1. INTRODUCTION TO RURAL ENTREPRENEURSHIP
ENTREPRENEUR
Entrepreneurs are people who create and grow enterprises.
Entrepreneurship is the process through which entrepreneurs create
and grow enterprises. Entrepreneurship development refers to the
infrastructure of public and private policies and practices that
foster and support entrepreneurship.
ENTREPRENEURSHIP
The concept of entrepreneurship has a wide range of meanings. On
the one extreme an entrepreneur is a person of very high aptitude
who pioneers change, possessing characteristics found in only a
very small fraction of the population. On the other extreme of
definitions, anyone who wants to work for himself or herself is
considered to be an entrepreneur. The word entrepreneur originates
from the French word, entreprendre, which means "to undertake." In
a business context, it means to start a business. The
Merriam-Webster Dictionary presents the definition of an
entrepreneur as one who organizes, manages, and assumes the risks
of a business or enterprise.
WHAT IS RURAL ENTREPRENEURSHIP?
The problem is essentially lop-sided development which is
development of one area at the cost of development of some other
place, with concomitant associated problems of under development.
For instance, we have seen unemployment or underemployment in the
villages that has led to influx of rural population to the cities.
What is needed is to create a situation so that the migration from
rural areas to urban areas comes down. Migration per se is not
always undesirable but it should be the minimum as far as
employment is concerned. Rather the situation should be such that
people should find it worthwhile to shift themselves from towns and
cities to rural areas because of realization of better
opportunities there. In other words, migration from rural areas
should not only get checked but overpopulated towns and cities
should also get decongested. The question is, is it really
possible? If it is so, ways can always be found out. One is by
forcibly stopping villagers from settling in the slums of towns and
cities, making use of all powers to clear the slums so the
villagers are forced to go back. But such practices have not
achieved the desired results in the past. Apart from causing
suffering to the poor people and adding to the expenditure for the
Government, social tensions and economic hardships created by the
government officials and their staff in every demolition of slums
is not desirable from a sane government. Moreover, when a slum is
demolished people do not move out of urban locality. They only
relocate to a nearby place because they are entrenched in the
economy of the town or city. Though governments have tried out
various schemes for generating incomes in the rural areas such
government initiatives have not stopped people from moving out of
villages to cities. This is because such government initiatives are
not on their own capable of enabling people to earn adequately and
ameliorate their conditions. There has to be some committed
enterprising individual or a group of people who should be capable
of making use of the government policies and schemes for the
betterment of rural people. Some individuals who happen to be local
leaders and NGOs and who are committed to the cause of the rural
people have been catalytic agents for development. Though their
efforts need to be recognized yet much more needs to be done to
reverse the direction of movement of people, i.e. to attract people
to the rural areas. It means not only stopping the outflow of rural
people but also attracting them back from the towns and cities
where they had migrated. This is possible when young people
consider rural areas as places of opportunities. Despite all the
inadequacies in rural areas one should assess their strengths and
build on them to make rural areas places of opportunities. This is
much to do with the way one sees the reality of the rural areas.
The way a survivor or a job seeker would see things would be
certainly different from those who would like to do something
worthwhile and are ready to go through a difficult path to achieve
their goals. It isn't that there is a dearth of people with such
mindset. But with time they change their minds and join the
bandwagon of job seekers due to various compulsions. Enabling them
to think positively, creatively and Entrepreneurship purposefully
is utmost for the development of rural areas. Young people with
such perspective and with the help of rightly channelized efforts
would usher in an era of rural entrepreneurship. In this country
successful rural entrepreneurs would solve many of the chronic
problems within a short time. To promote entrepreneurs who would
take to rural entrepreneurship in utmost earnestness and sincerity
is to ensure rural development. Such enterprising people who prefer
rural entrepreneurship may or may not themselves belong to rural
areas. Entrepreneurs taking to rural entrepreneurship should not
only set up enterprises in rural areas but should be also using
rural produce as raw material and employing rural people in their
production processes. Rural entrepreneurship is, in essence, that
entrepreneurship which ensures value addition to rural resources in
rural areas engaging largely rural human resources. In other words,
this means that finished products are produced in rural areas out
of resources obtained in rural areas by largely rural people.
The entrepreneur may or may not be of rural origin. The
entrepreneurs may be from anywhere, but their enterprises have to
be located in a rural area, using mainly local resources both
material as well as human. Also, the enterprises have to be located
in a rural area though it need not be actually using 100% local
material and human resources. Some amount of material and some
people may be from urban cities. But certainly large portion of
material used has to be locally produced and an appreciable number
of people engaged in the production of finished goods should be
people based or living in rural areas. Even a unit set up by the
government or a large company in a rural area could promote rural
entrepreneurship depending on how much opportunities it throws up
for entrepreneurs to use local resources, to fulfill the demands of
such large units and the multiplier effect such large units create.
Any large unit coming up in rural areas more or less does have an
impact in activating the surrounding economy for entrepreneurs to
take advantage of. This is precisely the reason why it is
recommended to shift industries from urban centers to neighboring
rural areas. Such shifting initially may be a difficult proposition
but in the long run beneficial in many ways. Moreover, it would
throw up lots of opportunities in the rural areas and result in
decongestion of the urban centers. Urban slums would start
disappearing with large number of industries getting shifted to
rural areas resulting in increasing opportunities in the rural
areas. Thus, both the rural as well as urban areas get benefited by
setting up more industrial units in the rural areas, making rural
areas attractive locations for investments.
Constraints Of Potential Rural Entrepreneurs And Development
Inputs
Sr. No
ConstraintsInputs
1.Low self image and confidence.Motivational inputs, unfreezing
and experiencesharing by successful local entrepreneurs.
2.No faith on others includes friends.
Group building experiences.
3.
No exposure to industry/ business.Field visit to factories and
big markets.
4.
What to contact for starting a venture, what formalties and
procedure are to be followed?
Information inputs on procedures and formalties.
5.
How to know whether the identified business is a viable and
sound proposition?
Opportunity identification and guidance.
6.
How to know whether the identified business is a viable and
sound proposition?
Market survey, project report preparation.
7.
How does one carry out bank operations?
Training in simple banking procedures like filing up deposit and
withdrawal slip etc.
8.
How to manage the business?Basic management orientation through
simulation exercises.
9.
How to read and write accounts?Functional and numerical
literacy. Simple accounting in terms of writing income and
expenditure.
10.Almost no technical skillsTechnical training ( on- the job
training)
2. TYPES OF RURAL ENTREPRENEURSHIP
Rural entrepreneurial activity can be broadly classified in four
types such as:
i) Individual Entrepreneurship - It is basically called
proprietary i.e. single ownership of the enterprise. ii) Group
Entrepreneurship - It mainly covers partnership, private limited
company and public limited company.iii) Cluster Formation - It
covers NGOs*, VOs*, CBOs*, SHGs* and even networking of these
groups. These also cover formal and non-formal association of a
group of individuals on the basis of caste, occupation, income,
etc. iv) Cooperatives - It is an autonomous association of persons
united voluntarily for a common objective. An entrepreneur has to
decide on a particular type of entrepreneurship based on the
various options available.
1] INDIVIDUAL ENTREPRENEURSHIP/PROPRIETORSHIP
In this; it is the entrepreneur who is the only (100%) owner.
The entrepreneur bears full responsibility for each and every
activity and is alone the strategic thinker and decision maker to
make the unit viable as well as profitable. There is hardly any
difference between personal assets and business assets. The
entrepreneur has "unlimited liability under the law". This type of
entrepreneurship is quite prevalent in rural areas where an
entrepreneur has limited resources.
2] GROUP ENTREPRENEURSHIP
It is classified into mainly three types such as i) Partnership;
ii) Private Limited Company and iii) Public Limited Company.
a. Partnership In this case there is no individual ownership of
the unit. There is another partner with you who works with you and
also bears the responsibility and shares profit. Like
proprietorship, the liability is "Joint and Several". For
partnership type of entrepreneurship, mutual trust is a must.
Besides both the partners in partnership must understand their
respective responsibilities and complement each other for common
objectives and goal. The characteristics of partnership are a)
association of two or more persons (maximum twenty), b) contractual
relation: c) lawful business, d) sharing of profit, e) agency
relationship, f) unlimited liability; and g) non-transferability of
interest. The requirements of ideal partnership are good faith,
common approach, written agreement, registration, adequate capital,
skills and stability. Partnership is governed by Indian Partnership
Act, 1932.
