Ed (Ppt) Bba - Vi - Semester

Entrepreneurship DEVELOPMENT

5/22/12

PREPARED BY: PROF. S.K.

ENTREPRENEURSHIP AND ITS SCOPE Who is an Entrepreneur?

Person responsible for setting up a Business or an enterprise.

Takes initiative, has skills for innovation and looks for achievement.

Agent of change and work for the good of people.

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Opens up employment opportunities, creates wealth and boosts other sectors.

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Highly self-motivated person, who take

risks to achieve goals.

Firm believer in social betterment. Visionary having outstanding leadership. Desire to excel, strongly believes in R & D.

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Found in all areas. Play important role in economic growth. Aims at high goals. Person, who identifies an opportunity, gathers

the necessary resources, ultimately responsible for the performance of the organization.

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A French economist Richard cantillon in 1755,

was the first to use the term Entrepreneur.

He said Entrepreneur is one who buys

factors of production at Certain Prices and sells his Products at uncertain prices, thereby bearing a non-insurable risk that may arise, due to depressed demand for his product.

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Peter F. Drucker said Entrepreneurs are

innovators. Innovation is the specific tool of entrepreneurs, this means by which they exploit change as an opportunity for a different business or a different service. He always searches for changes, responds to it an exploits it as an opportunity

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We can now say that entrepreneur is a

person who bears the non-insurable risk, works under uncertainty, combines and manages the factors of production, innovates on all fronts on regular basis, functions as proprietary capitalist and is motivated by profit. Associated with three elements:Riskbearing, organizing, innovating.

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Qualities / Traits / Characteristics of an EntrepreneurStrong achiever Self-Reliant & Independent

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Determined and committed Hungry for success, optimistic Self confidence and self-faith Sustained enthusiasm

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Courage & Self-motivated Ability to survive defeat Single-Mindedness Willing to accept responsibility

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Never ending energy Both thinker and doer Clear objective & creativity organization skills Intelligent and have technical knowledge

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Types of entrepreneurs1.innovating entrepreneurs:-

Introduces something new into the economy

New technique of production, a new source of material or product, opens a new mkt. Aggressive in experimentation. Puts attractive possibilities into practice. Commonly found in developed countries, as people of such countries also look for change and progress, extensive research feasible.5/22/12 PREPARED BY: PROF. S.K.

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Adoptive or imitative entrepreneurs:Adopt successful innovations created by

innovating entrepreneurs. Copy the technology and techniques, knowledge Commonly found in developing countries as can not afford expensive research. Have capacity to start ventures with limited resources. Face lesser risks. Very important for developing countries as he brings change. 5/22/12 PREPARED BY: PROF. S.K. e.d-

FABIAN ENTREPRENEURS:very cautious and skeptical for change. Lack the will to adopt new methods. Shy and lazy for taking risks Dealings determined by customs, traditions,

past practices. May change only for survival

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Drone entrepreneurs:Conservative and laggards Resist change, continue past methods. Struggle to exist, not to grow May be pushed out of the market, when they

loose the market.

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FUNCTIONS OF AN ENTREPRENEUR 1.INNOVATION:- Conceives / ideas for production of new products/services or improvements in the quality of production For this he considers the economic viability and technological feasibility. Introduction of different kinds of electronic gadgets innovation Includes introduction of new products, creation of new markets, application of new process of production, discovering new and better sources of Raw-Materials, New form / culture of Industrial organization. Innovation produces satisfaction & profits as he 5/22/12 PREPARED BY: PROF. S.K. works on inventions new knowledge. E.D

2.

ASSUMPTION OF RISK OR RISK TAKING:-

Assumes all possible risks of business. Also involves risks due to changes in

tastes/behavior of consumers, competition, new inventions and techniques of production. For all such risks, he may bear losses as he takes up the responsibilities. Invests capital, pays interest to lenders, Wages/ salaries, rent, working capital expenditures and after all these, may be left with little or no profits. Being Enterprising, assumes risks and tries to manage / handle it by his skills, innovation, judgement, planning, expansion etc.5/22/12 PREPARED BY: PROF. S.K.

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3. BUSINESS DECISIONS AND ORGANIZATION BUILDINGDecides nature & types of goods/services to be

produced. Crucial decision of entering a particular industry, prospects of products in future and most profitable methods of production. Decides about changes in size of business, its location, new branches, techniques, ways to develop business. Organizes and monitors various factors of production, minimize costs of production. Takes majority of core decisions himself but delegates authority and decision making when 5/22/12 PREPARED BY: PROF. S.K. business grows and decisions become complex. E.D

4. MANAGERIAL FUNCTIONS:Also performs managerial functions of

planning, directing, controlling, leadership etc. Formulates plans, arrange finance, procure raw materials, arrange production facilities, HRD functions. Large organs:- Delegated to paid managers.

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5. EARNING PROFITS:- As he takes upventures, takes risks for earning profits. Have strong motivation to earn profits and have success.For this exploits opportunities.

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ROLE OF ENTREPRENEURS IN THE ECONOMIC GROWTH OF A COUNTRYAS AN INNOVATOR

They commercialize the inventions made by inventors, to produce better goods to yield both satisfaction and profits. They implement inventors ideas as the same product made by many entrepreneurs. Converts technical work of the inventor into economic performance Assumes the role of a pioneer and an industrial leader. Innovational activities raise the productive efficiencies of the economy resulting in greater output / income. 5/22/12 to be innovative for survival and better Have PREPARED BY: PROF. S.K. E.D

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BALANCED REGIONAL DEVELOPMENT OF INDUSTRIES:Growth of Industry and Business leads to large number of public benefits like road transport, health, education, entertainment. Rapid Development of Entrepreneurship ensures balanced regional development. e.g. builders making townships and shopping malls in many places in the country. Competition in big cities force the entrepreneurs to setup business in small towns, helping development of backward areas. Small scale industries found everywhere requiring meagre resources.PREPARED BY: PROF. S.K.

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III ) FOREX EARNINGS:-

By exports, bring foreign exchange for the

country, enabling it to handle imports bills.Foreign exchange reserves for any country

improve the financial standing of the economy.

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IV) AUGMENTING AND MEETING LOCAL DEMAND:-

Entrep. help in meeting wide variety of

demand for goods/services.Need for new goods, products also get

created by them, by many methods of promotion, education etc.Many times in backward areas and states,

entrepreneurs from other places come and start a business thus harnessing local resources, found abundantly and fulfill local as 5/22/12 PREPARED BY: PROF. E.D well as national demand. S.K.

INTRAPRENEURSHIPAlso called intra corporate entreps.

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Persons with deep desire of personal

achievements within organization are internal Entreps.

Creative and innovative people within the

organization, catch hold of new ideas for product, service or process and work to bring their vision into reality.

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Work independently but do not assume

ownership from employer. They are on the payrolls of the company. Incharge for an identifiable activity. Allowed to reap the full benefit of their creative effort May leave the company to start their own venture and compete with the company Dynamic executive, leads company to greater heights thats why encouraged Top Management provide financial and technical assistance to their ideas.5/22/12 PREPARED BY: PROF. S.K.

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Entrepreneur V/s IntrapreneurBasis 1. Status Entrepreneur 1. Entrepreneur is the owner of the business. Intrapreneur 1. Intrapreneur works as employee of the company

2. Capital

2. Entrepreneur raises the requisite capital2. Intrapreneur does not raise any himself. capital. 3. Entrepreneur works independently. 3. Intrapreneur is semi-independent.

3. Freedom

4. Risk-taking

4. Entrepreneur is one who bears full risks of4. Intrapreneur does not bear any risks his business of business. 5. Entrepreneur guarantees suppliers of inputs. payment to5. No such guarantee is required to be given by the intrapreneur.

5. Guarantee

6. Norms and Rules

6. Entrepreneur operates independently. He is6. Intrapreneur operates from within the the master of his own show as he frames normsorganization. He is an organization man and rules of his business. and is bound by organizational norms and rules.

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Distinction between entrepreneur and manager1.

Entrepreneur Introduces new ideas to increase profits. Sets up new venture Assumes risks of economic uncertainties Earns profits which fluctuate. Own boss and independent status. Formal education not essential. Very high amount of commitment, self-motivation required.

1.

Manager Runs the business on established lines.

2. Runs an existing venture. 3. Undertakes no risk 4. Earns salary which remains relatively fixed and regular 5. An employee and dependent on the owner. 6. Formal education more important. 7. Commitment and self-motivation may be relative

2.

3.

4.

5.

6.

7.

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methods & procedure to start and expand ones own businessDecide which type of business organization

would like to have Type of organization determines risk, control, responsibility, decision of profits. Decision to be taken after due care, clear vision, long term view.

