MB 532

Innovation and
Entrepreneurship
MB 532 INNOVATION
AND
ENTREPRENEURSHIP
 Innovation and Entrepreneurship Development
Course Code-MBAGE202

Course Objective: The objective of the course is to impart knowledge to the learners about
entrepreneurship and its importance in socio-economic development of the nation and
to create interest among them for starting their own business.

Block I An overview of Entrepreneurship

Unit I Entrepreneurship: Need, Scope and Philosophy
Unit II Entrepreneurial traits and Types
Unit III Development of Entrepreneurship

Block II Entrepreneurial Process

Unit IV Creativity, Idea Generation, Screening and Project Identification
Unit V Social Determinants of Entrepreneurial Growth
Unit VI Issues in new enterprise management: Locational, environmental and Managerial

Block III Theories and Legal Issues

Unit VII Theories of Entrepreneurship
Unit VIII Legal Issues for the Entrepreneur
Unit IX Small and Medium Enterprises

Block IV Entrepreneurship Planning

Unit X Enterprise Planning Process
Unit XI Family and Non-Family Entrepreneur: Professionalism v/s Family Entrepreneurs
Unit XII Women Entrepreneurs: Challenges and Achievements

Block V Entrepreneurship Development in India

Unit XIII Entrepreneurship Development Programmes
Unit XIV Role of Various Institutions in Developing Entrepreneurship in India
Unit XV Growth and Transition through Entrepreneurship.
 AN OVERVIEW OF ENTREPRENEURSHIP

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 1

 UNIT-1 ENTREPRENEURSHIP: NEED, SCOPE
AND PHILOSOPHY
1.1 Introduction

1.2 Objectives

1.3 Definition of Entrepreneurship

1.4 Entrepreneurship

1.5 Summary

1.6 Glossary

1.7 Answer to Check Your Progress

1.8 Reference/ Bibliography

1.9 Suggested Readings

1.10 Terminal Questions

1.1 INTRODUCTION
The term ‘entrepreneur’ has a French origin, derived from the French language
‘enterprendre’ which means “between-taker” and “go-between” that is ‘to undertake’
and meant to designate an organizer of entertainments like musical events etc.
Entrepreneur defined by the Oxford English Dictionary (1987) as “the director or
manager of a public institution, one who ‘gets up’ entertainment, especially musical
performance.” From the business point of view it means to undertake a business activity.
Entrepreneur may be defined as ‘one who organizes, manages and assumes the risks of
a business or enterprise.’

1.2 OBJECTIVES
After reading this unit you will be able to:

 Understand who are entrepreneur?

 Understand entrepreneurship.

 Understand models of entrepreneurship.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 2

1.3 DEFINITION OF ENTREPRENEURSHIP
Richard Cantillon an Irishman living in France, conceptualized the term entrepreneur
as: “an entrepreneur is the agent who buys factors of production at certain prices in order
to combine them into a product with a view to selling it at uncertain prices in future”.
He illustrated that a farmer buy at certain prices (pay out contractual incomes to the
landlords which are ‘certain’) and sells at ‘uncertain’ prices. Thus they are ‘risk bearing’
agent of production by making certain payments in expectation of uncertain receipt. An
entrepreneur is a risk bearer person who combines means of production, grabs
opportunity, creates wealth and employment. He combine and buy factor of production
in order to convert them into a product at certain price with a view to sell the products
at uncertain prices in the market in future.

Knight defines entrepreneur as that specialized group of people who bear uncertainty
which cannot be insured against and incalculable can be termed as uncertainty. This
can be reduced through the insurance principle, where the distribution of the outcome
in a group of instances is known, is termed as risk. Whereas the risk which cannot be
calculated is uncertainty. According to Knight, the entrepreneur is the economic
functionary who undertakes the responsibility of uncertainty.

Jean-Baptiste Say, the French political economist, defines entrepreneur as organizer or

coordinator, who combine various factors of production to produce a product.
According to him, “an entrepreneur is the economic agent who unites all means of
production; land of one, the labour of another and the capital of yet another and thus
produces a product. By selling the product in the market he pays rent of land, wages to
labour, interest on capital and what remain is his profit”. Thus, he shifts economic
resources from area to another (lower productivity area to higher productivity area) and
yield more and greater.

According to Joseph A. Schumepeter, “an entrepreneur in an advanced economy is an

individual who introduces something new in the economy, a method of production not
yet tested by experience in the branch of manufacture concerned, a product with which
consumers are not yet familiar, a new source of raw material or of new market and the
like”. Thus, he defines entrepreneur as the innovator. The one, who bring the discrete
dynamic change by instituting new combinations of means of production which he
called ‘innovation’. The innovation or new combination may occur in any one of the
following forms, namely:-

i. Introducing new product.

ii. Introducing new methods and techniques of production.

iii. Opening of a new market.

iv. New source of raw material.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 3

 v. Carrying out of the new form of organization of an industry or
reorganization of an industry.

Di-Masi conceives the entrepreneur as a person who perceives the market opportunity
and then has the drive, motive, ability and motivation to mobilize resources to get and
meet it.

A person who starts a business to follow a vision, to make money, to be the master of
his/her own financially and spiritually soul and is an educated risk taker.

National Knowledge Commission (NKC) of India has defined entrepreneur as “the

professional application of knowledge, skills and competencies and / or of monetizing
a new idea, by an individual or a set of people by launching an enterprise denovo or
diversifying from an existing one (district from seeking self-employment as in a
profession or trade), thus, to pursue growth while generating wealth, employment and
social good.”

Characteristics of Successful Entrepreneur

In India, there are many persons who emerged as successful entrepreneurs like Azim
Premji of Wipro, (late) Dhiru Bhai Ambani of Reliance Industries Ltd., Narayan Murthy
of Infosys Technologies Ltd., Deepak S. Parekh of HDFC and many more. Their
entrepreneurial profiles are found quite fascinating. What makes an entrepreneur to be
successful? So, they are study in sharp contrasts. Some of them are highly educated and
some of them are college drop out. Some are self-made and others are inheritors.
Scanning the personalities of successful entrepreneurs there are certain characteristics
features found to be a successful entrepreneur which are listed below:-

1. Hard work: - there is no substitute for hard work. Willingness to work hard is
one of the characteristics to be a successful entrepreneur.

2. Need for high achievement: - the entrepreneur dare to dream high. They have
got a strong desire to achieve higher goals in business. Successful entrepreneur
have higher need for achievement (n-Ach) factor act as motivational factor. This
keeps them continuously to be in action to achieve high goal.

3. Independence: - Independence is one of the most common characteristics of a

successful entrepreneurship. Most of the entrepreneurs don’t like to work for
others and follow their rules. They like to be independent to start their own
business.

4. Highly positive: - The successful entrepreneur are highly optimistic. They have
always positive approach towards their action and things.

5. Foresight: - Successful entrepreneur have a good foresight to think ahead which

make them to think for future and know about future business environment. This
quality make them to take necessary and timely action with

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 4

 the changing condition of market, changing consumer taste and preference,
attitude, technological development etc. they know how to grab opportunities
and convert the problems into viable opportunities.

6. Organizer: - Successful entrepreneur are good organizer. They have ability to

combine together all the resources owned by different owner required to set up
an enterprise and then produce goods or render services.

7. Innovative: - Consumer requirement changes from time to time. To satisfy the

consumer requirements entrepreneurs initiate research and innovative activities
like introducing new products, discover new market, new source of supply raw
material, new method of production and reorganizing the business.

8. Perseverance: - Perseverance can make miracles happen. Never give up their

efforts even if they fail. Even they learn experiences from their failure. They
give their efforts until they achieve the goal. Ultimately they become successful.

9. Risk-bearer: - Entrepreneur take calculated and moderate risk rather than play
with wild gamble. They buy factor of production at certain price and sells the
product at uncertain price.

10. Team – spirit: - In team, efforts results in synergy. Entrepreneur make team and
believe in team- spirit. This can be seems worth citing from Henry Ford’s apt,
“bringing people together is beginning, keeping people together is progress and
working with people is success.” Team work results in synergy and in turn more
and better results.

11. Self- confidence: - Entrepreneur are self –confident to accomplish their goals.
They believe in themselves and confident they can achieve their goals. Without
your consent no other one can make you feel inferior.

12. Decision- making: - Decision – making means choosing the best one from
alternatives. Decision – making skill is one of the quality required to become a
successful entrepreneur. It is required and necessary at all time and mostly at the
greater risk or uncertain conditions.

Check Your Progress-A

Fill in the blanks.

1. The .................. creates a new enterprise in a risky and uncertain environment.

2. The …………….. type of entrepreneur is most suitable type of entrepreneur

for a developing economy like India.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 5

 3. A ……………entrepreneur is one who as an individual set up a business
enterprise.

4. ‘Withdrawal of status respect’ as a pre-condition for the emergence of

entrepreneurship is suggested by …………….

1.4 ENTREPRENEURSHIP
Entrepreneurship refers to the function performed by an entrepreneur such as identifying
and using opportunities, converting creativity and idea into action, bearing risk etc.
Entrepreneurship is an elusive concept of much debate and discussion. It is the process
of setting up a new business venture. It is the process of combining all the factors of
production to produce goods. It is the innovative and creative response to the
environment. Different people defined it differently. For some people Entrepreneurship
is risk-bearing while for others it is innovating. Let us consider some definitions of
Entrepreneurship.

According to Kao and Stevenson, “Entrepreneurship is the attempt to create value

through reorganization of business opportunity, the management of risk-taking
appropriate to the opportunity, and through the communicative and management skills
to mobilize human, financial and material resources necessary to bring a project to
function”.

In the opinion of J. A. Schumpeter, “Entrepreneurship is based on purposeful and

systematic innovation. It includes not only the independent businessman but also
company directors and managers who actually carry out innovative functions.”

According to A. H. Cole, “Entrepreneurship is the purposeful activity of an individual

or a group of associated individuals, undertaken to initiate, maintain or aggrandize profit
by production or distribution of economic goods and services.”

National Knowledge Commission, defines, “Entrepreneurship is the professional

application of knowledge, skills and competencies and/ or of monetizing a new idea, by
an individual or a set of people by launching an enterprise de novo to pursue growth
while generating wealth, employment and social good.”

From the above definitions following are the characteristics of Entrepreneurship:-

i. Entrepreneurship is creative activity. Both creativity and innovation are not

separable from entrepreneurship. It includes product innovation, new techniques
or method of production, etc.

ii. Entrepreneurship is a dynamic process. It responds with the changes in the

environment.

iii. Entrepreneurship is a purposeful activity. This purpose may be earning profit,

serving humanity or social welfare.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 6

 iv. Entrepreneurship involves risk. For example: setting up a new business,
introducing new method of technology or doing something new involves risk.

Core Elements of Entrepreneurship

i. Entrepreneurship is the process to identify opportunities. These opportunities

may be large or small ones.

ii. Organizing the resources to pursue and exploit the opportunities for long term
benefit.

iii. By combining resources in new ways to produce products for creating wealth,
employment and economic development.

iv. Creativity and innovation are the core elements of entrepreneurship.

v. The entrepreneurs understand the people and scan the environment. They have
ability not only to think creatively but also to apply creativity to business
problem.

vi. They focus on creating values by doing things in more effective and efficient
manner.

vii. They are adoptive in nature and ability to accept change as well as ability to
change status-quo and achieve success by changing the way things are already
being performed.

The Entrepreneurship includes Three Phases which are as follow

i. Initial Entrepreneurial or Inception Phase: - It involves the identification,

exploring and perception of an opportunity to start the business.

ii. Operational Phase: - It includes the organization of business enterprise by

theory and practice of management functions.

iii. Managerial Phase: - Managerial phase includes taking and run the business
enterprise as a going and growing unit and creativity wealth or earning profit.

Role of Entrepreneurship in Economic Development

Entrepreneurship, facilities the economic development of a country. Classical theories

of economic development does not support any influence of entrepreneurship in
economic development. For example: according to David Ricardo, there are only three
factors of production like land, labour and capital. Adam Smith says economics is
‘wealth of nation’. But later economist and thinkers like Schumpeter, Parson and
Smelser, Sayigh etc. identified the role and importance of entrepreneurship in
economics development.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 7

Habison includes entrepreneurs as the prime movers of innovation Parson and Smelser
describes ‘entrepreneurship’ and increased output of capital are two necessary
conditions for economic development. In economic development role of
entrepreneurship varies from economy to economy depending on its resources, political
system, climate etc. Contribution of entrepreneurship also depends on the opportunity
conditions in the economy. For favourable opportunity conditions they contributed more
than economy with relatively less favourable conditions. For example: underdeveloped
country, are less conducive to the emergence of innovative entrepreneurs because of the
lack of skilled labour, paucity of funds etc. In these economy entrepreneurs are more
imitator entrepreneurs less innovative entrepreneurs. As well as entrepreneurs in
underdeveloped region also bound to launch small-scale enterprises due to paucity of
funds and it is also observed that imitation on a massive scale can bring rapid economic
development. Thus they treated as a agent to bring development in underdeveloped
regions. Entrepreneurship promotes and facilitates rate of development of a country by
contributing to the following factors given below in systematic and orderly manner:-

i. Entrepreneurship is not only an exercise of self-employment but also provide

large scale employment opportunity. Thus, help in reducing unemployment
problem in the country which cause of all socio-economic problems.

ii. By mobilizing idle saving of the public it promotes capital formation.

iii. It helps in promoting balanced regional development.

iv. It helps in reducing the economic power concentration in few hands.

v. It also promotes and facilitates the equitable redistribution of wealth, income

and political power.

vi. It encourages optimum utilization and mobilization of resources like capital

which might otherwise remain utilized and idle.

vii. It stimulates backward and forward linkage through setting up of an

enterprise.

viii. It promotes country’s export. Thus, help in generating foreign exchange.

ix. It also help in conversing the outflow of national wealth by producing

products in country and thus reduce the need of import. It also reduce
dependency on foreign countries and make self-reliance.

x. It increases the rate of gross domestic product (GDP), net national product
and per capita income in the country.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 8

 xi. It improves the living standards of people increasing per capita income,
removing scarcity of essential goods and introduce new product.

xii. It stimulates and promotes innovation in techno-managerial practices.

xiii. It improves international competitiveness.

Factors affecting Entrepreneurship

Emergence, growth, and development of entrepreneurship is not an automatic and

spontaneous process. It depends on certain factors. These factors broadly divided into
two types namely: economic and non – economic factor. Economic factors include
capital, labour, raw material, market and infrastructure. Whereas, non-economic factors
include social, psychological factors. Let us, discussed these factors one by one:-

1. Economic factors: - Economic factors are those same factors which promote and
facilitate economic development. They have direct and immediate influence on
entrepreneurship. Following are the economic factors that affect the growth and
development of entrepreneurship:-

a. Capital: - Capital is the one of the most important factors of production to

establish an enterprise. Availability of capital facilitates the entrepreneurs to
bring all other factors of production together from different persons to
produce product. Therefore, capital is regarded as lubricant to the process of
production. Increase in capital investment in sound projects also tends to
increase in capital output-ratio. This results in increase in profit which
ultimately accelerated the process of capital formation. Thus with the
increase in capital supply or easy availability of capital will result in an
increase in entrepreneurial activity. Russia exemplify that how an adequate
supply of capital promoted entrepreneurial development and France
exemplify that how the lack of capital for industrial pursuits impedes the
same.

b. Labour: - Another factor which affect the entrepreneurship is the availability

of right type of labour. Quality rather than quantity of labour influences the
emergence of entrepreneurship. Entrepreneurship is encouraged by labour
mobility. The labour immobility cancelled the advantage of low-cost labour.
Considerations of Economic and emotional security are inhibit in labour
mobility. Therefore, entrepreneurs find difficult to secure sufficient quality
labour. But this problem can be solved by using capital-intensive
technologies. And the problem of immobility of labour can be sorted out by
providing better infrastructural facilities such as efficient transportation.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 9

 c. Raw Materials: - Raw materials are the one of the most important factor
required for establishing any industrial activity and thus affect the emergence
and development of the entrepreneurship. Without raw materials neither any
entrepreneur can be emerged nor can any enterprise be established.
Availability of raw material affect entrepreneurial environment. Inadequate
supply of raw material can adversely affect entrepreneurial activities but
inadequacies of raw material can be compensated by technological
innovation. It should be consider that supply of raw material also depends
upon the opportunity conditions. More likely is the raw material to have
effect on entrepreneurial activities in more favourable opportunity
conditions.

d. Market: - For the growth and development of entrepreneurship, market and

marketing play a very important role. In the absence of the knowledge about
market, no entrepreneur can think to survive in this highly competitive
environment. Major determinants of probable rewards for entrepreneur from
entrepreneurial function are determined by the potential of the market. It is
well said that, ‘if the proof of pudding lies in eating, the proof all production
lies in consumption’, i.e. marketing. Not only size but compositions of
market also influence the entrepreneurship.

Practically, competitive market for a product is less influential for

entrepreneurship than a monopoly market. But by improving transportation
system disadvantage of competitive market can be cancelled because it
facilitates the movement of raw-material and finished good and increase the
demand for the product. Similarly, transportation is more beneficial to heavy
industry than to light industry. Wilken suggested that sudden improvement
in market potential provide evidence of the influence of market on
entrepreneurship. He takes the example of Germany and Japan, where rapid
entrepreneurial appearance follows the rapid improvement in market.

e. Infrastructure: - Developed communication and transportation facilities is

important for the expansion of entrepreneurship to expand the horizons of
business with enlarge the market. For example: in 1850’s in India,
establishment of post and telegraph system and construction of roads and
highway considerable contributed in entrepreneurial activities. For
promoting and sustaining entrepreneurship, in the economy, contributions
like trade/business association, business, schools etc. valuable.

2. Non- economic factors: - Besides economic factors, social factors and

psychological factors may also necessary but are not sufficient conditions for the
appearance of entrepreneurship. Existence of non-economic factors also affects the
economic factors. Some major factors are listed below:-

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 10

 a. Social factors:- Social factors, those encourage entrepreneurship are as
follow:

i. Caste factor: - In every society, there are certain cultural practices,

values, norms and ethics which affect the individual’s action. These
practices have evolved over hundreds of years. This dominance of
certain ethical group is a global phenomenon in entrepreneurship.
The samurai in Japan, the trading classes in US and the protestant
ethics in west have distinguished themselves as entrepreneurs.

ii. Family background: - Family background includes size, type and

economic status of family. For instance: background of family in
manufacturing facilities industrial entrepreneurship. If a family is
very effluent it can gain access to political power and exhibit higher
level of entrepreneurship or can raise fund/capital more easily and
exhibit higher level of entrepreneurship.

iii. Education: - Education equips the person with knowledge and skills
enable the person to understand the things, world and help him to
deal with day to day problem as well as non-routine problem.

iv. Attitude of the society: - Attitude of the society towards

entrepreneurship. Certain societies encourage change, innovations
and novelties while certain societies do not accept change
immediately. Thus, those encourage change encourage
entrepreneurship and reward entrepreneur’s action like profit. While
in other societies, those do not accept change, entrepreneurship
cannot encouraged by them.

v. Cultural value: - Entrepreneurial growth and development needs

motive like profit-making, acquisition of prestige, social status etc.
which keep the person in action. If these motives are very strong then
determinant, talented and ambitious persons take risk. The strength
of these motives depends upon culture of the society. For instance:
Entrepreneurship would be applauded and praised if culture is
monetarily and economically oriented, i.e. appreciation of the
accumulation of wealth. The culture relatively less monetarily and
economically oriented are relatively less attracted towards monetary
incentives. They attain social distinction by non- economic pursuit.
They do not use their abilities for economic ends but use in non-
economic ends.

b. Psychological Factors:- Some major psychological factors that affects the

entrepreneurship are as follow:-

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 11

 i. Need for Achievement: - David McClelland’s gives, ‘theory of need
achievement’. According to him, high need achievement is one of
the characteristic of a person to become a successful entrepreneur
especially when reinforced by cultural factors. It is the major
determinant of entrepreneurship growth and development. The
reason is that, people having high need-achievement motive like to
take risk. This stimulates them to give greater efforts. McClelland
attributed that some societies have high ‘need achievement’ relative
to other societies. ‘Need achievement’ is more conditioned by these
society (social and cultural) reinforcement. Parent influence, parent-
child relationship and such other related factors also influence ‘need
achievement’. McClelland also argues ‘Need achievement’ can also
be developed.

ii. Withdrawal of Status Respect: - Psychological causes of

entrepreneurship are also studied and understand by Everett Hagen.
He stresses the psychological consequences of social changes.
Everett Hagen attributed the withdrawal of status respect of a group
to the genesis of entrepreneurship. With reference to a brief sketch
of history of Japan, he concludes that due to two historical
differences. Japan developed sooner than any non-western society
expected Russia. First historical difference is that Japan has been free
from colonial disruption and the other one is the, repeated long
continued withdrawal of expected status from important group
(Samurai) in its society drove them to retreatism. This results to the
emergence alienated with increased creativity from traditional
values. This ultimately leads them to technological progress by
entrepreneurial roles. The loss of status by a group leads to
entrepreneurial behaviour. Hages postulates that four types of event
can produce status withdrawal.

a) The group may be displaced by force.

b) It may have its valued symbols denigrated.

c) It may drift into a situation of status inconsistency.

d) It may not be accepted the expected status on migration in a

new society.

3. Political and Government Factors: - In a country, actions of government also

influence the emergence and development of entrepreneurship. With the supportive
actions of the government, entrepreneurs are encouraged to function very well. The
government can facilitates the entrepreneurs to establish the enterprises by providing
them various incentives, subsidies and concession. Also, provide the basic
facilities, utilities and services. Successful entrepreneurs
UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 12
 contribute to the upliftment and well-being of the society. So government should
ensure the availability as well as accessibility of required resources to the
entrepreneurs.

Growth of the entrepreneurship is affected by policies relating to various economic

aspects like prices, availability of resources or factor of production, taxation, income
distribution etc. to a large extent. Promotive Governmental activities contribute to
the emergence and development of entrepreneurship and government policies like
government monopolies, favouritism etc. are not desirable for the growth of the
business enterprises. For example: ‘policy measures for promoting and
strengthening small, tiny and village enterprises 1991’ industrial policy was first
time announced by government of India to develop small enterprise in country.
Later, the government of India enacted “ Micro, small and medium enterprises
development (MSMED) act,2006 ” and also set up a separate ministry of Micro,
Small and Medium enterprises for the growth and development of MSMEs in the
country. This results in the continuous growth in the numbers of MSMEs in country.

Models of Entrepreneurs
On the basis of involvement of government and the way society values individual and
collective action, following models of entrepreneurship can flourish:-

1. Free Market Model:-

In Free market model government’s role is limited. Basic conditions required for
entrepreneurial culture can be created by public policy but rest is upto entrepreneur. The
culture, in which entrepreneurial growth, development and success are celebrated. And
less degree of social protection, As well as tax structure rewards initiative and financial
gain is free market model. United States and Canada are the example of free market
model.

2. Guided Individualism Model:-

Guided Individualism model is based on individual enterprise’s encouragement. Public

polices play vital role by signalling industries in which entrepreneurial energies can be
directed. Singapore and Taiwan are the example of Guided Individualism model.

3. Social Democrat Model:-

Social democrat Model is the combination of social protection with encouragement of

enterprises. It includes a sort of social partnership in which all partners are agreed upon
social and economic framework. Sweden and Germany are example of social democrat
model.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 13

Entrepreneur’s Philosophy
Individual’s willingness to accept responsibility for his/her own work determines
success of an entrepreneur to some extent. Risk of failure is always present in business
venture despite of this entrepreneurs take risk by considering their own action’s
responsibility.

Success is the result of persistent efforts even sometime entrepreneurs gets success after
experiencing failure. But they do not get disappointed from their failure. They learn
from their failures and past experiences and channelizes their action to get more positive
results.

Individuals have to pursue towards his/her goal depends on the individual’s skills and
abilities. He/she know and accept his strength and weakness. Or use strength as power
and try to convert his/her weakness into strength and continuously give his/her best
efforts for pursuing goals. Honestly and sincerely should pursue towards achieving
goals. It is not necessary to get best and perfect results from his/her efforts but
acceptable results are important. Pursuing towards goals helps an individual to groom
him /her and bring out best qualities of an individual.

In terms of employment generation context, all self-employed and income generating

persons may not be entrepreneurs but all entrepreneurs are self-employed and income
generating person.

Check Your Progress- B

Write True or False.

5. Need for achievement is one of the psychological factors that affect

entrepreneurship.

6. Mobility of labour is the only condition that is required for establishing and
running an enterprise.

7. Entrepreneurship involves risk bearing and innovation.

8. Life-timers entrepreneurs take business as an integral part to their life.

1.5 SUMMARY
 Richard Cantillon an Irishman living in France, conceptualized the term
entrepreneur as: “an entrepreneur is the agent who buys factors of production at
certain prices in order to combine them into a product with a view to selling it
at uncertain prices in future”.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 14

  The innovation or new combination may occur in any one of the following
forms, namely: Introducing new product, Introducing new methods and
techniques of production, Opening of a new market, New source of raw material,
Carrying out of the new form of organization of an industry or reorganization of
an industry.
 Characteristic of successful entrepreneur, hard work, needs for high
achievement, independence, highly positive, foresight, organizer, innovative,
perseverance, risk-bearer, team-spirit, self-confidence and decision-making.
 According to Kao and Stevenson, “Entrepreneurship is the attempt to create
value through reorganization of business opportunity, the management of risk-
taking appropriate to the opportunity, and through the communicative and
management skills to mobilize human, financial and material resources
necessary to bring a project to function”.
 Three phases of entrepreneurship are Initial Entrepreneurial or Inception Phase,
Operational Phase and managerial phase.
 Factors affecting entrepreneurship are economic, non-economic and political
and government factors.
 Models of entrepreneur are free market model, guided individualism model and
social democrat model.

1.6 GLOSSARY
 Entrepreneur: An entrepreneur is the agent who buys factors of production at
certain prices in order to combine them into a product with a view to selling it
at uncertain prices in future.
 Entrepreneurship: Entrepreneurship is the attempt to create value through
reorganization of business opportunity, the management of risk-taking
appropriate to the opportunity, and through the communicative and management
skills to mobilize human, financial and material resources necessary to bring a
project to function.

 Free Market Model: In Free market model government’s role is limited. Basic
conditions required for entrepreneurial culture can be created by public policy
but rest is upto entrepreneur. The culture, in which entrepreneurial growth,
development and success are celebrated. And less degree of social protection,
As well as tax structure rewards initiative and financial gain is free market
model. United States and Canada are the example of free market model.

 Guided Individualism Model: Guided Individualism model is based on

individual enterprise’s encouragement. Public polices play vital role by
signalling industries in which entrepreneurial energies can be directed.
Singapore and Taiwan are the example of Guided Individualism model.

 Social Democrat Model: Social democrat Model is the combination of social

protection with encouragement of enterprises. It includes a sort of social
UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 15
 partnership in which all partners are agreed upon social and economic
framework. Sweden and Germany are example of social democrat model.

1.7 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

1. Entrepreneur

2. Imitative.

3. Private.

4. Everett Hagen.

Check Your Progress –B

5. True

6. False

7. True

8. True

1.8 REFERENCES
1. Entrepreneurship Development, New Age International Publishers, New Delhi.
2. Gupta, C.B. 2001. Management. Theory and Practice. Sultan Chand and Sons,
New Delhi.
3. Ind.u Grover. 2008. Handbook on Empowerment and Entrepreneurship.
Agrotech Public Academy, Udaipur.
4. Khanka, S.S. 1. 999. Entrepreneurial Development, S. Chand and Co., New
Delhi.
5. Mary Coulter. 2008. Entrepreneurship in Action. Prentice Hall of India Pvt. Ltd.,
New Delhi.
6. Mohanty, S.K. 2009. Fundamentals of Entrepreneurship. Prentice Hall of India
Pvt. Ltd., New Delhi.
7. Prasad, R. 2003. Entrepreneurship - Concepts and Cases. ICFAI Publications,
Hyderabad.
8. Sagar Mondal and Ray, G.L. 2009.- Text Book of Entrepreneurship and Rural
Development. Kalyani publishers, Ludhiana.
9. Singh, D.1995. Effective Managerial Leadership. Deep and Deep Publications,
New Delhi.
10. Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.
11. Vasanta Desai. 2000. Dynamics of Entrepreneurial Development and
Management.Himalaya Publishing House, New Delhi.
UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 16
 1.9 SUGGESTED READINGS
1. Entrepreneurship Development, New Age International
Publishers, New Delhi.
2. Gupta, C.B. 2001. Management. Theory and Practice. Sultan Chand and Sons,
New Delhi.
3. Ind.u Grover. 2008. Handbook on Empowerment and Entrepreneurship.
Agrotech Public Academy, Udaipur.
4. Khanka, S.S. 1. 999. Entrepreneurial Development, S. Chand and Co., New
Delhi.
5. Mary Coulter. 2008. Entrepreneurship in Action. Prentice Hall of India Pvt. Ltd.,
New Delhi.
6. Mohanty, S.K. 2009. Fundamentals of Entrepreneurship. Prentice Hall of India
Pvt. Ltd., New Delhi.
7. Prasad, R. 2003. Entrepreneurship - Concepts and Cases. ICFAI Publications,
Hyderabad.
8. Sagar Mondal and Ray, G.L. 2009.- Text Book of Entrepreneurship and Rural
Development. Kalyani publishers, Ludhiana.
9. Singh, D.1995. Effective Managerial Leadership. Deep and Deep Publications,
New Delhi.
10. Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.
11. Vasanta Desai. 2000. Dynamics of Entrepreneurial Development and
Management.Himalaya Publishing House, New Delhi.

1.10 TERMINAL QUESTIONS

1. What is meant by entrepreneur?

2. Define entrepreneurship?

3. Distinguish between entrepreneurship and entrepreneur?

4. Discuss the characteristics of successful entrepreneurs.

5. Define core elements of entrepreneurship.

UNIT-1 Entrepreneurship: Need, Scope and Philosophy Page 17

 UNIT 2 ENTREPRENEURIAL TRAITS AND
TYPES
2.1 Introduction

2.2 Objectives

2.3. Entrepreneurial Traits

2.4 Characteristics of an Entrepreneur

2.5 Types of Entrepreneur

2.6 Summary

2.7 Glossary

2.8 Answer to Check Your Progress

2.9 Reference/ Bibliography

2.10 Suggested Readings

2.11 Terminal & Model Questions

2.12 Activity

2.1 INTRODUCTION
In the previous unit you learnt that Entrepreneur is an organiser who combines all
factors of production for producing a product that is socially viable and relevant for the
society at large.

S/He bears risk, combines all factors of production, exploits opportunities in to order to
elicit demand and thereby contributes in creating wealth and employment. Thus, an
entrepreneur is an economic agent who plays an important role in the economic and
social development. S/He is an individual with knowledge, skills, initiative, drive and
spirit of innovation who aims for achieving goals. Therefore, entrepreneurship is a
dynamic activity which helps the entrepreneur in fostering changes in production,
innovation, market, product and services. Entrepreneurship is an indispensable process
for an economy which flourishes when opportunities are identified and resources are
arranged for long term gains. Accordingly, entrepreneur is a one who aspires to live life
with dignity, self-respect, values, aspirations, ideologies, positivity and perseverance.
Therefore, the following are the charisma of being an entrepreneur and these charms
may attract you to take some entrepreneurial activities;

UNIT-2 Entrepreneurial Traits and Types Page 18

 a) To be independent.
b) For creating job for others.
c) Crafting one’s own destiny.
d) Pursuing your own endeavour.
e) Taking own decisions.
f) Using talent, skills and knowledge for own, benefits and also for the nation’s
prosperity.
g) Magnifying uncertain rewards.
h) One can prove an achiever, because one seeks nothing else than excellence for
one’s venture.

Further, if you are interested for establishing entrepreneurial ventures or aspires for it
then you should know how ready you are in terms of entrepreneurial traits and skills.
Since it is a fact that you can develop yourself as an entrepreneur with proper guidance
and training therefore, it is necessary for you to assess yourself on the grounds that
require a certain level of characteristics, skills, competencies, attitude and traits for
initiating your venture. Further, if you assess that you lack in few traits or skills that you
should not be dishearten as these may be developed through proper guidance, education
and trainings.

2.2 OBJECTIVES
After going through the unit you will be able to:

-learn the traits that an entrepreneur must possess.

-identify your traits for becoming a successful entrepreneur.

-classify entrepreneur into various types.

- assess yourself on the parameters of entrepreneurial competencies.

-explain the concept of e-Entrepreneur, Agripreneur, Social entrepreneur,

Green Entrepreneur and Rural Entrepreneur

2.3 ENTREPRENURIAL TRAITS

Traits are individual characteristics, or qualities, that differ among people. These
specific traits describe a person. These traits impact the destiny of the business venture
undertaken by the entrepreneur. These specific traits are the driving force behind
entrepreneurial competencies, motivations, and competitive strategies that guide the
success of an enterprise. While many factors are important, the right entrepreneurial
traits create a strong foundation for the construction of a successful venture. Oxford
Dictionary has defined traits as “A distinguishing quality or characteristic, typically

UNIT-2 Entrepreneurial Traits and Types Page 19

one belonging to a person and is genetically determined characteristic”. Therefore, for
the purpose of determining entrepreneurial traits the same has been considered.
However, these competencies are not only innate rather they may also be developed by
proper training, right attitude and behaviour. The following traits should be possessed
by the entrepreneurial for succeeding in the entrepreneurial ventures.

