Introduction

A training manual in Entrepreneurship and life skills curriculum

is not a novel concept. In many ways, this manual is not novel
either. Like other products available, this manual contains
training topics and typical areas of life skill training such as
social skills, money management, employability, etc.
Furthermore, it relies on common teaching strategic such as
experiential, enquiry, modeling and role-playing. Despite the
similarities, this manual deviates from many other skills
training manuals in the following ways:
l. This manual is specifically designed for success in life
endeavor. It is assumed that people have participated in a
training program to learn other skills and become more
independent. The training plans in t hi manual can provide
advanced training for those people who are preparing to
go to work, and thus need further training to be successful
on the job as well as for those who plan to work for
themselves in an enterprise.
2. The manual contains reviews and recommendations for
using o t h e r life skills training materials available in the
market.
3. The manual suggests plans designed to teach skills and
attitude rather than to provide general knowledge. It is too
common for a training program to present information and
test the comprehension of that information using
exercises. Here the emphasis is on hands-on approach. For
example, it is important that students practice opening a
bank account instead of finding the words "banking" in a
word find activity.
4. The manual incorporates the benefits of the Internet in
training skills. In addition to providing a wealth of
information on handling enterprises, it is a great resource
for life skills information.

As access to the Internet becomes common in institutions of

higher education, trainers will be able to get information for
training and teach students to get their own information to help
them in their daily routine.

Learning to learn is the greatest benefit that should be derived

from this course. Throughout the manual, the student is
encouraged to gain self-confidence and develop personal
dreams based on perceived opportunities/ local needs that
should be followed up through critical thinking, analysis and
focused planning to develop a plan of action for its eventual
realization.

There are many wonderful training packages that use video,

computer, and other stimulating materials. The problem with these
materials is that they are expensive and sometimes the usefulness is
questionable. This manual includes recommendations about using
games as a veritable training material. For those institutions that
cannot afford the best materials available, the curriculum is designed
to provide solid training curricula independent of any product
available on the market. This ensures that lack of resources will not
keep people from the training they' need. -

Approach

Although this manual is intended to be used by facilitators (teachers),

the materials are learner-centered, which means that the learners are
involved throughout the process and responsibility for learning moves
from the teacher to the learner. This is achieved when the
teacher/trainer becomes a facilitator and creates a learning
environment whereby learners can engage in structured experiences
individually, in small groups or as a class, and through a process of
reflection and review, develop certain skills. These skills can then be
applied to a variety of situations. Techniques such as group
discussion, role playing, counselling and brainstorming are employed
to ensure the active participation of learners throughout the learning
process.
In this process, the curriculum encourages and assists learners to:

• identify their interests

• express feelings
• apply what they have learned to other situations
• understand ways in which they learn best
• discover what motivates them
• learn from their experiences
• assess their progress
• correct their mistakes ,
• establish performance standards for themselves
• gain insights
• improve their adaptability

Learner-oriented instruction is not only concerned ,with the outcome,

but also the. steps that. each. individual takes to achieve the outcome.
A great deal of emphasis is therefore placed on learner motivation.
 COURSE CODE: EEd 413

Course Title: Entrepreneurship Development

INTRODUCTION:

Entrepreneurship Education is aimed at learning directed towards

developing in the student skills, competencies, understandings and
attributes that will equip students to be innovative, and to identify,
create, initiate, and successfully manage personal, community,
business and work opportunities, including working for themselves.

This course introduces students to advanced topics on

entrepreneurship studies. It is expected to build upon the sound
foundations of EEd.126 and EEd.216 at the ND level respectively.
Topics treated at the lower levels are however included so that
students at the HND level without prior training in
entrepreneurship will not be at a disadvantaged position.
Moreover, as some of the HND applicants must have had at least
one year of industrial work experience those topics are meant to
enrich their focus and interest. The primary aim of the course is to
equip the student with the skills, competencies, understandings and
attributes that will enable him to launch, manage and grow
enterprise successfully after graduation. Thus at the end of this 4
credit hour course the student should be able to:

GENERAL OBJECTIVES:
1. Understand the history of entrepreneurship development in
Nigeria
2. Understand the role of personal savings and portfolio
investment in National Economic Development
3. Understand various life skills needed by an entrepreneur
4. Understand the
various sources of information for entrepreneurship
development
5. Appreciate the roles of commercial and development banks in
small scale industrial development.
6. Know the functions of various support agencies in small and
medium scale industrial development.,
7. Understand the activities of different industrial associations in
relation to
entrepreneurship.
8. Know the functional areas of business
9. Understand the need for business planning.
10. Understand the strategies for consolidation and expansion of a
business
 enterprise
11. Understand the need for both management and business
succession plan

TOPIC 1:
UNDERSTAND THE HISTORY OF ENTREPRENEURSHIP
DEVELOPMENT IN NIGERIA

INTRODUCTION:

In particular the student will be able to define certain related

concepts - including entrepreneurship. entrepreneurial window,
intrepreneurs and to understand who entrepreneurs and
intrepreneurs are; benefits of being an entrepreneur, some
problems associated with wage employment. The student will be
taken gradually into the desired skills, competencies and qualities
for successful entrepreneurial activities. The stages, process and
procedures for business registration and incorporation will be
explored further. The various government efforts, policy measures
put in place to boost and develop entrepreneurship and the local
economy (through SME development) in Nigeria will be explored.
For practical terms the student will be made to take more extensive
and intensive studies of existing enterprises, including their
industrial/ sectoral classification and to highlight success or failure
factors.

SPECIFIC LEARNING OUTCOMES:

1. Define an enterprise and identify different forms of
enterprises
2. Classify the different forms of enterprises into: private vs.
public,
profit vs. nonprofit, formal vs. informal, individual vs.
community, local vs. foreign, business vs. social, small vs.
large , manufacturing vs. service, consumer vs. industrial;
3. Narrate the history of entrepreneurship development in
Nigeria;
4. Assess the success and impact of entrepreneurship in
Nigeria in
 comparison with other countries of the world: Japan, India,
China,
Malaysia, South Korea, etc.

CONTENT:
1. Meaning of Enterprise
Wider Context: An idea that is translated into a planned and
implemented activity

Narrower Context: Business venture or undertaking that

brings profit.

In its wider sense, an enterprise is any identified idea that is

translated into a planned and satisfactorily implemented
activity. In its narrower sense, it refers to a business venture
or undertaking. Practically all projects and undertakings can
be referred to as enterprises if the following steps are
followed:
 idea identification,
 planning,
 implementation,
 successful completion of an activity, and
 accepting the reward.

2. Different forms of Enterprises

Private vs Public
Profit vs Non-profit
Formal vs Informal
Individual vs Community
Local vs Foreign
Business vs Social
Small vs Large
Manufacturing vs Service
Consumer Vs Industrial

People in a community have many interests and different needs and

wants in their lives. It is the role of enterprising men and women to
identify these interests, needs and wants and establish specific
enterprises through which these interests, needs and wants can be
satisfied. All enterprises provide satisfying rewards for those who
successfully establish them.

Terms used to classify enterprises include private, public, formal,

informal, individual, community, local, foreign, small, large,
business, social, manufacturing, and service, consumer or
industrial. Enterprises that succeed, irrespective of their nature,
come up with irresistible and valued approaches that contribute to
providing solutions to problems, as well as satisfying the ., desired
needs and wants. The key difference between all types of enterprise
lies in the rewards they provide. Business, ventures provide profits
as rewards, while nonbusiness ventures provide other types of
rewards which could be either physical or psychological.
Enterprising men and women will therefore engage in enterprises
depending on what kind of rewards they expect from them.

Specific enterprises in a community have the potential to benefit

from the existence of all the others. Output from one enterprise
normally becomes input for other enterprises, and this helps in
money circulation among the enterprises and within the
community. The more money that circulates in the community, the
more prosperous the community becomes. The synergistic nature of
all enterprises in a community creates an environment where there
are lots of opportunities to be exploited by enterprising men and
women. It is therefore up to these men and women to identify the
opportunities available and exploit them. Almost all communities
have lots of unexploited opportunities that can increase this
synergy if properly harnessed, to create even more opportunities
for everyone.

3. Features of the Types of Enterprises

4. Classification of Enterprises
 Sectoral: Enterprises are classified along the type of
products produced. There is an international code that helps
you with this classification. It is called the ISIC (International
Standard Industries Code). Below is an example of some
enterprises simply classified to reflect some of what you may
see in your neighbourhood. Students are encouraged to look
around and classify more enterprises.

 Size: The size of the enterprise may also be used for its
classification. Worldwide this type of classification depends on
either/both of the capital employed or the number of staff
engaged by the enterprise. Below in the definition adopted by
the Federal Republic of Nigeria.

Micro/Cottage industries are defined as those whose total

investment cost does not exceed one million and five
hundred thousand naira (=N=1,500,000.00) including
working capital but exclusive of land. The workforce is not
more than 10.

Small scale industries are defined as those with total

investment of between one million and five hundred
thousand naira (=N=1,500,000.00) and fifty million
naira (=N=50,000,000.00) excluding land, but including
working capital; and/or a workforce of between 11 and
100 workers.
 Medium scale industries are defined as those with a
total investment of between fifty million
(=N=50,000,000.00) and two hundred million
(=N=200,000,000.00) naira excluding land, but
including working capital; and/or labour force of
between 101 and 300 workers.

Large scale industries are defined as those with a total

investment of over two hundred million naira
(=N=200,000,000.00) excluding land but including
working capital; and/or labour force of over 300
workers.

Exercise: Classify the following enterprises, fill in an example

of a
specific enterprise you are aware of and identify
whether it is of the business or non-business type.
5. More Definitions

 Entrepreneurship/Entrepreneur
Entrepreneurship is first and foremost a mindset. Entrepreneur
is a person who habitually creates and innovates to build
something of recognized value around perceived opportunities.
In this definition, all words are key words:
• 'Entrepreneur' - can be an individual entrepreneur, but also
an entrepreneurial team or even entrepreneurial organization
• 'A person' - emphasizes a personality rather than a
system
• 'Habitually' - just cannot stop being an entrepreneur
• 'Creates' - starts from scratch and brings into being
something that was not there before
• 'Innovates' - able to overcome obstacles that would stop most
people; turns problems into opportunities; deliver - sees ideas
through to final application
• 'Builds something' - describes the output of the creation and
innovation process
• 'Of recognized value' - encompasses economic, commercial,
social, or aesthetic value

'Perceived opportunities' - spotting the opportunity to exploit an

idea that may or may not be original to the entrepreneur; seeing
something others miss or only see in retrospect
What Entrepreneurs Are Like

1. Personality factors
o born/made ratio - 50/50, a synergy of genetic and
environmental influence
o motivation and emotion - independence, competitive
spirit, challenge, wealth
o behavioral characteristics - perseverance,
determination, orientation to clear goals, need to
achieve, opportunity orientation, creativity, persistent
problem-solving, risk-taking, integrity, honesty, internal
locus on control
o personality attributes - preferred styles: extrovert/
introvert; sensor/intuit; thinker/feeler; and
judger/perceiver
2. Environmental factors
o family background - entrepreneurial heritage
o age and education - begin entrepreneurial activity early;
are not over-educated
o work experience - most entrepreneurs first gain some
work experience in the line of business they later start
up
3. Action factors
o making the difference - initiate change and enjoy it
o creating and innovating - a continuous activity, seeing
creative idea through to the end, and then starting
climbing another mountain
o exploiting opportunities - able to see or craft
opportunities that other people miss
o finding resources and competencies - experts at
exploiting contacts and sources
o networking - expertise oriented; know when they need
experts and how to use them effectively
o facing adversity - resolve problems under pressure;
turn problems into opportunities
o managing risk - not adventurers, but manageable risk
takers; their success lies in caution, learning, flexibility
and change during implementation
o controlling the business - paying attention to details
and essential ratios; exercising strategic control over
their business oputting the customer first - listening to
the customer and responding to the customers' feedback
o creating capital - financial, social, and aesthetic
3. Narrate the History of Entrepreneurship Development
Particularly
In Nigeria;

Throughout the theoretical history of entrepreneurship, scholars

from multiple disciplines in the social sciences have grappled with
a diverse set of interpretations and definitions to conceptualize this
abstract idea. Over time, "some writers have identified
entrepreneurship with the function of uncertainty-bearing, others
with the coordination of productive resources, others with the
introduction of innovation, and still others with the provision of
capital" (Hoselitz, 1952). Even though certain themes continually
resurface throughout the history of entrepreneurship theory,
presently there is no single definition of entrepreneurship that is
accepted by all economists or that is applicable in every economy.

Although there is only limited consensus about the defining

characteristics of entrepreneurship, the concept is almost as old as
the formal discipline of economics itself. The term "entrepreneur"
was first introduced by the early 18th century French economist
Richard Cantillon. In his writings, he formally defines the
entrepreneur as the "agent who buys means of production at
certain prices in order to combine them" into a new product
(Schumpeter, 1951). Shortly thereafter, the French economist J.B.
Say added to Cantillon's definition by including the idea that
entrepreneurs had to be leaders. Say claims that an entrepreneur is
one who brings other people together in order to build a single
productive organism (Schumpeter, 1951).

Over the next century, British economists such as Adam Smith,

David Ricardo, and John Stuart Mill briefly touched on the concept
of entrepreneurship, though they referred to it under the broad
English term of "business management." Whereas the writings of
Smith and Ricardo suggest that they likely undervalued the
importance of entrepreneurship, Mill goes out of his way to stress
the significance of entrepreneurship for economic growth. In his
writings, Mill claims that entrepreneurship requires "no ordinary
skill," and he laments the fact that there is no good English
equivalent word to encompass the specific meaning of the French
term entrepreneur (Schumpeter, 1951).

The necessity of entrepreneurship for production was first formally

recognized by Alfred Marshall in 1890. In his famous treatise
"Principles of Economics," Marshall asserts that there are four
factors of production: land, labor, capital, and organization.
Organization is the coordinating factor, which brings the other
factors together, and Marshall believed that entrepreneurship is
the driving element behind organization. By creatively organizing,
entrepreneurs create new commodities or improve "the plan of
producing an old commodity" (Marshall, 1994). In order to do this,
Marshall believed that entrepreneurs must have a thorough
understanding about their industries, and they must be natural
leaders. Additionally, Marshall's entrepreneurs must have the
ability to foresee changes in supply and demand and be willing to
act on such risky forecasts in the absence of complete information
(Marshall, 1994).

Like Mill, Marshall suggests that the skills associated with

entrepreneurship are rare and limited in supply. He claims that the
abilities of the entrepreneur are "so great and so numerous that
very few people can exhibit them all in a very high degree" (1994).
Marshall, however, implies that people can be taught to acquire the
abilities that are necessary to be an entrepreneur. Unfortunately,
the opportunities for entrepreneurs are often limited by the
economic environment which surrounds them. Additionally,
although entrepreneurs share some common abilities, all
entrepreneurs are different, and their successes depend on the
economic situations in which they attempt their endeavors
(Marshall, 1994).

Since the time of Marshall, the concept of entrepreneurship has

continued to undergo theoretical evolution. For example, whereas
Marshall believed entrepreneurship was simply the driving force
behind organization, many economists today, but certainly not all,
believe that entrepreneurship is by itself the fourth factor of
production that coordinates the other three (Arnold, 1996).
Unfortunately, although many economists agree that
entrepreneurship is necessary for economic growth, they continue
to debate over the actual role that entrepreneurs play in generating
economic growth. One school of thought on entrepreneurship
suggests that the role of the entrepreneur is that of a risk-bearer in
the face of uncertainty and imperfect information. Knight claims
that an entrepreneur will be willing to bear the risk of a new
venture if he believes that there is a significant chance for profit
(Swoboda, 1983). Although many current theories on
entrepreneurship agree that there is an inherent component of risk,
the risk-bearer theory alone cannot explain why some individuals
become entrepreneurs while others do not. For example, following
from Knight, Mises claims any person who bears the risk of losses
or any type of uncertainty could be called an entrepreneur under
this narrow-definition of the entrepreneur as the risk-bearer
(Swoboda, 1983). Thus, in order to build a development model of
entrepreneurship it is necessary to look at some of the other
characteristics that help explain why some people are
entrepreneurs; risk may be a factor, but it is not the only one.

Another modern school of thought claims that the role of the

entrepreneur is that of an innovator; however, the definition of
innovation is still widely debatable. Kirzner suggests that the
process of innovation is actually that of spontaneous "undeliberate
learning" (Kirzner, 1985, 10). Thus, the necessary characteristic of
the entrepreneur is alertness, and no intrinsic skills-other than that of
recognizing opportunities-are necessary. Other economists in the
innovation school side more with Mill and Marshall than with Kirzner;
they claim that entrepreneurs have special skills that enable them to
participate in the process of innovation. Along this line, Leibenstein
claims that the dominant, necessary characteristic of entrepreneurs is
that they are gap-fillers: they have the ability to perceive where the
market fails and to develop new goods or processes that the market
demands but which are not currently being supplied. Thus,
Leibenstein posits that entrepreneurs have the special ability to
connect different markets and make up for market failures and
deficiencies. Additionally, drawing from the early theories of Say and
Cantillon, Leibenstein suggests that entrepreneurs have the ability to
combine various inputs into new innovations in order to satisfy
unfulfilled market demand (Leibenstein, 1.995).

Although many economists accept the idea that entrepreneurs are

innovators, it can be difficult to apply this theory of entrepreneurship
to less developed countries (LDCs). Often in LDCs, entrepreneurs are
not truly innovators in the traditional sense of the word. For example,
entrepreneurs in LDCs rarely produce brand new products; rather,
they imitate the products and production processes that have been
invented elsewhere in the world (typically in developed countries).
This process, which occurs in developed countries as well, is called
"creative imitation" (Drucker, 1985) The term appears initially
paradoxical; however, it is quite descriptive of the process of
innovation that actually occurs in LDCs. Creative imitation takes
place when the imitators better understand how an innovation can be
applied, used, or sold in their particular market niche (namely their
own countries) than do the people who actually created or discovered
the original innovation. Thus, the innovation process in LDCs is often
that of imitating and adapting, instead of the traditional notion of new
product or process discovery and development.

As the above discussion demonstrates, throughout the evolution of

entrepreneurship theory, different scholars have posited different
characteristics that they believe are common among most
entrepreneurs. By combining the above disparate theories, a
generalized set of entrepreneurship qualities can be developed. In
general, entrepreneurs are risk-bearers, coordinators and organizers,
gap-fillers, leaders, and innovators or creative imitators. Although
this list of characteristics is by no means fully comprehensive, it can
help explain why some people become entrepreneurs while others do
not. Thus, by encouraging these qualities and abilities, governments
can theoretically alter their country's supply of domestic
entrepreneurship.

Nigeria has thousands of silent businessmen in the informal sectors

of the economy, pursuing business interests ranging from the
importation of refined crude oil to selling repackaged table water. It
is estimated that the informal sector accounts for over 60% of
Nigeria's GDP and represents a source of livelihood for about 70% of
Nigerians. These business operators in the small sectors are the
engine that drives any economic revolution, and Nigeria has no
scarcity of them. However, some of these Nigerians have become
icons and models for enterprise and business pursuit today through
the sheer size and influence of their business dealings. They are from
the banking, energy, technology, telecommunications, manufacturing
and other industry sectors and have distinguished themselves by
contextualizing the resources they manage and by contributing to
growth of entrepreneurial spirit in Nigeria.

Nigeria's business opportunities have increased tremendously as the

political system becomes increasingly stable. The era of private sector
driven investment has just arrived. Nigerian President Olusegun
Obasanjo has set an ambitious goal: He wants the country to become
one of the world's top 20 economies by 2020. Nigeria will need to
increasingly globalize education in two key areas: Information and
communications technology, and entrepreneurship. The Presidency
has mandated all students in Higher Education Institutions (HEIs),
regardless of their discipline, to study entrepreneurship before they
qualify for their degrees and diplomas. The aim of this is to create a
critical mass of graduates better prepared for employment as well as
creators of knowledge-based enterprises.

Entrepreneurship in Nigeria
Africa is the poorest, less-developed continent in the world. In most
countries in Africa, the governments have typically played a
significant role in determining the course of development. Many
state-ow enterprises in Africa were created when it was believed that
the fastest route to development occurred when the state took on the
role of the entrepreneur. Unfortunately, in many countries, the
performance of these state-owned firms, or parastatals, has been
substandard. Part of the problem with the state-owned enterprises is
that they are run by bureaucrats and are plagued with red-tape. Thus,
these firms are typically run according to state procedures, instead of
cost-cutting and profit-maximizing concerns. The typical result is
rampant inefficiency (Elkan, 1988). Although Nigeria was at one time
characterized by such inefficiencies, it has recently has pursued
entrepreneurship encouragement policies, and the initial indicators
suggest that the policies have been successful.

In Nigeria the state-owned enterprises traditionally clogged business

opportunities and state restrictions prevented entrepreneurs from
entering the market. However, in the mid-1980s, Nigeria abolished
its marketing board, which prevented entry into certain industries,
and opened up its markets to competition from domestic
entrepreneurs. Additionally, lower taxes and increased price ceilings
have increased the incentives to entrepreneurs. Although Nigeria is
still plagued by many development problems, "preliminary evidence
suggests a favorable response by the private sector to the new
entrepreneurial opportunities thus created" (Elkan, 1988).

The Challenges Faced By Entrepreneurs in Nigeria

Corruption is something that retards economic growth, and it exists

in virtually all economies, not necessarily developing economies or
indeed Africa--although based on the structures in the more advanced
countries, they are able to control or to curb these kinds of practices.
In Nigeria, the EFCC, which is the economic and financial crime
institution set up by the government, has been able to deal largely
with corruption. They have made quite a substantial amount of
investigation and recoveries. There has been talk of something like $5
billion recovered including some of the money looted outside of the
country by corrupt leaders. The current operating climate for
entrepreneurs is gradually becoming competitive and less rent-
seeking.

But that is not the real constraint that retards entrepreneurship in

Nigeria, based on the research carried out by Lagos Business School
(LBS) recently. The following factors tend to weigh down
entrepreneurs. The first is "Markets." The majority of our people
don't have access to markets, and in order for them to have access to
markets, they have to understand the requirements of the market. So
this is one area where we are lacking--for instance, if you want to
have access to the U.S. market, you must know of the market
regulations in the USA. Such understanding will assist the
entrepreneur to produce to be able to meet the needs of the market.
Adequate and timely market information must be provided. Also
products must be competitive and meet required standards.

Another major factor is "Infrastructure." This is basically [true] in

all developing countries, but more so in Nigeria. Poor infrastructure
has been a major cause of Nigerian products not being competitive in
the International market. Public power supply has been the major
constraint to enterprise development. According to a study carried
out by the World Bank in the last 10 years or so, it was pointed out
that if government is able to remove power as a bottleneck, Nigeria
will gain at least 30% competitiveness in production.

Four years ago, we had a similar problem in telecoms, and in Nigeria,

we had not more than 400,000 lines, phone lines But today, four
years later, based on the reform agenda of the government-- they
liberalized the telecoms sector and provided an enabling operating
climate for private sector participation in that sector -- about 50
million lines, the majority of which are either mobiles or fixed
wireless, are operational. So we are able to cross the bridge of
infrastructural deficiency in the telecoms sector through getting our
policy and regulations right as well as using transparent means to
license private sector operators.

Another important constraint is "Finance." Access to capital is a

major constraint in Nigeria. The government has tried to do
something about this through having one form of intervention or the
other in the last decade. However, about five years ago, the Banker's
Committee decided to set aside 10% of their profits as equity
investments in small businesses. Everybody hailed that decision, and
that was good. Unfortunately, the rate at which the money was being
dispersed to enterprises has been very poor. So why was this
happening?

First of all, you have to understand the mindset of the small

businesses in Nigeria. They own their businesses, and they like to
control it themselves. Unlike what obtains in USA, Canada and
Europe where most people wanting to start a business will look for a
partner, somebody with equity. The philosophy is "Let's share the risk
together. Let's leverage on the strength of one another," and things
like that. But back in Nigeria, the prevailing philosophy is "I want to
start it myself. I want to do it myself, at least up until the particular
level that I know I have full control. Then, maybe I can sell part of it,
but for now, let me do all the sweating, and let me do all the things
that come with that sweating."

The second side is that up until five, maybe not more than eight,
years ago, the financial services sector had been used to lending
through debt, not equity, so the mindset, again, is different. Most
lending has t~ do with collateral, so if you default, they sell off your
collateral. In the new participatory case, there is nothing to sell off,
which means they have to do their homework a lot more to know the
right type of businesses to invest in--whether they are growing
businesses or not. They need to know all that, and that is wher6 they
can get their reward. So that has also become a challenge for them.
The challenge for the banks is that they need to learn the ropes of
venture capitalists.

On both sides, there are real challenges, and these have slowed down
the investments in equity. There is need for value orientation and
sound financial education.

Another factor is inadequate documentation of processes and

outcomes. The records are poorly kept; and it is difficult for small
businesses to have regular financial statements and things like that.
This common business practice in developed economies must be
shown to entrepreneurs and why it is important for them to have
their own financial records--even to know how their businesses are
growing. Western small businesses are very careful about
documenting processes and outcomes. I think the outcomes one is
likely due to Small Business Administration (SBA) requirements,
which we don't have. But beyond the SBA requirements, the fact that
entrepreneurs are able to document their processes helps them to
consistently control the outcome. That is one learning point that must
be imbibed by all entrepreneurs. In addition we need to start
documenting some of the processes which have been successful using
daily reflection journals as well as documenting various operational
challenges and the solutions to these. This leads to effective use of
feedback mechanisms in future operational plans as well as in
developing strategic plans.

Technopreneurship in South and South East Asia

Entrepreneurship in parts of South and South East Asia has recently
undergone rapid revitalization. The term "technopreneur" arose from
within Singaporean culture to describe an individual whose
entrepreneurial endeavors focus on a technology-centered enterprise.
The government. of Singapore has embraced technopreneurship and
has launched several initiatives to promote technopreneurship as a
means of economic development. In the past three years, Singapore
has restructured the focus of many of its economic policies to fully
support the growth and development of domestic technopreneurial
firms.

Singapore is a small island city-state and has few natural resources

that it can exploit in order to promote economic development. Thus,
Singapore has had to largely rely on its people and human capital for
the sustainment of development. Initially, the government improved
the country's human capital by dedicating a large, amount of the
annual budget to education expenditure. However, now that the
country can boast high literacy rates, traditional human capital
development is no longer sufficient to sustain economic growth.

Recognizing the need for a new strategy for economic growth,

Singapore's government turned towards the technology sector. With
the creation of the Technopreneurship 21 Initiative and Ministerial
Committee, Singapore began promoting technopreneurship
encouragement policies. For example, the government now sponsors
university courses on technopreneurship and helps connect venture
capital companies with budding technopreneurs. This greater
openness has encouraged many new start-.ups to form, and the
country is well on its way to fully integrating itself into the New
Economy. Singapore's success with technopreneurship policies has
influenced other Asian countries to begin such initiatives. For
example, Malaysia recently launched its Multimedia Super Corridor
to encourage domestic technology development, and Hong Kong
recently completed the construction of its CyberPort, a
technopreneurship-friendly business district. Finally.
technopreneurship encouragement has also taken place in certain
cities in India.

As a whole, India is still one of the most underdeveloped countries in

the world. Despite the grim situation that faces much of the country,
several technology-focused cities have recently had impressive
success with technology driven development. In 1991, the Indian
government introduced numerous market reforms to overhaul the
Indian economy. The information technology industry is probably that
which has benefited most from the reforms. For the educated urban
class, information technology businesses have provided a new source
of income. To utilize the educated youth, who have been trained in
engineering and computer programming, international IT companies
began locating in India, particularly in Bangalore. The result is that
Bangalore has become a powerhouse for software production.
Although Indian technopreneurs were not originally at the center of
Bangalore's technology development, they are now beginning to pop
up throughout southern India, largely due to the government's help in
creating "the right climate to encourage this sunrise industry" (Soota,
1998). The government created policies to boost technopreneurial
education and to encourage the creation of domestic software parks.
Additionally, domestic entrepreneurship is encouraged in Bangalore
with tax incentives and a relatively advanced communications
infrastructure (Soota, 1998).

Bangalore's localized success is gaining great praise for its ~apid

development. Although Bangalore was the first major technology
center in India, Hyderabad is now following its example. Although
smaller in scale, the success of Hyderabad suggests that the
Bangalore model of technology-led development may be applied in
other parts of the country. Since much of India is still far behind
Bangalore and Hyderabad in terms of human capital development, it
is unreasonable to suggest that all of India should adopt policies to
promote technopreneurship. Nonetheless, the rest of the country
could likely benefit from the implementation of policies that
encourage entrepreneurs to fill the market's deficiencies, whatever
they may be in the local markets and specific regions of India.
 TOPIC 2:
UNDERSTAND THE ROLE OF PERSONAL SAVINGS AND
PORTFOLIO INVESTMENT IN NATIONAL ECONOMIC
DEVELOPMENT

INTRODUCTION:
In practical terms the student will be introduced to a culture of
personal savings and related wealth option through investing in
shares and stock. The place of financial intelligence and investment
intelligence as they enhance wealth creation are also emphasized.
This way, the activities and operation of the Capital Market and the
potential benefits for wealth creation and entrepreneurial activities
will be clearly identified and tapped. Personal financial planning
and management, the use of stockbrokers to build diversified
portfolio are also areas of focus. Secrets of savings culture,
financial intelligence and discipline will be extensively covered.

SPECIFIC LEARNING OUTCOMES:

1. Define the following: Income, expenditure and savings;
2. Explain the role of savings in starting and sustaining
businesses;
3. List the benefits of interest;
4. Explain personal financial planning and management;
5. Explain shopping habits;
6. Describe how taxes are paid on income that people earn
and how
income tax is calculated.
. 7. Explain portfolio investment and brokerage;
8. Identify types of portfolio investment;
9. Explain the role of portfolio investment in the National
Economic Development.

CONTENT:
1 Define the Following: Income, Expenditure and Savings;

Income, generally defined, is the money that is received as a result

of the normal business activities of an individual or a business.

Internationally, the accounting term income is synonymous to term

revenue. The International Accounting Standards Board uses this
definition:
Income is increases in economic benefits during the
accounting period in the form of inflows or enhancements of
assets or decreases oj' liabilities that result in increases in
equity, other than those relating to contributions from equity
participants.
For the average citizen in many countries, the term "income" is most
relevant for its role in determining how much income tax a person
must pay.

In common usage, saving generally means putting money aside, for

example, by putting money in the bank or investing in a pension plan.

In a broader sense, saving is typically used to refer to economizing,

cutting costs, or to rescuing someone or something.

In terms of personal finance, saving refers to preserving money for

future use - typically by putting it on deposit - this is distinct from
investment where there is an element of risk.

Saving differs from savings in that the first refers to the act of
putting aside money for future use, whereas the second refers to the
money itself once saved.

 For example: you may decide to start saving 10% of your

income; because you aim for your savings to grow into an
amount sufficient to buy a car

Saving in Personal Finance

Within personal finance the act of saving corresponds to nominal

preservation of money for future use, although inflation can still
erode its real value. A deposit account paying interest is typically
used to hold money for future needs, i.e. an emergency fund, to make
a capital purchase (car, house, vacation, etc.) or to give to someone
else (children, tax bill etc.).

Savings within personal finance refers to the accumulated money put

aside by saving.

Within personal finance, money used to purchase shares, put in a

collective investment scheme or used to buy any asset where there is
an element of capital risk is deemed an investment. This distinction is
important as the investment risk can cause a capital loss when an
investment is realized, unlike cash saving(s). Lower levels of risk
normally apply to savings e.g. interest rates may fail to preserve its
real value, or in extreme cases loss can occur due to bank failure.

In many instances the term saving and investment, are used

interchangeably which confuses this distinction. For example many
deposit accounts are labeled as investment accounts by banks for
marketing purposes. To help establish whether an asset is saving(s)
or an investment you should ask yourself, "where is my money
invested?" If the answer is cash then it is savings, if it is a type of
asset which can fluctuate in nominal value then it is investment.
Personal finance is the application of the principles of finance to the
monetary decisions of an individual or family unit. It addresses the
ways in which individuals or families obtain, budget, save and spend
monetary resources over time, taking into account various financial
risks and future life events. Components of personal finance might.
include checking and savings accounts, credit cards and consumer
loans, investments in the stock market, retirement plans, social
security benefits, insurance policies, and income tax management.

2 Explain the role of savings in starting and sustaining

businesses;

Want to start a business? Start saving your money.

Have you ever dreamt of starting your own business and being your
own boss with your own hours? It -may seem like a dream, but it's not
impossible to attain-a majority of first-generation millionaires got
there just by starting their own businesses. These aren't just tech
businesses though--these are electricians, plumbers, and other local
small businesses. These are companies that anyone can start-even
you.
To do so, however, you need to have some startup capital. For some
companies, venture funding is the way to go, but for most, self-
funding is essential. This means that you will need to have money
saved up to start your company. If you are serious about wanting to
start your own business, you will need to begin budgeting for it.

If you want: to save money to start your own business, you have two
options:

1. You can try to work on the new venture while you are still at your
current job.
Depending on your situation, this might be a better option than the
second one.
2. Save enough money so that you can quit your job and focus on your
new
company full time.

Both options have their pros and cons, but it might be a good idea to
follow option l . Many companies fail, and the first option is a good
way to hedge your bets in case your company doesn't do as well as
you hope.
If you don't have a budget, it's pretty important that you create one,
especially if you are planning to quit your current job. You should try
to do the math to see how much you need to save. In a future section,
I'll try to explain how to figure out exactly how much you need to
start your business.

Beyond saving for a new business, there are other options, such as
borrowing. A survey of P2P loans on Lending Club shows that a
growing number of business owners are turning to Lending Club to
raise funds for creating and expanding their businesses.
Regardless of how you raise your funds, budgeting is still important.
By budgeting and planning for your business, no matter what it is,
you will improve your chances of it being a success. If it does well,
you will be comfortably rich.

3 List the Benefits of Interest; Learning that it is important

to:
(1) save early and often,
(2) save as much as possible,
(3) earn compound interest,
(4) try to earn a high interest rate,
(5) leave deposits and interest earned in the account as long
as possible, and
(6) choose accounts for which interest is compounded often.

4 Explain Personal Financial Planning and Management;

Personal financial planning

A key component of personal finance; is financial planning, a dynamic

process that requires regular monitoring and reevaluation. hi
general, it has five steps:

1. Assessment: One's personal financial situation can be assessed by

compiling simplified versions of financial balance sheets and incorrie
statements. A personal balance sheet lists the values of personal
assets (e.g., car, house, clothes, stocks, bank accoutlt), along with
personal liabilities (e.g., credit card debt, bank loan, mortgage). A
personal income statement lists personal income and expenses.

2. Setting goals: Two examples are "retire at age 65 with a personal

net worth of =N=10,000,000 " and "buy a house in 5 years paying a
monthly mortgage servicing cost that is no more than 25% of my
gross income". It is not uncommon to have several goals, some short
term and some long term. Setting financial goals helps direct
financial planning.
3. Creating a plan: The financial plan details how to accomplish
your goals. It could include, for example, reducing unnecessary
expenses, increasing one's employment income, or investing in the
stock market.

4. Execution: Execution of one's personal financial plan often

requires discipline and perseverance. Many people obtain assistance
from professionals such as accountants, financial planners,
investment advisers, and lawyers.

5. Monitoring and reassessment: As time passes, one's personal

financial plan must be monitored for possible adjustments or
reassessments.

Typical goals most adults have are paying off credit card and or
student loan debt, retirement, college costs for children, medical
expenses, and estate planning.

5 Explain Shopping Habits;

Shopping Habits

The economy is a core influence. When it, is positive, shoppers feel

more freedom to be selective about. where and how they, shop.
When the economy is of primary concern, shoppers exercise more
discretion about where and how they spend their money.

Loyalty can be stolen: Shoppers will deviate from past shopping

habits to achieve additional value. Taking clues from the economy,
61% cited price/value as the primary reason driving, them to a retail
destination.

Control your habits, improve your life: We are all the sum of our
daily habits. Small actions repeated over and over make up our day,
our week, our year, our life. We all know there are things we should
or shouldn't do. The trick is just getting our conscious brain a little
help to turn "I think I should" into "I knew I could!"

6 Describe How Taxes Are Paid on Income That People

Earn and How Income Tax Is Calculated.

Employee gross income /Employers can provide, among other

items, basic salaries, housing allowance, transport allowance,
utilities, lunch allowance, leave allowance, club subscriptions,
clothing allowances, leave passage, insurance premiums, and tax
reimbursements to their employees. Basic salary, utility allowance,
insurance premiums, tax reimbursements, leave allowance, clothing
allowances, and club subscriptions are fully taxable in the hands of
an individual. Provision of meals in any canteen in which meals are
provided for the staff generally or non-assignable luncheon
vouchers given to staff are not taxable. An annual relief of
=N=2,436.00 is granted on the transport allowance paid to an
individual.

Apart from the above, employers also provide cars and

accommodation for their staff. If a company provides
accommodation for an employee, the employee would be taxed on
the ratable value of the accommodation. The employer deducts
withholding tax at the rate of 10% at source. If a car is allocated for
an employee's use, 5% of the cost of the car would be treated as
benefit-in-kind that would form part of the employee's taxable
income.
The Lagos State Board of Internal Revenue allows =N=7,500.00 tax
relief on leave allowances. Leave passage supported with travel
documents is tax exempt. Also, the provision of any uniform, overall
or other protective clothing by an employer would not be treated as
part of the employee's taxable income.
Individuals residing in Lagos or Abuja are entitled to relief on their
housing allowance amounting to the lower of 28% of their basic
salaries or =N=10,000.00; the relief for residents of state capitals
and other places amounts to the lower of 28% of the basic salaries
or NGN6,000 and NGN4,000, respectively

7 Explain Portfolio Investment and Brokerage;

8 Identify types of portfolio investment;
 (Government) Bonds
 Shares and stocks
 Debentures, and
 Acquisition of assets

In economics and finance, Portfolio investment represents passive

holdings of securities such as shares or stocks, bonds, or other
financial assets, none of which entails active management or
control of the securities' issuer by the investor; where such
control exists, it is known as foreign direct investment. Portfolio
investment is strictly connected with a portfolio diversification
process.
Some examples of Portfolio investment are:
  purchase of shares in a company.
 purchase of bonds issued by government.
 acquisition of assets.

Portfolio investment is part of the capital account on the balance

of payments statistics.

A brokerage is a firm that acts as an intermediary between a

purchaser and a seller. More commonly, a brokerage is referred
to as a brokerage firm. To broker a deal is to communicate with
both the buyer and seller as to acceptable price on anything sold
or purchased.
A broker, a single person, or the brokerage firm completes any
necessary legal paperwork, obtains the appropriate signatures,
and collects money from the purchaser to give to the seller.
Since the buyer and seller are employing the brokerage to
complete the deal, the brokerage may collect a portion of the
money obtained. In some cases, a brokerage receives money
from both parties. In others, the brokerage receives a
commission only from the seller.

Brokerage firms are most commonly thought of in relationship to

the sale and purchase of stock shares. Fees are variable,
depending on the degree to which the brokerage is involved in
decisions about purchase. Some stockowners give their brokers
power of attorney to make decisions about when to buy or sell
stock and depend upon their brokers for researching new stock
for purchase. This type of brokerage firm usually assesses a
fairly large fee, and regardless of whether the owner loses or
earns money, the firm is paid

How the Stock Market Works

A share of stock is a small ownership stake in a company. When
you buy stock, you become a shareholder or stockholder.
Companies sell stock in order to raise the money needed to
expand or improve their businesses. Businesses that raise
capital in this way are called public companies. Investors buy
stock to obtain returns on their investment, just as you may
deposit money in a savings account to earn interest. If you
purchase the stock of a company that does well, you may earn a
hipl-ier return than what you could earn from a savings account -
and your money may actually grow faster.

Stocks can help your money grow in two ways. If the share price of
your stock goes up, you can draw a profit - also known as a capital
gain - when you sell your shares. Of course, the share price can go
down, and you can loose some of your money. Some stocks pay
investors a dividend, which is a portion of the company's profits, on a
regular basis.

Stock prices are driven by supply and demand. If a company is doing

well or its shares are selling at a fair price, many investors may buy
its stock, creating demand. Demand drives up the price. If the
company is not doing well - or the share price has been driven too
high - investors may stop buying or begin selling. As demand drops,
so does the price.

Stocks are bought and sold at the stock market. This is where public
companies seeking capital meet investors who seek profits. The first
stock exchange began in 1602 in Amsterdam, Holland, where shares
of the United East India Company were traded. America's first stock
market opened in 1792, near an old buttonwood tree where stock
traders used to meet. England's first stock market opened in 1773, in
a former London coffeehouse. The Nigerian stock exchange opened in
1961 as Lagos Stock Exchange. At the stock market, each stock is
registered with a particular exchange. If you think of the stock
market as a big shopping mall, then an exchange is a store that
carries only certain brands of products. Today there are stock z
Markets all over the world. At each, stocks are bought and sold on a
daily auction conducted by stock traders and specialists.

When someone wants to buy or sell stock, they usually go to a

brokerage firm and talk to a licensed stockbroker. The stockbroker
will execute your trade - that is, help you buy or sell stock - and
charge you a small transaction fee. Stockbrokers who are financial
consultants may also offer investment guidance.

When a stock market does well and prices rise over a period of time,
it's' called a bull market. When prices decline for a period of time, it's
called a bear market.

Let's say you purchased 10 shares of XYZ stock at =N=52.00 a share.

Over time, the share price rises to =N=78.50 an increase of
=N=26.50 a share. If you sell at that point, you will make a profit of
=N=265.00. If the stock pays a dividend, that amount will be added
to your total return. A small transaction fee will be deducted from the
proceeds by the firm that executes the transaction. You will also be
responsible for taxes on the profit.

Differences between shares and debentures

  Shareholders are effectively owners; debenture-holders
are creditors.
 Shareholders may vote at Annual General Meetings
(AGMs) and be elected as directors; debenture-holders
may not vote at AGMs or be elected as directors.
 Shareholders receive profit in the form of dividends;
debentureholders receive a fixed rate of interest.
 If there is no profit, the shareholder does not receive a
dividend; interest is paid to debenture-holders
regardless of whether or not a profit has been made.

9 Explain the role of portfolio investment in the National

Economic Development.

FINANCIAL MARKET

1.1 The financial market is built on the following basics:

1. Individuals in primary occupations minimize current

consumption to build up savings.

2. Stock of savings is made available to fund users (corporations

and governments) at the current price of money, i.e. interest rate,
subject to government interference.

3. In the formal sector, savers and users of their funds do not meet
directly - they operate through financial intermediaries, such as:
banks/deposit intermediary, stockbrokers/investment intermediary
and insurers/risk management intermediary. With the advent of
universal banking in 2003, most Nigerian banks can now undertake
all aspects of, financial intermediation, ranging from retail banking,
stockbroking,' asset management, Issuing House to insurance and
Registrar services.
4. Financial intermediaries issue financial instruments/ claims to
savers (financial assets) and users (financial liabilities) in exchange
for the funds received or disbursed, respectively.

1.2 Financial market is classified into two broad segments

based on tenor of the financial instruments issued:

Money Market:
This is the market for short-term financial instruments, with I - 12
months tenor.

Instruments: Fixed Deposits, T-bills, CPs, BAs, etc.

Near-money attributes: Low risk, Low Return and High
Liquidity Institutions: CBN,
Commercial/Merchant Banks, and
Discount Houses.

