policy areReservation of products for manufacture in the small scale sector to continue, units included in this list not to be subjected to compulsory licensing procedure;Hike in investment limit in plant and machinery for small scale, ancillary and export-oriented units retained as Rs. 60 lakhs, Rs. 75 lakhs and above Rs. 75 lakhs respectively;

Hike in investment limit in plant and machinery for tiny sector from Rs. 2 lakhs to Rs. 5 lakhs irrespective of location of the unitIndustry related service and business enterprises (service sector) to be recognised as small scale industries with investment limits on par with the tiny sector irrespective of location of unit;Women enterprises redefined. Stipulation regarding employment of majority of women workers to be dispensed with. Relevant criteria are major shareholding and management control by women entrepreneurs.A limited partnership act to be introduced to limit the financial liability of new and non-active paruwrs/entrepreneurs to the capital invested;Equity participation by other industrial undertakings including foreign companies up to 24 per cent;

Support from National Equity Fund for new projects not exceeding Rs. 10 lakhs of project cost (including margin money for working capital) through equity support (up to 15 per cent). The unit to be located in places up to 5 lakhs population (15 lakhs in case of hilly areas and North Eastern region) In case of rehabilitation proposals, population limit is 15 lakhs;Single window loan scheme enlarged to cover projects up to Rs. 20 lakhs term loan with working capital margin up to Rs. 10 lakhs. The scheme to be channelled through commercial banks in addition to SFCs and twin-function State Small Industries Development Corporations: Relaxation of certain provisions of labour laws;Factoring' services to be extended through commercial banks;Suitable legislation (delayed payments act) to be introduced to ensure prompt payment of small industries bills;

Easier access to institutional finance. Efforts to be made to ensure adequate flow of credit on a normative basis and the quality of its delivery for viable operations of the sector. A special monitoring agency to be set up for this purpose;

Integrated infrastructure development (including technological backup services) to be pursued for small scale units;Technology Development Cell (TDC) to be set up in SIDO;Export Development Centre to be set up in SIDO;Marketing of mass consumption items by NSIC under common brand name;Technology information centres to be established to provide up-to-date technology and market information;Adequacy and equitable distribution of indigenous and imported

raw materials to be ensured to the small-scale sector, particularly to the tiny sub-sector;

Industry associations to be encouraged to set up sub-contracting exchanges, quality counseling services and common testing facilities;

Package for handlooms, handicrafts, village industries covered by KVIC and for other village industries in the form of

comprehensive integrated support services;The small scale industrial sector has emerged as a dynamic and vibrant sector of The economy during the eighties. At the end of the Seventh Plan period, it accounted for nearly 35 per cent of the gross value of output in the manufacturing sector and over 40 per cent of the total exports from the country. It also provided employment opportunities to around 12 million people.Service sub-sector was recognised as a fast growing area and Government felt the need to provide support to it in view of its recognised potential for generating employment. Hence, all industry related service and business enterprises, irrespective of their location, were to be recognised as small scale industries and their investment cellings would correspond to those of tiny enterprises.

While the small scale sector (other than "Tiny Enterprises") would be mainly entitled to one-time benefits like preference in land allocation/power connection, access to facilities for Technology upgradation, the tiny enterprises would also be eligible for additional support on a continuing basis, including easier access to institutional finance, priority in the Government Purchase Programme and relaxation from certain provisions of labour laws.

All the above measures are applicable equally to women enterprises as majority of them fall in the small enterprises category, and especially in the tiny enterprise category, where ,extra benefits are applicable.

Government and Semi Government Agencies Contribution to Development of Women EntrepreneursThere are many agencies rendering assistance to women entrepreneurs not only in training them to be entrepreneurs but also in specific areas for financial identification of units and marketing. The major agencies and their areas of assistance are briefly listed below.

National Level Standing Committee on Women Entrepreneurs

A National Standing Committee on Women Entrepreneurs was constituted under the ChaiFrnanship of the NEnister of State for Sports, Youth Affairs, Women and Child Welfare to look into the problems of women entrepreneurs and evolve policies for promotion of entreprencurship among women in the country. The Committee is represented by all agencies connected with the Entrepreneurship Development, Women Entrepreneurs and Officials.

