Small-Scale Enterprises Chapter-7 Small-Scale Enterprises Author: Alpana Trehan © 2011, Dreamtech Press :: Chapter 7

Define Small-Scale Enterprises An SSE can be defined as a privately owned and operated business unit that is composed of a small number of employees and has relatively low turnover. Small enterprises are those in which the management lies in the hands of one or two people who are responsible for the major decisions. --- P. Neck (1977) © 2011, Dreamtech Press :: Chapter 7

Enterprises Included in Small-Scale Sector Small-Scale Industrial Undertaking An industrial undertaking in which the investment in fixed assets, such as plant and machinery (whether held on ownership terms, on lease, or by hire-purchase) does not exceed ` 1 crore. Ancillary Industrial Undertaking An industrial undertaking that deals with the production of spare parts, components, sub-assemblies, and tooling, or the rendering of services. Micro or Tiny Enterprise An enterprise in which investment limit in plant and machinery is ` 25 lakhs irrespective of location of the unit. © 2011, Dreamtech Press :: Chapter 7

Distinction among Micro, Small and Medium Enterprises   Investment in Plant and Machinery in Manufacturing Sector Investment in Equipment in Service Sector Micro Enterprises Does not exceed ` 25 lakhs Does not exceed ` 10 lakhs Small Enterprises More than ` 25 lakhs, but does not exceed ` 5 crores More than ` 10 lakhs, but does not exceed ` 2 crores Medium Enterprises More than ` 5 crores, but does not exceed ` 10 crores More than ` 2 crores, but does not exceed ` 5 cores © 2011, Dreamtech Press :: Chapter 7

Characteristics of Small Scale Enterprises Labor Intensive SSEs provide employment opportunities to individuals in urban and rural areas, which, in turn, enhances the economic position of the country. Flexibility SSEs adapt themselves as per the dynamic industrial environment. Innovative SSEs use new and innovative materials, methods of production, markets, sources of materials, and even new forms of organizations, such as sole proprietorship, partnership, and co-operatives. Decentralization SSEs facilitate a balanced growth of the economy as a whole due to dispersal of industries. Outlet of Entrepreneurial Spirit The enthusiasm, perseverance, and creativity of an individual, who establishes the enterprise. © 2011, Dreamtech Press :: Chapter 7

Role of SSEs in the Development of an Economy Utilization of Domestic Technology Tapping of Savings Better Utilization of Local Resources Poverty Alleviation Higher Productivity Complement to Large Industries Employment Generation Contribution to Decentralization Export Contribution Regional Balance and Rural Development © 2011, Dreamtech Press :: Chapter 7

Small-Scale Enterprises in Indian Environment There is an experienced note-worthy growth of the SSEs after independence. They have played significant role in economic development, employment generation, and growth in export. SSEs in India are of the following two types: Traditional Includes khadi, village industries, handlooms, handicrafts, sericulture, and coir industries Modern Includes textile products, wood, furniture, paper and printing, metal products, chemicals, rubber and plastic products, electrical machinery, and transport equipment © 2011, Dreamtech Press :: Chapter 7

Factors Influencing the Small-Scale Enterprises Political Factors Economic Factors Technological Factors Socio-Cultural Factors © 2011, Dreamtech Press :: Chapter 7

Industrial Policies Related to Small-Scale Enterprises Providing tax concessions to SSEs to promote investment in the small-scale sector Granting relief to small-scale entrepreneurs in terms of repayment of loans De-licensing the small-scale sector substantially Increasing technological facilities Facilitating adequate flow of credit Improving infrastructure facilities and promoting marketing of products Improving access to latest information by automating the government departments meant for supporting the small-scale sector Initiating various services, such as advisory and mentoring services, technology business incubators, and supplier rating accreditation services © 2011, Dreamtech Press :: Chapter 7

Strategies Related to Small-Scale Enterprises It include plans or schemes meant for the progress of SSEs by the government. Mahalanobis was the first strategy formulated by the government for the promotion of SSEs and was evolved during the 2ndFive Year Plan. The strategy envisaged that small-scale sector would have to bear the responsibility of fulfilling the growing needs of consumer goods in the economy. © 2011, Dreamtech Press :: Chapter 7