It is important to note that money market instruments are

essentially products of deposit intermediaries (such as
commercial banks, discount houses etc) in the process of
savings mobilization and the CBN as an instrument of short-
term monetary operations.

Capital Market:
This is the market for long-term financial instruments, with over 12
months tenor.

Instruments: Equity, Bonds and

Derivatives.
Investment attributes: Varied, depending on
the type of
instrument.
Institutions: SEC, NSE, Stockbrokers
/Issuing Houses, Registrars,
etc.

It is important to note that core capital market instruments are

typically creations of corporations in the process of corporate
financing (i. e. capitalization) and the governments (Federal,
State or Local Governments) in the financing or refinancing of
development, public debt and policy management.

1.3.1 PUBLIC LIMITED LIABILITY COMPANY, PLCS:

A public limited liability company (PLC) can raise fresh capital from
the capital market by issuing of any of the following instruments for
subscription in the primary market:
1. Ordinary Shares
2. Preference Shares
3. Corporate Bonds
Corporate issues decision is a function of the company's target capital
structure, alternative cost of capital as well as proprietary interests.
It is perhaps easier for the average Nigerian to understand why a
company should borrow or issue corporate bonds instead of raising
money by issue of ordinary shares to new co-owners. Once the return
on investment (ROI) is higher than the cost of debt, or applicable
interest rate, the use of debt magnifies the return on owners' capital,
but at a risk depending on the firm's debt/equity ratio.
Why should a firm go public, or raise new equity? The answer is
beyond the scope of this manual, but the rationale is evident in the
fact that ordinary shares is by far the most traded class of financial
instrument in all capital markets. Of the 265 securities listed on the
Nigerian Stock.

Exchange as at December 2004, 207 were equities. This trend is

expected to continue with successful implementation of the
National Economic Empowerment & Development Strategy
(NEEDS) vis-a-vis the on going banking industry re
capitalization, sector reforms and privatization of public
enterprises such as NEPA, NITEL, etc. However, the greatest
boost to Nigerian equity sector will come from flotation of
eligible indigenous blue chips, such as Dangote, Chanchangi,
Ibeto, The Young, Honeywell, Eleganza, etc.

When an investor buys ordinary shares in a company, the

investor becomes a co-owner of the company entitled to the
following perks:
1. Cash/Bonus Dividends declared from the yearly profit(s)
2.
Capital Appreciation over a period of time
3. Right to Vote at Annual General Meetings of the PLCs
4. Right to residual claims on the PLC's assets in the event
of
liquidation

Thus, equity interest is residual, and as such, riskier. However,

in periods of boom and high company profits, equities benefit
from the upside potential.

1.3.2 GOVERNMENT BONDS:

Government at various levels can raise money from the capital

market by issuing:

1. Development Stock/Bonds (FGIW

2. Development Bonds (Sgs)
3. Municipal Bonds (Lgs)

The motivation for developing bond markets is particularly

specific (related to satisfying particular borrowing needs
efficiently) and particularly general (related to making financial
markets function more effectively). The prime specific reasons
for developing a bond market in most countries are to finance
fiscal deficits or in the case of corporations, s finance long
maturity projects. The most fundamental general reasons are to
(1) make financial market more complete with wide range of
instruments to ensure significant asset/liability matches, (2)
diversifying capital intermediation beyond the highly leveraged
banking industry and (3) ensure easy transmission of the
monetary policies.

Investors in corporate or government bonds are entitled to

periodic interest payments, on a compounding or discounting
basis depending on the stated coupon rate, and repayment of the
face value on maturity of the bond. Bonds are less risky as
interest payment is a prior charge on company profit, before
corporate tax and creditors are settled first in the event of
liquidation. However, creditors are often worse off in periods of
rising interest rate due to the inverse relationship between bond
value and current interest rate. This is one of the reasons why the
bond sector of the Nigerian Stock Exchange is moribund.

1.3.3 FUNDS:
There are two types of Funds:

Investment Trust Fund (Closed Fund): This is the case of a PLC

offering its shares for subscription and the paid-up capital is, in
turn, being invested in the securities of viable enterprises. The fund
is managed and dividends declared to owners of shares at the end
of the company's operation year. e.g Berkshire Hathaway owned by
Warren Buffet "the Sage of Omaha".

Unit Trust/Mutual Fund (Open Fund): This is an open-end fund,

which is offered, in smaller units to be able to source funds from
big and small investors. There is a regular valuation to arrive at the
net asset value of the fund, which leads to the bid, and offer price.
The investors purchase units in the fund and are entitled to
dividend payments, receiving Annual Reports and attending AGM's.

2.0 THE NIGERIAN CAPITAL MARKET

You can now visualize the capital market as a forum for trading and
sourcing medium and long - term funds. The market can be divided
into two broad categories, each with sub-markets.

Securitized capital market:

Stock Market: Quoted and Unquoted
Commodity Market: Coal, Gold, Cereals, Cocoa, Groundnut,
etc
Derivative Market: Futures, Options and Mortgage Backed
Securities.
Unsecuritized capital market:
Real Estate
Medium/Long term Bank Loans
Equipment Leasing
Project financing Venture Capital

2.1 INSTITUTIONS:

It is important to note that the mechanics of the stock market is not

as simple as for example, operating a local bank account, where the
bank staff and the customer meet directly. As a matter of rules and
procedure, the stock market features a number of -registered
market operators and consultants in both the primary and
secondary market segments:

l. Securities & Exchange Commission

2. Nigerian Stock Exchange
3. Stockbrokers
4. Issuing Houses
5. Registrars
6. Receiving Bankers
7. Trustees
8. Underwriters
9. Portfolio/Fund Manager
10. Investment Adviser
11. Rating Agencies
12. Professional Firms/Consultants: Accountants, Lawyers, etc.

Investment & Securities Act, 1999 Sec. 29 requires all capital market
operators and such other intermediaries associated with the
securities industry to register with the Securities & Exchange
Commission and conduct all securities transactions in accordance
with the conditions of the certificate of registration obtained from the
Commission.

2.1.1 Securities & Exchange Commission (SEC)

The Securities & Exchange Commission is the regulatory apex

organization for the Nigerian capital market, just as the Central Bank
of Nigeria regulates the money market. The Commission was
established by the Investment & Securities Act, 1999 to regulate
investment and securities business in Nigeria.

The key functions of the Commission as stipulated in Section 8 of the

Act are as follows:
1. Register and regulate all capital market operators, including
securities exchanges
2. Register securities to be offered for subscription or sale to the
public.
3. Register/approve and regulate the workings of venture capital
funds, collective investment schemes (such as mutual funds),
mergers, acquisitions and all forms of business combinations.
4. Prepare guidelines, organize and co ordinate capital market
education.
5. Protect the integrity of the securities market against abuses arising
from insider trading, fraud or unfair trade practices.

2.1.2 The Nigerian Stock Exchange (NSE)

Stock exchanges provide secondary markets for securities (i.e.
ordinary shares, corporate or government bonds) issued by
companies and governments in the process of raising funds from the
primary segment of the capital market. It is a Self-Regulatory
Organization (SRO) and provides trading floors for registered
stockbrokers/ dealing members of the stock exchange trading in
registered/ listed securities of quoted companies or government
according the Rules and Regulations of the Stock Exchange.
Manipulations, insider trading, money laundering and other securities
industry malpractices are strictly prohibited on the stock exchange.

The Nigerian Stock Exchange (1977) was established in 1961 as

Lagos Stock Exchange. It has witnessed tremendous growth in
recent times and the trends is towards creating an international
standard capital market satisfying the long-term
financing/investment needs of Nigerian governments, companies
and portfolio investments.

Transaction cycle is now T + 3 days. The exchange's delivery and

settlement system is built on the Central Securities Clearing
System (CSCS), which demands prior (1) verification and deposit of
shares for sale and (2) lodgment of investors' funds with the
Settlement Banks before any dealing. NSE has Remote Trading
capability, allowing brokers to trade on the floor and investors, to
monitor the market, and even enter orders from remote locations
on a real time basis via internet. It recently introduced a Fraud
Alert System to shareholders via GSM/email before trades can be
executed on their stocks lodged in the CSCS. NSE is compliant with
global standards set by World Federation of Stock Exchanges in
terms of technology and market scrutiny regime.
2.1.3 Stockbrokers
Stockbrokers: are the principal intermediaries, especially in the
secondary market segment. In this capacity, a broker is an agent of
a principal and he is paid commission for his services. There are
currently over 200 registered stockbrokers

2.2 TRADED SECURITIES:

The Nigerian Stock Exchange lists and deals on financial
instruments issued by PLCs quoted on the Exchange subject to the
provisions of Sec. 32 (1) of the Investment & Securities Act, 1999:
"No person shall transfer, issue, sell, offer for subscription or
sale to the public, securities or investments ... unless such
securities or investments are registered by the Commission
(SEC) and prior approval for the transfer, issue, sale, offer for
subscription or public offer for sale to the public has been
granted by the Commission. "
The traded securities are Ordinary shares, such as - NBL,
Guinness, Zenith, FBN, Texaco, UACN etc; and Government
Bonds.

The comprehensive list of securities traded on the NSE are

contained in the NSE Daily Official List, which are usually
published by major dailies and business journals, such as
BusinessDay, Financial Standard, Business Times. Any
individual desirous of understanding the stock market is advised to
develop interest in reading and tracking the Daily Official List and
in business and corporate news, generally. Key to Understanding
the Stock table, published by BusinessDay provides the basic
guide to the Daily Official List. In the Daily Official List, securities
are listed under two segments:

First-Tier
Second Tier
 TOPIC 3:
LIFE SKILLS NEEDED BY AN ENTREPRENEUR
INTRODUCTION:

There are certain life skills or developmental attributes that are very
much required by entrepreneurs for them to be effective and efficient
managers of their respective enterprises. It is very important for
every entrepreneur to develop appropriate life skills and apply them
in the smooth running of their business organisations. For a potential
entrepreneur to succeed certain required skills are indispensable for
its daily functions /activities and survival. These skills are applied
appropriately in all entrepreneurial operations, to enable the
entrepreneur interact with clients, communicate as well as
demonstrate good spirit and discipline. Towards this direction an
attempt is made in this section to present potential entrepreneurs
with these requirements as guide for their benefits. It also alerts
potential entrepreneurs with the requisite basic needs for a profitable
and successful entrepreneurial career.

Specific Learning Outcomes:

1. Identify the characteristics of an entrepreneur;
2. Define Communication;
3. Explain the role of Communication in an enterprise;
4. Define teamwork and team spirit;
5. Identify the characteristics of teams;
6. List benefits of teamwork in an enterprise; 7. Define
leadership;
8. List the qualities and characteristics of good leaders;
9. Describe a target in relation to the success of an enterprise;
10. Explain how targets are set;
11. Explain how a target is achieved;
12. Explain discipline and self - discipline;
13. State the benefits of Personal discipline in the life of an
entrepreneur.

CONTENT
1. Identify the characteristics of an entrepreneur;
Characteristics of an Entrepreneur

It is important to identify the characteristics of an entrepreneur so as

to imbibe in the student such qualities that would enable him to be
one. Some of the characteristics are:
a) Self Confidence - Belief in oneself and not just fate. Once he sets
goals, he has to behave in his ability to achieve same. He is not
disturbed or discouraged by obstacles.
b) Risk-taking - The entrepreneur calculate the risk involved in the
venture before starting it. He is neither a gambler nor risk averse. He
takes moderate risk.
c) Result Oriented - He believes in achieving results, therefore he
sets clear and measurable goals. He is persistent, persevering and
also determined to ensure these objectives are met.
d) Drive and Energy - An entrepreneur exhibit drive and energy. He
puts a lot of physical and mental energy in his business. He runs
around to contact costumers, suppliers, other associates including
banks, etc.
e) Long-term Investment - He is future oriented. He usually sees
projects on long term basis and hence takes decision as such. He is
not interested in establishing a project that would collapse after a few
years in operation.
f) Leadership - It is not always possible to run an enterprise single
handedly. Assistance from other people is needed from both skilled
and semi-skilled hands. The entrepreneur has to motivate direct and
guide this people to accompany his goals. It takes a good leader to
motivate people.
g) Creativity - An entrepreneur has to be original and innovative. He
has to be resourceful, versatile and knowledgeable. He should be
flexible when consumers are not recapture to his products. What
keep him perpetually in business is his creative ideas.

2. Define Communication;

Communication is a process that allows organisms to exchange

information by several methods. Communication requires that all
parties understand a common language that is exchanged with each
other. Exchange requires feedback. The word communication is also
used iN the context where little or no feedback is expected such as
broadcasting,, or where the feedback may be delayed as the sender or
receiver use different methods, technologies, timing and means for
feedback.

There are auditory means, such as speaking, singing and sometimes

tone of voice, and nonverbal, physical means, such as body language,
sign language, paralanguage, touch, eye contact, or the use of
writing.

3. Explain the role of Communication in an enterprise;

Communication strategy is a coherence linkage never to be
overlooked in an enterprise. Communication needs to be
comprehensively planned and spontaneous, as well as top-down and
bottom-up. Communication processes, including the target audience,
the message, the means of communication, the frequency, the
rationale, and the selection of communicators, must be tailored to
each purpose and constituency.

Top organizations have a communication process that communicates

the knowledge and information that people need in a way that they
understand and can apply to their job. Communication is neither a
separate nor a periodic task. Use every means available to let
everyone working with you know your plans and your reasons. A
manager should provide team members with the information they
require to do a good job, communicating with them frequently, and
giving them clear guidelines on the results that are expected.

Communication is a two-way relationship, so establish an enabling

environment for other to give you the information you need. Use
feedback to make certain that communication has become
understanding and consensus. Practice management by wandering
around (MBWA) and active listening.
Communicate with reports and benchmarks that track business
progress and anticipate issues and opportunities, for example:
• the annual budget
• monthly measurements and benchmarks requiring action
• key weekly measurements on which action can be taken.

Focused meetings can also foster clear effective communication, and

spark action.

To be successful, a project must have constant, effective

communication among everyone involved in the project in order to
coordinate action, recognize and solve problems, and react to
changes.

Don't speak personally to employees, except when announcing

increased targets, shortened deadlines and tightened cost restraints.
Eliminate politics, by giving everybody the same message.

If our motive is to manipulate, our communication and our leadership

in general will prove to be ineffective over time. Effective
communication must centre on principles - The law of the `farm'
based on enduring seed time and harvest relationships. ,
Quick, easy, free, and fun approaches won't work on the "farms" of
our lives because there we're subject to natural laws and governing
principles. Natural laws, based upon principles, operate regardless of
our awareness of them or our obedience to them. Often habits of
ineffectiveness are rooted in our social conditioning toward quick-fix,
short-term thinking. In school, many of us procrastinate and then
successfully cram for tests. But does cramming work on a farm? Can
you go two weeks without milking the cow, and then get out there
and milk like crazy? Can you "forget" to plant in the spring, goof off
all summer, and then hit the ground real hard in the fall to bring in
the harvest? We might laugh at such ludicrous approaches in
agriculture, but then in academic environments, we might cram to
get grades and degrees.

The only thing that endures over time is the law of the farm: I must
prepare the ground, put in the seed, cultivate, weed, water, and
nurture growth. So also in a business or a marriage there is no quick
fix where you can just move in and magically make everything right
with a positive mental attitude and a package of success formulas.
Correct principles are like compasses: they are always pointing the
way. And if we know how to read them, we won't get lost, confused,
or fooled by conflicting voices and values. Principles such as fairness,
equity, justice, integrity, honesty, and trust are not invented by us:
they are the laws of the universe that pertain to human relationships
and organizations. They are part of the human condition,
consciousness, and conscience.

People instinctively trust those whose personalities are founded upon

correct principles. We have evidence of this in our long-term
relationships. We learn that technique is relatively unimportant
compared to trust, which is the result of our trustworthiness over
time. When trust is high, we communicate easily, effortlessly,
instantaneously. We can make mistakes, and others will still capture
our meaning. But when trust is low, communication is exhausting,
time-consuming, ineffective, and inordinately difficult.

Sam Walton, the Founder of Wall-Mart writes: "Communicate

everything you possibly can to your partners. The more they know,
the more they'll understand. The more they understand, the more
they'll care. Once they care, there's no stopping them. If you don't
trust your associates to know what's going on, they'll know you really
don't consider them partners. Information is power, and the gain you
get from empowering your associates more than offsets the risk of
informing your competitors."

Active Listening
Active listening is a habit that you can and should develop. Being
great listener benefits managers by reducing misunderstandings,
improving information accuracy, and ensuring that they have
complete information from which to work. Employees, peers, and
even your manager will open up more when they feel listened to.

You need to listen to the words that are being said and hear the
person's intent, or disconnects will occur. Even with the best of
intentions, messages can become distorted and confused. Managers
who learn to listen well and provide effective feedback will improve
overall dialogue reception.

You are listening actively when you

• Demonstrate a sincere desire to pay attention to the other
person (instead of mentally practicing what you are going
to say next). Commit to being coachable and open with the
information being received from the other person.
• Relate to his or her perspective and empathize with his or
her point of view.
• Seek to understand the other person.
• Pay attention and don't be distracted by other things in
the environment.
• Ensure you have interpreted the message as intended
through feedback, confirming, restating, or paraphrasing.
• Reflect on what is being said.
• Synthesize the information, emotion, and feelings to
improve understanding.
• Clarify the information by asking questions and probing.
• Validate perceptions and assumptions.
• Let the other person talk.
• Are fully present and focused on the other person.

12 Active Listening Tips

1. Mentally put yourself in other person's shoes.

2. Keep the conversation on what the speaker says, not on what
interests you.
3. Spend more time listening than talking.
4. Let the other speaker talk. Do not dominate the conversation
and do not interrupt incessantly.
5. Pay attention, never become preoccupied with your own
thoughts when others talk, take brief notes to concentrate on
what is being said.
6. Do not finish the sentence of others.
7. Ask questions, but do not answer questions with questions.
8. Be aware of biases and perceptions. Control your biases and
validate your assumptions.
9. Encourage the speaker, provide feedback and paraphrase to
show you are listening.
10. Plan response after the other person has finished speaking, not
while they are speaking.
11. Analyze by looking at all the relevant factors, ask clarifying and
open-ended questions.
12. Summarize - walk the person through your analysis.

4. Define teamwork and team spirit;

Teamwork is the concept of people working together cooperatively,

as in a sports team.

Projects require that people work together, so teamwork has become

an important concept in organizations. Effective teams are an
intermediary goal towards getting good, sustainable results. Industry
has seen increasing efforts through training and cross-training to
help people to work together more effectively and to accomplish
shared goals, whether colleagues are present or absent.

"The old structures are being reformed. As organizations seek to

become more flexible in the face of rapid environmental change and
more responsive to the needs of customers, they are experimenting
with new, team-based structures" (Jackson & Ruderman, 1996 A 2003
national representative survey, "HOW-FAIR", revealed that
Americans think that 'being a team player' was the most important
factor in getting ahead in the workplace. This was ranked higher than
several factors, including 'merit and performance', 'leadership skills',
'intelligence', 'making money for the organization' and 'long hours'.

Aside from any required technical proficiency, a wide variety of social

skills are desirable for successful teamwork, including:
• Listening - it is important to listen to other people's ideas.
When people are allowed to freely express their ideas,
these initial ideas will produce other ideas.
• Questioning - it is important to ask questions, interact, and
discuss the objectives of the team.
• Persuading - individuals are encouraged to exchange,
defend, and then to ultimately rethink their ideas.
• Respecting - it is important to treat others with respect
and to support their ideas.
 • Helping - it is crucial to help one's coworkers, which is
the general theme of teamwork.
• Sharing - it is important to share with the team to create
an environment of teamwork.
• Participating - all members of the team are encouraged
to participate in the team.

Communication - For a team to work effectively it is essential

team members acquire communication skills and use effective
communication channels between one another e.g. using email,
memos, group meetings and so on. This will enable team members
to work together and achieve the team's purpose and goals

5. Identify the Characteristics of Teams;

The 17 Indisputable Laws of Teamwork

1. The Law of Significance: One Is Too Small a Number to
Achieve
Greatness
2. The Law of the Big Picture: The Goal is More Important
Than the
Role
3. The Law of the Niche: All Players Have a Place Where They
Add the
Most Value
4. The Law of the Great Challenge ("Mount Everest"): As the
Challenge
Escalates, the Need for Teamwork Elevates
5. The Law of the Chain: The Strength of the Team Is
Impacted by Its
Weakest Link
6. The Law of the Catalyst: Winning Teams Have Players Who
Make
Things Happen
7. The Law of the Vision ("Compass"): Vision Gives Team
Members
Direction and Confidence
8. The Law of the Bad Apple: Rotten Attitudes Ruin a Team
9. The Law of Countability: Teammates Must Be Able to Count
on Each
Other When It Counts
10. The Law of the Price Tag: The Team Fails to Reach Its
Potential
When It Fails to Pay the Price
11. The Law of the Scoreboard: The Team Can Make
Adjustments
 When It Knows Where It Stands
12. The Law of the Bench: Great Teams Have Great Depth
13. The Law of Identity: Shared Values Define the Team
14. The Law of Communication: Interaction Fuels Action
15. The Law of the Edge: The Difference Between Two Equally
Talented Teams Is Leadership
16. The Law of High Morale: When You're Winning, Nothing
Hurts
17. The Law of Dividends: Investing in the Team Compounds
Over
Time

Characteristics of Winning Teams Winning Teams:

• have a great many winners in them; most of the players
poised and confident, and although they may well be 'stars' in
their own right they allow others to shine in order to be a 'star
team' together
• often include winning groups and combinations which
work together so well they seem to have a sixth sense,
whereas in fact they have merely learned to cooperate to
make each other winners and to make a team a winning team
• have the winning habit and because they usually have more
winning games behind them than otherwise they go into every
game expecting to win
• develop a synergy that comes from winning and which
increases not by simple progression but exponentially:
1x1=11
• develop both mental and physical energy to withstand
adversity
• create a winning atmosphere - everyone surrounding them
emerges as a winner
• make winning contagious so that new comers soon acquire
the team's magic

Getting Team Members to Work Along With You

• Communicate with people frequently and praise them
• Consult with people about their work
• Encourage people to participate in setting goals on the job
• Counsel people about teamwork and opportunities etc.

6. List Benefits of Teamwork in an Enterprise;

'It's possible to achieve almost anything as long as you
are not worried about who gets the credit" - Harry S.
Truman
Why Teambuilding?
Teamwork is essential for competing in today's global arena, where
individual perfection is not as desirable as a high level of collective
performance. In knowledge based enterprises, teams are the norm
rather than the exception. A critical feature of these team is that
they have a significant degree of empowerment, or decision-making
authority. There are many different kinds of teams: top
management teams, focused task forces, self-directed teams,
concurrent engineering teams, product/service development and/or
launch teams, quality improvement teams, and so on.

Building the Dream Team

"The Dream Team has from three to ten people, focused on a
common target, with interconnected roles, complementary know-
how, selfcreated process, and a "committed connectedness" that
holds all members mutually and equally responsible and
accountable for the results."

Strategic Alignment
In any socio-technical system the people in the system work better
when they understand how they fit into the system as a whole.
To meet and exceed customer satisfaction, the business team needs
to follow an overall organizational strategy.

Building Your Management Team

The necessity of building a management team is central in the
concept of leader effectiveness. The management team is the entire
work group as an integral unit (rather than an aggregate of
individuals), governing itself within the area of freedom allowed by
its position in the organizational hierarchy.

Cross-Functional Teams
To face today's complex challenges, you need to incorporate a wide
range of styles, skills, and perspectives.

Managing Systemic Innovation by Cross-Functional Teams

In the new era of systemic innovation, it is more important for an
organization to be cross-functionally excellent than functionally
excellent. Firms which are successful in realizing the full returns
from their technologies and innovations are able to match their
technological developments with complementary expertise in other
areas of their business, such as manufacturing, distribution, human
resources, marketing, and customer relationships. To lead these
expertise development efforts, cross-functional teams, either formal
or informal, need to be formed. These teams can also find new
businesses in white spaces between existing business units.
Managing Cross-Cultural Differences
Culture in general is concerned with beliefs and values on the
basis of which people interpret experiences and behave,
individually and in groups. Broadly and simply put, "culture"
refers to a group or community with which you share common
experiences that shape the way you understand the world.

Cases in Point: Building High-performing Teams

High-performing teams do not carry underperforming C players
for long. In the National Basketball Association (NBA), 20% of
players are traded every year. At General Electric (GE), Jack
Welch required that the bottom 10% be cut every year. "One of
the surest ways to raise the level of a team is to cut from the
bottom and add to the top."

7. Define leadership;
A simple definition of leadership is that leadership is the art of
motivating a group of people to act towards achieving a
common goal. Put even more simply, the leader is the
inspiration and director of the action. He or she is the person in
the group that possesses the combination of personality and
skills that makes others want to follow his or her direction.
In business, leadership is welded to performance. Effective
leaders are those who increase their company's bottom lines

Leadership versus Management

'Manage things... lead people' - Admiral Grace Hopper

A Huge Difference

Do you want to be a leader or a manager? You need to snake a

choice as there is a huge difference. "The world is full of
managers and desperately short of leaders - real leaders."

Today's World Realities

The old ways of management no longer work and will never
work again. The magnitude and pressure of environmental,
competitive, and global market change we are experiencing is
unprecedented. It's a very interesting and exciting world, but
it's also volatile and chaotic. You cannot address these new
challenges with more of the same management solutions -
successful change re(Iuires leadership.

Psychological research has shown that "under circumstances of

uncertainty or unusual challenge and difficulty, people look for
help in understanding questions about what matters, what to
do, what direction to take, and what they should not do.
Providing people with the answers that help them with these
difficult questions is the essence of leadership. " 5

Leading Change
Leadership is about getting people to abandon their old habits
and achieve new things, and therefore largely about change -
about inspiring, helping, and sometimes enforcing change in
people. "While there can be effective absent ideas in
management, there cannot be in true leadership".

To Lead or To Manage?
You need both. The old proverb says that leadership is doing
the right thing; management is doing things right. The
difference between the two is not as sharp as the saying would
suggest, and both are required for effective corporate growth:
leadership risk creates opportunities while management
strictness turns them into tangible results.
However, "if your organization is not on a journey don't bother
about leadership -just settle for management", advises John
Adair.

"There is a direct correlation between the way people view

their managers and the way they perform." Strong leadership
is imperative for shaping a group of people into a force that
serves as a competitive business advantage".

8. List the Qualities and Characteristics of Good Leaders;

Synergy between Leadership and Management Roles

• Leadership role: to provide inspiration, create
opportunities ,
energize people, and make key choices
• Management role: to make things happen and keep
work on
track; to supervise endless details and engage iii
complex
interactions that are routinely part of any development

What Drives Others to Carry out Your Will

• If you are a manager: WHAT you are
• If you are a leader: WHO you are and what you DO
Leadership - Going Beyond Manager's Tasks Manager's
tasks:
• administrating
• Tannin
• controlling
Leader's extra tasks, in addition to manager's tasks
• forming a vision which provides people with a bridge to the
future
• inspiring, encouraging, and energizing people, arousing their
willing and enthusiastic support to the common task at hand
• empowering people to pursue the common course of action

Differences between What Leaders and Managers Do

Management versus Leadership

Restricting
enabling Controlling
freeing
playing safe risking
molding releasing
forcing enhancing
regimenting
challenging
stifling participating
rigid flexible
autocratic democratic
consistent predictable
Doing things right Doing right
things
9. Describe a Target in Relation to the Success of an
Enterprise;

Our world is a giant storehouse of abundance. Some people enter a

storehouse with a strainer and leave with nothing. Some go in with a
teaspoon and barely taste the sweetness.

But when you dream and set goals, you enter into the storehouse with
a transport truck and load up on all that life has to offer.

Setting life goals is the ultimate key to experiencing personal

fulfillment and achievement in life. Goal setting produces in you a
burning desire, intense self-confidence, and a firm determination to
achieve more.

Why Set Goals?

To set and reach your personal goals, you must first think about the
dreams you have for all SIX AREAS OF YOUR LIFE.
These areas include:
-- MENTAL
-- FINANCIAL
-- SOCIAL
-- SPIRITUAL
--FAMILY
-- PHYSICAL

10. Explain How Targets are Set;

Target setting checklist

1. Set targets for intended outcomes. Targets should reflect the
actions
planned and what the partnership is trying to achieve.
2. Specify what must actually happen for the desired outcome to
be
achieved, detailing:

• target inputs (e.g. resources in terms of staff or cash)

• processes (e.g. the activities which staff will have
responsibility for)
• target outputs (e.g. the immediate consequences of these
activities)
• milestones (stages to be reached by given dates)

These detailed targets may not need to be included in the

strategy, but having them helps partners to be clear about the
 level of investment and activity needed to achieve the desired
result.

It also helps managers check that projects are on course.

Setting targets for, and monitoring, inputs as well as outputs is
vital for assessing the cost effectiveness of particular initiatives
and understanding why a project may not have achieved its
intended results.

3. Start from good baseline information. Meaningful targets and

good
project design depend on having good information on the
scale and
nature of the problem. Where there are gaps in the baseline
information,
set a target date by which the data will be obtained.
4. Estimate the impact that the activities will have. Estimating
impact is
easier for some activities than for others. Examples of good
practice can help to give a feel for the expected impact from
taking a similar course of action in similar conditions.

Running through this series of questions can help in judging where to

pitch a target:
• What is the starting position?
• What is the scale of the problem?
• Are the conditions the same?
• Are we putting in the same resources?
• What else is going on that may affect performance?
• How might the target(s) be affected by other local or national
initiatives?
• How does the local target relate to national targets?
5. Consider How the Target is Best Expressed

There are many different ways of framing targets. Some options include:

6. Make sure the targets set are clear and unambiguous, i.e.:
• Specific
• Measurable
• Achievable
• Realistic
• Timely &Time-scaled

Where possible a named person should be responsible for delivering and

reporting on each target.

7. Consider how the target might be met. Could the target be met in
ways other
than those you intend? If so, how will you check for guard against
this?

53
8. Consider setting targets that reflect the role of different partners.
Targets
that reflect different partners' objectives can help in tracking and
acknowledging contributions made by different agencies.

9. Consider how the targets will be communicated to people who need

to
know about them. When, and how, will targets be built into work
plans?
How will the targets be shared with a wider audience?

10. Review progress at regular intervals Checks against the targets

will help to
highlight where projects need adjusting or where targets need
revising to
reflect a changing situation. The action plan may also need
revising to
take account of new developments

11 Explain How a Target is Achieved:

Targets are achieved through discipline: real dreams go far
beyond idle fantasy or daydreams.

The first step to turning dreams into reality is to write them down -
clearly and briefly. Include every adventure, every journey, every
challenge, everything you can think of that you would like to do or to
become. It does not make any difference how ridiculous a dream
sounds. So many times people say "I can't do that," and they never
give thought to the possibility of trying. Write down any dream that
comes into your mind. Then develop an action plan and be committed
to its implementation.

12. Explain discipline and self - discipline;

13. State the benefits of Personal discipline in the life of an
entrepreneur

To discipline means to instruct a person or animal to follow a

particular code of conduct, or to adhere to a certain "order," or to
adopt a particular pattern of behaviour. For example, it is good to
discipline a child to wash his hands before meals. Here, 'washing

54
hands before meals' is a particular pattern of behaviour, and the child
is being disciplined to adopt that pattern. 'To disciple' also gives rise
to the word disciplinarian, which denotes a person who enforces
order. An ideal disciplinarian is one who can enforce order without
coercion. Usually however, the phrase 'to discipline' carries a negative
connotation. This is because enforcement of order - that is, ensuring
instructions are carried out - is often regulated through punishment

What Is Self-Discipline?
Self-discipline is the ability to get yourself to take action regardless of
your emotional state. Imagine what you could accomplish if you could
simply get yourself to follow through on your best intentions no matter
what. Picture yourself saying to your body, "You're overweight. Lose 20
pounds." Without self-discipline that intention won't become manifest.
But with sufficient self-discipline, it's a done deal. The pinnacle of self-
discipline is when you reach the point that when you make a conscious
decision, it's virtually guaranteed you'll follow through on it.
Self-discipline is one of many personal development tools available to
entrepreneurs. Of course it is not a panacea. Nevertheless, the problems
which self-discipline can solve are important, and while there are other
ways to solve these problems, self-discipline absolutely shreds them.
Self-discipline can empower you to overcome any addiction or lose any
amount of weight. It can wipe out procrastination, disorder, and
ignorance. Within the domain of problems it can solve, self-discipline is
simply unmatched. Moreover, it becomes a powerful teammate when
combined with other tools like passion, goal-setting, and planning.

Building Self-Discipline
My philosophy of how to build self-discipline is best explained by an
analogy. Self-discipline is like a muscle. The more you train it, the
stronger you become. The less you train it, the weaker you become.

Just as everyone has different muscular strength, we all possess

different levels of self-discipline. Everyone has some - if you can hold
your breath a few seconds, you have some self-discipline. But not
everyone has developed their discipline to the same degree.

Just as it takes muscle to build muscle, it takes self-discipline to build

self-discipline. The way to build self-discipline is analogous to using
progressive weight training to build muscle. This means lifting weights
that are close to your limit. Note that when you weight train, you lift

55
weights that are within your ability to lift. You push your muscles until
they fail, and then you rest.

Similarly, the basic method to build self-discipline is to tackle challenges

that you can successfully accomplish but which are near your limit. This
doesn't mean trying something and failing at it every day, nor does it
mean staying within your comfort zone. You will gain no strength trying
to lift a weight that you cannot budge, nor will you gain strength lifting
weights that are too light for you. You must start with weights and/or
challenges that are within your current ability to lift but which are near
your limit.

Progressive training means that once you succeed, you increase the
challenge. If you keep working out with the same weights, you won't get
any stronger. Similarly, if you fail to challenge yourself in life, you won't
gain any more self-discipline.

Just as most people have very weak muscles compared to how strong
they could become with training, most people are very weak in their
level of self-discipline.

It's a mistake to try to push yourself too hard when trying to build self-
discipline. If you try to transform your entire life overnight by setting
dozens of new goals for yourself and expecting yourself to follow
through consistently starting the very next day, you're almost certain to
fail. This is like a person going to the gym for the first time ever and
packing 300 pounds on the bench press. You will only look silly.

If you can only lift 10 lbs, you can only lift 10 lbs. There's no shame in
starting where you are. I recall when I began working with a personal
trainer several years ago, on my first attempt at doing a barbell
shoulder press, I could only lift a 7-lb bar with no weight on it. My
shoulders were very weak because I'd never trained them. But within a
few months I was up to 601bs.
Similarly, if you're very undisciplined right now, you can still use what
little discipline you have to build more. The more disciplined you
become, the easier life gets. Challenges that were once impossible for
you will eventually seem like child's play. As you get stronger, the same
weights will seem lighter and lighter.

Don't compare yourself to other people. It won't help. You'll only finds
what you expect to find. If you think you're weak, everyone else will

56
seem , stronger. If you think you're strong, everyone else will seem
weaker. There's no point in doing this. Simply look at where you are
now, and aim to get better as you go forward. '

In weight lifting, once you've mastered a week at one level, take it up a

notch the next week. And continue with this progressive training until
you've reached your goal. By raising the bar just a little each week, you
stay within your capabilities and grow stronger over time. But when
doing weight training, the actual work you do doesn't mean anything.
There's no intrinsic benefit in lifting a weight up and down - the benefit
comes from the muscle growth. However, when building self-discipline,
you also get the benefit of the work you've done along the way, so that's
even better. It's great when your training produces something of value
AND makes you stronger.

The Five Pillars of Self-Discipline

The five pillars of self-discipline are: Acceptance, Willpower, Hard Work,
Industry, and Persistence. If you take the first letter of each word, you
get the acronym "A WHIP" - a convenient way to remember them, since
many people associate self-discipline with whipping themselves into
shape.

Acceptance:
The first of the five pillars of self-discipline is acceptance. Acceptance
means that you perceive reality accurately and consciously acknowledge
what you perceive.
This may sound simple and obvious, but in practice it's extremely
difficult. If you experience chronic difficulties in a particular area of
your life, there's a strong chance that the root of the problem is a failure
to accept reality as it is.
Why is acceptance a pillar of self-discipline? The most basic mistake
people make with respect to self-discipline is a failure to accurately
perceive and accept their present situation. Remember the analogy
between self-discipline and weight training? If you're going to succeed
at weight training, the first step is to figure out what weights you can
already lift. How strong are you right now? Until you figure out where
you stand right now, you cannot adopt a sensible training program.

What Is Willpower?

Willpower is your ability to set a course of action and say, "Engage!"

57
Willpower provides an intensely powerful yet temporary boost. Think of
it as a one-shot thruster. It burns out quickly, but if directed
intelligently, it can provide the burst you need to overcome inertia and
create momentum.

Willpower is the spearhead of self-discipline. To use a World War II

analogy, willpower would be D-Day, the Normandy Invasion. It was the
gigantic battle that turned the tide of the war and got things moving in a
new direction, even though it took another year to reach VE Day
(Victory in Europe). To make that kind of effort every day of the war
would have been impossible.

Willpower is a concentration of force. You gather up all your energy and

make a massive thrust forward. You attack your problems strategically
at their weakest points until they crack, allowing you enough room to
maneuver deeper into their territory and finish them off.

Hard Work:

The big secret in life is that there is no big secret. Whatever your
goal, you can get there if you're willing to work. - Oprah Winfrey

My definition of hard work is that which challenges you. And why is

challenge important? Why not just do what's easiest?

Most people will do what's easiest and avoid hard work - and that's
precisely why you should do the opposite. The superficial opportunities
of life will be attacked by hordes of people seeking what's easy. The
much tougher challenges will usually see a lot less competition and a lot
more opportunity.

Strong challenge is commonly connected with strong results. Sure you

can get lucky every once in a while and find an easy path to success. But
will you be able to maintain that success, or is it just a fluke? Will you be
able to repeat it? Once other people learn how you did it, will you find
yourself overloaded with competition?

When you discipline yourself to do what is hard, you gain access to a

realm of results that are denied everyone else. The willingness to do
what is difficult is like having a key to a special private treasure room.

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Industry:
Industry is working hard. In contrast to hard work, being industrious
doesn't necessarily mean doing work that's challenging or difficult. It
simply means putting in the time. You can be industrious doing easy
work or hard work.

In life there are many tasks that aren't necessarily difficult, but they
collectively require a significant time investment. If you don't discipline
yourself to stay on top of them, they can make a big mess of your life.
Just think of all the little things you need to do: shopping, cooking,
cleaning, laundry, taxes, paying bills, home maintenance, childcare, etc.
And this is just for home - if you include work the list grows even longer.
These things may not reach your A-list for importance, but they still
need to be done.

Self-discipline requires that you develop the capacity to put in the time
where it's needed. A lot of messes are created when we refuse to put in
the time to do what needs to be done - and to do it correctly. Such
messes range from a messy desk or cluttered email inbox all the way
down to an Enron or Worldcom. Big mess or small mess - take your pick.
Either way a significant contributing factor is the refusal to do what
needs to be done.

Disciplining yourself to be industrious allows you to squeeze more value

out of your time. Time is a constant, but your personal productivity is
not. Some people will use the hours of their day far more efficiently than
others. It's amazing that people will spend extra money to buy a faster
computer or a fuel efficient car, but they'll barely pay any attention to
their personal capacity. Your personal productivity will do a lot more for
you than a computer or a car in the long run. Give an industrious
programmer a 10-year old computer, and s/he'll get much more done
with it over the course of a year than a lazy programmer with state of
the art technology.
Persistence:

Nothing in the world can take the place of Persistence. Talent will
not, nothing is more common than unsuccessful men with talent.
Genius will not; unrewarded genius is almost a proverb. Education
will not; the world. is full of educated derelicts. Persistence and
determination alone are omnipotent. The slogan "Press On" has
solved and always will solve the problems of the human race.

59
- Calvin Coolidge

Persistence is the ability to maintain action regardless of your feelings.

You press on even when you feel like quitting.

When you work on any big goal, your motivation will wax and wane like
waves hitting the shore. Sometimes you'll feel motivated; sometimes you
won't. But it's not your motivation that will produce results - it's your
action. Persistence allows you to keep taking action even when you
don't feel motivated to do so, and therefore you keep accumulating
results.

Persistence will ultimately provide its own motivation. If you simply

keep taking action, you'll eventually get results, and results can be very
motivating. For example, you may become a lot more enthusiastic about
dieting and exercising once you've lost those first 10 pounds and feel
your clothes fitting more loosely.
Persistence of action comes from persistence of vision. When you're
super-clear about what you want in such a way that your vision doesn't
change much, you'll be consistent in your actions. And that consistency
of action will produce consistency of results.

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 TOPIC 4:

VARIOUS SOURCES OF INFORMATION FOR

ENTREPRENEURSHIP DEVELOPMENT

INTRODUCTION:

As we are living in the information age, we have come to recognize

information as a veritable resource. Hence, there is every need for all
entrepreneurs to be conversant with information and how it could be
sourced especially for the smooth running of their enterprises. In light of
the foregoing, this section attempts to guide potential entrepreneurs to
source for information.

SPECIFIC LEARNING OUTCOMES:

l. Identify nature and type of information required by entrepreneurs;
2. Identify the sources of the information required in 1 above;
3. Identify organizations and agencies involved in the promotion and
development of entrepreneurship;
4. Explain the role of banks and financial institutions in enterprise
promotion and development;
5. Describe the contributions of government agencies in sourcing
information;
6. Describe methods obtaining assistance from the above organizations.

CONTENT
1. Identify nature and type of information required by
entrepreneurs
2. Identify the sources of the information required in 1 above;

Nature and Types of Information Required by Entrepreneurs

A. Marketing information
B. Technical information
C. Information and communication technology (ICT)
D. Financial Information

Where to Obtain Information and Assistance

1. Industry data is helpful in comparing a business to other similar

businesses. This data is available from trade associations or
government agencies and includes ratios such as: stock turnover, cash
discounts, percentage mark-up and average sales per month.

61
2. Membership-based organizations can provide services such as
political lobbying, conducting research, organizing education and
training programmes, implementing new technology, responding to
members' questions and concerns and disseminating information
through newsletters, magazines and special reports.

3. Subscribing to trade papers and magazines is also desirable.

Entrepreneurs should set aside time to read articles in trade-related
magazines. This is especially important in understanding new trends
and developments relating to the business. He should keep a file of
pertinent articles for future reference.

4. Training programmes help entrepreneurs to develop formal plans

for improving their management skills and ability. Training courses
and adult education programmes are designed by many institutions,
agencies and associations. Entrepreneurs should be aware of these
personal development possibilities and take full advantage of them.

5. Consultants can be of assistance both directly and indirectly. Pay

special attention to the approach and techniques used by a consultant
to solve business problems. When working on solutions to future
problems, you may have to act as your own consultant and may want
to use these same techniques.

6. The library is a primary resource for information. Government

agencies have a variety of publications which may be helpful. Some
colleges and universities have reference libraries which may have a
circulation section available to the public. Research institutes and
some large corporations have libraries with sections on specific
topics. 'bade associations and labour organizations may also have
libraries containing material related to specific needs. Libraries are a
storehouse of information which may be useful in operating a small
business. Books, periodicals, reports and newspapers may contain
information which can be of help in solving some of the problems in
operating a business.

7. Internet can be used to carry out research and to find useful

information and data. E-mail can be used to communicate with
providers of information who have web sites on the internet.

8. Business Development Services providers. There are many

Business Development Services providers who will offer guidance in
various aspects of business operations.

Who Can Provide Information and Assistance?