The merits of partnership are ease of formation, large
resources, and combined abilities and judgment, flexibility, quick
decisions, cautions operations, survival capacity, better human and
public relations, improved chances of growth and protection of
minority interest. The demerits could be lack of harmony, divided
authority, instability of business, lack of public confidence, risk
of implied authority, unlimited liability, non-transferability of
interest and social losses.
b. Private Limited Company
In this case the shareholders are the owners. There must be a
minimum of 2 (two) shareholders. The Indian law allows maximum of
50 (fifty) shareholders. The liability is limited in this case. As
such if the company goes bankrupt then no one has to part with
one's other personal assets to meet the obligation of the
creditors. Being a private limited company, one can raise far less
money than a public limited company. But there is better control as
the number of shareholders is few besides they may be your kith and
kin. Many provisions of Company Law are not applicable to private
limited companies. There is much less paperwork too. Companies are
governed by Companies Act, 1956.
c. Public Limited Company
In this case the shareholders are also the owners. There must be
minimum 7 (seven) shareholders. There might be millions of
shareholders as there is no such upper limit. Being a, public
limited company it can raise more money from the public by issuing
equity shares, debentures, etc. to meet various expenses of the
company. All provisions of the Company Law are applicable here. It
is more of a professional organization and is fully governed by the
Companies Act, 1956. It is to be noted that merit of forming a
company are many such as large financial resources, limited
liability, continuity, transferability of shares, benefits of large
scale operations, professional management, public confidence, scope
of expansion and growth, social benefits, tax benefits, etc. 3]
CLUSTER FORMATION
It is primarily a formal and non-formal group of people to
achieve a common objective. It basically covers Non-Governmental
Organizations (NGOs), Voluntary Organization (VOs), Self-Help
Groups (SHGs), Community-Based Organizations (CBOs) and networking
of all these. a.NGOs These are non-profit making organizations
registered under the Society's Registration Act, 1860. A group of
seven people come on a common platform to carry out defined
activities for the socio-economic development of people.
The main characteristics of NGOs are: i) These are initiated,
sponsored and constituted mainly by the Government as autonomous
bodies to fulfil specific development objectives. ii) These receive
funds mainly from the Govt. and channelize them through VOsiii)
These are usually non-political in nature.iv) These are formal
organizations with rules, reulations and procedures with
professional management.
b. VOs These are voluntary agencies initiated by individual for
welfare and development. They may or may not be registered under
any appropriate Act. Generally these are registered under any
appropriate Act like Societies Registration Act, 1860, Indian
Trusts Act, 1882 or Religious Act, 1920. These frame their own
Memorandum of Associations, rules and regulations and systems for
their governance. The VOs receive funds from various donor agencies
including NGOs. VOs are generally managed by persons with motivated
leadership and commitment. Their main promoters are honorary with a
strong desire to serve the people.
c. SHGs Self-help groups are a platform of 10-20 people mainly,
below the poverty line (BPL) to form a social group not only to
mutually help each other but also to achieve common objective. Only
one member from a family is eligible for membership group. The
Swanjayati Gram Swarozgar Yojana (SGSY) of the Ministry of Rural
Development, Govt. of India covers all aspects of self-employment
of the rural poor viz. organisation of the poor in SHGs and their
capacity building, training, selection of , key activities,
planning of activity clusters, infrastructure building up,
technology and marketing support. This is a non-formal group. The
SHGs get funding from the NGOs, VOs and even from the Government to
carry out various activities in areas of common interest and an
objective for economic empowerment.
d. CBOs These are community based organizations and are informal
in nature. Specific community with a specific avocation forms a
group to carry out various activities in a group. A CBO is a group
of people from a common living area of habitat who get together for
a common cause. The overall objective is to enhance the bargaining
strength of individuals in the group. For example: fishermen group,
cobbler group, milk producers, etc.
4] COOPERATIVES
According to ILO, a cooperative organization is an association
of persons usually of limited means, who have voluntarily joined
together to achieve a common economic end, through formation of a
democratically controlled business organisation making equitable
contributions to the capital required and accepting a fair share of
risks and benefits of the undertaking. According to International
Cooperative Alliance (ICA) "A cooperative is an autonomous
association of persons united voluntarily to meet their common
economic, social and cultural needs and aspirations through a
jointly-owned and democratically controlled enterprise".
3. DOMAINS OF RURAL ENTREPRENEURSHIP
There are large number of products and service in rural areas,
which can be leveraged by entrepreneurs to set up new small and
micro enterprises. In fact entrepreneurship can be pursued in
virtually any economic field. The idea here is to make the readers
aware of the linkages between various economic activities within a
particular category in the Indian context. The following indicative
sectors may be taken into consideration for gainful employment: a)
Original enterprises created out of opportunities in supplying
rural products to urban consumers and new products to rural
consumers. b) Replication of urban experiences in Rural
Setting.
Rural Entrepreneurship in India
One of the main aims of development policy in India is to
provide employment to millions of unemployed rural youth. India's
rural economy is primarily agricultural based, but the rapid rise
in its population with consequent pressure on land has led the
planners to lay greater emphasis on industrial development. The
core of the problem in countries like India is surplus agricultural
labour and closure of traditional village industries, resulting in
unemployment in rural areas and movement or, migration of rural
youth to urban area in search of jobs thus putting more pressure on
the urban infrastructure and amenities. Rural industries generated
employment for 47.97 lacs persons in the year 1996-97 as against
37.21 lacs persons in the year 1992-93. Of late, Agro based
industries have generated several employment opportunities to rural
people.
Income and Employment Potential
Industries in rural area, which are mostly micro or tiny in
structure, are quick yielding. In other words their gestation
period is much less as compared to large-scale industries. Rural
industries are labour intensive and provide large employment
opportunities to rural folks of all age groups. Khadi and Village
Industries Commission at national level and Khadi Villiage
Industries Board at State level have played a pivotal role in this
context .The village and small-scale industries was set-up with the
following aims: 1) to orient the rural population specially the
rural youth towards entrepreneurship; 2) to increase the levels of
earnings of artisans in rural areas; 3) to sustain and create
avenues of self-employment among the unemployed youth; 4) to ensure
regular supply of goods and services through use of local skills;
5) to develop entrepreneurship in combination with improved methods
of production through appropriate training and package of
incentives; 6) to preserve craftsmanship and art heritage of the
country.
1. food processing
Food processing covers variety of products from various sectors
comprising agriculture, horticulture, plantation, animal husbandry
and fisheries & marine products. India is one of the major food
producers in the world and has enough availability of a wide
variety of food-grains, fruits, vegetables, flowers, livestock,
poultry, fish and seafood. Diverse climatic conditions and a long
coastline has contributed to India's position as a large food
producer with variety. However, the food processing industry is
still a low-key affair and only two percent of fruits and
vegetables and 15 per cent of the milk produced are processed in
the industries as a whole. The processed food industry, which ranks
fifth in size in the country, represents 6.3 per cent of GDP. It
accounts for 13 per cent of the country's exports and 6 per cent of
total industrial investment which is estimated at US$70 billion,
including US$22 billion of value added products. After India
started pursuing the path of economic liberalization this sector
has been attracting Foreign Direct Investment across different
parts of the world in almost all the sectors.
2. Dehydrated Fruits and Vegetables
Foods are dehydrated either to preserve a perishable raw
commodity to ensure its availability round the year or to reduce
the cost and /or difficulty in packaging, handling, transporting
and storing, by converting it to a dry solid by reducing its weight
and volume. Of course, there are other benefits to the user such as
price stability, and also availability for immediate use without
preparation. Grapes, bananas, mango, jackfruit, pineapple, papaya
among others are highly nutritious and delicious and can be used as
preserved food which has got high potential. Similarly most of the
vegetables are seasonal and dehydration under hygienic conditions
makes them available throughout the year at a reasonable cost.
These are convenient enough to be used by large scale catering
establishments and for defense services and in various expeditions,
etc.
3. Fruit Based Beverages Fruit based beverages are relished very
much particularly when served chilled especially during summers.
These are nutritious and healthy. Juice, Squash, Crush, Cordial and
Syrups are popular fruit products. Products like syrups and
squashes of orange, mango, lime, pineapple, grape, apple, etc.
besides their jam and jelly are very popular among the masses.
4. Mushrooms
Mushrooms including the commonly known Dhingri grow on decaying
tissues of plant material under normal conditions.. It is light
grey in colour and has pleasant flavour. The study at CFTRI, Mysore
has shown that it can be cultivated easily under normal conditions
of temperature (21 to 2SC) and relative humidity ( 5% to 75%) for a
period of 6 to 8 months in a year in many parts of the country. It
can also be cultivated in summer months, by providing extra
humidity and low temperature with the use of modem techniques. The
spawn (seed material) of mushroom is the ramified mycelium, which
is used as which is used as seed. The spawn is prepared by
inoculating the pure culture of mushroom on paddy jowar straw under
certain conditions. This is known as master spawn. This can be
stored at room temperature for a period of 3 months from the date
of inoculation. Mushrooms have got tremendous market, both domestic
as well as international. Local market also has two segments, one
is the domestic consumer and the other is the business consumer at
hotels and restaurants. Use of Mushroom has increased substantially
at local level in the recent past.