Entrepreneurial Success in Rural India According to the third census on SSI: 1,05,21,190 units of small-scale enterprises in India 44 lakhs SSEs 61 lakhs SSSBEs Several entrepreneurship development programs have started by Indian government Crucial factors for rural entrepreneurship development programs: Communication technology Knowledge management Science and business education Accessibility to information © 2011, Dreamtech Press :: Chapter 7

Steps for Establishing Entrepreneurial System 1 Providing proper infrastructure and related services to enable the establishment of enterprises 2 Imparting entrepreneurial training 3 Providing support and resources to entrepreneurs © 2011, Dreamtech Press :: Chapter 7

Assistance for Small-Scale Enterprises 1 Financial assistance 2 Technical assistance 3 Marketing assistance © 2011, Dreamtech Press :: Chapter 7

© 2011, Dreamtech Press :: Chapter 7 Financial assistance An SSE cannot exist without the proper arrangement of financing. The success of SSEs in developing countries, such as India, is laid by several financing programs by the government. The government through financing programs provides finance to SSEs at less interest rates as compared to prevalent commercial rates. The Prime Minister’s RozgarYojna is a scheme introduced by the government to encourage the youths of the country to involve in entrepreneurial activity. © 2011, Dreamtech Press :: Chapter 7

© 2011, Dreamtech Press :: Chapter 7 Technical assistance SSEs lack in accessing technology due to poor consultancy support/services for technological information. Some of the centers established by the government are as follows: National Small Industries Corporation Limited (NSIC) Software Technology Parks (STPs) © 2011, Dreamtech Press :: Chapter 7

© 2011, Dreamtech Press :: Chapter 7 Marketing assistance The small-scale sector is characterized by the absence of strong brand presence in the market and unorganized marketing network. Some of the schemes implemented by the government are as follows:   Government Purchase and Price Preference Policy Market Development Assistance (MDA) Scheme Vendor Development Programs (VDPs) © 2011, Dreamtech Press :: Chapter 7

Sickness in Small-Scale Enterprises One which fails to generate internal surplus on a continuing basis, and depends for its survival on frequent infusion of external funds. --- State Bank of India A unit may be defined as sick, if it had incurred cash loss for one year and, in the judgment of the bank, is likely to continue to incur cash losses for the current year as well as the following year and which has an imbalance in its financial structure, such as current ratio of less than 1:1 and worsening debt equity ratio. --- Reserve Bank of India (1976) © 2011, Dreamtech Press :: Chapter 7

Reasons for Sickness in Small-Scale Enterprises Lack of Management Expertise Resistance to Apply Basic Management Principles Lack of Working Capital Improper Cash Management Inadequate Planning and Controlling Lack of Marketing Expertise Lack of Technical Expertise Improper Assessment of Viability of Projects Changes in Government Policy © 2011, Dreamtech Press :: Chapter 7

actions taken by the government to prevent sickness RBI Guidelines Monitoring Programs Government Policy Rehabilitation of Sick Units Rescheduling/Rephasement of Loans/Advances Debt Reconstruction Scheme (DRS) Kapur Committee Bureau of Industrial and Financial Reconstruction (BIFR) Negotiated Settlement Scheme © 2011, Dreamtech Press :: Chapter 7

Organizational Structure of a Small-Scale Enterprise Owner Production Assistant Multiplication Processing Storage Marketing Assistant Promotion Distribution Sales © 2011, Dreamtech Press :: Chapter 7

Export Promotion Measures by Government of India Marketing assistance and export promotion scheme Participation in the International Exhibitions/ Fairs Training Programmes on Packaging for Exports Market Development Assistance Scheme for MSME exporters (MSME-MDA) National Award for Quality Products Packaging for exports Technical & managerial consultancy services National awards for quality products © 2011, Dreamtech Press :: Chapter 7

Institutional Setup for Export Promotion Trade Fair Authority of India Indian Institute of Foreign Trade (IIFT) Export Credit Guarantee Corporation (ECGC) Export houses © 2011, Dreamtech Press :: Chapter 7

© 2011, Dreamtech Press :: Chapter 7 recap The small-scale sector strives to make efficient utilization of capital, land, and labor to produce goods and services. The small-scale sector contributes around 40% to the total exports of the country; therefore, accounts for an important segment of the Indian economy. The Indian government has recognized the contributions of the small-scale sector in the socio-economic development of the country. The government has set the target of annual growth of 12% and creation of 4.4 million additional jobs in the small-scale sector. © 2011, Dreamtech Press :: Chapter 7