62
"FREE"

1. Employees. Few entrepreneurs can do everything themselves, and they

need qualified employees to relieve them of most of the day-to-day
operational problems. This allows them to dedicate their time to working on
the longer range problems. The people who work for a business can provide
answers to specific problems in a business. For example, entrepreneurs
might ask employees for their advice and assistance about stock display or
customer attitudes. Employees are in a good position to give valuable advice
providing they know that their opinions and suggestions are valued.

2. Customers. These people can supply very special information about the
products and services they buy. Customers should be asked their opinions
because they are an excellent source of information about the relative
strengths and weaknesses of a business operation.
3. Suppliers. Because the success of most suppliers depends on the
businesses they serve, it stands to reason that they should be interested in
an entrepreneur's success. Many suppliers are able to give sound
management advice because they are able to explain how other successful
businesses operate and provide suggestions about how businesses can
improve.

4. Other Business Owners. Most businesses have common problems and

owners are generally willing to discuss their problems with one another.
Occasionally, the competitive nature of business may discourage this frank
exchange. If the businesses are unrelated and do not compete for the same
customers, entrepreneurs may be willing to share ideas concerning
solutions to common problems. In this way, all business owners can benefit
from this interaction and improve their business operations.

5. Free Web Sites. Information and communication technology specialists

will direct you to free web sites. Consult them.

"FOR A FEE"

1. Professionals. Use the talents of professionals, such as web designers,

IT specialists, financial advisors, bankers, management consultants,
insurance agents, accountants and bookkeepers, estate agents, surveyors
and lawyers, to assist in solving business problems. Try to develop good
questioning techniques to get as much advice and information as possible
from these professionals.

Each professional person is a potential resource, but entrepreneurs must

be able to explain their needs clearly and ask relevant questions concerning
their needs so that professionals can provide valuable advice.

63
2. BDS Providers. Use the Directory of BDS Suppliers to contact them.

3. Identify organizations and agencies involved in the promotion

and development of entrepreneurship;

World wide findings over the years have shown that small firms and
entrepreneurs play very important roles in national economic growth and
development. The Government of Nigeria, like its counterparts, the world
over, has realized the importance of small and medium scale enterprises
and has, over the years formulated various public policies to encourage,
support and fund the establishment and development of SMEs.
Developments in small and medium enterprise are what give a developing
nation the base for employment creation, solid base for creating a middle
class and encouragement for the use of local- raw materials and technology.

THE NIGERIAN EXPORT PROMOTION COUNCIL (NEPC)

The NEPC was established through the promulgation of the NEPC Act of
1976 and formally inaugurated in March, 1977. The Council's Amendment
Decree of 1992 was to minimize the bureaucratic bottlenecks and increase
autonomy in dealing with members of the Organized Private Sector. Its goal
and mission are to make the non-oil export sector a significant contributor
to Nigeria's GDP, and facilitate opportunities for exporters to promote
sustainable economic development. Their Web sight is www.nepcng.com

Activities of the Council

64
THE NIGERIAN INVESTMENT PROMOTION COMMISSION (NIPC)

The Nigerian Investment Promotion Commission (NIPC) is an Agency of the

Federal Government which was established in 1995 to, among other things,
"Co-ordinate, monitor, encourage and provide necessary assistance and
guidance for the establishment and operation of enterprises in Nigeria."
By this decree the government abolished almost all res _fictions on
investment, especially restrictions on foreign investment. into the Nigerian
economy. Most of the efforts of the NIPC are, therefore, focused on attracting
foreign investment.

65
However its total mandate includes domestic investment am]. its area of
operation even include small and medium scale enterprises. It is currently
managing, on behalf of the Federal Government, a World Bank MSME pilot
project aimed at empowering and increasing capacity in the MSME sectors as
well as in NGOs that specialized in BDS to MSMEs. While the pilot program
only includes Lagos, Abia and Kaduna States, it is likely that other states and
the FCT will come under this program within the next five years. The NIPC
also has a new very informative web site at www.nipc-ng.org. It has a very
comprehensive section on tax incentives.

THE RAW MATERIALS RESEARCH AND DEVELOPMENT COUNCIL

(RMRDC).

The Raw Materials Research and Development Council (RMRDC) is an agency

of the Federal Government of Nigeria vested with the mandate to promote the
development and utilization of Nigeria's industrial raw materials.

It originated from the recommendations of a Workshop on Industrial Matters

which was organized by the manufacturers Association of Nigeria (MAN) and
the Nigerian Institute of Social and Economic Research (NISER) in July 1983.
It was established by Decree No.39 of 1987, but commenced operation on
February 10, 1988. It is today, Nigeria's focal point for the development and
utilization of the nation's vast industrial raw materials.

The primary mandates of the Council are:

a. To draw up policy guidelines and action programmes on raw materials
acquisition, exploitation and development;
b. To review from time to time, raw materials resources availability and
utilization, with a view to advising the Federal Government on the
strategic implication of depletion, conservation or stock-piling of such
resources;
c. To advise on adaptation of machinery and process for raw materials
utilization;
d. To provide special research grants for specific objectives and device
awards or systems for industries that achieve breakthrough or make
innovations and inventions; and
e. To encourage the publicity of research findings and other information
relevant to local sourcing of raw materials.

Industrial development is one of the indices for measuring the development of

nations. The development and survival of a manufacturing sector in an
economy is predicted largely on availability of raw materials. The exploitation
and utilization of such raw material is

critical to economic development. RMRDC is therefore very critical to the

development of Nigeria's productive sectors.

66
Currently, the capacity utilization of many industries in Nigeria is low due
to lack of raw material utilization and the singular focus of the economy on
one product. It is hoped that RMRDC through its numerous programmes,
will promote new investments in the other local resources and encourage
industries to substitute local raw materials for currently imported ones.
The global goal is to pursuit this policy which will invariably have multiplier
effects on the nation's economy in terms of new industries, more
employment and increase gross domestic product (GDP). Their web site is:
www.rmrdc.gov.n

THE SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AGENCY

OF NIGERIA (SMEDAN) was established by the SMEDAN Act of 2003 to
promote the development of the MSME sector of the Nigerian Economy.
The Agency positions itself as a "One Stop Shop" for Micro, Small and
Medium Enterprises Development. Micro Enterprises are included in the
clientele of the Agency since they form the bedrock for SME's.

Its vision is to establish a structured and efficient micro, small and medium
enterprises sector that will enhance sustainable development of Nigeria.
The mission is to facilitate the access of micro, small and medium
entrepreneurs /investors to all resources required for their development.

Justification for existence: Poverty, due to lack of access to income earning

opportunities and lack of capacity to take advantage of the opportunities, is
a social malaise that is threatening global prosperity in general and national
economic growth and development in particular.
A well-developed MSMEs sector has proven to be one of the most veritable
channels to combat poverty. The establishment of SMEDAN is therefore
justified by the need to trigger the development of Nigeria's MSMEs in a
structured and efficient manner.

Its main functions are to provide business information, in partnership with

various state governments. Its efforts with most states, and the FCT are
well stated on the web at www.abujaentemrise;org; www.smedan.gov.ng.
These sites serve as a credible suppository of
business information. Each compiles, reviews and updates all existing
economic policies, regulations, incentives, and legislation affecting MSME
operations within the State.

Its world market section sources and makes available information on

international markets, products standards/ specifications and regulations,
including updates in development databank on MSMEs, raw materials,
available local technologies, machineries and prototypes.
Its proposed services include:

67
Proposed Design and Establishment of Comprehensive BSCs and IPs: To be
able to provide Business Support Centers (BSCs) in each State, to provide
business advisory services. i.e Link MSMEs to sources of funds; provide
internet/website facilities; provide market information; provide business
consultancy services; collate and make available business plans and
prototypes; implement capacity building programmes; advise on regulatory
and standardization frameworks and collate all relevant business
information that could be useful to SMEs.
Develop and establish, in collaboration with state governments and NGOs in
the private sector, Industrial Parks (IPs) to facilitate easy access to land,
good infrastructure, security, regulatory bodies such as NAFDAC and SON;
banking services etc.

Capacity Building and Proposed Promotional Services:

• Develop, test and disseminate new business models illustrating best
business practices to upgrade SMEs operations.
• Conduct seminars, conferences, workshops, and interactive ~;
sessions for promotional and capacity building purposes.
• Encourage and facilitate business clusters, networks and cooperatives
for enhanced productivity and easier access to factors of production
including finance.
• Encourage and facilitate new investments in designated priority areas
in each State.
• Organize trade and investment exhibitions and interactive fora.
• Develop and apply standards and quality control measures for
technologies and products of SMEs.
• Improve the financial management skills of MSMEs through training
workshops.
• Develop and implement effective strategies for opening up domestic
and international markets for MSMEs products.

Proposed to be a Main Financial Intermediary between MSMEs &

Sources of Finance:

• Liaise with financial institutions to harness and pool resources for

utilization by MSMEs.
• Develop and implement a strategy for the effective and timely
disbursement of SMIEIS funds.
• Hold regular consultations with international donor agencies, trade
groups, relevant ministries, research institutes, states and local
governments with the view to share ideas and partner in
implementing programmes for the development of MSMEs.
• Attract foreign investments and funds for the development of the
MSMEs sub-sector.

68
Proposed Policy Development:
• Develop and seek statutory approval for a national policy on MSMEs.
Conduct impact assessment studies and use same to recommend
improvements in policy intervention.
www. smedan. gov. ng

THE INDUSTRIAL DEVELOPMENT CENTERS (IDCs)

Over the years, the Federal Government has taken various steps, to
promote the development of Small and Medium Scale Enterprises (SMEs).
These included, among others, funding and setting up of industrial estates
to reduce overhead costs.

One of the many institutions established was the Industrial Development

Centers (IDCs), to provide extension services to SMEs in such areas as
project appraisal for loan application, training of entrepreneurs, managerial
assistance, product development, production planning and control, as well
as other extension services. The first IDC was established in Owerri in 1962
by the former Eastern Nigeria Government, Ministry of Trade and Industry,
and was taken over in 1970 by the Federal Government.
Subsequently, more IDCs were established at Zaria, Oshogbo, Maiduguri,
Abeokuta, Sokoto, Benin City, Uyo, Bauchi, Akure, Ilorin, Port Harcourt,
Kano and Ikorodu. Over the years the achievements of the IDCs have not
been commendable and in most instances they have been overtaken by
other government agencies doing the same programmes.

TECHNOLOGY BUSINESS INCUBATION CENTERS, (TBIC's)

Part of the NEEDS program of the Obasanjo era included the creation of
jobs, education facilities with special emphasis on Technology business
Incubation Centers, (TBIC's). The goal is to promote and engage the semi-
formal productive sectors of the economy:

According to information at the beginning of 2000 about 70% of the

population of Nigeria are engaged either in the informal sector, the
Agricultural sector, or small and medium enterprises (SME's). These
important sectors of the economy have access only to the most rudimentary
technology, information and processes. As part of the transformation
agenda, the government wanted to diversify the economic base and
mainstream the informal sector while strengthening its linkages to the rest
of the real sector by increasing the local value addition and share of
manufactured goods in total exports.

Under NEEDs I and II, the institutional and policy framework for this was
being established through Small and Medium Enterprise Development
Agency of Nigeria, (SMEDAN), Business Incubation Centres Technology,

69
TBIC's) and (Small and Medium Industries Equity Investment Scheme,
(SMIEIS).
In a summary SMEDAN and TBICs aimed at providing conducive
environments for nurturing start -ups and survival of value added and
technology - related manufacturing.

4. Explain the Role of Banks and Financial Institutions in

Enterprise Promotion and Development;

The reduction of all six existing Development Finance Institutions (DFIs) to

two; (BOI and NACRDB) has narrowed the playing field and streamlined the
operations of the DFIs. The Nigerian Industrial Development Bank (NIDB),
the National Economic Reconstruction Fund (NERFUND) and the Nigerian
Bank for Commerce and Industry (NBIC) have been, brought together to
form the Bank of Industry (BOI). On the other hand, the Family Economic
Advancement Programme (FEAP), Peoples Bank of Nigeria (PBN) and the
Nigerian Agricultural and Cooperative Bank (NACB) have become a single
Bank, the Nigerian Agricultural, Cooperative and Rural Development Bank
(NACRDB).

These institutions, before the Government took the decision to

merge them, were unable to perform their roles effectively due to
the following reasons:
1. Low Capitalization
2. Inefficient Operations
3. Poor loan portfolio
4. Poor Liquidity
5. Inability to access external lines of credit, and
6. Lack of capacity to finance projects

BANK OF INDUSTRY (BOI)

The Bank of Industry (1301) is owned by the Federal Government of Nigeria.
This bank emerged from the government's rationalization of some
development Finance Institutions (DFIs) namely the Nigerian Bank for
Commerce (NBCI), Nigerian Industrial Development Bank (NIDB) and the
Nigerian Economic Reconstruction Fund (NERFUND).

The Bank of Industry has four subsidiaries from its merger:

• Leasing Company of Nigeria (LECON)
• NIDB Trustees Limited (NTL)

70
 • NIDB Consultancy and Finance Limited (NIDB Consult)
• Industrial and Development Insurance Brokers (IDIB)

FACILITIES
• Initial capital base of N50 billion
• Six zonal offices

TYPES OF PROJECTS FINANCED BY BOI

• Projects in the areas where Nigeria has comparative advantage
• Projects that engage in the efficient conversion of local raw materials
into finished products
• Ventures that can be least cost producers of good quality products that
could be successfully marketed locally and/or internationally.

PRODUCTS AND SERVICES DELIVERABLE BY BOI

1. Medium and Long-term loans.
2. Working Capital Fi%ance
3. Equity Financing
4. Management of dedicated funds
5. Loan guarantees
6. Co-financing
7. Investments in Corporate Boards
8. Business Development Services
9. Lease financing
10. Trusteeship
11. Stock Brokerage
12. Foreign Exchange Dealership
13. Insurance Brokerage

PROSPECTS
The BOI is intended to focus on the private sector in both funding and
commercial operations. The Bank has opted to adopt the existing prudential
guidelines for Banks though more stringent when compared with the CBN
proposal to apply some standards used by other finance companies like BOI.

BOI would focus on SMEs with linkages within the broad economy with a view
to enhancing overall industrial interaction, expanding output and employment
and utilizing local resources to its fullest advantage. The huge SMIEIS funds
currently accumulated by the Banks will help BOI fulfill its mandate.

It is expected that the bank's contribution to the economy will grow stronger
as the implementation of the economic reforms progresses to widen the scope
of needs for economic/business development financing.

NIGERIAN AGRICULTURAL COOPERATIVE AND RURAL

DEVELOPMENT BANK (NACRDB)

71
The Bank is a development Finance Institution wholly owned by the Federal
Government of Nigeria. NACRDB was incorporated in 2000 following the
merger of defunct Nigeria Agricultural and Cooperative Bank, People's Bank
of Nigeria and risk assets of the Family Economic Advancement Programme
(FEAP). The Nigerian Agricultural and Cooperative Bank began operation on
6th March 1973 as Nigerian Agricultural Bank Limited. Two government
institutions own the Bank in the following ratio:

Federal Ministry of Finance 60%

Central Bank of Nigeria 40%

FACILITIES
• Six zonal offices.
• 200 branch offices.
• N50 billion capital base.

TYPES OF BUSINESS
NACRDB provides:
• Finance and credit facilities to agricultural and agro-allied industries.
• Loans to farmers, agricultural institutions, organizations and cooperative
societies.
• Direct investments by way of equity participation in wholly owned or joint-
venture projects.
• Provision of guarantees to viable agricultural and agro-allied ventures.
• Rural savings scheme.

LENDING CHANNELS
The NACRDB has five channels of financial support to its clients:

i. On- lending Scheme:

This is lending through Cooperative Financing Agency (CFAs), Non
Government Organisations (NGOs), Self Help Groups (SHGs) and some
Private Sector micro-credit institutions

ii. Small Holder Scheme (SIBS) .

The Small Holder Scheme is designed for small and medium scale individual
and group farming organizations and funds are provided as loans on very
favourable terms and conditions. Interest charges are usually below the
market rate.

iii. First/Second Livestock Development Programme (SLDP)

These programmes/projects are also designed for small and medium scale
individual and group farming organizations and funds are provided as loans

72
on very favourable terms and conditions. Interest charges are usually below
the market rate.

iv. Special Projects

The special projects are usually uncle taken in collaboration with such
international financial institutions and donor agencies as IFAD, ECOWAS
and ILO.

v. Investments in projects
This targets mainly medium and large-scale entrepreneurs who have the
capacity to provide collateral securities.

PROSPECTS
• Sourcing of offshore credit facilities for loan disbursement.
• Participation in Agricultural Exchange Market through its
subsidiary, the Food Development Company.
• Creation of local market for raw material supply to local
industries.
• Diversification of operations to agricultural support services:
desertification control project, tangential agro-allied projects,
equipment leasing, agro-chemicals manufacture and others.

SMALL AND MEDIUM INDUSTRIES EQUITY INVESTMENT SCHEME

(SMIEIS)

Establishment of the Scheme:

The Small and Medium Industries Equity Investment Scheme (SMIEIS) is a
voluntary initiative of the Bankers' Committee approved at its 246th
Meeting held on 21st December, 1999. The initiative was in response to the
Federal Government's concerns and policy measures for the promotion of
Small and Medium Enterprises (SMEs) as vehicle for rapid industrialization,
sustainable economic development, poverty alleviation and employment
generation.

The Scheme requires all banks in Nigeria to set aside ten (10) percent of
their Profit After Tax (PAT) for equity investment and promotion of small
and medium enterprises.
Purpose of the Scheme:

The 10% of the Profit After Tax (PAT) to be set aside annually shall be
invested in small and medium enterprises as the banking industry's
contribution to the Federal Government's efforts towards stimulating
economic growth, developing local technology and generating employment.

The funding to be provided under the scheme shall be in the form of equity
investment in eligible enterprises. This will reduce the burden of interest

73
and other financial charges expected under normal bank lending, as well as
provide financial, advisory, technical and managerial support from the
banking industry.

For the purpose of this scheme, a small and medium enterprise. is defined
as any enterprise with a maximum asset base of N500 million (excluding
land and working capital), and with no lower or upper limit of staff.

Activities Covered By the Scheme:

Every legal business activity is covered with the exception of
(i) Trading/merchandising
(ii) Financial Services

Eligibility for Funding:

To be eligible for equity funding under the Scheme, a prospective
beneficiary shall:
(i) Register as a limited liability company with the Corporate Affairs
Commission and comply with all relevant regulation of the Companies
and Allied Matters Act (1990) such as filing of annual returns, including
audited financial statements;
(ii) Comply with all applicable tax laws and regulations and render regular
returns to the appropriate authorities; and
(iii) Engage or propose to engage in any of the businesses covered by the
scheme

Mode of Investments and Other Related Issues

1. Equity under the scheme may be in the form of fresh cash injection
and/or existing debts owed to participating bank.
2. A participating enterprise may obtain more funds by way of loans
from banks in addition to equity investment under the scheme.
3. Eligible enterprises are free to approach any bank, including those
they presently have relationship with, to seek funding under the
scheme. Prospective beneficiaries should note that the banks may
operate the scheme directly, through their wholly owned subsidiary
venture capital companies or through venture capital companies
floated by consortia of banks or through independent venture capital
companies.
4. Prospective beneficiaries are advised to seek the opinion of third
party consultants such as lawyers, accountants and valuers in
determining the value to be placed on the asse%,-and capital of their
businesses in order to determine a fair price before or during
negotiations with the banks.

Requirements by Beneficiaries:

1. Beneficiaries will be expected to:

74
(a) Ensure prudent utilisation of funds;
(b) Keep up-to-date records on the companies' activities under the Scheme;
(c) Make the companies books, records and structures available for
inspection by the appropriate authorities (including banks and the CBN)
when required;
(d) Comply with guidelines of the Scheme; and
(e) Provide monthly financial and operational reports to the investing banks
before the 15th of the next succeeding month.

2. The recommendations of industrial associations, particularly

Manufacturers Association of Nigeria (MAN); National Association of
Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA);
National Association of Small and Medium Scale Enterprises (NASME); and
National Association of Small Scale Industries (NASSI) will be mandatory
for members of these associations.

3. Membership of recognized NG®s engaged in entrepreneurial

development and promotion of small and medium scale enterprises will also
be an advantage.
5 Describe the contributions of government agencies in sourcing
information;
We need information to operate successfully, and with the internet, much is
available. Unfortunately, the sheer quantity available makes it difficult to
quickly locate the most accurate and timely information. Yes there is a lot of
information "out there", but it can be a real challenge to find it.

Information types and sources

There are two broadly based needs: personal and business.

Personal information includes news, current affairs, sports results,

entertainment opportunities, financial information, hobby specific
information and the like.

Business information includes general business news, company specific

data, market/ competitor information, industry/ professional information,
etc.

Some of this information will come to you automatically, e.g. bank

statements, company annual reports, membership newsletters, press
briefings by ministers and heads of agencies, departmental brochures’ etc.

Some can be generated so that you receive it regularly, e.g. by subscribing

to an email newsletter, e.g. local cinema weekly program notification,
newspaper (media) bulletins, etc.

75
Finding and subscribing to good newsletters (free or subscription based)
can ensure that quality, relevant and up--to-date information regularly
comes to you. In this age of e-government, it has become much easier to
source information from government ministries and agencies. This covers
international/regional market information as well as operating rules

There are other sources as well.

If you have an interest in specific news items or general items, services like
Google Alerts can keep you updated. For example, I monitor the breaking
news. This ensures that I am alerted of local news happenings that I may have
missed. The service is not perfect. You can receive updated news or updated
web pages or both. The choice is yours.

If you have an interest in a particular website, services like Watch That Pa e

can be very useful. You can register to be alerted when a web page is updated
or changed.

As an example of the services available, the Books/Journal Updates Links site

provides a listing of publishers, etc. that will advise of new listings for topics of
your interest.

Newsletters and services like these can assure a quality, regular inward flow
of information.
In summary, information sources should be managed and controlled. Rather
than being reed-tionary, it is also possible to create personal quality
information sources as well.

TOPIC 5:

THE ROLES OF COMMERCIAL AND DEVELOPMENT BANKS IN THE

PROMOTION OF SMALL AND MEDIUM, ENTERPRISES (SMEs)

INTRODUCTION:

76
Indeed, the Commercial and Development Banks are contributing a lot
towards the promotion of small and medium enterprises especially in the
various functions they carry out in their day to day operations. The potential
entrepreneurs are therefore to benefit from the functions and assistance
rendered by these financial institutions. It is in this direction that inputs are
prided in this section to highlight the positive roles of Commercial and
Development Banks in the development of small and medium enterprises.

SPECIFIC LEARNING OUTCOMES:

1. Identify financial institutions involved in entrepreneurship development;
2. Describe the assistance provided by commercial banks;
3. Explain the role of development banks in the promotion and development
of small and medium enterprises (SMEs);
4. Assess government policy on financing SMEs;
5. Explain the process of opening and operating a healthy Bank Account

CONTENT
1. Identify Financial Institutions Involved In Entrepreneurship
Development;

The reduction of all six existing DFIs to two; (BOI and NACRDB) has
narrowed the playing field and streamlined the operations of the DFIs.

The Nigerian Industrial Development Bank (NIDB), the National Economic

Reconstruction Fund (NERFUND) and the Nigerian Bank for Commerce and
Industry (NBIC) have been brought together to form the Bank of Industry
(BIO). On the other hand, the Family Economic Advancement Programme
(FEAP), Peoples Bank of Nigeria (PBN) and the Nigerian Agricultural and
Cooperative Bank (NACB) have become a single Bank, the Nigerian
Agricultural, Cooperative and Rural Development Bank (NACRDB).

These institutions, before the Government took the decision to merge them,
were unable to perform their roles effectively due to the following reasons:
.

1. Low Capitalization
2. Inefficient Operations
3. Poor loan portfolio
4. Poor Liquidity
5. Inability to access external lines of credit, and
6. Lack of capacity to finance projects

BANK OF BWUSTRY (BOI)

77
The Bank of Industry (BOI) is owned by the Federal Government of Nigeria.
This bank emerged,,ofrom the government's rationalization of some
development Finance Institutions (DFIs) namely the Nigerian Bank for
Commerce (NBCI), Nigerian Industrial Development Bank (NIDB) and the
Nigerian Economic Reconstruction Fund (NERFUND).

SHAREHOLDING:

NAME: UNITS %
Min. of Finance Incorporated 297,688,401 59.54
Central Bank of Nigeria 201,822,645 40.36
Nigerian citizens and associations 488,954 0.10

The Bank of Industry has four subsidiaries from its merger:

• Leasing Company of Nigeria (LECON)
• NIDB Trustees Limited (NTL)
• NIDB Consultancy and Finance Limited (NIDB Consult)
• Industrial and Development Insurance Brokers (IDIB) FACILITIES
• Initial capital base of N50 billion
• Six zonal offices

TYPES OF PROJECTS FINANCED BY BOI

• Projects in the areas where Nigeria has comparative advantage
• Projects that engage in the efficient conversion of local raw materials into
finished products
• Ventures that can be least cost producers of good quality products that could
be successfully marketed locally and/or internationally.

PRODUCTS AND SERVICES DELIVERABLE BY BOI

l. Medium and Long-term loans.
2. Working Capital Finance
3. Equity Financing
4. Management of dedicated funds
5. Loan guarantees
6. Co-financing
7. Investments in Corporate Boards 8. Business Development Services
9. Lease financing
10. Trusteeship
11. Stock Brokerage
12. Foreign Exchange Dealership
13. Insurance Brokerage

PROSPECTS
The BOI is intended to focus on the private sector in both funding and
commercial operations. The Bank has opted to adopt the existing prudential

78
guidelines for Banks though more stringent when compared with the CBN
proposal to apply some standards used by other finance companies for BOI.
BOI would focus on SMEs with linkages within the broad economy with a view
to enhancing overall industrial interaction, expanding output and employment
and utilizing local resources to its fullest advantage. The huge SMIEIS funds
currently accumulated by the Banks will help BOI fulfill its mandate.

It is expected that the bank's contribution to the economy will grow stronger
as the implementation of the economic reforms progresses to widen the scope
of needs for economic/business development financing.

NIGERIAN AGRICULTURAL COOPERATIVE AND RURAL

DEVELOPMENT BANK (NACRDB)

The Bank is a development Finance Institution wholly owned by the Federal

Government of Nigeria. NACRDB was incorporated in 2000 following the
merger of defunct Nigeria Agricultural and Cooperative Bank, People's Bank
of Nigeria and risk assets of the Family Economic Advancement Programme
(FEAP). The Nigerian Agricultural and Cooperative Bank began operation on
6t' March 1973 as Nigerian Agricultural Bank Limited. The two government
institutions own the Bank in the following ratio:

Federal Ministry of Finance 60%

Central Bank of Nigeria 40%

FACILITIES
• Six zonal offices.
• 200 branch offices.
• N50 billion capital base.

TYPES OF BUSINESS NACRDB provides:

• Finance and credit facilities to agricultural and agro-allied
industries.
• Loans to farmers, agricultural institutions, organizations and
cooperative societies.
• Direct investments by way of equity participation in wholly owned or
joint-venture projects.
• Provision of guarantees to viable agricultural and agro-allied
ventures.
• Rural savings scheme.

LENDING CHANNELS
The NACRDB has five channels of financial support to its clients:

i. On- lending Scheme:

79
This is lending through Cooperative Financing Agency (CFAs), Non-
Government Organisations (NGOs), Self Help Groups (SHGs) and some
Private Sector micro-credit institutions
ii. Small Holder Scheme (SHS)

The Small Holder Scheme is designed for small and medium scale individual
and group farming organizations and funds are provided as loans on very
favourable terms and conditions. Interest charges are usually below the
market rate.
iii. First/Second Livestock Development Programme (SLDP)
This programme projects are also designed for small and medium scale
individual and group farming organizations and funds are provided as loans
on very favourable terms and conditions. Interest charges are usually below
the market rate.

iv. Special Projects

The special projects are usually undertaken in collaboration with such
international financial institutions and donor agencies as IFAD, ECOWAS
and ILO.

v. Investments in projects
This targets mainly medium and large-scale entrepreneurs who have the
capacity to provide collateral securities.

PROSPECTS
• Sourcing of offshore credit facilities for loan disbursement.
• Participation in Agricultural Exchange Market through its subsidiary, the
Food Development Company.
• Creation of local market for raw material supply to local industries.
• Diversification of operatidtlk to agricultural support services:
desertification control project, tangential agro-allied projects, equipment
leasing, agro-chemicals manufacture and others.

2. Describe the Assistance Provided By Commercial Banks;

SMALL AND MEDIUM INDUSTRIES EQUITY INVESTMENT SCHEME

(SMIEIS)
Establishment of the Scheme:
The Small and Medium Industries Equity Investment Scheme (SMIEIS) is a
voluntary initiative of the Bankers' Committee approved at its 246th
Meeting held on 21st December, 1999. The initiative was in response to the
Federal Government's concerns and policy measures for the promotion of
Small and Medium Enterprises (SMEs) as vehicles for rapid
industrialization, sustainable economic development, poverty alleviation and
employment generation.

80
The Scheme requires all banks in Nigeria to set aside ten (10) percent of
their Profit After Tax (PAT) for equity investment and promotion of small
and medium enterprises.

Purpose of the Scheme:

The 10% of the Profit After Tax (PAT) to be set aside annually shall be
invested in small and medium enterprises as the banking industry's
contribution to the Federal Government's efforts towards stimulating
economic growth, developing local technology and generating employment.
The funding to be provided under the scheme shall be in the form of equity
investment in eligible enterprises. This will reduce the burden of interest
and other financial charges expected under normal bank lending, as well as
provide financial, advisory, technical and managerial support from the
banking industry.

For the purpose of this scheme, a small and medium enterprise is defined as
any enterprise with a maximum asset base of N500 million (excluding land
and working capital), and with no lower or upper limit of staff.

Activities Covered By the Scheme:

Every legal business activity is covered with the exception of
(i) Trading/merchandising
(ii) Financial Services

Eligibility for Funding:

To be eligible for equity funding under the Scheme, a prospective
beneficiary shall:
(i) Register as a limited liability company with the Corporate Affairs
Commission and comply with all relevant regulations of the
Companies and Allied Matters Act (1990) such as filing of annual
returns, including audited financial statements;
(ii) Comply with all applicable tax laws and regulations and render
regular returns to the appropriate authorities; and
(iii) Engage or propose to engage in any of the businesses covered by the
scheme

Mode of Investments and Other Related Issues:

1. Equity under the scheme may be in the form of fresh cash injection
and/or existing debts owed to participating bank.

2. A participating enterprise may obtain more funds by way of loans

from banks in addition to equity investment under the scheme.

81
3. Eligible enterprises are free to approach any bank, including those
they presently have relationship with, to seek funding under the
scheme. Prospective beneficiaries should note that the banks may
operate the scheme directly, through their wholly owned subsidiary
venture capital companies or through venture capital companies
floated by consortia of banks or through independent venture capital
companies.

4. Prospective beneficiaries are advised to seek the opinion of third

party consultants such as lawyers, accountants and valuers in
determining the value to be placed on the assets and capital of their
businesses in order to determine a fair price before or during
negotiations with the banks.

Requirements by Beneficiaries:

1. Beneficiaries will be expected to:

(a) Ensure prudent utilisation of funds;
(b) Keep up-to-date records on the companies' activities under the
Scheme;
(c) Make the companies books, records and structures available for
inspection by the appropriate authorities (including banks and the
CBN) when required;
(d) Comply with guidelines of the Scheme; and
(e) Provide monthly financial and operational reports to the investing
banks before the 15th of the next succeeding month.

2. The recommendations of industrial associations, particularly

Manufacturers Association of Nigeria (MAN); National Association of
Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA);
National Association of Small and Medium Scale Enterprises (NASME); and
National Association of Small Scale Industries (NASSI) will be mandatory
for members of these associations.

3. Membership of recognized NGOs engaged in entrepreneurial

development and promotion of small and medium scale enterprises
will also be an advantage.

3. Explain the Role of Development Banks In The Promotion And

Development Of Small And Medium Enterprises (SMEs); SOURCES
OF BUSINESS FINANCING

Many prospective entrepreneurs have promising business ideas and plans.

However, the capital necessary to initiate their plans may not be readily
available. As a result, many prospective small enterprises never become
operational. The small business owner will have to invest a certain amount

82
of personal money to start a business. However, with sound preparation and
planning, financing can be obtained from other sources. The two primary
sources of financing to establish a business may be the owner's equity or
borrowing from lending institutions.

1. Equity financing
The main source of equity financing for most entrepreneurs is their
personal savings. Financial experts say that one-half of the money needed to
start a small business should come from the owner. This means future
owners must work and save before having enough money to start a
business.

Another popular source of equity financing is money from other sources

such as family, friends, venture capitalists, a business. However, there are a
few points to consider. For example, will they want to get involved with
operating the business? What will happens if the business doesn't succeed?
Will it ruin your relationship?

Equity financing can also be obtained by selling part of the business to one
or more partners. With partners putting in money, it is usually easier to
raise the total amount needed. However, partners must be able to get along
and sometimes this is not easy. Since many people starting
their own business want to make their own decisions, the partnership
alternative may not be a good idea.

2. Borrow from lending institutions

When equity sources are not enough, the entrepreneur has the option of
borrowing from other sources. Lenders will usually lend money for starting
a business to people they know and trust. Lenders are careful not to lend
money if the risk is too great. Lenders do not want to lose money on
businesses that fail. Most lenders will therefore review the business plan
carefully. This plan should describe how the business will be operated, how
much money will be needed and how it will be used, and at what point the
business will be profitable.

Most people think of banks when borrowing money. However, it is not

always easy for small enterprises to borrow from them. Banks only lend
money when the risk of losing it is very low. Frequently, they will only lend
to customers whom they have known for a long time. If someone is thinking
of borrowing money at some time in the future, it would be a good idea for
that person to develop a personal relationship with a local banker as soon
as possible.

3. Considerations in applying for a business loan

Different lending institutions have different procedures which have to be
followed by the loan applicant. While lending institutions want to help

83
potential borrowers, these institutions have to be assured that repayment of
the loan will take place as agreed by the borrower. It is necessary to
understand the following factors that are taken into consideration when
appraising a loan application.

Type of loan: short-term (up to one year) or long-term (longer than one
year).
Purpose of the loan: it is essential to determine that the applicant will not
invest the money in a business venture which is illegal, not favoured by
government policy or is unfavourable to the community concerned. Credit
worthiness and integrity of the borrower: Can the borrower be trusted?

Capability: the business profile of the applicant becomes an indicator of the

entrepreneur's capability to operate the project with professional expertise
and effectiveness. Capability characteristics help the lender to understand
whether the borrower will be able to utilize the loan for the intended
purpose.

Repayment period: this is a very important requirement both from the

borrower's and the lender's standpoint. The lender needs to know whether
the offer of the borrower to repay is realistic. The lender can ascertain this
through statistical and financial projections and advise the applicant
regarding a realistic repayment period, and other details such as the
amount of monthly installments.

Security: security or collateral for the loan must be acceptable to the

lender. Even if all other conditions are fulfilled, the lender may not grant
the loan if security conditions and terms required by the bank are not
adequate. This is especially true when applying for a business loan for the
first time.

Guarantors: some lenders call for security both in the form of immovable
property and tangible assets and guarantees from friends.

Business plan: this is the major instrument used by any lending institution
to decide whether a loan applicant deserves a loan. A business plan
discloses whether the intended business is viable or not. A loan applicant
may have his own expert prepare a business plan to prove that the loan he
is applying for deserves due consideration by the lending organization. The
lender always appraises the business plan presented by the applicant and
comes to his own conclusions or prepares his own feasibility study to assess
and appraise the viability of the proposed business. A very significant aspect
is the cost involved and the cash flow. Cash flow, as well as financial and
statistical projections, indicate whether the project can generate more
money than the cost incurred. These results will indicate to the lender

84
whether the loan is safe and the borrower can repay according to the
agreed terms.
Current customers of a lending institution have an easier position when r
applying for a business loan if the loan is to be used as working capital.

The bank will study the customer's past financial records and these '
financial records will help the banker to decide what action to take. If the
customer intends to start a new business, then the procedures will almost
be similar to that of a new applicant. By keeping written financial records,
the entrepreneurs will have written proof of the past history of
the business.

There are several sources of money available to entrepreneurs. Frequently,

the key decision is to determine which source of money is most appropriate
for their current needs. Selection of the right source of financing for their
needs can often have a pronounced effect on the future of their business.

Receiving a short-term bank loan when a longer-term loan is required can

soon create a crisis. Selling a part of the business to raise capital that could
have been borrowed may be extremely costly. Over-extended credit can be
costly and restrict operations.

There are many opportunities for mistakes in the choice of capital source.
However, the right choice can provide the capital needed while freeing
entrepreneurs from unnecessary costs, risks, or the possibility of losing
control of their own business.

4. Criteria for evaluating loan sources

To determine the best source for raising capital needed in a particular

situation, the following five questions should be considered.

What are the benefits of a loan in relation to its costs? (cost)

Which loan source exposes the business to the lowest degree of risk? (risk)

Will conditions imposed by a loan source reduce flexibility in seeking

additional capital or in using capital generated through operations according
to the owner's best judgment? (flexibility)

Could the owner's control )f the business be adversely affected? Could the loss
of control prevent the entrepreneur from making operating decisions that are
in the best interests of the business? (control)

Which financial sources are available to the business? (availability)

85
Cost. The cost of a loan is usually measured by its impact on the earnings of
the present owners, not simply the increased expenses incurred by that.
business. Consider a company that is deciding between a 20,000 loan at 10%
interest or selling 25% of the shares in the business to raise 20,000. The
business expects to pay interest of 2,000 on the loan per year, which would
reduce its net income by 2,000 before taxes. If the business expects to earn
30,000, interest expenses would reduce earnings to 28,000.
In the equity alternative, the net income would be 30,000, since there would
be no interest expenses. However, only 22,500 would be applicable to the
present owners since 7,500 (30,000 x 25%) would represent the participation
of new shareholders. Therefore, the income of the business under the equity
alternative would be higher, but the participation of the present owner(s)
would be less.

Each capital source has its own cost. Internal sources such as the sale or
liquidation of assets could lead to a loss of revenue following inventory
disposal or added operating costs if machinery was sold to generate cash. In
reaching a decision, it is important to consider all relevant costs for each
source of finance.

Risk. There are several types of risk involved in raising capital. Use of trade
credit could lead to supplier dissatisfaction and possible damage to your credit
standing. Since borrowed money must be repaid with interest, debt capital
imposes obligations upon the cash flow of the business that must be met to
avoid default. A default could cause a number of actions, such as forfeiture of
collateral or forced bankruptcy. The only money source that involves no risk to
the business is equity capital, since the equity investor, riot the business, is the
risk-taker.

5. Lending officer's concerns

Often a bank lending officer refuses or "declines" a loan request. Foremost in

the lender's mind is the question: "Can the firm pay back this loan?" The
lender may refuse the loan because the owner hastily and haphazardly
prepared the loan application under pressure. As a result, the lending officer
detects an air of instability and lack of planning in the owner's description of
his or her business affairs. When an entrepreneur's request for a loan is
turned down, the loan applicant should accept the refusal gracefully discuss
issues arising with his bank manager and eliminate weaknesses before
applying for a loan in the future.

Questions Concerning Borrowing

86
The lender needs answers to several pertinent questions to determine
whether or not the borrower can repay the loan. One of these questions is:
"How does the borrower intend to use the money?"

What kind of loan? When considering borrowing, determine what kind of

loan is needed. A business uses four basic types of money in its operations.
The purpose for borrowing will determine the type.

Trade Credit: This type of money is not borrowed. It is money you owe your
suppliers who permit you to camT inventory on open account.

A good past credit experience is evidence of your ability to repay borrowed

funds.

Short-term Credit: Banks and other lenders provide this type of money to
make purchases of inventory for special reasons, such as buying inventory for
the next selling season. Such loans are self-liquidating

because they generate money from sales. Short-term credit is repaid in less
than one year.
Long-term Credit: Loans for more than a year are used for the expansion or
modernization of a business. They are repaid out of accumulated profits.
Usually, a loan of this type is a mortgage or a promissory note.

Equity Funds: This type of money is never repaid. An investor gives cash to
the business in return for a share of ownership in the business.

Many owners fail to recognize the difference between the four types of
money. Keep in mind that money borrowed for a temporary purpose should
be used in the profit producing areas of the business and will be repaid out
of that operation.

Equity funds are those which remain in the business and increase the net
worth for the owner.
Are sales adequate? Is a loan being requested to: increase sales volume, buy
additional stocks of high volume merchandise which may have even greater
potential, or create a new image through an overall advertising campaign?

What is the receivables position of the business? Receivables are the

accounts receivable that are going uncollected and getting old. In effect,
does the business need money to carry old accounts?
Is the profit margin adequate? Is there a lot of business but results show a
lack of profit? This may indicate that the business expenses are not
controlled. Ie,the market insufficient? What is the plan for repayment? Is
the forecast for cash income and expenditures realistic?

87
The lender will carefully review the cash flow of the business to determine
whether or not the owner is providing sufficient cash to meet the firm's
obligations. The lender also has to make sure that cash needed for working
capital is not being absorbed by the business into other areas of equity and
thereby reducing the available cash.

However entrepreneurial forces in Nigeria are traditional and strong. In

recent times an increased unemployment and a corresponding rise in
poverty has left few other options for the enterprising Nigerian. With the
advent of the new democracy and the national quest for free economy, the
government has created and adopted policies promoting the use of
technology in education. The
Nigerian Economic Policy 19992003, is a comprehensive compendium of
the governmeryt's policies and guiding principles for the nation. The policy
states: "Government will provide affordable quality education for all
Nigerians, the Universal Basic

Education and mass Adult Literacy programs will be pursued in earnest"

and in particular, "Government will create incentives to expand access to
information and communications technology which will facilitate leap-
froging in order to short-circuit the longer span of development." The policy
even recommends partnerships with national and international agencies
including the United Nations Transfer of Knowledge through Expatriate
Nationals, (TOKTEN) program.

4. Assess Govern ment Policy on Financing SMEs;

The Federal government has always been concerned on accelerating the

growth of SMEs considering the important role of this sector in the socio-
economic development of the nation. This has informed the setting up of
various agencies and Development Financial Institutions aimed at
addressing the peculiar problems of the SMEs. On the inception of
democratic rule in 1999, the government reviewed existing structures and
policies and decided on rationalizing the DFIs to make them more
functionally effective.

The reduction of all six existing Development Financial Institutions (DFIs) to

two - (BOI and NACRDB) has narrowed the playing field and streamlined
the operations of the DFIs. The

Nigerian Industrial Development Bank (NIDB), the National Economic

Reconstruction Fund (NERFUND) and the Nigerian Bank for Commerce and
Industry (NBIC) have been brought together to form the Bank of Industry.
On the other hand, the Family Economic Advancement Programme (FEAP),
Peoples Bank of Nigeria (PBN) and the Nigerian Agricultural and

88
Cooperative Bank (NACB) have become a single Bank, the Nigerian
Agricultural, Cooperative and Rural Development Bank (NACRDB).