1. Initiative- Entrepreneurs possess an inner urge of doing something. They are

self-reliant innovators. Entrepreneurs are generally considered as
independent having high self-esteem and extraordinary self-reliance. They
take initiative to start new ventures. They know that their acts and
aspirations can lead to success or failure to the operations but with initiative
seeking characteristic they extend the business into new products, new areas
and new services.
2. Hard Workers-The successful entrepreneurs are possessed with the
willingness to work hard in all the situations with sheer courage and
determination. They work hard even when they face the ups and downs and
joys and disappointments in their entrepreneurial ventures. Vice Lombardi,
head coach of the Green Bay Packers in1959-1967 once said that “The price
of success is hard work, dedication to the job at hand, and the determination
that whether we win or lose, we have applied the best of ourselves to the task
at hand.” Thus, they are known to be workaholic.
3. Opportunity Seeker- Entrepreneur also tries to explore and acts on
opportunities. S/He tries to seize opportunities coming in the way and
converts them into realistic and achievable goals.
4. Quality Consciousness- Entrepreneurs are highly conscious about the quality
and always strive for achieving excellence. They have inherent desire of
producing work of high quality and this help them in stand out in the
competition. Further, traits like quality consciousness give them sense of
satisfaction and achievement across all the functions they perform.
5. Efficiency and Effectiveness Oriented- Entrepreneurs displays efficiency
and effectiveness in all the endeavours they undertake. Utilization of
resources with higher effectiveness also helps them to achieve the expected
results with reduced inputs and reduced errors. They try to explore new
methods and procedures that aim at promoting efficiency.
6. Problem Solving Ability- Successful entrepreneurs are challenging by
nature. They always try to find out ways and means to overcome the
problems that emerge while undertaking entrepreneurial ventures. They try
to craft novel and potentially unique ideas to achieve their targets.
7. Self-Confident- Entrepreneurs tries to achieve goals and objectives with the
belief on themselves as well as on their abilities. Entrepreneurs are highly
self-determined and try to build their own destiny.
8. Risk taker- Successful entrepreneurs are generally risk takers. Sometimes
they pursue short-term risky opportunities in anticipation of high growth and
returns. Many a times, they also opt for the middle of the road of
UNIT-2 Entrepreneurial Traits and Types Page 20
 calculated risk in which possibility of profits are quite high and the outcome
depends upon their ability and hard work. But overall, risk taking is an
important constituent in an entrepreneurial life.
9. Self-Motivated-Entrepreneur influence individuals and inspire them with
his/her thoughts and pull them to work as per his/her aspirations. They are
capable enough to motivate themselves and therefore they do not much
require external drives for achieving pinnacles of success. They are
consistent motivators who always aspire for getting the things done in a right
way. Without considering the ups and down, you as an entrepreneur have to
keep the spirit high without getting discouraged in the difficult times. As the
author Ralph Waldo Emerson said “Finish each day and be done with it. You
have done what you could”.
10. Realistic Planner- They always works for achieving AIM that is ‘Ambitions
in their Minds’. S/He develops and uses logical step by step plans to reach
goals. S/He plans by breaking a large task into subtasks, develops plans that
anticipate obstacles, evaluate alternatives and most importantly takes a
logical and systematic approach to activities.
11. Perseverance- Entrepreneur possesses high level of determination and desire
which help him/her in overcoming all difficulties. They are persistent in
their approach irrespective of obstacles and failures that come in their way.
Their eyes are always on the goal and with consistent efforts, self confidence
and optimism they pursue them patiently. Steve Jobs co- founder and CEO
of Apple has rightly said that “I’m convinced that about half of what
separates the successful entrepreneurs from the non-successful ones is pure
perseverance.”
12. Assertiveness- Assertiveness is the trait of being self-assured and confident
without being aggressive. They believe in themselves and know how to
assert what they want, what they feel and what they think.
13. Persuasive- Entrepreneurs possess an important quality of successfully
persuading others. With this knowledge, abilities and confidence, s/ he try
to convince others. S/He can persuade financers, creditors, employees,
customers, suppliers and others to do the work the way s/he wants them to
do.
14. Full of determination- The entrepreneurs have unending determination and
commitment. They are creative and always aspire for results. They try to
learn from their own mistakes and failures and they work hard again with
renewed passion and determination.
15. Passionate- Entrepreneurs are highly passionate towards their work. They
are highly passionate to encompass opportunities and challenges with sheer
zeal and determination. Thus, this trait help them to stay for long till their
entrepreneurial venture achieves success and help them to stay focussed on
the business canvas they have sketched.

UNIT-2 Entrepreneurial Traits and Types Page 21

 16. Tenacity- Entrepreneurs possess an important trait of being tenacious. They
are committed towards each and every decision and try to align their work
with the desired results. With goals-directed action and energy driven
approach, they instils cohesiveness among the groups working within the
organisation and develop in them a sense of belongingness. Henry Ford has
also said that ‘Coming together is a beginning; keeping together is progress;
working together is success’.
17. Information Seeker- Entrepreneur takes action after collecting all the
information about opportunities, market, technology, loans, policies,
location and even about the industry as well as the competitors. If you are
planning to set your own enterprise you have to be information seeker and
you have to gather information from various sources to acquire knowledge.
With this characteristic you can build a strong interpersonal relationship
which can used to strengthen business contacts and terms with suppliers and
other persons related to the business.
18. Visionary- Visionary individuals are the one who can plan or can
contemplate about the future with imagination or wisdom. They have an
insight to see what others cannot see. They can realistically put the business
canvas to work, which they have sketched for their venture. They are able to
see exactly what their business is going to look like in the future.
19. Go Getter-Entrepreneurs are very energetic aggressively enterprising
person. They are grounded with determination, zeal, out-of-the-box thinking
and self-assurance which help them in dealing with new or difficult
situations easily.
20. Team Builder-Entrepreneur work with great team spirit for achieving the
common goals. Entrepreneur also cultivates team spirit among the
employees and other group for amplifying the probability of success for the
team's endeavour.

2.4 CHARACTERISTICS OF AN ENTREPRENEUR

For reaching at the top of the ladder, an entrepreneur should have technical
competencies together with initiative, determination, commitment, self-confidence,
clear objectives, self-motivation, problem solving attitude, risk taking attitude and an
ability of balancing work and life. However, there are some characteristics that can be
acquired after proper training, right attitude and unending efforts. Thus, the following
common characteristics are found in the successful entrepreneurs;

1. The entrepreneurs are highly optimistic and are endowed with the positive
approach for seeing the world. With optimistic attitude they transform difficult
situations into favourable one.

UNIT-2 Entrepreneurial Traits and Types Page 22

 2. Successful entrepreneurs have adequate knowledge of their businesses. They are
well versed with the peculiar characteristics of the venture they are into and
know the characteristics of the customers, markets, products and suppliers.
3. Alertness is a personality characteristic of entrepreneurs which can be acquired
through practice. As an entrepreneur you need to practice continuously
searching of possible opportunities and the same may result into profits in the
long run.
4. The entrepreneurs also possess good communication skills. As an entrepreneur
if you can communicate impressively with your customers, employees,
suppliers, creditors and other stakeholders, you can sustain your business
growth.
5. Entrepreneurs are confident about their beliefs and abilities. They not only depict
confidence in their own abilities rather they also instil confidence in others. If
you opt for any business venture and if you have confidence in yourself then you
can accomplish benchmarks with better long –term outcomes.
6. Entrepreneur has an important characteristic of building personal relationship
with the customers, employees and other stakeholders. With this characteristic
s/he can definitely succeed in the business by influencing the people who are
directly or indirectly associated with them.
7. Entrepreneurs should be intelligent with creative thinking which is helpful in
analysing complex situations. Further, s/he should also possess emotional
intelligence to manage behaviour, navigating social complexities and in making
personal decisions and achieving positive results.
8. Entrepreneurs are intelligent and creative thinker. An entrepreneur should
possess intelligence and creativity so that it may help them in solving complex
problems which may come during entrepreneurial journey. Certainly, this will
help them in handling typical situations appropriately.

UNIT-2 Entrepreneurial Traits and Types Page 23

 Few Success Stories
Aditya Vikram Birla was India’s cherished enterprising person who diversified his group
extensively into textiles, petrochemicals and telecommunications. He was one of the first
Indian industrialists to expanded business in abroad by setting up plants in South East Asia,
the Philippines and Egypt. He endorsed that business could be global being still local and he
proved by sketching his business canvas worldwide.

Dr Arokiaswamy Velumani, Chairman of Thyrocare Technologies Limited, has struggled in

his childhood grew up in poverty at a village near Coimbatore. Before establishing
Thyrocare Technologies Limited , he worked as a scientist at Bhaba Atomic Research Centre
(BARC), Mumbai, for 15 years. He spent his Provident Fund Money to take up this venture
in 1995. He is creative and a team builder who does not follows set traditions and employs
freshers in his company. He is an optimist who always perceives glass half full and therefore
have managed to build 122 outlets and collection centers across India and abroad.

N.R. Narayana Murthy is one of the most successful entrepreneurs and a truly acclaimed
leader in the country. He has proved that merit doesn’t matter but what matters is hard work,
honesty, integrity, simple living and high thinking, under-promising and over delivering and
performance orientation. He is an Indian IT industrialist and the co-founder of Infosys which
has excelled in providing business consulting, technology, engineering, and outsourcing
services.

Kiran Mazumdar Shaw is an entrepreneur who nailed all the peripheries which was set for a
woman. She leaded the biotech industry in India which was fairly dominated by men, but she
managed to break the myths and established Biocon a global brand. She learnt from her
failure and carved a niche for herself with sheer dedication, zeal and vigorous attitude
towards work. She has taken criticism positively and possesses courage and a dare-to-take-
risk attitude. She once quoted that “I want to be remembered as someone who put India on
the scientific map of the world in terms of large innovation. I want to be remembered for
making a difference to global healthcare. And I want to be remembered as someone who did
make a difference to social economic development in India.”

Vijay Shekhar Sharma is an entrepreneur and founder of Paytm, a mobile wallet and e-
commerce marketplace which is among the 11 recipients of a payments bank licence from
the Reserve Bank of India (RBI). In his initial days he struggled a lot because of his poor
English proficiency, he couldn’t sit for the IIT entrance and other competitive exams.
However, he passed out of Delhi College of Engineering at an early age of 19. Vijay
established his first company- ‘XS Communications’, Content Management Systems in
college days. He overcame his weakness by reading English Newspapers and Magazines daily
and spent time in the computer centre in the college. Today, in February,2017 Paytm's user
base for wallets crossed 200 million. The payment platform is currently available in 10
regional languages – Tamil, Telugu, Kannada, Malayalam, Hindi, Gujarati, Bengali, Oriya
and Punjabi.

UNIT-2 Entrepreneurial Traits and Types Page 24

 Check Your Progress-A

Q1. List out any seven traits that are relevant for the Entrepreneurial Pursuits?

Q2. What are the various Charms of becoming an entrepreneur?

Q3. Prepare a list of at least five factors that you believe motivate entrepreneurs
to start up new businesses.

Q4. Choose the correct answer option.

I. Successful entrepreneurs are generally;

a) Risk Seeker
b) Risk Neutral
c) Risk Averse
d) None of these

II. Which of the following is not a personal characteristic often found in an

entrepreneur?
a) self-confident.
b) independent-minded.
c) perceptive.
d) follower.

UNIT-2 Entrepreneurial Traits and Types Page 25

2.5 TYPES OF ENTREPRENEUR
Entrepreneurs are classified on the various dimensions depending upon the
characteristics their share under each category. The entrepreneurs are classified on the
basis of their functional characteristics, ownership of scale, size of entrepreneurship
business, motivation types, personality types, gender, use of technology and
development point of view. Further, Clarence Danhof and Arthur H. Cole has also
classified the entrepreneur into various categories, these has been presented under
functional characteristics. Let us study these classifications in detail;

2.5.1 Classification on the basis of Functional Characteristics

The sub division on the basis of functional characteristics has been classified by
Clarence Danhof . Danhof’s classification of entrepreneurs is based on the study carried
by him on the American Agriculture. The entrepreneurs are grouped as per the stages of
economic development. At the kickoff of economic development, entrepreneur is less
initiative but as the development accelerates, they try to depict more newness and
enthusiasm towards business and managerial activities.

a) Innovative-Innovative entrepreneur are the one who captures new opportunities,

use novel methods, introduce new products, use new technologies, explore new
markets, creates new organizations and always work with pristine avidity. They
are aggressive in the approach and they sharply and skillfully put ideas into
realities. They add lot to the economic progress of a country. Schumpeter view of
entrepreneur was of this type. He stated that innovation can happen endogenously.
These individuals depict their enthusiastic enterprising spirit and are passionate,
visionary, persistent, energetic and creative. Their traits and skills foster changes
in their enterprise, thereby bringing transformation in the economy as well as in
the business world
b) Imitative- Imitative Entrepreneurs are also termed as Adoptive Entrepreneur.
They immediately adopt those innovations and activities that are initiated or
developed by Innovative entrepreneur. Such entrepreneurs are not the first
movers rather they try to adapt to the technological changes that are brought in
by others. These entrepreneurs are favorable for the developing or
underdeveloped regions as they can analyze how the land, labour, capital and
machinery are organized in the developed countries and with this analysis they
can proceed for implementing the same in the developing as well
underdeveloped regions.
c) Fabian – These entrepreneurs are skeptical in initiating for any change. They are
too cautious and calculative while undertaking any business venture. They only
start business activities when they are sure that their activities hardly result into
any failure. Therefore they are hesitant, fearful, risk averse and lazy.

UNIT-2 Entrepreneurial Traits and Types Page 26

 They mimic innovators of the industry and invest when they are convinced that
the ventures are grounded with the sufficient possibilities of profits.
d) Drone- Drone Entrepreneurs are the fourth subdivision of entrepreneurs as per
the Clarence Danhof Classification. Such entrepreneurs neither want to grab
opportunities nor want to initiate for changes in the methods of production even
at the cost of reduced returns or losses. They are introvert, conservative and
orthodox in their outlook and are laggards in their approach.

2.5.2 Classification on the basis of ownership

a) Private Entrepreneur- Private Entrepreneurs are the individuals who own a

business or an industry that is run independently of the government and s/he
solely takes the responsibility of managing an enterprise, s/he further undertakes
the complete risk of losing capital and manages the business with the keen
interest of profits and growth.
b) State Entrepreneur- State Entrepreneurs are those entrepreneurs who run and
manage the trading or industrial venture of the State or the Government. They
try to introduce innovation by implementing novel ideas and processes in the public
sector.
c) Joint Entrepreneur- When a private entrepreneur and the Government jointly
operate an enterprise they are termed as Joint Entrepreneur. Entrepreneurial
activity under such system is jointly shared by the Private Entrepreneurs as well
as Government.

2.5.3 Classification on the basis of Business

a) Agriculture- Agricultural Entrepreneurs are the one who undertakes agricultural

activities such as cultivation of crop, harvesting, marketing of agricultural
produce, irrigation, sheltered and cold storage facilities for agricultural produce,
irrigation and application of technologies and other similar ventures. They cover
wide range of agricultural activities such as crop production, livestock
production, poultry keeping, agricultural support business, agro technologies
and marketing of agricultural produce. Agricultural entrepreneurs are also
related to agricultural inputs.
b) Manufacturing- These entrepreneurs manufactures products which are well
suited to needs and aspirations of the customers. S/He tries to use resources
including economic, human and technological resources for producing goods
and services in the economy. When they manufactures in the small size and
quantity, then they are termed as small manufacturers.
c) Trading- Such entrepreneurs undertakes trading activities and is not engage into
production of goods and services. S/He undertakes domestic as well as
international trade. They procure finished products from the manufacturers and
later sell it to the customers either directly or through retailers. They serve as
UNIT-2 Entrepreneurial Traits and Types Page 27
 the middlemen among wholesalers, dealers, retailers, manufacturers and
customers.
d) Service- These entrepreneurs provide services to the consumers. They have
expertise into a particular segment and accordingly, they provide generic
services for the benefit of the customers. They may be into education, insurance,
treatment, cleaning, consultancy, accountancy, designing etc. They deliver
value to their customers by providing specialised services that cater to the benefit
of its customers.

2.5.4 Classification on the basis of Use of Technology

a) Technical- The entrepreneur who utilizes science and technology for

establishing an enterprise and also utilizes technology extensively for managing
the enterprise is termed as technical entrepreneur. These entrepreneurs generally
have science and engineering background or strengths and they try to develop
products and services on the basis of knowledge, research and technology. As a
technology-based entrepreneur, they always try to apply technological support
in all functions of management right from planning to control and also they try
to apply novel technologies from manufacturing to research. These
entrepreneurs try to achieve high order success on the basis of the latest
knowhow and knowledge.

b) Non-Technical- The entrepreneurs who do not apply technologies for running

an enterprise are generally termed as non –technical entrepreneur. They
generally try to adhere to the traditional methods to establish and run an
enterprise.

2.5.5 Classification on the basis of Size of Enterprise

a) Micro Scale Entrepreneur- These are those individuals who invests in plant and
machinery excluding land and building for enterprises engaged in manufacturing
or production, processing or preservation of goods not more than 25 Lakhs.
Further, in case of enterprises engaged in providing or rendering of services
(loans up to Rs 1 crore) investment by such individuals in equipment excluding
land and building is not more than Rs.10.00 Lakhs.

b) Small Scale Entrepreneur- An entrepreneur who is running the industrial

undertakings with an investment in plant and machinery excluding land and
building for enterprises engaged in manufacturing or production, processing or
preservation of goods more than Rs.25.00 lakhs but less than Rs.500.00 lakhs,
are termed as small scale entrepreneur. Further, investment in equipment
excluding land and building for enterprises engaged in providing or rendering
of services (loans up to Rs 1 crore) by such individuals are more than Rs.10.00
lakhs but less than Rs.200.00 lakhs. They play an important role in

UNIT-2 Entrepreneurial Traits and Types Page 28

 employment creation, resource utilisation and income generation and they play
a vital role in instilling changes in the economy in gradual and phased manner.

c) Medium-Scale Entrepreneur- Medium Scale Entrepreneurs are the one who has
made investment in plant and machinery excluding land and building for
enterprises engaged in manufacturing or production, processing or preservation
of goods for more than Rs.500.00 lakhs but less than Rs.1000.00 lakhs. Further,
investment in equipment excluding land and building for enterprises engaged in
providing or rendering of services (loans up to Rs 1 crore) is more than
Rs.200.00 lakhs but less than Rs.500.00 lakhs.
d) Large Scale Entrepreneur – They are the one who has made investment in plant
and machinery for more than Rs.1000.00 lakhs. Large scale industries are the
industries with huge infrastructure man power and heavy capital of more than
rupees ten crores. The entrepreneurs of such industries play an important role in
shaping the fortune of an economy.

5.5.6 Classification on the basis of Gender

a) Men Entrepreneur- When enterprises are owned, managed and controlled by

men , they are termed as Men Entrepreneur.
b) Women Entrepreneur- When enterprises are owned, managed and controlled by
Women or when they have a minimum financial interest of 51% of the capital
and they render employment to at least 51% to women then they are termed as
Women Entrepreneur.
Women entrepreneurship may be defined as “women achieving economic
independency and generates employment opportunities to others by running an
enterprise”. In the past fifty years, society shifted their perspectives of women
being primarily child bearers and caregivers to include primary breadwinners or
co-contributors to the family income (Parker, 2009).
They are the one who plan for an enterprise with a vision, initiate to fulfil it,
attempts to nurture it by employing factors of production while undertaking risk
and run the enterprise with sheer zeal and courage. They are not just homemaker
rather they are the one who can successfully manage both their home as well as
their business effectively. They are recognized as contributor in the economic
growth and development. They create new jobs for themselves as well as for
nation. Government has provided various schemes for the promoting women
entrepreneur in the country. Kiran Mazumdar Shaw Shahnaz Husain, Indu Jain,
Kiran Mazumdar Shaw and Sabina Chopra are to be named few.

UNIT-2 Entrepreneurial Traits and Types Page 29

2.5.7 Classification prescribed by Arthur H. Cole

a) Empirical- The empirical entrepreneur are reluctant to changes and generally

follows rule of thumb. They do not opt for revolutionary strategies.
b) Rational- The rational entrepreneur is well informed about the economic
happenings and intends to introduce radical and appropriate changes.
c) Cognitive- The cognitive entrepreneur is well aware about the process,
procedures, innovative methods and techniques. They chalk out plans and
actions on the basis of expert advice and attempts to introduce changes that are
completely different from the existing scheme of an enterprise.

2.5.8 Classification on the basis of Motivation

a) Pure-Pure Entrepreneur is the one who are motivated by monetary and

psychological rewards. They aspire for the ventures in which possibility of gain
is reasonably high and they undertake such ventures for personal satisfaction,
ego and status.
b) Induced- Induced Entrepreneurs are the one who undertakes entrepreneurial
activities because of the support and assistance received from the government.
Such entrepreneurs are influenced to undertake such ventures because of policy
measures of the government in terms of facilities, concessions, incentives,
subsidies, tax rebates and the like. Such entrepreneur may undertake
entrepreneurial tasks because of external factors like institutional support,
family support and other organizational support.
c) Motivated- These entrepreneurs are self-motivated to undertake entrepreneurial
activities because of self-fulfillment and desire. They are passionate for
becoming a successful entrepreneur and they have an ability to think out of box
and making things happen as per their desire. They are motivated for
establishing such units for their benefits, for those who are near to them and for
those who they care about.
d) Spontaneous – Such entrepreneurs are creative and natural entrepreneur. These
have an ability of foresightedness, confidence, leadership skills, self-
motivation, conviction and confidence. They exploit opportunities
spontaneously which contributes in industry diversity and regional development.

2.5.9 Others-

a) e-Entrepreneur- E-entrepreneur is the one who tries to establish a venture which

is based on electronic platform and internet. Such entrepreneur undertakes risk
and invests capital in electronic business and thereby offers value through digital
or electronic products and services. This notion of e- entrepreneur is recently
gaining importance and is defined as principally using the Internet to strategically
and competitively achieve vision, business goals and objectives. e-entrepreneurs use
the World Wide Web (WWW) to interact and

UNIT-2 Entrepreneurial Traits and Types Page 30

 complete virtual transactions both with other businesses (B2B) and their
consumers/customers (B2C) (Thompson and Stickland, 2003). ‘e-Entrepreneurs are
defined as individuals or organisations engaged in e-Entrepreneurship. It is also
anticipated that e-Entrepreneurs will possess similar traits as entrepreneurs, in addition
to having expertise in employing technical skills. ‘A successful e- Entrepreneur is one
who, along with being profitable in dollar terms, would have also survived external
(such as technological changes, competitors, government policies) and internal (for
instance, employee turnover, organisational culture) forces’. (Zutshi, Sohal and
Zutshi,2005).
b) Agripreneur-This termed is quite prevalent these days. It refers to the new
segment of entrepreneurs who has a passion of farming and agriculture and
establishes businesses related to farming and agriculture by utilizing their
managerial as well as business skills and competencies. They sometimes add
value by enriching the produce by processing or by packaging food that they
have grown in the creative and skillful style.
c) Social entrepreneur- Social Entrepreneurs tries to use business practices such
as business planning, project management, marketing and sales, for advancing
social causes. Social entrepreneurs use innovative tools and
market driven mechanisms to solve key and
complex social problems, making a positive impact on society as a whole

Prof. Mohammed Yunus of Bangladesh set up the Grameen Bank, which

pioneered the concept of giving micro loans to the people below poverty line.
These micro loans have made a big impact in helping the poor people start their
own business and uplift themselves from the clutches of poverty. Ela R. Bhatt
established Self Employed Women's Association in Gujarat with the formation
of women group and cooperatives. Rajendra Singh of Tarun Bharat Sangh
decided to work for the improvement in the drought prone area of Rajasthan. He
undertook massive work on water related infrastructure development with the
cooperation of local community. He was awarded with Roman Magsasay Award
for his contributions in community work.

d) Green Entrepreneur- Green Entrepreneurs are agents of change who destroy the
existing conventional production methods, products, market structures and
consumption models and replace them with new, superior ecological products
and services. They have strong internal motivation related to a heightened
sensitivity to environmental problems. They address an environmental/social
problem/need consciously and this is at the core of their business activity. They
consciously strive to contribute to a more sustainable future, contributing both
to social as well as environmental values.
e) Ultraentrepenur- The term has gained importance by the book written by Hall
Julain, Entrepreneur to Ultrapreneur - 100 Ways to Up Your Game . It denotes
to the individuals who not only excelled in the managing their enterprise but also
has a profound effect on their family, community, country or humanity.

UNIT-2 Entrepreneurial Traits and Types Page 31

 Such entrepreneurs depicts a holistic approach of managing all aspects of one’s
life that portrays entrepreneurship, health and well-being, family, spirituality,
morality and mentality which come together to provide a supreme balance.

Check Your Progress- B

Q1. Explain the various classifications of Entrepreneurs.

Q2. What do you understand by the term e-entrepreneur?

Q3. What is the Classification of entrepreneurs prescribed by Arthur H. Cole?

Q4. Multiple Choice Questions-

I. Among the following, which answer option denotes the entrepreneurs who have
made investment in plant and machinery excluding land and building for
enterprises engaged in manufacturing or production, processing or
preservation of goods for more than Rs.500.00 lakhs but less than
Rs.1000.00 lakhs?
a) Small Scale
b) Medium Scale
c) Large Scale
d) None of these

UNIT-2 Entrepreneurial Traits and Types Page 32

 II. Which of the following entrepreneurs undertakes entrepreneurial activities
because of the support and assistance received from the government?
a) Pure
b) Induced
c) Motivated
d) Spontaneous

Q5. Fill in the Blanks

I. ………………………….is the most suitable type of entrepreneur for a

developing economy.
II ............................. refers to the new segment of entrepreneur who has a passion
of farming and agriculture and they initiate for such businesses by utilizing
their business skills and competencies.

2.6 SUMMARY

Entrepreneur is an economic agent who plays a vital role in the upliftment of a

society. S/He is an individual with knowledge, skills, initiative, drive and spirit
of innovation. Entrepreneurs possess specific traits that are useful in nurturing
the enterprises as well as intellectual talents in the country.
In this unit you learned common characteristics of successful entrepreneurs
some of which are hard work, desire for high achievement, , independent,
foresight, strong mental ability, highly optimistic ,leadership ability and updated
technical knowledge. In this unit you also came to know about the various
classifications of entrepreneurs. Entrepreneurs are classified on the basis of their
functional characteristics, ownership of scale, size of entrepreneurship business,
motivation types, personality types, gender, use of technology and development
point of view.

2.7 GLOSSARY
 E-Entrepreneur- E-entrepreneur is the one who tries to establish a
venture which is based on electronic platform and internet. Such
entrepreneur undertakes risk and invests capital in electronic business
and thereby offers value through digital products and services. 
 Agripreneur- This term is quite prevalent these days. It refers to the new
segment of Entrepreneur who has a passion of farming and agriculture
by utilizing managerial and business skills and competencies.
UNIT-2 Entrepreneurial Traits and Types Page 33
  Ultraentrepenur- It denotes to the individuals not only excelled in the
managing their enterprise but also has a profound effect on their family,
community, country or humanity.

2.8 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

Q4. I a II d

Check Your Progress –B

Q4. I b II b Q5 Imitative II. Agripreneur

2.9 REFERENCES

Anil Kumar, S., Poornima, S.C., Mini, K., Abraham and
Jayashree, K. 2003.New Age Publishers, Delhi.
 Khanka, S.S. 1. 999. Entrepreneurial Development, S. Chand and Co., New
Delhi.
 Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: How to create
uncontested market space and make the competition irrelevant. Boston, Mass.:
Harvard Business School Press.
 Parker, S.C. (2009), The Economics of Entrepreneurship, Cambridge: Cambridge
University Press.
 Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.Vasanta Desai. 2000. Dynamics of
Entrepreneurial Development and Management.Himalaya Publishing House,
New Delhi. 
 Zutshi, Sohal and Zutshi,2005, e-Entrepreneurship and Open Source Software,
http://www.anzam.org/wp-content/uploads/pdf
manager/2562_ZUTSHI_AMBIKA_ISIT-07.PDF, last accessed 21/04/2017.

Web links referred:

 http://julianhall.co.uk/the-meaning-of-the-word-ultrapreneur/, last accessed

20/04/2017
 http://www.learncbse.in/ncert-solutions-class-11-entrepreneurship-entrepreneur, last
accessed 20/04/2017
 https://www.cjebaltimore.org/sites/default/files/Quotes%20About%20Teams.pdf
 .http://www.igi-global.com/dictionary/e-entrepreneur/8688, last accessed 20/04/2017

UNIT-2 Entrepreneurial Traits and Types Page 34

  https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7283&Mode=0, last accessed
31/07/2017
 https://rbi.org.in/Scripts/FAQView.aspx?Id=84, last accessed 31/07/2017
 http://www.universityofcalicut.info/syl/EntrepreneurshipDevelopment279.pdf, last
accessed 31/07/2017
 http://www.yourarticlelibrary.com/entrepreneur/top-10-types-of-entrepreneurs-
explained/40648/, last accessed 31/07/2017
 https://en.wikipedia.org/wiki/Thyrocare, last accessed 31/07/2017
 http://www.theweekendleader.com/Success/2546/poverty-to-prosperity.html, last
accessed 31/07/2017
 http://www.theweekendleader.com/Success/2586/a-winning-formula.html, last
accessed 31/07/2017
 https://en.wikipedia.org/wiki/Kiran_Mazumdar-Shaw, last accessed 31/07/2017
 https://yourstory.com/2017/03/kiran-mazumdar-shaw-quotes/, last accessed
31/07/2017
 http://shethepeople.tv/five-leadership-lessons-to-learn-from-kiran-mazumdar-shaw/,
last accessed 31/07/2017
 https://www.karnataka.com/personalities/kiran-mazumdar-shaw/, last accessed
31/07/2017
 http://www.livemint.com/Industry/RjmoZBPoNlnUDPqQ3FEp0L/Indias-ecommerce-
power-list-2015.html, last accessed 31/07/2017
 https://en.wikipedia.org/wiki/N._R._Narayana_Murthy, last accessed 31/07/2017
 http://www.firstpost.com/business/paytm-valued-4-8-bn-vijay-shekhar-sharmas-
journey-from-aligarh-to-alibaba-3321306.html , last accessed 31/07/2017
 http://ourownstartup.com/how-vijay-shekhar-sharma-started-life-of-paytms-founder/, ,
last accessed 31/07/2017
 https://en.wikipedia.org/wiki/Aditya_Vikram_Birla, last accessed 31/07/2017
 http://ourownstartup.com/how-vijay-shekhar-sharma-started-life-of-paytms-founder/ ,
last accessed 31/07/2017
 http://www.firstpost.com/business/paytm-valued-4-8-bn-vijay-shekhar-sharmas-
journey-from-aligarh-to-alibaba-3321306.html, last accessed 31/07/2017
 https://bizztor.com/successful-indian-entrepreneurs-stories/, last accessed 31/07/2017
 https://blog.paytm.com/the-inspiring-journey-of-paytm-founder-vijay-shekhar-
sharma-2f9707c9e8c7 , last accessed 31/07/2017
 http://www.managementparadise.com/forums/indian-management-thoughts-
practices/200239-leadership-style-mr-n-r-narayan-murthy.html, last accessed
31/07/2017
 http://www.kvb.co.in/msme/definition.html, last accessed 31/07/2017
 http://www.ddegjust.ac.in/studymaterial/bba/bba-301.pdf, last accessed 31/07/2017
 http://www.searchquotes.com/search/Dedication_To_Job/, last accessed 31/07/2017
 https://www.collinsdictionary.com/dictionary/english-thesaurus/on-the-basis-of, last
accessed 31/07/2017
 http://www.preservearticles.com/201104215619/classification-of-enterprises.html,
last accessed 31/07/2017
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UNIT-2 Entrepreneurial Traits and Types Page 35

  http://rajneeshrajoria.weebly.com/uploads/4/9/0/6/49069889/entrepreneurship_develo
pment_aext391.pdf, last accessed 31/07/2017

2.10 SUGGESTED READINGS

 Anil Kumar, S., Poornima, S.C., Mini, K., Abraham and
Jayashree, K. 2003.New Age Publishers, Delhi.
 Entrepreneurship Development, New Age International Publishers, New Delhi.
 Gupta, C.B. 2001. Management. Theory and Practice. Sultan Chand and Sons,
New Delhi.
 Ind.u Grover. 2008. Handbook on Empowerment and Entrepreneurship.
Agrotech Public Academy, Udaipur.
 Khanka, S.S. 1. 999. Entrepreneurial Development, S. Chand and Co., New
Delhi.
 Mary Coulter. 2008. Entrepreneurship in Action. Prentice Hall of India Pvt. Ltd.,
New Delhi.
 Mohanty, S.K. 2009. Fundamentals of Entrepreneurship. Prentice Hall of India
Pvt. Ltd., New Delhi.
 Prasad, R. 2003. Entrepreneurship - Concepts and Cases. ICFAI Publications,
Hyderabad.
 Sagar Mondal and Ray, G.L. 2009.- Text Book of Entrepreneurship and Rural
Development. Kalyani publishers, Ludhiana.
 Singh, D.1995. Effective Managerial Leadership. Deep and Deep Publications,
New Delhi.
 Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.Vasanta Desai. 2000. Dynamics of
Entrepreneurial Development and Management.Himalaya Publishing House,
New Delhi.

2.11 TERMINAL QUESTIONS

1. Describe, with the help of examples, the essential
characteristics of successful entrepreneur.
2. Discuss the various classifications of entrepreneurs in detail.
3. List the various charms of being an entrepreneur. Also describe your personal
interest for becoming an entrepreneur.
4. Explain the various traits that must be possessed by an entrepreneur to succeed
in the market.
5. List out the various competencies and skills needed on the various stages
involved in the entrepreneurial process.

UNIT-2 Entrepreneurial Traits and Types Page 36

 2.12 ACTIVITY

1. Assess yourself on the grounds of traits an

entrepreneur should possess and list your strengths and weaknesses on the
dimensions so identified. Also explain the ways how you can further
strengthen your entrepreneurial traits and can add more to the inventory of
traits you possess.
2. Interview an Entrepreneur near your area and list out his/her traits that have
helped him/her in becoming a successful entrepreneur.
3. Identify any person of repute in your neighborhood who possesses the
entrepreneurship traits. Five examples and instance where these qualities
were reflected by him or her.
4. Visit any Green entrepreneur and find the benefits/advantages of Green
entrepreneur over others.

UNIT-2 Entrepreneurial Traits and Types Page 37

 UNIT-3 DEVELOPMENT OF
ENTREPRENEURSHIP
3.1 Introduction

3.2 Objectives

3.3 Characteristics of an Entrepreneur

3.4 Entrepreneurship & Society

3.5 Starting an Enterprise

3.6 Funding an Enterprise

3.7 Entrepreneurial Success and Failure

3.8 Decisions for Entrepreneurial Process

3.9 Entrepreneurial Environment

3.10 Social Entrepreneurship

3.11 Check Your Progress

3.12 Challenges for Entrepreneurs

3.13 Summary

3.14 Glossary

3.15 Answers to Check Your Progress

3.16 References

3.17 Suggested Readings

3.18 Terminal Questions

3.1 INTRODUCTION
The term entrepreneur is derived from a French word ‘Entreprendre’ which literally
means ‘to undertake’. The word entrepreneur was introduced in the economic field for
the first time by Rechard Cantillon in the year 1755. The word now is a concept which
deals with entrepreneurs who are people who break new grounds in starting a business.
They have new ideas and wish to organize, manage and develop business ideas which
may have risks associated but have the potential to make money. The key

UNIT-3 Development of Entrepreneurship Page 38

characteristics associated with Entrepreneurship are innovation and the ability to take a
well calculated risk. It is also an important part of a nation’s ability to succeed in
changing and increasing competitive global marketplace.

Some of the world’s most successful entrepreneurs include W.H. Bill Gates & Paul
Allen (Microsoft Corporation), Steve Jobs (Apple), Pierre Omidyar (Ebay), Caterina
Fake (Flikr) Mark Zuckerberg (Facebook) etc. Dhirubhai Ambani (Reliance group),
JRD Tata (Tata Group), Azim Premji (Wipro), N R Narayana Murthy (co founder
Infosys) and Shiv Nadar (HCL) are few of the many success stories scripted by Indians
in the entrepreneurial horizon through their sheer grit and resolve to achieve success.

Some of the reasons behind individuals (alone or in association) opting for

entrepreneurship can be interpreted as under:

1. They want to lead an organization and for that they have to start one..
2. They get inspired by the success stories of other entrepreneurs.
3. They have new innovative ideas which can be commercialized.
4. They love taking risks and wish to capitalize on their skill.
5. They feel responsible towards the society to find solutions for societal
problems.
6. They wish to follow the legacy in their family and carry it forward.
7. They are too ambitious and want to charter their own growth.
8. They have problems with their existing jobs and want to get out of them.
9. They want to work in the location of their choice
10. They firmly believe that entrepreneurship is the only thing they can involve
themselves into.

3.2 OBJECTIVES
After reading this unit you will be able to understand about:

 Characteristics of an Entrepreneur

 The impact of entrepreneurship on society

 How to start an enterprise

 Ways to Fund an enterprise

 Dealing with entrepreneurial Success and Failure

 Decisions during entrepreneurial Process

 The Components of entrepreneurial environment

 Social Entrepreneurship

UNIT-3 Development of Entrepreneurship Page 39

3.3 CHARACTERISTICS OF AN ENTREPRENEUR
The entrepreneurs are characterized by some specific traits which enable them to succeed
in their ventures as well as differentiate them from others. The following are some of the
key traits of an entrepreneur:

Passionate about their Work

The most important trait defining an entrepreneur is his passion towards executing his
ideas into reality. They tirelessly work on their ideas and have a keen willingness to
surmount any challenge that is thrown against them. Their passion is the key towards
building their businesses brick by brick.