5. Chikki Industry
Chikki is a popular and traditional Indian sweet. It is known by
different names in different languages and in different States. The
ingredients which go into production chikkies are puffe&rmsted
Bengd gram, groundnut, puffed rice, beaten rice, coconut scrapings
individually or in combination. The sweetening agents are added to
the preparation. is a popular item and has potential both in
internal as well as export markets.
The main production areas of Chikki are Lonawala & Khandala
in Maharashtra which are located on the Mumbai-Pune highway. In
this area several smallscale units produce Chikki with over 100
varieties which are of very high quality products.6. poultry
industry
Poultry farming is one of the fastest growing industries in
India. It is quite profitable and can be managed by persons of all
ages from all walks of life in all sections of the country. It may
be conducted as an exclusive business or as a side business for
additional income. The National Commission of Agriculture states
that poultry farming has certain special Strategies and Experiences
features, which favour its large-scale adoption by small and
marginal farmers and agricultural labourers. Land required for
poultry farming is small; the capital investment for starting small
poultry units is less. Poultry farming can be started on a small
scale and can be expanded gradually. It does not require heavy
investment and the raw materials are easily available. Also
short-term training facilities are available and even uneducated
people could set up poultry farms. Profits are earned much sooner
than most other farm products.Some of the advantages of poultry
keeping are: 1) Supplies nutritious food for the people. 2) Serves
as hobby and sport for some people.3) Requires less capital to
start a poultry unit and gives good and quick4) Needs little space
and can be done in phases. 5) Water requirement is less as compared
to crop cultivation or farming.6) Waste products like bran and
substandard grains can be utilized. 7) Eradicates garden pests such
as caterpillars, insects and snails. 8) Gives rich fertilizer for
crop cultivation especially for vegetable gardens.9) Poultry
feathers are useful in many ways. 10) It is a favourable side
business to agriculture. 11) Gives income throughout the year. 12)
Not much labour is involved and generates self-employment. 13)
Supports many ancillary units. 14) Easy to manage, even women and
children can look after them.15) Some medicines and tonics are
obtained from poultry as by-products.
Presently it is a well-organised agro-industry where people with
limited or adequate finances can start commercial poultry
farming.7. Cottage and Handicrafts Industry
Cottage industries are those industries run within the
residences of the artisans by family members without any hired
labour, with the use of locally available raw materials and by
making little capid investment. The major industrial activities in
this scheme include pot making, match making, ghani oil extraction,
bee-keeping, bamboo cane works, basket-making, korai mat weaving,
stone weaving items, clay folks.
8. Oil Industry
The vegetable oils are essential ingredients of food needed for
the growth and maintenance of human body. Crushing of oil seeds to
obtain edible oil for human consumption has been an age-old village
industry in India. The Telis have been an important component of
the village society. Either they have been crushing oil-seeds
procured by them or providing oil extraction service to oil-seed
producers. This provides nutritious oil with natural flavour and
taste.
The village oil industry employs lakhs of artisans in rural
areas. This industry renders service to the society in two-ways; it
supplies fresh, flavoured and nutritious oil to the consumers on
the one hand and provides employment to the traditional artisans
and others unemployed, on the other. In order to increase the
production of oil, all sources of equipment must be utilized Since
Ghani is a simple machine, which needs low capital and small
quantity of raw materials, it must be encouraged.
9. Pottery
The pottery is traditional industry of rural India. In fact it
is age-old industry where the pottery products are used within
rural India by rural folks for cooking (Handi), storing water
(Matka & Surai) and crockery and cutlery in the form of Kullar,
etc. The urban Indians are using the pottery products for plants,
very special kitchen items made up of china clay for serving tea,
coffee, clay bowels for preparing curds and serving food.
SERVICE SECTOR RURAL ENTERPRISE The service sector enterprises
are generally more successful, no matter whether co-operating in
rural or urban areas. What is more important is identification of
the nature of need based services related business activity.
10. Repair of Phone/Mobile Phone, Electronic and Electrical
goodsWith Industrial growth and revolution in communication
industry especially in the field of electronic media all over, the
rural India is also using TV, radio particularly for various FM
stations available in local and regional language, cable network,
land line and mobile phones. The various service providers have
opened a range of self-employment opportunities to rural educated
youth who have the competence and/or are willing to work or start
their own enterprise in the area of service needs of rural India.
Self-employment oriented training programmes to start an enterprise
with small investment are easily available to rural youth through
various training institutes which do not require high level of
educational qualifications. It rather requires the necessary skill
and basic aptitude to learn and understand the skill. Service in
this sector varies from opening of a shop as sales outlet, a
service outlet, outlet for accessories or an outlet of the main
service provided vendors specially mobile phone companies. This
area covers large number of activities in rural India where youth
can undertake the activity of higher taste. This being a purely
service oriented sector, a person with good interpersonal relations
and qualities will win over the business competition, which in any
case is basic requirement to become a successful entrepreneur.
11. Rural Tourism India is one of the oldest, culturally richest
and diverse country full of colour and boasts of a civilization
with rich flora and fauna. Our cuisine is mouth watering, scenic
beauty is breathtaking, folk dances are simply enchanting and wide
array of places of tourist attraction - from the valleys of
Himachal Pradesh, hills of Uttranchal, plains of the river Gang%
forests of North East, or plateau of South India, In other words,
India is simply full of diversity and that is why the latest blitz
of the Government terms her as Incredible India. Nearly two-third
Indians live in villages; in fact our roots are located in rural
India. Moreover most of tourist sites are located away from the
urban centres towards rural India and the trend is also shifting
towards the rural areas. There is wealth of craft performing art,
vivid lifestyle and cultural diversity obtaining in rural India.
12. Entertainment
In the absence of leisure time Bs well as purchasing power, the
rural folks are generally devoid of the entertainment which
everyone needs for rest and relaxation. With the reach of
electronic media the rural youth has developed a taste towards
music, dance, acting, etc. in addition to traditional songs, folk
dances, cultural activities, traditional games and sports which can
be used as source of revenue generation. This type of service can
be provided either by an individual having good financial
background or by a small group rendering and promoting such
activities and services in rural India on various occasions such as
social functions, VIP visits, etc. Such events are attracting not
only the domestic tourist but international tourist also is now
keen to observe Indian customs, culture and costumes thus becoming
a very good source of income for the rural unemployed youth.
13. Modern Industries
With the Government efforts to extend the development
initiatives to rural India especially in developing States, the
Modem industries are being given special packages and relief with
tax benefits for setting up the industries at a subsidized cost
with the aim to provide job opportunities, infrastructure
development in terms of road, power, water supply, e t ~T.h is, in
consequence, leads to overall increase in the living standards of
local people where the modem industries are being set up by various
national and international companies. As a matter of policy, the
industries are being asked to shift from the large townships like
metros especially to decongest and lessen the burden on the urban
centres. These industries offer great opportunities of varied
nature of jobs for local youth who are educated and are willing
take challenging assignments, whether wage-employment or
self-employment type. The employment opportunities are basically
based on qualifications, skills and expertise while self-employment
opportunities or indirect employment opportunities are based on the
various types of industry related trade or service activities which
the rural youth can undertake and be gainfully employed. Modern
industry is now playing very important role ever since
globalization and liberalization policy of Government came into
existence and it has definitely helped the rural youth in finding
suitable vocation.
4. PLANNING A RURAL ENTERPRISE
Planning is the foremost function in decision making to set up a
rural enterprise. Project planning aims at formulation of all the
future project activities well in advance, determine the quantum of
resources required for the purpose and coordinate various
activities to complete the activities as per schedule at the right
time. The first and foremost step to initiate the planning process
is the identification of a suitable project followed by information
accessibility, market assessment, preparation of feasibility
report, etc. Besides, one has to know the registration procedure of
the enterprise and various legal aspects of business.