These institutions, before the Government took the decision to merge them,
were unable to perform their roles effectively due to the following reasons:

1. Low Capitalization
2. Inefficient Operations
3. Poor loan portfolio
4. Poor Liquidity
5. Inability to access external lines of credit, and
6. Lack of capacity to finance projects

The following strategies have been used to address poverty reduction and
SME growth:
1. Support for rapid development of SMEs°-through increased funding of
development financial institutions to enable provision of longterm credit
to the real sector of the economy;
2. Design and implementation of agricultural subsidy and special
presidential initiatives (on selected products) for direct benefit for the
Nigerian farmers;
3. Elaborate the infrastructure and platform for private sector exploitation
of solid minerals;
4. Utilize the competitive opportunity provided by due process mechanism
for award of contracts to encourage participation of indigenous
enterprises in government procurement
5. Support and encourage foreign construction companies and other
multinational corporations to patronize local producers of inputs as well
as sub-contract to small indigenous firms.
5 Explain The Process Of Opening And Operating A Healthy Bank Account

OPENING A BANK ACCOUNT

Opening a simple current bank account should not be too complicated. Here
are 7 essential steps that should cover it:

Step 1: Choose an Institution, (A bank)

You may have already done this. If not, shop around, ask friends and family on
what type of account you want? A savings account/current account? Would
you like to have a "Cash" card? See which bank has the features you want and
plan to open a bank account with them.

Step 2: Go to the Bank's Office

89
The easiest way to get this clone is go to their nearest office and pick up their
application forms and any other requirements they may have. Some banks
may now ask you to use their web site. The advantage of opening a bank
account online is that you can do it at any hour, anywhere. However, if you
only WMtt to open an account in person you ran just show up at the branch
during business hours.

Step 3: Pick the Product You Want

Any financial institution will have a variety of account types and services that
you can mix and match: Savings, Current, Term Deposit etc.
They'll all have fancy names that you may need to learn. Pick the one that has
the mix that is right for you.

On a website, you may have to drill down to the product that is right for you.
You might click "Open Bank Account", and then click "Checking", and finally
"Free Checking". If you open bank accounts in person, you can just chat with a
banker who will help you open the best account for your needs.

Step 4: Provide Your Information

In order to open an account, you must provide some information to the bank.
They do not open bank accounts without certain details about you. This is to
protect them against risk and comply with a variety of regulations. You'll need
to provide simple details like your name and birthday, as well as identification
numbers (this could be your national ID number or your drivers license).
If you're doing this online, you'll just type the information into a textbox. If you
open bank accounts in person you can hand your ID's over to the banker who
will probably make photocopies.

Step 5: Agree to Terms

You'll have to agree to abide by certain rules and accept ifs responsibility for
certain actions. When you open bank accounts, you form a relationship based
on a very touchy subject ® your money. Therefore you should know what
you're getting into. If you open bank accounts online, you complete this step
by clicking an "I Agree" (or similar) button, and performing the next

step. Step 6: Print, Sign, and Mail (If Applicable)

If you open bank accounts in person, this step does not apply. If you are
opening an account online, you'll probably have to print, sign, and mail a
document to the bank before the account is opened. Some banks may use
electronic disclosure and consent that is legally binding, but many still won't
open bank accounts unless you complete this step. Until they receive the
documents, your account is not active.

Step 7: Congratulate Yourself!

Congratulations, you are the proud owner of a new bank account. Now, you
may have to wait a few days to a few weeks for the bank to process your

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paperwork. Then, they will mail you anything you need to operate the account
such as cheque books and a debit, (ATM/Cash) cards.

TOPIC 6:
THE FUNCTIONS OF VARIOUS SUPPORT AGENCIES IN THE
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES (SMEs)

INTRODUCTION:

The support agencies are set up usually by the Government to promote

entrepreneurship and they are doing a lot towards the development of
SMEs especially in terms of Industrial Development. The need to know
about these support agencies and the activities they carry out are presented
in this section; so that potential entrepreneurs could benefit from their
services.

Specific Learning Outcomes:

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1. Identify various support agencies involved in the promotion and
development of entrepreneurship in Nigeria;
2. Explain the following and their roles in the promotion and
development of entrepreneurship: NEPC, NIPC, NERFUND, NDE,
RMRDC, SMEDAN, IDC, TBICs, and Federal and State Ministries of
Commerce/ Industry;
3. Explain the assistance rendered by research and academic institutions
in entrepreneurship development.

CONTENT
1. Identify various support agencies involved in the promotion and
development of entrepreneurship in Nigeria;
2. Explain the following and their roles in the promotion and
development of entrepreneurship: NEPC, NIPC, NERFUND, NDE,
RMRDC, SMEDAN, IDC, TBICs, and Federal and State Ministries of
Commerce/ Industry;

World wide findings over the years have shown that small firms and
entrepreneurs play very important roles in national economic growth and
development. The Government of Nigeria, like its counterparts, the world
over, has realized the importance of small and medium scale enterprises
and has, over the years formulated various public policies to encourage,
support and fund the establishment and development of SMEs.
Developments in small and medium enterprise are what give a developing
nation the base for employment creation, solid base for creating a middle
class and encouragement for the use of local raw materials and technology.

THE NIGERIAN EXPORT PROMOTION COUNCIL (NEPC)

The NEPC was established through the promulgation of the NEPC Act of 1976
and formally inaugurated in March, 1977. The Council's Amendment Decree of
1992 was to minimize the bureaucratic bottlenecks and increase autonomy in
dealing with members of the Organized Private Sector. Its goal and mission
are to make the non-oil export sector a significant contributor to Nigeria's
GDP, facilitate opportunities for exporters to promote sustainable economic
development. Their Web site is www.nepcng.com

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93
THE NIGERIAN INVESTMENT PROMOTION COMMISSION (NIPC)

The Nigerian Investment Promotion Commission (NIPC) is an Agency of the

Federal Government which was established in 1995 to, among other things,
"Co-ordinate, monitor, encourage and provide necessary assistance and
guidance for the establishment and operation of enterprises in Nigeria."
By this decree the government abolished almost all restrictions on investment,
especially restrictions on foreign investment into the Nigerian economy. Most
of the efforts of the NIPC are, therefore, focused on attracting foreign
investment.

However its total mandate includes domestic investment and its area of
operation include small and medium scale enterprises. It is currently
managing, on behalf of the Federal Government, a World Bank MSME pilot
project aimed at empowering and increasing capacity in the MSME sectors as
well as in NGOs that specialized in BDS to MSMEs. While the pilot programme
only includes Lagos, Abia and Kaduna States, it is likely that other states and
the FCT will come under this programme within the next five years. The NIPC
also has a new very informative web site at www.nipc-ng.or . It has a very
comprehensive section on tax incentives.

DEVELOPMENT FINANCE INSTITUTIONS (DFIs)

Over the years, a number of Development Finance Institutions (DFIs) were
established by various governments to provide funds that would boost
economic activities in the country and in the process, reduce the rate of
poverty. Sadly, however, 47 years after independence, the rate of poverty has
continued to grow. Some of the Development Finance Institutions that were
introduced over the years to help fight poverty are: The Nigerian Bank for
Commerce and Industry (NBCI), Nigerian Industrial Development Bank
(NIDB), and the National Economic Reconstruction Fund (NERFUND).

In the early 2000 the NIDB was transformed into the Bank of Industry
(BOI), following the government's decision to merge it with NBCI and
NERFUND.

In addition to the above the government, since the advent of the new
democracy, initiated more programmes aimed at fighting poverty in the
country. They range from the National Poverty Eradication Programme
(NAPEP) to Small and Medium Enterprises Development Agency of Nigeria
(SMEDAN)

The microfinance scheme has just been introduced in 2007, as an evolution

of the community banks to Microfinance Banks (MFBs) that would primarily
focus on small scale lending as a way of empowering low income earners
and small ventures so as to fight poverty and boost economic activities.

94
THE RAW MATERIALS RESEARCH AND DEVELOPMENT COUNCIL
(RMRDC).

The Raw Materials Research and Development Council (RMRDC) is an

agency of the Federal Government of Nigeria vested with the mandate to
promote the development and utilization of Nigeria's industrial raw
materials.

It originated from the recommendations of a Workshop on Industrial

Matters which was organized by the manufacturers Association of Nigeria
(MAN) and the Nigerian Institute of Social and Economic Research (NISER)
in July 1983. It was established by Decree No.39 of 1987, but commenced
operation on February 10, 1988. It is today, Nigeria's focal point for the
development and utilization of the nation's vast industrial raw materials.

The primary mandates of the Council are:

a. To draw up policy guidelines and action programmes on raw materials

acquisition, exploitation and development;
b. To review from time to time, ' raw materials, resources availability
and utilization, with a view to advising the Federal Government on the
strategic implication of depletion, conservation or stock-piling of such
resources;
c. To advise on adaptation of machinery and process for raw materials
utilization;
d. To provide special research grants for specific objectives and device
awards or systems for industries that achieve breakthrough or make
innovations and inventions; and
e. To encourage the publicity of research findings and other information
relevant to local sourcing of raw materials. Industrial development is
one of the indices for measuring the development of nations. The
development and survival of a manufacturing sector in an economy is
predicted largely on availability of raw materials. The exploitation and
utilization of such raw material is critical to economic development.
RMRDC is therefore very critical to the development of Nigeria's
productive sectors.

Currently, the capacity utilization of many industries in Nigeria is low due

to lack of raw material utilization and the singular focus of the economy on
one product. It is hoped that RMRDC through its numerous programmes,
will promote new investments in the other local resources and encourage
industries to substitute local raw materials for currently imported ones.

The global goal is to pursue this policy which will invariably have multiplier
effects on the nation's economy in terms of new industries, more

95
employment and increase gross domestic product (GDP). Their web site is:
www.rmrdc.gov.n

THE SMALL AND MEDIUM ENTERPRISES DEVELOPMENT AGENCY

OF NIGERIA (SMEDAN) was established by the SMEDAN Act of 2003 to
promote the development of the MSME sector of the Nigerian Economy.

The Agency positions itself as a "One Stop Shop" for Micro. Small and
Medium Enterprises Development. Micro Enterprises are included in the
clientele of the Agency since they form the bedrock for SME's.'

On its web site, its vision is to establish a structured and efficient micro,
small and medium enterprises sector that will enhance sustainable
development of Nigeria. The mission is to facilitate the access of micro,
small and medium entrepreneurs/investors to all resources required for
their development.

Justification for existence Poverty, due to lack of access to income earning

opportunities and lack of capacity to take advantage of the opportunities, is
a social malaise that is threatening global prosperity in general and national
economic growth and development in particular.

A well-developed MSMEs sector has proved to be one of the most veritable

channels to combat poverty. The establishment of SMEDAN is therefore
justified by the need to trigger the development of Nigeria's MSMEs in a
structured and efficient manner
Its main functions are to provide business information, in partnership with
various state governments. Its efforts with most states, and the FCT

are well displayed on the web. E.g. www.abujaenterpris". for Abuja

enterprises agency. These sites serve as a credible suppository of business
information for the location. Each site compiles, reviews and updates all
existing economic policies, regulations, incentives, and legislation affecting
MSME operations within the State.

The world market section on SMEDAN's site provides sources and makes
available information on international markets, products, standards,
specifications and regulations, including updates in development databank
on MSMEs, raw materials, available local technologies, machineries and
prototypes. Other proposed services through their sites and offices include:

Design and Establishment of Comprehensive BSCs and IPs: To be able to

provide Business Support Centers (BSCs) in each State, to provide business
advisory services. i.e Link MSMEs to sources of funds; provide
internet/website facilities; provide market information; provide business
consultancy services; collate and make available business plans and

96
prototypes; implement capacity building programmes; advise on regulatory
and standardization frameworks and collate all relevant business
information that could be useful to SMEs.

Develop and establish, in collaboration with state governments and NGOs in

the private sector, Industrial Parks (IPs) to facilitate easy access to land,
good infrastructure, security, regulatory bodies such as NAFDAC and SON;
banking services etc.

Capacity Building and Proposed Promotional Services:

• Develop, test and disseminate new business models illustrating best
business practices to upgrade SMEs operations.
• Conduct seminars, conferences, workshops, and interactive sessions
for promotional and capacity building purposes.
• Encourage and facilitate business clusters, networks and cooperatives
for enhanced productivity and easier access to factors of production
including finance.
• Encourage and facilitate new investments in designated priority areas
in each State.
• Organize, trade and investment exhibitions and interactive fora.
• Develop and. apply standards and quality control measures for
technologies and products of SMEs.
• Improve the financial management skills of MSMEs through training
workshops.
• Develop and implement effective strategies for opening up domestic and
international markets for MSMEs products.

Proposed to be a Main Financial Intermediary between MSMEs &

Sources of Finance:
• Liaise with financial institutions to harness and pool resources for
utilization by MSMEs.
• Develop and implement a strategy for the effective and timely
disbursement of SMIEIS funds.
• Hold regular consultations with international donor agencies, trade
groups, relevant ministries, research institutes, states and local
governments with the view to share ideas and partner in implementing
programmes for the development of MSMEs.
• Attract foreign investments and funds for the development of the
MSMEs sub-sector.
Proposed Policy Development:
• Develop and seek statutory approval for a national policy on MSMEs.
Conduct impact assessment studies and use same to recommend
improvements in policy intervention.
www.smedan. ov.ng

THE INDUSTRIAL DEVELOPMENT CENTERS (IDCs)

97
Over the years, the Federal Government has taken various steps, to promote
the development of Small and Medium Scale Enterprises (SMEs). These
included, among others, funding and setting up of industrial estates to reduce
overhead costs.

One of the many institutions established was the Industrial Development

Centers (IDCs), to provide extension services to SMEs in such areas as project
appraisal for loan application, training of entrepreneurs, managerial
assistance, product development, production planning and control, as well as
other extension services. The first IDC was established in Owerri in 1962 by
the former Eastern Nigeria Government, Ministry of Trade and Industry, and
was taken over in 1970 by the Federal Government.

Subsequently, more IDCs were established at Zaria, Oshogbo, Maiduguri,

Abeokuta, Sokoto, Benin City, Uyo, Bauchi, Akure, Ilorin, Port Harcourt, Kano
and Ikorodu. Over the years the achievements of the IDCs have not been
commendable and in most instances they have peen overtaken by other
government agencies doing the same programmes.

TECHNOLOGY BUSINESS INCUBATION CENTERS, (TBIC's)

Part of the NEEDS program of the Obasanjo era included the creation of
jobs, through improving education facilities with special emphasis on
Technology business Incubation Centers, (TBIC's). The goal is to promote
and engage the semi-formal productive sectors of the economy:

According to information at the beginning of 2000 about 70% of the

population of Nigeria are engaged either in the informal sector, the
Agricultural sectors, or small and medium enterprises (SME's). Such
important sectors of the economy have access only to the most rudimentary
technology, information and processes. As part of the transformation
agenda, the government wanted to diversify the economic base and
mainstream the informal sector while strengthening its linkages to the rest
of the real sector by increasing the local value addition and share of
manufactured goods in total exports.

Under NEEDs, I and II the institutional and policy framework for this was
assigned to Small and Medium Enterprise Development Agency of Nigeria,
(SMEDAN), Business Incubation Centres Technology, TBIC's) and (Small
and Medium Industries Equity Investment Scheme, (SMIEIS). In a summary
SMEDAN and TBIC's aimed to provide conducive environments for
nurturing start -ups and survival of value added and technology - related
manufacturing enterprisers.

98
3 Explain the assistance rendered by research and academic
institutions in entrepreneurship development.

Entrepreneurs are widely recognized as the prime movers of economic

development; the people who translate ideas into action. An interesting
though not widely accepted definition of an entrepreneur is a person who
has the ability to scan and identify opportunities in his or her environment,
gather the resources necessary to take advantage of the opportunities and
implement successful action to utilize the opportunities.

Another definition identifies an entrepreneur by their behaviour rather than

the specific occupation they are involved in. 'Those who have studied
entrepreneurial behaviour have noted certain characteristics such as
innovativeness, ability and willingness to take calculated risks,
determination, insight, total involvement, independence, need for
achievement, leadership ability and so on.

Recognizing the prime-mover status of business entrepreneurs, the

Government can implement a wide-ranging set of strategies to encourage
youth to initiate their own small businesses. The mijor focus for this effort.,
development (SED). Small enterprise development traditionally involve
establishing an enabling environment for small enterprise growth
including analysis and adjustments to the regulatory environment that
has been a hindrance to prospective small business owners. Formal
small enterprise development policy encompasses entrepreneurship
development programmes under a heading 'Non-Financial
Promotional Programmes' (NFPP). The other two aspects in SED
policy are the provision of responsive small enterprise credit facilities
and an examination of gender issues.

Entrepreneurship development also involves introducing youth to

entrepreneurship education with the aim of getting them to think about
entrepreneurship and the role of business entrepreneurs in economic
development. They also get an opportunity to analyze the difficult
employment situation in the country and are encouraged to consider
self-employment as a career choice. Stacked up against such a choice
are many examples of business failures in the community, negative
attitudes towards business, and misconceptions about what makes a
business succeed (the common view is that all you need to succeed is
'capital).

One major task of entrepreneurship education trainers/researchers' is

to counter these negative influences with positive ones such as
presentation of successful role models and case studies of successful
small enterprises. One major problem is how to integrate
entrepreneurship concepts and practices into the teaching of other

99
subjects. Students are encouraged to initiate micro-businesses while
still in college as a way to enable them to acquire an insight into the
operation of a business. They are also required to identify a potential
business as well as prepare and present a complete Business Plan as
their final-year evaluation in the subject.
.
Selecting Promising Entrepreneurs:
A panel of experts from small enterprise development agencies,
financial institutions and entrepreneurship development agencies
would select promising plans and encourage the selected graduates to
develop their plans, attend further training and implement their plans.
It is hoped that in this way, more youth will initiate their own
businesses and that more of such businesses would succeed. Indeed an
enterprise that is more than three years old is regarded as having
achieved some measure of success.

Supporting the Young Entrepreneurs:

In order to ensure that the young entrepreneurs do not go out into the
business 'jungle' and face the difficulties on their own (yes, it is not
easy!), Small Business Centers (SBCs) should be established with
several objectives such as assisting students finalize their Business
plans and link them with financiers, develop information and
other
resources, develop small business assistance programmes for
women and disadvantaged groups within their communities and
conduct research in entrepreneurship and small business
development. The SBCs should also offer consultancy and counseling
services to small businesses and provide need-based training for the same
target group.

The SBC Network:

This provides an opportunity to study the various aspects of information
management including identifying high utility information, collecting,
processing it, and providing it to clients in as useful a form as possible.
SBCs may be regarded as low level centers that deal with low technology
micro-enterprises or alternatively as the start of an effective nation-wide
enterprise support network with all the sophistication and effectiveness of
similar service providers in the US and elsewhere.

The ability for SBCs to acquire up-to-date information depends on the

availability and cost of such information. One way to improve access
speed and reduce cost is by implementing a computer-based
information system linked to the international networks (Internet) and
regional networks. This would enable information sharing as well as
expertise sharing among SBCs. However, mechanisms for generating

100
usable information and useful databases that is very scarce at present, offer
good research opportunities to universities.

Regional Center for Enterprise Development (RCED)

The SBCs have local perspectives with each assigned specific geographical
areas of operation. The need for a center with a national and regional
perspective cannot be overlooked. The Center's activities should be geared
towards entrepreneurship, managerial and extension oriented
research, entrepreneurship studies and technological research;
consultancy, rural enterprise development, small and medium
enterprise, information dissemination and appropriate technology, and
conduct of industry dialogues, conferences and appreciation
seminars.... It is a center of excellence and innovation in the field of small,
medium and large enterprise training, promotion and development'. The
Regional Center should seek partners globally to share common interests
and good practices.

TOPIC 7:
THE ACTIVITIES OF VARIOUS INDUSTRIAL ASSOCIATIONS IN THE
DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES (SMES)

INTRODUCTION:

There is no doubt that industrial association through the activities they

conduct, promote entrepreneurship in Nigeria in a number of ways. It is
therefore pertinent for potential entrepreneurs to appreciate the activities
of the different industrial association and try as much as possible to benefit
from their functions. In the light of this some efforts are made in this
section to give some inputs regarding the role of industrial associations in
entrepreneurship development, so that entrepreneurs could benefit from
their activities.

SPECIFIC LEARNING OUTCOMES:

101
4. Explain the meanings of the following acronyms: NASSI, NASME,
NACCIMA, MAN, NECA and NESG;

5. Describe the roles and functions of each of the above in the

development and promotion of entrepreneurship.

CONTENT
1 Explain the meanings of the following acronyms: NASSI,
NASME, NACCIMA, MAN, NECA, and NESG;
2 Describe the roles and functions of each of the above in the
development and promotion of entrepreneurship

1. NIGERIAN ASSOCIATION OF SMALL-SCALE INDUSTRIALISTS

(NASSI)
NASSI was founded in 1978 to cater for the need of small scale
business industrialists through the provision of socio-politico
economic support for members.

ROLES AND FUNCTIONS OF NASSI

1. It organizes workshops, conferences, exhibitions, trade-fairs, study
tours and also provides advisory and library services to members.
2. It furnishes information on sources of raw materials, market
situations, plants and equipment, required manufacturing standard.
3. It grants micro credit facilities to members and sometimes stands as
sureties for bonafide small and medium enterprise
(SME) in their relationship with development finance institutions (DFIs)
4. It links up its members with various opportunities and development
assistance both at home and abroad.
5. It serves as the mouthpiece of members in advocacy capacity against
unfavorable public policies.

2. THE NIGERIAN ASSOCIATION OF CHAMBERS OF COMMERCE,

INDUSTRY, MINES AND AGRICULTURE (NACCIMA)

NACCIMA was founded in 1960. It is a voluntary association of

manufacturers, merchants, miners, farmers, financers, industrialists, trade
groups who network together for the principal objectives of promoting,
protecting and improving business environment for micro and macro benefits.

ROLES AND FUNCTIONS OF NACCIMA

1. It provides a network of national and international businesses for contacts
and opportunities.
2. It promotes, protects and develops all matters affecting commerce,
industry, mines and agriculture and other form of private economic activities
by all lawful means.

102
3. It promotes, supports and opposes legislative and other measures affecting
commerce, industry, mines, and agriculture in Nigeria.
4. It contributes to overall economic stability of the community.
5. It encourages an orderly expansion and development of all segments of
community.
6. It also contributes to the socio-politico-economic development of Nigeria.

3. MANUFACTURER ASSOCIATION OF NIGERIA (MAN)

It was established in May 1971 at the initiative of members `of Ikeja and
Apapa Manufacturers Association and other Manufacturers in various
industrial centre in Nigeria.
Though an industrial association, it was formed as a company linked by
guarantee to perform important roles on behalf of its members as well as in
the development of the country.

ROLES AND FUNCTIONS OF MAN

1. To encourage a high standard of quality for members' products through
the collection and circulation of useful information and the provision of
advice.
2. To encourage the patronage of Nigerian made products by Nigerians
and by consumers in foreign countries.
3. To develop and promote the contribution of manufacturers to the
national economy through government.
4. To provide for manufacturers all over Nigeria the means of formulating,
making known and influencing general policy in regard to industrial,
labour, social, legal, training and technical matters.

MAN SECTORAL GROUPS

Activities of MAN are focused on sectoral group interactions. Thus the

Associations interventions are based on the value chain analysis of the sectors.
The following is a list of current sectoral groups:
1. Food, beverages and Tobacco
2. Chemicals and Pharmaceuticals
3. Domestic and Industrial Plastic, Rubber and Foam
4. Basic Metal, Iron and Steel, and Fabricated Metal Products
5. Pulp, Paper and Paper Products, Printing and Publishing
6. Electrical and Electronics
7. Textile, Wearing Apparel, Carpet, Leather and Leather Footwear
8. Wood and Wood Products including Furniture
9. Non-Metallic Mineral Products
10. Motor Vehicle and Miscellaneous Assembly
11. MAN Export Group

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4. THE NIGERIAN EMPLOYMERS CONSULTATIVE ASSOCIATION
(NECA)

NECA was founded in 1959 with its memberships drawn from the private and
public sector employers’ associations. It is the umbrella organization for
employers association of Nigeria.

ROLES AND FUNCTIONS OF NECA

1) Promote and encourage any technical or other forms or education for

the development of employees.
2) Assist in the maintenance and promotion of good relations between
members and their employees.
3) Encourage payment of equitable rates of wages and salaries.
4) Promote, influence, modify or seek the repeal of legislative and other
resources affecting or likely to affect employers.

5. NATIONAL ASSOCIATION OF SMALL AND MEDIUM

ENTERPRISES (NASME)

NASME is an important private sector organisation in Nigeria. It brings

together small- and medium-scale enterprises from across the country. It is
devoted to networking, capacity building, policy advocacy and promotion of
the performance of its member firms and operators. Almost all the members
of NASME fall into the group of firms mostly affected by poor infrastructure
provision and maintenance, weak legal and regulatory framework, and
irregular institutional provisions for good governance. Member firms of
NASME face the daily challenge of operating under unsupportive
macroeconomic environment in almost all the states of Nigeria. As an
interest group, NASME consistently works to improve the welfare of its
members. This necessitates advocacy on both policy actions and outcomes.
Often, the group is called upon to make inputs into policy.

Currently in Nigeria, majority of businesses operating in the states, with the

exception of a few states with large scale industries, are small and medium
enterprises. As such, majority of the ultimate beneficiary of improved
business environment would be small and medium enterprises, and mainly
member firms of NASME. As such, the Association stands to benefit
immensely from research and advocacy programme. As a membership
organisation, NASME would sensitize and mobilize its members and the
entire business community to participate in industrial data collection
project of state as well as use the output for its advocacy programmes.
Analysis and publications from the project are used by NASME for business
environment and competitiveness enlightenment and policy engagement
with it-, members and state governments respectively. It will provide
sensitization and facilitation for survey and data collection in the states.

104
6. THE NIGERIAN ECONOMIC SUMMIT GROUP (NESG)

The Nigerian Economic Summit Group (NESG) was incorporated in 1996 as

an independent, non-partisan, non-sectarian organization, committed to
fostering open and continuous dialogue on Nigeria's economic development.
A registered private sector think tank established to facilitate and carry out
all activities that lead to the implementation of acceptable policies for the
economic growth and development of Nigeria. The aim of the NESG is to
create an enabling environment. conducive to good governance, responsible
private sector investment. and sustainable economic growth. The main
priority of the NESG is to promote a private sector driven economic
growth.

The Nigerian Economic Summit Group is dedicated to achieving

sustainable economic development, in the national interest, through
responsible private sector initiative. To achieve this mission, the NESG,
employs different strategies:

1. Facilitates, supports and anchors the Nigerian Economic Summit

(NES) process (including the Policy Commission);
2. Engages in other activities on its own or through mutually agreed
collaboration with institutions (public or private), the development
community in Nigeria, and others such as local and foreign
institutions/groups, and non-governmental organizations engaged
in similar or relevant development activities; and
3. Uses outputs from (2) above to support the NES process and the
work of the Policy Commission;

The NESG Vision is to become: "Nigeria's leading private sector think

tank committed to the development of a modern globally competitive
economy".

The Policy Commissions which are eight in number, are the structures
through which sector/issue specific recommendations of the Nigerian
Economic Summit (NES) are prioritized by a core group of stakeholders
and followed up to ensure adoption and implementation by the relevant
policy implementing agencies and/or stakeholder groups. These Policy
Commissions meet regularly after the NES to review the
recommendations, develop implementation priorities, and interface with
relevant actors to ensure sustained follow up on implementation.

The NESG Secretariat serves as the organ for carrying out the NESG
mission and strategies. It does so by collaborating with various private
and public organs and by engaging in a network of alliances with
relevant local and foreign institutions and organizations.

105
Membership of the :NESG is made up of policy executives from
progressive companies in the private sector and other similarly qualified
leaders who are committed to national interest rather than any
sectional, sectoral or other business interest.

TOPIC 8:
THE FUNCTIONAL AREAS OF BUSINESS INTRODUCTION:

Entrepreneurs need to be reminded from time to time about the basic

functional areas regarding their enterprises so that they can be up to date and
business like and for them to be efficient and effective managers. It is in the
light of the above that this section exposes the learners to the basic
managerial tools applied in day to day operations of business enterprises.

SPECIFIC LEARNING OUTCOMES:

1. Explain basic management concepts and functions;
2. Explain the basic functions of human capital management in a small
enterprise;
3. Explain the cycle of business growth and the need for adequate
manpower development at each stage;
4. Explain Labour relations;
5. Describe the finance function in a small enterprise;
6. List the books of account necessary for operation of small enterprise;
7. Explain financial regulations and taxes affecting small enterprise
operation;
8. Explain the significance of insurance coverage for a small enterprise;
9. Explain the importance of marketing mix to the growth and expansion of
a small enterprise;
10. Explain the production function in a small enterprise: a. Product
planning and control;
b. Production forms and techniques; c. Factory and facilities layout;

106
d. Operational bottlenecks in the areas of order intake, procurement,
storage and inventory control, distribution, safety and health etc.
11. Explain the importance of quality control and production standards;
12. Explain the need for maintenance management with special reference
to:
a. routine maintenance;
b. scheduled maintenance;
c. preventive maintenance;
d. spare parts management;
13. Explain staff training and retraining needs of an enterprise. CONTENT

1. Explain Basic Management Concepts and Functions;

MANAGEMENT CONCEPTS
Any organization, whether new or old, whether small or big need to run
smoothly and achieve the goals and objectives which it had set forth. For this
they had to have developed and be implementing their own management
concepts. There are basically four management concepts that allow any
organization to handle its tactical, planned and set decisions. The four basic
functions of the management are just to have a controlled plan over the
preventive measure. The four functions of management are:

The base function is to: Plan

It is the foundation area of management. It is the base upon which all the
areas of management should be built. Planning requires administration to
assess; where the company is presently set, and where it would be in the
target date. From there an appropriate course of action s is determined
and implemented to attain the company's goals and objectives
Planning is unending course of action. There may be sudden situations that
companies have to face. Sometimes they are uncontrollable. You can say that
they are external factors that constantly affect a company both optimistically
and pessimistically. Depending on the conditions, a company may have to alter
its course of action in accomplishing certain goals. This kind of
preparation/arrangement is known as strategic planning. In strategic
planning, management analyzes inside and outside factors that may affect the
company and set objectives and goals. Here they should have a study of
strengths and weaknesses, opportunities and threats. For management. to do
this efficiently, it has to be very practical and focused.

The subsequent function is to: Organize

The second function of management is getting prepared and getting

organized. Management must organize all its resources well before hand
in order to put into practice a course of action; and to ensure that what
has been planned is the base function. Through this process, management

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will now determine the inside directorial configuration; establish and
maintain relationships, and also assign required resources. While
determining the inside directorial configuration, management ought to
look at the different divisions or departments. They also see to the
harmonization of staff, and try to find out the best way to handle the
important tasks within the company. Management determines the division
of work according to its need. It also has to decide for suitable
departments to hand over authority and responsibilities.

The third function is to: Direct

Directing is the third function of management. Working under this function

helps the management to control and supervise the actions of the staff.
This helps them to assist the staff in achieving the company's goals and
also accomplishing their personal or career goals which can be powered by
motivation, communication, department dynamics, and department
leadership.
Employees that are highly provoked generally surpass in their job
performance and also play important role in achieving the company's goal.
And here lies the reason why managers focus on motivating their
employees. They come about with prize and incentive programmes based
on job performance and geared in the direction of the employees
requirements.

It is very important to maintain a productive working environment,

building positive interpersonal relationships, and problem solving. And this
can be done only with effective communication. Understanding the
communication process and working on areas that need improvement, help
managers to become more effective communicators. The finest technique
of finding the areas that requires improvement is for managers to ask
themselves and others at regular intervals, how well they are doing. This
leads to better relationship and helps the managers for better directing
plans.

The final function is to: Control

Control, the last of four functions of management., includes establishing
performance standards which are of course based on the company's
objectives. It also involves evaluating and reporting of actual job
performance. when these points are studied by the management then it is
necessary to compare actual performance with expected benchmarks.

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This study on comparison of both decides further corrective and preventive
actions.

In an effort to solve performance problems, management should insist on

higher standards. They should straightforwardly speak to the employee or
department having problem. On the contrary, if there are inadequate
resources or other external factors that disallow standards from being
attained, management has to lower their standards as per requirement. The
controlling processes, in comparison with the other three, are an unending
process or say a continuous process. With this management can detect any
probable problems. It helps them in taking necessary preventive measures
against the consequences. Management can also recognize any further
developing problems that need corrective actions.

Effective and efficient management leads to success; the success where it

attains the objectives and goals of the organizations. Of course for achieving
the ultimate goal and aim, management needs to work creatively in problem
solving in all the four functions. Management not only has to see the needs
of accomplishing the goals but also has to look in to the process that their
way is feasible for the company.

2. Explain the Basic Functions of Human Capital Management In

A Small Enterprise;

Human resource management (HRM) is the strategic and coherent

approach to the management of an organization's most valued assets - the
people working there who individually and collectively contribute to the
achievement of the objectives of the business. The terms "human resource
management" and "human resources" (HR) have largely replaced the term
"personnel management" as a description of the processes involved in
managing people in organizations. Human Resource management is
evolving rapidly. Human resource management is both an academic theory
and a business practice that addresses the theoretical and practical
techniques of managing a workforce
HRM is seen by practitioners in the field as a more innovative view of
workplace management than the traditional approach. Its techniques force
the managers of an enterprise to express their goals with specificity so that
they can be understood and undertaken by the workforce, and to provide
the resources needed for them to successfully accomplish their
assignments. As such, HRM techniques, when properly practiced, are
expressive of the goals and operating practices of the enterprise overall.
HRM is also seen by many to have a key role in risk reduction within
organizations. This revolves around training and retraining of the workforce
for personal improvement and capacity to improve job performance.

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3. Explain the Cycle of Business Growth and the Need For Adequate
Manpower Development at Each Stage;

CYCLE OF BUSINESS GROWTH

A research team at Bain & Company found that of the companies that made
the Fortune 500 in 1994, a decade later, 153 of those companies either had
gone bankrupt or had been acquired. Of the remaining 347, the team
judged that 132 had engineered a fundamental shift in their core business
strategy. In other words, 285 out of the 500 faced serious threats to
their survival or independence during the ten-year period. Only about
half of this group was able to meet the threats successfully by redefining
their core business.
What accounts for the fact that so many companies are facing the need to
transform themselves? One way to understand it is through what we call the
Focus-Expand-Redefine (F-E-R) cycle in business. Nearly every large
enterprise seems to move through this cycle over time. In the Focus phase,
companies concentrate on building their core business to its full potential.
They expand their markets, cut costs, improve operations, and develop
innovations in their core products. In the Expand phase, they take
advantage of these capabilities and market positions to move into adjacent
markets. They seek out new customer segments, new geographies, new
distribution channels, and new-but-related product lines.

At some point, however, many companies find that their growth and
profitability is tapering off or even declining. Perhaps the market has
reached a saturation point, or perhaps the pool of available profits has
shifted. Perhaps new competitors with lower cost structures or innovative

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products have appeared. This is when a company moves into phase three and
must face the challenge of redefining
its core.

Today, there is little doubt that the F-E-R cycle has accelerated: companies
move from one phase to another faster than ever, thanks to a number of well-
recognized forces. New competitors from China and India have shaken up
whole industries. New technologies have lowered costs and shortened
product lifecycles. Capital, innovation, and management talent all flow more
freely and more quickly around the globe than ever before.

The average holding period of a share of common stock has declined from
four years in the 1980s to nine months today. The average lifespan of
companies has dropped from fourteen years to just over ten, and the tenure
of CEOs has declined from eight years a decade ago to less than five years
today. Companies must thus navigate an unusually turbulent sea.

Focus on the Core

In the Focus phase of the cycle of business, companies concentrate on
building their core business to its full potential. They expand their markets,
cut costs, improve operations, and develop innovations in their core
products.
Having a clear sense of business boundaries and of the definition of your core
is a critical starting point for growth strategy. And identifying the core of
your business is the first step in determining how to grow. In order to do
that, you must identify your key assets.

The book Profit from the Core argues that most growth strategies tail to
deliver value - or even destroy it - primarily because they wrongly diversify
from the core business. The authors contend that this timeless strategic
precept - building market power in a well-defined core - remains the key
source of competitive advantage and the most viable platform for successful
expansion.

The book identifies and explains three key factors that differentiate growth
strategies that succeed from those that. fail:

1. Reaching full potential in the core business

2. Expanding into logical adjacent businesses surrounding that core
3. Preemptively redefining the core business in response to market
turbulence

Expand Beyond the Core

Pushing out the boundaries of a core business is among the most difficult
management challenges. The typical odds of success are low: only one out of

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four adjacency initiatives prove to be successful. In Beyond the Core, Chris
Zoolk outlines an expansion strategy based on p u t t i n g t o g e t h e r
c o m b i n a t i o n s o f adjacency moves into areas away from, but
related to, the core business, such as new product lines or new
channels of distribution. These sequences of moves carry less risk than
diversification, yet they can create enormous competitive advantage, because
they stem directly from what the company already knows and does best.

The promise of growth lies in methods that allow you to decide correctly, to tilt
the odds in your favor, and to control the cost of failures when they inevitably
occur. Small improvements in performance along these dimensions can
increase the overall growth rate of a business considerably. If a company in a
3 percent growth market achieved the potential from its adjacency moves 30
percent faster, handled three - not two- adjacency initiatives per year, and had
a success rate of 60 percent instead of 30 percent, then the company would
nearly double its growth rate to 7.1 percent from 3.9 percent.

Redefine the Core

Not every company whose growth strategy of the past is reaching a limit
needs to rethink its core strategy. To the contrary, declining performance in
what had been a thriving business can usually be chalked up to an execution
shortfall. But when a strategy does turn out to be exhausted, it's generally for
one of three reasons.

a. Shrinking or shifting of the future profit pool

If Apple had not moved its business toward digital music, one might wonder
about its prospects: the profit pool in personal computers has been
contracting, and Apple held only 3 percent of the market. General Dynamics,
faced in the 1990s with a sharp decline in defense spending, sold off many of
its units and redefined the company around just three core businesses
(submarines, electronics, and information systems) where it held substantial
advantages. Only such a radical move saved it from being stranded by the
receding profit pool.

b. Direct threat to the core business

Perhaps the most difficult threat to counter is a new competitor with a
business model involving inherently superior economics. Indeed, the business
landscape is littered with failures and near-failures because management
didn't react. to such a threat fast enough: General Motors (Toyota), Compaq
(Dell), Kmart (Wal-Mart), Xerox (Canon), and so on. Occasionally a company
sees such a threat in time apid responds. The

Port of Singapore Authority, when faced with new, low-cost competition from
Malaysia and other locations, reinvented itself to reduce its own costs and to
provide additional value-added services to customers.

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c. Stall-out of the growth formula.
Growth may stall for any number of reasons. The market may be nearing
saturation (cell phones). The cost-benefit equation of further expansion may
shift unfavorably (think of the difficulties Wal-Mart has encountered in its
continuing attempts to expand). Or a natural advantage may start to erode. A
mining company whose mines are playing out, a pharmaceutical company
with too many expiring patents, a television network that can't find enough
hit shows-all are faced with the need to find a new formula for growth.

4. Explain Labour Relations;

The field of industrial relations looks at the relationship between
management and workers, particularly groups of workers represented by a
union.
Labor relations can take place on many levels, such as the "shop-floor", the
regional level, and the national level. The distribution of power amongst
these levels can greatly shape the way an economy functions. Another key
question when considering systems of labor relations is their ability to adapt
to change. This change can be technological (e.g., "What do we do when an
industry employing half the population becomes obsolete?"), economic (e.g.,
"How do we respond to globalization?"), or political (e.g., "How dependent is
the system on a certain party or coalition holding power?").

Governments set the framework for labor relations through legislation and
regulation. Usually, employment law would cover issues such as minimum
wages and wrongful dismissal.

5. Describe the Finance Function in A Small Enterprise;

Whether a business is small or large, owners and executives must maintain

focus on harnessing core competencies to grow the business. Achieving this
overall objective means developing strategies that focus on marketing, sales,
production, and product/service development..

One of the most often overlooked areas of strategy development is the

finance and accounting function. Often regarded as a "back-office" aspect of
the business, the finance function plays a critical role in providing
information for decision-making. Because decisions are only as good as

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the information on which they are based. Establishing a reliable pipeline of
data from the external business environment must be a priority f ,--,r all
businesses, regardless of size and industry.
The finance function consists of the people, technology, processes, and
policies that dictate tasks and decisions related to financial resources of a
company. The objective of the finance function is not only to serve the
organization's current financial/ accounting needs but also to lay a solid
foundation of infrastructure and awareness that enables the business to
flourish in the future.

Conceptualizing, implementing, and maintaining the right technology,

software applications, and processes are central to managing the finance
function. More than just software applications and the hardware that runs
them, the finance function also encompasses policies, standards, strategies,
and analysis paradigms necessary for decision-making. The various
components of the finance function collectively define the mechanism by
which data flows through the company -- also known as the data flow
dynamic. This is the core of the finance function that gathers, processes, and
analyzes raw data in the business environment - - translating it to critical
information for management.

Virtually all aspects of a business are impacted by the finance function. Some
of the more obvious ways in which it manifests itself include -closing the
books, budgeting and forecasting, external reporting, billing and collections,
and tax compliance. Accurate and timely reporting of financial results is
critical for both internal and external purposes. The finance function also
impacts human resources, marketing, and product/service development.
Decisions in these areas of a business are often reliant on data, whether it is
historical or prospective, generated by the finance function.

For many businesses the greatest impediment to developing a sound finance

function lies in the traditional (mis)perceptions of finance and accounting.
Finance function development must be framed with relevant perceptions of
what the finance and accounting area represents, as well as appropriate
expectations of what the finance function should offer. Executives and
business owners must shed the notion that the finance and accounting area
of the business is the slow wheeling accumulator of historical data. Rather,
the attitude should be that this area of the business is the steward of
financial data that is active in reporting not only historical data to the
external community but also prospective data (forecasts, budgets, and
business models) to management. This type of internal reporting is essential
to marketing, product development, acquisitions, and divestitures.

Companies are never too big or too small to begin strategizing the finance
function. Strategizing in this context is never more important than when the
business is posturing for a major business life-cycle event. Life cycle events

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or milestones in a business' life represent major changes in the organization
intended to make the company stronger. A few examples of life-cycle events
that are dependent on a strong finance function include going public,
acquiring a business loan (for the first time), and seeking growth through
acquisition. Because key decisions made by executives both inside and
outside of the company will determine a favorable outcome in the above
situations, the finance function must be prepared to serve informational
needs throughout these endeavours.

Ultimately, developing a sound finance function and companion strategy is

less about meshing hardware, software, and policies and more about
establishing a culture of strategic mindedness and continuous improvement
in the finance area. Cultivating a strategic mind set throughout the
organization is more fruitful in the long term than limiting strategic efforts to
cookbook-type checklists.

The challenge of developing sound finance strategies is common to

companies of all sizes. This means that businesses of all sizes and industries
will be subject to their own unique challenges and possess their own
particular advantages. For example, initiating a culture of strategic
mindedness regarding the finance function is less challenging in small and
emerging businesses. Because they are smaller and lack complexity in form
and structure, it is often easier to institute change more quickly. Conversely,
large companies have the advantage of tapping a greater cache of resources
to discern matters of finance strategy and employ solutions. Access to
greater pools of knowledge and financial resources to bankroll the finance
function. and related strategies, enables many large companies to address
this area more effectively over the long term.

The greatest barrier to strategizing the finance function is resistance, or

worse, indifference to forward, proactive thinking. Management that does
not seek to be progressive in this area puts the enterprise at risk.