Always Motivated

Entrepreneurs are not bogged down by failures and their motivation keeps them trying
again and again till they achieve success. They continuously work upon their
shortcomings and do not give up unless they are firmly convinced that their approach
needs to be changed.

Risk Bearers

Every business has inherent risk involved in it and it requires courage to accept the
challenge to take that risk. Entrepreneurs are always willing to take these risks willingly
as they have confidence in their business ideas as well as in their ability to execute it
successfully. However, the risk is taken after a careful calculation of dealing with
probable failures if any.

Discipline and Dedication

It requires lot of perseverance and discipline for an entrepreneur to keep the newly
formed business going. This is very important as any complacency can derail the new
enterprise and discipline by promoters always inspires the employees to give up their
best as a team.

Flexible and Adaptable

Successful entrepreneurs are those who are open to ideas and suggestions from other
people and tweak their business plan, products and services as per the need of the hour.
They continuously adapt themselves as per the market dynamics and customer
feedback. They accept their follies and are willing to adapt themselves to change in the
business environment.

UNIT-3 Development of Entrepreneurship Page 40

Efficient Fund Manager

Since there is scarcity of capital in the initial days of setting up of a business and the
revenue generation is slow, an entrepreneur has to be very efficient in management of
funds as well as keeping a buffer for unforeseen circumstances. The planning has to be
meticulous so that cost of funds does not become unbearable. At later stages, good
money management can help increase margins and tide over adverse situations.

Ability to Network

It is vital for all entrepreneurs to have great networking abilities to get valuable advice
and information from mentors, professionals, industry peers and other sources which
can be very crucial in planning and execution of strategy.

3.4 ENTREPRENEURSHIP AND SOCIETY

Entrepreneurship has a major contribution in the growth of a nation’s economic
development. So it is important to identify the motivational pulls enticing the people to
become entrepreneurs and also explain why some are more successful while others are
not. An enterprise is greatly affected by the society. Thus, we can say, it is a part of
society. In the social environment, both of them share an intimate bond where they affect
each other and share their profits as well as loss. In this “affecting & being affected
relationship” a proper balance has to be maintained.

The entrepreneurs are not always motivated by the amount of profit earned or money
made but they consider it as a standard for measuring success. An entrepreneur greatly
gives an emphasis on self-reliance and looks for distinction through excellence. They
are highly optimistic and they always prefer challenges having manageable levels of
risk.

3.5 STARTING AN ENTERPRISE

An entrepreneur normally starts with a business idea and goes on to execute it into a
thriving business. The various steps in this journey can be listed as under:

1. Generate a business idea- The business idea has to be unique or filling a void
in the present market. The idea has to be a solution to the problem and should
be validated by experts and research studies before moving further

2. Make a business plan- It is a written plan on how the idea will be executed and
includes mention of all resources and strategy which would be utilized to start
and run the enterprise. It broadly has two components- technical and financial.

3. Assess your financial capabilities- This is done to assess as to how much

capital will be required for the business and what would be the sources for

UNIT-3 Development of Entrepreneurship Page 41

 acquiring these funds. We can also decide the capital structure (mix of debt
and equity) at this stage.

4. Decide upon the legal structure of business- This involves deciding upon the
organizational structure (proprietorship, partnership, company, cooperative etc)
as well as the various regulatory and legal provisions required to be complied
for running the business.

5. Register the business with the government- This is the stage when the
business gets life and a unique identity as it gets registered by the government
under the relevant statute.

6. Hire the best possible team- The success or failure of an organization depends
a lot upon its employees. The entrepreneur has to strive to get the best possible
talent under limited financial resources. Also critical is to retain talent with
employee friendly policies.

7. Brand and start operations- After everything is in place, comes the stage
where a brand name is given to the product / service and it is launched in the
market. It is a very critical stage and quality, price and distribution all has to be
perfect in order to gather initial momentum.

8. Advertise your product/service- It is essential to spread the word about the product
among the prospective customers and hence various media platforms like print, outdoor,
audio-visual, digital etc are utilized for running an advertising campaign.

The company form of organisation is most popular among entrepreneurs as it has the
best scope of raising capital once the business grows in size. The following are the steps
required in the legal procedure to start a company in India:

 Application for DIN (Director Identification No.) online in form DIR-3 and
Digital Signature Certificate. (This process calls for submitting attested
support documents as proof of identity and address.)

 Decide for a Company name and check for its availability on MCA website.
 Drafting of Memorandum of Association (It is akin to the constitution of the
Company. It lists out the various objectives of the company, information about
its activities, capital, liability, names of founding directors etc) and Articles of
Association (describes the rules and procedures for the routine conduct of the
company)
 Filing of e-Forms with the RoC. (Form INC-7 for incorporation of a Company,
INC-22 for notice of situation of registered office and DIR-12 for providing
information about appointment of Directors and key managerial personnel)

UNIT-3 Development of Entrepreneurship Page 42

  Payment of RoC fees and Stamp Duty electronically.
 Verification of documents/forms by RoC (Make necessary changes as advised
by RoC after scrutiny of documents).
 Issue of Certificate of Incorporation by RoC (Digitally signed certificate is
emailed to Directors. After receiving this, the Company can start its operations)
 Filing of e-Form INC 21 with RoC (declaration regarding share subscription,
paid-up capital and registered address of the Company) within 180 days from
the date of incorporation of the company.

Figure: Journey of Entrepreneur

Check Your Progress-A

Q1. Who are entrepreneurs?

Q2. Why are entrepreneurs necessary in a society?

UNIT-3 Development of Entrepreneurship Page 43

Q3. What are the different steps in starting an enterprise?

3.6 FUNDING AN ENTERPRISE

One of the most important requirements of starting an enterprise is arranging the capital
for initial investment. There are many ways to do it depending upon factors like
promoter’s capacity, risk appetite, market conditions etc. Some of the prominent ways
to arrange funds are described as under:

Bootstrapping

This is the most basic form of arranging funds and relates to using one’s own money to
start the business. This is suitable for businesses which do not require heavy capital
expenditure in the beginning and can be used till the stage of prototype. Normally people
who bootstrap do not give up their existing jobs or sources of income.

Business Incubators

The entrepreneur needs resources to work upon his idea in order to reach the prototype
stage. During this process it is neither viable nor possible to commit to heavy capital
expenditure on acquiring facilities for development. It is here that platforms or
Institutions called Incubators step in which provide a host of services like office spaces,
pilot plants, administrative support, legal advice and compliances, mentorship support
etc. This helps the entrepreneur to a great extent as he doesn’t have to worry about
financial drain till he reaches the launch stage. Normally the incubation period is for two
to three years. In exchange of providing these services, the Incubators can charge some
fee or a share in equity of the proposed business. However, entry into an incubator is
difficult as it is subject to a rigorous vetting of the business proposal by a committee.
Various prestigious institutes in India like the IITs or IIMs have started their own
incubators.

Angel Investors

Once the individual is ready with the market version of the product or service, the next
stage is to get seed capital. Angel Investors are those individuals or group of persons
who invest into the launch stage of business and look forward to making money later
by selling their stake at far higher prices. They provide capital in exchange of acquiring
a stake which can be of any proportion as per the deal struck with the entrepreneur.
Since they fund the business at very early stage, the risk undertaken is high and thus the
returns demanded are significant in terms of capital gains. There are

UNIT-3 Development of Entrepreneurship Page 44

various types of angels who can be sector specific or location specific and can be
approached by entrepreneurs depending upon their business model.

Crowd-funding

This is becoming an increasingly popular method of arranging funds under which the
entrepreneur showcases his idea to a large community usually through the internet.
There are various such platforms available online where the fund seeker can post details
about the idea, its potential and the probable rewards for the investors. The visitors can
then see the post, evaluate it and then contact the entrepreneur for financial investment.
It is very important that the presentation of the idea should be crisp, clear and impactful
in order to generate a favourable response from potential investors.

Venture Capitalists

After the seed funding stage is over the business has been successfully launched, it now
requires large size investment to scale up the operations. It is at this stage that long term
investors with sizeable funds are required by the entrepreneurs. Such investors are called
Venture Capitalists. The angel investors normally sell their stakes to Venture Capitalists
making huge capital gains in return. The Venture Capitalists have a long term
commitment to the business and provide various series of funding so that the business
can grow to its potential. The Venture Capital funds have a pool of funds from various
investors which is then managed by professional experts who scan and analyze all
investment proposals before making the final decision to obtain the stake in the new
business.

Banks and NBFCs

All the public and private sector banks have various schemes to finance the micro and
small enterprises (MSME) sector which provide funds at very reasonable cost.
However, normally banks demand personal guarantees and collateral as security for the
loans which is difficult for small scale entrepreneurs. To overcome this, the government
has formed Credit Guarantee Trust for Micro and Small Enterprises [CGTMSE]. The
member banks of this trust can provide credit facility up to Rs. 200 lacs without any
collateral and third party guarantee. In case of default, the trust indemnifies the banks
by paying a major part of default. Almost all the major banks are member institutions
of the trust and hence the benefit can be availed by applicants at their neighborhood
bank branches.

Winning Contests

These days various contests are organised by various platforms where entrepreneurs can
participate with their business ideas. An esteemed jury judges the participants on the
basis of the strength of the idea and the potential of its execution. Based upon their
decision the winners are announced who then get funding of business idea as their

UNIT-3 Development of Entrepreneurship Page 45

prize. Normally such competitions are well publicized in media and thus can bring
visibility to the entrepreneur. However, the amount of funding might not be large
enough at these platforms.

3.7 ENTREPRENEURIAL SUCCESS AND FAILURE

Being a successful entrepreneur means more than just starting a new business. This
means the right attitude towards the trade and the determination, along with the barriers
to be faced to achieve success. Failure is a positive experience which is considered by
an entrepreneur as a challenge or opportunity for growth in the form of a prerequisite
to success. It is viewed by them as a future value-adder, a profound teacher, a provider
of new direction, an enhanced motivator and even as a path to achievement. Some of
the reasons for their massive success of modern day entrepreneurs are:

a) They have an entrepreneurial charisma within themselves. Moreover, they are

willing to submit to the change as per the requirement of the business.

b) They have leadership capabilities and are preoccupied with the aim of being
successful in the long term.

c) They manage to put together a highly professional management team along with a
comprehensive financial control system.

d) They have robust strategies which help them to lead towards the growth stages of
the business.

These individuals consider fear of failure as part of the process which leads them to the
goal of entrepreneurship. Failing is a tough lesson to research but important for majority
of the marketers to be triumphant. Business letdown occurs when there is a rise in the
cost or if the revenues have not been up to the expectations. It is seen that after a business
failure, one ought to take a break before starting a new enterprise. Break usually
enhances the emotional recovery which is mostly considered as a negative function of
both emotional and financial loss. Hence it is critical to limit the financial losses in the
beginning.

3.8 DECISIONS FOR ENTREPRENEURIAL PROCESS

Before beginning an enterprise, the entrepreneur needs to meticulously plan

various aspects after identification of business opportunity. That includes accessing
the viability (technical, operational, financial) of the project,
UNIT-3 Development of Entrepreneurship Page 46
 deciding place for production, offices etc, scale of the project, sources of finance,
type and number of personnel required, launch of the project and marketing strategy
to be adopted by the business.

Starting a business includes creating working solution of the business idea,

designing an organisational structure, selection of a business model as well as
undertaking a lot of legal compliances. Following key steps are required in this
process:

Careful designing of Business Plan

Careful designing of business before launching is not restricted to getting ready with a
business plan. The approach towards finalizing strategy can be of three types:

 Working in the concerned industry to gather a first-hand experience and

insights about the market.
 Working with a mentor with great knowledge and relevant domain experience
on partnership or consultancy basis.
 Ability to constantly evaluate the model and if possible change it at affordable
cost.

Testing the Business plan

After compilation of the business plan, it is essential to test some of its components tentatively
and then fine tuning it as per the response received during the test.

Knowing the Market

One of the most crucial aspects while starting a business is to understand the market structure
and its participants. This can be done by questioning others, conducting analysis or
gaining expertise by engaging with the most suppliers, distributors, competitors and
customers.

Understanding the Customers

A great understanding of the customer profile, their spending patterns, liking or
disliking, reaction towards competitive products should be studied very carefully. A
vetting of the consumer perception should be done by way of sample tests among
customers, rapid surveys etc. An accurate understanding of customers is critical to
achieving marketing success for the company.

Establish money Resources

A new business can get capital support from either its owners or from outsiders in the
form of equity or debt. Capital structure decisions are to be taken in a judicious manner.
Early estimates should be conservative so that adverse financial results can be avoided.
Cash flow statements are to be made sensibly keeping in mind accurate stages of
expenses and revenues.

UNIT-3 Development of Entrepreneurship Page 47

Choosing the proper organization structure

It is very important at the outset to decide upon the most suitable organisational structure
for the business. This is crucial because the legal and tax implications on the business
depend greatly upon the type of structure of the business. It also gains significance for
future growth (like decisions on raising capital) and taking an exit from the business by
selling or winding up.

3.9 ENTREPRENEURIAL ENVIRONMENT

Entrepreneurship is increasingly being recognized as one of the most important
intervention for engaging increasing youth population across the globe. The government
as well as the society is increasingly encouraging and welcoming the entrepreneurial
spirit and welcoming and supporting people who take the plunge in converting their
ideas into reality. Educational Institutions like colleges and universities are including
entrepreneurship in their curriculum and inspiring students to take up the mantle of
becoming entrepreneurs. The government, industry associations and other bodies are
creating an environment to boost up the entrepreneurial mindset by providing platforms,
schemes, incentives so that entrepreneurs are motivated to realize their dreams. Since it
also leads to generation of employment, it is considered as an important social welfare
intervention.

Startup India scheme launched by the government is based on an action plan aimed at
promoting product/process innovation driven by technology and intellectual property.
A startup under this scheme is an entity that is headquartered in India which was opened
less than five years ago and has an annual turnover less than ₹25 crores and aims to
develop and commercialize new products/services or significantly improve the existing
products/services. The government has already launched a mobile app which will be the
single window clearance platform under the scheme. The benefits under Startup India
scheme include tax holidays, exemption from regulatory inspection, reduction in patent
registration fee, self certification compliance and an easier 90 days exit window.

An entity can register itself through the Startup India portal and mobile app using a
seamless process.

1. Log in to Startup India portal

2. Choose your legal entity
3. Input your incorporation/registration number
4. Input your incorporation/registration date
5. Input PAN number (optional)
6. Input your address with postal code & state
7. Input authorized representative details

UNIT-3 Development of Entrepreneurship Page 48

 8. Input director(s)/partner(s) details
9. Choose and upload supporting documents and self-certification
10. Incorporation/registration certificate of company/LLP/Partnership
11. Registration to avail tax and IPR
12. Certify the official notification terms and conditions

A micro finance scheme for small entrepreneurs has been launched by the
Government under the name of MUDRA which offers three products:

1. Shishu – For entrepreneurs who are either in their primitive stage or require
lesser funds in order to get their businesses started. Maximum fund allotted is
Rs.50,000.
2. Kishor – For entrepreneurs who have already started their business and want
additional funds. Funds sanctioned in the range of above Rs 50,000 and upto Rs
5 lakh.
3. Tarun – This plan will cover loans of above Rs 5 lakh and up to Rs 10 lakh

Under food processing it covers activities like agriculture food preservation, small
service food stalls/canteen, cold chain storages and vehicles and making food items.

3.10 SOCIAL ENTREPRENEURSHIP

One of the most relevant modern approaches to create social interventions is to find
solutions to social problems by way of entrepreneurship. Social Entrepreneurs are those
who recognize a social problem and create a solution using entrepreneurial ideas. They
create a concept which addresses a public problem and in turn makes money. Their
intention is not to create commercial business giants but aim at providing sustainable
and scalable solutions to some of the pressing problems faced by the society. The
government also promotes such enterprises through various incentives. Poverty,
Marginalization and environmental degradation are some of the issues that lie at the
heart of social entrepreneurs. One example of social entrepreneurship is that of creating
and marketing products made at prison mates. The need of social entrepreneurs arises
because of the huge gaps that are not addressed by the commercial enterprises and the
government. The social enterprises can be for- profit or not for profit but they are run
with managerial proficiency and are self sustainable.

3.11 Check Your Progress- B

1. Entrepreneurship starts with

UNIT-3 Development of Entrepreneurship Page 49

 2. The document containing all technical and financial details about the proposed
business is called
3. Entrepreneurs can initiate their business by using infrastructural and other
facilities at an
4. MUDRA is a scheme for obtaining for the entrepreneurs.
5. Individuals taking the risk of investing at idea development stage are called
investors.

3.12 CHALLENGES FOR ENTREPRENEURS

Venturing into entrepreneurship is not an easy road to travel. There are various
challenges along the journey which are to be faced by the entrepreneur. Idea generation
to building a business model is a passionate journey but when the execution stage starts,
lot of issues are to be confronted by the promoters. Some of them are as under:

Raising Capital

One of the most critical challenges for the entrepreneur is to get the amount of capital
at the desired cost. Since the entrepreneurs come up with innovative ideas which haven’t
been tested in the market, it is difficult for them to get capital from traditional sources
of finance like the banks or other finance companies. The Angel Investors are also hard
to please while it is difficult to reach out to incubators.

Hiring Talented Employees

The success of a business organization depends to a great extent on the capability and
talent of its employees. New enterprises have difficulty in hiring bright candidates as it
is difficult to pay high salaries as per market. Also individuals are not willing to risk
their career prospects with new organisations with no track record or market reputation.
It is also difficult to hire large number of employees and the entrepreneurs are always
looking for people who can multitask.

Cultural Issues

Although times are fast changing but still young and talented individuals look towards
being job seekers rather than job givers. Since the failure rate of new enterprises is quite
high and culturally failure is frowned upon by the society. Families normally discourage
individuals from taking risk and betting on innovative ideas as they feel that any failure
would further limit opportunities in future.

Working with Limited Resources

The new enterprise has to work with limited financial and human resources as well as a
strapped budget. This is a big challenge especially when the entrepreneur has to

UNIT-3 Development of Entrepreneurship Page 50

compete with bigger established players. Marketing expenditure is limited and credit
period allowed by suppliers in the market is not too favourable. At the same time
receivable collection period is longer. All this makes management of cash flow
extremely challenging.

Lack of Mentorship

A good business idea always requires mentorship from an experienced person who can
give precious and timely advice during times of crisis. However there is no formal
mentoring mechanism in place for startups and one has to rely on personal contacts or
investors for guidance. There are many issues related to management which require
expertise and a regular mentor can only handle them.

Business Environment and Policies

The various government regulations and policies also create challenges for managing
business. Especially in a country like India which fares poorly in the ‘Ease of doing
business’ index, there can be frustration when multiple compliances, lack of
infrastructure, taxation policies etc can make life difficult for the entrepreneur.

Stress and Time Management

Launching a business enterprise by taking business and financial risk along with limited
resources can bring lot of stress in an individual’s life. This can also bring a lot of strain
on time management as many things are to be accommodated within the limited time
available. Meeting deadlines becomes difficult and make take a toll on physical health
of the individual.

3.13 SUMMARY
To become an entrepreneur one should have the urge to become one. It takes a lot of
risk and the success rate of new businesses especially the startups is very low. It requires
innovation, risk bearing, efficient management, talented team, hard and smart work and
a passion towards achieving the goal. An individual has to learn and sharpen his or her
entrepreneurial skills in order to become successful. The importance of entrepreneurship
and innovation also applies to the industry as it changes the way it produces products
and services. Entrepreneurship can be viewed as recognizing change, pursuing
opportunity, taking on risk and responsibility, continuous innovation, making better use
of resources and new value addition that is important and helpful to customers and doing
it all over again and again.

3.14 GLOSSARY

UNIT-3 Development of Entrepreneurship Page 51

  Entrepreneur: A person who sets up a business taking on financial risks in the
hope of profit.

 Business Plan: A written document describing how a business will achieve its
goals.

 Business Incubator: Place where new businesses are nurtured by providing

infrastructure, mentorship, legal and other advice.

 Angel Investor: Private Investors who invest in early stages of business to reap
high capital gains later.

 Venture Capitalist: Investors providing capital to businesses for expansion

 Startup: A newly established business

 Social Entrepreneur: Person establishing business to effect a social change or

providing solution to a social problem

3.15 ANSWERS TO CHECK IN PROGRESS (B)

1. Generation of business idea
2. Business Plan
3. Incubator
4. Finance
5. Angel

3.16 REFERENCES
Acs, Z. (2006). How is entrepreneurship good for economic growth?
Innovations Technology Governance Globalization, 1(1), 97-107.

Adjimah, H. (2011), Step by step guides to setting up your business: Entrepreneurship

Development I Excel Publications: Accra.

Charney, A., Libecap, G.D. (2000), The Impact of entrepreneurship education: An

evaluation of the Berger Entrepreneurship Programme at the University of Arizona,
1985-99. Tucson: Ewing Marion Kauffman Foundation.

Charntimath, P. (2006), Entrepreneurship development and small business enterprise.

New Delhi: Pearson Education.

UNIT-3 Development of Entrepreneurship Page 52

Garavan, N.T., O’Cinneide, B. (1994), Entrepreneurship education and training
programmes: A review and evaluation-Part 1. Journal of European Industrial Training,
18(8), 3-12.

Storey, D. (2000) ‘Six steps to heaven: Evaluating the impact of public policies to
support small businesses in developed economies’, in D. L. Sexton and H. Landström
(eds) The Blackwellbook of entrepreneurship, pp. 176–94. Oxford: Blackwell.

Timmon, J. (1990) : “New venture creation: Entrepreneurship for the 21st century” (5th
Edition) IrwinMcGraw-Hill, Boston.

3.17 SUGGESTED READINGS

1. Entrepreneurship Development by B. S. Sabharwal
2. Skill Development and Entrepreneurship in India by Rameshwari Pandya
3. Entrepreneurship by Robert D Hisrich
4. Entrepreneurship Development by Dr. S L Gupta and Dr. Arun Mittal
5. Management and Entrepreneurship by N V R Naidu and T Krishna Rao
6. Entrepreneurship by David H Holt
7. Entrepreneurship Development by Sangeeta Sharma
8. Entrepreneurship Development and Small Business Enterprise by Poornima M
Charantimath

3.18 TERMINAL QUESTIONS

1.List some of the traits required to become a successful
entrepreneur.
2. What are the different steps in the process of Entrepreneurship?
3. Explain the sources of obtaining finance for a new enterprise.
4.What are the critical decisions while deciding upon the business model by an
entrepreneur?
5.What are some of the challenges faced by entrepreneurs in raising the
enterprise?

UNIT-3 Development of Entrepreneurship Page 53

 Block-II
Entrepreneurial Process

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 54

 UNIT 4 CREATIVITY, IDEA GENERATION,
SCREENING AND PROJECT IDENTIFICATION

4.1 Introduction

4.2 Objectives

4.3 Meaning of creativity

4.4 Factors affecting creativity

4.5 Creative process

4.6 Components of creativity

4.7 Idea generation

4.8 Project

4.9 Project Life Cycle Phases

4.10 Project Identification

4.11 Summary

4.12 Glossary

4.13 Answer to Check Your Progress

4.14 References

4.15 Suggested Readings

4.16 Terminal Questions

4.1 INTRODUCTION
This unit deals with concept of creativity and its role in idea generation and screening.
Creativity is the central element of idea generation process. Creativity not only deals
with the new ideas but also helps in determining the latest methods and ways to produce
goods and services and manage the affairs the affairs of a new entity in the optimum
manner. Idea generation and screening is a process comprising of various steps. Each
step is to be undertaken cautiously. During this process technical, economical,
ecological market issues.. etc are to be done meticulously.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 55

4.2 OBJECTIVES
After reading this unit you will be able to:

-Understand the meaning of Creativity and its features

-Explain the process of creativity

- Understand and analyze the issues involved in project identification and screening

-The sources and methods of idea generation

4.3 MEANING OF CREATIVITY

Creativity is marked by an ability to create, bring into existence, to invent into a new
form, to produce through imaginative skill, to make to bring something new. Creativity
is not ability to create out of nothing (only God can do that), but the ability to generate
new ideas by combining, changing, or reapplying existing ideas. Some creative ideas
are brilliant and do wonders, while others are just simple, good and practical ideas that
no one has thought of so far. Further everyone has substantial creative ability.

Creativity is also an attitude, the ability to accept change and newness, a willingness to
play with ideas and possibilities, a flexibility of outlook, the habit of enjoying the good,
while looking for ways to improve it. Creativity is also a process. Creative person work
hard and continually to improve ideas and solutions, by making gradual alterations and
refinements to their works. A product is creative when it is “novel” and “appropriate”.
Creativity requires passion and commitment.

Creativity is also viewed as a central element in problem solving and there are a number
of ways in which creative thinking can facilitate decision making. In an investigation of
artist versus market orientation, it has also been shown that creativity for creativity’s
own sake can result in profitable outcomes (Fillis 2006). Entrepreneurial creativity has
been defined as the generation and implementation of novel, appropriate ideas to
establish a new venture (Amabile 1997). Kao (1989) sees creativity as a competitive
strength while Carson et al. (1995) view it as a key competency in small and medium
sized enterprises and Bridge et al. (2003) view it as an entrepreneurial attribute.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 56

4.4 FACTORS AFFECTING CREATIVITY
4.4.1 Social Factors

Creation of novel ideas often takes place in social and work contexts. Freedom (control
over one's work), challenge, sufficient resources, organizational encouragement and
recognition, and support from work group including trust and free communication
among group members are factors that stimulate creativity. On the contrary factors that
may impede creativity include organizational impediments including politics, harsh
criticism of new ideas, an atmosphere of risk avoidance and extreme workload pressure.

4.4.2 Technological Factors

A variety of technologies have been developed to stimulate idea generation. There are
many software program which facilitate idea generation Each program usually focuses
upon supporting a specific technique. The programs assist in defining the problem prior
to generating ideas and they may provide stimuli that enhance imagination. One of the
main advantages of these programs is the speed at which one can produce ideas.
Sometimes, the ideas generated can also be stored in an ideas bank and revisited at a
later date. Idea fisher, Serious Creativity, indlink, Idea pro and Brain stormers are
examples of available software programs

4.4.3 Features of creativity

Imagination- It is an imagination i.e. creative ability of mind.

Purposeful- It must be undertaken to achieve some objectives.

Original- It must be new or rare of its type.

Valuable- It has to have some value in relation to its purpose

4.5 CREATIVE PROCESS

Entrepreneurs need ideas to start a new venture. However brilliant ideas do no emerge
instantly. They evolve through a creative process wherein ideas are germinated,
matured and developed by the team of creative persons. The creative process involves
six stages-

Stage 1- Task presentation - this stage deals with comprehensive understanding of the
problems and getting motivated to achieve the specific result. It requires strong desire
and curiosity in the person for the alternatives and the solution. This stages leads to the
second stage.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 57

Stage 2 - Preparation: It deals with conscious search for the solutions, seeking
information about the problem. It is undertaken by using various subjective and
objective approaches including openness to experience, analysis of how the task might
be approached, tolerance of ambiguity, willingness to redefine concepts, divergent
thought processes (explore many possibilities) and intuitive ability etc.

Stage 3 - Incubation: It is the stage of subconscious assimilation of information. It

involves absorption of information, seeking ideas, possible answers and solutions.
Human logic do not affect the solutions. Human fantasies are pressed and unusual
knowledge and information that is difficult to assimilate rationally is used by sub
conscious mind. This leads to fourth stage.

Stage 3- Idea Generation: Multiple ideas and solutions are generated at this stage. In
this step ideas resurface as realistic creation. Various approaches to the problem are
applied using individual’s experiences, insight and fears. Ideas are recognized as being
feasible. It gives a sense of realization. It is generally triggered by an opportune
incidence.

Idea validation: Ideas generated in the previous stage needs to be verified as realistic
and useful. Entrepreneur effort is required to translate the generated ideas into verified,
realistic and useful application. It is the stage that refines knowledge into application.
Each potential solution is tested against the problem

Stage 6 - Outcome Assessment- An assessment of the creative process can lead to

either the achievement of the goal wherein a creative idea or solution to the problem is
located or no progress in this direction is achieved. In both cases, creative process ends.

4.6 COMPONENTS OF CREATIVITY

Within every individual, creativity is a function of three components:

1. Expertise: Expertise encompasses everything that a person knows and can do in the
broad domain of his or her work- knowledge and technical ability.

2. Creative thinking skills: Creative thinking refers to how you approach problems
and solutions- the capacity to put existing ideas together in new combinations. The skill
itself depends quite a bit on personality as well as on how a person thinks and works.

3. Motivation. Motivation is the drive and desire to do something, an inner passion and
interest.

When people are intrinsically motivated, they engage in their work for the challenge
and for enjoyment. According to Robert Gahim, creativity consists of anticipation and
commitment. Anticipation involves having a vision of something that will become
UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 58
important in the future before anybody else has it. Commitment is the belief that keeps
one working to realize the vision despite doubt and discouragement.

4.7 IDEA GENERATION AND SCREENING

The business idea originates from an opportunity in the market. It originates from the
needs and wants of the existing customers which entrepreneurs identify. They have to
be very proactive, sensitive and quick to match the needs and wants of the consumers
with their product or services. Thus entrepreneur must have a keen and open mind to
look for opportunities and generate business ideas.

 Selecting a business idea

 The business idea should be feasible and viable from entrepreneurial and market
perspective. There is a no objective assessment for testing a suitability of
business idea. However there are certain guidelines to check the feasibility of
an idea:
 Utilize entrepreneurial skill: It must enable entrepreneur to utilize his skills.
This increases confidence of the entrepreneur.
 Use locally available raw materials: it is easy to procure and convert raw
material available in local markets or nearby markets. It reduces the cost of
products. Therefore it should enable the use of locally available raw materials.
 Help entrepreneurs make product that have a good potential over a period of
time. The product should be such that it allows the entrepreneur to reap the
advantages of low cost and optimum profit over a long period of time.
 Enable use of specific machines, technology and technical knowhow that is
already available with the entrepreneur. It should support the idea of making
new products from the existing resources , thus reduce capital investment of the
entrepreneurs.

4.7.1 Sources of Idea Generation

 Existing customers and potential customers

 Trade shows and exhibitions
 Channels of distribution
 Government policies and regulations
 Research and development institutes
 Competitors
 Books , magazines and Journals

4.7.2 Methods of Idea generation

Delphi technique:

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 59

The Delphi Technique (DT) was introduced in the 1950s by the RAND Corporation.
DT uses a survey of experts' opinion in which experts review one another's ideas. In this
technique, a group of experts is first chosen to participate, and a small team is set up to
prepare a set of questionnaires on the topic. This team then sends the questionnaires,
together with some supporting information on the topic, to the experts (geographically
dispersed groups), or gives the material to the experts during face-to- face meetings.
Each member responds to the questionnaires anonymously. Later, the team collects the
responses and statistically summarises them. The team prepares another set of
questionnaires based on the experts' responses (or the same questionnaires that are used
previously), and again distributes these questionnaires alongside the summarized data
to experts. This process continues until the group reaches a consensus. DT emphasizes
agreement (consensus) between experts. It has been found to be useful where statistical
information is important such as forecasting.

Brainstorming:

One of the most popular free association techniques is brainstorming,. Brainstorming

sessions can be conducted electronically, or verbally. Brainstorming was originally
proposed by Alex Osborn (1957) as a means of generating as many ideas as possible
from group work. He claimed that a group can generate twice as many ideas as
individuals working alone, provided that the group follows a systematic approach and
adopts four rules. Osborn's purpose in suggesting these rules was to overcome social
and motivational difficulties that might inhibit the generation of ideas in groups.

The four rules are:

1. No criticism is allowed,

2. Freewheeling is welcome,

3. Quantity wanted,

4. Combination and improvement are sought.

Nominal group technique:

Nominal Group Technique (NGT) is a variation of the `brainstorming' process

developed in late 1960s. NGT is a means of generating alternative solutions to problem
in-group sessions (Aurum, 1997). NGT was originally developed for face-to- face group
meetings. This technique has two parts: Idea Generation and discussion of ideas . In the
meeting, group members sit around a table in such a way that all of them can see each
other. A leader introduces the problem to the members. In the first part, each member
writes their own ideas on a card or a pad. The members do not communicate with each
other while writing their ideas. Later, each group member presents their idea (one idea
at a time, in rotation). The leader writes the ideas on a board that can be seen easily by
everybody. In the second part, the discussion starts and the leader asks members'
comments, opinions on each idea. More ideas can be
UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 60
added at this stage. When the commenting stage is finished, each group member writes
their own favorite ideas on a card in ranking order.

Solo brainstorming:

This is an individual creativity technique, originally proposed by Aurum (1997). It is

especially suited to environments where sentential analysis is appropriate, or
information sources are document-based (e.g., reports, abstracts, testimonies, interview
transcripts, web publications). It requires the individual to adhere to a formal protocol
(procedure), where a series of documents are examined (reading stage), and then edited.

Mind mapping: This method starts with writing down a main idea in the centre of the
page, and then working outward in all directions producing a growing and organized
structure composed of key words and key images.

Check Your Progress A

Check Your Progress-A

Q1. What are the sources of idea generation?

Q2. Name the methods of Idea Generation?

Q3. MCQs

1. Components of creativity :
(i) expertise,
(ii) creative thinking skills
(iii) Motivation
(iv) All of above
2. Stage not involved in the creative process:
(i) Task presentation
(ii) Preparation
(iii) Incubation
UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 61
 (iv) Delegation of authority
3. Methods of idea generation
(i) Nominal group technique
(ii) Brainstorming
(iii) Delphi technique
(iv) All of above
4. Brainstorming was originally proposed by
(i) Aurum
(ii) Henry fayol
(iii) F.taylor
(iv) None of the above

Q4. Fill in the Blanks with appropriate word or words.

(I) An individual creativity technique is Solo Brainstorming (SBS), originally

proposed by .
(II) ---------------------------- was originally proposed by Alex Osborn (1957) as a
means of generating as many ideas as possible from group work.
(III) -------------------------- was introduced in the 1950s by the RAND
Corporation.
(IV) ---------------------------- starts with writing down a main idea in the
centre of the page, and then working outward in all directions producing a
growing and organised structure composed of key words and key images.

4.8 PROJECT
The word “project” was first used in or around the sixteenth century and derived from
the Latin word projicere i.e. to throw forward. The Latin root thus suggests movement,
a certain relationship with space and time.

Project is an unique set of coordinated activities, with definite starting and finishing
points, undertaken by an individual or team to meet specific objectives within stipulated
time, cost and performance parameters.’ Some definitions are –

Newman et al. defined a project and described its value as simply a cluster of activities
that is relatively separate and clear-cut. Building a plant, designing a new package are
examples.

It is "any undertaking that has definite, final objectives representing specified values to
be used in the satisfaction of some need or desire.□-Ralph Currier Davis

Projects exist in every type of human enterprise. They are unique, complex undertakings
that create new products, facilities, services, and events. they bring about major
organizational and other desired changes or recovery from natural or man-made
UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 62
disasters. Projects have start and end points. They progress through a number of life
cycle phases. Project is a temporary assignment used to accomplish a new activity that
will meet the customers needs. Projects have a clear goal that needs to be accomplished
.Sometimes the goal of the project is tangible (a new software application) and other
times it is not (implementing a new employee process improvement technique). Projects
are usually new in the sense that the organization has a specific need for something that
is not yet present (the reason a project is conceived). Projects also need to meet customer
needs.