The Committee has evolved certain policies for the promotion of entrepreneurship amongst women. The Committee has also recommended a definition of women entrepreneurs which has been subsequently adopted by Small Scale Industries Board. A Women's cell has also been functioning in the Office of the DC (SSI) to attend to the problems faced by them and to provide necessary liaison. A model syllabus has been developed for conducting exclusive programmes for women under different categories including tiny units.

Small Industries Development Organisation (SIDO) District Industries Centre (DIC) Entrepreneurship Development Institute (EDI) National Alliance Of Young Entrepreneurs (NAYE) National lnstitute for Entrepreneurship and Small Business Development (NIESBUD) National Institute of Small Industries Extension Training, Hyderabad (NIESIET)

FINANCE AND CREDIT FOR SMALL SCALE INDUSTRIES

Small scale industrial sector raises the term credit and working capital required by it from commercial banks, co‑operative banks, regional rural banks and state financial corporations. The banking system provides mainly working capital and die Suite Financial Corporations caters mainly to investment capital.

Financial assistance in kind is available to the small scale industrial sector from the National Small Industries Corporation (NSIC) at national level and the State Small Industries Development Corporations (SSIDCs) at State level which supply machinery on hire purchase basis. The Industrial Development Bank of India (IDBI), Industrial Finaoce, Corporation of India (IFCI), the National Bank for Agriculture and Rural Development (NABARD), and the Industrial Reconstruction Bank of India (IRBI), provide refinance facilities to banks and financial corporations for financing small scale industrial sector. The credit provided by banks to small scale industrial sector is treated as credit to 'priority sector'. The commercial banks are required to lend 40% of their total loans to the, 'priority sector' of which 15% to 16% is required to be in the form of direct agricultural advances. The rest may be lent to small scale industry, small business, small transport operators, indirect agricultural loans, etc. Major financial institutions extending specific schemes for assisting women entrepreneurs are discussed below

Small Industries Development Bank of India (SIDBI)

Andhra Pradesh State Financial Corporation (APSFC)

At the state level in Andhra Pradesh, it has been taking special interest in assisbng women entrepreneurs. It has framed the following guide lines. They are to be followed while assisting units promoted by women entrepreneurs:-

Women entrepreneurs who have skills/aptitude to setup industrial projects in SSI Sector are eligible under the Scheme; Entrepreneurs having experience and training in the related field of manufacture shall be given preference; Women entrepreneurs should hold atleast 51 per cent of the total equity as Managing Partner with controlling fights; In case of private limited companies the women entrepreneur should be full-time Managing Director and she, along with other women directors, must hold atleast 50 per cent of the equity;

The loan assistance under the.scheme is primarily meant for acquisition of land, construction of factory building and purchase of plant and machinery;

Me minimum promoter's contribution shall be 15 per cent of the project cost in all cases, irrespective of location of the unit;

The Debt Equity Ratio up to 3:1 can be considered; The loan is repayable over a period not exceeding 10 years with a

moratorium period of 2 years depending on the scheme.

Andhra Pradesh Women's Cooperative Finance Corporation Limited (APWCFC)

The Women's Co-operative Finance Corporation in A.P. was established on the eve of "Intentional Women's Year" in 1975 in order to promote equality between men and women and for active involvement of women in National Development.

The Corporation plans, promotes, undertakes and assis programmes of Agriculture, Small Scale Village and Cottage Industries, trade, business or any other activity which will enable its members to earn a better living and help them to improve their standard of living.

APWCFC provides financial assistance, vocational training at Telugu Bala Mahila Pragati Programmes, Construction of worksheds, working women hostel construction and provide a sales outlet through Deepika show room.SummaryOn review of the functions of various institutions listed above, it was observed that there exists no separate institution exclusively dedicated to the promotion of women entrepreneurs. Various institutes formulated for general entrepreneurial development and assistance were also operating separate schemes for women entreprenelis. However, women entrepreneurs at 51 per cent of the total receive more attention' and additional concessions than general entrepreneurs in the small‑scale sectors.

