Modern Small Business Enterprises

• Modern Small Business Enterprises: Role of Small Scale Industries, Impact

of Globalization and WTO on SSIs,
• Concepts and definitions of SSI Enterprises,
• Government policy and development of the Small Scale sector in India,
Growth and Performance of Small Scale Industries in India,
• Sickness in SSI sector, Problems for Small Scale Industries,
• Ancillary Industry and Tiny Industry (Definition only) (Selected topics
from Chapter1, Text 2).
• Idea Generation and Feasibility Analysis - Idea Generation; Creativity and
Innovation;
• Identification of Business Opportunities;
• Market Entry Strategies; Marketing Feasibility; Financial Feasibilities;
Political Feasibilities; Economic Feasibility; Social and Legal Feasibilities;
Technical Feasibilities; Managerial Feasibility, Location and Other Utilities
Feasibilities.
 Modern Small Business Enterprises:
• The definition of small scale industry varies from one country to another and from
one time to another in the same country depending upon the pattern and stage of
development, government policy and administrative set up of the particular
country.
• On the recommendation of the Federal association of small industries of India
(FASI), only the investment in fixed assets in plant and machinery, whether held
in ownership terms or by lease or hire purchase, is considered instead of fixing
the limit on overall investment in plant and machinery.
• The evolution of legal concept of SSI is given in the table 6.1.
• However for small scale industries, the planning commission of India uses the
terms village and cottage industries.
• These include modern small-scale industries and the traditional cottage and house-
hold industries as shown in fig 6.1.
 Definitions of SSIs
1950 The fiscal commission for the first time defined an SSI as one which is operated mainly with
hired labour usually 10 to 50 hands.
1950 The fiscal commission for the first time defined an SSI as one which is operated mainly with
hired labour usually 10 to 50 hands.
1954-55 The Government of India set up Central Small Scale Industries Organization (CSSIO) and Small
Scale Industries Board (SSIB) to promote small scale industries.
1960 Employment criterion to define SSI was dropped and under investment criterion an industry
having gross value of fixed asset up to Rs. 5 Lakhs was called as SSI.
1975 The investment limit was rise to Rs. 10 Lakhs (15 Lakhs for ancillary units).
1980 The investment limit was rise to Rs. 20 Lakhs (25 Lakhs for ancillary units).
1985 The investment limit was rise to Rs. 35 Lakhs (45 Lakhs for ancillary units).
1995 The investment limit was rise to Rs. 60 Lakhs (75 Lakhs for ancillary units).
March 1997 The investment limit was raised to Rs. 3 Crore.
1999-2000 The investment limit was reduced to 1 Crore.
2007 Limit is 1 Crore only.
 CHARACTERISTICS OF SSI
The following are the characteristics of SSI
(1) A small unit is generally a one-man show. Even if SSI is run on partnership or company, the
activities are carried by one of the partners or directors; the others are as sleeping partners
(2) In case of SSI, the owner himself or herself is a manager also and hence an SSI is managed in a
personalized fashion. The owner takes effective participation in all matters of business decision
making.
(3) The scope of operation of SSI is generally localized, catering to the local and regional demands.
(4) The gestation period i.e., the period after which return on investment starts is relatively lower
when compared to large units.
(5) SSI’s are fairly labour intensive with comparatively smaller capital investment.
(6) Small units use indigenous resources and therefore, can be located anywhere subject to the
availability of these resources like raw materials, labour etc.
(7) Using local resources Small Units are decentralized and dispersed to rural areas. Thus small units
promote balanced regional development and prevent the influx of job seekers from rural areas to
cities.
(8) Small scale units are more change susceptible and highly reactive and receptive to socio-economic
conditions.
 RATIONALE
Emphasizing the very rationale of Small-scale industry in the
Indian economy, the Industrial Policy Resolution (IPR) 1956
stated: “They provide immediate large scale employment,
they offer a method of ensuring a more equitable distribution
of the national income and they facilitate an effective
mobilization of resources of capital and skill which might
otherwise unutilized. Some of the problems that unplanned
urbanization tends to create will be avoided by the
establishment of small centers of industrial production all over
the country”.
 OBJECTIVES
An attempt has been made in this section to enumerate the main objectives of developing
small enterprises in India.
1. To generate immediate and large scale employment opportunities with relatively low
investment.
2. To eradicate unemployment problem from the country.
3. To encourage dispersal of industries to all over country covering small towns, villages
and economically lagging regions.
4. To bring backward areas too, in the main stream of national development.
5. To promote balanced regional development in the whole country.
6. To ensure more equitable distribution of national income.
7. To encourage effective mobilization of country’s untapped resources.
8. To improve the standard of living of people in the country
 SCOPE
The scope of small-scale industries is quite vast covering a wide range of activities.
These activities are characterized by labour intensive, need less capital and
require less sophisticated technology.