Characteristics of Projects

A project can be defined by its characteristics which are as follows:

 It involves a single, definable purpose, product or result.
 It has defined constraints or targets in terms of cost, schedule (time), and
performance requirements.
 It harnesses skills and talents from multiple professions and organizations.
 It often involves advance technology and rely on task interdependencies that
may Introduce new and unique problems. Task and skill requirements vary from
project to project
 It is unique. A project is generally a onetime activity which is never replicated
exactly.
 It has an unfamiliar element. It may encompass new technology and therefore
possess significant elements of uncertainty and risk. Failure of the project might
jeopardize the organization to achieve its goals.
 It is a temporary activity. It is undertaken to accomplish a goal within a given
period of time; once the goal is achieved, the project ceases to exist.
 It is part of the process involved in working to achieve a goal.
 Project passes through many distinct phases; as a result, tasks, people,
organizational structure; and resources change as the project moves from one
phase to the next.
 Project usually has clear start and finish points. In the case of the aircraft repair,
there will be an inspection, an appraisal, a solution, implementation, finalization
and testing.
 It is part of an interlinked process. It is rarely carried out in isolation. There is
usually some interlinking between different projects that are being run by a
particular organization.
 It is generally of secondary importance to the organization. There are exceptions
such as pure research and development organizations and companies that are
established purely to plan and execute a single project.
 It is complex - involve multidisciplinary teams and have well defined aims and
objectives. In organizational terms it tends to be relatively complex as compared
to the standard functional processes that operate within the organization.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 63

Project success

Following are the guidelines that should be observed for a project success

• Clear and well-managed processes

• Clearly defined purpose and limits

• shared understanding of intended outcomes

• Realistic objectives

• Good management of risks and problems

• Thorough planning

• Timely decision-making supported by short, clear lines of reporting

• Strong leadership

• Commitment and support from senior management

• A trained and experienced project manager who is suited to the particular project

• A well trained and highly experienced project team

• Clearly defined jobs and responsibilities

• Good communications

• maintain a sense of ownership throughout the project, and ensure that the allocation
of major resources is followed through (by senior manager responsible)

• set clear success criteria for its outcomes

• match scope of project to funding

• ensure budgets are adequate for the intended outcomes

• make an initial costing as part of the business case

• present a full business case before the project is started, to obtain a commitment to
resources from stakeholders and senior management

• Construct business case to ensure that time is allowed to assess the costs and benefits
of any proposed new system before the project gets underway

• define roles and responsibilities

• pay attention to ‘people’ issues, including the infrastructure of the project

• train staff fully and allow adequate time to learn new processes

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 64

• keep customers or end users of the system informed

• ensure good team working and adequate and appropriate staffing

• ensure good communications amongst and within different teams

• monitor the work of contractors effectively

• put adequate risk management and issue control procedures in place, with continuous
risk analysis and discussion of issues from start to end of the project

• create climate in which issues can be easily and safely raised

• adhere to organization’s procurement procedures

• have realistic contingency plans in case the project fails to deliver on time

• include in planning the basic tools that allow project staff to carry out their day-to-
day work

• plan and monitor effectively, so that you realise when changes are required and re-
planning is necessary.

• test new systems thoroughly.

4.9 PROJECT LIFE CYCLE PHASES

A project passes through the phases. Each phase of this needs managerial action.
Following are the phases and the managerial action associated with it:

1. Conceptual Phase

Bases are established and the management approach is formulated in this phase. The
decision that a project is needed is made. Goals are established, resources are estimated,
and key personnel are appointed.

2. Planning Phase

In this phase, major program characteristics are validated and refined and program risks
and costs are assessed, resolved, or minimized. The project organization is defined,
targets are set, schedule of execution is drawn, tasks, and resources are defined and
allocated and •project teams are built.

3. Execution Phase

This phase consist of full scale development phase and production phase, in full-scale
development phase, design, fabrication and testing are completed. Costs are assessed to
ensure that the program is ready for the production phase. In the production phase
UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 65
the system is produced and delivered as an effective, economical, and supportable
system. During this period, responsibility for program management is transferred.

4. Termination Phase

In this phase, the system is actually transferred to organization. Commitments are

completed, personnel are rewarded, resources are released, and team members are
reassigned.

Project classification

Project classification helps in identification expression and highlighting the essential

features of project. There are different classification of projects. The following are some
of the important

classification of projects.

(1) Quantifiable and Non-Quantifiable Projects

Quantifiable projects are those in which quantitative assessment of benefits can be

made.. Projects concerned with industrial development, power generation, and mineral
development are quantifiable projects Non-quantifiable projects are those where such
assessment is not possible. Projects involving health, education and defense fall in the
non – quantifiable projects.

(2) Sectoral Projects

Here the classification is based on various sectors like

● Agriculture and allied sector

● Irrigation and power sector

● Industry and mining sector

● Transport and communication sector

● Information technology sector

● Miscellaneous

This system of classification has been found useful in resource allocation at macro level.

(3) Techno-Economic Projects

This type of classification includes factors intensity-oriented classification, causation

oriented classification as discussed below.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 66

(a) Factor intensity-oriented classification: Based on this, projects can be classified
as capital intensive and labor intensive. If large investment is made in plant or
machinery the project will be termed as capital intensive. On the other hand project
involving large number of human resources will be termed as “labor intensive”.

(b) Causation-oriented classification: On the basis of causation, projects can be

classified as demand based and raw material based projects. The availability of certain
raw materials, skills or other inputs makes the project raw-material based and the project
based existence of demand for certain goods or services make the project demand-based.

(c) Magnitude-oriented classification: This is based on the size of investment

involved in the projects- large scale, medium-scale or small-scale projects.

The selection of a project consists of two main steps: Project identification and project
selection.

4.10 PROJECT IDENTIFICATION

Project identification is the first step of a new venture. A right direction enables an
entrepreneur to achieve his objective. Otherwise, he has to face a number of problems.
It is therefore, very crucial to entrepreneurs to identify project. Project identification and
Screening is concerned with collection, compilation and analysis of economic data for
the eventual purpose of locating possible opportunities for investment.

STEP 1: SEARCH OF NEW IDEA / GENERATION OF IDEAS / SEARCH OF

BUSINESS OPPORTUNITY:

The search for profitable and feasible project idea is the first step towards establishing
a successful venture. Identification of such opportunities require imagination, sensitivity
to environmental changes and realistic assessment of the firm. Entrepreneur can takes
the help tools to generate new ideas like:

(i) SWOT Analysis: SWOT is an acronym for Strength, Weaknesses, Opportunities

and Strength. On careful analyzing these factors new ideas can be used for :

 Productivity improvement

 Increase in capacity utilization

 Improvement in contribution margin

 Expansion into promising fields

 Cost Reduction

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 67

(ii) Brainstorming: It is one of the most well known for creative idea generation. It is an
unstructured process for generating all possible ideas within a stipulated time frame
through the spontaneous contributions of the participants. The participants can be the
entrepreneur’s family members, friends, business partners, hired experts etc.

(iii) Other constraints:

 Carefully analyze the performance of existing industries

 Examination of the inputs and outputs of different Industries
 Review of Imports and Exports
 Study of Plan Outlays and Government Guidelines pertaining to the project
 Study of the suggestions of Financial Institutions and Developmental
Agencies
 Investigation of local Materials and Resources
 Analysis of economic and social trends
 Careful examination of internal factors, strengths and political support
 Availability of funding available
 Market experience and knowledge
 Strong leadership and motivated team
 Any foreign collaboration with respect to technology or funding

STEP 2: SELECTION OF BUSINESS OPPORTUNITY/ SHORT LISTING

IDEAS /PRELIMINARY SCREENING:

The entrepreneur might have searched a number of business opportunities and there is
a need to select the best one idea which can be selected to achieve the objective of
entrepreneur. Some of the points are mentioned that may help the entrepreneur to select
the best idea:

1. Compatibility with the promoter: The idea must be compatible with the interest,
personality, and resources of the entrepreneur. According to Murphy, a real
opportunity has three characteristics: i) It fits the personality of the entrepreneur
(abilities, training etc) ii) It is accessible to him iii) It offers him the rapid growth
and high returns.
2. Consistency with Governmental Priorities: the idea must be consistent with national
goals and priorities? ii) it should not work contrary to governmental regulation iii)
to ensure that foreign requirements of the project can be easily accommodated iv)
easy procurement of licences from the government agencies .
3. Availability of Inputs: i) Are the capital requirements of the project within
manageable limits? ii) whether the technical know-how required for the project can
be obtained? iii) Are the raw materials required for the project available
domestically at reasonable cost? iv) Is the power supply for the project reasonably
obtainable from external sources?

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 68

4. Adequacy of the market i) Total present domestic market ii) Competitors and their
market shares iii) Export market iv) Quality-price profile of the product vis- à-vis
competitive product v) Sales and distribution system vi) Projected increase in
consumption vii) Patent protection , are some of the issue which should be
addressed.
5. Acceptability of Risk Level i) Vulnerability to business cycles ii) Technological
Changes iii) Competition from substitutes iv) Competition from Imports v)
Governmental control over price
6. Socio-Demographic Sector i) Population trends ii) Income distribution iii)
Educational Framework iv) Attitudes toward consumption and investment

STEP: 3 ASSESSMENTS OF VIABILITY / PROJECT APPRAISAL /

FEASIBILITY STUDY

During the process of project appraisal a feasibility study may be undertaken to establish
the justification of the identified project in all of its dimensions, including its technical,
economic and financial viability, environmental compliance and social acceptability; as
well as its conformity with the national development objectives and priorities and the
relevant policy, legal and regulatory framework. Feasibility study is to initially identify
the following aspects:

i. Technical soundness of the project

ii. Administrative feasibility of the project
iii. The economic and financial viability of the project proposal
iv. Considerations of customs and traditions of project benefactors, issues of
compatibility The results of a feasibility study influences decisions to commit
or not commit scarce resources to a given project .
(I) MARKET ANALYSIS
Market analysis is concerned primarily with two questions: What would be the
aggregate demand of the proposed product/service in the future? What would
be the market share?
To answer the above questions, the market analyst requires a wide variety of
information and appropriate forecasting methods. The kinds of information
required are:
 Consumption trends in the past and the present consumption level
 Past and present supply position
 Production possibilities and constraints
 Imports and exports
 Structure of competition
 Cost structure
 Elasticity of demand
 Consumer behaviour, intentions, motivations, attitudes, preferences,
and requirements
 Distribution channels and marketing policies in use

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 69

  Administrative, technical, and legal constraints
(II) TECHNICAL ANALYSIS
Analysis of the technical and engineering aspects of a project needs to be done
on a continous basis when a project is formulated. The important questions
raised in technical analysis need to be answered are:
 Whether the preliminary tests and studies have been done in a realistic
manner?
 Whether the availability of raw materials, power, and other inputs
needed during the project has been established?
 Whether the selected scale of operation is optimal?
 Whether the production process chosen is suitable?
 Whether the equipment and machines chosen are appropriate?
 Whether the auxiliary equipments and supplementary engineering
works have been provided for?
 Whether provision have been made for the treatment of effluents?
 Whether the proposed layout of the site, buildings, and plant is
approved?
 Whether work schedules have been realistically drawn up?
 Whether the technology proposed to be employed is appropriate from
the social and ecological point of view?
(III) FINANCIAL ANALYSIS

The primary aim of financial analysis is to determine whether the project satisfies the
investment criteria of generating acceptable level of profitability. The aspects which
have to be addressed into while conducting financial analysis are:

 Investment outlay and cost of project

 Various sources of financing
 Total Cost of capital
 Anticipated profitability
 Break-even point
 Cash flows ( inflows and outflows) of the project
 Projected financial position
 Level of risk at different phases of project
(IV) ECONOMIC ANALYSIS
Economic analysis is also known as social cost benefit analysis. It is concerned
with judging a project from social point of view. The questions to be answered
in social cost benefit analysis are related to
 The direct economic benefits and costs of the project in terms of
efficiency and prices
 The impact of the project on the distribution of income in the society.
 The impact of the project on the level of savings and investment in the
society.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 70

  The contribution of the project towards the fulfillment of certain merit
wants like self- sufficiency, employment, and social order
(V) ECOLOGICAL ANALYSIS
Ecological analysis should be done mainly for projects which have significant
ecological implications like power plants and irrigation schemes and
environment-polluting industries like drugs, chemicals, and leather processing.
The main questions raised in ecological analysis are related to
 The likely damage caused by the project to the environment?
 The cost of restoration measures required to ensure that the
damage to the environment is contained within acceptable limit

Check Your Progress-B

Q1. What are the issues to be discussed in technical analysis?

Q2. Explain economic issues involved of Project Identification?

4.11 SUMMARY
Creativity is marked by the ability to create, bring into existence, to invent into a new
form, to produce through imaginative skill, to make to bring into existence something
new. It is also an attitude, the ability to accept change and newness, a willingness to
play with ideas and possibilities, a flexibility of outlook, the habit of enjoying the good,
while looking for ways to improve it. Creativity is a process. Creative person works
hard and continually to improve ideas and solutions, by making gradual alterations and
refinements to their works. A product is creative when it is “novel” and “appropriate”.
Creativity requires passion and commitment. Creativity plays a vital role in Project
identification. A right direction enables an entrepreneur to achieve new height.
Otherwise, he has to undergo a number of hurdles in his way. It is therefore, very crucial
to entrepreneurs to identify project. Project identification and Screening is concerned
with collection, compilation and analysis of economic data for the eventual purpose of
locating possible opportunities for investment.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 71

4.12 GLOSSARY
 Creativity: Creativity is marked by AN ability to create, bring into existence,
to invent into a new form, to produce through imaginative skill, to make
something new.

 SWOT Analysis: SWOT is Strength, Weaknesses, Opportunities and Strength.

 Brainstorming: Brainstorming is a tool used by teams to bring out the ideas of

each individual and present them in an orderly manner in the team.

 Mind Mapping: This method starts with writing down a main idea in the centre
of the page, and then working outward in all directions producing a growing and
organized structure composed of key words and key images.

 Delphi technique: The Delphi Technique (DT) was introduced in the 1950s by
the RAND Corporation. DT uses a survey of experts' opinion in which experts
review one another's ideas. In this technique, a group of experts is first chosen
to participate, and a small team is set up to prepare a set of questionnaires on the
topic.

4.13 ANSWER TO CHECK YOUR PROGRESS

Check Your Progress A

Ans 1. Sources of Idea Generation

 Existing customers and potential customers

 Trade shows and exhibitions
 Channels of distribution
 Government policies and regulations
 Research and development institutes
 Competitors
 Books , magazines and Journals

Ans 2. Methods of Idea Generation

 Brainstorming
 Mind mapping
 Delphi technique
UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 72
  Solo brainstorming

Ans 3. – 1-iv, 2- iv, 3-iv, 4-iv

Ans 4. -1 .Alex Osborn

2. Brainstorming

3. Delphi Technique

4. Mind Mapping

Check Your progress B

Ans 1 TECHNICAL ANALYSIS

Analysis of the technical and engineering aspects of a project needs to be done

on a continous basis when a project is formulated. The important issues raised
in technical analysis are:
 Whether the preliminary tests and studies have been done in a realistic
manner?
 Whether the availability of raw materials, power, and other inputs
needed during the project has been established?
 Whether the selected scale of operation is optimal?
 Whether the production process chosen is suitable?
 Whether the equipment and machines chosen are appropriate?
 Whether the auxiliary equipments and supplementary engineering
works have been provided for?
 Whether provision have been made for the treatment of effluents?
 Whether the proposed layout of the site, buildings, and plant is
approved?
 Whether work schedules have been realistically drawn up?
 Whether the technology proposed to be employed is appropriate from
the social and ecological point of view?

Ans 2 -ECONOMIC ANALYSIS

Economic analysis is also known as social cost benefit analysis. It is concerned

with judging a project from social point of view. The questions to be answered
in social cost benefit analysis are related to
 The direct economic benefits and costs of the project in terms of
efficiency and prices .
 The impact of the project on the distribution of income in the society.
 The impact of the project on the level of savings and investment in the
society.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 73

  The contribution of the project towards the fulfillment of certain merit
wants like self- sufficiency, employment, and social order

4.14 REFERENCES
Amabile, T., The Social Psychology of Creativity, New York:Springer-
Verlag, 1983.

Aurum, A., Solo Brainstorming: Behavioral Analysis of Decision-Makers, PhD thesis,

1997, University of New South Wales, Australia.

Barron, F. and Harrington, D.M. (1981). “Creativity, intelligence, and personality”, in

L.W. Porter and M.R. Rosenzweig (eds.), Annual Review of Psychology, Vol.32,
pp.439-476.

Basadur, M. and Hausdorf, P.A. (1996). “Measuring divergent thinking attitudes related
to creative problem solving and innovation management”, Creativity Research Journal,
Vol.9 No.1, pp.21-32.

Bateman, T.S. and Crant, J.M. (1993). “The proactive component of organizational
behaviour: a measure and correlates”, Journal of Organizational Behavior, Vol.14,
pp.103-118.

Baumol, W. (2002). The Free Market Innovation Machine: Analysing the Growth
Miracle of Capitalism, Princeton University Press, Princeton.

Becherer, R.C., Mendenhall, M.E. and Eickhoff, K.F. (2008). “Separated at birth: an
inquiry on the conceptual independence of the entrepreneurship and the leadership
constructs”, New England Journal of Entrepreneurship, Vol.11, No.2, pp.13-27.

Bennett, R. (2006). ‘Business lecturers’ perceptions of the nature of entrepreneurship’,

International Journal of Entrepreneurial Behaviour and Research, Vol.12, No.3, pp.165-
188.

Berthon, P., Hulbert, J.M. and Pitt, L.F. (1999). “To serve or create? Strategic
orientations toward customers and innovation”, California Management Review,
Vol.42, No.1, pp.37-58.

Bilton, C. (2007). Management and Creativity: From Creative Industries to Creative

Management, Blackwell Publishing, Oxford.

http://braincybersolutions.com

http://elearning.nokomis.in

http://slideplayer.com/slide

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 74

http://www.authorstream.com/

http://www.bms.co.in

http://www.cobaltpm.com

http://www.consultcrimsoni.com

http://www.investopedia.com/terms

http://www.reading.ac.uk/

http://www.techrepublic.com

https://www.fig.net/resources

https://www.method123.com

https://www.scribd.com/doc

https://www.simplilearn.com

https://www.slideshare.net

4.15 SUGGESTED READING

Desai, Vasant, (2006), Small-Scale Industries and Entrepreneurship, Himalaya
Publishing House, Mumbai

Gupta, C.B and Srinivasan, N.P, (2008), Entrepreneurship Development in India,

Sultan Chand & Sons, New Delhi
Hisrich, Robert D. and Michael P. Peters (1995), Entrepreneurship: Starting,
Developing and Managing a New Enterprise, 3rd Edition, Illinois: Richard D Irwin.

4.16 TERMINAL QUESTIONS

1. What do you mean by creativity? Discuss the various steps
involved in creativity.
2. Write short notes on
i. Nominal Group Technique
ii. Sources of information
3. “Project Identification is very essential.” Discuss.
4. What are various steps involved in project identification.
5. Discuss the various issues involved in feasibility study of project.

UNIT-4 Creativity, Idea Generation, Screening and Project Identification Page 75

 UNIT-5 SOCIAL DETERMINANTS OF
ENTREPRENEURIAL GROWTH

5.1 Introduction

5.2 Objectives

5.3. Meaning of Entrepreneurial Growth

5.4 Determinants of Entrepreneurial Growth

5.5 Social Determinants of Entrepreneurial Growth

5.6 Case- Israel: The Country with Entrepreneurial Culture

5.7 Summary

5.8 Glossary

5.9 Answer to Check Your Progress

5.10 Reference/ Bibliography

5.11 Suggested Readings

5.12 Terminal Questions

5.1 INTRODUCTION
In the previous unit you learnt that how creativity helps in idea generation, screening
and project identification. ‘Entrepreneurship is the mindset and process to create and
develop economic activity by blending risk-taking, creativity and/or innovation with
sound management, within a new or an existing organisation.’ Various authors from
time to time had defined the entrepreneur and entrepreneurship with the interaction of
various disciplines namely economics, management, organisation, sociology and
philosophy. Social and cultural context of entrepreneurship development refers to the
ideas, values, and social environment, which can stimulate or limit individual
entrepreneurship. Culture imposes certain standards of behaviour, which are the values
and opinions of the community manifestation. The role of beliefs, values, and attitudes
in economic development was the subject of Max Weber theory, who described the
influence of the Protestant religion on the development of capitalism.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 76

In this unit, you will study about determinants of entrepreneurial growth with special
focus on social determinants as discussed by various researchers in developed and
developing nations and how they impact entrepreneurship in a particular region.

5.2 OBJECTIVES
After reading this unit you will be able to:

-Understand the meaning of Entrepreneurial Growth

-Explain the determinants of Entrepreneurial Growth.

- Understand and analyse Social Determinants of Entrepreneurial Growth.

-The impact of Social determinants in developing countries

5.3 MEANING OF ENTREPRENEURIAL GROWTH

It is proved by various theories that entrepreneurship is affected by the regional and
cultural factors and people from certain communities enter the business world with
required skills. Entrepreneurial growth requires emphasis on human resource
development, their effective utilisation and motivation for entrepreneurial initiatives.
The growth of entrepreneurship may be expressed in terms of employees, customers,
liquidity, sales, profit, geographic locations, etc. It can be said that whichever parameter
is being used for depicting entrepreneurial growth the idea is that the entrepreneur who
understand the risk and knowingly takes them would grow in all circumstances. As
discussed in a report on Entrepreneurship determinants: culture and capabilities
published by European Union in 2012 the turnover rate of firms in a country’s economy
is the net result from adding both firm births and firm deaths – it may be an indicator of
business dynamism and the report further said the general measures to establish
entrepreneurial growth are as follows:

 Creation of more and better job

 Economic growth

 Poverty reduction

The higher the score on these parameters higher is the growth of entrepreneurship in a
particular country. An entrepreneur identifies the gap between demand and supply and
arranges all resources like man power, material and capital required to fill the gap. This
entrepreneurial growth is affected by several factors which are primarily divided in
economic and non economic determinants

5.4 DETERMINANTS OF ENTREPRENEURIAL

GROWTH
UNIT-5 Social Determinants of Entrepreneurial Growth Page 77
The economic and non economic determinants are largely responsible for
entrepreneurial growth in a country. They involve various aspects such as labour market
regulations, technological advancements, innovation reflected in patents, ease of getting
debt along with the personality traits of the entrepreneur. One way of looking at these
determinants is to consider that a particular combination of resources, opportunities and
skilled persons will increase the growth of entrepreneurship and entrepreneurs in a given
regulatory framework and culture. As proved in the eclectic theory of entrepreneurship,
the growth of entrepreneurship is the outcome of decisions dependent on both identified
opportunities and personal traits. The individual who takes such decision makes a
mental assessment of alternative types of employment such as self employment against
wage employment according to his risk taking capability. In a given country which
supports the systematic conditions such as macro economic conditions, regulatory
framework, etc, it also affect the individual’s decision and give pace to demand supply
function of entrepreneurship.

The empirical evidence as suggested by researchers through their work shows that
determinants are categorized as individual characteristics that make an individual more
inclined to entrepreneurial activity; economic characteristics of the area where an
individual lives that may affect the income from entrepreneurial activity and,
consequently, the decision whether to become an entrepreneur; and cultural values of
the community where an individual lives that may affect the utility (rather than the
income) of the entrepreneurial activity, for instance, by influencing the prestige that is
attributed to being an entrepreneur. Though there are many studies prescribing the
determinants of entrepreneurial growth in a particular country but it has been observed
that the research so far points out that the differences are more of about the meaning. It
is said that entrepreneur and entrepreneurship are the result of chemistry of three factors
namely, opportunities, skilled people and resources. These three factors are all affected
by two important factors (themes): the surrounding regulatory framework and culture.
The regulatory framework is defined very broadly by the literature and includes all
taxes, regulations and other public rules and institutions affecting entrepreneurship. All
indicators that measure taxes, regulations or other regulations that either increase or
decrease the incentive to entrepreneurial activities are captured in this theme. The other
part ‘culture’ affects all parts of the entrepreneurial model and is included as the final
factor in the framework. Culture influences an entrepreneur’s behaviour, attitudes, and
overall effectiveness. Culture comprises each individual’s assumptions, adaptations,
perceptions and learning. Entrepreneurship is also affected by basic macroeconomic
conditions. According to the report of European Union in Culture and entrepreneurial
capabilities six themes (access to capital, access to R&D & technology, capabilities,
market conditions, regulatory framework and culture) describe the determinants
affecting entrepreneurial performance. The sum of all the discussion made above can
be expressed in figure 5.4.1 showing determinants, Entrepreneurial Growth and its
impact on the economy.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 78

 Figure 5.4.1: Impact of Determinants of Entrepreneurship on
Entrepreneurial Growth

It is said that entrepreneurship is a mindset which is not dependent upon the existence
of the an entrepreneur. In fact an entrepreneurial firm creates more entrepreneurs and
provide them more opportunities. Opportunities are created by the market conditions in
the country. These market conditions include public involvement in markets,
competition in the markets, access to foreign markets, procurement regulation and so
on.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 79

 Check Your Progress-A

Q1. State the meaning of entrepreneurial growth?

Q2. Explain the determinants of entrepreneurial growth?

Q3. MCQs

1. Entrepreneurial growth requires emphasis on :

(i) human resource development,
(ii) effective utilisation
(iii) Motivation for entrepreneurial initiatives.
(iv) All of above
2. Measures of entrepreneurial growth are:
(i) Social mindset
(ii) Economic growth
(iii) Industrial output
(iv) None of the above
3. Alternative type of employment are
(i) Self employment
(ii) Service
(iii) Healthcare
(iv) All of above
4. Entrepreneurs and entrepreneurship are created by
(i) opportunities,
(ii) skilled people
(iii) resources
(iv) all of above

Q4. Fill in the Blanks with appropriate word or words.

1. Market conditions include .........................in markets, competition in the

markets, access to foreign markets,................................... and so on.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 80

 2. The ..................theory of entrepreneurship says that the growth of
entrepreneurship is the outcome of decisions dependent on both identified
opportunities and personal traits.
3. The ..........................................includes all taxes, regulations and other public
rules and institutions affecting entrepreneurship.
4. Entrepreneurial growth requires emphasis on..............................., their effective
utilisation and motivation for entrepreneurial initiatives.

5.5 SOCIAL DETERMINANTS OF ENTREPRENEURIAL

GROWTH
Studies indicate that the determinants of entrepreneurship and/or their impact may differ
in developed and developing countries. These studies have divided the determinants in
three categories namely the institutional setting (macroeconomic stability, public
policies and knowledge), Demand (industrial structure and income) and Supply factors
(income and financing). Though in this unit our focus is on social determinants and what
role they play in entrepreneurial growth, yet it is important to at least get familiar with
each factor. It is well established so far that entrepreneurship is primarily an individual
feature, as the outcome of knowledge, competence, skill, courage, ingenuity and
activity, but social and cultural context can strengthen or weaken the entrepreneurial
attitudes of individuals. Some of the researchers have explained that variations in the
rate of entrepreneurship are explained not only in terms of characteristics of
entrepreneurs, such as education, sector of employment, occupation, experience and
income but also by the characteristics of the region in which they are brought up or
worked before and where they started their enterprise. It is in this context that the social
determinants gain more significance over others. There exists a large literature both in
economics and management analyzing how different individual characteristics (such as
initial wealth or risk aversion) and characteristics of the area where an individual lives
(such as taxes) affect occupational choices. Some of the authors have proved with the
help of empirical studies that tax structure plays an important role in creating conducive
environment for entrepreneurial growth. If the marginal tax rate on capital income
increases it makes the entrepreneur risk averse and if tax on income from other sources
increases it would further help in increase of investment in the business firm. Therefore,
as the common sense suggests us that taxes reduce entrepreneurial growth, is not true
rather it catalyses the entrepreneurial activities. As pointed out by Djankov and Klapper
in their respective research work that regulation related to starting a new business play
a significant role in entrepreneurial growth. Some of the elements of start up cost which
are discussed for explaining are regulations related to access to finance, protection of
Intellectual Property Rights, Protection of Creditors rights and personal bankruptcy law.
If these legal stipulations support an entrepreneur and the stakeholders, we could say
that contrary to the popular belief the regulation would increase the growth
of

UNIT-5 Social Determinants of Entrepreneurial Growth Page 81

entrepreneurship. Market conditions which are dependent on population size, density
and employment growth are also important in entrepreneurship development. High
unemployment has a positive relation with entrepreneurial growth as people are pushed
to entrepreneurial activity due to low investment in infrastructure resulting into low or
no jobs for the population. This is evident from the results published from time to time
by Global Entrepreneurship Monitor (GEM) studies that Sub Saharan countries have
high rate of entrepreneurial growth.

It is also established by some of the studies that social determinants affect the economic
choices in all regions whether it is a developed country or a developing country. Social
interaction affect the knowledge base of a community and individuals with business
experience of that community pass on their wisdom to others and motivate them to take
up entrepreneurship. It can be observed that entrepreneurship develops in certain regions
due to this sort of interaction. These social interactions inculcate social norms which
can affect economic phenomenon such as unemployment, attitude towards savings and
growth. It is proved by Weber and McClelland that acceptance of society and its well
established norms are decisive in grooming an entrepreneurial mind set. A person in a
particular society searches for a job or gets involved in an economic activity not only
because of the income it would generate but also the social acceptance it would bring to
him. It is also note worthy that social norms such as fear of failure generally discourage
people to innovate whereas the countries where failure is not frown upon innovation
rate is quite high. Landier explained it with the help of example that the countries where
failure is associated with bad luck are more entrepreneurial than the countries where
failure is identified with incompetency. In the first category of countries people quickly
wind up the failed business due to bad luck and start the new one. Similarly certain
communities have more entrepreneurs as their characteristics make them more risk
taker. In addition to these easy access to funds is also an important feature found in
certain societies where it is a norm to support each other. The common finding is that
individuals with relatives who are or were self-employed are more likely to become self-
employed themselves. This correlation can be due to the fact that individuals share
preferences for self-employment. It can be said that self employed family members
transmit the skills and risk taking attitude to other family members. Guiso in his study
showed that in countries where the population is more religious, there is a greater
acceptance of capitalism and, as a consequence, a more favorable environment for
entrepreneurial activity. It is also said that when these determinants are not favourable
they become barriers for entrepreneurship in a society. A close study of more literature
like these has helped us to identify some important social determinants of
entrepreneurial growth which can be explained in detail in this segment and are
summarised in figure 5.5.1:

5.5.1 Social Norms:

UNIT-5 Social Determinants of Entrepreneurial Growth Page 82

Social norms are the rules of behavior that are considered acceptable in a group or
society. People who do not follow these norms may be shunned or suffer some kind of
consequence. Norms change according to the environment or situation and may change
or be modified over time. Social norms affect the way entrepreneurial activity is
perceived in one’s own reference group and have a direct impact of entrepreneurial
growth. For instance, they may affect the status attributed to different occupations. In
this respect, social norms can help explain the origin of non-financial benefits from
entrepreneurial activity. Social scientists other than economists have long recognized
that the prestige that different social norms attribute to occupations can affect
occupational choice. It could be suggested that some of the observed differences in
entrepreneurial activity in different societies and countries may be explained by social
norms which make different professions desirable and well regarded in different
communities.

5.5.2 Role Models:

A role model is a person looked to by others as an example to be imitated.

Entrepreneurial Growth is observed to be increasing when they have role model in their
community or peer group to follow. Social influence which shows the choice of few
which has major impact on rest of the population is an effective tool for entrepreneurial
growth. Today Vijay Shekhar Sharma founder of Paytm (2010), Sachin and Binny
Bansal founders of flipkart (2007) are the role models of many when we talk about start
up revolution in India. But the most important name who first made the world
entrepreneurship famous in India is Sri N. R. Narayana Murthy who along with some
of his friends started with Infosys in 1981. People like these fill the hope in every
citizen’s heart and show them the way that how things can be materialised with limited
resources. A society which has developed social norms that are conducive to
entrepreneurial growth provide information related to Role Models to its young
generation through various via media such a internet, case studies, special programmes.
An interaction with these people who have achieved great heights as an entrepreneur
motivates and prepares the aspiring participant mentally and physically and prepare
them to face the challenges and introduce them steps taken to improve their efforts.

5.5.3 Social Pressure:

Social pressure (or Peer pressure) is direct influence on people by peers, or an individual
who gets encouraged to follow their peers by changing their attitudes, values, or
behaviors to conform to those of the influencing group or individual. In some of the
countries private accumulated wealth is taken as anti social behaviour and put a social
pressure on individual not to pursue wealth creation with the development of an
enterprise. It is also observed that in certain community people get involved in
commercial activities but only on credit only to show their poor status where in reality
that loan is secured on the basis of their savings with the same institutions. This is the
case with most sub Saharan countries in Africa. India has diverse dimension to the
UNIT-5 Social Determinants of Entrepreneurial Growth Page 83
angle of social pressure, at some regions like Gujrat and Rajsthan it is positive pressure
to take up entrepreneurship and in many regions people do not want their children to
pursue the path of entrepreneurship. Generally the social pressure is felt with the
inquisitive eyes or conversations which take place around such people. It is also
observed that when you start a new business and you are from a non enterprising
community, you face lot of hostility from your family members as they do not
understand the pain you are taking but they expect that you must be making lot of money
like Ambanis and Facebook. In such a situation a Peer Mentor guide you as an angel to
handle the stress created out of this Social Pressure. Just as a personal trainer is
important for maintaining a healthy lifestyle, a peer mentor can be the perfect
complement to an entrepreneur for his growth. In nutshell we can say the social pressure
is the determinant which may make you an entrepreneur or break you as an entrepreneur.

5.5.4 Respect and Status:

Some of the theorists like Hagen and McClelland explained the theories of Status
withdrawal and Need Achievement which said that entrepreneurial growth is largely
affected by social determinants such as need for respect and status. The important aspect
which he emphasised that a person or a group identifies himself or herself with their
social status and that social status largely comes from either family or from economic
superiority. Sometimes due to war, migration, emergence of new faith or economic
superiority of enemy community a person or the group may come across a situation
where their social respect or status is withdrawn. The reaction in different manner may
shape the personality of each one of them differently. Hagen postulated these reactions
in four categories:

(a) Retreatist: Entrepreneur who continues to work in society but remains indifferent to
his work or status.

(b) Ritualist: One who works as per the norms in the society but with no hope of
improvement in the working conditions or his status.

(c) Reformist: One who is a rebellion and tries to bring in new ways of working and new
society.

(d) Innovator: An entrepreneur who is creative and try to achieve his goals set by
himself.

Hagen also quoted the example of Samurai community of Japan which enjoyed high
status and later it was withdrawn and to regain their lost pride they became more active
and strong and gave rise to many entrepreneurs.