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VARIOUS FORMS OF BUSINESS ORGANISATIONSsole Proprietorship Partnership Firm Joint Stock Company Co-operative Society Joint Hindu Family Firm

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SOLE TRADEROldest form owned, controlled by one Bears all responsibilities, risks & profits Manages himself, however may take the help

of family members/relatives/paid employees Simplest and easiest form No need for any legal formalities

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Features of Sole ProprietorshipOne persons control Single ownership Unlimited & undivided risk No. Govt. regulation / formality No separate entity of the firm

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ADVANTAGESEasy and simple formations No legal

formalities/approval/licenses required, start, close, expand sole trading concern anytime. Quick Decision Making: Sole authority to decide and no interference quick decisions. Direct & Exclusive Control:Full direct authority to run the business Exclusively accountable to himself5/22/12 PREPARED BY: PROF. S.K.

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Maintenance of secrecy:Handles business single-handedly, so

business & trade secrets, remain with him Self-Motivation and direct Incentive for work:- Direct relation between efforts / rewards. Personal touch with customers:Always possible to develop close relations with the customers, better understanding of the customers and better satisfaction provided, goodwill 5/22/12 PREPARED BY: PROF. S.K. improves.

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Economies in Management:As compared to other forms of business,

majority of the activities controlled by the sole trader himself. Thus economies of scale do occur in business Minimum govt. regulation/interventions. Socially Significant:- Many individuals start with reasonable ease a sole trading concern in many sectors and places, generates self-employment, livelihood, initiative, confidence levels etc.5/22/12 PREPARED BY: PROF. S.K.

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DISADVANTAGES OF SOLE PROP.Limited Financial Resources Limited Managerial Abilities Unlimited Liability:- Debts of business relate

entire property. Limited Growth:- Lack of capital and managerial skills lead to limited growth. Uncertainty of continuity:- If dies, there is no guarantee of continuity.

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Where capital required is small, limited. Where limited risk is involved. Where personal attention to individual

Suitability of Sole Proprietorship

customers tastes & fashion required beauty parlors, tailoring shops. Where demand local seasonal, temp-fruit sellers etc. Where activities / Operations simple do not require skilled management.5/22/12 PREPARED BY: PROF. S.K.

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PARTNERSHIPLimitations of sole trader and need to

expand the business lead to the need to create a partnership firm. Group of persons with different skills, capital, resources set up a combined business with common ownership and Management. Risks, responsibilities shared5/22/12 PREPARED BY: PROF. S.K.

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Sec-4 of Indian Partnership Act,

1932- Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Individually called partners & jointly a firm. Terms / conditions contained in an agreement called Partnership deed.5/22/12 PREPARED BY: PROF. S.K.

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FEATURES OF A PARTNERSHIP FIRMMore persons required:- Minimum two Max.

10 persons for banking business and 20 for Non-banking business. Sharing of profits / losses as per agreement Unlimited Liability:- if the assets of the firm fall short to meet firms obligations the private assets of partners can be used. Contractual Relationship:- Oral or written agreement among partners.5/22/12 PREPARED BY: PROF. S.K.

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Lawful business:- partner to carry on lawful

business & share profits / losses. Utmost good faith and honesty required:Principal Agent Relationship:- Business carried by all or anyone of them acting for all. Each partner represents the firm and other partners while performing business. Thus partner is an agent of the firm and also other partners. Restrictions on Transfer of share:- No partner can transfer his share to an outsider without the consent of other partners.5/22/12 PREPARED BY: PROF. S.K.

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PARTNERSHIP DEEDThe agreement can be oral or written. Advisable to have written agreement to

avoid litigations and misunderstandings in future. Agreement in written form called partnership deed which has to be signed by all the partners, stamped & registered. Any modification only with mutual consent of all partners.5/22/12 PREPARED BY: PROF. S.K.

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A partnership deed generally contains the following:Name of the firm Nature of the business Names of the partners Place of business Amount of capital contributed by each

partner Salary / Commission payable to each partner5/22/12 PREPARED BY: PROF. S.K.

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Ratio of Profit sharing Loans / Advances from partners &

incentives to be paid. Duties, powers and obligations of partners. Arbitration in case of disputes among partners. Accounts settlement in case of dissolutions. Maintenance of Accounts and 5/22/12 PREPARED BY: PROF. S.K. arrangement for Audit. E.D

Easy Formation - However some difficulty in

ADVANTAGES OF PARTNERSHIP

selection of partners. Enhanced financial resources. Risks Divided Flexibility:- Easy to introduce changes like introduction of a new partner, raising new capital, expansion of business. Combined abilities & balanced Judgment:Brains ideas, skills, capital of more than two persons pooled together for better management of business. Joint consultatrans 5/22/12 PREPARED may produce betterBY: PROF. S.K. results. business E.D-

Business Secrecy Maintained:- No legal

requirement to publish and circulate annual accounts / Financial statements. Mutual Trust and Inter-dependence:Each partner an agent of other partners Team sprit and inter-dependence develops All partners get equal rights & powers. Easy Dissolution:- Can be dissolved by the partners merely by expressing to each other their desire to do so.5/22/12 PREPARED BY: PROF. S.K.

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DISADVANTAGES OF PARTNERSHIP: Availability of Limited

Resources:Unlimited Liability:Held personally liable for debts of firm.Lack of Public Confidence

Annual accounts not published & made public Hardly any legal control over these firms 5/22/12 PREPARED BY: PROF. S.K.E.D-

Instability:- Firm dissolved if any partner

dies or become insolvent.

Small disputes may lead to dissolution.

Non-Transferability of Interest:- No

partner can transfer the business interest, to an outsider without the consent of all other partners. Even then it may not came easily. Risk of Implied Authority:- Any partner can act as an agent of the firm or other partners. If negligent, acts carelessly, commits a mistake, other partners became equally liable. Lack of centralized Authority:- Lack of a supreme and a centralized authority, as all partners enjoy the power of management. 5/22/12 PREPARED BY: PROF. S.K.

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Not mandatory as per partnership Act. But desirable to have registration

Registration of Partnership Firm

Registration process Firm applies to the

registrar of firms of the state Govt. in the prescribed applications form, signed by all.

Following information filled:Name of the firm. Location of the business place. Other places, if any where the firm is carrying on the business.5/22/12 PREPARED BY: PROF. S.K.

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Date of the commencement of the

business. Date of joining of all the partners. Names and permanent addresses of all the partners. Duration of the firm, if applicable. When the registrar is satisfied with all the above details, he registers the firm by making an entry in the Register of firms.5/22/12 PREPARED BY: PROF. S.K.

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Dissolution of a Partnership Firm When a partner ceases to be associated with the

business, it is dissolution of partnership. Winding up of the business dissolution of firm, new agreement among remaining partners Three ways:1. Dissolution by Agreement:- As per P. Deed,

compulsory dissolution as per agreement. 2. Dissolution by the court:- if one partner becomes of unsound mind/ one partner transfers his share to third party without authority. 3. Dissolution due to contingency- completion of 5/22/12 PREPARED BY: PROF. S.K. E.Dfirms venture, expiry of partnership period /death

Entrps. require conducive social,

Environmental Factors Affecting the success of a new Business

political and economic environment to start business and be successful. Right environment, alongwith their efforts make them achievers. Developed countries provide better environment.5/22/12 PREPARED BY: PROF. S.K.

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ECONOMIC FACTORS: Availability of Capital Basic need is capital, to arrange for land, materials, machines, equipments. Easy availability motivates entrepreneurs to start and grow. Raw materials Availability Raw materials required for manufacturing and industrial enterprises. Easy availability and access to raw-materials encourage entrepreneurs Labour:- Quality / Quantity of Labour and its cost influence the entrepreneurship 5/22/12 PREPARED BY: PROF. S.K.

ENVIRONMENT FACTORS AFFECTING SUCCESS

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Social Factors 1. Education:- gives knowledge and better understanding for solving day to day problems. Any country, the system of education has an impact on people to inculcate and develop entrepreneurial values. The knowledge given by education regarding growing economy, new business opportunities, trade on global standards, changing consumer behaviour influence some people to show their initiative and entrepreneurial talent.II.5/22/12 PREPARED BY: PROF. S.K.

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Caste Factor :- In every society, there are certain cultural practices and values that influence the actions of individuals. Right from early life, people develop same inclination towards certain occupations, business global trend. In Indian society also, certain caste show better entrepreneurial initiatives.2.

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Family Background :-

Exp. of a family in some business a

motivating factor to encourage family members. Success factor encourages family members. Expertise, traits, practices available within the family

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4. Market:- all the goods and services produced must get a market with customers willing to buy and with capacities to pay. Entrepreneurs feel encouraged if there is potential in the market. Consumption trends provide encouragement to the entrepreneurs. Size of the markets and its composition relating to number of suppliers, competition, types of customers, their profiles motivate entrepreneurs and they look for opportunities to exploit.5/22/12 PREPARED BY: PROF. S.K.

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5.Infrastructure:- Availability of required infrastructure encourage entrepreneurs. Developed communication, transportation, power facilities big support for entrepreneurs. With these better infrastructural facilities, entrepreneurs can develop new business and also enlarge their markets / supplies.5/22/12 PREPARED BY: PROF. S.K.

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III.