6. List the Books of Account Necessary For Operation Of Small

Enterprise;

Books of account: Definition

In business most of the transactions relate to receipt of cash, payments of
cash, sale of goods and purchase of goods. So it is convenient to have
separate books for each such class of transaction, one for receipts and
payments of cash, one for purchase of goods and one for sale of goods.
Every entrepreneur should take good care of the business funds. He should
be very clear about some points e.g. at what price he should sell his goods
or how much money he can spend for his personal expenses. These books
are called subsidiary books - cash book, journals, general ledger.

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Cash book is a subsidiary book, which records the receipts and payment of
cash. With the help of cash book, cash and bank balance can be checked at
my point of time.

Cash book can be of four types: 1. Simple Cash Book.

2. Two column cash book.

3. Three column cash book.
4. Petty cash book

A simple cash book is prepared like any ordinary account. The receipts
are recorded in the Dr side and the payments are recorded in the Cr side of
the cash book. The Cash book is balanced like any other account. The
receipts column total will be more than the payments column total. The
difference will be written on the Cr. Side as "BLACK”

A two column cash back records discount allowed and discount received
along with the cash payments and cash receipts. Discount allowed is the
concession given by the businessman to its customers or debtors. Discount
received is the concession received by the businessman from the creditors.

A three column cash Book is a cashbook, which contains bank column

along with cash and discount columns. A firm normally keeps the bulk of its
funds at a Bank; money can be deposited and withdrawn at will if it is a
current account. Probably payments into and out of the bank will be more
numerous than strict cash transactions. There may be only a little difference
between cash in hand and cash at bank. Therefore it is very convenient if in
the cash book on each side another column is added -- to record moneys
deposited at bank and payments out of the bank.
The petty cashier is given a sum of money in the beginning of the period.
During the period he makes payment out of this money. At the end of the
period, the firm reimburses him the amount paid by him so that the balance
of cash with him remains same in the beginning of the period as well as at
the end of the period. This is called the Impress System of Petty Cash Book.

A Journal is a chronological record of the business transactions of the

enterprise. It is also called the "book of original entry". Transactions are
recorded based in the order of occurrence. Entries in the journal are
supported by evidence or documents such as: sales invoice, official receipts,
purchase orders, suppliers invoices, etc. Originally, there was only one
"journal" called a "general journal", but in time this Journal became hard to
maintain, and specific transactions were set out into specific journals: Some
special types of journals are:

Cash/check disbursement journal-this is where you record all your

disbursements

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Cash receipts journal-this is where you record all your receipts of cash
Sales/income journal-this is where you record all your income/sales

General journal-this is where you record all other transactions that does not
require any cash
General Ledger: After all business transactions for the day have been
recorded in the journal, the next step in the bookkeeping cycle requires that
all entries should be properly transferred to the general ledger. The general
ledger is a collection of accounts, usually bound, showing the different
transactions affecting the items in the balance sheet. It is also called the
"book of the final entry" or in some countries "the books of secondary
entry".

7. Explain Financial Regulations and Taxes Affecting Small

Enterprise Operation;

The Effect of Financial Regulations and Taxes on SMEs' SMEs are

necessary engines for achieving national development goals such as
economic growth, poverty alleviation, democratization and economic
participation, employment creation, strengthening the industrial base and
local production structure. However, the ability of SMEs to realize these
economic and social objectives depend on the regulatory and policy
environment within which they operate (ILO, 2000). More often than not,
regulatory policies often aimed at developing other sectors of the economy
have unintended negative impact on SMEs. For instance, trade
liberalization intended to boost export revenue often stifles local production
due to the increased imports of cheap local substitutes. This argument is
emphasized in the summary by the OECD (1997) below:

" ... While some regulations may deliberately favour SMEs (many
regulations exclude the smallest firms), in general the adverse impact of
regulation on SMEs can be particularly harmful. This is because SMEs are
less equipped to deal with problems arising from regulations since they have
less capacity than larger firms to navigate through the complexities of
regulatory and bureaucratic networks. SMEs are more likely to be hampered
by regulations because their strength stems from their flexibility. Some
regulations designed to prevent entry into the market by dynamic SMEs are
particularly detrimental"

Whereas larger firms may appoint a member of staff to perform the

administrative role and compliance associated with regulation, an SME may
simply not have the resources to do so (White, 1999; Rajapatirana, 199).
Even when they have the resources, their size puts them at a disadvantage
position. In other words, meeting regulatory requirements raises
transactions costs of SMEs and puts them at a disadvantaged position as

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compared to large domestic enterprises and foreign firms that may not be
operating under excessively restrictive regulatory regimes. In such regimes,
transaction costs are high and for SMEs, they form a greater proportion of
total costs than for large firms. The cost of registering a business, the need to
use external accountants to satisfy regulatory requirements, and time spent
dealing with regulatory agencies are more expensive in terms of per unit
costs of production for SMEs. Even where they are technically efficient, the
actual costs that include transaction costs would make SMEs less
competitive.

Regulations on SMEs take different forms; it may be regulations governing

business start-up, regulations governing business activity, regulation on
labour practices, payroll changes, health and safety standards, taxation and
foreign trade. These can be grouped under three major categories: economic,
social and administrative regulation. This section focuses on economic and
structural regulations.

Economic and Structural Regulations

This is often used by governments to influence the allocation of resources

with the view to improving the efficiency of markets in the delivery of goods
and services. It includes:

Restrictions on entry and exit to markets - registration requirements and

procedures, permits and licensing laws, laws and regulations on choosing the
business activity, form of the business, business location, choice of
production process and machinery. These policies often turn to be very
restrictive and therefore hinder SME development. For instance, SMEs face
high start--up cost often associated with registration and licensing
requirements, the high cost of settling disputes or claims and excessive
delays in court proceedings. Sometimes the volume of administrative work
involved in registration and licensing is enormous.

Aryeetey et al (1994) also emphasized that the process of registering a

company and obtaining a manufacturing license to commence business can
be a cumbersome process in developing countries. In addition to the
excessive -red-tape', the absence of anti-trust legislation, which favours large
firms and the lack of protection for property rights, inhibit SMEs access to
foreign technology.
Monetary and Credit Policies: This includes inflation and money supply
policy, interest rates policy, and requirements on collateral and security,
banking and financial intermediation laws. Also, exchange rates and controls,
mandatory allocation of credit resources to SMEs, policies on specialized
credit schemes, the informal financial market, NGOs and other DFIs in credit
and finance for SMEs all have both positive and negative effects on SME
development. For instance, restrictions on interest rate affect the ability of

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the domestic financial system to mobilize savings and channel them into
productive ventures (Brownbridge and Harvey, 1998).

Requirements on collateral and security are other restrictive policies that

hinder SME development. Since the SME sector has generally been
considered as risky, financial institutions demand collateral from
entrepreneurs often in the form of landed property prior to the granting of a
loan or credit. Whereas this serves as a form of security to the financial
institutions, it seriously hinders SME entrepreneur from obtaining credit for
start-up, for expansion or working capital purposes.

Another policy tool that is having effect on the SME sector is exchanges rate
and capital controls. Excessive exchange controls limit the scope of risk
diversification and isolate the domestic financial system from developing in
international markets. For instance, capital controls in Ghana and Nigeria
prevented foreign banks and deposit insurance companies from entering
domestic markets, this stifled competition and inhibited innovation. Whereas
many countries have relaxed controls on capital and exchange rate, there are
quite a few who directly control their exchange rate markets and capital
movements. These restrictive policies are often put in place to prevent
capital flights and a repetition of the Asian crisis. Ironically, those developing
countries with liberalized exchange rate regimes are experiencing rapid
depreciation in their exchange and this is having repercussions on imports,
especially raw materials needed by the domestic industrial sector. Harrigan
and Oduro (2000:160) mentions that exchange rate devaluation has made it
hard for small entrepreneurs in Ghana to borrow enough local currency to
purchase foreign exchange in the auction market and to purchase imported
capital goods.

Many developing countries in an attempt to control inflation have applied

restrictive credit policies, that is, ceilings on bank lending. The need to
maintain a tight credit policy arose in view of the high growth in money
supply and hence inflation remained high. Credit ceilings have being a
constraint to bank lending to firms'. In 1988, several banks in Ghana started
extending credit in the form of balance sheet acceptances to evade the
ceilings until prevented from doing so by Bank of Ghana Directive in March
1989 (Brownbridge, 1995). Consequently, commercial banks in Ghana
reported to an IMF mission in 1989 that the ceilings prevented them from
accommodating effective demand for credit from credit worthy customers, as
a consequence of which they continued to hold substantial levels of excess
reserves (IMF, 1989:17-20 & 88-90). Sowa (1991:29) reports that in
February 1989 six banks were barred by the Bank of Ghana from taking part
in the weekly foreign exchange auctions for exceeding their credit ceilings.

In addition to the global ceilings on credit mandatory lending to certain

priority sectors of certain developing countries exists. There is widespread

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regulation on credit allocation to priority sectors (especially agriculture and
small and medium industries) at interest rates often below the market
equilibrium rate. This policy has widespread implications on the financial
system; it severely affect banks in performing their intermediation role since
these mandatory lendings are often done at interest rates far below market
rates. This point was emphasized in Brownbridge and Kirkpatrick (1999)
where they argued that economic regulations particularly those which
attempt to direct banks to lend to sectors to which they would not be willing
to lend on commercial grounds is likely to worsen banking sector fragility.
Since such sectors are usually not regarded as credit worthy or the
transactions costs of lending to such a sector is too high government
directives to force credit to such a sector will severely constrain banks ability
to perform their intermediation role. Aryeetey (1995) reports that sectoral
credit directives in Ghana and Nigeria failed to achieve the intended
objectives; the sectoral credit ceilings were ineffective as large discrepancies
were recorded between actual lending to particular sectors and permitted
levels2.

Trade Regulation: The import and export procedures in developing countries

often increase the transactions costs of SMEs. The volume of paper work,
delays, bribes often absorb the resources of SMEs, particularly, those
dependent on international trade either for imported raw materials, capital
goods, or those that export their products. In most 1 A World Bank Survey of
firms in 1989 reported that credit was a major or moderate problem for
89% of sampled firms. Also see Aryeetey et al, 1994; Kayanula and Quartey,
2000. Also refer to Aryeetey, Asante, Kyei and Gockel, 1990:20-21

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cases, smaller firms export indirectly by subcontracting to large exporters.
In such cases, the costs of regulation are reduced. However, regulation
constrains medium exporters and small firms that wish to grow through
exports. Holden et al (1998) adds that although regional integration and the
harmonization of trade have reduced trade barriers, custom and port
procedures are often cumbersome by international standards. Since SMEs
export or import in smaller quantities, the fixed costs of dealing with import
and export procedures heavily weigh against SMEs.

Minimum wages: High minimum wages deter SMEs from hiring the number
of workers needed for expansion and if there is substantial unemployment
in the country, it introduces inefficiency. Minimum wages indirectly
increase transactions costs for SMEs, particularly, where it encourages
informality or temporary hiring. Minimum wages can be a subject of
disputes between business owners, workers and government departments
dealing with labour issues thereby increasing transactions cost to SMEs.
However, Holden et al (1998) argued that minimum wages is not a binding
constraint on SME employers in most countries. In most cases, the wage is
well below what unskilled labour earns and it is rather the non-wage labour
costs associated with hiring additional workers that is "prohibitively
expensive".

Non-wage compensation: This includes housing bonuses, transportation

allowance, family wage allowances, extended paid maternity leave,
employers insurance contributions, end-of-year bonuses, sick pay or leave
and other forms of compensation. Holden et al (1998) argues that the direct
costs of these payments are not transactions costs, but rather additional
labour costs. Besides, the financial burden, these additional labour costs
represent an additional accounting and administrative burden for
conducting formal business. This extra burden therefore serves as an
incentive for SMEs to remain informal. If they do formalize, larger SMEs
will rely on temporary labour or sub-contract. The cost of searching. and
hiring temporary labour can also be enormous and besides by relying on
temporary labour, SMEs are not encouraged to invest in training such
workers, thereby affecting labour productivity.

Job Security: This includes severance pay requirements, laws governing the
hiring and firing of workers, etc. Severance pay is a direct cost and place an
extra burden on firms adjusting during economic downturns and serves as a
disincentive to hiring workers. They encourage temporary hires and make
SMEs bear the necessary costs associated with these choices.

Taxation: Taxation is a major field of government activity that has significant

impact on SMEs. Tax policies include investment and tax incentives, taxes
applying to starting and operating a business, capitalbased and income-based
taxes. Taxation can be used to stimulate one area of economic activity

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(through tax incentives) or limit another area (import duties to limit foreign
competition). The cost of complying with tax regulations often makes them a
principal regulatory problem to SMEs. There are three ways in which taxation
affects the transactions costs of SMEs and they are:

(a) Complexity: complex tax systems require more business resources for
calculating and complying with tax legislation. Tax complexities involve four
factors: the number of taxes, timing of tax reporting and payment, the tax base
and exemptions. A complex tax system is characterized by large numbers of
direct income and payroll taxes. Thus, complex tax systems force SMEs into
hiring expensive external accountants to prepare their tax returns.

(b) Enforcement: The transactions costs imposed on SMEs by a country's tax

complexity will be unavoidable where enforcement is strong. On the other
hand, in cases where enforcement is weak these costs can be avoided.
However, tax avoidance introduces additional cost by promoting bribery,
corruption and informality.

(c) Stability: In countries where the rules of taxation are continually

changing, SMEs incur transactions costs in learning and complying with new
systems. On the other hand, if the rules are fixed but their application is
discretionary, it can increase transactions costs by placing extra costs on long
term planning, making both coordination and information gathering more
costly.

8. Explain the Significance of Insurance Coverage For a Small

Enterprise;
There are several definitions of Insurance, however Dr. Dickson in his book
Element of Insurance defines it thus. Insurance is a risk transfer mechanism,
whereby the individual or organization can shift some of the uncertainty of life
on the shoulders of others i.e. Insurers /underwriters. Insurance is also
defined as a common pool of fund by the Insurers in order to indemnify the
unfortunate few who are affected or suffer losses.

In return for a known premium, usually a very small amount compared with
the potential loss, the cost of that loss can be transferred to an Insurer.
Without Insurer, there would be a great deal of uncertainty experienced by an
entrepreneur, not only as to whether a loss would occur, but also as to what
size it would be if it did occur.

The entrepreneur is advised to consider the following insurance policies in

order to mitigate the effects of any un-foreseen losses on his investment and
assets.

PROPERTY INSURANCE:

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This policy is designed to protect property such as building and contents
against the risks of damage or loss. The three separate policies available
under the property insurance are:
(a) Standard Fire Policy
(b) Theft/Burglary Insurance
(c) Computer And Electronic Equipment All Risk Insurance

(a) Standard Fire Policy: The basic intention of the fire policy is to
indemnify the insured person in the event of damage to property insured.
The standard fire policy covers damage to property caused by fire, lightning
or explosion, where this explosion is brought about by gas or boilers used for
domestic purposes. This is limited in its scope as property can be damaged in
other ways and to meet this need, a number of extra perils known as special
perils can be added on to the basic policy.
These perils can include the following:

Storm, tempest or flood - impact (of road vehicles & cattle's) Riot, civil
commotion
Burst pipes Malicious damage Earthquake Explosion
Air craft vibration

(b) Theft/Burglary Insurance: This cover would indemnify the insured

on the occurrence of a proven case of' theft/burglary. 4 Theft/burglary
insurance covers items stolen from the insured premises through either
house breaking or through a forceful and violence means.

(c) Computer and electronic equipment all risk

Losses due to the following are covered under this policy.

 Fire, Lightning, Explosion And Smoke Danger

 Burglary or damage done to the equipment as a result of attempted
burglary
 Short circuiting
 Fault operation and lack of skill
 Riot, Strike and Civil Commotion

INSURANCE BOND

(a) Performance Bond: A performance bond is an undertaking or a

contract guarantee. The surety guarantee that the contract will be
properly executed according to the terms and thereby accepts
responsibility for the breach of or for non-performance.

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(b) Advance Payment Bond: An advance payment bond guarantees
performance and protects the abuse of the mobilization fees by the
contractors. It rose to prominence during the era of oil boom when it
was the practice to give contractors advance fees known as mobilization
fees. The rate of default by contractors during this era made this
insurance very important.

MONEY INSURANCE
This policy is designed to cover loss of money including cheques as a
result of fire, theft and other causes not specially excluded. The money
will be covered during transit to and from banks and locations. Cover
will also extend to include all monies while on your premises or on the
counter during business hours or in a locked safe. We could extend
cover to money in personal custody of your senior management while on
official trip outside the Corporate Head Office.

FIDELITY GUARANTEE
This policy is designed to protect an organization from direct loss of
money due to dishonest or fraudulent acts of employees. Individual sums
insured usually depends on the level of cash and/or stock handled by
each employee.

GOODS IN TRANSIT
This policy is to cover the risk of loss or damage inherent in the
movement of goods while loading or off-loading from the point of
departure until delivery at destination. The cover granted is practically
`all risk' including fire, lightning, burglary and other insured perils but
excluding loss or damage arising out of perils specially excluded by the
policy such as disappearance.

MOTOR INSURANCE:
The minimum requirement by law is to provide insurance in respect of
legal liability to pay damages arising out of injury caused to any person.
A, policy for this risk only is available and is termed an `Act only policy.
These are not at all common and usually reserved for a situation where
the risk is exceptionally high. A `third party only' policy would satisfy
the minimum legal requirements and in addition would include cover for
legal liability where damage was caused to some other person's
property.

An addition to the form of cover is where damage to the car itself from fire or
theft is included, a `third party, fire and the theft policy'.
The most common form of cover is the `comprehensive policy' which adds
accidental loss of or damage to the vehicle to the third party, fire and theft
cover.

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This class relates to private cars used for social and domestic purposes and/or
business purposes. Comprehensive policies issued to individuals also include
personal accident benefits for insured and spouse, medical expenses and loss
of or damage to rugs, clothing and personal effects.

COMMERCIAL VEHICLE POLICIES

All vehicle used for commercial purposes, lorries, taxis, vans, hire cars, etc.
are not insured under private car policies but under special contracts known
as commercial vehicle policies.
9. Explain the Importance of Marketing Mix to the Growth and Expansion of a
Small Enterprise;

THE MARKETING MIX

The marketing mix is generally accepted as the use and specification of the 4
Ps describing the strategic position of a product in the marketplace. One
version of the origins of the marketing mix starts in 1948 when James Culliton
said that a marketing decision should be a result of something similar to a
recipe. This version continues in 1953 when Neil Borden, in his American
Marketing Association presidential address, took the recipe idea one step
further and coined the term 'Marketing Mix'. A prominent person to take
centre stage was E. Jerome McCarthy in 1960; he proposed a four-P
classification which was popularized. Philip Kotler describes the concept well
in his Marketing Management book.
Although some marketers have added other Ps, such as personnel and
packaging, the fundamental dogma of marketing typically identifies the four
Ps of the marketing mix as referring to:
• Product - An object or a service that is mass produced or manufactured on a
large scale with a specific volume of units. A typical example of a mass
produced service is the hotel industry. A less obvious but ubiquitous mass
produced service is a computer operating system. Typical examples of a mass
produced objects are the motor car and the disposable razor.

• Price - The price is the amount a customer pays for a product. It is

determined by a number of factors including market share, competition,
material costs, product identity and the customer's perceived value of
the product. The business may increase or decrease the price of product
if other stores have the same product.
•
• Place - Place represents the location where a product can be purchased.
It is often referred to as the distribution channel. It can include any
physical store as well as virtual stores on the Internet.

• Promotion - Promotion represents all of the communications that a

marketer may use in the marketplace. Promotion has four distinct elements
- advertising, public relations, word of mouth and point of
sale. A certain amount of crossover occurs when promotion uses the four

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 principle elements together, which is common in film promotion.
Advertising covers any communication that is paid for, from television and
cinema commercials, radio and Internet adverts through print media and
billboards.

One of the most notable means of promotion today is the Promotional Product,
as in useful items distributed to targeted audiences with no obligation
attached. This category has grown each year for the past decade while most
other forms have suffered. It is the only form of advertising that targets all five
senses and has the recipient thanking the giver. Public relations are where the
communication is not directly paid for and includes press releases,
sponsorship deals, exhibitions, conferences, seminars or trade fairs and
events. Word of mouth is any apparently informal communication about the
product by ordinary individuals, satisfied customers or people specifically
engaged to create word of mouth momentum. Sales staff often plays an
important role in word of mouth and Public Relations. y' Broadly defined,
optimizing the marketing mix is the primary responsibility of marketing. By
offering the product with the right combination of the four Ps marketers can
improve their results and marketing effectiveness. Making small changes in
the marketing mix is typically considered to be a tactical change. Making large
changes in any of the four Ps can be considered strategic. For example, a
large change in the price, say from =N=129.00 to =N=39.00 would be
considered a strategic change in the position of the product.

Since marketing is consumer oriented, it has a positive impact on the

business firms. It enables the entrepreneurs to improve the quality of their
goods and services. Marketing helps in improving the standard of living of
the people by offering a wide variety of goods and services with freedom of
choice, and by treating the customer as the most important person.
Marketing generates employment both in production and in distribution
areas. Since a business firm generates revenue and earns profits by carrying

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out marketing functions, it will engage in exploiting more and more economic
resources of the country to earn more profits.

A large scale business can have its own formal marketing network, media
campaigns, and sales force, but a small unit may have to depend totally on
personal efforts and resources, making it informal and flexible. Marketing
makes or breaks a small enterprise. An enterprise grows, stagnates, or
perishes with the success or failure, as the case may be, of marketing.

10. Explain the Production Function In A Small Enterprise:

a. Product Planning and Control;
b. Production Forms and Techniques;
c. Factory and Facilities Layout;
d. Operational Bottlenecks in

The Areas of Order Intake, Procurement, Storage and Inventory Control,

Distribution, Safety And Health Etc.

METHODS OF PRODUCTION

Production is at the heart of all industry and is the process of using the
resources of a firm to convert `inputs' into `outputs', which are products or
services desired by customers.

Job production

Job production is used to create one-off orders or ,jobs' especially made for
the purpose. This might be a relatively small job such as bespoke suit or a
sandwich made to order in a cafe, or it could be a massive job such as a
cruise liner or the Arsenal's new stadium.

Job production helps ensure that the product or service matches the
customer's exact needs, as closely as the firm is able, because it is literally
`custom-made'. In many cases, skilled or specialized staffs make products of
very high quality, or which have individual character that might have less
appeal if they were mass-produced.

Job production is a relatively expensive process because it requires

specialized and skilled staffs who concentrate on the individual job or
project. It is therefore labour intensive, although some projects - such as the
cruise liner - may also need a lot of expensive capital equipment.
Small businesses that are built on the skills of the owner, such as a window
cleaner or a hairdresser, use job production techniques.

Batch production

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As the name suggests, products are produced in small or large batches. This
process is useful to a firm that makes a number of different variations of
basically similar products. Examples would include; a, bakery, a car exhaust
pipe factory or a toothpaste manufacturer.

If the. sandwich shop mentioned above wanted to speed up production, 5r

instead of making sandwiches to order, it might be able to benefit by °
making the day's sandwiches in batches of all the different types and have
them available for sale, pre-packed.

A toothpaste manufacturer will set its weekly batches of production of each

product according to the orders from the supermarkets and wholesalers.
The same machinery is used for each product but the ingredients,
packaging and/or size is changed for each batch as required. It is crucial
that the machinery can be quickly cleaned and reconfigured for each new
batch to minimize unproductive time.

In a factory that uses flow production, it is quite common for component

parts to be made in batches enough for a week's production.

Flow production
This is a production line method, where product is continuously produced,
flowing from one stage of production to the next. Workers and, increasingly
robots, carry out individual repetitive tasks aiming to work as quickly as
possible without loss of quality. This is the method pioneered by Henry Ford
for his Model T car, and the efficiencies he gained enabled him to produce
large numbers of cars at low cost. Any product made in high volumes will
almost certainly be made on a flow production line.

This approach to production has close links with F.W. Taylor and his
`Scientific school of management' - Taylor's motivational theories were all
about creating the workplace and forms of reward to maximize efficiency.
This in turn led to very boring work and contributed to industrial unrest
over the years where workers' interests were overlooked.

More modern, lean production techniques have at least partly recognized

the fact that this type of work can be extremely boring, and ideas such as
cell production and quality circles can help improve the workplace as
workers become multi-skilled, take more responsibility for quality and can
contribute their ideas for improvements.

Flow production systems are typically capital intensive and it is important

to keep them running smoothly with high levels of capacity utilisation, so
that these high overhead costs are spread over as many units as possible.

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Once set up properly, flow production lines can in some cases produce
millions of consistently high quality products.

Cell production
This is a form of flow production in which the line is separated into a
number of sections, each looked after by a group of workers called a `cell'.
Cells take responsibility for work in their area, such as quality, job rotation,
training and so on. See notes on Lean Production for more detailed
discussion of Cell Production.

Evaluation - `Personalized flow'

The distinction between the different methods of production is sometimes

not totally clear. With some higher-value products made in flow production,
such as motor vehicles, it is now possible to personalize the product for
each order.

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Cars such as the new Mini are made to order, and customers specify colour,
trim, and accessories from an extensive list. This has been made possible
through advances in computerized ordering and manufacturing systems and
through advances in the actual processes - such as robotised paint spraying in
the case of the Mini. This means that customers get a very personalized
product with all the cost benefits and consistent quality from flow production.

PRODUCTION PLANNING AND CONTROL

Production is a process whereby raw material is converted into semi finished

products and thereby adds to the value and utility of products, which can be
measured as the difference between the value of inputs and value of outputs.
Production function encompasses the activities of procurement, allocation and
utilization of resources. The main objective of production function is to
produce the goods and services demanded by the customers in the most
efficient and economical way. Therefore efficient management of the
production function is of utmost importance in order to achieve this objective.

Once the entrepreneur has taken the decisions regarding the product design
and production processes and system, his next task is to take steps for
production planning and control, as this function is essentially required for
efficient and economical production. One of the major problems of small scale
enterprises is that of low productivity small scale industries can utilize natural
resources, which are otherwise lying.

Planned production is an important feature of the small industry. The small

entrepreneur possessing the ability to look ahead, organize and coordinate
and having plenty of driving force and capacity to lead and ability to supervise
and coordinate work and simulates his associates by means of a programme of
human relation and organization of employees, he would be able to get the
best out of his small industrial unit.

Production planning and control involve generally the organization and

planning of manufacturing process. Especially it consists of the planning of
routing, scheduling, dispatching, inspection, and coordination; control of
materials, methods, machines, tools and operating times. The ultimate
objective is the organization of the supply and movement of materials and
labour, machines utilization and related activities, in order to bring about the
desired manufacturing results in terms of quality, quantity, time and place.

Production planning without production control is like a bank without a bank

manager. Planning initiates action while control is an adjusting process,
providing corrective measures for planned development. Production control
regulates and stimulates the orderly flow of materials in the manufacturing
process from the beginning to the end.

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Production planning and control can facilitate the small entrepreneur in the
following ways

(1) Optimum Utilisation of Capacity:

With the help of Production Planning and Control [PPC] the entrepreneur can
schedule his tasks and production runs and thereby ensure that his
productive capacity does not remain idle and there is no undue queuing up of
tasks via proper allocation of tasks to the production facilities. No order goes
unattended and no machine remains idle.

2) Inventory control:
Proper PPC will help the entrepreneur to resort to just- in- time systems and
thereby reduce the overall inventory. It will enable him to ensure that the
right supplies are available at the right time.

(3) Economy in production time:

PPC will help the entrepreneur to reduce the cycle time and increase the
turnover via proper scheduling.

(4) Ensure quality:

A good PPC will provide for adherence to the quality standards so that
quality of output is ensured.
To sum up we may say that PPC is of immense value to the entrepreneur in
capacity utilization and inventory control. More importantly it improves his
response time and quality. As such effective PPC contributes to time, quality
and cost parameters of entrepreneurial success.

Production Planning and Control (PPC) is a process that comprises the

performance of some critical; functions on either side, viz., planning as well
as control. (See figure 1 below).

Production planning: Production planning may be defined as the technique

of foreseeing every step in a long series of separate operations, each step to
be taken at the right time and in the right place and each operation to be
performed with maximum efficiency. It helps entrepreneur to work out the
quantity of material, power, machine and money required for producing
predetermined level of output in given period of time

Routing: Under this, the operations, their path and sequence are
established. To perform these operations the proper class of machines and
personnel required are also worked out. The main aim of routing is to
determine the best and cheapest sequence of operations and to ensure that
this sequence is strictly followed. In small enterprises, this job is usually
done by the entrepreneur himself in a rather ad hoc manner. Routing
procedure involves following different activities.

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(1) An analysis of the product to determine what to make and what to buy.
(2) Determining the quality and type of material
(3) Determining the manufacturing operations and their sequence.
(4) A determination of lot sizes
(5) Determination of scrap factors
(6) An analysis of cost of the product
(7) Organization of production control forms.

Figure 1: The Production Planning and Control Process

Scheduling: It means working out the time that should be required to
perform each operation and also the time necessary to perform the entire
series as routed, making allowances for all factors Concerned. It is mainly
concerned with time element and priorities of a job. The pattern of
scheduling differs from one job to another as explained below: Production
schedule: The main aim is to schedule that amount of work which can easily
be handled by plant and equipment without interference. Its not independent
decision as it takes into account the following factors.

(1) Physical plant facilities of the type required to process the material
being scheduled.
(2) Personnel who possess the desired skills and experience to operate the
equipment and perform the type of work involved.
(3) Necessary materials and parts are purchased.

Master Schedule: Scheduling usually starts with preparation of master

schedule which is weekly or monthly break-down of the production
requirement for each product for a definite time period, by having this as a
running record of total production requirements the entrepreneur is in better
position to shift the production from one product to another as per the
changed production requirements. This forms a base for all subsequent
scheduling activities. A master schedule is followed by operator schedule
which fixes total time required to do a piece of' work with a given machine or
which shows the time required to do each detailed operation of a given job
with a given machine or process.

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Manufacturing schedule: It is prepared on the basis of type of
manufacturing process involved. It is very useful where single or few
products are manufactured repeatedly at regular intervals. Thus it. would
show the required quality of each product and sequence in which the same is
to be operated
Scheduling of Job order manufacturing: Scheduling acquires greater
importance in job order manufacturing. This will enable the speedy execution
of job at each center point. As far as small scale industry is concerned
scheduling is of utmost importance as it brings out efficiency in the
operations and so reduces cost price. The entrepreneur should maintain four
types of schedules to have a close scrutiny of all stages namely an enquiry
schedule, a production schedule, a shop schedule and an arrears schedule.
Out of above four, a shop schedule is the most important and most suited to
the needs of small scale industry as it enables a foreman to see at a glance.

1. The total load on any section

2. The operational sequence
3. The stage, which any job has reached.

Loading: The next step in the execution of the schedule plan as per the route
chalked out includes the assignment of the work to the operators at their
machines or work places. So loading determines who will do the work as
routing determines where and scheduling determines when it shall be done.
Gantt Charts are most commonly used in small industries in order to
determine the existing load and also to foresee how fast a job can be done. The
usefulness of their technique lies in the fact that they compare what has been
done and what ought to have been done.

Most small scale enterprises fail due to non-adherence to delivery schedules.

Therefore they can be successful if they have ability to meet delivery order in
time which no doubt depends upon production of quality goods in right time. It
makes all the more important for entrepreneur to judge ahead of time what
should be done, where and when; thus to leave nothing to chance once the
work has begun.

Production Control: Production control is the process of planning production

in advance of operations, establishing the exact route of each individual item
part or assembly, setting, starting and finishing for each important item;
assembly of the finishing production and releasing the necessary orders as
well as initiating the necessary follow-up to have the smooth function of the
enterprise. The production control is of complicated nature in small industries.
The production planning and control department can function at its best in
small scale unit only when the work Manager, the purchase manager, the
personnel manager and the financial controller assist in planning production
activities. The Production controller directly reports to the works manager but
in small, scale until the three functions namely material control, planning aid

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control are often performed by the entrepreneur himself. Production control
starts with dispatching and ends up with corrective actions.

Dispatching: Dispatching is an important step as it translates production

plans into production. Dispatching involves issuing of production orders for
starting the operations. Necessary authority and confirmation is given for:
l. Movement of materials to different workstations.
2. Movement of tools and fixtures necessary for each operation.
3. Beginning of work on each operation.
4. Recording of time and cost involved in each operation.
5. Movement of work from one operation to another in accordance with the
route sheet.
6. Inspecting or supervision of work

Follow up: Every production programme involves, determination of the

progress of work, removing bottlenecks in the flow of work and ensuring that
the productive operations are taking place in accordance with the plans. It
spots delays or deviations from the production plans. It helps to reveal defects
in routing and scheduling, misunderstanding of orders and instruction, under-
loading or over-loading of work etc. All problems or deviations are
investigated and remedial measures are undertaken to ensure the completion
of work by the planned date.

Inspection: This is mainly to ensure the quality of goods. It can be described

as effective agency of production control.

Corrective measures: Corrective action may involve any of those activities of

adjusting the route, rescheduling of work, changing the workloads, repairs
and maintenance of machinery or equipment, control over inventories of the
cause of deviation is the poor performance of the employees. Certain
personnel decisions like training, transfer, demotion etc. may have to be
taken. Alternate methods may be suggested to handle peak loads.

Exercise:
1.Explain the meaning of following key words in your own words
(a) Production planning
(b) Production control
(c) Routing
(d) Scheduling

2. Match the following Routing:

Working out of time that should be required to perform each operation
Scheduling: To assign the work to the operations at machines or work place
Loading: To determine the best and cheapest sequence of operations
STOCK AND INVENTORY CONTROL

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Stock control, otherwise known as inventory control, is used to show how
much stock you have at any one time, and how you keep track of it. It applies
to every item you use to produce a product or service, from raw materials to
finished goods. It covers stock at every stage of the production process, from
purchase and delivery to using and re-ordering the stock.

Efficient stock control allows you to have the right amount of stock in the right
place at the right time. It ensures that capital is not tied up unnecessarily, and
protects production if problems arise with the supply chain.

Types of stock

Everything you use to make your products, provide your services and to run
your business is part of your stock.

There are four main types of stock:

• raw materials and components - ready to use in production
• work in progress - stocks of unfinished goods in production
• finished goods ready for sale
• consumables - for example, fuel and stationery

The type of stock can influence how much you should keep - using stock
control methods.
Stock control methods

There are several methods for controlling stock, all designed to provide an
efficient system for deciding what, when and how much to order.

You may opt for one method or a mixture of two or more if you have various
types of stock.
• Minimum stock level - you identify a minimum stock level, and re-
order when stock reaches that level. This is known as the Reorder
Level.
• Stock review - you have regular reviews of stock. At every review you
place an order to return stocks to a predetermined level.

Just In Time (JIT) - this aims to reduce costs by cutting stock to a

minimum and avoid the problems of overtrading. Items are delivered when
they are needed and used immediately. There is a risk of running out of
stock, so you need to be confident that your suppliers can deliver on
demand.

These methods can be used alongside other processes to refine the stock
control system. For example.

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Re-order lead time - allows for the time between placing an order and
receiving it.

Economic Order Quantity (EOQ) - a standard formula used to arrive at a

balance between holding too much or too little stock. It's quite a complex
calculation, so you may find it easier to use stock control software.

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Batch control - managing the production of goods in batches. You need to
make sure that you have the right number of components to cover your
needs until the next batch.

If your needs are predictable, you may order a fixed quantity of stock every
time you place an order, or order at a fixed interval - say every week or
month. In effect, you're placing a standing order, so you need to keep the
quantities and prices under review.

First in, first out - a system to ensure that perishable stock is used
efficiently so that it doesn't deteriorate. Stock is identified by date received
and moves on through each stage of production in strict order. Stock
control systems - keeping track manually

Stocktaking involves making an inventory, or list, of stock, and noting its

location and value. It's often an annual exercise - a kind of audit to work out
the value of the stock as part of the accounting process.
Codes, including barcodes, can make the whole process much easier but it
can still be quite time-consuming. Checking stock more frequently - a
rolling stocktake - avoids a massive annual exercise, but demands constant
attention throughout the year. Radio Frequency Identification (RFID)
tagging using hand-held readers can offer a simple and efficient way to
maintain a continuous check on inventory.
Any stock control system must enable you to:
• track stock levels
• make orders ,
• issue stock

The simplest manual system is the stock book, which suits small businesses
with few stock items. It enables you to keep a log of stock received and
stock issued.

It can be used alongside a simple re-order system. For example, the two-bin
system works by having two containers of stock items. When one is empty,
it's time to start. using the second bin and order more stock to fill up the
empty one.

Stock cards are used for more complex systems. Each type of stock has an
associated card, with information such as:
• description
• value
• location
• re-order levels, quantities and lead times (if this method is used)
• supplier details
• information about past stock history

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More sophisticated manual systems incorporate coding to classify items.
Codes might indicate the value of the stock, its location and which batch it is
from, which is useful for quality control.

FACTORY AND FACILITIES LAYOUT

The efficiency of production depends on how well the various machines;
production facilities and employee's amenities are located in a plant. Only the
properly laid out plant can ensure the smooth and rapid movement of
material, from the raw material stage to the end product stage. Plant layout
encompasses new layout as well as improvement in the existing layout.
It may be defined as a technique of locating machines, processes and plant
services within the factory so as to achieve the right quantity and quality of
output at the lowest possible cost of manufacturing. It involves a judicious
arrangement of production facilities so that workflow is direct.

Definition:
Plant layout refers to the arrangement of physical facilities such as
machinery, equipment, furniture etc. within the factory building in such a
manner so as to have quickest flow of material at the lowest. cost: and with
the least amount of handling in processing the product from the receipt of
material to the shipment of the finished product.

According to Riggs, "the overall objective of plant layout is to design a

physical arrangement that most economically meets the required output -
quantity and quality."

According to J. L. Zundi, "Plant layout ideally involves allocation of space and

arrangement of equipment in such a manner that overall operating costs are
minimized.

Plant layout is an important decision as it represents long-term commitment.

An ideal plant layout should provide the optimum relationship among output,
floor area and manufacturing process. It facilitates the production process,
minimizes material handling, time and cost, and allows flexibility of
operations, easy production flow, makes economic use of the building,
promotes effective utilization of' manpower, and provides for employee's
convenience, safety, comfort at work, maximum exposure to natural light and
ventilation. It is also important because it affects the flow of material and
processes, labour efficiency, supervision and control, use of space and
expansion possibilities etc.

An efficient plant layout is one that can be instrumental in achieving

the following objectives:
a) Proper and efficient utilization of available floor space
b) To ensure that work proceeds from one point to another point
without any delay

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c) Provide enough production capacity.
d) Reduce material handling costs
e) Reduce hazards to personnel Utilize labour efficiently
g) Increase employee morale
h) Reduce accidents
i) Provide for volume and product flexibility
j) Provide ease of supervision and control
k) Provide for employee safety and health
I) Allow ease of maintenance
m) Allow high machine or equipment utilization
n) Improve productivity

From the point of view of plant layout, we can classify small business or
unit into three categories:
1. Manufacturing units
2. Traders
3. Service Establishments

1. Manufacturing units
In case of manufacturing unit, plant layout maybe of four types:
(a) Product or line layout
(b) Process or functional layout
(c) Fixed position or location layout
(d) Combined or group layout

(a) Product or Line Layout:

Under this, machines and equipment’s are arranged hi one line
depending upon the sequence of operations required for the product.
The materials move form one workstation to another sequentially
without any backtracking or deviation. Under this, machines are
grouped in one sequence. Therefore materials are fed into the first
machine and finished goods travel automatically from machine to
machine, the output of one machine becoming input of the next, e.g. in
a paper mill, bamboos are fed into the machine at one end and paper
comes out at the other end. The raw material moves very fast from one
workstation to other stations with a minimum work in progress storage
and material handling.

The grouping of machines should be done keeping in mind the following

general principles.
a) All the machine tools or other items of equipment’s must be placed at the
point demanded by the sequence of operations
b) There should be no points where one line crossed another line.
c) Materials may be fed where they are required for assembly but not
necessarily at one point.

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d) All the operations including assembly, testing and packing must. be
included in the line

Advantages: Product layout provides the following benefits:

a) Low cost of material handling, due to straight and short route and absence
of backtracking.
b) Smooth and uninterrupted operations
c) Continuous flow of work
d) Lesser investment in inventory and work its progress
e) Optimum use of floor space
f) Shorter processing time or quicker output
g) Less congestion of work in the process
h) Simple and effective inspection of work and simplified production control
i) Lower cost of manufacturing per unit

Disadvantages: Product. layout suffers from the following drawbacks:

a. High initial capital investment in special purpose machine
b. Heavy overhead charges
c. Breakdown of one machine will hamper the whole production process
d. Lesser flexibility as work space is specially laid out for particular product.

Suitability: Product layout is useful under following conditions:

,
1) Mass production of standardized products
2) Simple and repetitive manufacturing process
3) Operation time for different process is more or less equal
4) Reasonably stable demand for the product
5) Continuous supply of materials
Therefore, the manufacturing units involving continuous manufacturing
process, producing few standardized products continuously on the firm's own
specifications and in anticipation of sales would prefer product layout e.g.
chemicals, sugar, paper, rubber, refineries, cement, automobiles, food
processing, electronics, etc.

(b) Process Layout:

In this type of layout machines of a similar type are arranged together at one
place.E.g. Machines performing drilling operations are arranger.] in the
drilling department, machines performing casting operations be grouped
in the casting department. Therefore the machines are installed in the
plants, which follow the process layout.

Hence, such layouts typically have drilling department, milling

department, welding department, heating department and painting
department etc. The process or functional layout is followed from
historical period. It evolved from the handicraft method of production.
The work has to be allocated to each department in such a way that no

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machines are chosen to do as many different job as possible i.e. the
emphasis is on general purpose machine. The work, which has to be
done, is allocated to the machines according to loading schedules with
the object of ensuring that each machine is fully loaded. Process layout
is shown in the following
diagram.

The grouping of machines according to the process has to be done

keeping in mind the following principles
a) The distance between departments should be as short as possible
for avoiding long distance movement of materials
b) The departments should be in sequence of operations
c) The arrangement should be convenient for inspection and
supervision

Advantages: Process layout provides the following benefits

a) Lower initial capital investment in machines and equipment’s.
There is high degree of machine utilization, as a machine is not
blocked for a single product
b) The overhead costs are relatively low
c) Change in output design and volume can be more easily adapted to the
output of variety of products
d) Breakdown of one machine does not result in complete work stoppage
e) Supervision can be more effective and specialized
f) There is a greater flexibility and scope for expansion.

Disadvantages: Process layout suffers from the following drawbacks

a. Material handling costs are high due to backtracking
b. More skilled labour is required resulting in higher cost.

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c. Time gap or lag in production is higher
d. Work in progress inventory is high needing greater storage space
e. More frequent inspection is needed which results in costly supervision

Suitability: Process layout is adopted when

l. Products are not standardized
2. Quantity produced is small
3. There are frequent changes in design and style of product
4. Job shop type of work is done
5. Machines are very expensive

Thus, process layout or functional layout is suitable for job order production
involving non-repetitive processes and customer specifications and non-
standardized products, e.g. tailoring, light and heavy engineering products,
made-to-order furniture industries, jewelry.

(c) Fixed Position or Location Layout

In this type of layout, the major product being produced is fixed at one
location.
Equipment, labour and components are moved to that location. All facilities
are brought and arranged around one work center. This type of layout is not
relevant for small scale entrepreneur. The following figure shows a fixed
position layout regarding shipbuilding.