5.5.5 Security

Security represents the state of being free from danger or threat or it is the state of feeling
safe, stable, and free from fear or anxiety. The feeling of security is important
UNIT-5 Social Determinants of Entrepreneurial Growth Page 84
for all individuals to make economic efforts. In this context social security becomes all
the more important as social security refers to protection provided by the society to its
members against providential mishaps over which a person has no control. The
underlying philosophy of social security is that the Community/State shall make itself
responsible for ensuring a minimum standard of material welfare to all its citizens on a
basis wide enough to cover all the main contingencies of life. In other sense, social
security is primarily an instrument of social and economic justice. This feeling of
security plays a pivotal role in development of entrepreneurship when moderated by
personality traits. The society or country where social security is high and individuals
have risk taking attitude, we find more innovative ideas being developed and tested
commercially whereas the places where social security is low people are not able to
materialise their ideas despite having innovative mind set. Though this issue is debatable
as some of the researchers have found that there are certain countries where social
security affects the entrepreneurial mind in negative direction that is, the individual do
not want to take risk because his future is secured due to the policies of the government.

5.5.6 Caste Factor

Caste means any class or group of people who inherit exclusive privileges or are
perceived as socially distinct. As is well known, the caste system was not only a scheme
of social stratification, but also a division of labor. With each caste came a traditionally
ascribed profession. It is also established that certain religion and castes have more
entrepreneurial growth. As a social determinant of entrepreneurship caste system has an
impact on occupational mobility. A general observation is that people from Parsi,
Gujrati and Sindhi community are more enterprising and foster entrepreneurship.
Dominance of certain ethnic groups is a common phenomenon all over the world. The
protestant ethics in the West, family business concerns of France, the Samurai in Japan
and trading classes in America are the examples in this regard. For people who have
personality traits such as honesty, hard work, concern for quality and organising skill
are more likely to be an entrepreneur and their growth may be accelerated if they are
born in a certain caste.

5.5.7 Family Background:

It includes various dimensions associated with family such as size of family, type of
family and economic status of the family. Those who belong to powerful families in
terms of network or in terms of money, have a significant impact of family in their
entrepreneurial development. It is observed that those who come from joint family have
better understanding of diversity and market dynamics and are able to develop their
businesses in much better way than others. These people get advantage of proper
counselling when dealing with stress and have better access to financial resources due
to family background. Another dimension which is important for an entrepreneur is
urban background of family which exposes the individual to latest developments in the
area of technology, marketing and access to finance. Though rural background is also
UNIT-5 Social Determinants of Entrepreneurial Growth Page 85
not a disadvantage but urban background certainly gives an edge to entrepreneurial
growth.

5.5.8 Education:

Education is training of mind and entrepreneurship is all about developing right mindset.
Education is one of the best methods to develop competencies of an individual and
making him/her resourceful and motivating them in the direction of entrepreneurship.
Some of the studies have found that most of the entrepreneurs in last two decades come
from good education background. Warneryd in 1987 explained with a sample of
Sweden that better educated individuals are more likely to be involved in entrepreneurial
activity. On the contrary Johansson in the year 2000 studied a sample in Finland and
proved that less educated individuals are more likely to become entrepreneurs. So it can
be understood that relationship of education and entrepreneurship gives different results
in the presence of other factors such as personality traits, family background, etc. Lazear
finds that MBAs with a more diverse curriculum are more inclined to become
entrepreneurs. The obvious implication is that a less specialist and more versatile
education may help spur the level of entrepreneurial activity.

5.5.9 Attitude of Society:

The theories have proved time and again that societal attitudes towards entrepreneurs
and entrepreneurship are important determinants for future entrepreneurial activity. This
attitude is the result of interaction of personal traits and family background and
entrepreneurship development in the region they belong to. It is observed that in India
the processof starting own business is complicated to the extent that it demoralise them
to go any further with their business idea. An understanding of societal attitudes would
give insights for policy making and promotion of entrepreneurship. In case, there is a
positive attitude towards entrepreneurs (and entrepreneurship) it would be easier for
policy makers to encourage entrepreneurship. A change in attitude of society is observed
by support and development of entrepreneurial talent by various institutions came in the
form of setting up training institutions for entrepreneurs. Setting up of national
institutions such as the Entrepreneurship Development Institute at Ahmedabad is
indicative of such thinking at the government level in India and ever increasing
enrolment in such programmes show that even the mindset of society is changing
towards entrepreneurship Several institutions in the US, Singapore, the UK, and India
set up special cells to support ‘technopreneurs’ and other innovators. These institutions
provide basic management know how and understanding of how to start and run a
business, and also incubate new businesses till they are able to sustain themselves.

5.5.10 Cultural Value:

The ideas, customs, and social behaviour of a particular people or society are referred
as culture of that society. Culture affects mostly everything in entrepreneurial growth
UNIT-5 Social Determinants of Entrepreneurial Growth Page 86
and is included as the final determinant in the framework. Culture influences an
entrepreneur’s behaviour, attitudes, and overall effectiveness and, moreover, is often
unnoticed by the entrepreneur. Certain policies which affect culture are namely risk
attitude in society, desire for business ownership, entrepreneurial education. Some of
the indicators of culture to grow entrepreneurship in the society are risk attitude and fear
of failure, Perceptions about entrepreneurs and entrepreneurship, Attitudes towards
starting a business and ambition

Figure 5.5.1 (Social Determinants of Entrepreneurial Growth)

UNIT-5 Social Determinants of Entrepreneurial Growth Page 87

5.6 CASE- ISRAEL: THE COUNRTY WITH
ENTRERENEURIAL CULTURE
(Source: Various blogs and news items published in last two years about Israel)

For a country that is even smaller than the state of Kerala, Israel has enough chutzpah
(Hebrew meaning: to dare) to run with the title of ‘Startup Nation’. Out of a population
of eight million, 40,000 people work in the high-tech industry and contribute to 15
percent of the total export GDP of the country. In 2015, Israeli startups made $9.5
billion in exits, and 150 Israeli companies are listed in NASDAQ (third
largest next to China and the US). The country has been focusing on creating a culture
of innovation for a long time now, and has been successful in establishing a vibrant
ecosystem for startups to thrive. And because the domestic market is very small for
these startups, they think global from the word go. Thus, it is no surprise that Israel is
third in the world for US-registered patents. There are 300 R&D centers of innovative
tech companies like HP, Microsoft, Google and Facebook present in Israel. The
key pillar of the Israeli startup ecosystem and its innovation is primarily its people and
the necessity of self-reliance and innovation. The Government Innovation Policy (Israel
Innovation Authority), its military forces (IDF), and its culture of diversity and
collaboration all add to this ecosystem (Ecosystem involve Economic and Social
Determinants of entrepreneurship). Israeli universities like Ben Gurion University, Tel-
Avi University and Hebrew University, with their R&D hubs are great incubation
centres to drive innovation. VCs, accelerators, incubators, and industry programmes like
JVP, JVP Media Labs, Cyberspark, WeWork, SOSA and TAU, are all designed with
the right focus to back valuable startups. According to Israeli officials, “There is an
atmosphere of openness and collaboration. Entrepreneurs want to give back to the
country and its ecosystem. They support budding entrepreneurs and the culture of
innovation.” Tel Aviv, Israel’s capital city, ranks number five in the top 20 global startup
ecosystems in the world. “If you’ve been to Israel you’ll know this is how one does
business there. We have to dare. I believe that people view us how we think of ourselves
in our minds. If you think you are successful, people view you as successful. Imagine
the limiting factors that entrepreneurs in Israel have to deal with. There is practically no
domestic market and we have to think global from the beginning,” said Elena Donets,
CEO at StarTau, Tel Aviv University Entrepreneurship Center. Israel is an immigrant
nation with a lot of diversity. “Because of the fact that people migrate to Israel from
different regions they bring with them different ideas and are open to collaborating. A
unique quality of an Israeli is not accepting anything at face value. They will always
question why they should listen to anyone without a good reason,” added Elena. She
also highlights that It is mandatory for every Israeli to serve time in the Army. It is no
wonder then that many innovative ideas are fed off of the Army. They take those
technologies and then apply the knowledge to other civilian sectors. According to
Elena, starting up is the
UNIT-5 Social Determinants of Entrepreneurial Growth Page 88
new religion of the world. “There are too many entrepreneurs in Israel, and too many
ideas floating around. Everyone wants to enter this field not knowing entrepreneurship
is not for all,” she said. At the same time, Elena added that she relies on the
ABC ‘mantra’ for success in this field. “Do not be Afraid to start up. You should take
risks and be crazy. Build your network. It can comprise your friends, family, people
who think like you, and mentors. Through mentors, you can get access to investors. You
should always talk about your work. If people do not know what you are doing exactly
they cannot make connections. And that should be the goal of all entrepreneurs – to
make connections. Lastly, Celebrate failure," Elena added. Finally, a good ecosystem is
all about people, and as Elena said, in Israel, as a rule, all senior entrepreneurs mentor
new entrepreneurs. A little help goes a long way. With such an interesting diversity of
startups and a vibrant ecosystem, the title ‘Startup Nation’ seems apt for Israel.

(Case Source: combination of stories published on yourstory.com written by Ezhilan

Bhasker and Dipti Nair on 29th July and 9th February, 2016 available at
https://yourstory.com/2016/07/israel-startup-ecosystem/

https://yourstory.com/2016/02/elena-donets-israel-startups/ and retrieved on April 5,

2017)

Check Your Progress- B

Q1. Explain social norms with suitable examples.

Q2. Write a short note on relationship of respect and status with

entrepreneurship.

Q3. What India can learn from entrepreneurial culture of Israel?

UNIT-5 Social Determinants of Entrepreneurial Growth Page 89

Q4. Name the determinant:

a) It has an impact on occupational mobility.

b) Community/State shall make itself responsible for ensuring a minimum standard

of material welfare to all its citizens on a basis wide enough to cover all the main
contingencies of life.

c) It influences an entrepreneur’s behaviour, attitudes, and overall effectiveness

and, moreover, is often unnoticed by the entrepreneur.

d) ) It is a direct influence on people by peers.

e) Sometimes due to war, migration, emergence of new faith a person or the group
may come across a situation where their social respect or status is withdrawn.

Q5. Multiple Choice Questions-

1. Entrepreneurship is primarily an individual feature, as the outcome of

(a) Knowledge and competence,
(b) skill,
(c) courage,
(d) All of above
2. Some of the elements of start up cost are regulations related to
(a) Access to finance,
(b) protection of Intellectual Property Rights,
(c) Protection of Creditors rights and personal bankruptcy law.
(d) All of above
3. According to Global Entrepreneurship Monitor (GEM) studies
................... countries have high rate of entrepreneurial growth.
(a) European
(b) Sub Saharan
(c) South American
(d) None of above
4. Entrepreneurial Growth is observed to be increasing when people have..................
in their community to follow.
(a) Role Models
(b) Criminals
(c) Managers
(d) None of above

UNIT-5 Social Determinants of Entrepreneurial Growth Page 90

5.7 SUMMARY
Entrepreneurial growth requires emphasis on human resource development, their
effective utilisation and motivation for entrepreneurial initiatives. The growth of
entrepreneurship may be expressed in terms of employees, customers, liquidity, sales,
profit, geographic locations, etc. It can be said that whichever parameter is being used
for depicting entrepreneurial growth the idea is that the entrepreneur who understand
the risk and knowingly takes them would grow in all circumstances. The economic and
non economic determinants are largely responsible for entrepreneurial growth in a
country. They involve various aspects such as labour market regulations, technological
advancements, innovation reflected in patents, ease of getting debt along with the
personality traits of the entrepreneur. One way of looking at these determinants is to
consider that a particular combination of resources, opportunities and skilled persons
will increase the growth of entrepreneurship and entrepreneurs in a given regulatory
framework and culture. In a given country which supports the systematic conditions
such as macro economic conditions, regulatory framework, etc, it also affect the
individual’s decision and give pace to demand supply function of entrepreneurship. The
social determinants which affect entrepreneurial growth are social norms, social
pressure, respect and status, role model, Security, Caste factor, family background,
education, cultural value and Attitude of society. These factors when not favourable
become the barrier for entrepreneurship.

5.8 GLOSSARY
 Creativity: the ability to develop new ideas and to discover new ways of looking
at opportunities

 Innovation: The ability to apply creative solutions to appropriate situations

 Determinant: the factor that is necessary for success or to achieve the goal

 Entrepreneurship: the process of creating or seizing an opportunity and

pursuing it

 Self Employment: Earning one’s living directly from one’s own profession or
business rather than as an employee

 Social Norms: Social norms are the rules of behavior that are considered
acceptable in a group or society. People who do not follow these norms may be
shunned or suffer some kind of consequence.

 Role Models: A role model is a person looked to by others as an example to be

imitated.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 91

  Social Pressure: Social pressure (or Peer pressure) is direct influence on people
by peers, or an individual who gets encouraged to follow their peers by changing
their attitudes, values, or behaviors to conform to those of the influencing group
or individual

 Culture: The ideas, customs, and social behaviour of a particular people or

society are referred as culture of that society.

5.9 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

Ans 1. The entrepreneurial growth is the most important aspect of economic

development. It may be expressed in terms of employees, customers, liquidity, sales,
profit, geographic locations, etc. Entrepreneurial growth the idea is that the entrepreneur
who understand the risk and knowingly takes it would grow in all circumstances under
the regulatory and cultural factors.

Ans 2. The determinants of entrepreneurial growth are combination of three factors:

opportunities, skilled people and resources. These three factors are all affected by two
important factors (themes): the surrounding regulatory framework and culture. The
regulatory framework includes all taxes, regulations and other public rules and
institutions affecting entrepreneurship and the other factor culture influences an
entrepreneur’s behaviour, attitudes, and overall effectiveness.

Ans:MCQ- 1. (iv), 2. (ii), 3. (i), 4. (iv)

Ans- Fill in the Blanks with appropriate word or words.

1. Public involvement, procurement regulation

2. Eclectic
3. Regulatory framework
4. human resource development

Check Your Progress –B

Ans 1. : Social norms are the rules of behavior that are considered acceptable in a group
or society. People who do not follow these norms may be shunned or suffer some kind
of consequence. Social norms affect the way entrepreneurial activity is perceived in
one’s own reference group and have a direct impact of entrepreneurial growth. For
instance, they may affect the status attributed to different occupations. For example in
Israel innovation is the social norm.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 92

Ans 2. Some of the theorists like Hagen and McClelland explained the theories of Status
withdrawal and Need Achievement which said that entrepreneurial growth is largely
affected by social determinants such as need for respect and status. Sometimes due to
war, migration, emergence of new faith or economic superiority of enemy community
a person or the group may come across a situation where their social respect or status is
withdrawn. The reaction in different manner may shape the personality of each one of
them differently. An entrepreneur gives the reaction of an innovator who is creative and
tries to achieve his goals set by him.

Ans. 3. Israel represents a country which has all the determinants favourable for
entrepreneurship or we can say it has entrepreneurial culture. Following can be learnt
to make India entrepreneurially strong:

(i) Establishing a vibrant ecosystem for startups to thrive

(ii) Global thinking from the beginning
(iii) Innovation Policy supported by Government
(iv) Collaboration with diversity
(v) ABC Mantra- Do not be Afraid to start up, Build your network, Celebrate
failure

Answers: Name the determinant

a) Caste Factor
b) Security
c) Culture Values
d) Social Pressure
e) Respect and Status

Answers-MCQ:

1. (d), 2. (d), 3. (b), 4. (a)

5.10 REFERENCES
Entrepreneurial Growth: Individual, Firm, and Region, in Andrew C.
Corbett , Jerome A. Katz , Alexander Mckelvie (ed.) Entrepreneurial
Growth: Individual, Firm, and Region (Advances in Entrepreneurship, Firm
Emergence and Growth, Volume 17) Emerald Group Publishing Limited, pp.i
http://www.publishyourarticles.net/eng/articles2/essay-on-the-concept-of-
entrepreneurial-development-programme-in-india/2802/
http://journals.sagepub.com/doi/abs/10.1177/0266242612467359
Wagener, A. (2000). Entrepreneurship and Social Security. FinanzArchiv / Public
Finance Analysis,57(3), 284-315. Retrieved from
http://www.jstor.org/stable/40912932

UNIT-5 Social Determinants of Entrepreneurial Growth Page 93

Goel, A., Vohra, N., Zhang, L., & Arora, B. (2007). Attitudes of the youth towards
entrepreneurs and entrepreneurship: A cross-cultural comparison of India and China
(Working paper. No.2007–01–06). Ahmedabad: Indian Institute of Management
Ahmedabad, January 2007 available at
http://www.iimahd.ernet.in/publications/data/2007-01-06_nvohra.pdf
http://www.hbs.edu/faculty/Publication%20Files/12-028_0e6e69ba-da4d-4abc-b66a-
9611dc07c53b.pdf
http://www.israel-india.info/Article.aspx?id=1404
https://www.coursehero.com/file/pqdirpd/Entrepreneurship-Determinants-Themes-
Many-words-and-phrases-are-used-in-the/
http://www.sizedoesntmatter.com/technology/israel-the-most-important-startup-in-
world/
http://www.pishgam.org/economics/Thesis/Chapt3.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=554511
http://www.studymode.com/essays/Breaking-Social-Norms-1560339.html
https://www.researchgate.net/publication/233482070_Regional_deregulation_and_ent
repreneurial_growth_in_China%27s_transition_economy
https://en.wikipedia.org/wiki/Cultural_policies_of_the_European_Union
https://en.wikipedia.org/wiki/Society_of_the_United_States
http://www.oecd-ilibrary.org/industry-and-services/entrepreneurship-at-a-glance-
2012/regulatory-framework-starting-a-business_entrepreneur_aag-2012-24-en
https://yourstory.com/2016/07/israel-startup-ecosystem/
http://digitalknowledge.babson.edu/fer/vol31/iss4/14/

5.11 SUGGESTED READINGS

Desai, Vasant, (2006), Small-Scale Industries and Entrepreneurship,

Himalaya Publishing House, Mumbai

Gupta, C.B and Srinivasan, N.P, (2008), Entrepreneurship Development in India,

Sultan Chand & Sons, New Delhi
Hisrich, Robert D. and Michael P. Peters (1995), Entrepreneurship: Starting,
Developing and Managing a New Enterprise, 3rd Edition, Illinois:Richard D Irwin.

5.12 TERMINAL QUESTIONS

1. Discuss the reasons for some countries are succeeding in
development of entrepreneurial climate and several others not
doing so.

UNIT-5 Social Determinants of Entrepreneurial Growth Page 94

 2. Explain in brief the factors that affect the growth of entrepreneurship.

3. Write Short Notes on following:

(a) Barriers to entrepreneurship

(b) Social Pressure and Entrepreneurship

(c) Cultural factors affecting entrepreneurship

4. Explain the Socio-economic origin of entrepreneurs in India.

5. Describe the impact of determinants on the entrepreneurial growth.

6. Write an essay on the social determinants of entrepreneurial growth.

7. What is entrepreneurial culture and how does it support entrepreneurial

growth?

UNIT-5 Social Determinants of Entrepreneurial Growth Page 95

UNIT 6 ISSUES IN NEW ENTERPRISE MANAGEMENT:
LOCATION, ENVIRONMENTAL AND MANAGERIAL

6.1 Introduction

6.2 Objectives

6.3 Location

6.4 Environment

6.5 Managerial issues in new venture

6.6 Summary

6.7 Glossary

6.8 Answers to check your progress

6.9 References

6.10 Suggested Reading

6.11 Terminal Questions

6.1 INTRODUCTION
In the previous unit you learnt that entrepreneurial growth is also influenced by
economic and non-economic factors. Social factors also influence its growth. The social
determinants which affect entrepreneurial growth are social norms, social pressure,
respect and status, role model, Security, Caste factor, family background, education,
cultural value and Attitude of society. These factors when not favourable become the
barrier for entrepreneurship.

In this unit, you will study about location, environmental and managerial issues of a
new venture which determines the growth and survival of a new organization.

6.2 OBJECTIVES

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 96
After reading this unit you will be able to

 understand the factors for selecting the location

 understand the environment and its component
 explain the environmental force under which a new organization operates
 understand the managerial role, skill and qualities
 explain the various issues involved in the management of the resources

6.3 LOCATION
Making location decisions for the production of products or services of a new venture
is a key aspect of strategic and logistical decision making for manufacturing firms. The
optimum locations may offer competitive advantage and may contribute to the success
of an enterprise. It is a long term commitment of both monetary and human resources.

6.3.1 Factors for evaluating and selecting a location

There are several factors which shall be considered and evaluated for selection of a
suitable location.

6.3.1.1 Transportation related factors

o Availability of airway facilities

o Availability of highway facilities

o Availability of railroad facilities

o Availability of trucking services

o Availability of water (port) transportation

o Availability of pipeline facilities

o Cost of raw material transportation

o Cost of finished goods transportation

o Availability of postal services

6.3.1.2 Labor related factors

o Availability of skilled labor

o Wage rates
UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 97
o Availability of unskilled labor

o Existence (or non-existence) of labor unions

o Educational level of labor

o Dependability of labor

o Availability of male labor

o Availability of female labor

o Cost of living (housing)

o Worker stability

6.3.1.3 Raw materials related factors

o Availability of raw materials (or components)

o Closeness to materials and component

o Availability of storage facilities

o Location of suppliers

o Freight cost (of raw materials and components)

6.3.1.4 Market related factors

o Proximity to consumer's goods markets

o Proximity to producer's goods markets

o Anticipation of growth of markets

o Shipping costs to market areas

o Availability of marketing services

o Attainment of favorable competitive position

o Income trends Population trends

o Consumer characteristics

o Location of competitors

o Future expansion opportunities

o Size of market Industrial site

6.3.1.5 Industrial site related factors

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 98
o Cost of industrial land

o Cost of developed industrial park (or area)

o Acreage (or space) required

o Availability of space for future expansion

o Insurance rates (cost of insurance)

o Availability of lending institutions (such as banks)

o Closeness to other industries

6.3.1.6 Utilities related factors

o Adequacy of water supply

o Quality of water

o Cost of water

o Availability of disposable facilities of industrial waste

o Availability of fuels

o Cost of fuels

o Availability of electric power

o Cost of electric power

6.3.1.7 Government attitude related factors

o Zoning codes

o Compensation laws

o Insurance laws

o Safety inspection laws

o Nuisance and environment pollution laws

6.3.1.8 Tax structure related factors

o Tax assessment basis

o Industrial property tax rates

o State corporate tax rates

o Availability of tax free operations

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 99
o State sales tax

6.3.1.9 Climate related factors

o Living conditions

o Relative humidity

o Monthly average temperature

o Air pollution

6.3.1.10 Community related factors

o Availability of universities or colleges

o Availability of schools

o Availability of religious facilities

o Availability of library (information) facilities

o Availability of recreational facilities

o Attitude of community leaders towards business

o Availability of medical facilities

o Availability of malls (shopping centres)

o Availability of hotels (motels)

o Availability of banks and financial institutions

o Community position of future expansion

6.3.1.11 Political situation of foreign country related factors

o Stability of regime

o Protection of expropriation

o Type of treaties and pacts

o Type of military alliances (or with which countries)

o Attitude towards foreign capital

6.3.1.12 Global competition and survival related factors

o Availability of material

o Availability of labor

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 100
o Market opportunities

o Availability of foreign capital

o Proximity to other international markets

6.3.1.13 Government regulations related factors

o Clarity of corporate investment laws

o Regulations concerning joint ventures and mergers

o Regulations on transfer of earning out of country

o Taxation of foreign owned companies

o Foreign ownership laws

o Allowable percentage of employees who may be foreign

o Prevalence bureaucratic red tape

o Imposing price controls by government

o Requirements for setting local corporations

6.3.1.14 Economic related factors

o Standard of living

o Size of per capita income

o Strength of currency against US dollar

o Balance of payment status

o Availability and size of government aids

6.4 ENVIRONMENT
One of the factors that affects the direction in which the new venture initiation process
begins is the environment in which the new venture will exist.

According to Allen (2003), the environment includes:

1. The industry in which a business operates;

2. The market the business serves;

3. The state of the national and international economy; and

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 101
4. The people and businesses with which the business will interact

It is important to understand the environment in which the new enterprise will operate
as industry environment constantly change. Therefore, potential entrepreneurs will need
to study the industry in order to develop a strategy. It has been suggested that Porter’s
“Five Forces” framework can be used to outline the process for exploring a new venture.

6.4.1 Five Areas for Competitive Environmental Analysis

This model lists five key areas that potential entrepreneurs should evaluate when
analyzing the competitive environment. The five forces are

(1) Threat of entry into a market,

(2) The power of buyers,

(3) The power of suppliers or vendors,

(4) The threat of substitutes, and

(5) The rivalry amongst competitors

1. Threat of entry. Some barriers to entry may be so high that their presence will
discourage entrepreneurs from attempting to enter. Some of these barriers include:

 Economies of Scale. A new venture usually cannot achieve the same economies
of scale as established businesses in the industry. One option would be to form
alliances with other small firms to share resources in order to compete.
 Brand Loyalty. New ventures may have to face customer loyalty to current
products and services in the industry. As a result, entrepreneurs will need to
spend a significant amount of money on marketing campaigns in order to get a
foot in the door.
 Capital Requirements. Upfront costs can be staggering. Therefore,
entrepreneurs may need to outsource some services in order to keep costs down.
 Switching Costs for the Buyer. New ventures will have to spend time and
money convincing customers that the new product is worth switching to.
 Access to Distribution Channels. Entrepreneurs must convince distribution
channels that their product or service is worth distributing.
 Proprietary Factors. New ventures may need patents in order to get started,
and the holders of the patents may purposely withhold access in order to keep
the new venture out of the market.
 Government Regulations. The government can impose licensing requirements,
high taxes, and/or zoning restrictions on new ventures.

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 102
  Industry Hostility. Some industries have well-established firms that are
hostile to new entrants.

2. Power of Buyers. If buyers have bargaining power, it may be difficult for a new
venture to gain access and grow.

3. Power of Suppliers. Suppliers can raise prices or change the quality of a product that
they supply in order to maintain control in the industry. Depending on the number of
suppliers, it may not be advantageous for entrepreneurs to pursue certain ventures.

4. Threat of Substitutes. A new venture must be able to compete against products and
services in its own industry as well as potential substitutes in other industries.

5. Competitive Rivalry. A highly competitive industry may reduce profits and the rate
of return on investments. As a result, many organizations may resort to price wars and
competitive advertising campaigns. Entrepreneurs will need to identify these potential
rivalries in the proposed markets to determine the feasibility of entering the market.

Once a competitive analysis has been conducted and the position is still favorable, the
entrepreneur can move to the next step in the process - developing and testing the
business concept.

Check Your Progress-A

Q1. State the five forces of porter’s model?

Q2. Explain the economical factors to be considered while choosing a location?

Q3. MCQs

1. Which is not the elements of environment according to Allen

i. The industry in which a business operates;
ii. The market the business serves;

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 103
 iii. The state of the national and international economy; and
iv. The reward system of the organization
2. Which factor is not included in Market Related Factor with reference to
location
i. Proximity to consumer's goods markets
ii. Proximity to producer's goods markets
iii. Anticipation of growth of markets
iv. Govt. policies for manufacturing

3. Which is related with raw material pertaining to location:

i. Social mindset
ii. Economic growth
iii. Industrial output
iv. None of the above
4. Economic Related factors are
i. Standard of living
ii. Size of per capita income
iii. Strength of currency against US dollar
iv. All the above
5. Community related factors pertaining to location
i. Availability of universities or colleges
ii. Availability of schools
iii. Availability of religious facilities
iv. Exim Policies

6.5 MANAGERIAL ISSUE IN A NEW VENTURE

Effective management is the key to the establishment and growth of the business. The
key to successful management is to examine the marketplace environment and create
employment and profit opportunities that provide the potential growth and financial
viability of the business. Despite the importance of management, this area is often
misunderstood and poorly implemented, primarily because people focus on the output
rather than the process of management.

6.5.1 Managerial qualities needed for managing a new Business

•Creative – an ability to search and find new solutions of the problems

• Intuition – be able to anticipate future development from experience without analysis

• Goal-oriented – an ability to set realistic goals and respect the goal’s priority

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 104
• Responsible – sense for accomplishing set goals and objectives

• Self-confidence – strong belief in own strength

• Initiativeness – an effort to look for new possibilities and solutions for reaching set
goals

• Independence – the courage to make decision based on his own judgment

• Cautiousness – be able to make decision under stress and contingencies

• Scrupulosity - have a sense to support social values, norms and causes

• Discipline – self-control and regulation over own’s behavior

• Persistence – patience needed to overcome barrier when achieving goals

• Optimism – orientation towards positive goals and strong faith in success

• Fantasy – creation of visions and imaginations for future

6.5.2 Managerial roles and Functions

Every individual has hidden potential. It is important how one can utilize this potential.
Manager are required to influence the behavior of people or employees to use their
potential to achieve the goals of the enterprise. To accomplish the desired result from
the employees manager use the managerial functions

-Planning,

-Organizing,

-Leading

-Control

Along with the managerial functions, following roles are also to be displayed to achieve
the optimum utilization of resources of the venture.

• Interpersonal roles : Figurehead, Leader, Liaison

• Information roles : Monitor, Disseminator, Spokesperson

• Decision making role : Entrepreneur, Disturbance handler, Resource Allocator,

Negotiator

6.5.3 Managerial Skills

There are four basic managerial skills, which are needed for an effective managerial
work and in achieving the objectives of an organization. The skills are briefly discussed
below:

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 105
  Technical Skill – It is an ability of manager to use specific methods and
techniques in doing various task . These technical skills are not only related to
technology but also related with the use of econometric tools and techniques.
The technical skills for managers represent the usage of methods like break even
analysis in planning or ability to prepare for and conduct a structured interview.
 Interpersonal Skill – People are most valuable asset of any enterprise. Manager
needs to know how to lead people. Abilities include motivation of workers,
solving work conflicts, communication and working with people. Therefore
interpersonal skills are essential on every level of management.
 Conceptual – These skills are must for middle or top manager. This is an ability
to “grasp the whole picture ”i.e viewing the organization as one whole
intertwined with the surrounding environment with the relevant priorities and
important issues.
 Communication Skill – Manager needs information for decision making.
Ability to disseminate and receive information is very important tools for
manager. He should not only well versed oral and written communication but he
should be able to distinguish non verbal signals, mood and feelings to filter the
right information from the available data. He should have this skill to manage
the human resource as well

6.5.4 Managing issues in the new venture

6.5.4.1 Human Resource Issues

Ensures Open Communications

Effective communications play an important role in managing and operating any

successful business. Open communication implies that all the employees from top to
bottom are encouraged to share their ideas with in the organization. Due to this, changes
and their effects on the organization are quickly shared. Organizations then have the
time and skills needed to respond to changes and take advantage of upcoming
opportunities.

Balancing job Stress and Personnel

Without organization and good management, the compressed time schedules associated
with modern business causee stress and make extra demands on employees. An effective
management structure can minimise stress and channelise the productive capacity of
employees into business growth and profits.

Setting Duties Tasks and Responsibilities

An organization is characterized by the organization structure where duties and

responsibilities associated with every job is specified. The core of any organization is
its people and their functions. Duties and responsibilities are being in an ad hoc

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 106
manner. A firm generally starts with few people, with often one or two persons
performing most duties. As the firm grows, more people are hired to fill specific roles
often on a functional basis. As business develops an human accounting system should
also be developed in an organization.. The following employee information should be
available and checked for accuracy at least once each year.

 Name

 Address

 Marital status and dependents

 Date of joining

 Company job history

 Salary graph

 Education including degrees

 Professional licenses or certificates

 Professional publication and speaking engagements

 Leadership evidence

 Career goals

Review personnel files periodically to ensure that the information is correct and
updated. Implement a system that will make updating human resource files a fairly
simple routine.

Business Team

The success of an effective organization lies in developing the team. Team involves
delegating authority and increasing productivity. Evaluate the effectiveness of the
business team(s) with the following checklist:

 Whether team is respected by the members?

 Whether the abilities of all team members are respected?

 Whether team spirit is evident through activities?

 Whether mistakes result in corrective action not retribution?

 Whether each member understands the importance of his or her contribution?

 Whether the team can explore new areas of activity?

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 107
  Whether security of employment is evident?

Controlling Conflict

Another key to successful management lies in controlling conflict. Conflict cannot be

eliminated from the business and from the interpersonal activities of the enterprise but
can be minimised. It needs to be channelized in a positive manner to develop an
organization. Policies and procedures are laid to ensure smooth functioning of an
organization.

6.5.4.2 Structural Issues

Organization

The effectiveness of a particular organizational depends on a variety of internal and

external environment for example:

Competitors (number or activity)

Technology (internal or external)

Regulatory environment ( government policies , laws etc)

Customer characteristics

Supplier characteristics

Economic environment

Employees of the organization

Growth

Strategy (including new products and markets)

6.5.4.3 Policy and Procedural Issues

Authority

The central element of organizational management is authority. Authority is the exercise

of control within the organization. A thorough system of controls ensures the firm's
operation and provides a mechanism for imposing authority.

Delegation is a key to the effective exercise of authority in business. By delegating

limited authority to complete specific tasks, the talents of employees in the organization
can be used to upgrade the skills and experience of the manager.

To effectively delegate responsibility and authority in an organization following points

should be observed

 Accept the power of delegation.

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 108
  Know the potential of subordinates.

 Ensure that specific training is provided.

 Choose specific responsibilities to be delegated.

 Provide regular monitoring and interest.

 Discuss results and provide appropriate feedback.

 Praise and criticize in a positive manner

The skills and abilities of each level of authority can be increased by effectively
delegating authority throughout any organization.

Management by Objectives

Many firms have used management by objectives (MBO). It is a technique of

management where subordinates and their seniors set the goals of the subordinates. It
involves the participation of employees in their target and goal achievement. This
system provides a structure to ensure coordination of the organization and to effectively
delegate authority and responsibilities. Establishing an MBO system is a continuing
process and includes the following steps:

1. Subordinates submit proposals for objectives and means of measuring progress.

2. A supervisor assesses proposed objectives in light of evolving business needs his

or her personal perspective and the ability of the company to ensure rewards for
attaining goals.

3 Supervisor and subordinate discuss the objectives and the standards of

measurement with appropriate timetables and potential corrective actions.

4 Supervisor and subordinate appraise results.

5 Supervisor and subordinate negotiate results , establish rewards and begin the
cycle again.

Operating Reports

Operating reports form the performance card of any business. Such reports reflects the
tits and bits of the organization, its structure and function in written manner. They can
either minimize or increase organizational stress. Reporting must be kept on a regular
basis to allow for timely identification and correction of problems before serious
damage to the organization occurs. They not only provide essential data that enable
management to accomplish its objectives, but they also focus staff's attention on the
organization's goals.

6.5.4.4 Other Issues

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 109
Risk Management

Every organization is susceptible to low probability events that could have a potentially
disastrous effect. A small or new business is no exception. Identifying and quickly
dealing with such unlikely events is primarily the responsibility of management. Only
management has the ability to assess the full potential impact of these events on the
overall organization. Some of the disastrous events that may affect business are
mentioned below.

. Theft of property

. Breach of Laws

. Information technology crimes

. Fraudulent practices

. Weather related damage such flood, draught etc

Determine how vulnerable business is to these and other such risks by assessing their
probability and impact. Consider actions that can be taken to lower the probability of
their occurring, i.e. ways to control your risk. Review the checklist each year to ensure
the future of firm is not imperiled through neglect.

Consultants

Consultants provide a valuable perspective in developing an organization. Many

instances trigger need for a consultancy such as - need for funding; development of a
business plan (strategy); operational shortfalls; loss of market share; and, a lack of
direction . However consultants cannot solve problems but aid in solving the problem.
Actual solutions must come from within organization and must be implemented daily.

Government and institutional policies

This is another aspect which need to be managed .To identify the impact of government
agencies on business and the steps that can be taken to challenge their impact, consider
the following

 The agencies which influence the conduct of business

 the key contacts in each agency

 The regulations currently affecting the business

 Knowledge of policies to challenge agency findings

 Willingness to work with the agency over the long-term.