The relative benefits that are Using rights, available to women-entrepreneurs compared to men entrepreneurs are the women entrepreneur listed below:

Sl. No. Nature of Assistance Availability to entrepreneur Men Women

1. State subsidy on investment in plant and machinery in specified backward areas and Available Available for specified industries.

2. Sales Tax waiver, Generator subsidy, and power Available Available

tarif concession for specified periods and locations

3. Self Employment loan for educated unemployed youth. Available Available

4. Entrepreneurial development training programmes Available Available through various Institutes. on priority 5. Term loan with entrepreneurs contribution limited to 15 per cent as against normal minimum contribution of Not Available 25 per cent from entrepreneurs. Available

6. Special rate of interest on loans upto Rs. 10 lakhs limit. Not Available Available

7. Marketing assistance Available Available on priority

8. Industrial sheds government estate. Available Available on priority

9. Scarce raw material imports and other licences. Available Available on priority

LESSON NO. 12THE STARTING CRISESHundreds of new entrepreneurs every year commit certain types of blunders, which result in either a total failure of the enterprise or in its moribund existence. The situation that develops as a result of these errors can be labeled as 'The Starting Crisis' or Crisis No.1, as it comes early in your venture.1. What Causes Early FailuresFour initial errors/oversights seem to be responsible for the failure of new enterprises

Lack of all-round managerial experience, or understanding in the particular line of production. Lack of adequate accounting system, leading to non-availability of basic figures necessary for decision-making. Fault in capital planning. Inadequate knowledge of tax-related matters.

2. How To Avoid The Starting Crises

The errors that lead to the starting crises have been identified and studied in detail for the last several years. These oversights can be easily avoided. Here are some suggestions:

Make use of all available counsel(a) Let your Plans brew for a few months. After the phase of initial

enthusiasm and optimism has passed one usually becomes more objective. Spend a few months time in preparing budgets and collecting detailed market information etc. to make you ' r project more realistic and less error prone This should be the time to contemplate and plan-once you start your venture there will be no time for such considerations.

(b) While planning for financial requirements be deliberately conservative in estimating. Income and liberal in estimating expenses. Allow for wide margins of safety.

(c) Get your plans examined by bankers, consultants of small business management, potential suppliers, prospective Board of Directors and other people with related and relevant expertise.

Provide for Up to Date Figures

Include Professional Investors

Consult Your Taxation Officer and Tax Advisor Regularly

LESSON NO. 13

BEWARE OF THESE PIT-FALLS

You maybe surprised to know that more than 50% of failures in small scale industry occur during the first couple of years of the setting of an enterprise, Some units are born sick, some become sick during the initial period of operation and some are made sick!! The reasons for these conditions may be peculiar and numerous.

Although entrepreneurial awareness is the obvious way of avoiding sickness, it is difficult to isolate and identify the reasons for sickness, at any one point of time.

Understanding the causes and symptoms of sickness alone can help entrepreneurs to take preventive and corrective actions.

AT PROJECT FORMULATION STAGE

Sr. No.

Cause Symptoms Preventive Measure

1 Wrong choice of product

- Insufficient/Low sales or profit

- More time consumed for product development

- No sense of achievement

- Reluctance on the part of financial agencies in financing the venture

- Proper market survey - ‘SWOT’ analysis assessing

one’s own strengths & weaknesses in relation to the venture.

- Studying profit /growth opportunities of the venture & possible threats from the environment for the same.

- Consulting a Banker, financial institution, consultancy organisation, financial institution.

AT PROJECT FORMULATION STAGE

Sr.No.

Cause Symptoms Preventive Measure

2. PoorAssessment ofTechnology

- Manufacturingproblems

- Less output- Rejections or non-

approval of productspecification

- Problems inidentifying requiredmachinery

- Confusion regardingmachineryspecifications.