PROJECT IDENTIFICATION
For identifying a new project, there are many
institutions/agencies such as Entrepreneurship Development
Institutes (EDIs)/Centers, Small Industries Service Institute
(SISI), Technical Consultancy Organizations (TCOs), etc. at State
level and District Industries Centers (DICs), private consultancy
organizations, etc. usually located at the district headquarter or
in a nearby town which can provide effective counseling services in
planning the enterprise and also in the subsequent activities. Once
one decides to set up own business, one has a wide choice before
her/him. In other words, one has a choice of starting
a) Manufacturing unit - Setting up an industry means one has to
organize many things like planning, arranging for technical
know-how, buying and installing machinery, building a factory,
managing several departments like production, sales, quality
control, personnel and administration, finance and so on and so
forth. b) Trading - Trading involves planning, purchase, sale,
stock control and financial management. A retail grocery shop,
compared to an industry, is a simpler business. A large
departmental store, however, is not so simple.
c) Service enterprise - A service enterprise can either be
simple or complex. For instance, setting up a photocopying centre
and managing it may be simple but inspection of offshore oil-gas
lines is a rather complex business. To set up an industry or a
service enterprise, one can start an enterprise in sectors like
chemical, pharmaceuticals, basic metal industries, metal products,
machinery other than electrical machinery, electrical machinery,
electronics, transport equipments, textile, rubber, plastic, food,
mineral-based industries, ceramics, agro-based but non-food
industries (e.g. making briquette from agricultural waste), paper,
or glass.
INFORMATION ACCESSIBILITYOne needs various types of information
about several aspects such as opportunities, market, technology,
finance, policies, location, etc. The different sources of
information could be:i) Similar enterprise owners/producersii) Raw
materials suppliersiii) Machineries suppliersiv) Packing materials
suppliersv) Customersvi) Dealersvii) Consultantsviii) Employees of
similar enterprisesix) Bank officialsx) Promotional agency and
regulatory agency officialsxi) Association of similar product(s)
manufacturers and so on
Information on Business Ideas - There are numerous directories,
handbooks and databases published by the Govt. of India,
Associations and other agencies for obtaining information on
opportunities. These are information in the following forms:
Feasibility studies Project profiles Industry studies Area
development studies
The organizations in possession of information on business
opportunities are are: 1) District Industry Centres (DIC) - (one in
each district) 2) Technical Consultancy Organizations (TCO) - (one
each in most States) 3) Centres for Entrepreneurship Development
(one each in many States)4) Small Industry Service Institutes
(SISI) (one in each of many large cities) 5) Lead Bank (one in each
district)6) Industrial Extension Bureaus (these exist in several
States) and are known as INDEXTB, Udyog Mitra, Udyog Sahay and so
on). 7) National Industrial Development Corporation (NIDC), New
Delhi 8) Khadi and Village Industries Commission (KVIC) 9)
Commissioner of Cottage Industries (one in each State) 10)
Entrepreneurship Development Institute of India (EDI), Ahmedabad
11) National Institute of Entrepreneurship and Small Business
Development (NIESBUD), New Delhi12) National Institute of Small
Industry Extension and Training, Hyderabad 13) Small Industries
Development Bank of India (SLDBI), Lucknow 14) Industrial
Consultancy Firms
Ideas An ability of a business idea among various alternatives
being considered is a must. The key questions in settling down to a
viable business idea are as under:
Uses/applications of the product or service Possible scales of
production or operation for which economies of scale is to be
looked into Investment for a given scale and the sources of funds
and related expenses there on Market prospects Unit sale price
Technical arrangements Expected annual turnover Expected profit and
break-even analysis Success determinants, etc.
Capital Organization Capital is the prime requirement for any
project. Term lending institutions such as State Financial
Corporations (SFCs), State Industrial Development Corporations
(SIDCs), State Industrial Investment Corporations (SIICs),
Commercial Banks, etc. are the prime sources for meeting the
project cost such as : Land cost and land development charges,
Construction of buildings, Purchase of plant and machinery,
Acquiring technical know-how, Procuring miscellaneous fixed assets,
Margin of working capital, Contingencies, etc.
While sanctioning loans, the financial institutions consider the
credit worthiness of the project beside the payback capacity of the
project. Hence assessment of financial viability is a must before
releasing the funds.
Support SystemInformation about support system is a must for an
enterprise. In short-term it is the information which helps
in-sound decision making. The information could be on
infrastructure facilities, incentives available, financial tie-ups,
availability of raw materials, tax concessions, etc.
Information on various infrastructure facilities such as
availability of land, power, and water, facilities for effluents or
wastes disposal should be available from the District Industries
Centre of the District or from the concerned State Directorate of
Industries. For financial tie-ups the State Financial Corporation
and its branches which are located at various districts of the
State can effectively guide.
Even commercial banks of the locality could be approached. Also
proper analysis has to be done by comparing relevant facts and
figures so thatthe best term or package is available to the
entrepreneur. There are tax concessions and other allowances
available from time to time by the Central Government or the
concerned State Governments in the form of tax holidays, sales tax
incentives, etc. for which the concerned District Industry Centre
(DIC) shall guide. They can also advise as to how to meet various
provisions of income tax, sales tax, excise duty, etc. depending
upon the nature of the product.
MARKET ASSESSMENT For sound market assessment three things are
important such as Analysis of Market Demand Market demand for a
product is the total volume that would be bought by a defined
customer group, in a defined geographical area, in a defined time
period, in a defined marketing environment, under a defined
marketing programme. Hence, there are eight elements of variables
which must be analyzed in order to determine market demand.
The Competition For a particular product of different brands,
the competitive situation could be assessed by analyzing the market
share, price, product features, product age, discount to dealers,
credit terms, major customers, etc. of a brand vis-a-vis the
other.
Trading PracticesAn Entrepreneur must try to understand the
trade practices that are relevant to her/his product. The
intermediaries in the channel, prevailing sales tax, legal
implications, etc. have to be understood properly for assessing
market. In selection of a product of service, there is the need to
analyze the market through primary and secondary data. These data
can help to assess the current demand, the forecast and the
potential of a particular product or service besides the
opportunities and risks available to it.
Primary Data & Secondary DataIt is the information which is
collected first-hand through field work or survey by various
methods such as Questionnaires, Personal Interviews, etc. There are
various methods of collecting primary data i.e. observation method,
experiment method and survey method. Secondary Data: Information
which already exists in documented form. Such sources can be a)
Annual reports of the companies b) Trade publication and records c)
Libraries and trade information centers d) Directories of
manufacturers e) Newspaper, business magazines, etc. f) Govt.
publications (e.g. DCSSI profiles) g) Data agencies, consultancy
firms, etc. h) Information from dealers, various agencies
Market Research (MR)It helps to collect primary data. The more
accurate and fresh the data, the greater are the benefits. The
American Marketing Association defines marketing research as "The
systematic gathering, recording and analyzing of data about
problems related to the marketing of goods and services".1. Problem
definition 2. Research design 3. Field work 4. Data analysis 5.
Report presentation and implementation
FEASIBILITY REPORT It is very essential to prepare a feasibility
report covering all the activities and the resources needed for the
project. The feasibility report broadly contains the following: a)
The background of the entrepreneur i.e. the educational background,
family background and professional exposure b) Market potential and
marketing strategy c) Selection of location of the project which
should be on the basis of proximity to the source of raw materials
and/or markets, availabilities of labour, infrastructural
facilities, incentives, etc. d) Requirements of land and building.
It is to be ensured that the land is free from any legal
encumbrances e) Requirement of plant and machinery including their
installation f) Manufacturing process g) Requirements of utilities
such as water and electricity h) Requirements of raw materials and
sources of supply i) Estimated cost of the project j) Means of
finance k) Cost of production, taxes and profitability h)
Break-even point m) Cash flow statement n) Internal rate of return
and o) Economic viability
A feasibility report must provide a base-technical, economic and
commercial-for an investment decision on any
industry/entrepreneurial project. It should define and analyze the
critical elements that relate to the production of a given product
together with alternative approaches to such production. Such a
report should provide a project of a defined production capacity at
a selected location, using a particular technology or technologies
in relation to defined materials and inputs, at identified
investment and production costs, and sales revenues yielding a
defined return on investment. It must consider all aspects of
business right from project background and history, location and
site to conclusion covering its advantages, drawbacks and
implementation of the project.
REGISTRATION PROCEDURE As a small-scale unit it should be
registered with the District Industries Centre (DIC) of the
district in which project is to be proposed to be located. It has
to obtain No Objection Certificate from the State Pollution Control
Board. Depending upon the nature of the product or service, it has
to be registered for Sales Tax, Service Tax, and other statutory
purposes.
LEGAL ASPECTS OF BUSINESSAn entrepreneur must be aware of
various legal and statutory obligations affecting labour related
regulations of the business. These are covered under various
Acts/legislations as under the Factories Act, 1948; Industrial
Disputes Act, 1947; social legislations and wage legislations.
1. The Factories Act, 1948
This Act is applicable where the number of employees is ten or
more and where power is used and twenty or more where power is not
used. Under this Act the entrepreneur has to take necessary
measures for health, safety and welfare of the workers as per the
Act besides taking necessary precautionary measures against fire.