Advantages: Fixed position layout provides the following benefits

a) It, saves time and cost involved on the movement of work from one
workstation to another.
b) The layout is flexible as change in job design and operation sequence can
be easily incorporated.
c) It is more economical when several orders in different stages of progress
are being executed simultaneously.
d) Adjustments can be made to meet shortage of materials or absence of
workers by changing the sequence of operations.

Disadvantages: Fixed position layout has the following drawbacks

a. Production period being very long, capital investment is very heavy

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b. Very large space is required for storage of material and equipment near
the product.
c. As several operations are often carried out simultaneously, there is
possibility of confusion and conflicts among different workgroups.

Suitability: The fixed position layout is followed in the following conditions

1. Manufacture of bulky and heavy products such as locomotives, ships,
boilers, generators, wagon building, aircraft manufacturing, etc.
2. Construction of building, flyovers, dams.
3. Hospital, the medicines, doctors and nurses are taken to the patient
(product).

(d) Combined Layout

Certain manufacturing units may require all three processes namely
intermittent process (job shops), the continuous process (mass production
shops) and the representative process combined process [i.e. miscellaneous
shops].

In most industries, only a product, layout or process layout or fixed location

layout does not exist. Thus, in manufacturing concerns where several
products are produced in repeated numbers with no likelihood of continuous
production, combined layout is followed. Generally, a combination of the
product and process layout or other combination are found, in practice, e.g.
for industries involving the fabrication of parts and assembly, fabrication
tends to employ the process layout, while the assembly areas often employ
the product layout. In soap, manufacturing plant, the machinery
manufacturing soap is arranged on the product line principle, but ancillary
services such as heating, the manufacturing of glycerin, the power house, the
water treatment plant etc. are arranged on a functional basis.

2. Traders
When two outlets carry almost same merchandise, customers usually buy in
the one that is more appealing to them. This, customers are attracted and
kept by good layout i.e. good lighting, attractive colours, good ventilation, air
conditioning, modern design arid arrangement and even music. All of these
things mean customer convenience, customer appeal and greater business
volume.
The customer is always impressed by service, efficiency and quality. Hence,
the layout is essential for handling merchandise, which is arranged as per the
space available and the type and magnitude of goods to be sold keeping in
mind the convenience of customers.

There are three kinds of layouts in retail operations today.

l. Self-service or modified self-service layout.
2. Full service layout
3. Special layouts

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The self-service layouts, cuts down on sales clerk's time and allow customers
to select merchandise for themselves. Customers should be led through the
store in a way that will expose them to as much display area as possible, e.g.
Grocery Stores or department stores. In those stores, necessities or
convenience goods should be placed at the rear of the store. The use of color
and lighting is very important to direct attention to interior displays and to
make the most of the stores layout.

All operations are not self-service. Certain specialty enterprises sell to fewer
numbers of customers or higher priced product, e.g. Apparel, office
machines, sporting goods, fashion items, hardware, good quality shoes,
jewelry, luggage and accessories, furniture and appliances are all examples
of products that require time and personal attention to be sold. These full
service layouts provide area and equipment necessary in such case.

Some layouts depend strictly on the type of special store to be set up, e.g. TV
repair shop, soft ice cream store, and drive-in soft drink stores are all
examples of business requiring special design. Thus, good retail layout
should be the one, which saves rent, time and labour.

3. Services centers and establishment

Services establishments such as motels, hotels, restaurants. must give due
attention to client convenience, quality of service, efficiency in delivering
services and pleasing office ambience. In today's environment, the clients
look for ease in approaching different departments of a service organization
and hence the layout should be designed in a fashion, which allows clients
quick and convenient access to the facilities offered by a service
establishment.

Factors Influencing Layout

A small-scale businessman should keep the following factors in mind:
a) Factory building: The nature and size of the building determines the floor
space available for layout. While designing, the special requirements, (e.g.
air conditioning, dust control, humidity control etc.) must be kept in mind.

b) Nature of product: product layout is suitable for uniform products

whereas process layout is more appropriate for custom-made products.

c) Production process: In assembly line industries, product layout is better.

In job order or intermittent manufacturing on the other hand, process
layout is desirable.

d) Type of machinery: General purpose machines are often arranged as per

process layout while special purpose machines are arranged according to
product layout

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e) Repairs and maintenance: machines should be so arranged that adequate
space is available between them for movement of equipment and people
required for repairing the machines.

f) Human needs: Adequate arrangement should be made for cloakroom,

washroom, lockers, drinking water, toilets and other employee facilities,
proper provision should be made for disposal of effluents, if any.

g) Plant environment: Heat, light, noise, ventilation and other aspects

should be duly considered, e.g. paint shops and plating section should be
located in another hall so that dangerous fumes can be removed through
proper ventilation etc. Adequate safety arrangement should also be made.

Thus, the layout should be conducive to health and safety of employees. It

should ensure free and efficient flow of men and materials. Future
expansion and diversification may also be considered while planning factory
layout.

Exercises:
1. Define plant layout.
2. What are the various factors influencing the layout of a grocery store?
3. What are the principles for planning the layout of a new factory?
4. Explain process layout? State its advantages and disadvantages in brief
5. Distinguish between product layout and process layout?
6. Explain the suitability of fixed position layout
7. Write about any two types of plant layout
8. What is plant layout? Discuss the objectives and advantages of a good
layout

11. Explain the Importance of Quality Control and Production

Standards;

QUALITY STANDARDS

In many products and services, quality standards are set by Health & Safety
legislation and enforced by Trading Standards officers.

This is especially important in areas such as catering, food, health and

electrical products and for any product that might pose risks to users if the
quality was poor.

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Other relevant legislation would include food labelling and weights and
measures, which aim to ensure that the product is as described, contains the
correct quantity, and to include correct information about ingredients.

Some examination specifications may require a more detailed understanding

of relevant legislation, as part. of the study of external influences on
business.

British Standards and ISO

The British Standards Institute (BSI, and the International Equivalent, ISO)
publishes standards for many kinds of product and services, known as the
`Kitemark', which can be seen as a badge of quality.

BS5750/ISO 9000

BS5750 is a British Standard for quality assurance and ISO 9000 is the
international equivalent. This approach requires that, firms set out clear
procedures for all business processes - usually these are set out in manuals
and reinforced through staff training. Regular audits are carried out to
ensure that processes are being carried out consistently according to
standards.

This approach was very common in the 1980s and 1990s and many major
organisations would only buy products and services from firms that
possessed BS5750 accreditation. In general, accreditation was achieved by
engaging external consultants to help with documenting processes and
setting and monitoring targets. Many firms achieved substantial benefits
from this process, by reduction in waste and an improved reputation for
quality.

However, BS5750 can result in a rigid and iriflexible, process-driven

approach to providing products and services to customers. It can mean

146
that employees are not encouraged to take ownership for improvement,
and therefore it can be at odds with approaches such as Kaizen and
Quality Circles.

Furthermore, just because a firm holds BS5750 and is delivering a

consistent service, it does not guarantee that the service is better than a
firm that does not have the award.

CE Mark

In electrical products, the CE mark signifies a standard of safety. Royal

Warrants
Some British firms are fortunate to gain a `Royal Warrant', which allows
them to state that they are endorsed by Royal Appointment to Her
Majesty the Queen, to the Duke of Edinburgh or to the Prince of Wales.
This accreditation will be proudly displayed on the product packaging
and on the firm's correspondence and marketing literature.

Firms are awarded royal warrants when favoured by a member of the

Royal Family, and cannot be formally `applied for'. Interestingly,
Cadbury manufactures some products abroad whilst still displaying its
royal appointment, and Harrods famously lost its royal appointment,
apparently following the public falling-out between the firm's owner
Mohammed Fayed, and the British royal family.

Branding as a mark of quality

Many firms rely on their own brand to signify quality. Firms such as ,
BMW, Sony, Rolls-Royce etc. all place quality at the centre of their
marketing. Clearly, it is important that, in the long run, the product or
service supplied does actually measure up to what the marketing says
about its quality.

QUALITY CONTROL
This method checks the quality of completed products for faults. Quality
inspectors measure or test. every product, samples from each batch, or
random samples - as appropriate to the kind of product produced.

Advantages - inspection is intended to prevent faulty products reaching

the customer. This approach means having specially trained inspectors,
rather than every individual being responsible for his or her own work.
Furthermore, it is thought that inspectors may be better placed to find
widespread problems across an organisation.

• Disadvantages - individuals are not necessarily encouraged to take

responsibility for the quality of their own work. Giving workers
responsibility for their own work helps to improve motivation by
increasing the interest and variety in the job, so quality assurance tends
to be preferred for this reason as well. Other approaches to quality (such

147
as TQM, see below) mean that there is much less need for quality control
if the whole process is geared towards `zero defects' or getting it right
first. time.

Rejected product is expensive for a firm as it has incurred the full costs
of production but cannot be sold as the manufacturer does not want its
name associated with substandard product. Some rejected product. can
be re-worked, but in many industries it has to be scrapped - either way
rejects incur more costs,
A quality control approach can be highly effective at preventing defective
products from reaching the customer. However, if defect levels are very
high, the company's profitability will suffer unless steps are taken to
tackle the root causes of the failures.

Quality Assurance
This is an approach that aims to achieve quality by organising every
process to get the product `right first time' and prevent mistakes ever
happening. This is also known as a `zero defect' approach.
In quality assurance, there is more emphasis on 'self-checking', rather
than checking by inspectors. Advantages include:

• Costs are reduced because there is less wastage and re-working of

faulty products as the product is checked at every stage.
• It can help improve worker motivation as workers have more
ownership and recognition for their work (see Herzberg).
• It can help break down `us and them' barriers between workers
and managers as it eliminates the feeling of being checked up can.
• With all staff responsible for quality, this can help the firm
marketing advantages arising
from its consistent level of quality. Total Quality Management
(TQM)

This is a specific approach to quality assurance that aims to develop a

quality culture throughout the firm. In TQM, organisatigps consist of
,
quality chains' in which each person or team treats the receiver of their
work as if they were an external customer and adopts a target of `right
first time' or zero defects.

Although the philosophy was developed by Japanese companies, it was

originally put forward by an American, Edward Deming whose 14-point
plan applies to management in general, but is especially useful in respect
of quality.

Quality Benchmarking

Benchmarking is a general approach to business improvement based on

best practice in the industry, or in another similar industry. It can provide
a useful quality improvement target for a business.

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This can be a helpful approach for services as well as for products - for
example a fast food business selling fish and chips could decide that it
wanted to aim to equal McDonalds' speed of meeting customer orders for
takeaway food. A financial services firm might. want its call centre staff to
answer 95% of telephone calls within six rings, if this is the practice of the
best in the industry.

In some cases, firms can use internal benchmarking in which best

practice may be set with reference to another department, or by a similar
factory in a different location.

12. Explain The Need For Maintenance Management With Special

Reference To:
b. Routine Maintenance;
c. Scheduled Maintenance;
d. Preventive Maintenance;
e. Spare Parts Management;

WHAT IS PREVENTIVE MAINTENANCE (PM)?

Preventive maintenance is planned maintenance of plant and equipment

that is designed to improve equipment life and avoid any unplanned
maintenance activity. PM includes painting, lubrication, cleaning,
adjusting, and minor component replacement to extend the life of
equipment and facilities. Its purpose is to minimize breakdowns and
excessive depreciation. Neither equipment nor facilities should be allowed
to go to the breaking point. In its simplest form, preventive maintenance
can be compared to the service schedule for an automobile.

A bona fide preventive maintenance programme should include:

• Non-destructive testing
• Periodic inspection
• Preplanned maintenance activities
• Maintenance to correct deficiencies found through testing or
inspections.

The amount of preventive maintenance needed at a facility varies greatly. It

can range from a walk through inspection of facilities and equipment noting
deficiencies for later correction up to computers that actually shut down
equipment after a certain number of hours or a certain number of units
produced, etc.

Many reasons exist for establishing a PM program. Listed below are a few
of these. Whenever any of these reasons are present, a PM programme is
likely needed.
Reasons for Preventive Maintenance
• Increased Automation
• Business loss due to production delays

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• Reduction of insurance inventories
• Production of a higher quality product
• Just-in-time manufacturing
• Reduction in equipment redundancies
• Cell dependencies
• Minimize energy consumption (50% less)
• Need for a more organized, planned environment, Why Have a PM
Programme

The most important reason for a PM program is reduced costs as seen in

these many ways:

• Reduced production downtime, resulting in fewer machine

breakdowns.
• Better conservation of assets and increased life expectancy of assets,
thereby eliminating premature replacement of machinery and
equipment.
• Reduced overtime costs and more economical use of maintenance
workers due to working on a scheduled basis instead of a crash basis
to repair breakdowns.
• Timely, routine repairs circumvent and lead to fewer large-scale
repairs.
• Reduced cost of repairs by reducing secondary failures. When parts
fail in service, they usually damage other parts.
• Reduced product rejects, rework, and scrap due to better overall
equipment condition.
• Identification of equipment with excessive maintenance costs,
indicating the need for corrective maintenance, operator training, or
replacement of obsolete equipment.
• Improved safety and quality conditions.

If it cannot be shown that a preventive maintenance programme will

reduce costs, there is probably no good reason other than safety to have a
PM programme.

The Law of PM Programmes: There are many advantages for having a

good preventive maintenance programme. The advantages apply to every
kind and size of plant. The law of PM programmes is that. the higher the
value of plant assets and equipment per square foot of plant, the greater
will be the return on a PM programme. For instance, downtime in an
automobile plant assembly line at one time cost $10,000 per minute.
Relating this to lost production time an automobile manufacturer reported
that the establishment of a PM programme in their 16 assembly plants
reduced downtime from 300 hours per year to 25 hours per year. With
results such as this no well-managed plant can afford not to develop a PM
programme.

Preventive Maintenance Programme Risks: Preventive maintenance does

involve risk. The risk here refers to the potential for creating defects of

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various types while performing the PM task. In other words, human errors
committed during the PM task and infant mortality of newly installed
components eventually lead to additional failures of the equipment on
which the PM was performed. Frequently, these failures occur very soon
after the PM is performed. Typically, the following errors or damage occur
during PM's and other types of maintenance outages.

• Damage to an adjacent equipment during a PM task.

• Damage to the equipment receiving the PM task to include such
things as:
o Damage during the performance of an inspection, repair,
adjustment, or installation of a replacement part.
o Installing material that is defective, incorrectly installing a
replacement part, or incorrectly reassembling material.
• Reintroducing infant mortality by installing new parts or materials.
• Damage due to an error in reinstalling equipment into its original
location.

Especially disturbing about these types of errors is the fact that they go
unnoticed - until they cause an unplanned shutdown.

How to Have a Successful PM Programme

The key to a successful Preventive Maintenance (PM) program is

scheduling and execution. Scheduling should be automated to the
maximum extent possible. Priority should be given to preventive
maintenance and a very aggressive programme to monitor the schedule
and ensure that the work is completed according to schedule should be
put in place.

Preventive Maintenance Execution: Traditional preventive

maintenance was based on the concept of the bathtub curve. That is, new
parts went through three stages, an infant mortality stage, a fairly long
run stage, and a wear-out stage. The PM concept was to replace these
parts before they entered the wear-out phase. Unfortunately, Reliability
Centered Maintenance based on research done by United Airlines and
the rest of the aircraft industry showed that very few nonstructural
components exhibit bathtub curve characteristics. Their research showed
that only about 11% of all components exhibit wear-out characteristics,
but 72% of components do exhibit infant mortality characteristics. These
same characteristics have been shown to apply in Department of Defense
systems as well as power plant systems. It is very likely that they apply
universally as well. Therefore, they should be taken into account when
configuring preventive maintenance on industrial equipment.

In order to have a successful PM program, the message is clear. The PM,

should focus on cleaning, lubrication, and correcting deficiencies found
through testing and inspections. When there is a need to adjust or
replace components, it should be done by highly trained and motivated

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professionals. Predetermined parts replacement should be minimal and
done only where statistical evidence clearly indicates wear-out
characteristics. In the absence of data to support component
replacement* an age exploration program or the collection of data for
statistical analysis to determine when to replace components should be
initiated. Borrowing from the Japanese, lubrication points should be
clearly marked with bright red circles to ensure that lubrication tasks are
not missed. Cleaning should be carried out to remove dust, dirt, and
grime because these things mask defects that can cause unplanned
maintenance outages.

Motivating Preventive Maintenance Workers: A quality preventive

maintenance program requires a highly motivated preventive
maintenance crew.

To provide proper motivation, the following activities are suggested:

• Establish inspection and preventive maintenance as a recognized,
important part of the overall maintenance programme.
• Assign competent, responsible people to the preventive maintenance
program.
• Follow-up to assure quality performance and to show everyone that
management does care.
• Provide training in precision maintenance practices and training in
the right techniques and procedures for preventive maintenance on
specific equipment.
• Set high standards.
• Publicize reduced costs with improved up-time and revenues, which
are the result of effective preventive maintenance.

In addition to explaining the importance of a good preventive maintenance

programme and the benefits that can be derived from it, training is
probably the most effective motivational tool available to the maintenance
supervisor. Maintenance and training professionals have estimated that a
company should spend $1200 per year for training of supervisors and
$1000 per year for each craftsperson. In fact, due to advances in
technology, if the company has not provided any training for craftspeople
in the past 18 months, their skills have become outdated.

Conclusion It is possible to have a successful preventive maintenance

program. From a cost reduction viewpoint it is essential, but it does entail
risk. When the proper care is taken, the risks, however, can be minimized.
In order to minimize risk, preventive maintenance has to be carefully
planned and carried out by well-trained and motivated workers. The
biggest benefits of a PM program occur through painting, lubrication,
cleaning and adjusting, and minor component replacement to extend the
life of equipment and facilities.

SPARE PARTS MANAGEMENT

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Optimal spares provisioning is a prerequisite for all types of maintenance
tasks, such as inspections, preventive maintenance, and repairs. With the
exception of preventive activities, spare parts for maintenance tasks are
usually required at random intervals. Thus, the fast and secure
coordination of the demand for spare parts with the supply of spare parts
at the required time is an important factor for the punctual execution of
the maintenance process. Missing materials as one of the most frequently
cited reasons for the delay in completion of maintenance tasks. As spare
parts for machinery are often very high quality, this problem cannot be
solved simply by increased warehouse stock.

This process illustrates how a maintenance planner can get. an overview

of potentially necessary parts and their availability, right from the
moment: a problem occurs. If a concrete maintenance task is planned in a
further step, the system determines and logs the exact availability of the
materials at the required time, regardless of whether the materials are in
stock or must be procured externally. The replenishment lead time of the
spare parts also becomes apparent from this process. If this is further in
the future than is reasonable, the maintenance engineer can consider
exchanging an asset instead of repairing it. Assets can also be managed in
stock and considered in the same way as materials for planning purposes.
The system issues reservations and purchase requisitions, which can be
processed. by the relevant departments in the spare part industry.

'Thus, all those involved, from production to purchasing and storage, via
maintenance, have complete transparency about the material availability
and the possible completion of the task. The planned material costs in the
task are documented in the same way. 'nie material withdrawals are
documented by the system and form the basis of usage-controlled
materials planning. With this process, material stocks of spare parts can
be optimized to support maximum availability with minimum stocks.
The overall process starts from the time of the malfunction report to the
processing of the task, from the viewpoint of spare part procurement.
Each. person involved in the process, from the asset, operator to the
procurement organization, via the maintenance engineer, must have
permanent access to potentially necessary spare parts and their
availability. Instant information on whether or not all materials held in
stock or to be procured are available for the desired time must be
obtainable and checked in the maintenance task. The task incorporates an
automatically generated log with. detailed material--related information
about possible shortages. Ibis streamlined process saves time and money.
,

13. Explain Staff Training and Retraining Needs of an Enterprise

Training is defined as learning that is provided in order to improve

performance on the present job (Nadler, 1984).

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A person's performance is improved by showing her how to master a new
or established technology. ' technology may be a piece of heavy
machinery. a computer, a procedure for creating a product. or a method of
providing a service.

Notice that the last par', of the definition states that training is provided
for the present job. This includes training new personnel to perform their
job, introducing a new technology, or bringing an employee up to
standards.

Earlier it was stated that there are four inputs to a system: people, material,
technology, and time. Training is mainly concerned with the meeting of two
of these inputs -- people and technology. That is, having people learn to
master a given technology.

Training is part of Human Resource Development (HRD). HRD has been

defined as an organized learning experience, conducted in a definite
time period, to increase the possibility of improving job performance
and growth (Nadler, 1984).

Organized means that it is conducted in a systematic way. Although

learning can be incidental, training is concerned with the worker learning
clear and concise standards of performance or objectives. Having an
objective is important. Without an objective, you could end up someplace
else ... and not even know it. Objectives are the tools for guiding managers,
learners, and trainers. Managers need objectives so that they know what
kind of return they are receiving from their training investment. Learners
need them so that they know exactly what is expected of there. And trainers
need them to plan and conduct the learning environment so that they may
achieve the desired results.

The second part of the definition, conducted in a definite time period,

means that the amount of time the learner will be away from work must be
determined and specified at the onset. or the training programme.

The last, part of the statement, to increase the possibility of

improving job performance and growth, is basically the definition of
training. By possibility, it means that although an organization can provide
tools to help the learner succeed, such as education and training
specialists, counselors, coaches, and state-of-the-art training materials, the
ultimate responsibility for success belongs to the learner.

Training, Development, and Education

HRD programs are divided into three main categories: Training,
Development, and Education. Although some organizations lump all
learning under "Training" or "Training and Development," dividing it into
three distinct categories makes the desired goals and objects more
meaningful and precise.

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  Training for the present,
 Educating for the future,
 Developing to lead.

As discussed earlier, training is the acquisition of technology which

permits employees to perform their present job to standards. It improves
human performance on the job the employee is presently doing or is being
hired to do. Also, it is given when new technology in introduced into the
workplace.
Education is training people to do a different job. It is often given to
people who have been identified as being promotable, being considered
for a new job either lateral or upwards, or to increase their potential.
Unlike training, which can be fully evaluated immediately upon the
learners returning to work, education can only be completely evaluated
when the learners move on to their future jobs or tasks. We can test them
on what they learned while in training, but we cannot be fully satisfied
with the evaluation until we see how well they perform their new jobs.

Development is training people to acquire new horizons, technologies, or

viewpoints. It enables leaders to guide their organizations onto new
expectations by being proactive rather than reactive. It enables workers to
create better products, faster services, and more competitive
organizations. It is learning for growth of the individual, but not related to
a specific present or future job. Unlike training and education, which can
be completely evaluated, development cannot always be fully evaluated.
This does not -neap that we should abandon development programs, as
helping people to grow and develop is what keeps an organization in the
cutting edge of competitive environments. Development can be considered
the forefront of what many now call the Learning Organization.

Development involves changes in an organism that are systematic,

organized, and successive; and are thought to serve an adaptive function
(Pascarella et. al, 1991). Training could be compared to this metaphor - if I
miss one meal in a day, then I will not be able to work as effectively due to
a lack of nutrition. While development would be compared to this
metaphor - if I do not eat, then I will starve to death. The survival of the
organization - requires development throughout the ranks in order to
survive, while training makes the organization more effective and efficient
in its day-to-day operations.
Also, do not confuse development with change. Change refers to
alterations that occur over time in the learners' internal cogitative or
affective characteristics (Learner, 1986). This change may be quantitative
or qualitative and it implies no directionality, encompassing both
regression and progression. Development is always progressive.

Using a systems approach to design training, education, and development

programmes ensure that an organization gets the most from its resources.
The goal of instruction is to overcome a deficiency in a skill, knowledge, or
attitude. The designer must understand the instructional goals so that the

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courseware's content, layout, strategies, and activities may be built to
maximize the learning experience.
A training system is concerned with the identification of training
requirements based on the analysis of job performance requirements data
obtained from experts in the job to be performed. Training objectives are
formulated as a result of the job analysis process and tests are developed
to be used to assess the learner's progress toward meeting the training
objectives. It must also attempt to bring structure to the instructional
design process when determining the optimal instructional strategies,
instructional sequencing, and instructional delivery media for the types of
training objectives involved.
Although there are minor differences, most development systems follow an
approach similar to this:

o Analyze the system in order to completely understand it, and then

describe the goals you wish to achieve in order to correct any
shortcomings or faults within the system.
o Design a method or model to achieve your goals.
o Develop the model into a product (in training, this product is called
courseware).
o Implement the courseware.
o Evaluate the courseware and audit-trail throughout the four phases
and in the field to ensure it is heading in the right direction and
achieving the desired results.

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 TOPIC 9:
NEED FOR BUSINESS PLANNING

INTRODUCTION:

Planning especially Business Planning is very much required by all

entrepreneurs. It must be stressed, that planning makes the difference
between success and failure. From the business context a well-planned
business is bound to succeed. In this section there is an attempt to make
learners appreciate the role of business planning before the
establishment of an enterprise. It illustrates the process of writing a
feasibility study (business plan) after going through the major step of
developing one. The series of steps followed by entrepreneurs to identify
and explore business opportunities are clearly worked out. It also guide
entrepreneurs to be conversant in planning their business enterprises.

SPECIFIC LEARNING OUTCOMES:

1. Identify a viable business opportunity based on:
a. Need
b. Demand
c. availability of resources
d. import substitution
e. export oriented products
2. Explain the different steps in preparing a preliminary project report;
3. Explain how to formulate a project report;
4. Explain how to analyze a project report.

CONTENT
1. Identify A Viable Business Opportunity Based On:
(a) Need
(b) Demand
(c) Availability Of Resources
(d) Import Substitution
(e) Export Oriented Products

OPPORTUNITY SCOUTING AND IDEA GENERATION

It is extremely important to take utmost care in identifying the product or

service to be launched by the entrepreneur otherwise it might prove to
be a very costly mistake. He must develop sensitivity to changes around
him, which can provide business opportunities and then carefully scan
his environment. to generate ideas. After tentatively identifying four to
five ideas he should go in for detailed assessment and feasibility study.
This will help him to crystallize one idea in an objective and
systematic manner, which will greatly enhance his chances of
success.

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The Entrepreneur looks ahead to see what can be done in future
rather than indulge in concentrating on the past. Where others see
problems and shortcomings he sees opportunities for starting a
business. He is the one who makes things happen by perceiving an
opportunity and organizing the resources needed to exploit this
opportunity. He creates a new business in face of risk and
uncertainty for the purpose of achieving profit and growth.

The entrepreneurial experience begins with the idea for starting a

new venture. The idea has to be sifted and refined so that he can
identify a new product or service to be produced or offered. Usually
there is a triggering factor, which makes the entrepreneur take the
plunge to start his business. However one has to systematically make
a business plan and study the feasibility of the proposed venture
before doing so.

The entrepreneurial process begins with identifying an opportunity

and evaluating it through an initial screening process. If it appears
reasonable a detailed business plan can be made. If not it can be
discarded.

Clearly, except in very rare cases, opportunities just do not `occur'

to the individual. These have to be actively searched/ scouted for.
Hence, the start up process for a new venture creation begins with
scouting for opportunities. The process may start from an arm's
length, that is, one may just look around one's immediate context-
family, community, and job and build up a case for business from the
bottom-up. Else, one may take a top-down approach, starting from
the scanning of the international and macro economic environment
and conducting/using industrial/consumer surveys and identifying
appropriate business ideas. An entrepreneur can sense and
intelligently seize opportunities, which exist in the environment. An
entrepreneur can look at his community and determine to intervene
in solving existing community problems and/or challenges with the
objective of improving community living standards.

Often it is said that necessity is the mother of all inventions.

However, in the context of entrepreneurship, opportunities besides
existing in the environment in the form of needs and problems of
people around might have to be `created.' Thus, the entrepreneurs
meet not only the existing needs; they create the new needs as well.

It is also possible to create opportunities; noodles, Credit cards, FM

radio are all examples of needs which were created either out of
demographic changes e.g. with more women opting for employees' for
a quick snack was created resulting in the phenomenal etc. two
minute noodles and packaged food. Hectic work such incorporate
traveling created the need for fast banking services hence the AIM, credit
card, debit card and telephone banking cam, le.

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OPPORTUNITY SCANNING
Once the entrepreneur perceives opportunities, it becomes important for
him to scan the environment. It is quite possible that many of the promising
opportunities might not make commercial sense. Scanning involves close
examination of the environmental conditions and their impact upon the
business idea. It is not a cursory exercise but rather an attempt to look
beyond the immediate opportunities to the emerging trends. An attempt
can be made to modify, adapt, re-arrange, substitute, combine, or reverse
these trends.

Environmental Analysis
As the economies are getting intentionally integrated, for an analysis of the
environment of entrepreneurship you would be required to develop an
understanding of international, domestic macroeconomic, and
industry/sector specific factors.

Today, hardly any business is unaffected by international developments.

The strides in the IT sector and telecommunications along with the steady
progress of WTO negotiations relating to removal of tariff and nontariff
barriers on trade, investment and intellectual property have truly made the
world a global economic village. Even as a local player, you cannot wish
away global competition. Today a local bakery owner has to compete with
other locally available confectioneries as well as big national and
international brands such as Danish Cookies.

As the economies increasingly get integrated, so does their susceptibility to

external happenings. For example, September 11 in the USA and/or an
outbreak of SARS or bird flu in any part of the globe had ramifications in
the rest of the world. As a potential entrepreneur, you will have to keep all
these factors in mind as you pursue your entrepreneurial dreams.

In fact, the world of business is being increasingly- modified by three

concurrent happenings internationalization thanks to T.O, digitization,
thanks to advances in IT & communication, and outsourcing, thanks to the
resultant interdependencies. These trends influence different businesses
differently. What we are concerned with here is to examine these
developments from the standpoint of small business. We would be
restricting ourselves to a brief discussion of the impact of WTO on the
small-scale sector.

You may be aware that trade and investment liberalization means, among
other things, lowering of customs/import duties and allowing foreign direct
investment (via multinationals). Botli of these have a potential impact on
the future of small-scale industries. As imports get liberalized, the units in
the small-scale sector that had long been sheltered by the protective
measure of reservation of manufacture get exposed to external competition.
This is what exactly happened in case of local textile industry and other
manufacturing units that are closing shops in recent times.

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Clearly, implications of the WTO on the small and medium scale industries
are far from being one sided. If one is truly an entrepreneur, one should see
more of opportunities than threats.

Macro Environment
The macro environment of an entrepreneur consists of the political,
technological, social, legal and economic segments. All of these are not an
immediate part of the entrepreneur's venture yet they have an impact on
his enterprise. Let us now examine the elements of the macro environment
of the entrepreneur one by one.

Political Environment
Entrepreneurship can flourish under a stable and conducive political
climate. Government policies which give priority to growth of trade and
industry, provide infrastructural facilities and Institutional support can jr
give a boost the entrepreneurship.

Considering the employment and export. potential, the short gestation

period and the fact that small industries act as a seedbed for nurturing and
developing entrepreneurship, the Government is very supportive of the
small-scale sector. It has created an extensive Institutional framework for
provision of finance, technology as well as help in marketing. These are
made available by government: institutions like BOI, NACRDB, SMEDAN,
RMRDC, IDCs, TIDCs, etc.

Technological Environment
The level of technology, the trends and the rate of change. in technology
existing in a society all have a direct impact on enterprise creation.
Changes in technology, both innovation and invention change industry
structures by altering costs, quality requirements and volume capabilities.
In the advanced countries of the West more pure invention takes place
which can create new industries for example Automobile, Aeronautical,
Computer Hardware, Telecommunications,

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Pharmaceuticals etc. In developing economies there is usually an imitation
of the above through process innovation. It has been observed that many
small units use obsolete technologies and do not invest in R&D. As a result
their goods are of poor quality and lack standardisation. A direct
consequence of this is their inability to face competition. In many industries
the technological threshold is low and as a result the success of an
entrepreneur promotes many others to start similar businesses and he loses
the initial competitive advantage. On the other hand if he uses certain
costly technology chances of others quickly becoming his competitors is
less.
Apart from these the effect of technology on environmental laws, issues like
a product being tested on animals or use of child labour etc also have to be
kept in mind.

Socio-Cultural Environment
The customs, norms and traditions of the society also play an important role
in either hindering or promoting enterprise. For example, we sometimes
say that the Ijebus are very enterprising. In certain traditional communities
of our country working of females out of the home environment is frowned
upon. Many times the choice of occupation is also dictated by the family
traditions. Many vegetarians might not like to start poultry or fishery farms
in spite of their economic potential. It is definitely wrong to sight a piggery
farm in a predominantly Muslim community.
Socio-cultural factors are crucial for the operations of TNCs also. It is very
important for a TNC to understand the Socio-cultural background of their
customers in the host country. Socio-cultural environment is also concerned
with attitudes about work or quality concerns, ethics, values, religion etc.

Legal Environment
The laws of the country can make the process of setting up business very
lengthy and difficult or vice-versa. Many times one hears of people
complaining of the bureaucratic procedures in Nigeria, which act as a
damper on new venture creation. The labour laws and legal redress system
also have a bearing on business operations. Patents, Agreements on trade
and tariffs and environmental laws also need to be studied. Copyright,
trademark infringement, dumping and unfair competition can create legal
problems in the shape of long drawn out court battles. Simpler legal
procedures can facilitate the process of new venture creation and its
smooth functioning including setting up of ancillaries, foreign tie-ups and
joint ventures.

Economic Environment
Nigeria has today achieved a GDP growth of 7% and aspiring for 10 GDP in
the near fixture. Liberalisation, Globalisation and subsisting economic
reforms in Nigeria and the ECOWAS, has increased the space for business
operations. It has also opened channels for foreign investors, banks,
insurance and infrastructure companies to start operations. The resultant
competition, rapid and complex changes have changed existing business
environment, which have to be handled by the entrepreneurs.

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SECTORAL ANALYSIS
After having understood the general environment in which the business has
to take birth, it is important to study the sector or industry conditions in
which the entrepreneur proposes to launch a venture. This will help to put
the proposed venture in the proper context.

The purpose of industry analysis is to determine what makes an industry

attractive- this is usually indicated by either above normal profits or high
growth. For such analysis one should study the history of the industry, the
future trends, new products developed in the industry, forecasts made by
the government or the industry. It is also advisable to study the existing or
potential competition, threat of substitutes and entry barriers. Sometimes
there might be bilateral agreements between countries regarding some
sectors or government policy that is sector specific or some event that
throw up. There might be certain constraints regarding availability of
technology, manpower or raw materials, which are industry specific.
Similarly there might be certain strengths of a particular sector, which
might outweigh some negative general trends. Currently the cement and
steel sectors are on an upward swing with a favourable climate in the
housing sector as well as government's thrust on building roads and other
infrastructures.

SWOT ANALYSIS
At this stage conducting a SWOT analysis will help the entrepreneur to
clearly identify his own strengths and weaknesses as well as the
opportunities and threats in the environment. Threats in the environment
can arise from competition, technological breakthroughs, change in
government policies etc. He might possess certain unique skills or abilities,
which along with his knowledge and experience can provide him a cutting
edge.
Strengths are positive internal factors that contribute to an individual's
ability to accomplish his/her mission, goals and objectives.
Weaknesses are negative internal factors that inhibit an individual's
ability to accomplish his/her mission, goals and objectives.
An entrepreneur should try to magnify his strengths and overcome or
compensate for his/her weaknesses.
Opportunities are positive external options that an individual could
exploit to accomplish his/her mission, goals and objectives.
Threats are negative external forces that an individual could exploit
to accomplish his/her mission, goals and objectives. These could arise
due to competition, change in government policy, economic recession,
technological advances etc.

An analysis of above sub-heads can give the entrepreneur a more

realistic perspective of the business, pointing out foundations on
which they can build future strengths and the obstacles they must
remove for business progress.

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The hierarchical approach to development of business idea is
given below.

Macro environment analysis

Sectoral analysis

Swot analysis

Product/service

The entrepreneur has to use the opportunities provided by the

environment, combine these with his unique strengths in terms of
knowledge, skills, experience etc. and then take a decision to launch a
particular product or service. The proposed product / service should
be compatible with the capability of the entrepreneur, resources
available in the environment and the need of the society.

CREATIVITY AND INNOVATION

It is frequently commented that the only constant thing in business is
change. It is a true statement as the business environment is
constantly changing for a number of reasons. There can be
technological breakthroughs like the IT revolution, demographic
changes like increase in families with working parents, which have
fueled a demand for day care centers, old people's homes, fast food
etc. Chances in tastes and preferences have resulted in mushrooming
of restaurants and designer clothes. A natural disaster can create a
demand for tents, blankets, medicines, torches, food etc. An
entrepreneur with his vision, creativity and innovation can capitalize
on these changes and create customers. Recently `terrorist
insurance' has been started in war torn Iraq.

Creativity is the ability to bring something new into existence.

Innovation is the translation of an idea into application, which has a
commercial value. Creativity is a prerequisite for innovation. It can
be developed by any individual who has a concern for excellence and
is willing to work hard. A creative person develops new alternatives
and offers innovative solutions.

This can be done, for example, by:

 Adding product features - a job which is hard to do can be
made easier for example electric mixers and grinders have
dramatically reduced the labour expended in Nigerian kitchens.
Another example is that of the Courier Service which has
almost threatened the functioning of the NIPOST,

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  Cutting cost -- the entrepreneur can reduce production cost
and thus make available to more people otherwise expensive
product. For example the prices of computers and cell phones
have come down drastically within the last few years,
 Simplifying operations--- through creative distribution and
financing, for example, Nigerian banks these days are offering
their patrons opportunity to own new cars and other luxury
items.

It is through their creative thinking that entrepreneurs find solutions

to problems; handle adversity and exercise control over business.
Creativity helps not only in doing different things but also in doing
the things differently. For example, look at what FM has done to a
nearly forgotten means of entertainment-`radio' which has again
reached such heights of popularity.

Brilliant ideas do not simply materialize out. of the blues. They are
the outcome of a creative process consisting of the following six
stages:
1. Task Presentation: If one has a burning desire to discover or to
do something then the seed of curiosity germinates to form a focused
idea.
2. Preparation: A conscious search for collecting information and
seeking solutions has to be made.
3. Incubation: This is the stage when the subconscious mind takes
over and mulls over the problem. This stage can be short or it can
run into months or even years sometimes.
4. Idea Generation: A number of ideas and solutions are generated
depending upon the personal knowledge, experience, insight ete. of
the potential entrepreneur.
5. Idea Validation: Each idea that is generated is verified to test its
usefulness and application.
6. Outcome Assessment: The creative process ends with either the
crystallization of an idea or the lack of it. If it is the latter then one goes
back to stage 1 and starts the process all over again. However if an idea is
zeroed on then its feasibility has to be evaluated and a Project Report has
to be prepared.

EXAMPLES OF OPPORTUNITIES IN CONTEMPORARY NIGERIAN

BUSINESS ENVIRONMENT

We have observed above that the business environment is constantly

evolving as a result of demographic, technological, legal and other changes.
These constantly throw up new challenges for entrepreneurs. Some
opportunities, which can be explored by the potential entrepreneur, are
given below.

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Niche Marketing
Niche marketing is a marketing strategy, which can be intelligently used by
a small entrepreneur. He can try and identify his own Special Product,
which can be targeted towards some very specific market segments called a
niche. By providing personal service, convenience and value to the
customers the small entrepreneur can successfully compete with the bigger
market players. The standardized goods produced on large scale cannot
cater to the special requirements of different segments of the market. For
example there is an emerging niche in the food market of health conscious
people who want to consume only organically grown foods. With the
increase in number of murders arid other crimes taking place in big cities
entrepreneurs can tap the niche of households for installing security
systems like alarms, CCTVs, cameras and other safety gadgets etc.

Service Sector
Unlike products, services are not tangible; they cannot be stocked, and they
cannot be marketed through wholesalers or retailers. If you want a haircut
you will have to go to the barber or a saloon. Usually production and
consumption are simultaneous. Another advantage of setting up a service
enterprise is that they require lower investments compared to the
manufacturing sector. The service sector has been growing at a very fast
rate. Apart from the IT sector, call centers, medical services, and legal
services, are popular areas in the service sector. The entertainment
industry including films, the numerous movie channels, musical nights, Film
Award functions are other sectors, which are showing high rates of growth.
Courier services, Event Management, beauty parlours, health clubs, repair
and maintenance centers and restaurants are other examples of services
that are in high demand.

Franchising
Franchising takes a proven formula for success and expands it:. Business
franchising is a name given to relationship in which the owner of a product,
process or service allows a local operator to set up a business under that
name, for a specified period of time. Tantalizer and McDonalds outlets are
some examples of how some entrepreneurs buy a venture which is a part of
a chain of similar business units. Franchising is an arrangement between
the buyer who is called a franchiser and the seller who is called the
franchisee. The buyer gets the right to sell the trademark product or
service of the franchisee. He is relieved of most of the functions involved in
setting up of an enterprise and gets the benefit of visibility and recognition.
Usually the franchisee also looks after the advertising, training, and design
and lay out etc. for the franchiser. The franchisee is able to expand his
market geographically without having to worry about day-to-day operations.
The licensing system gives the franchisee barriers to entry, standardization
and incentives for growth. However they have to be careful that their
standards are adhered to. The franchisers too have to be careful in reading
the fine print otherwise they can get caught in legal problems. Also if by
chance the franchisee closes down, for example Mothercare products of
UK, then all the franchisers worldwide will run out of business overnight.

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Tourism
Tourism is amongst the fastest growing industries the world over and offers
tremendous opportunity for entrepreneurship and employment. It includes
any business connected with the activities of tourists: -

• Travel arrangement (road, waterways, air or sea)

• Accommodation (hotels, motels, guest houses)
• Food
• Entertainment
Apart from the potential in providing these direct services, tourists use
many indirect services also for example they hire taxis for local site seeing,
buy all kind of souvenirs, they need guides and interpreters. There is an
acute shortage of service providers in all these areas. The gap between the
demand and supply is likely to increase in the foreseeable future. Other
growing segments of tourism include Adventure Tourism, Eco-Tourism,
Rural-Tourism, and Spiritual Tourism. It is clear from the above that this
sector has untapped potential which can be exploited by potential
entrepreneurs.

Entertainment
Entertainment industry is another sector, which boasts of very high rates of
growth. Hundreds of films are made annually in Nigeria. There are
innumerable TV Channels ranging from news, sports, cartoons, family
dramas, music, religious etc. Music industry is also flooded with music

videos, remixes, music and film nights, preparation and launch of CDs
and DVDs etc.
Enterprises can be set up to provide services for pre and post
production including script writing, music, dubbing, animation,
editing to name a few.

Like the tourism sector the entertainment sector too has a host of
feeder activities attached to it - supply of costumes, jewellery, sets,
food, banners, posters which provide endless entrepreneurial
opportunities.

Green Entrepreneurship
Conservation and Environment protection are presently getting a lot
of attraction. Green Entrepreneurship signifies concern for the
environment. Such business activity should be chosen which has the
least adverse impact on the environment. This concept also stresses
the prevention of waste at the source rather than at. the end of the
process. It concentrates on new and creative ways to recycle usable
materials, use of substitutes or processes that are less polluting as
well as adoption of waste minimization strategies.

166
Recycling waste or turning them into useful products are good
product ideas for example old clothes are used for making rugs. Hand
made paper, cards and envelopes are made from recycled paper.

Some Other Opportunities

Financial and accounting services, Web chat response, Email,
Architectural and Structural design drawings, BF'O (Business process
outsourcing) are all rapidly growing segments of the IT-Enabled
services. The initial capital investment might be a deterrent for the
new first generation entrepreneurs. So to begin with they can try and
supply feeder services for these units for example transportation for
the employees, catering for the employees as well as Security
Services. Mineral water production, Insurance brokerage, portfolio
investment brokerage, event management , restaurants, instant foods,
processed foods, courier service, hospitality, gyms, logistics, wedding
management are some of the other high growth sectors, which can be
explored.