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 110
 Check Your Progress-A

Q1. State the types of Managerial Skills?

Q2. Explain the process of MBO?

Q3. MCQs

1 Which factor is related with risk Management

i. Computer crime
ii. Theft of the property
iii. Breach of laws
iv. All the above
2 A manager good in exchange of information is said to have
i. Interpersonal skill
ii. Communication skill
iii. Technical skill
iv. None of the above
3 Interpersonal roles are not related with
i. Figurehead
ii. Leader
iii. Liaison
iv. Disseminator
4 Which is not a managerial Function
i. Planning
ii. Organizing
iii. Leading
iv. None of the above

Q 4. Fill In the Blanks

I.---------------------------------- mirror the organization, its structure and function.

II. Many firms have embraced--------------------------------- as a way to effectively integrate
people into the organization.
III. --------------------------can provide a valuable perspective in developing an
organization.

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 111
IV. The central element of organizational management is------------------------------- --.
V. The success of an effective organization lies in developing the ----------------------------

6.6 SUMMARY
To start a new venture it is necessary to take utmost care while making a decision. There
are many decisions which have long term impact and require heavy investment.
Selection of a location is a strategic decision which requires huge capital. Nearness to
raw material, transportation factors, Economical factor, and markets related factors,
community factors etc are to evaluated minutely to avoid any obstacle in the growth of
the organization. Besides it is essential to study the market forces existing in the
environment of the organizations. They should be favorable and ensure smooth running
of an organization. Further effective management is the key to success of any
organization. Managing all the factors of production in an optimum manner would
definitely make the firm immense progress over a period of time.

6.7 Glossary
 Skill : It is the application of Knowledge

 Technical skill: It is related with the technical know-how of the production of

good and services.

 Communication skill: skill related with the effective exchange of information

amongst the employees of the organization.

 Interpersonal skills: Ability to motivate workers, solving work conflicts,

communicate and working with people

 MBO: It is a process in which employer and employee jointly identify the

objectives of the employee to be achieved in a specified period of time.

 Environment: It is the sum total of all the factors which influences the
environment.

6.8 ANSWERS TO CHECK YOUR PROGRESS

Check progress A

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 112
Ans 1. Porter’s “Five Forces” framework can be used to outline the process for
exploring a new venture. This model lists five key areas that potential entrepreneurs
should evaluate when analyzing the competitive environment. The five forces are

(1) Threat of entry,

(2) The power of buyers,

(3) The power of suppliers,

(4) The threat of substitutes, and

(5) Competitive rivalry.

Ans 2 Economic related factors for selecting land are

 Standard of living
 Size of per capita income
 Strength of currency against US dollar
 Balance of payment status
 Availability and size of government aids

Ans 3. 1- iv , 2- iv, 3 – iv, 4- iv, 5-iv

Check Your Progress B

Ans 1.There are basic managerial skills, which are needed for an effective managerial
work and in achieving the objectives of an organization. The skills are briefly discussed
below:

 Technical Skill – It is an ability of manager to use specific methods and

techniques in doing various task . These technical skills are not only related to
technology but also related with the use of econometric tools and techniques.
The technical skills for managers represent the usage of methods like break even
analysis in planning or ability to prepare for and conduct a structured interview.
 Interpersonal Skill – People are most valuable asset of any enterprise. Manager
needs to know how to lead people. Abilities include motivation of workers,
solving work conflicts, communication and working with people. Therefore
interpersonal skills are essential on every level of management.
 Conceptual – These skills are must for middle or top manager. This is an ability
to “grasp the whole picture ”i.e viewing the organization as one whole
intertwined with the surrounding environment with the relevant priorities and
important issues.
 Communication Skill – Manager needs information for decision making.
Ability to disseminate and receive information is very important tools for
manager. He should not only well versed oral and written communication but

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 113
 he should be able to distinguish non verbal signals, mood and feelings to filter
the right information from the available data. He should have this skill to manage
the human resource as well

Ans 2. MBO system is a continuous process and includes the following steps:

1 Subordinates submit their proposals for objectives and means of measuring

progress.

2 A supervisor evaluate proposed objectives in light of evolving business needs

3 Supervisor and subordinate discuss the objectives and the standards of

measurement

with appropriate timetables and potential corrective actions.

4.Supervisor and subordinate appraise results.

Ans 3.- 1-iv, 2-ii, 3-iv, 4-iv

Ans 4- 1.Ans 4. 1. Operating Reports, 2 – Management By Objectives, 3 –

Consultants, 4 – Authority, 5- Business team

6.9 REFERENCES
Arauzo Carod, Josep Maria. "Determinants of industrial location: An
application for Catalan municipalities*." Papers in Regional Science
84.1 (2005): 105-120.

Audretsch, David B., and Paula E. Stephan. "Company-scientist locational links: The
case of biotechnology." The American Economic Review 86.3 (1996): 641-652.

Badri, Masood A., Donald L. Davis, and Donna Davis. "Decision support models for
the location of firms in industrial sites." International Journal of Operations &
Production Management 15.1 (1995): 50-62.

Badri, Masood A. "Dimensions of industrial location factors: review and exploration."

Journal of Business and Public Affairs 1.2 (2007): 1-26.

Newton, K. (2001, March 3). Management skills for small business. Retrieved April 30,
2007, from http://strategis.ic.gc.ca/epic/site/sbrp-rppe.nsf/en/rd00255e.html

Stevenson, H. & Jarillo, C. (1990). A Paradigm of Entrepreneurship: Entrepreneurial

Management, strategic Management Journal, 11: 17-27.

http://ageofthesmallbusiness.com/articles/management-issues-growing-business/

UNIT-6 Issues in New Enterprise Management: Location, Environmental and Managerial Page 114
http://home.snu.edu/~jsmith/

http://web.ewu.edu/groups/cbpacea

http://www.bbc.co.uk/schools

http://www.bms.co.in

http://www.fao.org/docrep/x5744e

http://www.hse.gov.uk/research/rrpdf

http://www.investopedia.com/terms

http://www.translationdirectory.com/articles

https://strategiccfo.com

https://www.g-casa.com/PDF/Papulova-Mokros.pdf

https://www.marsdd.com/mars-library

https://www.ukessays.com/essays

6.10 SUGGESTED READING

Desai, Vasant, (2006), Small-Scale Industries and Entrepreneurship,
Himalaya Publishing House, Mumbai

Gupta, C.B and Srinivasan, N.P, (2008), Entrepreneurship Development in India,

Sultan Chand & Sons, New Delhi
Hisrich, Robert D. and Michael P. Peters (1995), Entrepreneurship: Starting,
Developing and Managing a New Enterprise, 3rd Edition, Illinois: Richard D Irwin.

TERMINAL QUESTIONS

1. Discuss the various factors that should be considered for

selecting a location of a new venture.
2. How Porter’s “Five Forces” framework can be used to outline the process for
exploring a new venture.
3. Write short notes on
 Managerial Functions and roles
 Managerial skills and qualities
4. Transportation factors for selecting location for a new venture.

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 5. Discuss the issues involved in managing human resource of an organization
6. What are the structural issues to be managed in an organization
7. “Economic and labour factors plays a vital role in selecting a location for a new
venture”. Discuss

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 BLOCK III
Theories and Legal Issues

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 UNIT 7 THEORIES OF ENTREPRENEURSHIP

7.1 Introduction

7.2 Objectives

7.3. Meaning of Entrepreneurship Theories: Historical Background

7.4 Various schools of Thoughts on Entrepreneurship

7.5 Theories of Entrepreneurship

7.6 Entrepreneurship Trend in Other countries

7.7 Summary

7.8 Glossary

7.9 Answer to Check Your Progress

7.10 Reference/ Bibliography

7.11 Suggested Readings

7.12 Terminal Questions

7.1 INTRODUCTION

In the previous units you learnt various aspects of entrepreneurship and new venture
creation and must have understood that entrepreneurship plays an important role in the
development of the country. Entrepreneurship focus on synchronizing resources in such
a way that the growth of the business is accelerated and Economic Development is
achieved. The resources may be readily available or may be latent but the spirit of
entrepreneurship drive the entrepreneur to innovate, execute ideas and products out of
his knowledge, skill and competencies and use the resources to achieve their goals.
Besides individual entrepreneur, the main beneficiaries of entrepreneurial pursuits are
the society at large - be it economy, quality of life, comforts or ease at removing the
hurdles in the path of prosperity. The whole effort, starting with sensing opportunity,
resourcing innovation and realizing "pay off" through enterprise, represents the 'process
of entrepreneurship.

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In this unit, you will study about the evolution of entrepreneurship thoughts from and
how that thought has transformed into various theories of entrepreneurship which help
us to understand the dynamics of various ideas in the given scenario.

7.2 OBJECTIVES
After reading this unit you will be able to:

- Learn the historical background of Entrepreneurship

- Understand various perspectives like economic, sociological and

psychological with reference to entrepreneurship

- Learn various theories of Entrepreneurship as propounded by various

thinkers

- Understand various factors which affect entrepreneurship

- Analyse the development of entrepreneurship in other countries

- Able to relate the idea of entrepreneurship to day to day functioning

7.3 MEANING OF ENTREPRENEURSHIP THEORIES:

HISTORICAL BACKGROUND
Entrepreneur is an innovator, wealth and job creator, change agent, problem solver, pace
setter and excellence seeker, and above all adds value to local resources. Entrepreneur
is a combination of all these but definitely not only 'any one' of these. We can find
several instances in history which highlight that a society has higher entrepreneurship
and more prosperity when people with such traits are more in numbers.
Entrepreneurship definition talks about value creation with various resources such as
capital, technology, skill and risk taking and give importance to inclusion of multiple
attributes. It can be observed that entrepreneurship has a major impact on economic
development of a country and it is also reflected in the opinion of various thinkers from
time to time and some of the common features of entrepreneurship as sorted out of these
views are as follows:

 Out of Box Thinking or Innovation

 Need for High Achievement

 Identifying the opportunity

 Leadership

 Team building

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MS 202 Entrepreneurship Development

 Building Organisation Systematically

 Value Creation for Society

The above mentioned features represent the views of multiple thinkers expressed over
the centuries by propounding their own theories. A theory is a set of principle on which
the practice of an activity is based. Sometimes a theory is an idea used to account for a
situation or justify a course of action or it analyses the set of facts in relation to one
another. Here in entrepreneurship all these definitions apply to the views of experts
given in the form of a theory. The whole work in this field over the period primarily
classifies entrepreneurship in three categories namely Economist point of view,
Sociologist point of view and Psychologist point of view

Though we may find entrepreneur or Start Up a fancy word today but it has its roots
deep inside the history where the idea evolved with the evolving economies. The first
recorded significant contribution towards entrepreneurial thought is as old as of
Eighteenth century (1755) when the French term “entreprendre” was first introduced
by the economist Richard Cantillion which meant “An Undertaker.” The idea was to
describe the entrepreneur as the risk taker who pursues opportunities for economic well
being. By the end of eighteenth century the idea of entrepreneurship started gaining
more acceptances as it was not confined to risk taking and owning factors of production
only but also emphasised other elements of governance such as planning, organising,
and supervising. The ground was consolidated due to several innovations in nineteenth
century owing to industrial revolution with technological advances. The end of
nineteenth century saw a major shift made by J.B.Say as proposed in the concept when
the contribution of skills of entrepreneurs in profit making was given more importance
then the interest earned for providing capital for the enterprise.

The progressive thought process which was initiated towards the end of nineteenth
century was further extended in the twentieth century and expanded with the
development of management thought. By this time management was an established field
of study and was observing expressions from thinkers from different parts of Europe.
The concept of ‘creative destruction’ was introduced by Joseph Schumpeter which
reflected more emphasis on innovation and exploring untested areas for replacement of
new and progressive technology. This destruction was taken in a positive note as it
destruction of old was helping in creating new processes. Schumpeter has stamped
Innovation as the major characteristic of entrepreneurship which is accepted by one and
all even today.

The development of management as discipline as the twentieth century progressed given

space to management thinkers like Peter F. Drucker to express their views on relation
of management with entrepreneurship. He suggested that entrepreneurship is all about
exploring untapped opportunities and is a gradual process which requires all essential
elements of management. All the above mentioned names and views are just a small
part of the vast history of entrepreneurship. The most important development

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towards the end of twentieth century took place with the acceptance of the concept of
“Intra Corporate Entrepreneurship” or Intrapreneurship as proposed by Gifford Pinchot
III. This concept highlights that entrepreneurial competencies are required and can be
developed even in an organisational setting. The twenty first century has observed
further progression of this idea and the interest of various research bodies and
government has made the idea popular throughout the world. Today the growth index
of any country is reflected by the number of patent filed and number of start-ups
registered in that country in a particular year. We may not have a standard theory to
accept universally for entrepreneurship but we have compilation of different viewpoints
which are seen today as theories.

7.4 VARIOUS SCHOOL OF THOUGHTS ON

ENTREPRENERUSHIP
We can easily observe in the figure 7.4.1 that entrepreneurship has evolved with the
evolution of human beings and the ideas which were never entertained under
conventional thinking started gaining ground as the time changed from early eighteenth
century to twenty first century. This evolution saw some transitions with every new
school of thought which were grouped together for the purpose of understanding. A
careful analysis helps us to comment that evolution of entrepreneurship thought
progressed in four systematic steps which are shown in figure 7.4.2.

The development of entrepreneurship idea clearly shows that it has transitioned from
being an adventurous activity to speculative activity. Next step was developing as
coordination activity to creative and ultimately to development of Intra corporate
entrepreneurship. The variety of thoughts on entrepreneurship has created a complex
dynamics to understand the real meaning of entrepreneurship.

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 Figure: 7.4.1 Time line of Development of Entrepreneurship

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It can be noted that somewhere these all thoughts are backed by some standard discipline
and when analysed further they were grouped accordingly. To maintain the essence of
entrepreneurship and to make it understandable to all it is divided into three categories
representing sum of all five steps of development of entrepreneurship thoughts which
are as follows:

1. Economist’s Thought

2. Sociologist’s Thought

3. Psychologist’s Thought

7.4.1. Economist’s thought:

The known history of mankind tells us that all activities today are the result of
Economics and Politics. Both these factors emanate from each other and give
dominance to the ruling party or group. Economics primarily is the result of scarcity of
resources in a particular society. The art of choice making and decision taking under
the scarcity in such a way that they are in dominant position and because of which they
rule a particular group is the soul of economics. For a long time we were not familiar
with anything other than economics and therefore it ruled even in defining
entrepreneurship too. It can be noted that Richard Cantillon had defined “An
entrepreneur is a person who undertakes to do a job” whereas Adam Smith (1776) said
that “An entrepreneur is a person who acts as agent in transforming demand into
supply.” But the acceptance of the term entrepreneurship came when Jean Babtiste Say
(1803) said that “An entrepreneur is a person who shifts resources from an area of low
productivity to high productivity.” It resonated with the economic environment of that
era and entrepreneurship was identified as a separate area of study by economists. John
Stuart Mill (1848) defined an entrepreneur as a prime mover in the private enterprise.
He even went on to say that the entrepreneur is the fourth factor of production after land,
labor and capital. Another thinker Carl Menger (1871) said “The entrepreneur acts as an
economic agent who transforms resources into products and services. The entrepreneur
transforms and gives added value.” In nutshell it can be said that the favourable
conditions of that time which focused more on harnessing physical resources for the
wealth of the nations and earning profit or interest on the investment of capital gave
more weightage to entrepreneurship. It must also be noted that entrepreneur was also
treated like a physical resource and his competencies or personality traits were not
discussed here. As a result the failure of any enterprise was attributed to market
imperfections and faulty trade policies.

7.4.2. Sociologist’s thought:

The importance given to physical resources justified the focus on profit but when that
profit was not in line with the expectation the blame to external imperfections could not
be justified every time therefore attention to those thinkers was also given who were
talking about the function of entrepreneurship in a social system. The economist
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view talked about the synchronisation of capital, technology and human resource and
made it work like any stream of science. But it was weak or immature form of science
as in order to build it as a body of knowledge that understands and practice the art of
entrepreneurship academic models were required which could be used by the industry.
The development of these models comes from the specific culture as the industrial
development of Europe is different from industrial development of any other part of the
world. The social scientists said that social norms, cultural values and expectations from
a particular role are the major factors contributing for entrepreneurship. The changes or
progress in a society channelizes the energy of its habitant towards entrepreneurial
activities. According to Weber the spirit of capitalism can be generated only when
mental attitude in the society is favourable to capitalism. According to John H. Kunkel
and Hoselitz those who are marginalised culturally have a tendency to promote
entrepreneurship for economic development. This is also reflected in several instances
in history and above all in India the partition in 1947 led to maximum entrepreneurship
development amongst the refugees, who are now the big business houses of India. This
discussion justifies that why with same resources some of the enterprises are successful
and why some could not sustain the growth and development. It was further noted that
the success of an enterprise still varies when physical resources at disposal and social
environment is same. The cause of such variation was attributed to psychological
differences and more importance to individual than industry in entrepreneurship.

7.4.3. Psychological thought:

Joseph Aloysius Schumpeter in 1934 defined an entrepreneur as an innovator. The
economy moves through leaps and bounds and the prime mover is the entrepreneur
through the process of creative destruction, a term coined by him to describe the
importance of innovation. The psychologist’s thought process gave more importance to
traits of an individual for success of an enterprise. Some major highlights of this view
are innovation and creativity with a vision and leadership. According to A.H Cole,
“entrepreneurship is the purposeful activity of an individual or a group of associated
individuals, undertaken to initiate, maintain or aggrandize profit by production or
distribution of economic goods and services.” In the words of Jaffrey A. Timmons who
has defined entrepreneurship as the ability to create and build something from
practically nothing. In the definition given by William Diamond entrepreneurship
involves innovation along with risk bearing capability. McClelland identified two main
characteristics of entrepreneurship namely doing things in a new and better way and
decision making under uncertainty. Need for achievement is the driving force for certain
economic behavior. The achievement motive is developed through upbringing of their
children with a focus on excellence standards, material warmth and training for self-
reliance. Those who have high achievement motive take up challenges and accept
responsibilities and perform a task to the highest level of standards. According to B.F
Hoselitz managerial skills and leadership are the most important facets of
entrepreneurship whereas E.E Hagen defines an entrepreneur as a

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creative problem solver who gets pleasure when facing problem and tolerates disorder
without discomfort. Innovation requires creativity and such creative individuals cause
economic growth. According to Psychologists, entrepreneurship is most likely to
emerge when a society has sufficient supply of individuals possessing particular
psychological characteristics. Some of the important characteristics which are important
according to this thought are: Vision, Problem Solving attitude, need for achievement,
tolerance to face problems or opposition.

Figure 7.4.2 Stepwise Development of Entrepreneurship Thought

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 Check Your Progress-A

Q1. Discuss the origin of entrepreneurship theories?

Q2. Explain the Sociologist’s thought of Entrepreneurship?

Q3. MCQs

(i) Features of Entrepreneurship are

A. Out of Box Thinking or Innovation
B. Need for High Achievement
C. Identifying the opportunity
D. All of above
(ii) French term “entreprendre means
A. Innovator
B. Creative
C. Risk taker
D. Manager
(iii) Gifford Pinchot III defined the term
A. Entreprendre
B. Intra Corporate Entrepreneurship
C. Creative Destruction
D. None of above

Q4. Fill in the Blanks with appropriate word or words.

a) Peter F. Drucker suggested that entrepreneurship is all about exploring

……………….and is a gradual process which requires all essential elements
of…………………………...
b) John Stuart Mill said that the entrepreneur is the ..................................... after
land, labor and capital
c) According to Weber the spirit of capitalism can be generated only when
… .................................. is favourable to capitalism.

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 d) E.E Hagen defines an entrepreneur as a …………………………who gets
pleasure when facing problem

7.5 THEORIES OF ENTREPRENEURSHIP

The discussion in the previous section leads us to several theories which are given by
various thinkers. Though each theory had its own thought process but none of them can
be named the ideal or standardized theory.

7.5.1. Economic Theory of Entrepreneurship:

This theory advocates that entrepreneurship and economic growth goes hand in hand till
the time economic conditions are favourable. Though the concept of economic theory
was shady in the beginning but in the long run and constant evolution it had become a
fully clear concept. In the words of Gustav .F Papanek and J.R. Harris the inner
motivation of a person contributes maximum to the economic development. They
focused on industrial entrepreneurship which helps in achieving economic gains. It is
argued by some of the thinkers that growth of entrepreneurship is also dependent on
growth of regional economic factors such as industrial policy of a particular state. But
overall it can be said that entrepreneurship accelerated the pace of economic
development and that dependent on technological advancement and availability of
labour and capital in a particular region. Several economic factors as proposed by this
theory are there which affect the motivation of a person to take up entrepreneurial
activity and some of them are easy access to institutional finance, rich capital market
with minimum hurdles, lower interest rate for money borrowed, high rate of demand
and supply, availability of raw material and other resources, good governance in the
form of economic policies, and sound and efficient infrastructure to support
communication and transportation.

7.5.2. Innovation Theory:

This theory is known with the name of Joseph Schumpeter who introduced the word
innovation to the world of entrepreneurship. According to him entrepreneurship is
essentially a creative activity which means introduction of new to replace old idea to
work more efficiently. Innovation in this theory as conceptualised by Schumpeter has
several forms like introduction of a new product, new method of production, opening
of a new market or exploring a new source of supply of raw material or creating a new
position in the market. In other words we may say that innovation can come from anyone
and can be implemented in any field of the enterprise and not necessarily require huge
investment. It must be paid attention that the twentieth century when this theory was
propounded that was the time industrial revolution was at its peak as after the world war
II the world seemed to recover as quickly as possible with the damage committed by the
war for so many ears. In this theory Schumpeter differentiated innovator and inventor
by mentioning that an inventor discovers new methods and
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new materials whereas innovator is the one who applies inventions in his business model
to bring more satisfaction and profit to the enterprise. This concept was a breakthrough
as described years later that this theory is both wide and narrow as it includes
entrepreneur and directors and managers in the businesses that innovate and exclude
those who only run business without any innovation. Paul Wilken in 1979 substantiated
that innovation is always in the form of some change which may be classified in
Productivity of factors of production such as finance, labour, material, Innovation in
production such as, technology, process changes and increase in human resource
productivity, Innovation in marketing area such as the composition of the market, size
of the market and new markets.

7.5.3. Need for Achievement Theory

McClelland had given two major parameters of entrepreneurship which talked about
doing things in a new and better way ad decision making under uncertainty. His theory
focused on need for achievement and orientation of a person towards achievement
which explain their economic behavior. The theory says that people having high need
for achievement are more likely to succeed as entrepreneur. Since profit is a measure of
success, it gives more sense of achievement to such people but the money amount is
insignificant for them. The theory further explains that people with low achievement
need are more influenced with monetary rewards. The need for achievement is an
individual trait which does not change in behavior but its level can be moderated with
the help of proper training and effort. This theory suggests that to develop
entrepreneurial mind set parents need to set standards for their children very high. These
children are more likely to chose path of entrepreneurship and believe that they can
control their own life and high tolerance for ambiguity. The society at large and
congenial environment plays their own vital role and justifies that how some of the
countries or places are able to nurture more entrepreneurial mindset.

7.5.4. Entrepreneurial Growth Theory:

Max Weber (1864-1920) experimented with religion and its probable impact on
entrepreneurial culture with reference to different countries. He took special interest in
‘Protestant work ethics’ and ‘Hindu’ beliefs. His theory is known as sociological theory
which says that social culture is primarily responsible for development of
entrepreneurship. According to him the entrepreneur is a role performer as expected by
the society and such roles are largely influenced by the customs, taboos and religious
beliefs. His theory attributed religion as major factor responsible for entrepreneurship
as the spirit of capitalism and adventurism are largely influenced by religious practices.
For example, Islam prohibits certain types of businesses and interest on capital similarly
in Hinduism unethical business practices or crossing the sea was prohibited. This all had
put restriction on the economic freedom and private enterprise. According to him
colonial rule was most suited for entrepreneurship

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development where combination of discipline and free spirited adventure made an
entrepreneur successful.

7.5.5. Entrepreneurial Change Agent Theory:

Peter F. Drucker defines an entrepreneur as a change agent who brings change in the
existing arrangement of resources in such a way that the result brings favourable change
in the economic development of the country. Drucker finds that resources, innovation
and suitable entrepreneurial competencies are the key to entrepreneurship. He
emphasised that entrepreneurship involves the satisfaction should be enhanced by value
creation and new values must be created by combining the resources in different
combinations. According to Drucker an “entrepreneur is one who always searches for
change, responds to it and exploits it as an opportunity.” Entrepreneur innovates and
innovation is a specific instrument of entrepreneurship. It creates resources because
there is no such thing as a ‘resource’ until man finds a use for something and endows it
with economic value. According to him entrepreneurship is not confined to big business
and economic institutions but this theory give boost to the emergence of small and
micro level enterprises which are thriving as statrt ups in all parts of the country.

7.5.6. Entrepreneurship Theory of Organisation/Coordination:

Francis A. Walker gave his view on entrepreneurship by defining entrepreneur as an
organiser and coordinator for various factors of production. According to him the
resources which can be put to some use are available for all the members of the society.
But there are only few who are able to put them together and get some economic activity
be executed out of those resources. The ability of a person to synchronise and orchestrate
the usage of resources at disposal is entrepreneurship and the society where harmony
and organising skills are groomed that society observes more entrepreneurial activities
taking place where as the societies where the freedom to us the resources is not given
the confidence of the citizen could not be built up to take up the challenge of
experimenting with the resources to get some economic advantage. The entrepreneurs
who are competent in organising and coordination skill get more rewarded as some
degree of these skills is present in everybody.

7.5.7. Entrepreneurship Theory of Conscious Knowledge for Gain:

This theory was given by Israel Kirtzner in 1960 which says that spontaneous learning
and alertness are the two important features of entrepreneurship. Entrepreneurship is the
conversion of learning made with conscious knowledge to get motivated with the hope
of profit in future. Kirzner said that it is important that we recognise opportunity at the
right time with our skills and acquired knowledge and that may give more profit than
innovation, and that actually is entrepreneurship. His model highlighted some of the
major elements like the entrepreneur is constantly exploring the opportunities
unintentionally to earn profit, he may raise funds for the opportunity by borrowing it

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from a capitalist, and pay him back in the form of interest or dividend and retain his true
profit. For example a news report published on the internet suggested that the prices of
used books are lower at the end of the term compared to the beginning of the term. An
entrepreneur would find it an opportunity to purchase at the end of the year and sell in
the beginning of the year and make a handsome profit. That bit of insight and alertness
is classic Kirznerian entrepreneurship in action; it was rewarded by a profit, but the
activity was equilibrating, not disruptive, reducing the spread between prices for the
same, or very similar, commodities paid by buyers or received by sellers at different
times of the year.

7.5.8. Theory of Gap Fillers:

Harvey Leibenstein in 1969 put forth his idea of entrepreneurship in two categories
namely, Routine Entrepreneurship and New Entrepreneurship. He said that both are
important and it is primarily the role of an entrepreneur to be the ‘gap filler.’ According
to him the factors of production are common for all enterprises and may give same result
to all industrial units but actually the result is different in each case as the entrepreneur
provides the much needed motivation to get the desired results. Motivation and
Leadership are the two major ingredients of any production process which cannot be
marked but are important for completing the production process. According to
Leibenstein the supply of entrepreneurship is governed by inputs completing capacity
and inadequate motivational state.

7.5.9. Theory of Status Withdrawal:

E.E. Hagen in the year 1962 added a new dimension to theories of entrepreneurship by
conceptualising that entrepreneurship is the function of personality development which
may largely be attributed to child rearing practices in a particular community or country.
The important aspect which he emphasised that a person or a group identifies himself
or herself with their social status and that social status largely comes from either family
or from economic superiority. Sometimes due to war, migration, emergence of new faith
or economic superiority of enemy community a person or the group may come across a
situation where their social respect or status is withdrawn. The reaction in different
manner may shape the personality of each one of them differently. Hagen postulated
these reactions in four categories:

(a) Retreatist: Entrepreneur who continues to work in society but remains indifferent to
his work or status.

(b) Ritualist: One who works as per the norms in the society hut with no hope of
improvement in the working conditions or his status.

(c) Reformist: One who is a rebellion and tries to bring in new ways of working and new
society.

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(d) Innovator: An entrepreneur who is creative and try to achieve his goals set by
himself.

Hagen also quoted the example of Samurai community of Japan which enjoyed high
status and later it was withdrawn and to regain their lost pride they became more active
and strong and gave rise to many entrepreneurs. This theory was supported by
McClelland theory of Need Achievement and Schumpeter s theory of innovation.

7.5.10. Theory of Change in Group Level Patterns:

F.W Young provided a micro sociological interpretation of entrepreneurship in the year 1971
when he suggested that ‘transformation codes’ are developed by solidarity groups to improve
their symbolic position in the larger structure and become entrepreneur. He classified
entrepreneurship as a group activity. According to him entrepreneurship is the activity which
is more prominent in clusters or we may say that people who have same background show
same entrepreneurial traits which later prove beneficial for economic well being. Young
conducted a Thematic Appreciation Test (TAT) on a group of entrepreneurs and the results
suggested that they all had common traits which are part of their entrepreneurial behaviour
such as problem solving, awareness of effort required, confidence in their own, etc.

7.5.11. Theory of Intrapreneurship:

In 1985, Pinchot introduced the term ‘Intrapreneurship’, which is derived from intra-
corporate entrepreneurship, which describes the practice of entrepreneurship within
organizations. He said that sowing the seeds of entrepreneurship in your organization to
pursue opportunities, innovate and to begin new ventures should be encouraged and
promoted through the culture of the organisation. Intra Corporate Entrepreneurship
refers to the activities that enhance company’s ability to innovate, take risk and seize
market opportunities. ‘Intrapreneurship’ can be defined as the process in which:
“innovative products or processes are developed by creating an entrepreneurial culture
within an already existing organization” Inculcating an Intrapreneurial philosophy in
organizations results in several advantages, including the development in the size and /
or diversity of the product and service range, and helping the organization to expand
and grow. It also assists in the creation of a workforce that can help maintain its
competitiveness and promote a climate conducive to high achievement. Ultimately
Intrapreneurship helps an organisation to develop entrepreneurial mind set amongst its
employees which first help the company and later these employees may be instrumental
in setting their own organisation. Google Earth and Post It by 3M are also the result of
Intrapreneurial culture of these organisations.

7.6 ENTREPRENEURSHIP TREND IN OTHER

COUNTRIES
It is observed that in previous two decades entrepreneurship has gained lot of
momentum across the globe and today various indexes and reports are being published

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to highlight the superiority of some countries in terms of entrepreneurship. It will not
be wrong to say that today level of entrepreneurship is one of the criteria to rank them
in terms of economic development. Global Entrepreneurship Monitor (GEM)
publishes its report every year for every stakeholder to know the level of
entrepreneurship in participating countries. GEM 2014-15 data shows that 65
countries participated and the results show that Uganda is the country with maximum
entrepreneurship. It is surprising and difficult to understand but if we go through the
methodology of study we will find that countries which are low income economies
lack human capital and infrastructure needed to create high quality jobs. As a result
people are engaged in petty self employment activities but only few are innovative or
high growth start ups. Another international study which is conducted every year
known as Global Entrepreneurship Index (GEI) which ranks countries on the basis of
fourteen pillars of entrepreneurship ecosystem. The parameters for ranking are termed
fourteen pillars and are divided into three categories:

7.6.1. Entrepreneurial Attitudes Pillars (5): Opportunity Perception, Start Up Skills,

Risk Acceptance, Networking, Cultural Support,

7.6.2. Entrepreneurial Abilities Pillars (4): Opportunity Start Up, Technology

Absorption, Human Capital, Competition

7.6.3. Entrepreneurial Aspirations Pillars (5): Product Innovation, Process

Innovation, High Growth, Internationalization, Risk Capital

Entrepreneurial attitudes are societies’ attitudes toward entrepreneurship, which we

define as a population’s general feelings about recognizing opportunities, knowing
entrepreneurs personally, endowing entrepreneurs with high status, accepting the risks
associated with business startups, and having the skills to launch a business successfully.

Entrepreneurial abilities refer to the entrepreneurs’ characteristics and those of their

businesses. We define entrepreneurial abilities as starts up in the medium- or high-
technology sectors that are initiated by educated entrepreneurs, and launched because
of someone being motivated by an opportunity in an environment that is not overly
competitive.

Entrepreneurial aspiration reflects the quality aspects of startups and new businesses.
Entrepreneurial aspiration is defined as the early-stage entrepreneur’s effort to introduce
new products and/or services, develop new production processes, penetrate foreign
markets, substantially increase their company’s staff, and finance their business with
formal and/or informal venture capital. Product and process innovation,
internationalization, and high growth are considered the key characteristics of
entrepreneurship.

The previous section of this unit has explained you with the help of various theories that
entrepreneurship is developed as a result of interaction of several factors which

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were broadly classified into economic, Sociological and Psychological. Today GEI also
identifies that quality is more important than quantity when it comes to entrepreneurship
and this quality comes from entrepreneurial ecosystem. Entrepreneurial ecosystems
support innovative, productive, and rapidly growing entrepreneurial ventures. They
consist of multiple interactive elements (14 pillars as discussed), all of which need to be
in sync in order for innovative and high-growth firms to prosper. The countries which
are significant according to Global Entrepreneurship Monitor 2016 are as follows:

Table 7.6.1: List of Countries according to Global Entrepreneurship

Index 2016

Name of country Rank

United States of America 1

Canada 2

Australia 3

Denmark 4

Sweden 5

Taiwan 6

Iceland 7

Switzerland 8

United Kingdom 9

France 10

Chile 16

UAE 19

South Africa 52

China 60

India 98

Source: Global Entrepreneurship Network, The Global Entrepreneurship

and Development Institute, Washington, D.C., USA

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This index covered fifty two percent of entrepreneurial capacity of the world which
mean there is further scope of improvement in the years to come. The important part is
that in Europe Denmark is the country with highest level of entrepreneurship whereas
in Asia and Middle East United Arab Emirates is providing helpful ecosystem. India is
far behind many countries in the list of 132 countries evaluated. It stands at 98 th rank
which is a matter of concern for all policy makers. To bring India to a better level as
compared to other countries a lot needs to be done by all stakeholders of the ecosystem
only then successful development of entrepreneurship would be possible.

Check Your Progress- B

Q1. Explain Innovation theory of Schumpeter.

Q2. Write a short note on Development of Entrepreneurship in other countries.

Q3. What is the similarity between Hagen’s Theory and Need Achievement
Theory.

Q4. Identify the theory:

(a) Entrepreneurship has several forms like introduction of a new product, new method
of production, opening of a new market or exploring a new source of supply of raw
material or creating a new position in the market.

(b) Entrepreneur is the one who always searches for change, responds to it and
exploits it as an opportunity.

UNIT-7 Theories of Entrepreneurship Page 134

(c) The ability of a person to synchronise and orchestrate the usage of resources at
disposal is entrepreneurship.

(d) His theory attributed religion as major factor responsible for entrepreneurship as
the spirit of capitalism and adventurism are largely influenced by religious practices.