Psychological Factors

Need Achievement:- Sense of need achievement

/ achievement motivation leads to growth of more entrepreneurs. Motives:- Motive to earn wealth, seek power, prestige and be independent. Entrepreneur thinks he can control his own life independently, does not believe in luck/ fate Risk taking is quite high, confident of handling business risks. Power of tolerance helps entrepreneurs. They must have a certain amount of tolerance for ambiguity/Uncertainty. Entrepreneurs have the PROF. S.K. of achieving more 5/22/12 PREPARED BY: thinking E.D-

IV.

POLITICAL Factors

Entrepreneurs function effectively if govt.

provides them support. Govt must ensure that infrastructure is created, required resources available and accessible to entrepreneurs. Various polices of the Govt. relating to prices, capital availability, labour, taxation greatly affect entrepreneurship. Providing incentives/ Subsides/ Tax benefits provide encouragement. Stable Govts. Provide required encouragement. 5/22/12 PREPARED BY: PROF. S.K.

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bigger form of business organ. Most of the limitations of other forms of businesses

JOINT STOCK COMPANY

get removed here. Most appropriate for large scale productions, economies of scale, using advanced technology and arranging large capital. A company is a voluntary association of persons, recognized by law, having a distinctive name and a common seal. Formed to carry on business for profit with capital divisible into transferable shares Members/ shareholders have limited liability. Organ has a corporate structure and a perpetual succession, aPREPARED BY: PROF. S.K. going concern. 5/22/12 E.D-

Features / Merits of a Company Separate legal Entity Company has a separate legal entity, independent of its

members. Company owns property and enters into contracts in its own name Can sue and get sued in its own name. Limited Liability: Liability limited to the extent of ownership of shares held. If the company has to pay the creditors, members/shareholders liable to the extent of shares held or unpaid amount of shares subscription. Prepetual Succession : Not affected by the death, insolvency of a member or a director. Services as long as not wound up 5/22/12 members may go andPROF. S.K. come but no effect PREPARED BY: new may Old E.D-

Artificial Legal Entity:- as created by law,

does not come into existence through natural birth, called on artificial entity. Common Seal:- as it is an artificial legal entity, it can not sign for itself, so as per law, it needs to have a common seal as a substitute for its signature. Approves its documents by putting the

companys common seal which has the companys name engraved on it, alongwith signature of at least two directors or other authorized officials.

Transferability of shares:Shares of public Ltd. Co. transferable easily Can be sold, purchased through brokers at the 5/22/12 PREPARED BY: PROF. S.K. market price E.D-

Ownership & Management

Separated: a public co. may have large no of shareholders but can not be asked to run the co. and look after the affairs of the company so they choose same representatives called Directors, to run the company.5/22/12 PREPARED BY: PROF. S.K.

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Incorporated association of

Persons: No single individual can make/run a

company Is a registered association of persons, requires at least seven persons to start a public limited company and two to start a Pvt. Ltd. Co. Procedures to add more persons.5/22/12 PREPARED BY: PROF. S.K.

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Availability of Large Financial

Resources shares, Debentures, Bonds, Loans, etc. Professional Management :Employees Professional Mgrs as has

large financial resources, perpetual succession and growth path

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Considerable scope for growth and

expansion:- due to large financial management, technical resource very good scope for growth. Public confidence: People / shareholders have lot of faith, trust in a

Public ltd. Co. based on its performance, sales, quality, audited accounts and since regulated by companies Act., get listed, trading done liquidity available.

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Suitability of a CompanyAppropriate for large scale business and where: Owners want limited liability. Business involves uncertainty / heavy risks, like shipping, mining etc. Heavy, basic industries requiring huge finances. Large scale operations crucial for economies of scale manufacturing etc. CO-OPERATIVE SOCIETY Profit Motive Substituted with Service Motive. An association of persons, usually of limited means, who have voluntarily joined together to achieve a common economic end. Associate together to promote common interest Generally formed and registered under the co-operative societies Act 1912. Form of business organizations can be applied to every type of economic activity. 5/22/12 PREPARED BY: PROF. S.K. Members supply the capital by buying the shares of the society.

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FEATURES OF A COOPERATIVE SOCIETY Voluntary association Democratic style of Management Equal voting Rights. Service Motive Limited Returns of

Capital:- Limited rate of interest presenting max 10% is given as capital invested.5/22/12 PREPARED BY: PROF. S.K.

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State Control:- Working governed by the

Co-operative societies Act of 1912 or the state co-operative Act of the state Society to be registered under these Acts and rules, regulations followed Accounts to be audited and a copy to be submitted to the registrar. Separate Legal Entity: - as it has to be registered can own property, enter into contracts sue and be sued in its own name.5/22/12 PREPARED BY: PROF. S.K.

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Equitable Distributions of surplus:-

Equitable distributions of surplus to its members, irrespective of the capital contributions.

As per co-operative society Act. 25% of its

profits, after meeting its trading expenses and paying a fixed rate of interest on capital not exceeding 10% to be transferred to general reserve. Also, portion of the profit not exceeding 10% to be utilized for the general welfare of the locality where the society is functioning. Remaining distributed to members, collectively.

Suitability:- For small and medium business5/22/12

like retail stores, building societies, etc.PREPARED BY: PROF. S.K.

Few cases of Large Amul kaira dist. Co-

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Joint Hindu Family Firm family. Also called Hindu undividedFound only in India and governed by the

provisions of Hindu Law. Family consisting of Grand Parents, parents and sons carry on business. HUF defined as a form of business organ in which all the male members of a HUF carry on business under the Management and control of the Head of the family called Karta This business disappearing due to decline 5/22/12 of the Joint PREPARED BY: PROF. S.K. family system. E.D-

FEATURES OF HUF Membership for male child by birth. Minors can become full-fledged members Restrictions on Female Membership (can not Join) No limit on members minimum two No need of registration as per Hindu Law. Management by Karta Senior Most Member. Liability of Karta is unlimited. Perpetuality Death of a member or karta is no

matter Rights / Duties governed by Hindu sucession Act 1956. Fluctuating share due to birth or Death of a Male Member. E.D5/22/12 PREPARED BY: PROF. can Right to Accounts MembersS.K. ask details of 70

MOTIVATION OF ENTREPRENEURS Motivation is something that moves

the person to action and continuous him in the course of action already initiated. Factors that motivate some people to start business enterprises are:-

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I.

Internal Factors

Educational Background Occupational Experience Desire to do Something Pioneering and

Innovative Desire to be Free & Independent Family Background Internal factors lead to do something creative, introduce an entirely new product in the market, place hometown on countrys industrial map, make use of technical skills, give employment5/22/12 PREPARED BY: PROF. S.K.

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Assistance from govt. Financial assistance from institutions Availability of Technology / Raw

II. External Motivating Factors

Material Encouragement from big business units Others Availability of surplus funds, sick units available at cheaper price, support ofPREPARED BY: PROF. S.K. friends / relatives, 5/22/12

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Achievement Motivation theory developed by

Achievement motivation

David McClelland An individuals need for achievement (n-ach) refers to the need for personal accomplishments. A drive to excel and strive for success. Person with high achievement motives takes calculated risks and wants to win. Take personal responsibility for initiatives and solving problems. Plus keep on evaluating themselves how well are they doing and 5/22/12 more required. PROF. S.K. PREPARED BY: what E.D

Do something better and more efficiently than

others have done before Not for social recognition but for the inner feeling of personal accomplishment. This need for achievement motivate some persons to take risks and prove themselves. Such persons behave in Entrepreneurial way and take initiatives. McClelland considers the need for achievement to be the most important and critical element for countrys economic development.5/22/12 PREPARED BY: PROF. S.K.

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He termed the need for achievement as inner

spirit. Higher it is, more energetic entrepreneur would grow, high need for achievement motivates entrepreneur to take risks, work hard, innovate, save more, reinvest savings in business. Said-achievement motivates lower in underdeveloped countries compared to developed countries lack of ambitions explains the lack of enterprise in underdeveloped nations. The ambition motivate people, make them active, broaden success and make their life meaningful, builds up achievement pressure in persons.5/22/12 PREPARED BY: PROF. S.K.

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Duty of leaders and teachers to build up

ambition into the minds of young people. Ambition nourish the achievement motivates and brings economic growth. However ambition differs among individuals on the basis of the environment in which they are born and brought up.

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Becoming Entrepreneur Personal and environmental barriers to entrepreneurshipEntrepreneurship is influenced by

many personal & environmental barriers. Personal barriers or factors can be Qualifications, skills, experience, knowledge and environmental factors could be economic, social, and 5/22/12 PREPARED political factors.BY: PROF. S.K. E.D-

PERSONAL BARRIERSLack of Viable concept Lack of Market Knowledge Lack of Technical Skills Lack of Seed Capital Lack of Business Know-How Complacency Lack of Motivation

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Social Stigma-Compared to

successful ones. Time pressures Legal constraints & Regulations (Not in Residential Areas) First Generation Entrepreneurs Entrepreneur by Accident since was unemployed5/22/12 PREPARED BY: PROF. S.K.