IDEA GENERATION
The starting point for any successful new venture is the basic product
/ service i o be offered. This idea can be either generated internally or
externally .For a new entrepreneur it becomes very difficult to filter
information from the business environment, identify opportunities,
evaluate them and then crystallise one specific idea. Developing a
hobby, difficulty in obtaining a satisfactory product or service,
evaluating new products being offered in the market and active
engagement in Research and Development can help in generating a
number of ideas. A reading of the Economic Times, business
magazines, watching special business programmes on the television,
discussions with professionals, friends, even teachers, surfing the internet
all help to provide valuable inputs A study of government policies (for
example tax incentives and holidays for setting up projects in backward
area) can help an entrepreneur to arrive at some decision . Business
consultants can also help to identify a product or service and develop a
business plan.
The sources of idea generation are listed in the figure below.

167
Once the idea or group of ideas is generated it has to be screened or s, 4
evaluated to determine it's appropriateness for further development. Ideas
showing the most potential are subjected to a feasibility analysis and a
Project Appraisal is then made.

Exercise:
1. What do you understand by the term business opportunity? What is its
relevance for an entrepreneur?
2. Do you think it. is important for an entrepreneur to scan for opportunities
in the small Scale sectors? Give reasons.
3. In your opinion what precautions should a potential entrepreneur take at
the Idea Generation Stage in an ever-changing business environment?
4. Short list 3-4 ideas, which you can further, explore with a view to starting
a business of your own.

2. Explain The Different Steps In Preparing A Preliminary Project

Report;
3. Explain How To Formulate A Project Report;
4 Explain How To Analyze A Project Report.

FEASIBILITY ANALYSIS, PROJECT REPORT AND BUSINESS PLAN

Generation of ideas is not enough; the business ideas must stand the
scrutiny from techno-economic, financial and legal perspectives. That is,
after the initial screening of the ideas that do not seem promising prima
facie, you should conduct an in-depth examination of the chosen threcfour
before settling for the one where you would like to exert your time, money
and energies. You should prepare a business plan that will serve as the road
map for effective venturing, whether you may require institutional funding
(in which case it is necessary to do so) or not. Setting up of new business
enterprises is a very challenging task; you are likely to encounter many
problems en route. It's advisable to be aware of these problems as to fore
warn means to fore arm!

PROJECT FEASIBILITY STUDY

Feasibility literally means whether some idea will work or not. This study
allows you to know before hand whether there exists a sizeable market for
the proposed product/ service, what would be the investment requirements

168
and where to get the funding from, whether and wherefrom the necessary
technical know-how to convert the idea into a tangible product may be
available, and so on. In other words, feasibility study involves an
examination of the operations, financial, human resource (HR) and
marketing aspects of a business on ex ante (before the venture comes into
existence) basis. What we present hereunder is a brief outline of the issues
impinging upon the various aspects of the feasibility of the proposed
project.

By now, you would have understood that feasibility is a multivariate

concept; that is, a project has to be viable not only in technical terms but
also in economic and commercial terms too. Moreover, there always is a
possibility that a project that is technically possible may not be
economically viable. So, even as we take up the various aspects of
feasibility one-by-one, it° must not mislead us into believing that there is a
sequence and that there are no interdependencies.

Examination of the feasibility requires skills that you may fall short of.
There are, however, industrial potential surveys available with the
SMEDAN, RMRDC, FIIR0, State Ministries of Commerce and Industry/
enterprise agencies, and IIDCs that may serve as a good starting point. You
may also make use of the Project Reports published by the directorate of
industries and private consulting firms. Obviously, as you use these off-the-
shelf project reports, you need to re-validate their assumptions and findings
and resist the temptation of jump-starting. Whether you use the already
published project reports or wish to start afresh, you need to examine all
the facets of the feasibility of the proposed project idea, viz., marketing,
technical, financial, economic and legal.

MARKET ANALYSIS
A market, whether a place or not, is the arena for interaction among buyers
and sellers. From seller's point_ of view, market analysis is primarily
concerned with the aggregate demand of the proposed product/service in
future and the market share expected to be captured. Success of the
proposed project clearly hinges on the continuing support ,of the
customers. However, it is very difficult to identify the market for one's
product/ service. After all, the whole universe cannot be your market. You
have to carefully segment the market according to some criteria such as
geographic scope, demographic and psychological profile of the potential
customers etc. It is a study of knowing who comprise all your customers;
and for this you require information on:
- Consumption trends.
- Past and present supply position
- Production possibilities and constraints
- Imports and Exports and Competition
- Cost structure
- Elasticity of demand
- Consumer behaviour, intentions, motivations, attitudes, preferences and
requirements

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- Distribution channels and marketing policies in use
- Administrative, technical and legal constraints impinging on the
marketing of the product

FINANCIAL ANALYSIS
The objective of financial analysis is to ascertain whether the proposed
project will be financially viable in the sense of being able to meet the
burden of servicing debt and whether the proposed project will satisfy the
return expectations of those who provide the capital. While conducting a
financial appraisal certain aspects has to be looked into like:
- Investment outlay and cost of project
- Means of financing
- Projected profitability
- Break- even point
- Cash flows of the project
- Investment worthiness judged in terms of various criteria of merit
- Projected financial position

TECHNICAL ANALYSIS
The issues involved in the assessment of technical analysis of the
proposed project may be classified into those pertaining to inputs,
throughputs and outputs.

• Input Analysis: Input analysis is mainly concerned with the

identification, quantification and evaluation of project inputs, that is,
machinery and materials. You have to ensure that the right kind and
quality of inputs would be available at the right time and cost
throughout the life of the project. You have to enter into long-term
contracts with the potential suppliers; in many cases you have to
cultivate your supply sources. The activities involved in developing
and retaining supply sources are referred to as supply chain
management.
• Throughput Analysis: It refers to the production/operations that you
would perform on the inputs to add value. Usually, the inputs received
would undergo a process of transformation in several stages of
manufacture. Where to locate the facility, what would be the
sequence, what would be the layout, what would be the quality control
measures, etc. are the issues that you would need to address.
• Output Analysis: This involves product specification in terms of
physical features- colour, weight, length, breadth, height; functional
features; chemical, material properties; as well as standards to be
complied with such as BIS, ISI, and ISO etc.

ECONOMIC ANALYSIS
Economics is the study of costs- and- benefits. In regard to the feasibility
study the entrepreneur is concerned whether the capital cost as well as
the cost of the product is justifiable vis-a-vis the price at which it will sell
s, at the market place. For example, technically, silver can be
extracted from silver bromide, (a chemical used for processing the X-ray

170
and photo films); but, the cost of extraction is so high that it would not be
economically feasible to do so. Likewise, until recently the cost of
harnessing solar power was prohibitively high. This cost-benefit analysis
goes into financial calculations for profitability analysis that we discussed
under financial analysis. At this stage it is also useful to distinguish
between the economic and commercial feasibility; whereas economic
feasibility leads one to the unit cost of the product, commercial feasibility
informs whether enough units would sell.

Apart from the cost-benefit analysis as above, which we also refer to as

private cost-benefit analysis, it is also useful to do what is known as
social- cost-benefit- analysis (SOBA). For example, the entrepreneur may
be getting subsidized electricity in which case private cost would be less
than social cost. Likewise, exporting units earn ,precious foreign
exchange resulting into social benefits being more than private earnings.

Many a time, a project that is worthy on SCBA may find greater favour with
the support agencies.

ECOLOGICAL ANALYSIS
In recent years, environmental concerns have assumed a great deal of
significance especially for projects, which have significant ecological
implications like power plants and irrigation schemes, and for environment
polluting industries (like bulk drugs, chemicals and leather processing). The
concerns that are usually addressed include the following:

- What is the likely damage caused by the project to the environment? -

What is the cost of restoration measures required to ensure that the
damage to the environment is contained within acceptable limits?

LEGAL AND ADMINISTRATIVE ISSUES

Think of the plight of the entrepreneur who worked on the idea of a laundry
to cater to hotels and hospitals, finds it eminently feasible only to learn
subsequently that `laundry' does not figure as an industry within the
administrative definition of SSI as applicable on that date; and at such
could not benefit from anticipated supports. What is implied is that the
entrepreneur has to be sure also of the administrative and legal issues
involved in the project. These include, choice of the form of business
organisation, registration and clearances and approvals from the diverse
authorities.

PROJECT REPORT
The findings of the feasibility analysis may be compiled in a project report:-
(See `Specimen Pro forma of Project Report' below). Funding agencies have
their own set-up for the appraisal of these reports. The idea is that the
optimist entrepreneur may have overlooked certain aspects that may have a
beahing on the ultimate feasibility of the proposed business idea. It is often
felt that financial institutions tend to over emphasise the financial feasibility
of the project and do not pay adequate attention to its commercial and

171
economic viability. This security-driven approach is one of the reasons why
some promising ventures are turned down despite their sound techno-
economic viability.

172
SPECIMEN PROFORMA OF PROJECT REPORT
1. Particulars of the Enterprise
i) Name of the Product(s)_______________
Product Code_________________________
ii) Name of the Unit and Address
________________________________
___________________________________________________________
iii)
Telephone No. (if any), Office___________________________
Factory__________________
iv)
Name(s) and addresses of the Promoters
____________________________________
v)
Constitution of the Firm Proprietary/Partnership
Coop. Society__________________________
vi)
Qualification both Academic/Professional of the Entrepreneur(s)
Name___________________________________________________
__________________________________________________________
Production/Working experience of the Entrepreneur(s)
Name of the Organisation
_____________________________________________________

Designation____________________________________________
Period___________________________________________________
viii) Family background (Please give details of close relations who are
in
industry/Business).
Name & Address of the units & Items manufactured

___________________________________________________________

ix) Location/Proposed locations_____________________________

x)Name & Address of the bank with which you want to
deal________________
II. Economic Viability & Marketability_______________________
Introduction
ii) Basic & Presumptions)
ii)Scope

173
iii) Marketability (Please give proposed selling arrangements & list of
places where the products will be mainly sold & likely buyers). III.
Technical Feasibility
i) Manufacturing process (Please give process flow chart).
ii) Please indicate the process which will get done from outside. iii)
Specifications (whether proposed to adopt ISI specifications or
some other).
iv) Components to be purchased from outside.
Name of the Components No. Specifications
v) Installed Capacity Qty. Value
vi) Proposed capacity to be utilized Qty. Value
vii) Motive power requirements (HP) Approx.

IV. Financial Projections A. Fixed Capital

(i) a. Land, Area and Value
b. Building area, value owned/rented or leased
c. Please mention if some arrangements have been made in this
respect.
(Please append the proposed layout plan)
(ii) Machinery & Equipment

Description Indigenou Qty Pric Sale Tota 'Naive &

S\N0. Int.
and s/ . e Tax l address
1 Specification 3
2 Imported 4 5 6 S of
9 the

(iii) Testing equipment (with details as above)

(iv) Electrification & Installation Charges and Maximum 10% of cost of
machinery & Equipment.
(v) Cost of Tools/Jigs./Fixtures/Mould/Working tables etc.
(vi) Cost of Office Equipment’s.

(vii) Pre-operative expenses if any (cost of project preparation, technical

know-how expense, royalties etc.)
(viii) Total non-recurring expenditure = (i+ii+iii+iv+v+vi+vii)

174
iii) Other items of expenditure (per month on single shift basis)
a) Utility
Power KWH unit@ per unit cost =N=.
Fuel (steam/furnace oil
tones @=N=. Per tone
water kilolitres @=N= per kilolitre

Total Cost of Utilities

b) Advertisement & Publicity c) Transport
d) Commission to Distributors/agents
e) Consumable stores
f) Rent (if anywhere cost of land building is not given)
g) Taxes (other than Income tax)
h) Insurance i) Stationery
j) Postage & Telephone etc.
k) Repair & Maintenance
1) Sales Expenses
m) Other miscellaneous (not give above)
n) Total overheads (a+b+c+d+e+f+g+h+I+j+k+l+m)
iv) Total recurring expenditure (per month) (i+ii+iii)

Working capital for two/three months (depending upon need or worked out
on the bank system of assessment of working capital needs) 2/3 x
(expenditure)

B. Total Investments
I) Fixed Capital
II) Working Capital Total

C. Cost of Production (per Year)

i) Total recurring expenditure (per year)
ii) Depreciation on building @5%
iii) Depreciation on machinery & equipment’s @1 0 %
iv) Depreciation on fixtures/Jigs. /Tools/Mounds @25%
v) Depreciation on office equipment’s @20%
vi) Depreciation on furnaces @25%
vii) Interest on total investment @_________________
(Actual to be charged by Financial Institutions or Banks)

D. Total Cost of Production

E. Turnover Per Year

175
_______________________________________________________
Sales Qty Rate Total

F. Net Profit Per Year

(before Taxes)
(E:D)
G. Financial Assessments
(i) Net profit Ratio

176
(iii) Break Even Point (BEP)
Total Fixed Cost (FC) Per Year
(a) Depreciation
(b) Rent
(c) Interest on total Investment
(d) 40% of Salary & wages
(e) 40% of overheads
(f) Insurance B.E.P. .

V. Name & Addresses of Suppliers

BUSINESS PLAN
The feasibility analysis of the chosen 3-4 project ideas would help you zero
in on to the one where you would like to commit yourself. Now, is the time
to decide in advance on how you intend to go about everything related to
the launch of your business and its subsequent operations? The difference
between the feasibility report and business plan essentially lies in `action
orientation.' As such, a business plan is a blue print of entrepreneurial
intentions.

The business plan is a written document that serves as a road map in the
entrepreneur's journey from start-up to project implementation. It
describes all the relevant elements involved in starting a new business
enter,prise. It. is often an integration of functional plans such as marketing,
finance, manufacturing and human resources. Potential investors and
suppliers too are interested in a business plan, as it can prove helpful in
taking decisions.

NEED FOR A BUSINESS PLAN

177
The depth and detail of the business plan depends upon the size of the
market, nature of business [manufacturing/trading/service] and degree of
competition. For example, an entrepreneur planning to market a new
mowing machine will need a comprehensive business plan. On the other
hand, an entrepreneur who plans to open a general provisions corner store
will not need such a comprehensive business plan. Business plan is
important due to the following reasons:
(i) It helps the entrepreneur to decide where he wants to go.
(ii) It helps him to determine the viability of the venture.
(iii) It provides -guidance to, the entrepreneur in planning realistic
goals and targets, in organizing and even in identifying possible
roadblocks.
(iv) It is a pre-requisite to obtain finance.

While outlining a business plan, you should start with describing your
business and product or services. Then indicate the market you are
targeting and the stage of development your company is in. If you get stuck
at a particular part of the plan, leave it for a while and get back to it later
and finish it. You cannot make a perfect first draft. So just get some
thoughts down to start the process. You can always come back and change
it or polish it up later. While making a business plan keep the following
points in mind.

1. The target audience: While working your business plan, keep in

mind the intended audience and the purpose of writing the plan. For
example, if you are trying to get debt financing, the emphasis should
not be on the huge profit potential but on the certainty that the debt
can be repaid.

2. Business strategy: The first part of the business plan should be

geared towards helping develop and support solid business strategy.
The plan should explain the market, the industry, target customers
and competitors.

The second half of the business plan should explain how to execute your
selected business strategy. Your products, services; marketing and
operations should all closely tie in with your strategy.

3. Competition: As an entrepreneur, you need to identify where you

will do things in a manner similar to your competitors and where
you will do things differently what will be your real strengths and
real weaknesses. Focus your plan on being different or better than
your competitors'. Think over the points-Can you find a unique
strategy? Can you position your products differently'? Can you use
different sales or marketing vehicles? Your business plan should be
able to answer these questions.

178
4. Be realistic: So many business plans do not work in the real life as
there are always going to be some unseen expenditures, cost
overruns, expensive problems and items that you simply
overlooked. So forecast realistically and try to have a contingency
reserve.

5. Involvement of people for creating the business plan: In seeking

funds from banks, venture capitalists or other outside investors, the
chances of success are greater if your management team includes a
person whose name carries some weight, to get the plan in
synchronized fashion, and to get any disagreements out in the
open. 'The more input people have in creating the plan, the more
responsibility they will feel towards it.

6. You should keep your business plan factual and brief

OUTLINE OF A BUSINESS PLAN

1 Introductory Page
(a) Name and address of business
(b) Name(s) and address (es) of principals
(c) Nature of business
(d) Statement of financing needed
(e) Statement of confidentiality of report

2 Executive Summary - Three to four pages summarizing the

complete business plan.

3 Industry Analysis
(a) Future outlook arid trends
(b) Analysis of competitors
(c) Market segmentation
(d) Industry forecasts

4 Description of Venture
(a) Product (s)
(b) Services (s)
(c) Size of business
(d) Office equipment and personnel
(e) Background of entrepreneurs

5 Production Plan
(a) Manufacturing process (amount subcontracted)
(b) Physical plant
(c) Machinery and equipment
(d) Names of suppliers of raw materials

6 Marketing Plan
(a) Pricing

179
(b) Distribution
(c) Production
(d) Product forecasts
(e) Controls

7 Organizational Plan
(a) Form of ownership
(b) Identification of partners or principal shareholders
(c) Authority of principals
(d) Management-team background
(e) Roles and responsibilities of members of organization

8 Assessment of Risk
(a) Evaluate weakness of business
(b) New technologies
(c) Contingency plans

9 Financial Plan
(a) Pro forma income statement
(b) Cash flow projection
(c) Pro forma balance sheet
(d) Break-even analysis
(e) Sources and application of funds

10 Appendix (contains backup material)

(a) Letters
(b) Market research data
(c) Leases or contracts
(d) Price lists from suppliers

Source: Hisrich and Peters-Entrepreneurship, Tata McGraw Hill 2000

page 237
You would have. noticed that both Project Report and Business Plan
appear similarly content. Difference between the two at times lies in the
phraseology, Essentially the difference lies in the action orientation as
noted earlier.

BASIC START UP PROBLEMS

There are many problems involved in the establishment of a small scale
enterprise. Some of these are given below:

(i) Selection of the Industry: Once a person has decided to start his own
business, the first major problem is to select the line of business. This
problem can be solved by analyzing the person's aptitudes, propensity to
take risk, organizational ability, skills and experience, family background,
financial position, Government policy and incentives, infrastructural
facilities, etc. You may need to seek advice of consultants. (ii) Product
Selection: Another start up problem is the choice of the particular

180
product to be manufactured. This can be decided through a comparative
analysis of a few product items with special reference to:

(a) Size and structure of the market

(b) Future demand pattern
(c) Competitive position
(d) Life cycle of the product
(e) Availability of raw materials
(t) Technical aspects of production
(fl Availability of required labour
(g) Government policy and controls

(iii) Choice of Factory Site: The next main problem is to find out a
suitable location for the factory. This is critical and may determine the
success or failure of an enterprise.

(iv) Form of Organization: The proprietor has to select an appropriate

form of business organization for his unit. There may be a need to seek
advice from a legal practitioner.

(v) Problem of Construction: This should include deciding to own or

lease the building. Construction of factory building involves several
problems e.g.
(a) Acquisition of land in the chosen locality.
(b) Architectural design of the building
(c) Appointment of engineers and contractors
(d) Civil work like obtaining power and water connection
(e) Supervision of construction work
(f) Acquisition and installation of machinery and equipment
(vi) Supply of Raw Materials: Appropriate suppliers of raw materials
have to be selected. Agreements need to be made with the
concerned

suppliers. It is very important to discuss delivery schedules and make

contingency plans for altenlate sources in case of disappointed from a
major supplier.
(vii) Financing the Unit: The funds required for both fixed capital and
working capital have to be estimated. Appropriate sources of required
funds have to be decided. Arrangements are then made to collect the
necessary finance.

(viii) Recruitment and Training of Staff. Staffing of the new unit i s

another major problem. First of all the quantity and quality of staff required
are judged. Then people with required skills are selected. Necessary
training arrangements are made for preparing the selected people to
handle their jobs efficiently.

181
(ix) Trial Run: Production is then started on an experimental basis. The
difficulties and constraints experienced during the trial nun are tackled
before starting commercial production.

(x) Marketing: Though necessary prospecting markets for the product

have been decided, test marketing is done to judge the acceptability of the
product. The experience gained through test marketing is used to make
necessary improvements in the product. After that the product is launched
in the market.

(xi) Gestation Period: Great care and efforts are required to successfully
overcome the problems and risks during the gestation period. Effective
control over expenses, time and cost overruns, sales pattern etc. is
necessary to ensure that the unit survives the initial expenses and 5'f losses.
Once the unit starts generating profits the startup problems are by and
large over.

Exercises:
1. What are the important facets of a project feasibility study?
2. What factors are to be kept in mind while deciding on
product/ service?
3. Describe the various forms of business organization.
4. Explain legal considerations in the establishment of a small scale
enterprise.
5. What is the role of Single Window Agencies in the development. of
small-scale industries?
6. What kind of final clearances and from whom, the entrepreneurs are
required to take as soon as the unit goes into production?
7. Describe the different stages involved in setting up a small-scale
enterprises.

182
 TOPIC 10:

STRATEGIES FOR CONSOLIDATION AND EXPANSION OF

BUSINESS ENTERPRISE

INTRODUCTION:
Business consolidation and expansion is a question of the survival for
business enterprises. Hence, entrepreneurs must be up to date to find
out the required strategies in order for them to be relevant.

In this section there is an attempt to make learners appreciate how

businesses are diversified and expanded from a certain state to a higher
level by entrepreneurs. It further examines in greater details processes
for consolidation and expansion of businesses. It considers the
characteristics of franchising, licensing and patent system as means of
commencing a business. The roles of Multinational Corporation are also
examined.

SPECIFIC LEARNING OUTCOMES:

1. Explain the justification for business diversification and expansion;

2. Explain the process of growth, diversification and expansion in an
enterprise;
3. Evaluate the strategies for consolidation and expansion of business
ventures;
4. Explain the characteristics of franchise, license arid patent systems of
enterprise;
2. Explain mergers and acquisitions;
3. Explain how multinational companies operate;
4. Explain how to do business across Nigerian borders

CONTENT
1. Explain the Justification for Business Diversification and Expansion;
Small business managers do think about how they should grow their
businesses. However, this is something that happens when they are less
busy satisfying orders or sorting out other problems. Usually something
forces them to think about growth. In your case, it may be one of
the .following:

183
Reason Example
A plan for growth is needed Your bank manager wants a
business or marketing plan
to
support your cash-flow
forecasts or request for an
overdraft.
Loss of sales You have. recently lost one
more key customers to
com jetitors.
Resource allocation You have thought about
developing a new product or
service but are not sure if it
the best use of resources.
Under-used capacity You have bought two new
specialist machines when
you
needed one-and-a-half. You
therefore need to find orders
to increase utilisation.
You have to achieve yourYou want to grow and have
objectives been thinking about it for a
while but now is the time to
do something about it.
Scatter-gunning You have tried a range of
ideas or attempts but none
has really worked out,
perhaps because you have
been trying to do too much
once.

2. Explain the Process of Growth, Diversification and Expansion in an

Enterprise;
There are broadly two ways to grow a business:

Go out and find a market opportunity, then r-stablish and organize a

-
business to satisfy that opportunity. This is fine for an entrepreneur with
good ideas and resources to invest.

-Understand the capabilities and limitations of an existing business and

then go out and find an opportunity that matches those capabilities. This
is a more effective approach for most small

businesses that are already up and running, with resources that have
distinct capabilities.
The important point for you is to identify what your business is good at
and to build on that. It's all too easy to believe your own sales literature,
but your customers may think you are good at something else. Why not
ask them? They will soon tell you.
Approaches to Business Growth

184
Your business will survive, grow and flourish by selling more to more
people. This may be selling more of your existing products or services to
existing customers, or it can be selling new products or services and/or
acquiring new customers or markets. There are four main approaches
available to you for growing your business as shown below:

i Products/Services

Existing New

Growth through Growth through

Customer Existing existing new products
customers and services
Growth through_
Growth through
New new customer
diversification
and markets

Growth through Existing Customers: Increasing Sales to Existing

Customers by Selling Them More

You can do this by selling existing customers more of what you as already
selling them or by selling them other products or services in you, range.

It also means trying to find other customers like your existing customers.
For example, if you are selling industrial machines to six major
customers in the automotive industry, finding other customers like these
in the automotive industry would fall into this category. The logic here is
that you are trying to sell more to customers whose needs are similar and
who tend to buy in the same way. Strictly speaking, the wording of this
approach to growth should be growth through existing types of
customers. This approach tends to yield a short-term payback.

Growth through New Customers or Markets: Increasing Sales

Through New (Types Of) Customers or by Entering New Geographic
Markets

For example, your industrial machines may be equally useful to, say, the
aerospace industry or the railway industry but they use the machines in a
slightly different way and buy differently.
New geographic markets can be other regions within a national market
or other national markets. Your target customers are likely to be similar
to the customers in your existing market(s). Of course, you can look to
serve new customers in new markets but this means that you have to do
two new things at once, thus increasing your risk.

185
This approach has a significant number of unknowns and generally
requires more investment, which has a medium term payback.

Growth through New Products or Services: Developing and Offering

New Products or Services, Usually to Your Existing Customers First to
Minimize Your Risk

he trick here is not necessarily to create completely new products -

services but, if possible, to repackage or modify your existing products or
services. This again minimizes your risk. Of course, if your existing
products and services are becoming uncompetitive or obsolete, then you
may need to consider completely new ones.

This approach usually has a significant number of unknowns, especially if

you are creating a completely new product or service. It generally
requires significant investment and has a medium- to long-term payback.

Growth through Diversification: Developing New Products or Services

and Offering Them to

New Customers
This is usually a high risk approach and one to be considered only when:

-you cannot meet your objectives for growth through the other three
approaches
-you have exhausted all potential for growth through the other three
approaches
-you are looking for a genuinely new and innovative approach to growth
and you have the capital to invest and resources to carry the work
through.

Most small businesses still have much potential for growth in the other
three approaches, which carry far lower risk. We are not providing
specific information or thoughts on this approach, but for firms that have
to consider diversification as an approach, they should apply
simultaneously the principles of growth through new products or services
and growth through new customers or markets.

As you may have gathered, risk increases as you come down this list. This
has implications for the approach you choose for your business.

3. Evaluate the Strategies for Consolidation and Expansion of

Business Ventures;

All organizations pass through various stages of growth and at each

stage the organization is required to solve some specific problems. A very
useful model of organizational growth has been developed by Greiner. He
argues that each organisation moves through five phases of development

186
as it grows. There are five phases in organizational growth - creativity,
direction, delegation, coordination and collaboration followed by a
particular crisis and management of problems.

1. Creativity Stage. Growth through creativity is the first phase. This

phase is dominated by the entrepreneurs of the organizations and the
emphasis is on creating both a product and a market. However, as the
organization grows in size and complexity, the need for greater efficiency
cannot be achieved through informal channels of communication. Thus,
many managerial problems occur which the entrepreneur may not solve
effectively because they may not be suited for the kind of job or they may
not be willing to handle such problems. Thus, a crisis of leadership
emerges and the first revolutionary period begins. Such questions as
`who is going to lead the organisation out of confusion and solve the
management problems confronting the organisation; who is acceptable to
the entrepreneurs and who can pull the organisation together arise. In
order to solve the problems a new evolutionary phase - growth through
direction - begins.

2. Direction Stage. When leadership crisis leads to the entrepreneurs

relinquishing some of their power to a professional manager,
organizational growth is achieved through direction. During this phase,
the professional manager and key staff take most of the responsibility for
instituting direction, while lower level supervisors are treated more as
functional specialists than autonomous decision making managers. Thus,
directive management techniques enable the organisation to grow, but
they may become ineffective as the organisation becomes more complex
and diverse. Since lower level supervisors are most knowledgeable and
demand more autonomy in decision making, a next

period of crisis - crisis for autonomy begins. In order to overcome this crisis,
the third phase of growth - growth through delegation - emerges.

3. Delegation Stage. Resolution of crisis for autonomy may be through

powerful top managers relinquishing some of their authority and a certain
amount of power equalization. However, with decentralization of authority
to managers, top executives may sense that they are losing control over a
highly diversified operation. Field managers want to run their own show
without coordinating plans, money, technology or manpower with the rest
of the organisation and a crisis of control emerges. This crisis can be dealt
with in the next evolutionary phase - the coordination stage.

4. Coordination Stage. Coordination becomes the effective method for

overcoming crisis of control. The coordination phase is characterized by the
use of formal systems for achieving grater coordination with top
management as the watch dog. The new coordination system proves useful
for achieving growth and more coordinated efforts by line managers, but
result in a task of conflict between line and staff, between headquarters and
field. Line becomes resentful to staff, staff complains about unco-operative

187
line managers, and everyone gets bogged down in the bureaucratic paper
system. Procedure takes precedence over problem solving; the organisation
becomes too large and complex to be managed through formal programmes
and rigid systems. Thus, crisis of red - tape begins. In order to overcome
the crisis of red--tape, the organisation must move to the next evolutionary
stage - the collaboration stage.

5. Collaboration Stage. The Collaboration stage involves more flexible

and behavioral approaches to the problems of managing a large s,
organisation. Whilethe oordination stage was managed through formal
systems and procedures, the collaboration stage emphasizes greater
spontaneity in management action through teams and skilful confrontation
of interpersonal differences. Social control and self - discipline take over
from formal control. Though Greiner is not certain what will be the next
crisis because of collaboration stage, he feels that some problems may
emerge as it will centre round the psychological saturation of employees
who grow emotionally and physically exhausted

by the intensity of team work and of the heavy pressure for innovating
solutions.

GROWTH STRATEGY
`Growth Strategy' refers to a strategic plan formulated and implemented
for expanding firm's business. For smaller businesses, growth plans are
especially important because these businesses get easily affected even by
smallest changes in the marketplace. Changes in customers, new moves

188
by competitors, or fluctuations in the overall business environment can
negatively impact their cash flow in a very short time frame. Negative
impact on cash flow, if not projected and adjusted for, can force them to
shut down. That is why they need to plan for their future. Small
entrepreneurs generally feel that strategic planning is for large business
houses; but it is very necessary for small and medium enterprises. Strategic
Planning gives a formal direction to the business. Strategic planning is
necessary to take care of the additional efforts and resources required for
faster growth.

Different type of growth strategies are available each having advantage and
disadvantage of its own. A firm can adopt different strategies at different
points of time. Every firm has to develop its own growth strategy according
to its own characteristics and environment.

TYPES OF GROWTH STRATEGIES

The following are the main growth strategies available to firms:
1. Intensive Growth Strategy (Expansion)
2. Diversification
3. Modernization
4. External Growth Strategy
(a) Mergers
(b) Joint Ventures

GROWTH STRATEGIES

INTENSIVE GROWTH STRATEGY

Intensive growth strategy or expansion involves raising the market share,
sales revenue and profit of the present product or services. The firm slowly
increases its production and so it is called internal growth strategy. It is a
good strategy for firms with a smaller share of the market. Three
alternative strategies are available in this regard. These are:

(a) Market Penetration - This strategy aims at increasing the sale of

present product in the presented market through aggress}ve promotion.

The firm penetrates deeper into the market to capture a larger share of
the market. For example, promoting the idea of Coca-Cola during the hot
season,

189
(b) Market Development - It implies increasing sales by selling present
products in new markets. For example selling electronic goods in rural
areas or sale of chocolates to middle aged and old persons. Market
development leads to increase in sale of existing products in unexplored
markets.

(c) Product Development: In this, the firm tries to grow by developing

improved products for the present market. For example, A.C. with
remote control, Refrigerator with automatic de-freezing and flexible
shelves. Advantages of Intensive Growth Strategy

(1) Growth is slow and natural. Therefore, it can be handled easily.

(2) Capital required for expansion can be taken from the firm's own
funds.
(3) Existing resources can be better utilized
(4) The growing firm is in a better position to face competition in the
market.
(5) Only a few changes are required in the organisation and management
systems of business.
(6) Expansion provides economics of large-scale operations.

Limitations of Intensive Growth Strategy

(1) Growth is very slow and it takes a long time for growth to actually
happen.
(2) A business urn loses the possibility of exploiting many business
opportunities by restricting its operations to the present products and
markets.
(3) It is not always possible to grow in the present product market.

Practical Problems of Intensive Growth Strategy

When small business firms try to expand many problems obstruct their
way. Some of these problems are given below:

(I) Scarcity of Funds: For expansion additional funds are required for
investing in both fixed assets and current assets. Funds for fixed capital
and working capital are not easily available. Many a times a small firm
has to borrow funds at high rates of interest.

(ii) Risk: Expansion means more risk. Many small-scale firms do not have
the ability or will-power to assume these risks particularly where the
competition is acute and raw materials have to be imported. Some
small-scale owners continue to operate at a given scale due to the risks and
difficulties involved in expansion.

(iii) Technology: Expansion often requires upgrading of technology and

replacement of plant and machinery. Upgrading of technology is a time-
consuming and expensive process. It becomes essential to recruit: new staff
or retrain the existing staff in the use and operation of new technology

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(iv) Marketing: Expansion is profitable only when the increased output can
be sold at good prices. Small-scale producer face hurdles in selling and
distribution of their products due to competition from large-scale producer.

DIVERSIFICATION
Beyond a certain point, it is no longer possible for a firm to expand in the
basic product market. So the firm seeks increased sales by developing new
products for- new markets. This strategy towards growth is called
diversification. Diversification does not simply involve adding variety in a
product but adding entirely different types of products. Products added
may be complementary. Diversification is a much talked about and widely
used strategy for growth. Many companies opt for this.

Types of Diversification:
1. Horizontal Integration,
2. Vertical. Integration,
3. Concentric, and
4. Conglomerate

Horizontal Integration: It involves addition of parallel new products to

the existing product line. This may happen internally or externally,
internally, a company may decide to enter a parallel product market in
addition to the existing product line. Externally, a company combines with a
competing firm.

Vertical Integration: In vertical integration new products or services are

added which are complementary to the present product line or service.
New products fulfill the firm's own requirements by either supplying inputs
or by serving as a customer for its output. In vertical integration the firm
moves backward or forward from the present product or service. Vertical
integration may be of two types--backward and forward,

Backward integration: It involves moving toward the input of the present

product. It is aimed at moving lower on the production process so that the
firm is able to supply its own raw materkrls or basic components. For
example, a Car manufacturer may start producing tire tubes;
Advantages: Backward integration has the following advantages:

(i) Regular supply: It ensures regular supply of raw materials or

components.
(ii) High return on investment: It facilitates higher return on investment for
the company as a whole through better use of overhead facilities
(iii) Competitiveness: It improves the competitive power of the company. As
it controls more elements of the production process, it has advantages over
the uninterested firms in the form of lower costs, lower prices and lower
risks.
(iv) Quality control: It improves quality control over imports for the final
product.

191
(v) Bargaining power: It. improves the company's power of negotiation with
suppliers on the basis of known costs.
(vi) Tax saving: It saves indirect taxes payable on the purchase of inputs.

Disadvantages: Backward integration has the following limitations:

(a) If an existing input producing unit is taken over, it may involve large
investment
(b) By investing heavily in backward integration the developments of the
final products may get hampered. This in turn may lead to undue pressure
on pricing and sales effort.
(c) In the absence of backward integration the firm may purchase at a
lower cost from technically more efficient suppliers. With backward
integration, this opportunity gets lost.
(d) Any adverse Changes in the economy affecting the present product
market will also affect adversely the production of inputs.
(e) When the divisions using the inputs do not have the freedom of
comparing market conditions of supply, the problem of transfer pricing may
become acute.

Forward integration: Forward integration means the firm entering into the
business of distributing or selling its present products. It refers to moving
upwards in the production/distribution process towards the ultimate
consumer. The firm sets up its own retail outlets for the sale of its own
products..
Advantages: Forward integration has the following advantages:
(i) The firm can exercise greater control over sales and prices of its
products. This is very useful in an oligopolistic market.
(ii) The firm's own retail stores serve as better source of customer
feedback. Thus the firm gets better control over quality
(iii) The firm can improve its profits by reducing the costs of distribution
and the costs of middlemen.
(iv) The firm can secure the economies of integration. Handling and
transportation costs can be reduced.
Disadvantages: Forward integration suffers from the following drawbacks:
(a) The proportion of fixed costs in the firm's costs increases. As a result the
firm is exposed to greater cyclical changes in earnings. Moreover, the
fortunes of business are tied to the in-house distribution system. From this
point of view, forward Integration increases business risk.
(b) Since its processes are interdependent, a slight interruption in one
process may dislocate the entire production system.
(c) In the absence of proper balance between up-stream and downstream
units, the firm has to buy from or sell in the open market.. The firm may be
competing with its own customers.
(d) It is very difficult to efficiently manage an integrated firm because every
business has its own structure, technology and problems. Concentric
Diversification

When a firm diversifies into some business which is related with its present
business in terms of marketing, technology, or both, it is called concentric

192
diversification. When in concentric diversification new product or service is
provided with the help of existing or similar technology it is called
technology-related concentric diversification. For instance, a bank may
start providing mutual fund services to its customers.
Concentric diversification is suitable for the following purposes:
(a) When cyclical fluctuations in the present products or services are to be
counteracted;
(b) When the cash flows generated by the existing product or service are in
surplus;
(c) When demand for present product or service has reached saturation
point;
(d) To gain managerial expertise in new field of business; and
(e) When reputation of present product or service is high and can be used
for new products or service.
Conglomerate Diversification
When a firm diversifies into business which is not related to its existing
business both in terms of marketing and technology it is called
conglomerate diversification. Lever Brothers, UAC Nigeria, PZ, Dangote
Group, etc are examples of conglomerates in Nigeria.

Conglomerate diversification strategy is suitable for the following purposes:

(i) To grow faster than the growth realized through exparksion;
(ii) To avail of potential opportunities for profitable investment;
(iii) To achieve competitive edge and greater stability;
(iv) To make better use of cash surplus of present products or service; (v)
To allocate the risks.

MODERNISATION
A firm may use the strategy of modernization to achieve growth.
Modernization basically involves upgrading of technology to increase
production, to improve quality and to ''reduce wastages and cost of
production. The worn-out and obsolete machines and equipment are
replaced by the modern machines and equipment. Modernization plans can
have the following implications:
(i) A firm may go for modernization at a low pace to maintain its position in
the market. Thus, it may be considered a stability strategy.
(ii) Modernization may be used with full strength to achieve internal
growth. Thus, it is used as an internal growth strategy

Advantages of Modernization: Modernization has the following

advantages:
(i) Modernization improves the productivity and efficiency of the firm.
(ii) The profitability of the firm goes up because of increased efficiency
and reduced wastages.
(iii) It makes available better quality products to the customers.
(iv) The firm becomes more competitive in the long-run because of
modernization.
(v) The growth is systematic and does not affect: the normal functioning
of the firm.

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(vi) The workers acquire modern skills because of which their wages go
up.
However, the strategy of modernization can be used only if the firm has
adequate capital through accumulated savings or is able to raise capital
from different sources for the acquisition of modern plant and machinery.
Modernization will actually serve its purpose only if the workers are
adequately trained in the new method of production.
Limitations of Modernization: Modernization has the following limitations:
(i) The accumulated savings of the business may not be sufficient to
finance modernization of plant and machinery.
(ii) The responsibilities of top executives would increase because of need
to handle new product, technology and markets.
(iii) The existing staff may face problems in adapting to the new
technology.

MERGER
Merger is an external growth strategy. When different companies combine
together into new corporate organizations, such a process is known as
mergers. Merger can occur in two ways:
(a) Acquisition or takeover and
(b) amalgamation.

Takeover or acquisition takes place when a company offers cash or

securities in exchange for the majority shares of another company. It
involves one company taking over control of another. Amalgamation takes
place when two or more companies of equal size or strength formally
submerge their corporate identities into a single one in a friendly
atmosphere.

Advantages
Mergers take place with a number of motivations. Some of the benefits of
mergers are:
(i) A merger provides economies of large-scale operations.
(ii) Better utilization of funds can be made to increase profits.
(iii) There is possibility of diversification.
(iv) More efficient use of resources can be made.
(v) Sick firms can be rehabilitated by merging them with strong and
efficient concerns.
(vi) It is often cheaper to acquire an existing unit than to set up a new
one.
(vii) It is possible to gain quick entry into new lines of business.
(viii) It can provide access to scarce raw materials and distribution network
and managerial expertise.

Disadvantages: Mergers are not always successful due to the following

drawbacks:

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(a) The combined enterprise may be unwieldy. Effective co-ordination
and control becomes difficult. As a result efficiency and profitability
may decline.
(b) Mergers give rise to monopoly and concentration of economic power
which often operate against the interest of the society and the
country.

Guidelines for Successful Mergers

Willard Rockwell, based on his experience, has given the following
guidelines to make a merger successful:
(i) Identify the merger objectives, especially economic objectives.
(ii) Specify gains for the shareholders of both the joining companies.
(iii) Be convinced that the acquired company's management is or can be
made competent.
(iv) Report the existence of important dovetailing resources; but do not
expect perfectly Start the process of merger with active involvement
executives.
(vi) Define clearly the business that the company is in.
(vii) Analyze and identify the strengths, weaknesses and key performance
factors for both the combining units,
(viii) Foresee possible problems and discuss them at the initial stage with
the other company so as to create a climate of trust.
(ix) Don't threaten the management to be acquired.
(x) Human considerations should be of prime importance in planning for
merger and designing the organisation structure for the new set up.

JOINT VENTURE
When two or more firms mutually decide to establish a new enterprise by
participating in equity capital and in business operations, it is known as
joint venture. A joint venture is a business partnership between two or
more companies for a specific business operation. Joint venture can be with
a firm in the same country or a foreign country.

Once a firm has identified the various strategic possibilities, it has to make
a selection from among these alternatives. And this would depend upon its
growth objectives, attitude towards risk, the present nature of business and
the technology in use, resources at its command, its own internal strengths
and weakness, Government policy etc. There are several managerial factors
which moderate the ultimate choice of a strategy. For a firm desiring
immediate growth and quick returns, merger and take-over afford
attractive opportunities as they obviate the necessity of starting from
scratch. However, identifying the right candidate for merger or acquisition
is an art at which only a few managements can really excel. Establishing
joint venture, especially in the international arena, is a low risk alternative.
Many firms prefer this approach.

Exercise:
1. What do you understand by `business growth'? State
briefly its
limitations.

195
 2. Explain the term `growth strategy'. Why does a firm
seek
3. to grow? between horizontal integration and vertical
Distinguish
integration.
4. What is modernization? Describe its advantages as a
5. Distinguish between backward and forward
integration.
6. What is Merger? State the benefits and limitations of
7. Write a note on joint ventures as a business growth
strategy.
4 Explain The Characteristics Of Franchise, License And Patent
Systems Of Enterprise;

Franchising (from the French for honesty or freedom is a method of

doing business wherein a "franchisor" authorizes proven methods of
doing business to a "franchisee" for a consideration fee and a percentage
of sales or profits. Various tangibles and intangibles such as national or
international advertising, training, and other support services are
commonly made available by the franchisor, and may indeed be required
by the franchisor, which generally requires audited books, and may
subject the franchisee or the outlet to periodic and surprise spot checks.
Failure of such tests typically involve non-renewal or cancellation of
franchise rights

5. Explain Mergers and Acquisitions;

The phrase mergers and-, acquisitions (abbreviated M&A) refers to the
aspect of corporate strategy, corporate finance and management dealing
with the buying, selling and combining of different companies that can
aid, finance, or help a growing company in a given industry grow rapidly
without having to create another business entity.