Q5. Multiple Choice Questions-

K.1. Characteristic which is important according to Psychological thought is:

(i) Vision,
(ii) Problem Solving attitude,
(iii) Tolerance to face problems or opposition.
(iv) All of above

K.2. Theory of Conscious Knowledge for Gain was given by

i. Peter F. Drucker
ii. Hagen
iii. Israel Kirtzner
iv. F.W Young

K.3. Entrepreneurial aspiration reflects

i. quality aspects of startups and new businesses

ii. individual’s career goal
iii. country’s infrastructure
iv. none of above

K.4. Which country is top ranked in Europe according to Global Entrepreneurship

Index 2016?

i. Sweden
ii. United Kingdom
iii. France
iv. Denmark

7.7 SUMMARY
This unit explored various theories of entrepreneurship in detail and covered literature
spread over more than two centuries. The theories involved economic, sociological and
psychological thought which are at the root of development of entrepreneurship idea.
Schumpeter’s theory of innovation emphasised on innovation for developing
enterprises. McClelland linked entrepreneurship with the need for achievement to things
in better way and making critical decisions. The emphasis was on individual traits in
both theories. Weber highlighted religious orientation as the base for entrepreneurship
whereas Hegan emphasised on withdrawal of social status a main

UNIT-7 Theories of Entrepreneurship Page 135

factor motivating individuals towards entrepreneurship. It can be summed up that every
theorist has looked at the entrepreneur and entrepreneurship on the basis of his
perception, and therefore, can, at best, provide only a limited view of entrepreneurial
phenomenon. Each of the entrepreneurship theories discussed are inter-disciplinary and
are influenced by a multitude of factors. It is the integration of external environment,
dream, ambition, passion, achievement, motivation, commitment, integrity, honesty,
sincerity, ability and hard work which largely determine whether an individual become
an entrepreneur or not.

7.8 GLOSSARY
 Capital: Financial capital is a term that can refer to the money exchanged
between entrepreneurs and investors during a business deal.

 Capitalism: an economic and political system in which a country's trade and

industry are controlled by private owners for profit, rather than by the state.

 Change Agent: A change agent is a person from inside or outside the

organization who helps an organization transform itself by focusing on such
matters as organizational effectiveness, improvement, and development.

 Creative Destruction: It refers to the incessant product and process innovation

mechanism by which new production units replace outdated ones. It was coined
by Joseph Schumpeter (1942), who considered it 'the essential fact about
capitalism'

 Factors of Production: Factors of production is an economic term that

describes the inputs that are used in the production of goods or services in order
to make an economic profit. The factors of production include land, labour,
capital and entrepreneurship.

 Interest: money paid regularly at a particular rate for the use of money lent, or
for delaying the repayment of a debt.

 Networking: Developing business contacts to form business relationships,

increase your knowledge, expand your business base, or serve the community.

 Out of Box Thinking: It is a metaphor that means to think differently,

unconventionally, or from a new perspective. This phrase often refers to novel
or creative thinking.

 Pay off: A final outcome or result.

 Skill: The ability to do something well; expertise.

UNIT-7 Theories of Entrepreneurship Page 136

  Start Up: A Start Up is defined as a new business that has yet to achieve a
sustainable positive cash flow or has been in operation for a limited period of
time.

 Value Creation: Value creation is the primary aim of any business entity.
Creating value for customers helps sell products and services, while creating
value for shareholders, in the form of increases in stock price, insures the future
availability of investment capital to fund operations

7.9 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

Ans. 1. A theory is a set of principle on which the practice of an activity

is based. Sometimes a theory is an idea used to account for a situation or justify a course
of action or it analyses the set of facts in relation to one another. Here in
entrepreneurship all these definitions apply to the views of experts given in the form of
a theory. The whole work in this field over the period primarily classifies
entrepreneurship in three categories namely Economist point of view, Sociologist point
of view and Psychologist point of view.

Ans 2. The social scientists said that social norms, cultural values and expectations from
a particular role are the major factors contributing for entrepreneurship. The changes or
progress in a society channelizes the energy of its habitant towards entrepreneurial
activities.

Multiple Choice Questions

(i) D, (ii) C, (iii) B
Fill in the Blanks
(a)untapped opportunities, management (b) fourth factor of production (c) mental
attitude in the society (d) creative problem solver

Check Your Progress –B

Ans.1. According to him entrepreneurship is essentially a creative activity which means

introduction of new to replace old idea to work more efficiently. Innovation in this
theory as conceptualised by Schumpeter has several forms like introduction of a new
product, new method of production, opening of a new market or exploring a new source
of supply of raw material or creating a new position in the market. In other words we
may say that innovation can come from anyone and can be implemented in any field of
the enterprise and not necessarily require huge investment.

Ans 2. Globally it is found that entrepreneurship plays an important role in a country’s

economic growth. The future of entrepreneurship is bright in developing countries. “We
are living in an age of entrepreneurial development. The entrepreneurship is
UNIT-7 Theories of Entrepreneurship Page 137
endorsed and encouraged by educational institutions, governments, society / and other
corporate bodies in India and other developing countries. Today entrepreneurship is
measured by several international bodies like GEM and GEI and efforts are being made
to uplift the countries with poor entrepreneurship index with supportive policies and
grants across the world.

Ans 3. According to McClelland the need for achievement is an individual trait which
does not change in behavior but its level can be moderated with the help of proper
training and effort. This theory suggests that to develop entrepreneurial mind set parents
need to set standards for their children very high. These children are more likely to chose
path of entrepreneurship and believe that they can control their own life and high
tolerance for ambiguity. Similarly E.E. Hagen conceptualised that entrepreneurship is
the function of personality development which may largely be attributed to child rearing
practices in a particular community or country. Therefore it can be said that both
theories explained entrepreneurship from the perspective of achievement (McClelland)
or status (Hagen) which can be developed by family right from their childhood.

Identify the Theory:

(a) Innovation Theory

(b) Change Agent Theory
(c) Theory of Coordination
(d) Entrepreneurial Growth Theory

MCQ:

K.1 (iv)

K.2 (iii)

K.3. (i)

K.4. (iv)

7.10 REFERENCES

D.C.McClelland: The Achieveing Society, D. Van Nostrand & Co.,

New York, 1961.

E.E.Hagen: On the Theory of Social Change, Vakil effer and Simmons Pvt
Ltd;Bombay, 1962

F. W Young: “A Micro- Sociological Interpretation of Entrepreneurship” in Peter

Kilby(ed.). Entrepreneurship and Economic Development, The Free Press, New York,
1971, p 147.
UNIT-7 Theories of Entrepreneurship Page 138
H.Liebenstein: “Entrepreneurship and Development” American Economic Review,
Vol.62 No 2, May 1968, pp 72-82

Schraeger, James. E., Entrepreneurship: A Comparative and Historical Study by Paul

Wilken, Reviewed Work: Entrepreneurship: A Comparative and Historical Study by
Paul Wilken, American Journal of Sociology, Vol. 87, No. 6 (May, 1982), pp. 1404-
1406

http://ijbcnet.com/1-11/IJBC-12-11106.pdf

http://seea.org.in/irjee/upload/v12518.pdf

http://www.answers.com/Q/who_is_a_entrepreneur

http://www.oecd.org/std/business-stats/39651330.pdf

http://www.simplynotes.in/e-notes/mbabba/entrepreneurship-development/theories-of-
entrepreneurship/2/

https://eagleentrepreneur.files.wordpress.com/2012/01/01_2011-pittaway.pdf

https://en.wikipedia.org/wiki/20th_century

https://en.wikipedia.org/wiki/Creativity

https://link.springer.com/chapter/10.1007/978-3-319-26730-2_2

https://www.scribd.com/document/32063132/14-Theories-of-Entrepreneurship

7.11 SUGGESTED READINGS

Desai, Vasant, (2006), Small-Scale Industries and Entrepreneurship, Himalaya
Publishing House, Mumbai

Gupta, C.B and Srinivasan, N.P, (2008), Entrepreneurship Development

in India, Sultan Chand & Sons, New Delhi
Hisrich, Robert D. and Michael P. Peters (1995), Entrepreneurship: Starting,
Developing and Managing a New Enterprise, 3rd Edition, Illinois:Richard D Irwin.

UNIT-7 Theories of Entrepreneurship Page 139

 7.12 TERMINAL QUESTIONS
1. Define Entrepreneurship and explain its main characteristics.

2. “Innovation and entrepreneurship goes hand in hand.”

Discuss critically.

3. What do you understand by “Intrapreneurship”? How does it differ from

Entrepreneurship?

4. What is the contribution of Henery Liebenstein’s formulation regarding

entrepreneurship?

5. Discuss the step by step evolution of entrepreneurship theories.

6. Write an essay on global trends in entrepreneurship.

7. Describe in detail the economist’s, sociologist’s and psychologist’s view in

detail about the emergence of entrepreneurship

8. Discuss theories of entrepreneurship and prove that “entrepreneurship is multi-

dimensional concept.”

UNIT-7 Theories of Entrepreneurship Page 140

 UNIT-8 LEGAL ISSUES FOR THE
ENTREPRENEUR

8.1 Introduction

8.2 Objectives

8.3. Meaning of Legal Issues for the Entrepreneur

8.4 Objectives of Knowing Various Legal Issues

8.5 Registration of the Business by the Entrepreneur

8.6 Other Legal Compliances in India for Entrepreneurs

8.7 Legal Clearances required for setting up an Industrial Unit

8.8 Summary

8.9 Glossary

8.10 Answer to Check Your Progress

8.11 Reference/ Bibliography

8.12 Suggested Readings

8.13 Terminal Questions

8.1 INTRODUCTION
In the previous unit you learnt about the theories of Entrepreneurship which highlight
various dimensions of entrepreneurs. It is important to understand that one may have an
innovative idea for business but the social and legal implications are to be taken care of
by the successful entrepreneurs. Entrepreneurs always face uncertainty as explained in
various theories and the degree of uncertainty increases when it comes to a developing
country like India. In the world economic scenario India is currently a very progressive
economy which is encouraging investment in all sectors but we also need to admit that
encouragement to domestic entrepreneurs is not matching the pace at which it is
required. Though several government policies are introduced from time to time to boost
the entrepreneurial climate of the country but lack of awareness to the

UNIT-8 Legal Issues For The Entrepreneur Page 141

masses of these policies and bureaucracy becomes the biggest hurdle in not achieving
the target. The legal procedures and rules which are framed to catalyse the setting up of
new enterprises or Start Up becomes an issue for the entrepreneur.

In this unit, you will study about various legal issues faced by an entrepreneur right
from the conception of the idea to the final implementation of the same. The way to
tackle these legal issues is the knowledge of various acts and regulations which
generally affect business in all sectors. The unit will discuss most of the regulations in
brief to give you the fair idea on how to deal with the situation when come across a legal
bottleneck.

8.2 OBJECTIVES
After reading this unit you will be able to:

-Understand the meaning of Legal Issues for an Entrepreneur

-Explain the objectives of knowing various legal issues

- Know the procedure to register the Business in India

-Learn the Legal Compliances in India for Entrepreneurs

-Learn the Clearances required for setting up an Industrial Unit

8.3 MEANING OF LEGAL ISSUES FOR THE

ENTREPRENEUR
In Civil Society regulations are the ground for perennial growth and they become the
governing factors to ensure that everything happens according to the plan and policy
approved and principles for future actions are established. The idea is to highlight any
non-conformity and make modifications there and then to avoid any reoccurrence of the
same. These regulations control three important factors and work on them- people,
objectives and actions. Therefore it is ensured by these regulations that whether any
progress is made towards achieving a particular objective with announcement of a
policy or not, whether environment is protected from pollution after rapid growth of
industries, whether the interest of the weakest or poorest of the society is protected,
whether welfare of the workers in a business is taken care of or not and the small
entrepreneurs are not bullied or are affected by restrictive trade practices or not. These
matters affect every business in some way or the other. These regulations set up by
government to protect various stakeholders become legal issues if not managed properly
by the entrepreneur. If managed correctly, these can be advantages; otherwise these can
lead to serious problems for the enterprise and may even result in closure of the business
unit.

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8.4 OBJECTIVES OF KNOWING VARIOUS LEGAL
ISSUES
Economic Development of any country is accelerated by fostering entrepreneurship in
all parts of country with a major thrust on Tier II and Tier III cities where it would
empower the youth with several opportunities to showcase their innovative ideas.
However those entrepreneurs whether young or not having in-depth knowledge of their
domain but may not be familiar with the legal regulations which govern their business
or enterprise. Start Up or new enterprises are important segments of an economy in the
current business environment which have adhere to the rules and regulations of the
country in which they operate.

These regulations are broadly classified in two categories namely Protective and
Promotional. The Protective measures are those which safeguard the interest of an
entrepreneur and Promotional measures are those which help in growth of the business
of an entrepreneur. Since independence the government has made constant efforts to
promote industrial development with a special focus on Micro, Small and Medium
Enterprises (formerly known as Small Scale and Cottage Industry) by forming several
Constitutional Acts which serve both as protective and promotional role. These
Acts/regulations /rules are passed by various authorities at Central/State/ Local level
which address various legal issues for an entrepreneur. The classification of these legal
regulations is as follows:

 Registration related issues

 Labour related issues

 Tax related issues

 Location related issues

 Product related issues

 Environmental issues, and

 Safety, Security, hygiene, health and welfare related issues, etc.

Some of these regulations and issues related to them would be discussed in the next
segment of this unit.

UNIT-8 Legal Issues For The Entrepreneur Page 143

 Check Your Progress-A

Q1. State the meaning Legal Issues for Entrepreneurs?

Q2. Explain the purpose of knowing various legal issues?

Q3. MCQs

i. To inculcate entrepreneurship amongst youth

(a) All of them must be well educated

(b) They must understand the rules and regulations affecting

entrepreneurship

(c) They must live in Tier II and Tier III cities

ii. Protective measures are those which

(a) safeguard the interest of an entrepreneur

(b) which protect them from law

(c) which help in economic development of the country

iii. The regulations serve the important purpose of

(a) highlighting any non conformity and make modifications

(b) putting entrepreneur behind bars

(c) to accelerate economic development

Q4. Fill in the Blanks with appropriate word or words.

(i) Promotional measures are those which help in ……………….. of an

entrepreneur.

(ii) Legal issues If not managed correctly can lead .................. for the enterprise
and may even result in ................ of the business unit.

UNIT-8 Legal Issues For The Entrepreneur Page 144

 (iii) ……………………….are important segments of an economy in the current
business environment

(iv) Economic Development of any country is accelerated by

……………………………………. in all parts of country with a major
thrust on Tier II and Tier III cities.

8.5 REGISTRATION OF THE BUSINESS BY

ENTREPRENEUR
For every entrepreneur who plans to start his own enterprise the first and most important
legal issue is non awareness of the registration process and of various options available
for setting up an enterprise and various funding options available. As you can understand
that to start any business the first step is to get it recognized by the eco system
surrounding it. This recognition of the business comes from the Registration of the
Business. Therefore it is important for every entrepreneur to understand the legal
regulations related to registration of business and in how many forms it is possible in
India.

8.5.1 Various forms of organization which can be registered in India as per various Acts
of the government:

8.5.1.1 Sole Proprietorship (Shops & Establishment Act, 1988): It is the most
convenient and simple way to start the business. This form of business involves just one
person, the one who conceives the idea and starts with the business activities. The
entrepreneur can easily employ people, acquire assets, registering intellectual property
or opening a bank account. It require very little documentation and legal compliance but
the problem with this form is that it is a one man show and is considered a risky
prepositions from creditor’s point of view of the business.

8.5.1.2 Partnership Firm (Indian Partnership Act, 1932): The limitation of the Sole
Proprietorship can be removed with adoption of Partnership form of the business. In this
form two or more persons come together to form the partnership which is governed by
a partnership deed prepared as per the Indian Partnership Act 1932. The biggest
advantage of partnership is that with simple regulatory framework more talent and
capital can be deployed in the business whereas the disadvantage is that even in case of
partnership the partners have unlimited liabilities.

8.5.1.3 Limited Liability Partnership (LLP) (LLP Act, 2008): The drawback of
partnership of unlimited liability was overcome by Limited Liability Partnership
introduced in India in the year 2008. This form of business has all the advantages of
Partnership and Company form of business and are highly recommended for a Start Up.

UNIT-8 Legal Issues For The Entrepreneur Page 145

8.5.1.4 Limited Liability Company: (Companies Act, 2013): The most common
form to scale up any business is limited liability company form of business which
require incorporation under Companies Act 2013 which is an improvement over
Companies Act 1956 either as a Private Company or Public Limited Company or as
One Person Company (OPC). The advantage of this form is that maximum availability
of resources in financial and physical terms and the disadvantage is that it needs strict
compliance with legal requirements failing which the business may suffer even the
closure of the business.

The first legal issue which is faced by all entrepreneurs is of selection of type of
ownership and getting it registered according to the law off the land. The next stage is
to know all other legal compliances which an entrepreneur has to take care of before
starting his own enterprise. Our next segment in this unit will discuss these other
compliances which are generally required in all types of businesses.

8.5.2 Starting business in India – New simple step-by-step legal process

Business registration is an important compliance which makes the process of starting

the business complicated for an aspiring entrepreneur especially in India. The Ease of
doing business index ranks India at 130th place is a clear indicator that still we need to
get away from complications of registering a business entity. Ministry of Corporate
Affairs (MCA) introduced in the year 2015 a new form for registration of business INC-
29 which is an effort to simplify the process of DIN allotment, PAN & TAN, ESIC
registration and other incorporation processes. The standard steps followed for INC-29
registration process are as follows:

8.5.2.1 Procedure 1: The procedure suggests expected costs and tentative time to complete the
process which is as follows:

 Obtain Digital Signature Certificate from MCA-authorised agency

 Time to Complete: 2 to 5 days

 Cost to Complete: INR 1,500

The guidelines also suggest that a Class II Digital Signature Certificate (DSC) is to be
obtained by one of the directors to use the electronic filing system of MCA 21. This
service costs between Rs 400-Rs2650 and provided by e-Mudhra, TCS and n-Code. The
general time taken for completion of this process varies from 2 to 5 days depending
upon the efficiency of despatch services. The documents required for completion of this
procedure are PAN card, Passport in case of foreign national and self-attested copy of
Voter ID/Ration Card/Driver’s License/Latest Utilities Bill/AADHAR Card.

UNIT-8 Legal Issues For The Entrepreneur Page 146

8.5.2.2 Procedure 2: The step two specifies the process of preparing the INC and the
expected cost and tentative time to complete the process which is as follows:

 Preparing INC-29

 Time to Complete: 1 to 3 days

 Cost to Complete: Company secretary fees

The next step after acquiring Digital Signature Certificate is to fill the required
information in INC-29 to be supported by the signature of a Company Secretary along
with several pieces of information. In case of error resubmission is allowed only once.

For Director Information Number Application: The guidelines prescribed by Ministry

of Corporate Affairs highlights that maximum three directors can apply for the Director
Information Number (DIN) through INC-29; the rest, if any, may do so separately. The
DIN is the number through which the MCA identifies directors of companies. Obtaining
a DIN involves the submission of the following documents:

 Scanned copy of Passport-sized photograph

 Scanned copy of PAN card (passport if foreign national) and Driver’s

License/Voter ID/Latest Utilities Bill. Both should be self-attested, but foreign
nationals would need them notarised by the Indian embassy, too (if they belong
to countries not in the commonwealth, they would also need to be apostilled).

For Name Approval: The new form INC-29 asks for submission of only one name for
the company whereas the old form allowed six possible options for that. It becomes all
the more important for an entrepreneur to understand the guidelines of MCA for
selection of appropriate name to get it approved without much complication in first
attempt. The rules as suggested by various online advisory portals (see reference
section) are as follows:

1. Ensure that your company’s proposed name has not already been taken on
mca.gov.in.

2. Ensure that there is no registered trademark in the same name by checking at

ipindia.nic.com. If there is one, you can get NoC from the trademark owner
authorising you to use it.

3. Ensure that the first half of the name is unique. Avoid geographical references,
adjectives, abbreviations and generic terms. Also, the words bank, exchange and
stock exchange require approval from RBI and SEBI.

4. Ensure that the second half describes the sector you’re in.

UNIT-8 Legal Issues For The Entrepreneur Page 147

Once the name is decided, also describe the significance of the name in one or two
sentences. It would need to be entered into the form.

For Memorandum and Articles of Association: The Memorandum of Association

(MoA) and Articles of Association (AoA) need to be attached to the INC-29. These may
or may not be drafted by a Company Secretary, but should contain the signature of one.
The MoA will also contain the main objects of your business (keep in mind that the
Registrar tends to disapprove of businesses that are in unrelated sectors). You would
also need to attach an affidavit from all subscribers through Form INC-9 (available on
mca.gov.in). The cost of these documents would vary depending on the Company
Secretary you choose.

For Registered Office Verification: The Registered office address provided by the
company directors acts as the address proof for the company. It may be a commercial
or residential space with the proper details of rental agreement along with NoC of the
owner. In case of own property the sale deed is to be annexed.

For Appointment Letters and Declarations: The declarations of appointment of

directors, CEO and managers are to be submitted with application. The authenticity and
verification of these documents require a separate declaration by Company Secretary
with the following attachments:

1. Letters of appointment of directors, CEO, managers

2. Declaration by first director in INC-9

3. Declaration by appointee director and managing director in Form DIR-2.

8.5.2.3 Procedure 3 The next step for registration is filing of INC-29 and the expected cost
and tentative time to complete is as follows:

 Filing INC-29

 Time to Complete: 1 day

 Cost to Complete: Rs. 2000 + authorised capital fee + stamp duty

The completed set of all papers with INC-29 is submitted with the Registrar and
in case of any error the resubmission is allowed only once. If the error continues
the form will be rejected completely. The entrepreneur has to pay the fees and
stamp duty according to the guidelines prescribed according to authorised capital
for a company.

Authorised capital fees are as follows:

a. INR 100,000: INR 5,000;

b. For every INR 100,000 of authorised capital up to INR 500,000, INR 4,000;

UNIT-8 Legal Issues For The Entrepreneur Page 148

c. For every INR 100,000 of authorised capital up to INR 50,00,000, INR 3,000;
d. For every INR 100,000 of authorised capital up to INR 100,00,000, INR 1,000;
e. For every INR 100,000 of authorised capital over INR 100,00,000, INR 750.

Let’s take an example. For a company with a registered office in Mumbai and
authorised capital of Rs. 300,000, the fees would be as follows:

1. Memorandum of Association: Rs. 2000

2. Articles of Association: Rs. 300

3. Stamp Duty: Rs. 1300

4. Authorised Capital Fee: Rs. 13,000

5. INC-29: 2000

8.5.2.4 Procedure 4: The last step for registration of a company includes the issue of
incorporation certificate and tentative time required which are as follows:

 Issue of Incorporation Certificate

 Time to Complete: 2 days onwards

 Cost to Complete: Does not apply

When the certificate is received the other steps are same as used to be followed in
the old process of registration.

8.6 OTHER LEGAL COMPLIANCE IN INDIA FOR

ENTREPRENEURS
The entrepreneur whether at small or at medium level has to operate in certain business
environment which affects their business from the very beginning and from time to time
they have to modify their operations and practices to make the business compliant with
the legal framework. Some of the regulations like State Industries Act, Factories Act
1948, Payment of Wages Act 1936, Minimum Wages Act 1948, Workmen’s
Compensation Act 1923, Employee Provident Fund Act 1952, Employee State
Insurance Act 1948, Copyright Act 1957, Income Tax 1961, Central Sales Tax Act and
State Sales Tax Act (soon to be replaced by GST in the year 2017), Drug Control Act,
The payment of Bonus Act 1978, Industrial Disputes Act 1947, Consumer Protection
Act 1986 are applicable to most of the enterprises. Out of these some of the legal
stipulations of important Acts which every entrepreneur must know before starting his
or her own venture at present and ignorance of these may result in series of hurdles for
the entrepreneur are discussed below -

UNIT-8 Legal Issues For The Entrepreneur Page 149

8.6.1 Labour Law: Every enterprise is a unit where one or more persons are working
together to achieve the common objective which may be profit of service of the
society. In all these cases the social interaction of people associated may result
into conflicts pertaining to money or working conditions. To resolve all these
issues from the very beginning an entrepreneur must have fair knowledge of
prevent labour laws of the country. At present the most important labour laws in
India are the Industrial Disputes Act, 1947, Trade Unions Act, 1926, Factories
Act, 1948, Workmen Compensation Act,1923 (Amended in 1984, 2000) and
The Contract Labour (Regulation & Abolition) Act, 1970, Minimum Wages
Act,1948. An entrepreneur who understands these legislations would definitely
follow the practices which keep the workforce happy and a happy workforce
helps in achieving the desired results, productivity and profits for the enterprise.
8.6.2 Taxation Law: Every entrepreneur whether earning profit or not has to
understand basic tax structure of the country to operate legally and peacefully.
Any business once registered under any form of ownership has to file tax returns
every year to justify their operations to the government and contribution in
National Development. The tax structure in India is broadly divided in two
categories, namely Direct Taxes and Indirect Taxes. Direct Taxes like Income
Tax and Wealth tax affect any entrepreneur with respect to their earnings and
personal possessions whereas the Indirect Taxes like Service Tax, Central Sales
Tax, Customs and Excise Duties which would soon be replaced by unified
Goods and Service Tax (GST) in near future affect the cost of any goods and
service and ultimately its price. Therefore it is imperative for every entrepreneur
to understand the important aspects of Income Tax Act 1961, Direct tax Code
2013 (DTC), Finance Act 1994, Wealth Tax Act etc and run their business
smoothly.
8.6.3 Product Liability and Safety Law: An entrepreneur realizes his dreams or idea
by materializing it in the form of a product or service to the society but while
doing so he/she has to keep in mind the laws related to the safety of it ultimate
consumers. In India the product safety laws are very stringent and over a period
of time the government has added several new regulations which ensure overall
protection of the citizen of India from any malpractices used by manufacturers.
Some of the regulations which cover civil product liability are Sales of Goods
Act 1939, Consumer Protection Act 1986, Competition Act 2000, Law of Torts
etc. In some of the cases the criminal liability is also imposed if any irregularity
is found from the side of the entrepreneur under The Drug & Cosmetics Act
1940, The Food Safety and Standards Act 2006, The Bureau of Indian Standards
Act 1986 etc. Therefore it is important that the entrepreneur plan his business
idea keeping in mind the legal regulations of these acts to avoid any problems
later.
8.6.4 Intellectual Property Law: The dreams or ideas of an entrepreneur are the
creation of his mind and are transformed into reality by the efforts of his team.

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 It must be noted that those who become the part of this team may not choose to
remain with the organization for life or may discuss these innovative ideas with
others. In these circumstances it is important to protect the originality of the idea.
In case of designers, programmers, artists or researchers where the final product
or service is the hard work of a team or an entrepreneur it is referred as
intellectual property. Copyrights, Trademarks, Patents, Trade Secrets, Plant
Varieties, etc are various types of Intellectual Properties in today’s world. It is
important for every entrepreneur to understand that his business must not violate
any Intellectual Property Law nor any one exploits his/her Intellectual Property
for undue advantage without his/her permission. Copyright Act 1957, Patent Act
1970, Trademarks Act 1999, etc are the acts which guard every entrepreneur
from such situation.
8.6.5 Corporate and Contract Law: Every Entrepreneur operates in a business
environment which follows some standard practices governed by Contract Law.
The transactions whether monetary or non monetary which we observe in our
daily life are also governed by Indian Contract Act 1872. According to this Act
“every agreement which is enforceable by law is a contract.” This forms the back
bone of every business and becomes the guiding force for the entrepreneur to
move ahead in his or her business. The Contract Act initially had Sale of Goods
Act, Partnership Act etc but later all of these were severed and constituted as
separate acts to make them more understandable by all. Today the contracts
related to purchase and sale of goods are covered by Sale of Goods Act 1930,
and the contracts related to partnership for starting of business are covered under
Partnership Act 1932. The contract of Agency, Bailment and Contract of
Indemnity and Guarantee are also part of contract act and they influence most of
the operations of business for an entrepreneur.
The management of any business by an entrepreneur may also be affected by
Corporate Laws and most important among those is Companies Act 2000 which
has replaced Companies Act 1956 if the enterprise is registered in the company
form of the business. The Company form of business gives the entrepreneur the
advantage of separate entity, separate property, common seal and wider access
to capital. Some of the key features added in the new Companies Act 2013 are
One Person Company (OPC), introduction of Dormant Company, Mandatory
inclusion of Corporate Social Responsibility for all companies, and Rotation of
Auditors, etc.
8.6.6 Pollution Control Law: Rapid industrialization has become the cause of
concern for the environment and the government in every country is forming
legislations to protect the environment. These regulations aim to create liabilities
for the entrepreneur which are related to containing the pollution level within
the range, precautions to be taken while handling hazardous material and
providing due information about any kind of accidents. It is to be noted by all
entrepreneurs that large industries have take approval from Pollution Control
Boards (PCBs) before starting their activities but in case of

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 Small Scale Unit consent is required only in few cases. SSIs generally get an
acknowledgement that serves the purpose of consent. State pollution control
boards issue a No Objection Certificates for Air and Water pollution along with
Site clearances whereas some of the areas may be prohibited for starting up any
kind of business activities.

Check Your Progress- B

Q1. Explain various legal issues for starting a business with

suitable examples.

Q2. Write a short note on the Registration of an enterprise.

Q3. Explain the relationship between labour law and entrepreneurship.

Q4. How does Taxation affect an entrepreneur?

UNIT-8 Legal Issues For The Entrepreneur Page 152

Q5. Multiple Choice Questions-

(i) The most convenient and simple way to start the business is
(a) Proprietorship
(b) LLP
(c) Company
(d) None of the above
(ii) The latest form INC-29 is introduced by:
(a) Companies Act
(b) Pollution Control Board
(c) Ministry of Corporate Affairs
(d) Foreign Ministry
(iii) The tax structure in India is broadly divided in two categories, namely
(a) Service Tax and Excise
(b) Goods & Service Tax
(c) Direct & Indirect Tax
(d) Income Tax & Wealth Tax
(iv) In case of Product Liability and Safety Law criminal liability is imposed in
case of irregularity under
(a) Consumer Protection act
(b) Sale of Goods Act
(c) The Drug & Cosmetics Act 1940
(d) All of the above

8.7 LEGAL CLEARNACES REQUIRED BEFORE

STARTING AN ENTERPRISE
The various legal issues discussed in the previous sections highlight the importance of
knowing various acts to be able to start a particular business and reap its benefits.
However it is also important to have a look over various clearances required as pointed
out by various agencies and government machinery from time to time as per the norms.
It should be noted by the reader that these clearances may change anytime as per the
government notification made for the benefit of the society at large. Some of the legal
clearances as specified by Department of Industrial Policy and Promotion (DIPP),
Government of India are discussed below:

Category of Clearance Sanctioning Authority

Incorporation of Company Registrar of Companies

Registration/IEM/Industrial license District Industry Center for Small Scale

Industries(SSI) /Secretariat of Industrial
Assistance (SIA) for large and medium
industries

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Allotment of land State DI/State Industrial Development
Corporation(SIDC)/Infrastructure
Corporation/Small Scale Industrial
Development Corporation(SSIDC)

Permission for land use (in case a. State DI

industry is located outside an industrial
b. Department of Town and Country
area)
Planning

c. Local authority/District Collector

NOC and consent under Water and Air State Pollution Control Board
Pollution Control Acts

Approval of construction activity and a. Town and country planning

building plan
b. Municipal and local authorities

c. Chief Inspector of Factories

d. Pollution Control Board

e. Electricity Board

Sanction of Power State Electricity Board

Use and storage of explosives Chief Controller of Explosives

Boiler Inspection Certificate Chief Inspector of Boilers

Finance i. State Financial Corporation /SIDC for term

loans

ii. For loans higher than Rs. 15 Million, all

India financial institutions like Industrial
Development Bank of India(IDBI), Industrial
Credit and Investment Corporation of
India(ICICI), Industrial Finance Corporation
of India(IFCI) etc.

Registration under States Sales Tax i. Sales Tax Department

Act, and Central and State Excise Act
ii. Central and State Excise Depts.

Extraction of Minerals State Director of Mines and Geology

ISI Certificate Regional Office of the Bureau of Indian

Standards (BIS)

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Quality Marking Certificate Quality Marking Center of the State
Government

Weights and Measures Inspector of Weights and Measures

Code Number for Export and Import Regional Office of Director General of
Foreign Trade

8.8 SUMMARY
India as a country faces more legal challenges in the world compared to its counterparts
when it comes to entrepreneurship due its delayed adoption of progressive regulatory
framework. Though the liberalization of the market has presented new set of
opportunities to entrepreneurs in all market segments but the pace of development still
need more thrust. The legal rules and regulations ensure the growth of the enterprise
and growth of the environment. These regulations also make sure that the standards of
operations for all stakeholders are being followed. The current forms of business
ownership which an entrepreneur generally takes up are proprietorship, partnership and
a company. The innovations such as limited liability partnership and one Person
Company have also induced many to take up the plunge into entrepreneurship due to
fewer formalities. It is also to be seen that an entrepreneur has to comply with several
laws such as Contract Act, Labour Laws, Product Safety, Intellectual Property etc.
Direct and Indirect taxes and various types of duties imposed by the government are the
legal issues dealt by every entrepreneur at different stages of the business. Industrial
Acts, Value Added Tax, Income Tax, Service Tax, Excise and Professional Tax.
Moreover various types of clearances are required to be taken by the entrepreneur
before starting a new unit as notified by the government from time to time. The Legal
compliances are the direction for excellence, growth and development with a
mechanism for monitoring of any deviations. An enterprise is associated with land,
environment, people and consumers, therefore regulations are formed to protect the
interest of all these stakeholders. Greater the awareness of these regulations, greater is
the chance of the success of the enterprise. A strong understanding of the legal issues to
the entrepreneur ensures rapid and smooth growth of the enterprise.

8.9 GLOSSARY
 Start Up- A startup (startup or start-up) is an entrepreneurial venture which is
typically a newly emerged, fast-growing business that aims to meet a marketplace
need by developing or offering an innovative product, process or service.
 Bureaucracy- A system of government in which most of the important decisions
are taken by state officials rather than by elected representatives.
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 Civil Society- Society considered as a community of citizens linked by common
interests and collective activity.
 Tier II cities- These are the next level down from Tier I, and are basically smaller
cities, statistically 1 million in population and are usually regional hubs such as state
capitals or industrialized centres. Some examples include Pune, Cochin, Mangalore,
and Dehra Dun.
 Tier III cities- Tier III consist of cities with a population of less than a million. In
simpler terms, these comprise cities that are just beginning to wake up and take form
on their own.
 MSME- The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises
based (i) on the investment in plant and machinery for those engaged in
manufacturing or production, processing or preservation of goods and (ii) on the
investment in equipment for enterprises engaged in providing or rendering of
Services.
 Proprietorship- A business that legally has no separate existence from its owner.
Income and losses are taxed on the individual's personal income tax return.
 Partnership- A type of business organization in which two or more person pool
money, skills, and other resources, and share profit and loss in accordance with
terms of the partnership agreement.
 LLP- A limited liability partnership (LLP) is a partnership in which some or all
partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits
elements of partnerships and corporations. In an LLP, one partner is not responsible
or liable for another partner's misconduct or negligence.
 Company- A company can be defined as an "artificial person", invisible, intangible,
created by or under law, with a discrete legal personality, perpetual succession, and
a common seal.
 Capital- Capital refers to financial assets or the financial value of assets, such as
cash and funds held in deposit accounts, as well as the tangible machinery and
production equipment used in environments such as factories and other
manufacturing facilities.
 Memorandum of Association- A Memorandum of Association (MOA) is a legal
document prepared in the formation and registration process of a limited liability
company to define its relationship with shareholders.
 Articles of Association- Articles of Association is a document that contains the
purpose of the company as well as the duties and responsibilities of its members
defined and recorded clearly. It is an important document which needs to be filed
with the Registrar of Companies.
 Stamp Duty- A stamp duty is the tax placed on legal documents usually in the
transfer of assets or property.
 DIPP- Department of Industrial Policy and Promotion under Ministry of Commerce
and Industry, India
 ISI- ISI mark is a certification mark for industrial products in India. The mark
certifies that a product conforms to the Indian Standard, mentioned as IS:xxxx on
UNIT-8 Legal Issues For The Entrepreneur Page 156
 top of the mark, developed by the Bureau of Indian Standards (BIS), the national
standards body of India.

