Entpreneurial Management (EM04_01 ) starting up a small scale industry - 1

Management04_1 – Starting a small industry

Suhas Dutta

Syllabus coverage

• To understand what constitutes a business opportunity,scanning the environment for opportunities, evaluation ofalternatives and selection based on personal competencies.

• An overview of the steps involved in starting a businessventure – location, clearances and permits required,formalities, licensing and registration procedures

• Assessment of the market for the proposed project

• To understand the importance of financial, technical and socialfeasibility of the project.

Content (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.2

Government’s objectives for SSI sector

• To become a key player in the Indian economy in fosteringentrepreneurship, creating employment opportunities,increasing industrial production and accelerating the process ofsustainable development.

• And the SSI sector to:oUse modern technology to maintain quality and increase productivityoIntroduce new product lines to garner a higher share in exportsoIntegrate with the medium and large enterprisesoPromote entrepreneurship, stress will be on human resources and

development at grass root level


Setting up a small industry


Project selection phases

The objective of the process is to:

• Select those products, processesor systems in an organizationwhere the value and cost ratio islow and where analysis will leadto increased benefits

• Generate alternative methods forproviding necessary functions

• Prepare and present a reportcontaining recommendationalong with benefits

• Perform all other actions requiredto put the proposal into effect


Project Selection

Information

Creative

Evaluation

Recommendation

Implementation

Follow up

Process for setting up a small scale industry


Industry Selection

Viability / Feasibility

Arranging know-how

Prepare project report

Selection / Procurement of

premises

Apply to DI for NOC, registration

and power allotment

Apply for Financing – fixed assets, working capital, export

finance

Apply to local body for NOC and permissions

Apply for Raw material Quota

Apply for power connection

Place orders for machinery

Recruit staff

Install machinery

Connect machinery

Procure raw materials

Trial run

Process for setting up a small scale industry (contd.)


Trial run

Corrective measures

Production

Record maintenanceProduct

standardizationQuality control

Productivity

SalesRaw material purchase

Recycle realizations

Sales realization

Pay creditorsProfits

Dividends

Plough back

Before becoming an entrepreneur…

• Fully conversant with the product line

• Adequate shop floor experience to guide floor personnel

• Familiar with raw materials, specifications, quality assuranceand prices

• Account keeping, maintain stores, prepare balance sheet etc

• Marketing channels, distribution network, agency practices

• Packaging, logistics

• Quality assurance

• Taxation, policies, laws, regulations, bureaucracy

• Incentives, subsidies

• Stress, high pressure, perseverance


Legalities, regulations

Licenses Registration Infrastructure

• No formal permissionrequired from Stateof Central Govt. tostart SSI

• No license requiredfor <100 workers and<10 lakhs fixed assets.

• Suggestedregistration forcompanies with >10employees.

• Copy of application tobe sent to Director ofSmall IndustriesService Institute.

• Registration is helpfullater for solicitingfinance, setting upinfrastructure etc.

• Approach Director ofIndustries, or SISI forprovision of built upspace in industrialestate.

• After initial clearancefrom State Director ofIndustries,Municipality orPanchayat issues aNo ObjectionCertificate.


Set up

Machinery Raw Materials Finance

• Can be provided byNational Small IndustriesCorporation (NSIC), ashire-purchase.

• NSIC looks forentrepreneurship,motivation, competenceetc.

• Entrepreneur needs toenlist with NSIC, andsend along registrationcertificate and report ofthe Director ofIndustries.

• Raw materials areclassified as:o Components and

spareso Non-ferrous

materialso Iron and steelo Chemicals

• Foreign exchangemaybe provided alongwith grants for priorityindustries.

• Used for• Machinery• Raw materials• Working funds

• State director forIndustries and StateFinancial Corporationsprovide funds based onsupporting documents:• Project report• Copy of registration• Cash flow statement• Stock statement


Operations

Marketing Incentives

• The Government PurchaseScheme provides thegovernment as the largestsingle buyer of SSI products.

• Features• Enlist with NSIC• Receive tenders free of cost• No security deposit required

to participate in tenders• Price preference up to 15%

with larger industriesconsidered

• Seek the help of SISI orDirector of Industries

• Small IndustriesDevelopment Organization(SIDO) coordinates policiesand provides extensionservices and technicalconsultancy

• NSIC provides supportwith machinery


Support

Industrial Management, Consultancy, and Training

Backward Areas Development

• SIDO offers consultancy in –technical, managerial,marketing, QC, production,labour laws, solving problemsetc.