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Environmental barriersSudden Changes in Government policy Sudden Political Upsurge Outbreak of war or regional conflicts e.g.

entrepreneurship is environmentally oriented

Sons of the soil call Political Instability or hostile govt. attitude towards industry Excessive red-tapism and corruption among government agencies5/22/12 PREPARED BY: PROF. S.K.

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Ideological and social conflicts Unreliable supply of power, material,

finance, labour and other inputs Rise in costs of inputs Unfavorable market fluctuations. Non co-operative attitude of Banks and Financial Institutions Competition5/22/12 PREPARED BY: PROF. S.K.

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PROBLEMS IN SETTING UP A NEW VENTUREI. Lack of Managerial experience or poor knowledge of the particular line of production:All-round knowledge about various aspects of Production, Processes, Management Not known what, how and when to produce, how to market the products, maintenance of accounts, financial transactions understanding etc. None of the above areas can be ignored Changing technology, methods of production 5/22/12known. PREPARED BY: PROF. S.K. not E.D-

II. Lack of Accounting knowledge/ systemInformation, Understanding about

costs, gross margins, break-even point, depreciation is lacking, thus decision making may become difficult. Difficult to maintain proper accounting Data etc.5/22/12 PREPARED BY: PROF. S.K.

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III.Wrong / Inadequate Estimate of cash requirements or faulty capital planning / budgeting. Proper Financial Planning Essential for

proper functioning of the enterprises New enterprise feels cash crunch when:Production does not reach optimum level Production is below Break-Even Point Fails to Create and Increase the Demand for products. Result wastage of Finance Delay in various activities will cause need for additional finance. S.K. 5/22/12 PREPARED BY: PROF.

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IV. Lack of Knowledge About Tax-Related Matters related to May not be Aware of provisionsIncome Tax / Sales Tax, Obtaining of Sales Tax Registration at the right Time, Filing Tax Returns. V. Erratic Shortages of Raw Materials. VI. Flourishing Black market VII Gaps between official promise and performance by various deptts. VIII. Irresponsible attitude of employees. IX. Rising cost of capital & credit. 5/22/12 PREPARED BY: PROF. S.K.

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X. Arrogance and Non Co-operative Attitude of Bankers XI. Inadequate common services like road, power, water in the area XII. Emerging competition XIII. Lack of knowledge about inventory management

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Foundation of an enterprise is the project or the

STAGES FOR SETTING UP A NEW VENTURE Or PROMOTION OF A VENTURE

venture Venture is a plan or an idea which is intended to be carried out in the future Ventures can be industrial, agricultural, Production, Services etc. Entrepreneur originates the idea, makes a detailed study of various aspects of project, estimate the profit, finally implements it. Setting a New Business not an easy Task Various difficulties to be faced in creating the 5/22/12 PREPARED BY: PROF. S.K.

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BASIC CONSIDERATIONS IN SETTING UP A NEW BUSINESS UNIT/STAGESan entrepreneur wanting to start a new

venture has to take decisions with regard to following:1. SELECTION OF A LINE OF BUSINESS:Proposed idea analysed to find out whether the business would be profitable, including probable risks and the capital required. Conduct survey of various business opportunities. Make feasibility reports, surveys Estimated Costs, Profits, Returns Analysed5/22/12 PREPARED BY: PROF. S.K.

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2. CHOICE OF FORM OF OWNERSHIPCould be sole proprietorship, P.Ship or a

Joint stock company Choice of form will determine the authority of the entrepreneur Size of business also will determine the form of organ. Company form more suitable for large business Sole Trader / P.Ship for Small / Medium Capital requirements, Managerial Skills, Coverage will also BY: PROF. S.K. 5/22/12 PREPARED decide the form

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3. SIZE OF BUSINESSSize of the firm influenced by various factors

like Technical, Managerial, financial and Marketing Some factors favour the large size of business while others operate to restrict the scale of operation Wherever Entrepreneurs confident of marketing their products widely and arrange large resources can start large business For new ideas / business beginning can be made on small / medium scale. Forces of risks and uncertainties can restrict the size of business5/22/12 PREPARED BY: PROF. S.K.

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4. Financing the PropositionAdequate amount of capital for

starting and running the business to be arranged. Capital to be arranged for fixed as well as working capital Large businesses to arrange capital from various sources.5/22/12 PREPARED BY: PROF. S.K.

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5. Location of BusinessOne of the very difficult decisions Location to be reviewed from the

point of view of access to raw materials, labour, power, Markets and services like banking, Insurance, Transport, communication. Location has to be optimum to have minimum costs of production from and distribution5/22/12 PREPARED BY: PROF. S.K.

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6. Machines and Equipment Choice will depend upon availability of capital,size of production, nature of production processes. Mechanisation needs to be optimum, leading to higher productivity.

7. Human Resources

Right kind of Skilled, Unskilled and Managerial

Staff necessary to avoid huge losses of time, money and effort. Proper Training and Motivation to be provided.5/22/12 PREPARED BY: PROF. S.K.

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8. Plant LayoutAn efficient Plant Layout allows

materials to move through rapidly and the most direct way possible. It reduces Transport, Materials Handling, Clerical and other Costs and increases inventory turnover. Experts Services can be used. Must reduce chances of delay and bottlenecks in the Production Systems.5/22/12 PREPARED BY: PROF. S.K.

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No formalities in sole Traders and

9. Procedural Formalities

Partnerships. Co. exposed to greater procedural formalities both at incorporations and during its life. Incorporation compulsory, documents and fee deposited with the Registrar of cos. A public co. also obtains certificate of commencement. Co. also required to send periodical returns to the registrar of cos. and stock exchange 5/22/12 authorities.PREPARED BY: PROF. S.K. E.D-

10. Tax-PlanningEntrepreneurs to visualize well in

advance the various taxes to be paid. 11. Launching the Business Enterprises: Promoter actually arrange men, material,

machinery, money and the managerial ability. Makes organ. Structure, various deptts. Mkg., Prod., Finance, HR Made to accomplish goals. Advtg. Sales Promotions to be done. 5/22/12 PREPARED BY: PROF. S.K.

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ENTREPRENEURIAL INPUTSof Emergence and developmentEntrepreneurship depends upon many economic, social, political, psychological factors. Various Entrepreneurial Inputs influencing the entrepreneurship are as under:-

I.

ECONOMIC INPUTS

Capital:- Most important InputRequired for arranging Land, Raw Material, and

Machines and finally for production. Additional capital also required for expansion of business. Entrepreneurship increases if capital supply increases PREPARED BY: PROF. S.K. 5/22/12 E.D-

Labour:- Quality of Labour more important than the quantity of Labour for entrepreneurship. Entrepreneurship gets encouraged of flexible and mobile labour force available Considerations of economic and emotional security inhibit Labour Mobility. Entrepreneurs may find it difficult to secure sufficient Labour, at cheap costs. At times costly arrangements may have to be made to recruit the necessary labour2.5/22/12 PREPARED BY: PROF. S.K.

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3.

Raw-Materials: Easy and sufficient availability of Raw-Materials leads to emergence of Entrepreneurship Areas rich in many types of rawmaterials encourage persons to come forward to start enterprise. Good quality raw-material available is a big boost to the entrepreneur Sugarcane as raw material in U.P. has given rise to many sugar mills in 5/22/12 PREPARED BY: PROF. S.K. U.P. E.D-

4. MARKET:Potential of the Markets becomes a determinant for entrepreneurial activity and initiatives. From Market will come sale and profit for entrepreneur Size and composition of the Market bath are crucial for entrepreneurs. Monopolistic condition in the market liked by an Entrepreneur but fact remains that markets are competitive. Competitive Market Condition can be tackled by improved Quality, innovative techniques, better services. 5/22/12 Progressive PREPARED BY: PROF. S.K. Markets encourage entrepreneurs E.D-

5. Infrastructure Needed and Required Infrastructure encourages entrepreneurs Properly developed Communication, Transportation, Insurance Facilities leads to boost the Entrepreneurial activity. Good Infrastructure helps in expansion of business and also for new initiatives. e.g. Industrial Estates give good push. Trade Associations, good business schools provide inputs, informations. Government must take care of good Infrastructural facilities if it wants good 5/22/12 PREPARED BY: PROF. Industrial Development. S.K. E.D-

II. SOCIAL INPUTSSome social factors do contribute towards

development of Entrepreneurship 1) Family Background:Type and Economic status of family, matters. Wealthy and Landloard families exhibit higher levels of Entrepreneurship. History of a family in business lead to entrepreneurial ventures. Background of a family in Manufacturing provides a source of industrial Entrepreneurship Business families are more venturesome.5/22/12 PREPARED BY: PROF. S.K.

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2. Caste FactorMany cultural practices and values do

encourage entrepreneurship, in each society These divisions, practices are normally very old E.g. Hindu Society, prima facie business people were categorized and majority of businesses emerge from there. Social caste equations, to a great extent provided monopoly in business ventures Dominance of entire groups in entrepreneurship global phenomena5/22/12 PREPARED BY: PROF. S.K.