Further, necessary records have to be maintained for working hours,
annual leaves, overtime, advances, wages, deductions, etc. The
adherence to various provisions of the Act shall be regulated by
the Chief Inspector of Factories.
2. The Industrial Disputes Act, 1947 Thus Act is applicable to
every trade, business, service, etc. which is also considered as an
industry under this act. Industrial disputes are common in a
workplace. Such disputes may arise between employers and employees
or among the employees. This dispute may be related to employment
or non-employment or terms of employment or the conditions of
labour of any person. The Authorities under the Act are Works
Committee, Conciliation Officer, Board of Conciliation, and Courts
of Inquiry, Labour Court, Industry Tribunals and National Tribunal.
An entrepreneur has to follow necessary procedures in case such a
dispute arises.
3. Social Legislation
Social security is a need for any employee. The Employees
Provident Fund and Miscellaneous Provisions Act, 1952 are
applicable to any establishment employing 20 or more employees.
Under this Act, the minimum contribution payable by the employer
towards provident fund is 8.33% of the salary. The employee has to
make an equal contribution. The details and modalities could be
obtained from the Regional Provident Fund Commissioner. Various
other schemes which are covered under this Act are a) Employee
Family Pension Fund and b) Deposit Linked Insurance Scheme.
4. Wage Legislation
It covers the following Acts: i) Payment of Wages Act, 1936, ii)
Payment of Gratuity Act, 1972, iii) Payment of Bonus Act, 1965, and
iv) Minimum Wages Act, 1948. i) Payment of Wages Act, 1936 - This
Act is applicable to establishment where ten or more workers are
employed on any day of the preceding 12 months with the aid of
power and twenty or more workers without the aid of power. Wages
mean basic pay, dearness allowance, city compensatory allowance,
overtime wages and production incentives. As per the norms,
necessary registers for wages and other related matters have to be
maintained. ii) Payment of Gratuity Act, 1972 - It is applicable in
all establishments in which 10 or more persons are employed.
Gratuity shall be payable to an employee who has put in
uninterrupted service for a minimum period of five years. iii)
Payment of Bonus Act, 1965 - The Act applies to establishments
employing ten or more persons. Under the Act the employer is liable
to pay bonus to employees as an annual statutory payment
irrespective of profits. This Act includes all employees drawing
wage or salary up to Rs. 3500 per month. To become eligible for
bonus, every employee must have worked for 30 working days in the
establishment in the relevant accounting year. A minimum 8.33% of
wages actually earned during the financial year subject to minimum
of Rs. 1,0001- is payable to each eligible employee irrespective of
profit or loss. iv) Minimum Wages Act, 1948 - This is applicable in
44 scheduled industries. Basic wages are fixed for different
industries and special allowances are announced by the labour
commissioner every six months. Necessary registers have to be
maintained.
5. HUMAN RESOURCES FOR DEVELOPING RURAL ENTREPRENEURS
Human Resources are amongst the most essential resources that
are required for fostering rural entrepreneurship. The importance
of human resources cannot be over emphasized, for it is this
resource alone that makes the greatest impact on socioeconomic
development of rural areas. Achievement motivation is a key to
entrepreneurship development. This is achieved in many ways:
childhood reading, upbringing, exposure to challenging situations,
self study, apprenticeship, coaching and training, all contribute
to achievement motivation.
Training for Entrepreneurship Development Development of
entrepreneurs through systematic training namely Entrepreneurship
Development Programmes (EDPs) has emerged as an important strategy
for development of human resources for promoting small business
enterprises in rural areas. India has come a long way since the
idea of creating an entrepreneur through training was first mooted
over 40 years ago. The focal point of all entrepreneurship
development programmes is the entrepreneur, the person who matters
in the process of development. The entrepreneur should be seen in
the social context and also in the context of the needs of rural
societies. The conceptual framework of the development of rural
entrepreneurship should be made the starting point so that the
various strategies used in developing entrepreneurs can be properly
understood and planned. Entrepreneurial motivation is the most
important factor in contributing to the development of
entrepreneurship in a society. So, various aspects that help in
developing achievement motivation need to be included in the EDP
training courses. These skills have to be properly emphasized. In
order that the potential entrepreneurs succeed in their
entrepreneurial ventures, they need to be thoroughly prepared,
rather pained, to imbibe and nurture the key traits like taking
initiative, perseverance, self-confidence, ability to identify and
grab opportunities, information seeking ability, planning, problem
solving, persuasive and influencing competencies, risk taking
willingness, hard working, quality consciousness, sense of
efficacy, openness to feedback, learning from experience, time
orientation, concern for society, competition and collaboration,
dignity of labour, respect for work, need for independence and need
for outstanding performance, etc. Normally the above traits or
qualities are not found in the majority of rural people since they
are not oriented to an entrepreneurial culture. The environment, in
which they live, and the lack of opportunities for entrepreneurial
encounters, etc. restrict them. It is, therefore, necessary to
create an atmosphere for promoting potential entrepreneurs.
Entrepreneurship Development Centres being run in each State, and
national level institute like EDII, NISIET, NIESBUD, IIED, ICECD,
have designed several training courses for training potential
entrepreneurs on various aspects of enterprise development. In
addition, several agricultural universities, research institutes,
KVIC, Krishi Vigyan Kendras have provided adequate training
opportunities on the subject matter and technologies for enterprise
development. RUDSET institutes also provide training for potential
entrepreneurs under PMRY scheme. In addition, the network of SISIs
located all over the country provides technical guidance and
support for small enterprise development.
Training and Development of Rural Entrepreneurs A brief sketch
of the training and support programmes launched by the government
is given to enable the reader get a comprehensive view of the
efforts of human resources development for rural
entrepreneurship.Training of rural Youth for Self Employment
(TRYSEM):Training of Rural Youth for Self Employment was launched
by the Government of India in 1979 as a facilitating component of
Integrated Rural Development Programme (IPDP). In this programme,
the selected rural youth are put through a period of training,
either with a training institution or a master craftsman to provide
necessary technical and entrepreneurial skills. On completion of
training, the identified youth receive a combination of subsidy and
institutional credit under IRDP for acquisition of an income
generating asset. The syllabus for each trade under TRYSEM should
include training in job skills, as well as management skills. The
latter may include elements of bookkeeping, simple knowledge of
marketing, product costing, familiarization with entrepreneurial
assistance agencies and with project financing by banks.
Prime Minister's Rozgar Yojana (PMRY):Prime Minister's Rozgar
Yojana was launched on 2nd October 1993 to assist educated
unemployed youth to set up self-employment ventures. It relates to
the setting up of the self employment ventures in all economically
viable projects (except direct agricultural operations). The Scheme
also seeks to associate reputed non-governmental organisations in
implementation of PMRY Scheme especially in the selection, training
of entrepreneurs and preparation of project profiles. The scheme
targeted for setting up of nearly 7 lakh enterprises and consequent
employment generation to more than one million educated unemployed
youth in the last four years of the Eighth Five Year Plan. The
target for the year 2004-05 & 2005-06 under the Yojana has been
enhanced from 2.20 lakh beneficiaries to 2.50 lakh beneficiaries
per annum for creation of additional employment opportunities in
the rural non-farm sector.
Swaranjayanti Gram Swarozgar Yojana (SGSY): Swaranjayanti Gram
Swarozgar Yojana (SGSY) was launched by Government of India in 1999
with a focus on providing effective self employment through self
help group approach and activity cluster approach for rural poor
families below poverty line. The self help groups are motivated
through training and capacity building for taking up thrift and
credit activity and start their own small rural enterprises through
the financial assistance of Revolving Fund Assistance.
The Scheme also seeks to associate reputed non-governmental
organisations in implementation of SGSY Scheme Rural Employment
Generation Programme (REGP): On the basis of recommendation of the
High Power Committee submitted in May 1994, headed by the then
Prime Minster of India, the KVIC launched Rural Employment
Generation Programme (REGP) with effect from 1st Nov 1995, for
generation of two million jobs under the KVI sector in the rural
areas of the country
The main objectives of REGP are a) to generate employment in
rural areas, b) to develop entrepreneurial skill and attitude among
rural unemployed youth, c) to achieve the goal of rural
industrialization, And d) to facilitate participation of financial
institutions for higher credit flow to rural industries. The REGP
scheme is applicable to all village industries project set up in
rural areas. The eligible agencies under the scheme are (i)
individuals (rural artisans/entrepreneurs) ii) institutions
cooperative societies, Trusts & SHGs for projects up to Rs.
25.00 lakhs. Under the scheme, the borrower is required to invest
her/his own contribution of 10 percent of the project cost. In case
of SC/ST and other weaker section borrowers, the beneficiary's
contribution will be 5% of the project cost. Banks will sanction 90
percent of the project cost in case of general category borrowers
and 95 percent of the project cost to the weaker section
beneficiaries/institutions and disburse full amount of the loan.