• Available through panel ofexperts and in 264 notifiedbackward areas

• Machinery on hire-purchase• Government stores purchase• Sub Contracting Exchanges• Export promotion through Export Credit

and Guarantee Corporation (ECGC)


Who to approach for whatArea Organization

Selection of Industry Small Industries Service Institute

India Investment Centre

Ministry of Industrial Development

Registration Director of Industries

Small Industries Service Institute

Factory Accommodation Director of Industries (state)

Machinery Small Industries Service Institute

National Small Industries Corporation

State Small Industries Corporations

Chief Controller of Imports and Exports

Raw Materials Development Commissioner, Small Scale Industries Organization

Director of Industries

State Small Industries Corporations

Chief Controller of Imports and ExportsContent (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.13

Who to approach for whatArea Organization

Finance Small Industries Development Bank of India

State Financial Corporation

State Director of Industries

Commercial Banks

Small Industries Service Institutes

Technical Know-how Small Industries Service Institutes

National Small Industries Corporation

Council of Scientific and Industrial Research

Productivity Councils

Small Industry Extension Training Institute

Standardization

Marketing

Inventions

Miscellaneous ProblemsContent (c) Copyright 3nayan Consulting. All rights reserved, 2014 - 18.14

Selection of types of organisation


Factors to determine type of organisation

• Type of business

• Selection of industry and area of operation

• Scope of operations, volume of business

• Amount of capital funds required

• Possibility of raising funds

• Costs and procedures and relative freedom from govt.regulations

• Comparative tax advantage

• Size of risk

• Continuity of the enterprise

• Degree of direct control and adaptability of administration

Ownership types for SSIs


Small Scale Industries

Private Public

Individual Collective

Sole Proprietorship

PartnershipJoint Stock Company

Cooperative

Limited Unlimited

Organizational structures

Line Organizations

• “…is characterized by direct lines ofauthority flowing from the top to thebottom of the organisationalhierarchy and lines of responsibilityflowing in an opposite but equallydirect manner.”

Functional Organizations

• The simplest type ofdepartmental categorizationwhich consists of grouping ofsimilar activities into majordepartments.


Line organizations

Advantages

• Simple to form and easy to operate

• Executives enjoy decision makingpowers

• Systematic organizational structure

• Balance between authority,responsibility and accountability

• Easy maintenance of discipline

• Easy and quick communication

Disadvantages

• Can become autocratic

• Suffers from lack of specialization

• Overload of responsibility

• Hampers initiative


Functional organization

Advantages

• Promotes better division of labour

• Ensures proper communication

• Offers good scope of specialization

• Promotes co-ordinated work

• Ensures systematic organization

Disadvantages

• Unity of command absent

• Tendency towards over-specialization

• Difficult to pinpoint responsibility

• Costly

• No continuity of authority

• Lower potency of developingmanagers for promotion


Incentives and subsidies


Introduction

• Incentiveso Encourages productivity; motivational force

o Includes concessions, subsidies and bounties

• Subsidyo Single lump-sum provided to cover cost

• Bountyo Bonus or financial aid to help it compete with

other units in country or in a foreign market

o To motivate for setting up new venture inlarger interest of the nation or society

Incentives Subsidies

Bounties

Concessions

Incentives

• Need for incentivesoCorrect regional imbalances in developmentoPromote entrepreneurship by removing economic constraintsoProvide competitive strength, survival and growth