- Experts advice- Comparing technology- Studying existing

technology / units.

AT PROJECT FORMULATION STAGESr.No

Cause Symptoms Preventive Measure

3 Sub-optimalPlantCapacity

- Overtime & Pressure oftime

- Output, but no profits- Frequent breakdown of

machinery due tooverloading

- Proper balancing of machinery- Proper production planning- Capacity of ‘key’ equipment to

be decided based on‘advantages of scale’

4. LocationalProblems

- Non availability oftransportation

- Power problems- Labour problems- Non-availability of raw

materials or delays ingetting them.

- Reluctance on the partof MunicipalCorporation & otheragencies in grantingnecessary clearance.

- Proper study of Locationaladvantages / disadvantages

- Planning in advance- Studying rules & regulations of

the authority competent to issueclearance.

AT PROJECT FORMULATION STAGE

Sr.No

Cause Symptoms Preventive Measure

5. Poor MarketAssessment

- No orders or unexpectedorders

- Difference specificationsand quality

- No repeated orders

- Detailed market survey- Assessing demand and supply- Studying existing/ potential

distribution channel

- Unremunerative pricesoffered by wholesalers /customers

- Consequently low turnoverprofit ratio.

6. Wrong fixedinvestments.

- Heavy burden of interest- Poor utilisation of

equipments- No one lends when needed- 100% loan- “Book loss” due to unduly

high depreciation

- Large size for status- Wrong stimates- Rental premise- Job work- Avoiding over-invicing or

adjustments in project- Exploring all sources of financial

finance in the beginning- Reduction of project size

AT PROJECT IMPLIMENTATION STAGE

Sr.No.

Cause Symptoms Preventive Measure

1 Delayi. Machinery Supplyii. Loan

Sanctioniii. Formalities

- No replies fromsuppliers or bankers

- Time schedule as perproject report

- Upset- Coat estimate

providing wrong

- Strict time bound plan ofactivities

- Check’s supplier reputation- Devote full attention anon

follow- up- Submit a complete loan

application with all requireddocuments.

- Make check lost of allformalities to be completedand all documents to besubmitted.

- Study approach of financialinstitution through informal‘ chats’ with officials orborrowers

AT PROJECT IMPLIMENTATION STAGE

Sr.No.

Cause Symptoms Preventive Measure

2. Failure to bringsufficientequity

- FI/Bankers press formargin money

- Search & persuasion- Exhaustive own cash

resources on fixedinvestment

- Consequently,liquidity shortage atoperational level

- Proper estimate andprovision

- Realistic, not ambitious,optimistic plans.

- Openness with the bankerson one’s own resourceconstraints

AT PROJECT IMPLIMENTATION STAGE

Sr.No.

Cause Symptoms Preventive Measure

3. Failure toestimateproject needs& contingencyneeds

- Over run of projectcost

- Cash crisis

- Proper estimate &provisions for contingency

- Listing down all preimplementation activitiesinvolving cash-out flow

4. Improper costestimates

- over-run of cost- margin money being

used up faster thanexpected

- Estimates based onsupporting documents.

- Allowences for all taxes,transportation andcontingency

AT PROJECT IMPLIMENTATION STAGE

Sr.No

Cause Symptoms Preventive Measure

5. Poor MarketAssessment

- No orders or unexpectedorders

- Difference specificationsand quality

- No repeated orders

- Detailed market survey- Assessing demand and supply- Studying existing/ potential

distribution channel

- Unremunerative pricesoffered by wholesalers /customers

- Consequently low turnoverprofit ratio.