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3. EducationEducation is power to provide skills and

knowledge to deal with day to day problems. In a society, the system of education plays an important role in developing Entreprenurial values. In general in India, our educational system does not encourage entrepreneurial initiatives but prepares for different jobs. However development of vocational courses and professional course is 5/22/12 PREPARED BY: PROF. S.K. encouraging entrepreneurship.

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4. Cultural ValuesEntrepreneurial Growth requires proper

motives like profit making, prestige, attaining social status & power. Persons having such strong motives normally try to venture out, take business risks & start enterprises. Culturally wealth accumulations is a way of life will encourage entrepreneurship

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III.

Psychological Inputs.

towards some psychological inputs required to be entrepreneurs. Mental thinking, inner spirit, commitment, outgoing mind, hard work, leadership quality are also responsible for encouraging entrepreneurial initiatives. Need Achievement:McClelland talked about need achievement to excel. Need achievement motivates to take risks and stimulates for taking more efforts. Other theories talked about Leadership, 5/22/12 PREPARED Managerial Skills.BY: PROF. S.K. E.D-

Many theories of Entrepreneurship indicate

Innovative Mind:-

Entrepreneurs. Sense of Achievement:- Personal sense of achievement motivates some to do something on their own. Motives:- Seek power, prestige, service to society, independence encourage Entrepreneurship. Others:- Non influenced by Luck, fate and take initiatives and risks, tolerance for ambiguity.5/22/12 PREPARED BY: PROF. S.K.

Creative Minds more likely to be

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Government support required for the success of

Political Inputs

entrepreneurs As Entrepreneurs contribute towards the well being of the society, Government must provide required resource to them by taking various actions. Government must make appropriate economic policies regarding availability of capital, Labour, raw-materials, Taxation, income distribution, economic growth, infrastructure, transportation etc. as they affect the growth of entrepreneurs to a large extent. Incentives, subsidies, Tax benefits by the Government motive them further. Easy Licensing, restriction on monopolies also desirable. Political stability provide consistent growth oriented policies and support to entrepreneurs. 5/22/12 PREPARED BY: PROF. S.K. Opening up of some sectors by the Government for private E.D-

PROBLEMS OF SMALL BUSINESS 1. Shortage of Material & Power: Face acute shortage of basic raw materials at

times. Under a handicap in obtaining raw materials of requisite Quality at reasonable prices. Some short supply of raw material may increase the prices and rise in prices puts pressure on these firms to procure the Materials etc. Some times few bogus units take away Quota of Scarce Materials and create shortage. Also face power shortage and are not able to fully 5/22/12 utilize their plant PROF. S.K. PREPARED BY: capacity Power not

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2. Lack of Adequate Finance:Often unable to procure adequate financial resources for purchase of machinery, equipment, raw materials due to their weak financial standing credit may also not be available. 3. Competition from Big Players:Low goodwill and little fixed investment make it difficult to borrow at reasonable interest or lower interest rates. Largely depend upon internal resources as are not able to borrow easily from others.5/22/12 PREPARED BY: PROF. S.K.

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4. Outdated Technology: Most firms use old Techniques of Prod. and outdated machinery / equipment. Can not use latest ones Quality suffers Research & Development not possible on a continuous basis and thus Productivity / Quality suffers.5/22/12 PREPARED BY: PROF. S.K.

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Inadequate Marketing Facilities: Many difficulties faced in marketing and distribution do not have their own Marketing Network. Find it difficult to sell at remunerative prices due to high cost of production and non-standardized quality of products. Can not afford much advertising, sales personnel BY: PROF. S.K. 5/22/12 PREPARED5.

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6. Weak Organization & Management:As generally managed by owners, not qualified. Lack of Distribution of Labour. 7. Lack of Trained Personnel:Find it difficult to recruit, retain and motivate skilled managerial and technical people as they leave for large business.5/22/12 PREPARED BY: PROF. S.K.

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PREPARATION OF FEASIBILITY REPORTS(documentation Before starting any venture / enterprise, an

required)

entrepreneur must study the feasibility of the project. Type of Industry / Business to start, where to start and how to start. Various items / area can be listed, shortlisted which have scope for development PROJECT FEASIBILITY ANALYSIS Includes Market analysis Financial analysis Technology analysis Profitability analysis BY: PROF. S.K. 5/22/12 PREPARED E.D-

Market Analysis IncludesMarket area / size, methods of

transportation, channels of distribution and general trade practices. Study past and present demand, consumption patterns, major common pockets, future potential past and present supply domestic and imported, extent of competition selling power, quality and marketing 5/22/12 PREPARED BY: PROF. S.K. practices of competition. E.D-

Technical Analysis includes feasible or not, Whether the project is technicallycosts involved. Study the techniques, processes to be applied. Description of the product physical, mechanical and chemical specifications, uses of the product. Processes flow chart justifications for use of a particular process. Plant size and prod. Schedule. Selection of Machinery, equipment, quotations, suppliers, delivery, terms of payment, spare parts availability. Location of the plant, raw material. Cost of setting up building, other infrastructure.5/22/12 PREPARED BY: PROF. S.K.

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Capital Required Sources of Financing Total Project Cost Initial Capital Required Working capital required Break even point study Cost Price analysis

FINANCIAL ANALYSIS INCLUDE

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PROJECT REPORTWhat is a project?The foundation of an Enterprise is a Project

as it will lead to success or failure. An idea or a plan that is intended to be carried on in future or is being carried out at present, is a Project. Has a distinct mission, for the completion of which a group of activities are carried on. Every entrepreneur wants to complete the project successfully. E.g. Industrial Projects, Construction Projects, 5/22/12 PREPARED BY: PROF. S.K. Making of Flyover, running a School. E.D-

PRODUCT IDENTIFICATION & PROJECT FORMULATION Entrepreneur comes across many business opportunities

& becomes difficult to identify the most suitable one Prduct identification involves collection, compilation and analysis of economic data, for the final choosing of the best opportunity for investment. The success of the Project or venture will depend upon the right choice made. The skills, availability of resources, background, and qualifications play very important role in identifying the right project. Before identifying the right project, study should be made with respect to raw materials, potential customers. 5/22/12 PREPARED BY: PROF. S.K. E.D-

PROJECT FORMULATION A process where the entrepreneur makes an

objective & independent assessment of the various aspects of a project idea to determine its total impact & liability. Specialists and consultants provide advice. Careful weighing of various components. Analytical stage where aim is to achieve the project objectives with the minimum expenditure & adequate resources. Project formulation leads to making up a project report which is very crucial for setting up an enterprise BY: PROF. S.K. 5/22/12 PREPARED

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After selecting a particular project product or service, a

PROJECT REPORT

project report has to be prepared by the entrepreneur. A project report provides all the necessary information / details of the project / unit offering a product or service. Required by financial Institutions / Development Institutions offering finance or other assistance. A project report will enable the entrepreneur to know: Money, Manpower, Machines Required Technology, Location Economic viability and gains. Technical Managerial, Financial needs. Project report, prepared by C.A., Management Consultant, Experts. Entrepreneurs own judgment, views important as it will bring him closePREPARED BY: PROF. S.K. to realities. 5/22/12 E.D-

SIGNIFICANCE OF A PROJECT REPORT The important benefits of a project report

are:1. Helps in procuring suitable developed land or shed from concerned deptt. of the Govt.2. Helps in approaching Dist. Industries centre

for obtaining provisional or permanent registration. 3. Helps in securing supply of raw-materials, water, power etc. 4. Approaching Bank / F.I. for working capital loans. 5/22/12 PREPARED BY: PROF. S.K.

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CONTENTS OF A PROJECT REPORT business plan No Short cut to prepare a well-preparedor a project report. Project report to be prepared with great care and should be a concrete, complete and clear. A good project report should have the following contents: General Information:- Product / Profile and details of the product. Promoter:- Name full address, educational and other qualifications, work experience and project related experts. Location :- Exact location of the project, lease or freehold, locational advantages. 5/22/12 PREPARED BY: PROF. S.K. Land & Buildings:- Land area, construction area, type E.D-

Plant & machinery:- Details of machinery

required, capacity, suppliers, cost, various alternatives available. Production Process:- Details of production process, process flow-chart, technical know-how, production programmes, targets etc. Utilities Required:- Water, power, steam cost estimates, sources of utilities. Transport & Communications:- Modes of transport / Communication to be used, various costs involved. Raw-Materials:- List of raw material required, Quality-Quantity and source of procurement, costs, supply arrangement etc.5/22/12 PREPARED BY: PROF. S.K.

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employed, sources of Manpower cost of recruitment / selection, training etc. Products:- Product Mix Variants estimate of sales, distribution channels, product standard & quality, competition etc. Market:- End users of the products, - Type of Mkt-local, domestic or international, trade practices, sales promotions methods, marketing research. Working capital Requirements:- Sources of working capital and amount required, need for collateral security, nature and extent of credit facilities which will be available, etc. 5/22/12 PREPARED BY: PROF. S.K.

Manpower:- Various types of Labour, to be

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Funds requirement:- Break up of

project cost in terms of cost of land, building, machinery, preliminary expenses contingencies, total amount required for setting up the full project. Cost of Production & Profitability for first 10 years. Break-Even Analysis Point at which no profit, no loss. Schedule of Implementations5/22/12 PREPARED BY: PROF. S.K.