The activities which are found particularly amenable can be successfully operated
in small scale are too many to mention. Among them the important ones are:
Manufacturing activities
Servicing/repairing activities
Retailing activities
Financial activities
Whole-sale business
Construction activities
Infrastructural activities like transportation, communication etc
 ROLE OF SSI IN ECONOMIC
DEVELOPMENT
Economic development is defined in a number of ways:
the commonest definition could be ‘an increase in real per capita income of a person resulting in improvement in the
levels of living’.
The developments of small-scale industries contribute to the increase in per capita income. The role of SSI in economic
development is given below—
1. Employment
2. Optimization of Capital
3. Balanced Regional Development
4. Mobilization of Local Resources
5. Export Promotion
6. Consumer surplus
7. Feeder to large scale industry
8. Social advantage
9. Share in industrial production
10. Development of entrepreneurship
 ADVANTAGES OF SMALL SCALE
INDUSTRIES
Small scale enterprises can be started as per convenience of the owner in terms
of space, finance, product and manpower.
● The setting up of the unit and starting of production requires a small gestation
period of only 2 to 6 months and layout can be made as per convenience.
● Locally available skilled and semi-skilled people can be appointed at short
notice and at a much lower wages compared to the medium and large industries.
• Wherever high technology involved the parent company executives will help.
Alternatively, consultants can be hired to sort out technology related problems.
● It is one of the best forms of self-employment as well as giving employment
opportunities to own kith and kin, friends and relatives etc.
● In case of rural sector the SSI units will be able to have cheaper labour
especially in off seasons.
● In developing countries the SSI units are a necessity to assist bigger industries
and new projects.
 ADVANTAGES OF SMALL SCALE
INDUSTRIES
● In case of SSI units started by experienced and talented executives,
there is abundant scope to develop high technology components for
MNCs and also to organize exports.
● Due to increase in population there has been increase in production of
consumer goods and Fast Moving Consumer Goods (FMCG). In view of
this there is a bigger role for small industries to take up components
production and even manufacture the product itself.
● The small units are exempted from excise duty up to 75 lakhs per
annum turnover. In case of industries in the backward districts, waiver or
concession is given for various statutory taxes. Thus lot of paper work
and formalities are avoided.
● Since employees are recruited based on contacts or relations there will
be loyalty to the owner and hence there will be no trade union activity.
 STEPS TO START AN SSIS
• Decision to be self-employed: This is the most crucial decision a youth has to
take, shunning wage employment and opting for self-employment or
entrepreneurship.
• Analyzing strengths, weaknesses, opportunities and threats (SWOT analysis):
• Scanning of business environment:
• Training:
• Product selection
• Market survey:
• Form of organization:
• Location
• Technology
• Machinery and equipment:
• Project report preparation
• Project appraisal
 STEPS TO START AN SSIS
• Finance
• Provisional registration.
• Technical know-how
• Power and water connection:
• Installation of machinery:
• Recruitment of manpower
• Procurement of raw materials
• Production:
• Marketing:
• Quality assurance
• Permanent registration:
• Market research:
 GOVERNMENT POLICY: INDUSTRIAL POLICY
RESOLUTIONS
Major Environment After attaining independence in 1947, India adopted economic
planning as a method to achieve economic development.
IPR 1948- Raw material cheap power technical advice, marketing of products, Safe-
guarding against excessive competition from large units.
IPR 1956- Protect artisan based non-tech. enterprise development. Modern SSI for
Industrial and consumer goods. Provide capital and skill.
IPR 1977- Protect labour intensive technology. Promote small tiny units, promote
non-urban location, promote new first generation entrepreneurs, decentralized
production.
IPR 1980- Protect labour intensive technology. Promote small tiny units, promote
non-urban location, promote new first generation entrepreneurs, decentralized
production, nuclear plant for SSI growth, reservation products for SSI.
IPR 1990- Promotion of SSI and agro-based industries reservation of products 836
and new lines to be identified.
 SSI Policy Framework
Latest Amendment In line with new economic policies, a policy document for SSI was
announced on 6th August 1991. It continued priority sector lending to SSI by
Banks/Financial Institution.
● Excise exemption scheme
● Reservation of items for exclusive production
● Price and purchase preference
● Uniform package of incentives of the entire sector It introduced new measures like:
● Removal of location restrictions
● Enhancement of coverage, limits
● Shift towards infrastructural development support
● Inclusion of services in this sector
● Allowing equity investment in SSI (up to 24%)
● Shift from protection/regulation to promotion of equality, technology and efficiency
● Substantial de-regulation and simplification of rules and procedures.
 GOVERNMENT SUPPORT TO SSI DURING
FIVE YEAR PLAN
Immediately after independence, government of India has given great
importance to the development of small-scale sector in the successive
five year plans.
Expenditure towards SSI in Five Year Plans
First (1951-56) 48.00
Second (1956-61) 187.00
Third (1961-66) 248.00
Fourth (1969-73) 242.00
Fifth (1974-78)) 592.00
Sixth (1980-85) 1,945.00
Seventh(1985-90) 3,249.00
Eighth (1992-97) 6,334.00
 IMPACT OF GLOBALIZATION AND LIBERALIZATION ON SSI
Before the introduction of new economic reforms in 1991 following the inevitable
globalization, the SSI sector was overprotected. The small scale industry never had a strong
desire to grow to medium and large scale because of the benefits of protection given to it.