Incentives Motivational

ForceStimulant

Entrepreneurial

SpiritNew Ventures Modernisation Diversification

Efficient Management

Objectives of Incentives


Entrepreneurship Development

Regional Development

Provide Competitive

Strength

Motivation

Stimulus to industry and

business

Types of incentives


Incentives

Technical Financial Subsidy Tax

Machinery Consultancy CashInterest free

loansTransport Interest

Income Tax Sales Tax Excise Duty

Incentives strategy

• Subsidy for purchase of know how

• Entrepreneur training

• Developed land

• Factory shed

• Machinery

• Seed capital

• Central investment subsidy

• State investment subsidy

• Tax exemption

• Establishment grant

• Stamp duty

The Assistance Program

• Technical assistance throughindustrial extension service

• For obtaining raw materials

• Cash assistance

• Supply of machinery on hire-purchase

• Marketing assistance

• Rural industries projects

• Seed capital assistance

• Concessional financial assistance

• Pollution control


READ UP on Subsidy Schemes

in your books

Advantages and disadvantages

• Motivational force

• Encouragement to startup in backwardareas

• Industrial uniformity across regions

• Develop new entrepreneurs

• Increase in ability of entrepreneurs

• Reduce overall problems for SSIentrepreneurs

• Often misused

• Scope of favouritism and corruption

• Potential unethical businesspractices

• Financial drain on the exchequer

• Real objectives are seldom achieved


Incentives and facilities to exporters

• Duty drawback

• Duty exemption schemes

• Excise rebate

• Marketing development assistance

• Supply of raw materials

• Export oriented units /export processing zones

• Export houses, trading houses and star trading houses

• Export promotion capital goods scheme

• Foreign currency accounts


READ UP on State Based

Incentives in your books

Exploring export possibilities


Components and growth of SSI products exports

0

10000

20000

30000

40000

50000

60000

1947 1957 1967 1977 1987 1997 1999 2000

Exports

Exports

• The main components of exports ofproducts manufactured in SSIs are:o Khadi and handloom

o Handicrafts including gems & jewellery

o Processed food

o Garments

o Engineering goods

o Projects exports

o Computers

o Consultancy exports

• The government is trying to achievea 20%YOY growth on SSI exports

Export thrust areas

• Knitwear and hosiery

• Brassware and brass locks

• Heavy machinery, engineering products,tools

• Handloom, silk, weaving

• Coir, leather

• Sports goods

• Marine products

• Pottery

• Safety matches

• Chemicals

• Scientific instruments, engine pumps

LudhianaMachine toolsRs. 75 Cr

• Lack of Infrastructure and

• Waste disposal

SuratDiamondsRs. 4,000 Cr

• Direct international access

• Poor roads

MoradabadBrasswareRs. 800 Cr

• No direct access to ports

• Inadequate telecom

TirupurKnitwearRs. 2,400 Cr

• Lack of water• Power shortage

VishakhapatnamMarine ProductsRs. 638.39 Cr

• Lack of storage• Inadequate container

facilities


Export promotion measures

• Measures to:oStrengthen export productionoEncourage capacity expansionoAugment bargaining power

oEncourage entry of products tonew markets

oImprove inherent competitivestrength

• Some of the exportpromotion measures are:oExport promotion of capital

goodsoDuty exemptionoAdvance licenseoAdvance release ordersoExport import policiesoTrade finance

oAir cargo complexesoElectronics data interchange


Key areas for an export oriented SSI

• Quality control

• Marketing

• Infrastructure set upoVarious government agencies

• Problem areasoAvailability of raw materialsoQuality control

oMarketing facilities

• ProspectsoEmployment

• Export managementoPlanningoOrganizationoBuilding a teamoExecutive actionoManagement control


Further readings / viewings

• http://www.iitk.ac.in/siic/html/startingbusiness/Business3.html

• http://www.brainreactions.net/brainstorms/2222

• http://business.gov.in/starting_business/small_scale_unit.php

• http://smallb.in/%20/thinking-starting-business/big-list-business-ideas-small-business

• http://www.authorstream.com/Presentation/rallu-619634-steps-to-start-small-scale-industry/

https://www.youtube.com/watch?v=S5kCVq8YazY

https://www.youtube.com/watch?v=FMhfpOS5RbM


http://www.iitk.ac.in/siic/html/startingbusiness/Business3.html

http://www.brainreactions.net/brainstorms/2222

http://business.gov.in/starting_business/small_scale_unit.php

http://smallb.in/ /thinking-starting-business/big-list-business-ideas-small-business

http://www.authorstream.com/Presentation/rallu-619634-steps-to-start-small-scale-industry/

https://www.youtube.com/watch?v=S5kCVq8YazY

https://www.youtube.com/watch?v=FMhfpOS5RbM

Entpreneurial Management (EM04_01 ) starting up a small scale industry - 1

Economy & Finance

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