6. Wrong fixedinvestments.

- Heavy burden of interest- Poor utilisation of

equipments- No one lends when needed- 100% loan- “Book loss” due to unduly

high depreciation

- Large size for status- Wrong stimates- Rental premise- Job work- Avoiding over-invicing or

adjustments in project- Exploring all sources of financial

finance in the beginning- Reduction of project size

AT OPERATIONAL STAGE

Sr.No

Cause Symptoms Preventive Measure

1 Financial - Absence of records;cost data

- Withdrawal forpersonal use

- Changes in prioritiesfor payments

- Liquidity problems- Lack of working

capital funds- No recovery or

delayed recovery- Cash inflow not

matching sales level

- Proper records; uptodatedata

- Preparing cash flowstatement

- Anticipating needs andmaking advance applicationsfor loans

- Mainting list for debtor agewise & continuous follow-upfor recovery

AT OPERATIONAL STAGE

Sr.No

Cause Symptoms Preventive Measure

2. Wrongstrategies

- List all possible uses- Long over dues and

bad-debts- Low efforts of

marketing- No repeat orders- Wrong choice of

customers / marketsegmentation

- List all possible users / targetmarket

- Decide that target which youwant to atack

- Don’t aim only at mostpotentail market segment

- Aim at that segment alsowhose requirements you canfulfill

- Study the product atributesof competing products and ,accordingly incorporate oneor more “Product attributes”in your product as “uniqueselling proposition”.

AT OPERATIONAL STAGE

Sr.No

Cause Symptoms Preventive Measure

1. Productobsolescence

- Change in technologyconsumption patternsor consumerpreference

- Market saturation- Reduction in the rate

of increase ofturnover

- Development of product- Diversification- Regulor feedback from users- Job work

2. Unawarenessaboutcompetitors

- Loss of orders- New entries in market- New trade policy or

product developmentby competitors

- Membership in industryassociatio

- Reading industry journals,official publications

- Get regular feedback fromyour salesman/ dealers

AT OPERATIONAL STAGE

Sr.No

Cause Symptoms Preventive Measure

3. Criticalshortage ofi Powerii Raw material

- Idle capacity- Frequent breakdown

- Choose a location wherepower is regular and notthrough rural feeders

- Proper inventory- Having more than one

supplier- Provide for captive

generation right at the stageof preparing project report

4. Changes inGovt.Policies /Regulations

- Price control /changes

- Taxation implications- Non availability of

materials

- Awarness through readingsor membership inassociations

- Consulting experts andadvisors regularly.

LESSON NO. 14TECHNO-ECONOMIC FEASIBILITY ASSESSMENT

PRELIMINARY PROJECT REPORTAs a prospective entrepreneur, you are required to decide at the outset the product that you have to manufacture. If you decide to get into 'service sector', you must decide the type of 'service activity for your venture. Having made such a decision tentatively, you must answer certain questions before you spend time and resources required to make a detailed study of the project for getting, financial assistance.Preliminary Project Report, in short PPR, is a simple brief data-sheet that gives you an insight into the following:

• How much money, man-power and material would be required to set up the project?• What type of machines would be required?• What are the sources of technology that would be required ? And• What would be the economic gains from the project ?

In short, PPR is a brief outline of the project that tells you quickly about the viability of the project, so as to help you decide whether it is worth pursuing further or not.Why Preliminary Project Report?

At the stage of preparing a PPR you may have in mind not just one venture/product, but 3 or4 ideas to choose from. Since it calls for considerable time and resources to prepare a Detailed Project Report (DPR) it would not be advisable to prepare a DPR for every product idea that may be floating in your mind.

Even if you could prepare DPR for all the product ideas that you have in mind, the time required to do so would be so much that it would make the first DPR obsolete or outdated by the time you complete all DPRs.

Further, the money, time and information required to prepare DPRs for all the product ideas that you have in mind only to examine their viability may make the very exercise of DPR preparation unlivable.

This does not mean that PPR can substitute a DPR. It only means that it is desirable to prepare a PPR prior to spending resources on preparation of a DPRThere are other advantages of preparing a PPR also:• You get enough data quickly to fill up the form required for provisional registration of your unit with the state government. It is a must before commencing various time consuming formalities connected with planning and setting up of a small-scale unit.

• The data you get from PPR will help you in completing certain formalities in anticipation of setting up a project. For example, if you want to set up an electronic unit, you have to get your production programme approved from the concerned State/Central Government department. For this, you have to supply data about the projected production level and raw-material requirement, which you could get from PPR.