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SELECTION OF A FACTORY LOCATION Multiple locations may be available for

locating a factory. Few sites more suitable Factors for a suitable location can be raw material, transportation, labour, supply of water, power, and attitude of local Govt. etc. Different type of business may prioritise the above factors. A good balance of all these factors may lead to choosing the right location.5/22/12 PREPARED BY: PROF. S.K.

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THREE STEP PROCESSSelection of the region, district, state. Particular part of the city/district

East/West. Selection of the plant site, plot etc.

One follows the other All are inter-

related. The comparisons play very important role. Lot of information do help.5/22/12 PREPARED BY: PROF. S.K.

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1. While keeping in view the nature of business, the following are considered when choosing a region:- 1. Availability of Raw Material Cost of raw materials an important issue for cost of production. Nearness to the raw-materials very useful. 2. Labour Availability:Labour an important factor of Production and it greatly affects the location Entrepreneurs want easy supply of labour at low wages Location should attract mobility of labour More organized Labour in some state may discourage 5/22/12 entrepreneur toPREPARED BY: PROF. S.K. located his plant. E.D-

FACTORS AFFECTING INDUSTRIAL / FACTORY LOCATION FACTORS AFFECTING SELECTION OF A REGION

3. Accessibility to Markets: Sole aim of manufacturing is selling Easy, quick access to the markets crucial factor for locations. Industries whose products are costly to carry, on account of fragility, perish ability or bulky may be located in close proximity to the markets. Nearness to markets have many benefits Saves time & transportation costs. 4. Fuel, Water, Power Supply: For arriving at the final cost of production the cost of power, water, fuel will have to be considered. Sources of energy / fuel like coal, gas, electricity and their easy and cheaper availability will help in locations. If certain industries need lot of water for its processes 5/22/12 PREPARED BY: PROF. S.K. then a place with good availability of water must be E.D-

5. Communication Transport Facilities Raw materials to be brought to the factory & finished products to be dispatched economically. Good transportation facilities including storage, handling & service facilities in a place will motivate an entrepreneur to locate his factory at an ideal place Cheap and easy transportation is an important considerations Sometimes, to save transportation costs, the entrepreneurs may try to locate the factory from where raw-material may be nearer. Better communication facilities are very 5/22/12 PREPARED BY: of the useful for the success PROF. S.K. business. Their E.D-

6. Natural and Climatic Considerations Topography of a region, level of ground, drainage facilities, disposal of waste products and the climate also greatly affect the locations. Extractive industries like coal, iron ore located in regions where they are available in plenty. Dry climate is required for flour mills in U.P. Humid climate required for cotton Mills Mumbai.5/22/12 PREPARED BY: PROF. S.K.

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7.Personal choice of the Entrepreneur being home town or some other personal preference. 8.Open a factory in a region where all the facilities are already there, including an established mkt

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9. Political and strategic considerations. Political stability may also influence setting up industry in a particular state. Disturbed area and failure of the Govt. to curb the disturbances is also a negative factor. 10. Govt. Policy:- Govt. Encourages setting up industries in backward areas by giving subsidies, tax-rebate, good transport. This attracts entrepreneurs and the state achieves S.K. 5/22/12 PREPARED BY: PROF. balanced

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Financial Facilities:- Finance life blood. Availability of financial institutions and easy terms for finance

also a consideration for locations. Offices of Financial Institutions. Locating a factory a long term proposition and so above points to be considered wisely FACTORS AFFECTING SELECTION OF A COMMUNITY, DISTRICT WITHIN THE REGION: Adequate labour supply in Quantitative and Qualitative Terms General attitude of the people should be industry friendly. Should not indulge in frequent strikes. Prevailing wage-rates be reasonable. Availability of complementary or supplementary enterprise supplying various raw-materials etc. Tax burden be moderate and compliance of laws, acts etc. Living conditions in the place should be favourable so that the employees at all levels get proper social life. Urban or Rural area to be decided, as both have merits / 5/22/12 PREPARED BY: PROF. S.K. demerits. E.D-

III. FACTORS AFFECTING SELECTION OF A SPECIFIC SITE: Last stage- for actual plot / site. Size of plot for present and future needs. Load-bearing capacity of land for heavy building. Better water and power facilities. Easy sewage, waste disposal facilities. Easy approachable roads, rail links.5/22/12 PREPARED BY: PROF. S.K.

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INDUSTRIAL ESTATES Specially designed area where

factories can be built (a U.K. concept for encouraging industrial growth in selected area.) Basic infrastructure & common services facilities created for development of industrial units. Utility services water, power, drainage, transport available to all 5/22/12 PREPARED BY: PROF. S.K. units low, subsidized rates E.D-

Promotion of small / medium

Objectives of Industrial Estates

industries backward areas. Removal of congestion in Industrial cities / towns. Balanced reg. development by decentralizing industry. Growth of ancillary industries in the townships surrounding major industrial units.5/22/12 PREPARED BY: PROF. S.K.

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Advantages of an Industrial Estate to Entrepreneur Offers industrial sites / plots at reasonablerates and the decision to buy can be quick Utility services water, power, drainage and common services testing center workshops, banks, insurance, courier available at subsidized rates etc. Promoters of such estate provide safety, security and protection. Combined strength of Entrepreneurs can help the entrepreneurs to bargain5/22/12 PREPARED BY: PROF. S.K.

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Demand Analysis & Market Potential Measurement Q.1. What is the likely total demand formy product / service? Q.2. What share of the market my product will enjoy?

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While searching answers to above

questions demand analysis get made. (Consumption, competition, substitutes) Demand Analysis is the in-depth study of and assessment of many factors including: Patterns of consumption Growth. Composition of the market Nature of competition Availability of substitutes Reach of distribution channels Increase of the consumers 5/22/12 PREPARED BY: PROF. S.K. Price elasticity of demand E.D-

KEY STEPS FOR DEMAND ANALYSISSituational analysis and specification of objectives.1.Informal talks with customers, competition

middlemen, others etc. and details gathered. Situation analysis generates enough data Little later, specific objectives, with relation to the product / service to be stated, questions made. Answers will bringBY: PROF. S.K. demand of the 5/22/12 PREPARED clues for

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2. Collection of Secondary Information

Secondary Information which is already

available, as gathered in some other context. Secondary information provides the base and the starting point for demand analysis books, journals. Provides clues for collecting more primary informations. Sources can be census reports, economic survey, annual reports, economic survey, annual reports of Ministries, Journals, Research Reports etc. S.K. 5/22/12 PREPARED BY: PROF.

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3. Conduct of Market SurveyPrimary information in the shape of

Market survey supplements secondary information. Survey can be Product / customers / Segment / Behaviour specific Costly and time consuming Population or sample survey5/22/12 PREPARED BY: PROF. S.K.

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4. Characterization of the market Demand for the product / service has to be

described with respect to: Effective demand in past & present Total demand broken down as per the segments. Competitive Pricing / Competitions. Methods of distribution & sales promotion

methods required. Consumers behaviour, attitudes, likings Govt. Policy import duties, export incentives excise duties, import policy etc.5/22/12 PREPARED BY: PROF. S.K.

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5. Demand ForecastingAttempt made to forecast future

demand Sale in monetary terms / units to be sold. Will help greatly the sales deptt. Various methods / intuition used in forecasting demand computers used5/22/12 PREPARED BY: PROF. S.K.

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6. MarketING planning An appropriate Market Plan

required to enable the product to reach the right markets. All 4 Ps of Mktg. to be taken care

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Market potential measurementA market potential is an estimate of the

maximum possible sales opportunities present in a particular market segment and open to all sellers of a good or service during a stated future period. By using the appropriate marketing methods, how much a particular product can be sold to a particular segment in a specified future period. Cell phones, Luxury case, Laptops5/22/12 PREPARED BY: PROF. S.K.

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Steps to measure mkt. potentialMarket identification:- Identify the

Mkt./Users, market segment, their interests, patterns. Market Motivation:- Find why customers buy the product today & why potential customers will buy in future study mind factors of users. Measuring the Market Potential:- Cases not be done directly straightaway. Market factors to be analyzed all do not buy LIC Policy to save taxes5/22/12 PREPARED BY: PROF. S.K.

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Capital Saving & Project CostingFinancial analysis most important tool for

appraising the real worth of a project. Looks at capital cost, operations, cost and operating revenue. Cost of the project concerned with the size of the funds required. Every projects cost to be calculated to bring together land, labour, assets, machinery, materials etc. Wherever possible, capital needs to be 5/22/12 PREPARED BY: PROF. S.K. saved. E.D-

Ideal piece of land, right kind of Raw

Material Quantities to be purchased. Capital to be borrowed at minimum possible rate of interest. Cost of borrowings should be minimum. Incentives / subsidies available as per Acts / Law should be fully utilised. All tax benefits to be fully utilised.5/22/12 PREPARED BY: PROF. S.K.