After the sanction of the credit facility by the Bank branch,
eligible amount of Margin Money will be kept in Term Deposit of two
years in the account of the borrower at the leading bank branch,
which will be credited to the borrower's loan account after a
period of two years from the date of first disbursement of
loans.
6. BASIC INFRASTRUCTURE FOR RURAL ENTREPRENEURSHIP
Infrastructure plays a significant role in providing and
enabling encouraging atmosphere for the growth and spread of rural
enterprises and small industries. The achievement of an 8 percent
growth rate envisaged in the Five Year Plans will require industry
sector growth of over 10 percent, with at least a corresponding
growth in demand for infrastructure. In India, serious problems
have been building up in the infrastructure sector for many years:
in transport rail efficiency is low, there has been
under-investment and freight rates are high in order to subsidize
passengers. The basic infrastructure includes transport, utilities
and communication including railways, roads, ports, power, and
telecommunication services. Additional infrastructure facilities
that are also required are drinking water, housing, healthcare,
among others.
Transport, Power and Communication: A well knit and coordinated
system of transport plays an important role in the sustained
economic growth of a country. Transport system forms the major
basic infrastructure required for harnessing the potential of rural
entrepreneurship. Among the transport systems' several modes, rail
and road are important while ports also play a major role in some
cases.
Railways: Railways provide the principal mode of transportation
of freight and passengers. Railways with its vast network spread
all over the country play a vital role in the economic, industrial
and social development of the country. The revenue freight traffic,
being at 5 18.7 million tonnes in 2002-03 and increasing
substantially from then on, is the backbone of industrial growth
and caters to improving the performance and profitability of small
industries.
Roads: India has one of the largest road networks in the world
aggregating to about 3.32 million kilometers by 2004-05. The
country's road network consists of national highways, state
highways, major/other district roads and village/rural roads.
National Highways, comprising only 1.7% of the highway network,
carry 40% of the traffic, and another 40% is carried on State
Highways and major district roads comprising 12% of the system. But
it is connectivity at local levels which has the greatest impact on
rural development and poverty alleviation. Over one-third of the
villages in the country are not connected by all-weather roads. The
expected share of roads in total traffic would be 65 percent of
freight traffic by the end of 2007, which can be achieved through
the national highways development programme. Rural roads are also
given their due importance through special programmes like PMGSY,
whose objective is to link with a population of more than 500 with
all-weather roads by the end of 2007. A Central Road Fund was
created through a Central Road Fund Act enacted in December
2000.
Pradhan Mantri Gram Sadak Yojana (PMGSY) was launched to provide
all weather basic access to about 1.72 lakh habitation of
populations of 500 or more. PMGSY roads are constructed to high
technical standards and backed by 5 year maintenance contracts. The
objective of rural connectivity is to provide basic access and the
continuity of linkage up to the market/service centre in a cost
effective manner. In a recent study it has been found that the
Indian government's expenditure on road construction contributed
more to poverty reduction than did the other investments. Roads
helped farmers transport their goods to markets, gave them better
access to higher-wage employment opportunities in the rural
non-farm sector, and increased consumers' access to food markets.
Investment in infrastructure in general (roads, electricity, and
communications) also reduced poverty by enhancing agricultural,
productivity growth, thus increasing farm incomes and expanding the
non-agricultural sector.
Power: Generation and distribution of electricity from various
sources has a catalytic role in development of rural enterprises.
Accelerated Rural Electrification Programme (AREP) envisages at
providing supply of electricity for production oriented activities
like rural industries, minor irrigation and electrification of
villages. To give impetus to rural electrification, the Government
is paying special attention to creation and augmentation of Rural
Electricity Distribution Backbone and Village Electricity
Infrastructure so as to cover all the un-electrified villages and
rural households in five years. Rural Electricity Supply Technology
Mission (REST) has been set up to oversee the implementation of
schemes under AREP. The Electricity Act, 2003 enacted with a
progressive outlook has envisaged a provision of license-free
generation and distribution in the rural areas and regulation of
power supply throughout the country. The Rural Electrification
Corporation Limited (REC)'s current mission is to facilitate
availability of electricity for accelerated growth and for
enrichment of quality of life of rural and semi urban population
and to act as a competitive, client-friendly and development
oriented organization for financing and promoting projects covering
power generation, power conservation, power transmission and power
distribution network in the country. Adequate and uninterrupted
regular power supply will augment the growth of small industries
and enterprises in rural areas.
Telecommunication: The telecommunications services form the core
area of infrastructure development today with the thrust on
e-governance up to district, tehsil and Gram Panchayat levels.
Telephones have become omnipresent with installation of more than
37000 electronic telephone exchanges by the government. The results
have been dramatic. After decades of constraints, tele-density rose
from 1.57 per 100 persons in 1991-2 to 4.4 in 2002 (including
mobiles). The target for direct exchange lines in the Ninth Plan
was achieved. Capacity grew by 22% p.a. sufficient to sustain new
telecoms-based industries such as call centres - and costs fell.
Contractual and regulatory constraints on the private sector were
eased in the light of experience. There is still a marked
difference between rural and urban areas, with tele-density being
1.14 in rural areas against 10.16 in urban. One third of villages
have no phone lines. Computerization of Land Reforms (CLR) was
started as a centrally sponsored scheme in 1988-89 on a pilot basis
in eight districts in eight states to remove the problems inherent
in the manual system of maintenance and updating of land records
and to meet the requirements of various groups of users people,
planners and administrators. The CLR scheme is extended to about
365 districts and 35 19 tehsils or taluks.
Scheme of Fund for Regeneration of Traditional Industries
(SFURTI): Government has recently launched the Scheme of Fund for
Regeneration of Traditional Industries (SFURTI) under which 100
traditional industry clusters (of khadi, village industry and coir)
would be taken up for comprehensive development over 5 years. The
KVIC and the Coir Board are the nodal agencies for the Scheme,
which will be the first comprehensive initiative for regeneration
of the khadi and village industries sector, based on the cluster
development methodology.7. MANAGING A RURAL ENTREPRISE
A rural entrepreneur attempts at managing his enterprise through
three sets of enterprise management functions: primary, production
management and financial management functions. After launching a
rural enterprise, various entrepreneurial activities are taken up
by the entrepreneur for optimizing resource use, maximizing profits
and enhancing the efficiency of running the enterprise. So he
engages himself in producing and marketing products. He has the
simple goal of making the unit economically viable and sustainable.
Hence managing the enterprise assumes greater importance to achieve
efficiency and to make profits on a continuous basis. So managing a
rural enterprise becomes the top priority of the entrepreneur.
Organizing resources -men, money and materials for production,
processing, packaging, and marketing of goods is the essence of
managing an enterprise. Choosing and upgrading appropriate
technology is also a key factor for the success of the enterprise.
In managing a rural enterprise, following aspects are considered as
constituents of the unit: scale of operation, de-risking through
trials, sourcing supply of inputs, working capital, operating
cycle, adopting a gradual growth of production, supervising cash
flows and quality control, using available idle capacity, managing
waste, and checking pilferage. Enterprise management is the process
of planning, organizing, controlling and budgeting of the works of
a rural enterprise. Enterprise management comprises various
management practices - planning for long-term and short-term goals,
organizing production or services, arranging working capital for
operating cycles, coordination of all enterprise activities,
marketing, decision-making, delegating, controlling, monitoring and
supervising, managing cash flows and finance management,
book-keeping including writing balance sheet and income statement
for budgeting.
a. PRIMARY MANAGEMENT FUNCTIONS
Whenever a new entrepreneur attempts at launching a new venture
- a small industry or an enterprise or business in rural areas, she
needs to understand the key functions of running and managing
enterprise to attain entrepreneurial success. The new entrepreneur
has to have a clear vision for his enterprise and plan for
achieving long-term goals. So planning is the most essential of all
the primary management functions. The decision-making about the
choice of product line and technology to be used is also very
important. Then organizing production /services is another
essential aspect that the entrepreneur has to think of. Organizing
involves resourcing the enterprise, which includes arranging for
men, money and material resources for starting production work.
Staffing, i.e., recruiting and selecting suitable manpower to run
the enterprise, is yet another primary aspect for the
entrepreneur-manager. The primary management functions include most
essential functions, such as planning, decision-making, organizing
and staffing. Planning Planning is a process of setting goals and a
suitable course of action for achieving the enterprise goals.
Planning is done at two levels: strategic and operational levels.