• The data collected by preparing a PPR forms a good take-off point for preparing a DPR when you desire to do so.

• It will help you identify in advance the infrastructural requirement for your project and sound the concerned government agencies accordingly so that you can get necessary facilities such as land/shed at the right time.

• Finally, the major contribution of a PPR at the begining stage of your entrepreneurial career is that it instills confidence in you and motivates you to start the time - consuming process of data collection and preparation of a DPR.

How to Prepare a PPR?

To help you prepare a PPR systematically, a proforma is adjoined to this section at Annexure- I. A quick perusal of the proforma will indicate that the information called for could be collected and presented quickly as well as systematically.

Let us now see how best one can prepare a PPR as per the enclosed proforma. Let us proceed point-to-point as it appears in the proforma.

• In this section titled 'General', there is an item ‘location'. You may not be in a position to pinpoint the exact location, but then, you should indicate the city/industrial estate where you want to set up the unit. What is important is that you should satisfy yourself whether the location, in terms of geographical area, is appropriate after taking into account the availability of raw-material, labour, marketing etc., and the cost involved in transportation of raw-material/finished goods if they are freight-sensitive. Further, you will have to indirte whether you will be setting up the unit in a rented premises or in the industrial area or in a place owned by you. This information will help your adviser/counselor in identifying your requirement of land/shed so as to make certain advance arrangement with concerned agency that provides land/shed.

•The information called for under this point pertains to your educational qualification, experience etc. These are readily available and therefore, can be presented easily. This information will help the adviser to understand whether the project proposition vis-a-vis the background is likely to be acceptable to the financial institutions.

• This point deals with various details of the proposed project in terms of raw-material requirement, production programme etc. Here, you may be required to move around and collect the information since you will not be having it readily. For example, more often than not, you may not know the specification or even the names of the machinery you need. in such a case, you must approach your adviser/other knowledgeable' persons and ask them for their guidance on the sources for getting the necessary information.

You may refer to ready-made project profiles available with the trainer or District Industries Centre or any good library. You can even approach people trading in the product and get information from them. You may visit one or more existing units manufacturing the same product that you have in mind. Though difficult, it is the best source of collecting information that you need.

The manufacturers/suppliers of machinery can also give quite a good amount of information. A chat with the consultants of the State Technical Consultancy Organisation (there are 17 such organisations in the country) could prove fruitful.

In short, what is important is that you should identify the sources of information and get into action at the first instance to collect necessary information. You can utilise the time devoted for market survey for collecting such information. You need to keep in mind certain points while collecting and presenting such information pertaining to point No. 2 as noted below:

While listing down the machinery, care has to be taken to indicate the power requirement. This could be useful for further calculations. While arriving at the total cost of the machinery, you have to take into account the cost of transportation, sales tax, insurance, handling charges etc. In short, you have to consider the 'landed cost' i.e. cost of machinery plus all other expenses till they reach the factory site.

At this stage, it is not necessary to identify in detail each component of the landed cost of the machinery. What can be done is that depending on the nature of the machinery and sources of supply, rough estimates in terms of 20% or so of the quoted price of the machinery can be made and added to the total cost of the machinery. Any extra charges for installation/erection of the machinery must also form a part of the cost under this head.

• Here, the items that you propose to manufacture and the quantity to be produced in a year must be indicated. The moment you have a list of machinery, you can calculate the quantity of goods that can be produced in a year based on the capacity of machinery. Further, while indicating production for the year, it is not advisable to assume that you shall be able to produce 100% of what the machinery can produce at its maximum capacity in, a year.

Suppose a machine can produce 100 kgs. of an item per day (8 hrs.), it would be wrong to assume that the annual production would be 30,000 kgs. (we normally calculate annual production on the basis of 300 working days in a year). it is so because that in a given year, the machine may break down calling for ' repairs and consequently, calling for a shutdown or there may be power-cuts or raw-material shortage. Thus, considering such eventualities the total quantity to be produced In a year may be calculated, as a thumb-rule at 70% or 80% or so of the equipment capacity.