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PROJECT COSTINGCosting is the calculation to determine how

much each product or service costs to produce and sell. Knowing the various costs helps in setting prices, reducing costs and improving profits.Project Costing

Project Capital Costing Operating Costing

Project

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Project Capital Costing Sum total of the expenditure expected to be incurred till the date of

starting the commercial production of a project. Includes All advance expenditure for the project before taking a final investment decision. Cost of fixed assets (land, machinery) Duties and taxes on imported goods. Consultancy expenses Pre-operative expenses Interest charges paid during the construction phase. Advance expenditure on feasibility report, consultancy charges. Land charges for basic cost of land plus for its acquisition & development. Cost of plant & machinery basic & duties if imported. Training costs, cost of patents, copy rights, trade marks are project capital costs. 5/22/12 PREPARED BY: PROF. S.K.

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Once project started commercial prod.

Project Operating Costing

Expenses incurred for day to day operations. Operating costs generate operating revenues, so very important Costs vary with the outputs. The matching of operating costs and revenues result in profits or losses. Costs used for making profit & loss A/c, Balance Sheet, Cash flow statements. Operating costs classified into Direct / Indirect / Fixed / Variable / Marginal5/22/12 PREPARED BY: PROF. S.K.

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Main components of operating costs:Raw Materials costs Labour Costs Energy Costs Plant Maintance Costs. Supervision Costs Administrative & Management Costs. Depreciation Charge and the interest on

borrowings. Selling and distribution costs Promotion Expenses5/22/12 PREPARED BY: PROF. S.K.

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WORKING CAPITAL REQUIREMENT Working capital required for day to day successful

operation & continued existence. Efficient Management of working capital basic necessity for sound operational health. Basically means Management of current assets, current liabilities and interrelationships, between the two Current assets are: Advance given for purchase of raw materials etc. Inventories (raw materials, store, packing materials, spare parts) Work-in-process Finished Goods Cash & Bank Balance Marketable securities. All current assets (except cash) get converted into cash. 5/22/12 PREPARED BY: PROF. S.K. Current liabilities include payment of bills, interest, to E.D-

Determinants of Working Capital Many factors influence the working capital

needs of a business. Needs change over different periods of time for the same firm and also needs are different for different firms. Total investment in working capital depends upon: Nature & Size of Business:- Trading, Financial, Retail Stores More working capital and less in fixed assets. Manufacturing Cycle:Larger the manufacturing cycle more working capital required 5/22/12 PREPARED BY: PROF. S.K. Minimum time Sh. Be taken in processes E.D-

3. Business Fluctuations: Many firms face seasonal and cyclical fluctuations in the demand for their products. These variations affect the working capital requirements. Due to upward swing in the economy, the sales will increase more investment in Inventories will be required, borrowings made. 4. Production Policy: Production policy has to be a policy to produce as per the changing demand and thus the working capital will be required and 5/22/12 PREPARED BY: adjusted accordingly PROF. S.K. E.D-

5. Firms Credit Policy: Credit allowed by the company to its customers and its policy of collection also affect the working capital requirements. There is also a risk of some credit turning into bad debts. 6. Availability of Credit:Liberal credit terms available from the suppliers / creditors will need less working capital as the firm will have time to pay.5/22/12 PREPARED BY: PROF. S.K.

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7. Growth and expansion activities: A growing firm needs more working capital, as sales grow and more production required. More investment needed in current assets to support enlarged production. A growing firm needs working capital funds on a regular basis, to be arranged from internal / external sources. 8. Profit Margin & Appropriation: Profit is also a source of working capital A firm earning high net profit can contribute more to working capital Cash Profits can be allocated to increase the stocks, thus less working capital to be arranged 5/22/12 PREPARED BY: PROF. S.K. from external sources. E.D-

9. Price Level Changes: Changes (increase / decrease) in price levels affect working capital requirements. Rising price levels will require a firm to maintain higher amount of Working Capital Some levels of current assets will need increased investment when prices are rising. 10. Operating Efficiency: Should be optimum utilization of resources at minimum cost. Better utilization of resources improve profitability and helps in releasing the pressure on working capital.5/22/12 PREPARED BY: PROF. S.K.

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1. Trade Credit:- Primary source and the most popular Few days credit given by seller/supplier to the buyer. 2. Bank Credit:- Primary Institutional source. Banks offer both secured and unsecured loans to business like cash credit, overdrafts, loans, purchase & discounting of bills. 3. Non Bank Short Terms Borrowing: Private loans. Cash advance from customers. Inter corporate deposits deposit made by one company with another, for a period upto six months. 4. Long-Term sources comprising equity capital and long term borrowing. Equity Debenture 5/22/12 PREPARED BY: PROF. S.K. Public Deposits

Sources of Finance for WORKING CAPITAL

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Management of Working CapitalWorking Capital means administration of both

current assets and current liabilities. Satisfactory level to be maintained. Following different components of working capital need to be managed. 1. Management of Cash: Adequate cash required to pay current liabilities and also unexpected contingencies. Avoid idle cash to prevent loss of income Cash flows to be managed.5/22/12 PREPARED BY: PROF. S.K.

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2. Management of Inventory:Include raw material, finished goods, work-inprogress, supplies. Minimum stock of inventory required to carry on operations. 3. Management of Accounts receivable:Goods sold on credit needs to be monitored. Terms of credit sales, credit period, terms, cash discount, efficiency of collection to be managed. 4. Management of Accounts Payable:Liberal terms of credit can be obtained from suppliers Save interest cost through delayed payments.5/22/12 PREPARED BY: PROF. S.K.

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PROFIT & TAX PLANNINGProfit Planning Profit is a major objective of any business An award for entrepreneur for his efforts,

risk taking ability. Profit planning includes Arriving at minimum costs Break even point and the level of operations. Margins of profits. Profit planning for future years depends on the capacity utilizations5/22/12 PREPARED BY: PROF. S.K.

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Profits do not happen, need to be

produced. Profit planning is part of an overall planning process.\ Profit planning represents an overall plan of operations. Cover a definite period of time and formulates the planning decisions of the Management. Consists of the operating budget, financial budget and appropriation budget Preparation of profit plan begins months before end of the year & chief executive makes it. PREPARED BY: PROF. S.K. 5/22/12

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Long term profit planning implies a sacrifice of

todays profit for tomorrow on the belief that management makes the future of a business today. Long range profit planning is systematic and formalized process for purposefully directing and controlling future operations with a view to achieving the desired objectives for periods extending beyond one year. Process includes budgetary planning and control programme, costs, profits, working & fixed capital, dividend distributions.5/22/12 PREPARED BY: PROF. S.K.

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Sales, prod., purchase, inventory

budgets provides the basis for making a profit plan. Largely a routine exercise and covers a definite span of time. Profit planning is an indicator of what the future holds for a company. The ultimate objective of profit planning is profit Maximisation5/22/12 PREPARED BY: PROF. S.K.

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EMERGENCE OF ENTREPRENEURIAL CLASSEntrepreneurs started emerging from the

times of Industrial revolution when men with mechanical rather than financial and commercial skills started setting up industrial establishments on small scale. They mostly worked with their own hands whose innovations were in the field of technology, cause from lower / middle classes. In India, growth of Entrepreneurship in postindependence era has been significant. Number of entrepreneurs in the small / 5/22/12 PREPARED BY: has increased medium scale sectors PROF. S.K. E.D-

Self Motivated and talented class of people who are

engaged in the development of new enterprises. Upto the 19th century, entrepreneurs included those persons who bore risks of future uncertainty of profits in new ventures. Used efficiently the economic resources of the society and contributed to higher productivity and greater yields. Here an important difference was made between entrepreneurs and the capital suppliers. Those taking risk by forming new ventures and earning profits were called entrepreneurs. Others were people who earned profits by supplying capital. They had different kind of risks and job profiles. 5/22/12 PREPARED BY: PROF. S.K. E.D-

During 20th Century, the Entrepreneurs not only

took risks of new ventures but also innovated new useful products, technologies and markets. Maximized opportunities by innovating new products, taking initiatives, organizing some social and economic mechanisms (understanding needs of society and arranging new sources of capital, learning economies of scale and also accepting risks of failure.) In view of time and effort put in by such people they were seen as a different class real entrepreneurs and differentiated from venture capitalists who provided finance and earned interest there on. Entrepreneurs made lot PROF. S.K. of research, made 5/22/12 PREPARED BY: innovative products, competition intensified and E.D-

Since 1980s, a new class called the

Intrapreneurs have started emerging. Emerge from with in the confines of an existing enterprise. In big organs. Top Mgrs. are encouraged to catch hold of new ideas and convert them into innovative products with the help of the research and development facilities available in the organs. This class becoming popular in developed Nations and India also. Of late women are also emerging as a new class of entrepreneurs5/22/12 PREPARED BY: PROF. S.K.

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ENTREPRENEURIAL BEHAVIOUR An entrepreneur performs many tasks: perceives opportunity make business plan organize resources manage & oversee production Undertakes marketing manage financial activities Establish liaison with Govt. officials. Establish liaison and manage various stakeholders. Innovate, bear risks and build an organization Face competition & beat it. All above require sound values and attitudes on the part5/22/12

of the entrepreneur

PREPARED BY: PROF. S.K. DOGRA PREPARED BY: PROF. S.K.