Strategic Planning: When an entrepreneur adopts a clear long-term
goal with a clear vision and well expressed and articulated mission
statement for his enterprise, the entrepreneur is said to be
practicing strategic planning. In the small-scale industries and
rural enterprises, there is very limited scope to adopt systematic
planning and adherence to strategies. The management process is
essentially adaptive in nature. Like in medium and large-scale
industries, they cannot afford to adopt a predictive management
process, which involves setting objectives, formulating policies,
drawing up strategies to realize the set objectives. However, a
rural entrepreneur is advised to adopt a strategic planning process
at least to set long-term goals. The small scale units with their
need to adopt an adaptive process of management perhaps have to
depend on primary relationships like close friendships or kinship
ties for their management functions. Because of the adaptive nature
of management, small-scale units do not permit professionalism to a
great extent.
Operational Planning: Rural entrepreneurs usually adopt
operational planning process in achieving their enterprises'
short-term goals. Since the daily activities related to enterprise
are within their immediate control, the rural entrepreneurs plan
them well and also execute their plans quite satisfactorily. Since
a rural entrepreneur usually starts an enterprise for which he/she
has quite adequate knowledge, skills, and competencies, she
successfully follows her/his daily operational plans in running the
rural enterprise.
Decision-Making: Usually every rural entrepreneur takes several
decisions, on a regular basis, for handling daily operations of
production, assessing the sale volumes for production, assessing
working capital requirements, maintaining quality of\products or
services, reducing costs, increasing profits, etc. Appropriate
decision-making is the hallmark of successful entrepreneurs. An
element of risk taking willingness of an entrepreneur plays a key
role in taking right decisions. Usually the decisions taken would
prove to be right or wrong only after the results start coming and
after assessing the consequences.
Product Choice: Entrepreneurs make several decisions about
product choice. When an entrepreneur attempts to make a difficult
or complex product, say an electric mains switch, marketing it is
relatively easier than the items which can be easily produced.
Running around marketing of simple and easy products consumes more
time and pays fewer dividends. Moreover, with difficult products in
hand, the entrepreneur can even monopolize the market, while with
simple products he/she faces heavy competition due to many players
in the market.
Technology Choice: Appropriate choice of technology plays a
significant role in getting better product quality and market
share. A spice manufacturer had installed an imported machine that
enabled him to powder the spices at low temperatures so that the
quality is not affected, which otherwise normally happens with the
indigenous machines because of heat generated in the grinding
process. Costs may increase in such cases but it is the quality of
final product that gets an entrepreneur the money back. Successful
entrepreneurs usually end up taking decisions that yield desired
results and may prove to be right in retrospect. So, practicing
appropriate decision-making in their enterprises may be one of the
reasons for their entrepreneurial success.
Organizing Production/Services A rural entrepreneur needs to
organize the production process or service operations for achieving
entrepreneurial success. So he/she starts installing the equipment
and machinery, organizes space and sets up the enterprise according
to the project proposal. Managing a rural enterprise involves
looking after production processes to ensure quality control and
wastage reduction. So, technically trained entrepreneurs spend more
time in close and direct supervision of the production process.
Those people who bad prior experience of working in a product line
also give special emphasis to production process. So, they assume
that production is crucial part of small-scale enterprises and feel
that time devoted to .production never goes waste. The
entrepreneur-manager also takes care of raw material supplies and
studies the raw material market, explores for new dealers and
spends a lot of time for getting better raw materials and
components for the enterprise. The organizing function of managing
a rural enterprise evolves into an expertise and specialized field
for entrepreneurs because this is one area of enterprise control
where costs can be controlled. Adequate experience and enough
knowledge about all the raw material components required and their
sources to get them at competitive prices is another essential
feature of successful management of an enterprise. Getting to know
the reliable supplier of raw materials does not happen in a day or
two. It involves many trials and tests and is quite painstaking. A
good manager believes in simple truths: "No pains, no gains!"
Staffing An entrepreneur, in an attempt to launch a new enterprise,
creates employment not only for himself but also for many others -
skilled as well as unskilled labour. The staff including workers,
technicians, mechanics, foremen, supervisors, managers, etc., is
the most essential of all resources for running the production
process and realizing the dream project of the enterprise.
Recruiting and selecting the staff: This is most critical aspect
for the entrepreneur who has to select only those people who not
only provide necessary skills and competencies for the enterprise
and but also share her/his dream, values, standards of excellence
and quality products or services. But getting the required people
is always a difficult task for the entrepreneurs. Managerial Staff:
They usually take in a few of their own family members in
management cadre for many reasons, such as convenience,
familiarity, understanding and being less risky. But the experience
has shown that this has yielded mixed results. In some cases, the
relatives managed to cooperate with each other, while in others,
tensions caused even closure of the enterprises. Most of the
entrepreneurs depend on the primary relationships because they
adopt an adaptive mode of management, which may not allow for
professionalism to a great extent. Retired government officials or
middle-aged persons offer their services for managerial jobs in
small industries, but usually prove to be misfits due to
unrealistic expectations and mismatched performance standards. Most
of the managerial staffs possess very little experience as the
entrepreneurs of small-scale industries find it difficult to
attract experienced managerial personnel. They often learn their
job according to the exigencies without much prior practical
training. Due to shortage of management staff, it is imperative for
the entrepreneur-owner to also handle other's jobs to ensure that
the work does not get held up in case someone is absent. Managers
have also to be recruited suiting their abilities and temperament.
A good manager diagnoses the problem objectively and does not get
carried away by emotions and tempers. Similarly the capable and
competent supervisors and foremen on the shop floor make a great
difference in production performance and quality control.
Training the unskilled labour: Getting the skilled labour may
become difficult as the better skilled people may not opt for
working in a rural industry. But the unskilled labour may take long
time as they learn everything on the job and through experience may
acquire necessary skills. In such cases, where skilled labour are
hired from outside, they may soon quit for better opportunities
elsewhere. So when these people leave the enterprise, the lower
level unskilled labour may take over operations with mixed results.
In the process, the enterprise slows down and suffers. The lower
skilled or unskilled labour force are usually not provided any
technical training for the fear of losing them as they may leave
for better options after acquiring the training. Adequate
specialized training needs to be given to the employed man power
for running the machinery in order to develop masters of some
specific tasks. Employed staffs need to be observed critically for
their competencies and weaknesses and they need to be assigned
tasks accordingly, and developed appropriately to become experts in
a particular field. Otherwise, the employee may become
jack-of-all-trades but master of none.
b. PRODUCTION MANAGEMENT FUNCTIONS
The production management functions include those functions in
running the enterprise, such as production management, arranging
working capital for operating cycles, assessing the break-even
point, and marketing of products/services.
Production Management Production management is the process of
arranging and allocating work, men, money, and material resources
in such a structured manner to achieve the twin goals of an
enterprise - reducing costs and increasing profits. Once an
enterprise is set up, i.e., once the entrepreneur has organized
space, machinery, equipment, and other fixed assets, and also
recruited and selected required work force, she would start
production. She/he is ready and set to start operations of her/his
enterprise. The entrepreneur needs working capital for starting
production. She tries to understand the operating cycles of
production assesses working capital requirements and sets about
producing goods. So s/he needs to understand operating cycle,
Working capital, etc. Then the new entrepreneur would make attempts
at production, engages in trial production- and adopts a pricing
policy based on the costing of making the products
Working Capital: An entrepreneur needs finance for various
operating expenses. She needs to buy raw materials, consumables,
packaging materials, etc., and needs money for salary and wages,
rent, premium and other services. So, in order to cover all these,
expenses she would need money, which is known as the working
capital. This money can be recovered once the entrepreneur sells
the finished goods. Till that time, the funds gets locked up in the
production process. So, working capital can be defined as the
amount of capital perpetually locked up in the form of current
assets viz. raw materials, work-in-progress, finished goods, credit
may lead to wrong decisions and result in a chaos in the
enterprise, which tin be easily avoided given and cash required to
sustain a specified level of activity in terms of production and
sales. To find out the requirement of working capital, one needs to
understand the concept of operating cycle.
Operating Cycle: One needs to buy and maintain the stock of raw
materials for a certain minimum period. This will depend upon
various factors like nearness of the market, cost of procurement,
availability of the raw materials and their shelf life. The
stocking period will vary from a day to even 5-6 months. To convert
the raw material into finished products will also take certain
time. This will depend upon the process involved and timely
availability of all the needed resources. Once the product is ready
it has to reach the buyers and in return the sale proceeds are to
be collected. This also takes some time depending upon the demand
and terms of sales. The time taken for all the three stages above,
i.e., the stocking period, production time and sales realization
time put together constitute an operating cycle of the business.