Col. No. 4 of Item 2.2 in the proforma deals with sales revenue, which can be calculated by multiplying the annual production with the selling price per unit. While deciding the selling price, there is no need to go into the details of product cost at this stage. What you have to do is to look at the market price of the product which you intend to manufacture and deduct any commission or discount at the retailer and whole-saler level so that you can get an idea of ex-factory price.

This point deals with details on raw-materials. You are required to indicate item-wise requirements of raw-materials in terms of quantity and value. Further, the sources of procurement of these raw-materials i.e. places from where you intend to buy these materials should be indicated. This exercise will help you in identifying where the raw materials would be easily available and whether it is necessary for you to procure raw-material from far-off places.

While giving the list of raw-materials, it is necessary to take into account the raw-materials required for production, raw-materials required for packing, materials/stores required for maintenance of machinery (for example, grease, cotton waste etc.) and those materials required for testing (for example, chemicals used for testing if your unit needs a testing laboratory).

Under this head 'Utilities', those inputs that do not form a part of the end product but facilitate the production are included. Such items are electricity, coal, furnace oil, diesel/petrol, compressed air, water and the like. Though only 3 items are mentioned under this head in the proforma, you should take care to identify all the utilities that your unit would be needing and account for the same.

As ' far as electricity is concerned, you should take into account the power required for lighting of factory premises and to run motors or generate heat.

•This point deals with man-power' requirements. There are just 3 classifications based on skill-level under this head in the proforma. Your manpower requirement will be for a) operating machinery, b) assembly of final product, packing and supervision, c) selling/marketing staff d) office work. While taking into account the wages/salaries, you must keep in mind the wages offered by other manufacturers in the field and the Minimum Wages Act. In case you decide to take help or employ your own family members, you must take into account their salaries also. You can safely add 2D% or so over and above the wages to account for additional benefits that you have to provide for your workers.

This point deals with market study, which forms the most important part of the PPR. Market study/market survey has been dealt with separately elsewhere. The only thing that you have to keep in mind is that the PPR will be incomplete without a market survey report. Such a survey report would tell you where you would stand in the market when you start manufacturing the product:

It also answers one of the three major questions i.e. 'CAN I SELL IT?’ While answering this question, the survey coupled with PPR would also answer the other question, i.e. 'CAN YOU EARN OUT OF IT?•This point deals with the Cost of the Project and Profitability. By the time you start working on this point, the information that you would have collected so far would help you in making necessary calculations as explained below:

1) The cost you have to incur on purchase and installation of machinery; 2) Cost of land/shed irrespective of whether you already own them or whether you have to purchase them ownership/lease basis.3) Payment, if any, to be made for acquisition of technical know-how.

All expenses other than those indicated above such as, preparation of project report, market survey; traveling expenses for data collection, deposit to be given to electricity board/telephone department etc. All these expenses can collectively be termed as preliminary and preoperative expenses

• This deals with Working Capital, which refers to the value of all other forms of assets such as:1) Stock of Raw Materials2) Stock of Finished Goods3) Value of goods that are under process i.e., semi-finished goods.4) Money you have to receive from your customers for the goods you have sold-them on credit.5) The cash you have to maintain to meet day-to-day expenses.

As regards the stock of raw materials, you must find out how much time it takes to procure the raw-materials and accordingly decide how many days, requirements of raw-material you need to stock. The same is to be shown under Col. No. 3 of point No. 4.2. With this information and the information that is already available under item No. 2.3 which tells you the annual raw-material requirement, you can easily decided the quantity and value of raw-materials that you need to stock.

•You have to do the same exercise keeping in mind how many days of output i.e., requirements of buyers will enable cost savings/convenience in tr4nsportation of finished goods from your factory. While indicating the value of finished goods, you can take it sex-factory price into account at this stage without going into the intricacies of calculating the 'cost value' of the finished goods. As far as semi-finished goods are concerned, you must find out how many days it takes to convert raw-material into finished goods. While assessing the value for the semi-finished goods, you can take the average of raw-material cost and the ex-factory price of finished goods without going into the details of calculation.

