Lecture 7

Chapter 4

Understanding Entrepreneurship & New Ventures

“Small” Business

• Locally owned and operated Vs Sony, Nestle• Small Business Administration

– Number of Employees – Total Annual Sales

• Independently Owned/Managed & Does Not Dominate Its Market

“Small” Business

• According to one recent extensive study• Total SMEs in the country number around 2

million, of which approximately 0.4 million are manufacturing units, 0.6 million are service sector units and the remaining 1 million are in the retailing/trade sector.

“Small” Business

• According to the same study, SMEs constitute over 90% of the business establishments in Pakistan and contribute Rs. 34 billion (11%) annually to the GDP.

• Around 67% of the labour force in the Pakistani manufacturing sector works in SMEs engaged in manufacturing. Furthermore, 80% of the employment in the economy is created by SMEs.

“Small” Business

• However, statistics from the same study tell us that 72% of the SMEs are sole proprietary concerns with only one third of the owners receiving a college education. Additionally, only 3% have received any technical training.

“Small” Business

• In other words, the overwhelming bulk of SMEs are run in mostly an informal and unstructured manner as sole proprietorships, by people who have received little or no professional training and possibly have limited access to technical advice and financial resources.

“Small” Business• Definition used by the State Bank of Pakistan: • SME means an entity, ideally not a public

limited company, which does not employ more than 250 persons (if it is a manufacturing concern) and 50 persons (if it is a trading/service concern) and also fulfills the following criteria of either “a” and “c” or “b” and “c” as relevant:

“Small” Business

• a. a trading/service concern with total assets at cost excluding land and building upto Rs 50 million.

• b. a manufacturing concern with total assets at cost excluding land and building upto Rs 100 million.

• c. any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.

“Small” Business• Definition used by the Federal Bureau of

Statistics:– Small – Less than 10 employees.

“Small” Business• Definition used by the Small Business Finance

Corporation: • “Small Business” was defined in the Small Business

Finance Corporation Act to mean an industry or an industrial, manufacturing or trading unit, or such other concern, the total value of the fixed asset of which does not exceed Rs. 20 million while a “medium enterprise” is defined as an industrial, manufacturing or trading unit and such other concern the total value of the fixed assets of which does not exceed Rs. 100 million.

“Small” Business• Definition used by the Punjab Small Industries

Corporation:– Small – Fixed investment of upto Rs. 20 million

(excluding land and building).

“Small” Business• Definition provided by Small & Medium

Enterprise Development Authority • (SMEDA):

– Micro – Less than 10 employees – Productive Assets upto Rs. 2 million.

– Small – 10-35 employees – Productive Assets between Rs. 2 to 20 million.

– Medium – 36-99 employees – Productive Assets between Rs. 20 to 40 million.

“Small” Business• Recent Definition Proposal by SMEDA:

– Micro – Less than 10 employees – Fixed assets including land & building – Rs. 2.5 million.

– Small – 10 to 49 employees – Fixed assets including land & building – Rs. 45 million.

– Medium – 50 to 249 employees – Fixed assets including land & building – Rs. 85 million.

Need For Small Businesses

• Job Creation (67% labour force works in small businesses

• Innovation– Products/Services (computer, radio,

photocopier)– Processes

• Important To Big Business

Small Business Industries

• Services • Construction• Finance & Insurance (affiliates and agent)• Wholesaling• Transportation & Manufacturing (taxi,

tour operators)

Entrepreneur• Accepts Risks & Opportunities In Creating/Operating A

New Business with a primary goal of growth and expansion

• Characteristics– Resourceful– Good Customer Relations– Desire To Be Own Boss- Gain Control Of Life– Build For Family– Tolerance For Uncertainty/Risk

Entrepreneurs

Yesterday Today

Self-Reliant Open-Minded

Male Male or Female

Quick DecisionsRelies On Others

Non-Financial Reasons To Start A Business

9%7%

41%

21%

13%

9%

Do Something ILove

More Flexibility

Be Key DecisionMaker

Change Lifestyle

Spend More TimeWith Family

Don't Know or NotStated

Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf

Financial Reasons To Start A Business

3%6%

12%

13%

27%

39%

Loss of Job Or ChangeOf Employment

More Income ForNecessities

Second Income

Bridge A Gap TillRetirement

Forced Into EarlyRetirement

Don't Know Or NotStated

Source: CIBC World Markets, Economics & Strategy, “Secrets to Small Business Success”, research.cibcwm.com/economic_public/ download/sb-ssbs-10192004.pdf

Start/OperateSmall Business

• Role of internet– Opportunities– Information access