The working capital is the total funds required to meet all the
expenses of one operating cycle. Usually, the small entrepreneurs
consider the production expenses only as working capital. They
neither consider the stocking period nor presume the sales
realization time. So it is very important to understand the concept
of operating cycle and calculate the working capital required for
the entire period. And working capital is the sum total of all
operating expenses for the period of one operating cycle. Working
capital management is the most dynamic concept of financial
management in an enterprise. Effective working capital management
would lead to: a) Lower investment of finance in working capital
for a given activity level. b) Effective management of cash, which
is an idle investment. C) Reduction in cost of production as a
result of lower investment of finance in working capital. Operating
cycle should be as fast as possible so that the working capital is
required for only a short period of time as it incurs interest
costs. Faster operating cycles also enable more number of operating
cycles and greater volume of production.
Marketing Management
Marketing is perhaps the most crucial of all management
functions in rural enterprise management. If the entrepreneur can
understand the preferences of customers and adopts an effective
strategy for marketing and selling, distributes products and
services directly or through agencies to customers, then
probability of success is very high. A good entrepreneur makes
prior agreements for assured marketing and adopts an effective
marketing strategy and thus earns profits through marketing.
Marketing involves assessment of the needs of customers, a good
pricing policy, promotional and advertising approach and
distribution system, and finally good profit. Hence, a customer is
the focus point of all marketing management and strategies. The
customers decide: a) What they want and need, b) What they will pay
for the product or service to satisfy that need, and c) Where and
from whom they will buy it. Hence the customer is focused in
marketing and promotion strategies. The entrepreneur needs to
understand that marketing is the backbone of one's enterprise as
this alone can bring in cash for further production and sustenance.
Since marketing is assumed to be crucial to entrepreneurial
success, marketing management needs to be taken up ardently by the
new entrepreneurs.
C. FINANCIAL MANAGEMENT FUNCTIONS The financial management
functions include those functions that deal with handling cash and
finances, costing, pricing, break-even analysis, managing cash
flows, accounting and book-keeping, writing a balance sheet and
income statement for budgeting. Financial management is a very
important area of control. It involves management and long-term
finance for establishing enterprise, expansion and growth; as well
as short-term finance for getting working capital. Proper
estimation and management of finances for the enterprise are
necessary for the success of any enterprise.
CostingAn entrepreneur needs to understand the role of both
these costs in fixing prices for finished goods. While the direct
costs for each product unit increase proportionately, the indirect
costs will generally decrease with increase in number of product
units manufactured. Care should be taken to include the costs
incurred in production wastages, loss in handling and transit,
customer rejections, after sales service, loss in man-hours,
transportation costs, distribution and sales costs, local taxes,
etc., as these directly affect the price of finished products. An
entrepreneur-manager needs to calculate these costs carefully in
order to arrive at reasonable profits.
Pricing The process of setting a price for the finished products
poses a great challenge to a new entrepreneur. Price of the
products or services depends a great deal on the cost of doing
business. The cost of sales tells what to charge to stay in
business. This is known as setting the floor price; or the minimum
price. The competition will set the ceiling price, or the maximum
price. The entrepreneur needs to charge enough for the product or
services so that both fixed costs and variable costs will be
covered by sales and a small profit is also derived. If prices are
set too high, it may not be possible to attract sufficient business
to cover fixed-costs; if prices are too low, the larger number of
customers attracted may not still generate enough revenue to cover
all costs.
Break-even Analysis A break-even analysis can and should be done
to check the reasonableness of the prices fixed. Break-even helps
to take fixed costs and variable costs into account when fixing the
prices. Initially, in the first and second operating cycles of
production, it may not be possible for the entrepreneur to
break-even but over time the entrepreneur moves beyond break-even
point and starts making profits. It is always better to reach
break-even point sooner than later. The break-even point is a
valuable tool to analyze how much one needs to sell to make
profits. If the entrepreneur knows approximately how much they
needs to sell, they can order the proper amounts of stock of raw
materials, produce, and find way to sell that much. Once these
basic elements are identified and estimated, one can calculate the
break-even point. Breakeven analysis determines the point at which
sales revenues equal production costs. The break-even point can
also be defined in terms of physical units sold, or the level of
capacity utilization at which sales revenues and production costs
match each other. So entrepreneurs always attempt to utilize
maximum capacity of their equipment, machinery and labour and
reduce idle capacity utilization.
Cash Flows Management The new entrepreneurs need to know as to
what amount of money has come in and how money has gone out in a
certain period. It will give them an idea whether the business is
likely to yield profits and enable them to realistically forecast
money movements. The money movement into and out of business is a
matter to be controlled by the entrepreneur. Cash flow refers to
the actual movement of cash into and out of an enterprise. A cash
flow statement is prepared for a few years, and it is usually
sub-divided into the cash movements on a monthly basis for first
two years and even on a daily basis in the initial stages.
Cash inflow from sales depends on the method of payment to be
expected. This is because credit trading has the effect of shifting
cash flow into a later period than the date of actual sales. In
cash outflow the actual payment is considered, depending on the
credit terms arranged with the material suppliers, as this will
allow payment some time after the delivery of raw material. If a
business is to keep out of trouble, it must have enough cash inflow
to pay day-to-day expenses like wages, suppliers, rent and
electricity, etc. Monitoring cash flows and ensuring smooth flow of
cash forms one of the healthy practices of an entrepreneur. A
healthy cash flow and finance management would ensure healthy
enterprise and thereby entrepreneurial success.
Accounting and Book-keeping Every new entrepreneur is advised to
form a system of maintaining books of accounts and records from
inception. Recording all accounts regularly is a routine work that
may be monotonous and boring but its worth can only be seen in its
absence. Absence of a system of accounting is one of the important
reasons of failure. Accounts are eyes of business and show the
economic condition and financial health of the business very
clearly. Book-keeping or maintaining a record of all accounts of
the enterprise - the expenditure incurred, the wages, the payments
due and the overall income-expenditure-profit details help the
entrepreneur to assess the financial health and financial
discipline of the enterprise. If an entrepreneur is keeping all
records of vouchers, bills, account slips, etc. in various cash
books and registers, then she is practicing book-keeping for
her/his enterprise and also running the enterprise in a systematic
manner. Successful entrepreneurs resort to regular counting and
book-keeping of their enterprises which provides ready data on
finances and may guide them in making appropriate decisions and
running their enterprises efficiently.
Balance Sheet: Balance Sheet describes the enterprise's
financial condition at a given point in time, in terms of its
assets, liabilities and net worth. The successful entrepreneurs
usually write their balance sheets on a regular basis and may turn
out to be good enterprise managers and hence achieve success in
their entrepreneurial ventures. The unsuccessful entrepreneurs,
more often than not, do not prepare any balance sheet
whatsoever.
Income Statement: Income statement summarizes the enterprise's
financial capability. An entrepreneur, after all, works to earn an
income from her/his enterprise. If she is not aware of how much she
had earned over a period of time, she is not in a position to
decide whether to continue or stop or change the course of action.
Through an income statement, the entrepreneur will have a fair idea
of the operational costs, cost of products sold, administrative
expenses; taxes and interests paid, and the net income earned. The
income statements of over; a period of years or cycles of
production will also help the entrepreneur to actually know whether
there are incremental gains or losses in her/his enterprise.
Effective financial management practices form the core of managing
a rural enterprise. The rural entrepreneurs need to grasp the
intricacies of costing, pricing and breakeven analysis in order to
attain entrepreneurial success.
SOURCES OF FUNDS
Normally an entrepreneur tries to meet at least part of the
funds requirement from ones own sources, which we call as capital
of the promoter. He/she arrange this fund either from friends,
family members or from own saving. In most cases it is founds that
this funds is quit insufficient to run the business. Therefore he
approaches various agencies for meeting the requirements. The
credit and landing agencies operating rural areas can be divided
into two types:- 1) Institutional 2) Non- Institutional
The former comprise commercial banks, co-operative societies,
development banks, regional rural banks and non banking financial
companies. These institution operate in regulated environment and
observe fixed norms & guidelines enumerated by the government.
Since they are more amenable to policy prescriptions of government
authorities they have fixed criteria on rate of interest, primary
& collateral securities & selection procedures. The non
institutional agencies are lending agencies operating in non formal
manner. They are mostly money lenders operating in rural areas.
They are only lending agencies before the entry of institutional
agencies. Rural people have easy access to these sources of
finance, as there are no Rules & regulations guiding their
activities. They charge very high rate of interest and many of them
take away the entire property of the poor people which is pledge by
them for granting loans of even very small amount. Institutional
financial is of three types:- 1) Banking Institutional:- Commercial
banks, co-operative societies, Regional Rural Bank.
2) Development banks:- Small industries development bank of
India(SIDBI) , National Bank of Agricultural and Rural Development
Bank (NABARD), National Housing Bank (NHB)
3) Non b