Many of the policies also discouraged the growth of small scale units into large ones and had
a stunting effect on manufacturing, employment and output growth. With the globalization,
the SSIs are now exposed to sever competition both from large scale sector, domestic and
foreign and MNCs. The effect of globalization can be summarized as below.
(1) The new policies of the government towards liberalization and globalization without
ensuring the interest or priority of small-scale sector resulted in poor growth rate of SSI
sector.
(2) Multi dimensional problems.
(3) Globalization resulted in opening up of markets, leading to intense competition. For
example, the World Trade Organization (WTO) regulates multilateral trade, requiring its
member countries to remove its import quotas, restrictions and reduce import tariffs.
(4) With the removal of restrictions of foreign direct investment, multinational companies
entered India which further intensified the competition in the domestic market.
IMPACT OF GLOBALIZATION AND LIBERALIZATION ON SSI
In order to protect, support and promote small enterprises, a number of
protective and promotional measures have been undertaken by the central
government. The promotional measures cover the following:
● Industrial extension services
● Institutional support in respect of credit facilities
● Provision of developed sites for construction of sheds
● Provision of training facilities
● Supply of machinery on hire purchase terms
● Assistance for domestic marketing as well as exports
● Special intensive for setting up enterprises in backward areas
● Technical consultancy and financial assistance for technological upgradation
 IMPACT OF WTO/GATT ON SSI
The challenges to the small-scale sector are due to the impact of agreements
under WTO. The setting up of the WTO in 1995 has altered the framework of
internal trade towards non-distortive, market oriented policies. This is in keeping
with the policy shift that occurred world wide in favour of the free market forces
and tilt away from state regulation/intervention in economic activity. This is
likely to lead to an expansion in the volume of international trade and changes
in the pattern of commodity flows. The main outcome of WTO stipulated
requirements will be brought about through reduction in export subsidies,
greater market access, removal of non-tariff barriers and reduction in tariffs.
There will also be tighter patent laws through regulation of intellectual property
rights under Trade-Related Intellectual Property Rights (TRIPS) Agreements,
which laid down what is to be patented, for what duration and on what terms.
Increased market access to imports will mean opening up the domestic market
to large flows of imports.
 IMPACT OF WTO/GATT ON SSI
SSIs have to face threats and also avail opportunities owing to
the WTO and its agreements. The main opportunities of the
WTO are classified into three. Firstly, national treatment of
exportable items across the countries all over the world, with
better market access through the internet. Second,
enlightened entrepreneurs have greater opportunities to
benefit from their comparative advantages due to lowering of
tariffs and dismantling of other restrictions. Finally, industries
that are in constant touch with government, which in turn
negotiates in their best interests in the on-going dialogue with
the WTO, are going to benefit.
AGENCIES OF GOVERNMENT FOR
SSI
(1) Central level institutions/agencies
(2) State level institutions/agencies
(3) Other agencies
Central Level SSI Board KVIC, SIDO NSIC, NPC NSTEDB NISIET,IIE
NIESBUD EDI SSIS Others Industry.
State Level DIS DICS SFCS SSIDC Institutions supporting small-scale
industries.
Association R & D Organization Non-Government Organizations.
 NATURE AND TYPES OF SUPPORTS
• Policy Support
• Fiscal Support
• Infrastructure Support
• Technological Support and Quality Improvement
• Marketing support
• Informational support
• Incentives and Subsidies
• Other Types of Support
(1) Streamlining Rules and Regulations.
(2) Entrepreneurship development training.
(3) Rehabilitation of sick units.
 ANCILLARY, TINY AND SERVICE INDUSTRIES
An ancillary unit is one, which sells not less than 50 % of its
manufactures to one or more industrial units. The limit of
investment is same for ancillary units and small scale
industries. The investment limit for tiny industry is Rs. 25 lakh
in plant and machinery. There is no restrictive condition of the
location of the unit in small towns. These enterprises would
be entitled to preference in land allocations, power
connection, access to facilities or skill/technical upgradation.
These would also have easy access to institutional finance,
priority in Government purchases and relaxation in labor laws.
Service units provide services such as hotel and hospital
services. The investment ceiling is fixed at Rs. 1.0 million
(excluding land and buildings).
 BARRIERS TO ENTREPRENEURSHIP
A large number of entrepreneurs particularly in the small enterprises fail due to several
problems and barriers. The greatest barrier to entrepreneurship is the failure of success. Karl.
H. Vesper has identified the following entrepreneurship barriers:
1. Lack of a viable concept
2. Lack of market knowledge
3. Lack of technical skills
4. Lack of seed capital
5. Lack of business know how
6. Complacency—lack of motivation
7. Social stigma
8. Time presence and distractions
9. Legal constraints and regulations
10. Monopoly and protectionism
11. Inhibitions due to patents
12 Monopolistic competitions