Merger is a tool used by companies for the purpose of expanding their

operations often aiming at an increase of their long term profitability.
There are 15 different types of actions that a company can take when
deciding to move forward using M&A. Usually mergers occur in a
consensual (occurring by mutual consent) setting where executives from
the target company help' those from the purchaser in a due diligence
process to ensure that the deal is beneficial to both parties. Acquisitions
can also happen through a hostile takeover by purchasing the majority of
outstanding shares of a company in the open market against the wishes
of the target's board.
An acquisition, also known as a takeover, is the buying of one company
(the `target') by another. An acquisition may be friendly or hostile. In the
former case, the companies cooperate in negotiations; in the latter case,
the takeover target is unwilling to be bought or the target's board has no
prior knowledge of the offer. Acquisition usually refers to a purchase of a
smaller firm by a larger one. Sometimes, however, a smaller firm will
acquire management. control of a larger or longer established company
and keep its name for the combined entity. This is known as a reverse
takeover (e.g. UBA PIc. was acquired by Standard Trust Bank but
retained the name UBA).

196
6. Explain How Multinational Companies Operate;
Multinational Corporations (also known as TNCs) increasingly dominate
world trade. UNCTAD findings show that around two thirds of visible world
trade is handled by TNCs, and the share is growing particularly in activities
with significant scale economies in production, marketing or innovation.

Of the visible trade handled by TNCs, between 30 and 40 per cent is within
TNC systems, between affiliates and parents or among affiliates. Such
internalized trade contains the most dynamic exports today, moving within
integrated international production systems, where TNCs locate different
functions or stages of production to different countries. Affiliates
participating in such systems produce on massive scales and use the latest
technologies, skills and managerial techniques. Examples of complex
integrated systems in which developing countries are important are
automobiles (mainly in Mexico, Brazil and Argentina) and electronics
(Malaysia, Singapore, Philippines and Mexico).
The globalization of the value chain is likely to spread across many other
industries, and linking local production chains to them will become a major
source of growth, technology transfer and skill development.

Some TNCs are locating non-production functions such as accounting,

engineering, R&D or marketing to affiliates - these are high-value activities
that feed into manufacturing competitiveness and local capabilities. This is
what UNCTAD terms "deep integration" in international production, in
contrast to earlier "shallow integration" where standalone affiliates
replicated many functions and related to other affiliates or parents via
trade. However, the transfer of functions such as R&D lags behind that of
production, particularly in developing countries. Over 90 per cent of
overseas R&D by US TNCs is in other industrial countries. TNCs from
smaller countries are more international in terms of relocating R&D
overseas, but TNCs from economies such as the United Kingdom are also
conducting a very substantial amount of R&D overseas. However, much of
such R&D remains confined to other industrial countries. For deep
integration to occur, host countries have to be able to provide not just
cheap labour but the whole array of modern skills, infrastructure,
institutions, efficient business practices and supplier networks that 'INCs
need in order to be fully competitive in world markets. Very few developing
countries are able to meet these needs.

Large companies with transnational operations increasingly dominate the

process of innovation: the creation of new technologies and organizational
methods that lies at the core of competitiveness in all but the simplest
activities. Most such companies originate in mature industrial. countries.
About 90 per cent of world R&D expenditure is in the OECD.

Within this group, seven countries (led by the United States) account for 90
per cent, the United States alone accounts for 40 per cent. Access to new
technologies thus involves getting knowledge from technological leaders in
these countries. Many are increasingly unwilling to part with their most

197
valuable technologies without a substantial equity stake. Thus, FDI
becomes the most important - often the only - way of obtaining leading edge
technologies.

TNCs are often central to exports by local firms of technology-intensive

products. Many such products are difficult to export independently because
of the need for expensive branding, distribution and after-sales servicing.
Thus, 60-70 per cent of consumer electronics made by the Republic of
Korea and Taiwan Province of China is sold to TNCs on an Original
Equipment Manufacture (OEM) basis. The significance of OEM for the
Republic of Korea is shown by the following statistics. In 1985, over 40 per
cent of the Republic of Korea exports were in the form of OEM. In 1989,
around 50-60 per cent of VCR and TV, and about 80 per cent of PC, exports
by the Republic of Korea were under
OEM. In 1990, 70--80 per cent of total Republic of Korea electronics
exports were under OEM. TNCs are also active in exports of low-
technology products where factors such as scale economies, branding,
distribution and design are important.

TNCs can help restructure arid upgrade competitive capabilities in

importsubstituting activities. Where the facilities are already foreign
owned, TNCs are often better able to respond to liberalization than local
firms by investing in new technologies and skills. They can also help local
suppliers to upgrade, or attract investment by their suppliers overseas. This
has been commonly found in Latin America. Where local firms own the
facilities, TNCs help them to upgrade through mergers and acquisitions
(M&As). While cross-border M&As are often regarded with suspicion or
resentment, they can salvage existing facilities that. would not survive in a
liberalized environment. In fact, with globalization and liberalization,
international M&As now constitute the bulk of FDI flows, accounting for
over 80 per cent of FDI in developed countries and around 30 percent in
developing ones (UNCTAD, 2000).

FDI in services is rising rapidly as formerly homebound providers (as in

utilities) globalize activities and take advantage of liberalization and
privatization in their industries. The entry of service TNCs can provide
rapid improvements in productivity and efficiency to host economies, not
only to their industries but also to their customers (many of which are
important exporters).

7. Explain How to Do Business across Nigerian Borders

Domestic versus Overseas Markets

As a general rule, a business must never stop exploring possibilities of

selling in its own country. The domestic market has many advantages over
export:

198
• The business can understand it and make contact with it easily, so it is
easier to respond to its requirements and produce the products it will
buy.

• Prices to the consumer are lower. In export markets distribution costs

add greatly to the final price.

• Orders can be fulfilled more quickly because the market is closer.

• It is simpler to service: no documentation., or export packing are

required and there are no entry restrictions and customs duties.
Payment should be quicker.

• The products are usually not subject to so much international

competition as they would be in export markets.

Domestic markets probably cannot absorb all the production seeking an

outlet. Compared to overseas markets, they, have the following main
disadvantages:

• They are usually not large. Populations may be small, and disposable
income levels low. Many producing countries report falling demand, as
economic difficulties reduce people's purchasing power.

• Prices obtainable in the domestic market may be very low because of the
excess of production capacity over demand, and the competition from
products serving a similar purpose.

Overseas markets, despite their remoteness and difficulties, provide a great

stimulus to new product development. Governments often provide a
financial incentive to exporters, because they earn foreign currency for the
country, and provide employment opportunities.

Export Marketing
In this marketing process, an exporter's offer stands alongside offers
by others, with which it is in competition. Successful marketing
means creating marketing mix which is better than one's
competitors. Competition can apply to all aspects of the mix: a
better-designed product, a cheaper price, more effective promotion,
a more receptive market place. Many exporters already know that
different aspects of competitiveness appeal to different markets. In
general, if selling 'downmarket', it might be worth sacrificing quality
in order to achieve a cheaper price than others. Conversely, in a
market particularly appreciative of high quality, it might riot matter
that your price is higher than your competitor, if your product is
superior in finish.

Inexperienced exporters tend to focus wrongly on price as the single

factor in competitiveness. In fact, it is the best value which

199
customers seek, and in determining value they take into
consideration the whole marketing mix. Producers find great
difficulty in appreciating how distinctive their products may be in
another country, and hence what value they might have.

Promotion is another vital aspect of the marketing process. Having

competitive products is not enough if you cannot bang them
effectively to the customer's attention. For many would-ire
exporters, this is a critical weakness. 'Ibey would be wise to spend
more on promotion, even at the expense of price increases to cover
the costs of it.. Price is, after all, the easiest aspect of the marketing
mix for competitors to attack. Much less easy for them to beat is
your quality of production or promotion. It is certainly true that.
many exporters succeed with not very competitive product ranges
because they promote them very effectively.

Control of quality must of course be applied strictly in the actual

production of an order. Disagreements often arise when an importer
claims that the production is not as good a quality as the sample
against which the order was made. This is why it. is a good idea to
keep an exact duplicate of samples which are sent to importers. Not
only can the actual production be measured (before shipment)
against that sample, but also any complaints will be easier to
discuss.

The same standards which apply in the creation of the original

design must be followed through rigorously in the product on
process. The quality of the materials must be consistent.

Supplying to Specification
There are eight main features of any export order. The order must be
checked to ensure they are all included, they are clear and that the order
can be fulfilled according to specification.

The Product
Supplying to specification means, first, understanding in detail the precise
requirement of the customer, and then exercising strict quality control so
that what is sent matches it. The more production is dispersed, the more
potential there is for variations in production.

When a misunderstanding is realized, or when a detail in an order is not

clear, the obvious thing to do is to contact the customer to explain it and
await clarification before proceeding with production. It is when the
misunderstanding is not realised that there is likely to be a problem. It
often happens that product specifications do have to change because
materials become unavailable between the time of sending a sample and
placing an order. If that occurs, you must contact the customer, and await
the reply before producing.

200
Labels and Packaging
Probably the single biggest shortfall in fulfillment of orders is labeling with
the customer's code number on the product:, and, additionally where
applicable, on protective packaging. The Warehouse Department has to put
these on if the supplier does not, because the warehouse system cannot
function unless products bear their code number. At , times of peak
operation, in October and November, consignments can be seriously
delayed in moving from the receiving bay to the order-picking shelves
because the Goods-In procedure is slowed down by the need to label.
Importers do not include labeling requirements in orders just to create
work for exporters. A request has its purpose. If there is a difficulty in
complying with it, the importer should be informed. Where labels are
required by law because of a safety standard, the importer would again
have to put them on if the exporter failed to. There could be a further delay
in getting them printed, because the need was not anticipated.

The type of packaging difficulty which we experience most often is that

related to units of distribution. We might ask for a product to be packaged
in fours, sixes, or dozens because that is the unit in which we want to
distribute the product from our warehouse to our shops. The unit might be
a display box, in which the products will stay on the shop shelf, or simply a
disposable bag or box which contains the right number of products. If the
products arrive packaged in a different way it again causes extra work-and
hence delay and expense-in our warehouse. This is a common area of
confusion, because suppliers do not understand our system of distribution.
Hence, they do not give sufficient importance to the details of the
packaging instruction.

Price
An export contract must always state in which currency the price is stated
and the basis of the price: ex works, FOB (stating from where) or other. If it
does not, there is the possibility of a misunderstanding and subsequent
argument. Prices can change between sending a sample and receiving an
order, or fulfilling one order and receiving a subsequent one. If the price on
the order is not correct, or satisfactory, the customer must be advised at
once. A supplier in Africa failed to send us an order for carpets because the
price had been increased significantly owing to the escalating cost of wool.
Rather than inform us and try to negotiate a new price, it was assumed that
we would not agree, and production did not start. Not hearing about the
difficulty, we included the carpet in our mail-order catalogue, and
disappointed all our customers by not supplying their orders. It has
happened more than once that suppliers have fulfilled an order at a loss
because they didn't want to advise us of a price increase in case we were
annoyed, or cancelled the order. We do not want to exploit a supplier by
paying an unreasonably low price. If the price put on an order is not
acceptable, the customer must be advised, with an explanation. If the
reason is fair, and the increase modest, the customer is likely to accept it.
After all, any competitors have probably had to increase prices similarly. It
is not good practice to change a price between the time of accepting an

201
order and fulfilling it, and in no circumstances without informing the
customer.

Quantity
The quantity ordered needs checking first against the production capacity
and delivery date. Is it possible to make the amount requested within the
time allowed? If not, the customer should be advised approximately how
many would be made, or how long it would take to complete the total
quantity ordered. The quantity should then be checked against the price in
case there is any price variation according to quantity ordered or value of
order. Finally, it needs checking for clarity. The unit in the quantity column
should always agree with the unit in the price column.

Payment
An order should also state the method and timing of payment. It is helpful
to be flexible on terms of payment. An importer may have a preference for a
particular method, which might be different from the exporter's normal
method, but quite acceptable. The exporter's concerns are speed and
safety: to receive money promptly and fully. If a customer places an order
with payment terms that are not acceptable, then the exporter must advise
of this and suggest alternative ones.

Delivery Date
Importers plan their delivery dates with considerable care. They must make
allowance for cash flow, warehouse space and selling seasons. For example,
if Oxfam Trading places an order for a product which will be featured in our
Spring mail-order catalogue, we want to receive it in December or January,
as will be stated on the order. Any earlier or later date will cause us
difficulty. We have financial commitments and limited space in our
warehouse at the peak selling season of October and November. If the
products arrive later than January, they will not be in stock at the time we
start selling from our catalogue, so that we could not fulfill our customers'
orders.

The delivery date is as important a detail as any other on an order. If an

exporter foresees difficulty in complying with it, immediate contact should
be made with the customer. It happens very often that production is
planned to comply with the required date, but something unforeseen goes
wrong before shipment, perhaps with production, perhaps with shipping
arrangements. If the importer is informed, there is a chance that alternative
arrangements could be made satisfactorily, or that, if a s
delay is unavoidable, the importer can advise customers if necessary. To '~
deliver later than required without previous warning is very bad ' customer
relations.

Method of Shipment
The importer will advise the required method of shipment, on the order.
This will have been calculated with respect to the size of the consignment,
the level of urgency of delivery, and the routes available between the

202
exporting and importing countries. If an importer requests a consignment
to be sent by sea freight, and it is sent by air at great extra cost, there is
likely to be an argument. Conversely, if an order is placed for delivery by air
freight because it is required quickly, and the exporter dispatches it by sea,
there could be problems. Exporters do sometimes dispatch by air freight
against the customer's instruction, claiming it is quicker and safer. The real
reason may be that the want to be paid more quickly. This would be very
bad customer relations: an importer who is obliged to pay higher costs
because the terms of the order have not been followed is likely to be
extremely annoyed. The exporter has no right to change the stated method
of shipment without consultation.

Documents
An order should also state the documents which the importer requires to
accompany the consignment. On receiving an order, an exporter should
check that they are all available; and on dispatching the consignment,
ensure that they are all sent. Some are produced by the exporter-the
invoice and packing list. The transportation document-airway bill or bill of
lading-will be obtained by the freight forwarder. Others-notably the
Certificate of Origin-are supplied by a government office. If a document is
requested which is not known to the exporter, and appears not to be
available, the importer must be advised. It may be that it is not essential,
but failure to produce an essential document will cause serious problems to
the importer. Documents must not only be complete but also arrive in good
time.

Summary
1. International trade is regulated by procedures by which countries
monitor and control their exports and imports. Products are identified by a
classification code, by which they will be assessed for any restriction or
liability for duty. The customs authority in each country controls exports
and imports. There are essential documents which must pass from the
exporting to the importing country. In order to obtain all the necessary
documents and to clear consignments through customs quickly, most
exporters and importers use specialist agents. Parcels sent by post also
require standard documentation, unless they contain only samples of very
small value.

2. There are four main methods of international transportation: air freight,

sea freight, air post and sea post. Each has advantages and disadvantages,
which need to be understood. Exporters should comply with instructions
given by the importer unless there is a good reason to propose a change.
Freight rates are often negotiable. Consignments are usually sent on the
basis that the importer pays the freight bill. This facility is not available for
post parcels. A freight consignment cannot be delivered until the importer
or its agent has cleared it through customs.

3. Not only exporters, but also the government of the country of sale, want
prompt and full payment for their exports. There are two main methods

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which offer security to the exporter that the importer will make proper
payment, the letter of credit and documentary collection. It is not

advisable. to send documents to an importer without setting lip a

guararitted payment system, unless it is a completely trustworthy
customer. Importers will sometimes pay a proportion of the value of the
order in advance. Money may be transferred internationally in several
ways. A transfer between the importer's and exporter's bank account is the
safest method, and it can be accomplished quickly by telex, fax or email.

Conclusion
Ten Golden Rules ... ... for the exporter:
1 Confirm the customer's order promptly.
2 Advise your bank details and preferred method of payment.
3 Make the products as specified.
4 Follow the labeling and packaging instructions.
5 Impose strict quality control.
6 Pack the consignment adequately.
7 Meet the delivery date.
8 Dispatch it by the method requested.
9 Send full and correct commercial documents.
10 Communicate any difficulties; clarify any uncertainties.
And one for the importer:
Make sure your orders are clear in all details and within the exporter's
capacity to fulfill.

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 TOPIC 11:
UNDERSTAND THE NEED FOR BOTH MANAGEMENT AND
BUSINESS SUCCESSION PLAN

INTRODUCTION:
The entrepreneur should work on his enterprise to ensure that all
operations are performed effectively with or without his physical
presence. This will allow him live his life fully. There is indeed too much
at stake for any entrepreneur to neglect succession planning for his
organization.
In this section the learner will explore succession planning. Business
failure and resuscitation activities are also explained.

SPECIFIC LEARNING OUTCOMES:

1 Explain management succession plan and reasons for corporate
formations;
2. Explain the value of continuity and perpetuity in enterprise; 3. Explain
Exit planning;
4. Explain business failure and resuscitation.

CONTENT
1 Explain Management Succession Plan an Reasons for
Corporate Formations;
Management Succession Planning
In organizational development, succession planning is the process of
identifying and preparing suitable employees through mentoring,
training and job rotation, to replace key players - such as the chief
executive officer (CEO) -- within an organization as their terms expire.
From the risk management aspect, provisions are made in case no
suitable internal candidates are available to replace the loss of any key
person. It is usual for an organization to insure the key person so that
funds are available if she or he dies and these funds can be used by the
business to cope with the problems before a. suitable replacement is
found or developed.

Succession Planning involves having senior executives periodically

review their top executives and those in the next lower level to determine
several backups for each senior position. This is important because it
often takes years of grooming to develop effective senior managers.
There is a critical shortage in companies of middle and top leaders for the
next five years. Organizations will need to create pools of candidates with
high leadership potential.

A careful and considered plan of action ensures the least possible

disruption to the person's responsibilities and therefore the organization's
effectiveness. Examples include such a person who is:
• suddenly and unexpectedly unable or unwilling to continue their role
within the organization;

205
• accepting an approach from another organization or external
opportunity which will terminate or lessen their value to the current
organization;
• indicating the conclusion of a contract or time-limited project; or
• moving to another position and different set of responsibilities within
the organization.

A succession plan clearly sets out the factors to be taken into account and
the process to be followed in relation to retaining or replacing the person.

Business Succession Planning

Business succession planning involves planning for the smooth continuation
and success of a business which depends greatly on the availability of
competent people. Be it profit or rron-profit organization, one of the
concerns is that there may be no successor to drive it once the leader or
key person leaves -- either by choice car by circumstances. This concern
has been repeatedly expressed in the papers by leaders from the private
and government sector. It is people, or more aptly, the right people, that
make things happen. But the music will stop one day! If the leader or key
person does not retire (whether by old age, disability or choice) he will end
his time of service when he dies. And when that happens, problems often
set in. The day after is often filled with chaos and uncertainty.
What is likely to happen to the organization when a key leader is eliminated
without succession planning in place'?' Here are some things to expect.
First, there would be either no able successor or where there is, the
successor is often either- unprepared to handle the heavy responsibilities
placed upon them or he/she simply does not have the ability to manage the
organization in the way it used to be. Whatever the case may turn out to be,
the situation can be (lire for the organization. Profit may be lost. Business
can become untenable to continue. In the case of the unplanned death of an
owner, the remaining co-owners and the heirs may be embroiled in a
relationship crisis that threatens to wreck the business.

In an unplanned situation, ineffective quick-fixed solutions are the only

answers left. If no able successor can be found, a temporary replacement is
often the only choice left, and the ultimate result may still be the downfall
of the organization. It is difficult enough to run an organization with
experience and ability. Without the requisite qualities in the new leader, the
rot of the organization is almost likely to set in immediately, unless it is
lucky to have a replacement who happens to be suitable and motivated. If
not, an unmotivated successor is equally bad news for the set-up. Without
the drive, the organization will stay stagnant and ultimately slide.

Without succession planning, a business that has become successful can

just as easily fall. The business grows because there is a leader (probably
the owner) with experience, drive and ability. Without proper succession
planning, the future success of the business is left to chance once that
leader is gone. Under such a circumstance, if it succeeds at all, it is by
default rather than planned. That is not all. The passing of the baton from

206
one generation to the next is often clouded by the stakeholders' differing
views and agendas. Without proper planning, the clashes of views and
agendas can pull the business in several directions and this may wreck an
otherwise viable business.
With so much at stake, business succession planning has to be a priority
and should be part of every business planning. 'I"here are two main options
available to business succession planning, w4ich are:
it is a norm in many parks of the world that succession planning is ra
sensitive issue to discuss amongst partners or shareholders. This is despite
the fact that a successful transition minimizes disruption, ensures
continuous profitability and guarantee satisfactory returns to the partners
and shareholders.

TODAY..... Good joint management and effort among business shareholders

have built a successful and profitable business. The business shareholder-_-
and his family enjoy a comfortable livelihood and good lifestyle.

TOMORROW..... Suddenly, unexpectedly, a key shareholder dies and the

business is disrupted instantly. What will be the outcome of the
shareholders' business interest and his family's livelihood and lifestyle?

FUTURE..... The surviving shareholder and the deceased shareholder's

family face a critical decision. What are the options available to the
surviving shareholders and the deceased shareholder's family?

What are the options available AFTER the event has happened?
• The heirs become active in the business - Do they have the
experience, skills and expertise to manage the business and be an
asset to the company?
• The deceased's share is sold to an outsider- Can a buyer be found
easily, at what price, and is the buyer acceptable to the surviving
shareholders?
• The heirs keep their share as inactive shareholders - Can the
surviving shareholders accept this arrangement with the extra input
of effort and yet share equally in the profits?
• The deceased shareholder's share is sold to surviving shareholders -
Will the surviving shareholders be able to raise the necessary cash for
this transaction?

An IDEAL Soluble for all concerned could be ... (putting an action plan in
place)

2. Explain the Value of Continuity and Perpetuity in Enterprises

While governments, not-for-profit institutions, and non-governmental

organizations also deliver critical services, private organizations must
continuously deliver products and services to satisfy shareholders and to
survive. Although they differ in goals and functions, Business Continuity
Planning (BCP) can be applied by all organizations.

207
Changes in The World of Business Continuity Planning: Business
Continuity Planning Versus Business Resumption Planning and
Disaster Recovery Planning

A Business Resumption Plan describes how to resume business after a

disruption. A Disaster Recovery Plan deals with recovering Information
Technology (IT) assets after a disastrous interruption. Both imply a
stoppage in critical operations and are reactive.

Recognizing that some services or products must be continuously delivered

without interruption, there has been a shift from Business Resumption
Planning to Business Continuity Planning.

A business continuity plan enables critical services or products to be

continually delivered to clients.
Instead of focusing on resuming a business after critical operations have
ceased, or recovering after a disaster, a business continuity plan endeavors
to ensure that critical operations continue to be available.

The effects of September 11, 2001

Septernber 11, 2001 demonstrated that, although high impact, low

probability events could occur, recovery is possible. Even though buildings
were destroyed and blocks of' Manhattan were affected, businesses and
institutions with good continuity plans survived.

The lessons learned include:

• plans must be updated and tested frequently;
• all types of threats must be considered;
• dependencies and interdependencies should be carefully analyzed;
• key personnel may be unavailable;
• telecommunications are essential;
• alternate sites for IT backup should not be situated close to the
preprimary site;
• employee support (counselling) is important;
• copies of plans should be stored at a secure off-site location;
• sizable security perimeters may surround the scene of incidents
involving national security or law etiforcement, and can impede
personnel from returning to buildings;
• despite shortcomings, Business Continuity Plans in place pre
September 11 were indispensable to the continuity effort; and
• increased uncertainty (following)g o high impact disruption such as
terrorism) may lengthen time until operations are normalized.

Emerging issues
Continuous Service Delivery Assurance (CSDA) is a commitment to
continuous delivery of critical services that avoids immediate severe
disruption to an organization. A BCP includes risk evaluation,

208
management and control and effective plans, measures and
arrangements for business continuity.

Continuous risk management lowers the risk of disruption and

assesses the potential impacts of disruptions when they occur. An
example would be the business impact. analysis component of a BCP
program.
What is business continuity planning?
Critical services or products are those that must be delivered to
ensure survival, avoid causing injury, and meet legal or other
obligations of an organization. Business Continuity Planning is a
proactive planning process that ensures critical services or products
are delivered during a disruption.
A Business Continuity Plan (B(;P) includes:
• Plans, measures and arrangements to ensure the continuous
delivery of' critical services and products, which permits the
organization to recover its facility, data and assets.
• Identification of necessary resources to support business
continuity, including personnel, information, equipment,
financial allocations, legal counsel, infrastructure protection
and accommodations.

Having a BCP enhances an organization's image with employees,

shareholders and customers by demonstrating a proactive attitude.
Additional benefits include improvement in overall organizational
efficiency and identifying the relationship of assets and human and
financial resources to critical services and deliverables.
Why is business continuity planning important

Every organization is at. risk. from potential disasters that include:

• Natural disasters such as tornadoes, floods, blizzards,
earthquakes and fire
• Accidents
• Sabotage
• Power and energy disruptions
• Communications, transportation, safety and service sector
failure
• Environmental disasters such as pollution and hazardous
materials spills
• Cyber attacks and hacker activity.

Creating and maintaining a BCP helps ensure that an institution has

the resources and information needed to deal with these
emergencies.

3. Explain Exit Planning;

Exit Planning is necessary because you will transfer your business
interest - either during your lifetime... or you will die or become
incapacitated.

209
Without exit planning, your business will probably have to be
liquidated - and liquidation under these forced circumstances results
in "fire-sale" prices.

With exit planning, there are only four ways to transfer your
business interest.
1. Transfer ownership to your children (using succession
planning)
2. Sale to other owners or employees
3. Sale to a third party
4. Orderly liquidation

The key is to pick the approach to exit planning that's best for you
and assemble a team of advisors to help you carry out this plan.

Denver attorney John Brown's "How to Run Your Business So You.

Can Leave It In Style" carefully and completely documents a very
effective 7 step process for exit planning.
However, a logical argument might not motivate, you sufficiently to
undertake exit planning... so let's face the monster head on and see j
List what is involved. It really isn't as complicated as some would
make it appear. And John Brows has done a really great job. between
his book and its related Workbook, of reducing the task to
manageable steps. Here's an overview of his % Steps. And a few of
John's highlight points.

Step 1: Setting Exit Objectives

• Do you know expertly-fly what your retirement goals are - and
how much cash it will lake to reach them?
• You'll need a solid team of exit planning advisors - typically
including investment / insurance advisor, CPA, estate / business /
tax attorneys, investment banker [middle market business] /
business broker [smaller business], transaction attorney.
Some of these people might already be serving your business if you
operate an Advisory Board.

Step 2: Determining Value / Price

• Do you know how much your business is worth today - in cash?
• Your business is typically your most valuable asset. But only exit
planning for a sale to outsiders will involve maximizing value.
Transfer or sale to insiders will focus on income stream or cash
flow but minimizing value.
Yes, increasing income stream while minimizing value is not only
possible, it is the objective for sales to insiders.

Step 3: Preserving, Protecting, Promoting Value

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• Do you know the best way to maximize the income stream
generated by your ownership interest?
• Preserving involves exit planning activities like: annual review of
income tax status and corporate annual report (audited); business
plan review and update; individual planning update; use of trusts;
Employee Share Ownership Plan; annual update of value.
• Protecting value from creditors includes: annual fiscal and legal
audit; offshore trusts; risk management review for liability and
casualty insurance coverages; remove personal guarantees and
assets from use as business collateral;
• Promoting value is key in exit planning and involves focusing on the
value drivers
• The key point here is for the owner to spend some time working on
rather than just in the business. This point is not unique to exit
planning, but is almost a universal good business practice.
• Value Drivers are factors that affect the value of the business. As
such, investors and lenders look for the business' performance in
these areas.

o Universal value drivers include: increasing cash flow; developing

operating systems that improve sustainability of cash flows; improve
facility appearance; pay down debt; document sustainability of earnings:
implement a strategy to grow the company; build a strong management
team and groom a successor;

211
o Industry specific value drivers would include things like:
stability of growth; inherent growth rate; return on working capital
and receivables and inventory turnover; technical expertise; diverse
and attractive customer base; corporate structure; employee
performance ;
• Motivating and keeping key employees is critical for exit
planning to work
o increases income stream and cash flow
o they are potential buyers
o increases value by providing capable management team for
new buyer

• 4 Elements common to successful bonus plans

o Bonus plan is specific, not arbitrary, in writing
o Bonus is tied to performance standards
o Bonus is substantial
o "Handcuffs" key employees to the business

• Work with professionals who specialize in the design,

implementation and on-going cutting edge administration of
Executive Incentive Plans such as: Deferred compensation;
Stock Option, etc.
• Ownership/Equity based plans include: Stock bonus; stock
option; stock purchase
• Cash based plans include: cash bonus; non-qualified / deferred
compensation [benefits formula; vesting; forfeiture; payment
schedule; funding]; stock appreciation rights plan; phantom
stock plan
• Combinations of Cash, equity, non-qualified deferred
compensation

Step 4: Converting Business Value to Cash - Sale to an Outside

Party
• Do you know how to sell your middle market business to a third
party and pay the least possible taxes?
• Planning and preparation are critical here. And getting the
right help from an investment banker or business broker.
Following an exit planning process pays big returns!

Step 5: Transferring the Business for a Promissory Note

• Do you know how to transfer your business to insiders [family,
employees, co-owners] while paying the least possible taxes
and enjoying the maximum financial security?
• Key concept here is to maximize income and therefore cash
flow while minimizing ownership value.

Step 6: Contingency Planning

• Do you have exit planning for your business if the unexpected happens to
you?

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• 4 Major problems arise on the death or disability of a business owner.
Exit. planning must solve these problems.

1. Continuity of business ownership

Sole owner business needs to use a Stay Born-is Plan to secure continued
services of employees; funded with sufficient life insurance to pay bonuses
during the transition:

Communicate your wishes in writing to spouse and advisors about key

employees to assume responsibility; advisors and others who can be
consulted during the transition period; to whom. the business can be sold if
that is your wish.
Multi owner business should use an up-to-date and adequately funded buy-
sell agreement to enable remaining owners to acquire deceased's interest.
Must cover such events as: death; disability; right of first refusal on transfer
to third party; termination of employment; retirement; involuntary transfer
due to bankruptcy or divorce; business dispute amongst owners.

2. Loss of financial resources can be relieved somewhat: by: creating

successor management; funding with life insurance to replace immediate
losses and provide ongoing capitalization.
3. Loss of key talent can only be mitigated by having in place s,
employees who can assume responsibility; if they have to be found, provide
enough funding with life insurance to find and train replacements.
4. Loss of employees and customers might be mitigated if successors can
maintain cash flow and confidence of employees and customers. You will
need a Stay Bonus Plan that must be funded to pay the bonus and
compensate those who stay; and a succession management plan naming the
person [s] to take over. And decide now about whether sale, continuation or
liquidation is best... employees and customers want and need to know this.

Step 7: Wealth Preservation

• Have you taken steps to protect your family's wealth?
• Exit planning is needed now - transfer of ownership. might occur
without notice!
• Funding for anticipated needs - liquid assets; life insurance; sale of
business
• What to transfer to children who do not receive business interest.
[Passing estate equally to children does not mean passing business
interest to children who are not active in the business.]
• Decide and communicate who is in charge of the estate and the
business.
• Exit planning must consider current income tax, estate and gifting
regulations. These change periodically, as they did in early 2002 in a major
way in the United States.

4. Explain Business Failure and Resuscitation. Planning Against a

Business Failure

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While small business growth represents a positive contribution to the
nation's continued economic expansion, entrepreneurs need to be aware
that it takes more than a good idea for a small business to succeed. Small
business entrepreneurs must. plan for success. This includes market
research, identifying the primary audience/ consumer and developing a five
or ten year plan that includes cash flow, financing and expansion concerns.

According to Dun & Bradstreet reports, "Businesses with fewer than 20

employees have only a 37% chance of surviving four years (of business) and
only a 9% chance of surviving 10 years." Restaurants only have a 20%
chance of surviving 2 years. Of these failed business, only 10% of them
close involuntarily due to bankruptcy and the remaining 90% close because
the business was not successful, did not provide the level of income desired
or was too much work for their efforts.
The old adage, "People don't plan to fail, they fail to plan" certainly holds
true when it comes to small business success. The failure rate for new
businesses seems to be around 70% to 80% in the first year and only about
half of those who survive the first year will remain in business the next five
years.
Nine out of ten business failures in the world are caused by a lack of
general business management skills and planning. During the early 1990's,
worldwide business failures occurred at rates higher than anytime since the
1930°s. While no person should start a new venture preparing for failure,
they should have a clear plan for success which involves actions if things do
go wrong. Every business has a life span that is depicted by its business life
cycle. A business life cycle is normally defined by four stages: Introduction,
Growth, Maturity and Decline. Most business life cycles will experience a
slow introduction and growth stage, a short maturity stage and a rather
quick decline stage. Determining why most businesses fail can be a helpful
identification of the eventual decline phase of a business.
In a broad perspective, business failures can be classified into two
categories; catastrophic failure and general lack of success. Catastrophic
failures are the primary result of economic factors. According to Dun and
Bradstreet, over 75% of those businesses that cite economic factors as a
reason for failure, indicate that a lack of profits is the primary reason.
Catastrophic failures also result from the death of a partner, fire, fraud,
burglary and acts of God. According to Dun & Bradstreet statistics7, 88.7%
of all business failures are due to management mistakes. The following list
summarizes the 12 leading management mistakes that lead to business
failures.
1) Going into business for the wrong reasons
2) Advice from family and friends
3) Being in the wrong place at the wrong time
4) Entrepreneur gets worn-out and/or underestimated the time
requirements
5) Family pressure on time and money commitments
6) Pride
7) Lack of market awareness
8) The entrepreneur falls in love with the product/business

214
9) Lack of financial responsibility and awareness '
10) Lack of a clear focus
11) Too much money
12) Optimistic/Realistic/Pessimistic entrepreneur
It should be understood that no magic solutions will guarantee a business
success. However, the following items should assist in the improvement of
chances for success.
1) Development of a business plan
2) Obtaining accurate financial information about the business in a
timely manner
3) Profile of target customer
4) Profile of competition
5) Go into business for the right reasons
6) Don't borrow family money and don't ask the lfarnily for advice
7) Network with other business owners in similar industries
8) Don't forget, someone will always have a lower price than you
9) Realize that consumer tastes and preference change
10) Become better informed of the resources that are available

While a listing of reasons for small business failures would at first

seem lengthy, according to Scott Clark of the Puget Sound Business
Journal, the majority of the causes can be condensed into the three
"Ms" of business failure; Money, Management. and Marketing.

Money It takes a long time for a start-up company to break even

because unforeseen contingencies always develop. In the interim, you
still need to support your family. Before you launch your business, set
aside a nest: egg that will allow your family to survive for at least
three times longer than the time period you are projecting to achieve
break even with the business. Use this same multiplier to project the
operating capital your company will need; determine your maximum
negative cash floe from your projections and multiply this amount by
three to determine the operating capital you should raise. As tough as
it is to raise sallbusiness capital, it is always easiest the first time
around. If you raise insufficient capital and only achieve small
successes by the time your money runs out, investors probably won't
be interested in throwing good money after bad.

Management The vast majority of' aspiring entrepreneurs fill their

management ranks with friends. This is not only the surest way to
break up a friendship, it is also the most predictable. way to enhance
failure. Never hire acquaintances to join your management team
unless they have management experience appropriate t:o the field of
your business and they are willing to openly disagree with you.
Otherwise, you are destined to have mediocre business success at
best.

Marketing This involves far more than just knowing your market.
arid what motivates it, Most businesses focus on the marketing

215
"push," but few ever focus on the "pull," which is one of the secrets to
success. To appreciate the difference, envision a pipeline flowing
from your business through your distribution network all the way to
your end users. You have a sales force that closes orders with your
next level. If you manufacture hardware, this next level could be your
dealers. If you bottle soft drinks, it could be grocery stores. This
activity puts product in their inventory or on their shelves, and is
known as the push because you are pushing products through your
pipeline arid realizing sales at your end. If this is all you do, you are
destined for failure, because if customers don't ask for your - product
at the other end, the pipeline will become clogged. This is the cause
of failure for many businesses that achieve early profits from those
orders that initially fill the pipeline and then flounder. The key is to
focus on the pull; it is your responsibility, not that of your dealer, to
make potential customers aware of what your product will do for them.
In this mariner they will pull your product out of the other end of the
pipeline, and orders will continue to flow smoothly. Even more than your
product or service, the three Ms is critical to the success of your business.
Take care of them and they will take care of you. Ignore any one of them
and you could be courting disaster.

CONCLUSION
Proper planning is critical to the success of a new business. While some of
the best prepared arid best planned businesses still fail, an understanding -
of the above reasons for failure can help assess the overall success.
potential of a business. In planning against failure, be honest and',
objective, know yourself an „your limitations and be prepared to really
manage the business. There are many ways to achieve business success.
Study the success of others, identify business role models and network with
other business professionals.

216
GENERAL EXERCISES
A

1. Distinguish between wage-employment, income-generation and

entrepreneurship.
2. Discuss the main functions of an entrepreneur.
3. Explain the role of entrepreneurship in economic development.
4. Distinguish between entrepreneurs and managers.
5. `Entrepreneurs are born not made.' Comment

B
1. List the advantages that a Small Business has over a Large Business
2. In your view is it important to develop ancillary units? Give reasons.
3. Differentiate between a Modern SSI and a Traditional SSI.
4. Write a short note on Small Business as seedbed of entrepreneurship.

C
1. Comment on competencies considered necessary for successful
entrepreneurial behaviour.
2. Enumerate the basis of evaluating entrepreneurial performance.
3. Can one be content with seeing his dream being converted into reality?
Comment.
4. Is there any difference in motivation of male and female entrepreneurs?

D
1. What do you understand by the term business opportunity? What is its
relevance for an entrepreneur?
2. Do you think it is important for an entrepreneur to scan for opportunities
in the small Scale sectors? Give reasons.
3. In your opinion what precautions should a potential entrepreneur take at
the Idea Generation Stage in an ever-changing business environment?
4. Short list 3-4 ideas, which you can further, explore with a view to starting
a business of your own.

E
1. What are the important facets of a project feasibility study?
2. What factors are to be kept in mind while deciding on product/ service?
3. Describe the various forms of business organization.
4. Explain legal considerations in the establishment of a small scale
enterprise.
5. What is the role of Single Window Agencies in the development of small-
scale industries?

217
6. What kind of final clearances and from whom, the entrepreneurs are
required to take as soon as the unit goes into production?
7. Describe the different: stages involved in setting up a small-scale
enterprises.

F
1. Explain the planning process in small scale enterprises.
2. How would you organize small business?
3. Explain communication process in small business.
4. How can a small scale enterprise manage his time effectively?
5. Write a note in controlling in small business.

G
1. Describe the factors that should be taken into account in deciding the
location of plant?
2. What is the importance of location in business?
3. The governing principle is that a plant should be so located as to permit
the production of the product at the lowest cost per unit." Comment.
4. What do you mean by location analysis?
5. Explain the meaning and significance of plant location How will you
decide the location of a mini steel plant in Nigeria?
6. Define the plant layout.
7. What are the various factors influencing the layout of grocery store? 8.
What are the principles for planning the layout of a new factory?
9. Explain process layout? State its advantages and disadvantages in brief
10. Distinguish between product layout and process layout? 11. Explain the
suitability of fixed position layout
12. Write about any two types of plant layout
13. What is plant layout? Discuss the objectives and advantages of a good
layout

H
1. Discuss with examples various manufacturing processes?
2. What factors affect the choice of manufacturing process?
3. Write short notes on
a. Production planning
b. Relationship between production. planning and control
4. What do you understand by production planning and control? Discuss its
elements in brief.
5. State the requirements for an effective system of production planning
and control?
6. What benefits can small scale enterprises derive by installing an effective
system of production planning and control?

I
1. Define Productivity. What. is the significance of productivity
analysis?
2. Flow can labour productivity be calculated?
3. What are the factors that affect. the level of productivity?

218
4. What is productivity? How is it measured? Explain.
5. What do you understand by quality control? Discuss its importance
for small scale enterprise? What are the objectives of quality control?
6. Write notes on -
• Quality control charts
• Acceptance sampling

J
1. What do you understand by `business growth'? State briefly its
limitations.
2. Explain the term `growth strategy'. Why does a firm seek to grow?
3. Distinguish between horizontal integration and vertical integration.
4. What is modernization? Describe its advantages as a growth
strategy.
5. Distinguish between backward and forward integration.
6. What is Merger? State the benefits and limitations of Merger.
7. Write a note on joint ventures as a business growth strategy.
8. `(growth is most frequently used corporate strategy', Discuss the
reasons why a firth must grow? Under what circumstances a firm may
not, consider growth a desirable strategy?
9. Do you know of any mergers or take-over which has taken place
recently? What were the motivations behind such mergers or
takeover?

K
1. What do you mean by Cashbook and Passbook?
2. l low a Cashbook helps in exercising control over expanses?
3. What are the benefits of preparing a Three Column Cashbook?
4. What. do you mean by a petty Cash Book? What are its main
advantages?
5. What is Bank Reconciliation .Statement? Why is the
preparation of Bank Reconciliation statement necessary?
6. Explain the reasons on account of which the balance as shown by
the pass book does not agree wish the balance as shown by the bank
column of the cash book.

L
I. What do you mean by single entry system of accounting? State its
main features advantages
2.axplant the defects of single entry system.
3. what do you mean by the profit and loss a/c? how does it differ
from trading Account?
4. what is the need of preparing Trading Account?
5. What is meant by a Balance Sheet? What i s the object of its preparation?
Mention four items of current assets and two items of current liabilities.

M
1. What is marketing? Distinguish between marketing and selling.

219
2. What is market segmentation? Describe the bases on which a market can
be segmented by a small scale entrepreneur.
3. What is marketing mix? Explain its main components.
4. Explain the importance of market in a small scale enterprise.
5. What is Product life cycle (PLC)? Explain its various stages.
6. Suggest appropriate marketing strategies for each of the stages of the
PLC.
7. Explain how the marketing mix should be changed during the various
stages of the PLC.
8. Discuss the significance of the PLC. How can entrepreneur check the
decline of the product?
9. Write short notes on: (a) consortium marketing and (b) tender marketing.
10. Discuss the problems faced by the small-scale entrepreneurs in
marketing their products.

N
1. Define advertising. What are its important features?
2. "Advertising is a social and economic waste". Discuss.
3. Explain the characteristics of personal selling.
4. Describe briefly the various problems faced by the small scale
entrepreneurs in marketing their products.
5. Distinguish between Advertising and Personal Selling.

P
1. What do you mean by channels of distribution?
2. Discuss the different channels available to an entrepreneur for the
distribution of products to the consumers.
3. What factors will you take into account while selecting a suitable channel
of distribution?

220
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1. Know About Business (KAB); ILO Training Kits
2. Start and Improve your Business (SIYB); ILO Training Kits
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221
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Prospects", A presentation at the Seminar on the Baseline Economic Survey of
SMI in Nigeria held at Muson Centre, Lagos, Sept. 13, 2005.
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Practice of Entrepreneurship, University of Lagos Press, Lagos, 1996.
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Investments Ltd, (Education Publishers), 1999, p. 6.
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McGraw hill, New York, 1998.

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