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i) INNOVATION & CREATIVITY:Most important value Are guided by these values when they come out with creative ideas, new products, services, processes etc. to solve specific problems of the society. Discovering new opportunities, working out new combinations and seeing the new idea through to the end- are all different facets of the uniquely creative and innovative spirit of the entrepreneurs. Innovativeness can be seen through actions like 5/22/12 Experimenting with new ideas, facing PREPARED BY: PROF. S.K.

CORE VALUES AMONG ENTREPRENEURS

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ii) Independence or Self-Reliance:Entrepreneurs drive great satisfaction in their sense

of independence or ownership. A very strong and positive ego drive involved in the action plans of entrepreneurs. Enables them to develop a mission concept which drives them to achieve their goal with a clear vision. Want to work in an atmosphere of freedom, master of their own destiny. Quality of self-reliance an imp. asset as it provides courage and confidence to undertake risks of trying with innovative things. Need to be independent to accomplish the sense of achievement. Dependence on others for decision undermines independence. 5/22/12 PREPARED BY: PROF. S.K. E.D-

iii) Respect for work:Have great respect for work. Successful entrepreneurs believe that they can achieve anything through hard work. Concentre on work to achieve goals. Nothing deviates them. This value encourages them to pursue right path and they realize the incentives / rewards linked to degree of hard work.

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iv) Quest for outstanding performance or achievements orientation:This value makes their organs. vibrant and successful. Challenges stimulate and motivate entreps. Set for themselves certain standards of excellence and deal with unexpected obstacles with confidence. Quest for excellence resolves problems under pressure. Are persistent and work harder when things go wrong. Find another way to solve problems.5/22/12 PREPARED BY: PROF. S.K.

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Values are beliefs that guide actions and

What are values?

judgment across a variety of situations. E.g. a businessman is expected to supply true information rather than making false claims. Values are standards of morality Relatively permanent in nature. Value system influences an entrepreneurs decisions and his solutions to various problems. Parents, friends, teachers and external reference groups can influence individual values. A persuasive values develop as a product of 5/22/12 PREPARED BY: PROF. S.K.

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What are attitudes? Attitudes constitute an important

psychological attribute of individuals which shape their behaviour. An attitude may be defined as the way a persons feels about some thing a person, a place, a situation. It explains an individuals positive or negative feelings about some object. May be unconsciously held. Can be considered as a way of thinking feeling and behaving.5/22/12 PREPARED BY: PROF. S.K.

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Entreps. have attitude of developing user-

friendly products for customers. Attitudes are invisible but the results may speak a persons is higly productive. We may infer that he has a positive attitude towards his work. Attitudes acquired from direct personal experiences (handwork pay), associates with good people. Optimists have positive & pessimist have negative attitud5/22/12 PREPARED BY: PROF. S.K.

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ESSENTIAL ATTITUDES OF SUCCESSFUL ENTREPRENEURS

Attitude towards imaginations to visualize opportunities. They imagine to solve the problem of the people, by intuitions & efforts. Att. Towards risk take calculated risk, do not become gamblers. Towards initiative do not remain on lookers, basically leaders, endeavour to turn dreams into reality. Towards change like change, accept challenges thrown open. Towards freedom of expressions & actions/think on their own S.K. act. 5/22/12 PREPARED BY: PROF. and

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Towards performance (successful completion

of targets) Give outstanding performances against odds satisfaction. Towards personal capacity own efforts not luck is emphasized. Towards building relations or networking Solve many difficulties in business by having networking with suppliers etc. Towards customers put customers first give respect, top priority for cust. Satisfactions, best quality feedback, improve.5/22/12 PREPARED BY: PROF. S.K.

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Entrep. Part of society Society provides opportunities It provides resources like capital, materials,

SOCIAL RESPONSIBILITY OF ENTREP.

human resources, infrastructures etc. Since entreps. utilize resources of the society, must assume social responsibility. SR means obligations to act in a manner which will best serve the interests of the society. Relates to the voluntary efforts on the part of business organs. To contribute to the social well-being. 5/22/12 PREPARED BY: PROF. S.K. Refers to the concern for the welfare of the E.D-

MAJOR AREAS OF S.R. OF ENTREPS. Honoring contractual commitments.

fulfill them for bank, suppliers, workers etc. Concern for ecology & envt:- SR for not causing air, water, pollution SR to keep it under control devices. Concern for consumers produce goods which meet the needs of the consumers of different classes, tastes and with different purchasing power. Give reasonable prices, give prompt, adequate service, handle grievances quickly, ensures regular supply, truthful advts.5/22/12 PREPARED BY: PROF. S.K.

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4. Concern for workers. Pay reasonable wages & salaries to lead a good life. Provide good working conditions Provide service benefits like housing, medical, retirement benefits. 5. Concern for community & society:Ensure safety of local surroundings. Generate employment opportunities Provide quality products to society Discourage social evils like hoarding, black mktg., overcharging etc. 5/22/12 PREPARED BY: PROF. S.K.

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6. Obligations towards suppliers. Make payments to suppliers in time and also be transparent in dealings Ensure timely payment of interest and principal to lending institutions 7. Concern for healthy competition. for survival & growth, should increase productive efficiency, improve product, quality, design, use etc. Do not use by unfair means in business dealings 8. Statutory obligations Abide by law & guidelines issued by the 5/22/12 PREPARED BY: PROF. avoid corrupting govt., pay taxes honestly, S.K. E.D-

Good quality entrepreneurs are very important for

COMPETING THEORIES OF ENTREPRENEURSHIP

economic growth of an economy. Entrepreneurs bear non-insurable risks. All economic activities carried on by the entrepreneurs. THEORIES 1. Entrepreneurship: A function of Innovation. propounded by Joseph A. Schumpeter (1934) Entrepreneurship plays critical role in economic development. Economic development is not an automatic process, but takes place when a new product is introduced in PREPARED BY: PROF. S.K. the market, new production 5/22/12

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All above changes must be actively and

deliberately promoted by the agents entrepreneurs. They provide economic leadership to bring dynamic changes, regularly. He is an innovator. Psychologically, entrepreneurs not solely motivated by profit. Theory conceived in the context of the industrial revolution, innovations, inventions of that time. Such innovations attracts surplus for reinvestment and the entrepreneurs can invade various economic fields with great success. Theory modeled on big private entrepreneurship as large volumes can be handled by the entrepreneursPREPARED Hands. S.K. in Pvt. BY: PROF. 5/22/12 E.D-

2. Entrepreneurship: A function of group level pattern by Frank W. Young One individual cannot take

entrepreneurial initiative. One must find entrepreneurial groups for a joint effort, as groups have higher differentiation and different capacities. Members of a group can show more solidarity. Unified actions & mutual understanding will bring better 5/22/12 PREPARED BY: PROF. S.K. results. E.D-

Some members of the groups excel at

combining the resources like labour, capital etc. in new ways and thus they become better entrepreneurs. Entrepreneur does not work single handedly. Individual characteristics are not above group effort. Entrepreneurial activity is generated by the particular family background and combined experiences.5/22/12 PREPARED BY: PROF. S.K.

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3. Entrepreneurship: A function of Managerial skills & leadership. By Bert. F. Hoselitz (1952) Person / Entrepreneur has a drive to amass wealth motivated by profit expections. But must have some managerial abilities, including the ability to lead. Managerial abilities and leadership are the prime concern and financial skills have a secondary concern. More matured and developed personalities make better entrepreneurs leading to productivity, creative integration of resources and the establishment of social institutions. 5/22/12 PREPARED BY: PROF. S.K. An open society also develops good E.D-

4. Entrepreneurship: An

building Function: By Frederick Harbison. Ability of Organizations building most critical skill in industrial development. Entrepreneurship is the skill to build an organ. He effectively delegates responsibilities to others and thus multiplies himself. Harnesses the ideas of other innovations and becomes an Organizer builder. Good leaders are excellent administrators. More stress on managerial skills and creativity. Ability to create an BY: PROF. S.K.most crucial skill organ is 5/22/12 PREPARED

Organization

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4. Entrepreneurship: A function of high achievements or achievement motivation.N-Achievement & Management Success

It is Mcllelands Achievement Motivation

Already Done

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Entrepreneurial Success in Rural AreasEntrepreneurship most crucial factor in the economic

development of each and every region including rural areas. 70% of people in our country live in rural areas where agriculture main occupation, allied activities but there is a limit to the rural labour force getting engaged in Agriculture. Despite rural migration to cities, rural unemployment remains a problem. Thus entrepreneurship becomes crucial in nonagricultural activities also. In India Rural Industrialization is characterized by small scale sector. 5/22/12 PREPARED BY: PROF. S.K. Big employment generator, next to agriculture in E.D-

1. Lack of Managerial experience. Less knowledge of Management, A/cs, finance Can not afford to employ specialists. However ideally should have knowledge about different aspects of Prod., Mkg

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