As regards debtors you must find out to what extent the existing manufacturers in the field offer credit to the buyers (normally such credit facilities range from 30 to 50 days). For example, if the existing manufacturers are offering 30 days credit facility, you can safely assume that your buyers will be expecting at least 30 days credit.

In other words, you would get the payment for the goods that you sell today only after 30 days

Since you know the annual production from point No. 2.1, you can calculate production in terms of quantity and value for 30 days period, which gives you the figure pertaining to the total 'debtors' for calculation of working capital. As regards cash on hand, you have to make a rough estimate of how much cash you would require i.e., payment to workers, conveyance expenses etc. which forms a part of the working capital.

• This point deals with the total cost of the project, which is the summation of Fixed Capital and Working Capital. The total of point No. 4.1 and 4.2 will give you the necessary figure.

•Having worked out the total cost of the project, you must identify the sources for financing the project. The fixed capital can be financed to the extent of say about 75% to 80% by way of 'long-term loan' from State Finance Corporation of Commercial Banks. The funds for working capital to the extent of say about 60%to75%of the requirement would come from commercial banks as 'Working Capital Loan'. If your unit is coming up in a backward area, you will be eligible for capital subsidy to the extent of 10% to 25% of the Fixed Capital depending upon the location and the government policy for that location. Your own investment which should be around 10 - 20% of the projected cost will also form a source such as, deposits/loans from friends and relatives. You have to keep in mind that the loan component as far as possible, should not exceed 70-80% of the total projected cost. The total 'Means of Finance' should match with the total 'Cost of the Project' as it appears7 in Point No. 4.2

•This point deals with the project profitability. There are 9 items under this need

i) This deals with manufacturing expenses, which can be calculated by adding the total under-point Nos. 2.3, 2.4 and 2.5.

ii)This deals with selling and distribution expenses. Here, you have to include commission payable to the salesmen in case you have to appoint sales staff under such persons. Further, you may have to add a lumpsum amount towards advertisement and publicity expenses. In case you are supplying the goods at the door-steps of the buyers you have to take into account the transportation cost from the factory to the buyers place. All these items of cost together constitute 'Sales and Distribution Expenses'.

As regards 'Administrative Expenses' the various expenses on postage, stationery, telephone and telegram charges etc. will have to be included.

i) This deals with interest which is in two parts one is the interest on Term Loan and the other on Working Capital. From point No. 4.4 you know the amount on Term Loan. You can calculate the interest on that amount @ 12.5% to 14.5% depending upon the quantum of loan, the lending agency and scheme under which you avail the loan. Further, the interest on Working Capital can be calculated on the amount that appears in point No. 4.4, @ 13.5% to 16.5% the interest being stipulated by the lending agency.ii) As regards, depreciation, a flat rate of 15% of the value of machinery and 5% of the value of buildings may be taken into account. iii)Further you have to make a provision for certain expenses, which cannot be put under the title Miscellaneous Expenses. For this purpose, you can make an estimate on lumpsum basis.iv)All the aforesaid items of cost put together will give you the total cost per year which is to be indicated in Point No. 7 under item No. 4.5.v)This deals with Sales Revenue which can be obtained from Point No. 2.2.

•The gross profit can be calculated by deducting the Total Cost • From the total Sales Revenue.•As regards Income, you should find out the appropriate rate of tax applicable to you from your tax adviser. Accordingly, the tax is to be calculated for which you may need trainer's help.• The Net Profit is arrived at after deducting the Tax from the Gross Profit.• This point deals with certain details about the promoter of the project, relevant to the financing institution. These details will help the counselor as well as the representative from the financial institution to ascertain whether the project proposal vis-a-vis the promoter's background is acceptable for funding.

Having prepared PPR based on the methodology so far discussed, you must not forget to append the market survey report so that the PPR becomes a complete document for further action towards realising your dreams of becoming an entrepreneur.

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