8.10 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

Ans1. The legal procedures and rules which are framed to

accelerate the setting up of new enterprises or Start Up sometimes becomes an issue for
the entrepreneur. The way to tackle these legal issues is the knowledge of various acts
and regulations which generally affect all types of the business and they become legal
issues if not managed properly by the entrepreneur.

Ans 2: The purpose of knowing various legal issues are as follows:

 To understand business environment

 To know Protective and Promotional regulations
 To safeguard interest of Entrepreneurs
 To promote the growth of entrepreneurs
 To provide timely solution of the operational difficulties

Q3. MCQs

(i) b, (ii) a, (iii) a

Q4. Fill in the Blanks with appropriate words

(i) growth of the business

(ii) serious problems, closure
(iii) Start Up or new enterprises
(iv) fostering entrepreneurship

Check Your Progress –B

Ans 1. Following are the legal issues for starting a business:

 Registration related issues

 Labour related issues

 Tax related issues

 Location related issues

 Product related issues

 Environment related issues, and

UNIT-8 Legal Issues For The Entrepreneur Page 157

  Safety, Security, hygiene, health and welfare related issues, etc.

Ans 2: For every entrepreneur who plans to start his own enterprise the first and most
important legal issue is non awareness of the registration process and of various options
available for setting up an enterprise and various funding options available. It is
important for every entrepreneur to understand the legal regulations related to
registration of business and in how many forms it is possible in India. Following are the
various forms of organization which can be registered in India as per various Acts of
the government:

 Proprietorship
 Partnership
 Limited Liability Partnership
 Limited Liability Company
Ans 3: Every enterprise is a unit where one or more persons are working together to
achieve the common objective which may be profit of service of the society. In all these
cases the social interaction of people associated may result into conflicts pertaining to
money or working conditions. To resolve all these issues from the very beginning an
entrepreneur must have fair knowledge of prevent labour laws of the country. At present
the most important labour laws in India are the Industrial Disputes Act, 1947, Trade
Unions Act, 1926, Factories Act, 1948, Workmen Compensation Act,1923 (Amended
in 1984, 2000) and The Contract Labour (Regulation & Abolition) Act, 1970, Minimum
Wages Act,1948. An entrepreneur who understands these legislations would definitely
follow the practices which keep the workforce happy and a happy workforce helps in
achieving the desired results, productivity and profits for the enterprise.

Ans 4: Every entrepreneur whether earning profit or not has to understand basic tax
structure of the country to operate legally and peacefully. Any business once registered
under any form of ownership has to file tax returns every year to justify their operations
to the government and contribution in National Development. The tax structure in India
is broadly divided in two categories, namely Direct Taxes and Indirect Taxes. Direct
Taxes like Income Tax and Wealth tax affect any entrepreneur with respect to their
earnings and personal possessions whereas the Indirect Taxes like Service Tax, Central
Sales Tax, Customs and Excise Duties which would soon be replaced by unified Goods
and Service Tax (GST) in near future affect the cost of any goods and service and
ultimately its price. Therefore it is imperative for every entrepreneur to understand the
important aspects of Income Tax Act 1961, Direct tax Code 2013 (DTC), Finance Act
1994, Wealth Tax Act etc and run their business smoothly.

Ans: Multiple Choice Questions-

(v) A, (ii) C, (iii) C, (IV) d

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 8.11 REFERENCES
Raju, B.Yerram (2004), Small Industries in India: Policies and
Perspectives in the Emerging context, Excel Books, New Delhi
Barringer, Bruce, R., Ireland, R. Duane (2009), Entrepreneurship:
Successfully Launching New Ventures, Pearson Education, Inc

Kent, Calvin, A. Donald, L.Sexton and Karl H. Vesper (1982). Encyclopaedia of

Entrepreneurship. New Jersey: Prentice Hall

http://keydifferences.com/difference-between-memorandum-of-association-and-
articles-of-association.html

http://trak.in/2009/starting-business-in-india-simplified-process/

http://www.caclubindia.com/articles/procedures-for-incorporation-and-registration-of-
companies-2984.asp

http://www.legalserviceindia.com/company%20law/com_2.htm

http://www.myeca.in/process-to-register-a-company-with-new-inc-29-form-2/

http://www.myonlineca.in/legal-adda-powered-by-myonlineca/step-by-step-process-
to-register-company-with-new-inc-29-form

http://www.startupfreak.com/memorandum-of-association-and-its-clauses/

https://en.wikipedia.org/wiki/Business_operations

https://indiankanoon.org/doc/651105/

https://www.entrepreneur.com/article/279304

https://www.mca.gov.in/MCA21/dca/efiling/eStamp_rate.pdf

www.entrepreneur.com

www.incometaxindia.gov.in

www.labour.nic.in

www.msme.gov.in

www.vakilsearch .com

UNIT-8 Legal Issues For The Entrepreneur Page 159

 8.12 SUGGESTED READINGS
Roy, Rajeev. (2008), Entrepreneurship, Oxford University Press, New
Delhi

Gupta, C.B, Srinivasan, N.P, (2008), Entrepreneurship Development in India, Sultan

Chand & Sons Educational Publishers, New Delhi

Desai, Vasant, (2006), Small-Scale Industries and Entrepreneurship, Himalaya

Publishing House, Mumbai

8.13 TERMINAL QUESTIONS

1. Describe various legal issues associated with starting of a new

venture?

2. Discuss the procedure of registration of an enterprise.

3. Write a brief note on “Pollution Control Clearance”

4. What is the difference between LLP and Company?

5. Why tax evasion is a bad idea for entrepreneurs?

6. What are the various legal clearances required before starting an enterprise?

7. What legal factors contribute towards the growth of entrepreneurship in India?

UNIT-8 Legal Issues For The Entrepreneur Page 160

 UNIT 9 SMALL AND MEDIUM ENTERPRISES

9.1 Introduction

9.2 Objectives

9.3. Definition of Small and Medium Enterprises

9.4 Role and Contribution of Small and Medium Enterprises in India

9.5 Challenges for MSME

9.6 Measures Taken For MSME Growth

9.7 Resent Policy Frameworks

9.8 Future Steps for SME Development

9.9 Indian MSMEs: Areas of Cooperation

9.10 Summary

9.11 Glossary

9.12 Answer to Check Your Progress

9.13 References / Web Sources

9.14 Suggested Readings

9.15 Terminal & Model Questions

9.1 INTRODUCTION
In this unit, you will study about small and medium enterprises and legal issues
pertaining to such organizations.

In the last five decades small and medium enterprises have emerged as one of the most
important sector of Indian economy. SMEs play an important role in providing
employment to a larger public in a large economy like India at a relatively lower cost of
capital then the large organizations. They also mobilize factors of productions which is
the need of this growing economy. Therefore understanding small and medium
enterprises is of vital importance for any manager.

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In this unit we will learn about the current state of small and medium enterprises in India
and will explore various crucial issues such as challenges faced by SMEs, government
support available and other crucial managerial issues that small and medium enterprises
need to face in today's environment.

9.2 OBJECTIVES

After reading this unit you will be able to:

- Understand the meaning and nature of Small and Medium Enterprises (SMEs)
- Understand various advantages and disadvantages of SMEs
- Understand various legal issues related to SMEs, which might of vital importance
while selecting this form of organization.
- Lean about various strategic challenges and opportunities pertaining to SMEs.

9.3 DEFINITION OF SMALL AND MEDIUM

ENTERPRISES
Micro, Small and Medium Enterprises Development (MSMED) Act was passed in the
parliament by Government of India on 16th June 2006. It was notified on 2nd October
2006 to the public of India. This act was a unique at because service sector which is
the one of the largest growing sector, was formally included as a part of SME definition.
This was an important move because India’s GDP is going to be dominated by service
sector in next few decades. Therefore, extending the scope of the act for services sector
was an appropriate move.

The Act also enabled the development of SMEs and also focused on enhancing their
competitiveness. It provided the legal definition for recognizing of the concept of
"enterprise" which includes both manufacturing and service enterprises.

This was the first time when an act defined all three levels of the enterprises that is-
micro small and medium enterprises. In a way it is a statutory mechanism which is
primarily consultative in nature at the national level. The act has a proper representation
of various stakeholders associated with all three levels of the enterprises. The act has
included a range of advisory functions which are very important for the development of
MSM sector.

The MSMD Act 2006 has defined micro small and medium enterprises on the basis of
two important factors that is-

1) The investment in plant and machinery for those enterprises which are involved in
manufacturing, production, processing or reservation of goods.

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2) On the basis of investment in equipment for the enterprises that are engaged in
providing services to the customers.

As per the act, “The investment in plant and machinery is the original cost excluding
land and building and other items specified by the Ministry of Small Scale Industries
vide its notification no. S.O. 1722 (E) dated 05.10.2006. The guidelines with regard to
investment in plant and machinery or equipment as defined in the MSMED Act, 2006
are:”

Manufacturing Enterprises - Investment in Plant & Machinery

Description INR USD ($)

Micro Enterprises Upto Rs. 25 Lakh Upto $ 62,500

Above Rs. 25 Lakh & Upto Above $ 62,500 &

Small Enterprises
Rs. 5 Crore Upto $ 1.25 million

Medium Above Rs. 5 Crore & Upto Rs. Above $ 1.25 million
Enterprises 10 Crore & Upto $ 2.5 million

Service Enterprises – Investment in Equipment

Description INR USD ($)

Micro Enterprises Upto Rs. 10 Lakh Upto $ 25,000

Above Rs. 10 Lakh & Upto Rs. 2 Above $ 25,000 &

Small Enterprises
Crore Upto $ 0.5 million

Above $ 0.5
Above Rs. 2 Crore & Upto Rs. 5
Medium Enterprises million & Upto $
Crore
1.5 million

Source: MSMD Act 2006.

“As per the act, the illustrative list of enterprises that are engaged in providing or
rendering services may include:

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  Small road and water transport operators (original investment in vehicles upto
Rs. 200.00 lacs under Priority sector)

 Retail trade (with credit limits not exceeding Rs. 20.00 lakhs)

 Small business (whose original cost price of the equipment used for the purpose
of business does not exceed Rs. 20.00 lakhs

 Professional and self-employed persons (whose borrowing limits do not exceed

Rs.10.00 lakhs of which not more than Rs.2.00 lakhs should be for working
capital requirements except in case of professionally qualified medical
practitioners setting up of practice in semi-urban and rural areas.”

Source: MSMD Act 2006.

9.4 ROLES AND CONTRIBUTION OF SMALL AND

MEDIUM ENTERPRISES IN INDIA
For a country like India Small and Medium Enterprises have always been important,
today they can be seen as an important pillar of the economy. As a developing country
which requires a reasonably large amount of capital for the purpose of development;
Micro, Small and Medium enterprises have become an important part as they are very
effective in providing superior return on capital employed as compared to large
enterprises. Thus to deal with the problems such as poverty, unemployment, Income
Inequalities, micro, small and medium enterprises have proved to be a good vehicle to
propel Indian economy towards growth with effective utilization of capital resources.

Today MSME play a significant role in the economy. The following figures confirm
this fact that MSME are backbone of Indian economy.

- MSME accounts for more than 45% to manufacturing output

- They also contribute about 40% to exports
- Provide employment to 40% of work force that is nearly 110 million people.

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As of today, micro small and medium enterprises in India surely ensured the
achievement of socialistic goals set by government of India. As a large democracy,
India needed a support from entrepreneurs with a wider range of employment
opportunities so that the larger proportion of the population can be engaged in
production of goods and services. So far small and medium enterprises have met the
expectations and ensured high returns on government investments in this sector.

Today the employment density of small and medium enterprises is approximately 4

times greater than the large companies. Currently around 36 million small and medium
enterprises generate employment opportunities for approximately 80 million people in
India. This accounts for nearly 8% of GDP and 45% of total manufacturing output. A
total of 40% of exports from India are also contributed by MSMEs.

As a large developing economy, India needs to counter several problems such as

poverty, lower level of standard of living (specially in rural villages) and income
disequilibrium. Small and medium enterprises sufficiently done this job of improving
income levels in rural part of the country providing employment opportunities to the
rural masses. This is one of the biggest contribution of small scale enterprises towards
fulfilling the socialistic goals of Government of India

Urban cities accounts for 857,000 enterprises which is approximately 54.77% of the
total enterprises registered in India under MSME category whereas the rest of the
MSMEs that is 707,000 are located in the rural parts of the country.

9.5 CHALLENGES FOR MSME

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Although MSME sector has contributed significantly towards the development of the
country but like any other country Indian MSME sector faces various challenges that
are of crucial nature. One of the biggest challenges today is the competition from
international enterprises. Due to their origin they possess different competencies that
pose severe challenges to Indian small and medium enterprises. As a result of
International treaties and trade agreements, Indian government cannot keep the doors
closed to reduce competition. Therefore, only indirect actions through favorable norms
for Indian enterprises are safeguarding MSME from severe competitive conditions.

As the technology advancements these days play a vital role in the product development,
in improving processes and also in aligning organizations to their market needs. Indian
MSMEs lack in technology advancements as compared to their larger counterparts as
they lack direct support from various stakeholders in this regard.

In addition to technology issues, Indian MSMEs lack the availability of skilled labor as
they are situated mostly in rural and semi-urban areas of the country. This slows down
the overall growth rate of the MSME sector in today’s environment due to unskilled
labor. With lowering productivity and lesser abilities to compete in high technological
environment, it makes it difficult for MSMEs to survive without direct support from
government and other stakeholders.

Another problem with MSMEs is the inadequate and untimely availability of credit.
Currently in India, the cost of credit is comparatively higher and there is also a
requirement of collateral. This leads to limited access to capital by small and medium
enterprises. As Government of India traditionally has kept MSMEs out of institutional
credit system, this further increased the intensity of the problem of credit availability to
MSMEs.

Other challenges faced by the MSMEs include high cost of materials, lower access to
global markets, lack of infrastructural facilities, limited access to modern technology,
lack of limited manpower, stringent labour laws and unavailability of business friendly
environment.

9.6 MEASURES TAKEN FOR MSME GROWTH

Some of the measures taken by government of India to improve the performance of

MSMEs are as under –

- Government of India has set up an ‘India Opportunities Venture Fund’ with SIDBI
worth Rs. 50 Billion to provide equity to the MSME sector.
- Under the Public Procurement Policy for Micro and Small Enterprises (MSEs),
government organizations and Central Public Sector Enterprises (CPSEs) are
required to make a minimum of 20% of their annual purchase from MSMEs. Of

UNIT-9 Small and Medium Enterprises Page 166

 this purchase, 4% to be earmarked for procurement from MSEs owned by SC/ST
entrepreneurs.
- The Government of India has adopted a cluster based approach to improve the
productivity, competitiveness and capacity building of MSMEs,
- Credit provided to micro and small enterprises is considered part of priority sector
lending by banks.
- Around 20 items have been reserved for exclusive manufacturing by MSMEs.
- Central government has introduced National Manufacturing Competitiveness
Programme (NMCP) for building capacity of MSMEs.

Other than the aforesaid measures, the most important precondition for the unbridled
growth of SMEs is guaranteeing the availability of empowering environment and
necessary infrastructure. If government can guarantee the double digit growth for the
SMEs, it would certainly help in achieving the long term goals of equality of income
and promoting the growth in rural areas of the country.

9.7 RESENT POLICY FRAMEWORKS

MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

The MSMED Act, 2006 provides encouragement for the development of small
enterprises by focusing largely on promoting competitive abilities. It provides a legal
framework which recognizes the concept of enterprise from manufacturing as well as
service organizations. It helps in defining all three segments namely- micro, small and
medium enterprises the act is primarily consultative in nature with a wide variety of
advisory functions.

Under this act the Government of India has made a provision to maintain the funds for
the purpose of promotion, development and enhancing competitive abilities among
small and medium enterprises. With this objective the government keeps on notifying
various schemes and programs time to time. The act also provides a framework for
progressive credit policies and practices which provide credit on preferential basis to
small enterprises in both manufacturing as well as in service sector.

On the other hand the ministry of micro small and medium enterprises continuously
screen the policy framework for the purpose of promoting small and medium enterprises
so as to provide various incentives relevant to the sector.

In the recent time the ministry of small and medium enterprises has identified various
areas of improvement such as Finance, Technology, Quality Control, Certification,
Export Marketing etc. On the other hand state governments co-ordinate with the MSME
ministry so that the policies made by the Ministry can be implemented in their respective
states and benefits can be passed-on to the needy organisations.

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Thus, it can be concluded that the MSMED Act 2006 has contributed to the development
of small and medium enterprises by establishing clear definitions of different levels of
organisations and also by providing a Framework for developing policies that aim at
taking appropriate measures which are needed at current point in time.

THE INSOLVENCY AND BANKRUPTCY REGIME

The Other area of improvement at the current time is the insolvency and bankruptcy
regime as the rate of insolvency is higher among small and medium enterprises and
similar start-up organisations there is a need of a regime which takes care of insolvency
and bankruptcy situations. So far India does not have a comprehensive policy or a law
on bankruptcy. This means that the individuals are declared insolvent when they are not
able to pay they are liabilities in case of failure of their businesses or during closing
their businesses.

As the majority of businesses in India are either proprietorship or partnerships formats.

Insolvency becomes a major problem for all those who suffer loss in business. As per
3rd census of Small Scale Industries (Ministry of Micro Small and Medium Enterprises),
97.3% of all small units were formed as proprietorships or partnerships. Thus, hardly
2% of small units were incorporated as Companies.

Though the need for bankruptcy laws is increasingly being felt in the country, as is
evident from several important committees** and groups set up by the Reserve Bank of
India and the Government during the last decade, the discussion has been limited to
'corporates' and excluded 'firms' and individuals. Another expert committee, the J.J.
Irani Committee, set up to suggest amendments in the Companies Act also overlooks
the personal liability aspect of directors of small companies.

The discussions in India so far have been unduly influenced by the need for restructuring
or liquidation from the standpoint of financial institutions only. Not much attention has
been paid to liabilities arising out of statutory dues and the rehabilitation of the debtor.
The major pieces of legislation born during the period, substantiate this claim: The
Recovery of Debts due to Banks and Financial Institutions Act, 1993 (DRT Act) and
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (SARFAESI Act), which enshrine the contractual right of the secured
creditor to take possession of securities in the event of default and sell them for
realization of the loan.

CURRENT LEGAL FRAMEWORK FOR INSOLVENCY OF SMES

Currently insolvency framework in India is primarily divided into two parts- 1) personal
and 2) corporate insolvency laws. Personal insolvency framework deals with
individuals, proprietors, and partners and managed by two important acts namely-

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Provincial Insolvency Act 1920 and Presidency Towns Insolvency Act 1909. On the
other hand corporate insolvency act deals with companies which are governed by The
Companies Act 1956 and Limited Liability Act, 2009. Above-mentioned acts include a
wide range of provisions which provide rehabilitative and distributive objectives in
insolvency conditions.

IMPORTANT DEVELOPMENTS IN 2015-2016

During 2015-16, to boost the economic growth in the country through small scale
industries, the Government of India has proposed various reforms for small and medium
enterprises and startup organisations. These measures include Re- implementation of
public procurement policy, Make in India, Startup India and Skill India programs which
aim at the growth rate of 12 to 14% for manufacturing sector and has an objective to
increase the share of manufacturing to 25% by the year 2025. The government has also
made several plans for the purpose of providing support in the area of finance and
Technology. Recently GST bill is also proposed to be implemented in 2017 which is a
part of major reforms made by government of India. This will change the scenario of
indirect taxes by bringing in transparency in indirect taxation process.

SME TRENDS IN 2017

During 2017 we have seen several trends among small and medium enterprises. Most
of the startups in this segments are primarily focusing on E-Commerce segment
specially in business to business segment. India has witnessed a sharp rise in the number
of startups in 2017 majority of these startups focus on technology as a medium of
providing products and services. E-Commerce segment itself has seen many small
players beginning their businesses. The use of Technology has provided a Win-Win
situation for all stakeholders involved in these small scale Enterprises. SMEs in India
is expected to touch the mark of $25.8 billion under emerging technologies segment by
2020. The growth of B2B e-commerce is expected to gain further momentum in 2017
onwards.

With the merger of e-commerce and m-commerce segments in India, the digital or
online marketing of goods and services is no longer a fancy term. With the aggressive
growth of SMEs in this segment has pushed the growth of Internet penetration in India.

With the increasing use of smartphones, tablets and computers, the market of e-
commerce is increasing by leaps and bounds in India. People are adopting online
transactions in various segments of e-commerce such as consumer and business goods
and other various types of services.

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Although financial and Technology firms are fairly doing well in India but majority of
them are struggling due to non availability of easy finance. All small and medium
enterprises need to approach commercial banks for the purpose of finance but due to
lack of prior experience and available collaterals a majority of them are not able to raise
sufficient funds for their survival and success. Therefore, in addition to domestic
sources of finance, we have witnessed that some of the small companies which are now
have become large companies, opted for international investors raise sufficient funds
rather approaching domestic investors and commercial banks.

In the area of finance we cannot ignore NBFCs which are the major sources of credit
for small industries in addition to traditional banking institutions in the recent time.
NBFCs also provided a significant portion of their funds to small industries and startups.
As far as the policies are concerned, NBFCs have always been more favourable for
small industries as compared to traditional banks. Therefore, small industries gained a
significant portion of the funds from NBFCs. The other advantage with NBFCs is the
quick disbursement of funds which has led more small enterprises to opt for NBFCs
over traditional banks.

Check Your Progress-A

Q1. What do you mean by small and medium enterprises?

Q2. What are the various characteristics of small and medium enterprises?

Q3. What are the key features of Micro, Small and Medium Enterprises
Development Act, 2006?

UNIT-9 Small and Medium Enterprises Page 170

Q4. Fill in the blanks.

a) Micro, Small and Medium Enterprises Development (MSMED) Act was

passed in the parliament by Government of India on

b) MSME play a in the economy.

c) The use of Technology has provided a - for all
stakeholders involved in these small scale Enterprises.
d) are the major sources of credit for small industries in
addition to traditional banking institutions.

9.8 FUTURE STEPS FOR SME DEVELOPMENT

Keeping in mind the recent trends and developments, there is no doubt that small
enterprises have bright future in India. As recently Government of India has started
focusing on their growth and development, it is evident that this sector will grow
significantly in the next few decades. But for a consistent growth in future various
stakeholders including government has to ensure it’s continuous support to the sector.
There can be several areas where this support is needed, some of them can be as follows:

1. Building competitiveness

Building competitiveness among small Enterprises is an essential area where

stakeholders including government has to focus. The government needs to take those
steps which enhances competitive strengths of small enterprises rather than just provide
some protective mechanism which may lead to certain weaknesses among small
enterprises in long run.

Some of the primary areas of this competitiveness building exercises maybe- reducing
cost of production, improving quality of products and services, and improving
effectiveness of product marketing by small enterprises. The need of the day is to find
out various clusters in India by the government so that better infrastructure facilities and
Technology up-gradation services can be provided to such organisations so that their
core competitiveness can be enhanced in order to make them efficient and effective
against their international counterparts.

2. Promoting innovativeness and awareness about quality

The Other area of focus should be promoting innovation and quality. Indian small and
medium enterprises do focus on quality and innovation but these aspects are majorly
driven by customer demands, either ensured by rules and regulations or are focused due
to competition. So far Indian Enterprises have not seen innovation and quality
improvements as the continuous process for the success of the organisations. Therefore,
there is a need of a shift in the mindset which can only be possible by external agencies
such as government ministries by creating awareness among small
UNIT-9 Small and Medium Enterprises Page 171
enterprises indicating benefits of adopting innovation and quality as the primary
objective of the enterprise.

3. Enabling SMEs to participate in global markets

Government of India should also promote Indian small Enterprises to participate in

global markets Such Enterprises may Start with exports to other countries and later on
may also think about establishing International value chain. This will be an important
step towards globalization of Indian enterprises. Although at current small enterprises
lack basic competitiveness against their International counterparts. But some of the
small enterprises which deal in handcrafted products or those products which require
unique skills have greater chances of being successful in international markets. In
addition to bringing foreign exchange, these enterprises will also bring knowledge to
the country in terms of international practices, technical know-how and other important
learning that can be beneficial for the whole sector.

9.9 INDIAN MSMES: AREAS OF COOPERATION

India benefited immensely from experience of several countries, especially in the field
of technology. However, the rich Indian experience gained in the last sixty years in the
MSME sector could also be of equal use for both developing as well as developed
countries. Some of the areas that offer ample opportunities for cooperation in the MS
ME sector are:

 Fee-based consultancy services and training in the following areas:

o Capacity Building of Entrepreneurs and Technical Manpower of SMEs;
o Policy & Institutional Framework for SME Promotion, Development
and Enhancing Competitiveness;
o Entrepreneurship Development; and Business Development Services.
o Establishment of Turnkey Projects for setting up manufacturing
MSMEs on commercial terms.
 Skill up gradation programmes in selected areas such as CNC Machining, Sheet-
Metal Technologies, CAD, CAM Designing, Wool Processing & Weaving,
Leather Technology, Plastic Technology, Wood Working, etc.
 Conducting surveys and studies to identify the tooling and related skill
requirements in specific areas or regions like hilly/ backward/ indigenous.
 Providing turnkey assistance to set up Tool Rooms & Training Centers.
 Providing consultancy to existing manufacturing SME in upgrading their
production facilities, selection of machine tools, design consultancy for tools,
moulds, dies, jigs & fixtures, etc.
 Providing specialized/tailor-made training courses for specific target groups.
 Providing consultancy to existing training institutes in course design and
curriculum development including trainers training programmes.
 Assistance in product design, tool design and manufacturing of intricate

UNIT-9 Small and Medium Enterprises Page 172

 tooling.
 High precision tools, moulds, dies, jigs & fixtures etc. as per
design/specifications of local industry.
 Product development & rapid prototyping services.

9.10 SUMMARY
In this unit you learnt the definition of micro, small-scale and medium enterprises. You
came to know that Micro, Small and Medium enterprises are very effective in providing
superior return on capital employed as compared to large enterprises. You also learnt
that Indian MSME sector faces various challenges that are of crucial nature. One of the
biggest challenges today is the competition from international enterprises. Due to their
origin they possess different competencies that pose severe challenges to Indian small
and medium enterprises. Further, Micro, small and medium enterprises have proved to
be a good vehicle to propel Indian economy towards growth with effective utilization
of capital resources. Thus, these enterprises provide array of opportunities for you to
assume entrepreneurial career .

9.11 GLOSSARY
Micro Enterprise: It is the one in which investment in plant and machinery
does not exceed twenty five lakhs in manufacturing sector and ten lakhs in
equipments in case of services sector.
Small Enterprise: It is the one in which investment in plant and machinery is
more than twenty five lakhs but does not exceed 5 crore in manufacturing sector
and more than ten lakhs but does not exceed two crore in equipments in case of
services sector.

9.12 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

a) 16th June 2006.

b) significant role
c) Win-Win situation
d) NBFCs
9.13 REFERENCES / WEB SOURCES

 http://www.iica.in/images/confdetailpaper/Country_Papers.pdf

 http://docplayer.net/37576082-Smes-existing-insolvency-regime-an-
introduction.html

UNIT-9 Small and Medium Enterprises Page 173

  http://www.kvb.co.in/msme/definition.html

 http://dcmsme.gov.in/ssiindia/defination_msme.htm

 https://rbi.org.in/scripts/FAQView.aspx?Id=84

 https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=8192

 http://ficci.in/state/1003/Add_docs/ISED-gujarat.pdf

 Micro, Small and Medium Enterprises(MSME) in India: Opportunities, Issues

& Challenges by Parthajeet Das
https://www.greatlakes.edu.in/herald/pdfs/march-2017/article-5.pdf

 https://www.coursehero.com/file/p518b6t/SMEs-that-are-innovative-inventive-
international-in-their-business-outlook-have

 http://www.mbarendezvous.com/general-awareness/msme-indian-economy

 http://blogs.siliconindia.com/IndiaMART/Challenges-Faced-By-Indian-SMEs-
bid-K2kb089J62276492.html

 https://www.ibef.org/download/SMEs-Role-in-Indian-Manufacturing.pdf

 Role of Small & Medium Enterprises in Industrial Development of Vidarbha

Region By Javed G. Khan and Dr. R.S Dalu
http://www.ijetmas.com/admin/resources/project/paper/f201507171437191866
.pdf

 http://shodhganga.inflibnet.ac.in/bitstream/10603/27524/10/10_chapter%203.p
df

 http://msme.gov.in/sites/default/files/MSME_at_a_GLANCE_2016_Final.pdf

 http://www.indialaw.in/blog/blog/commercialcorporate/summarising-
insolvency-bankruptcy-code-2016/

 http://economictimes.indiatimes.com/small-biz/sme-sector/indian-sme-trends-
the-year-gone-by-and-2017/articleshow/56254240.cm

 http://www.khemkafoundation.net/index.php?option=com_k2&view=itemlist
&task=category&id=48:benefits-available-to-micro-small-and-medium-
enterprises

 https://evoma.com/business-centre/what-is-the-difference-between-startups-
and-smes/

 http://www.infinityfilings.com/registrations/msme

UNIT-9 Small and Medium Enterprises Page 174

  http://dcmsme.gov.in/ssiindia/MSME_OVERVIEW09.pdf

9.14 SUGGESTED READINGS

 Anil Kumar, S., Poornima, S.C., Mini, K., Abraham and Jayashree, K.
2003.New Age Publishers, Delhi.
 Entrepreneurship Development, New Age International Publishers, New Delhi.
 Gupta, C.B. 2001. Management. Theory and Practice. Sultan Chand and Sons,
New Delhi.
 Ind.u Grover. 2008. Handbook on Empowerment and Entrepreneurship.
Agrotech Public Academy, Udaipur.
 Khanka, S.S. 1. 999. Entrepreneurial Development, S.
Chand and Co., New Delhi.
 Mary Coulter. 2008. Entrepreneurship in Action. Prentice
Hall of India Pvt. Ltd., New Delhi.
 Mohanty, S.K. 2009. Fundamentals of Entrepreneurship. Prentice Hall of India
Pvt. Ltd., New Delhi.
 Prasad, R. 2003. Entrepreneurship - Concepts and Cases. ICFAI Publications,
Hyderabad.
 Sagar Mondal and Ray, G.L. 2009.- Text Book of Entrepreneurship and Rural
Development. Kalyani publishers, Ludhiana.
 Singh, D.1995. Effective Managerial Leadership. Deep and Deep Publications,
New Delhi.
 Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.Vasanta Desai. 2000. Dynamics of
Entrepreneurial Development and Management.Himalaya Publishing House,
New Delhi.

9.15 TERMINAL QUESTIONS

1. Define Micro, Small and Medium Enterprises.

2. What roles MSME play in the development of a country like India. Comment.
3. What challenges MSME face particularly in Indian economy. Discuss.
4. What measure Government of India has taken for promoting MSME. Explain
in detail.
5. Discuss silent feature of Micro, Small and Medium Enterprises Development
Act, 2006.

UNIT-9 Small and Medium Enterprises Page 175

 BLOCK IV
Entrepreneurship Planning

UNIT-10 Enterprise Planning Process Page 176

 UNIT-10 ENTERPRISE PLANNING PROCESS
10.1 Introduction

10.2 Objectives

10.3 Enterprise Planning Process

10.4 PESTLE Analysis

10.5 Planning and Budgeting

10.6 Planning Programming

10.7 Enterprise Data Planning

10.8 Enterprise Resource Planning

10.9 Summary

10.10 Glossary

10.11 Answer to Check Your Progress

10.12 Reference/ Bibliography

10.13 Suggested Readings

10.14 Terminal Questions

10.1 INTRODUCTION
In the previous unit you learnt about small and medium enterprises and legal issues
pertaining to such organizations. In this unit you will learn about the process of
enterprise planning and its various facets. Enterprise planning is very important and
useful for undertaking successful venture. Through this, you will provide direction and
focus to your entrepreneurial venture. It is a road map through which you come to know
where you stand, where you want to go and how you can get there. It addresses the
assets that are accessible or not accessible to a venture and its capacity to deliver
products or services.

10.2 OBJECTIVES
After going through the unit you will be able to:

-learn the planning process for enterprise development.

UNIT-10 Enterprise Planning Process Page 177

 -assess the need for Enterprise Planning.

-identify the internal and external factors that affect an enterprise.

-list the issues that are required for enterprise data planning and enterprise
resource planning.

10.3 ENTERPRISE PLANNING PROCESS

An Enterprise Planning Process covers the strategies for getting ready for the inside and
outside elements that influence a venture.

These variables for the most part fall under PESTLE. PESTLE alludes to political,
economic, social, technological, legal and environmental elements. Consistently tending
to PESTLE variables falls under operations administration. In the interim, tending to
any occasion, testing any one or many components will need project management skills.

Enterprise Planning Process has a wider scope. Enterprise Planning Process addresses
the assets that are accessible or not accessible to a venture and its capacity to deliver
products or services. It additionally considers those components that will emphatically
or contrarily influence the association's capacity to run these activities.

Enterprise Planning Process will have a tendency to fluctuate and are adaptable. These
are expected to the intermittent and versatile for the formulation of strategy. These will
likewise have strategic viewpoints. Regularly, Enterprise Planning Process is a piece of
an association's learning base or corporate structure whether it formally distinguished
and organized or basically executed these when the need showed up.

Purposes
An Enterprise Planning Process will address no less than three fundamental purposes to
help the organisation:

 survive
 contend
 flourish

Survival

An undertaking will get ready for strategic moves for fast response to the PESTLE
dangers that influence its survival. For example, directly after Japan's Fukushima atomic
power plant has encountered blasts because of the tremor and the wave that took after,
a few undertakings (inside and outside Japan) have openly declared their course of
activities to address the crisis.

UNIT-10 Enterprise Planning Process Page 178

Contend

In the interim, an undertaking will get ready for longer term key activities to address its
opposition or enhance its intensity. For example, ventures will anticipate, set spending
plans, actualize and utilize key data frameworks as "data frameworks or data innovation
speculations can be a wellspring of upper hand".

Flourish

Most fundamentally, a venture will get ready for utilizing the PESTLE opportunities
that are accessible to it. The benefit and advantage thought processes legitimize most
venture arranging frameworks.

Vulnerabilities
A fourth critical reason for big business arranging frameworks is readiness against
psychological militant assaults. As noted in the US Presidential Directive for Critical
framework security, fear based oppressor bunches are probably going to assault
business foundation for financial harm. Organisations that are giving items or
administrations that are basic to the financial arrangement of a country are potential
focuses of radicals.

Strategic Planning
Two noteworthy qualities of Enterprise Planning Process are (1) assortment and (2)
adaptability. For example, mechanical dangers proliferate as even undertaking
programming are inclined to out of date quality and troublesome developments.
Innovation is not dormant. Therefore, assortment and adaptability work to the upside of
a deliberately versatile or lithe venture as PESTLE conditions change.

To represent this some more, ERP programming recommends procedures to understand

its guaranteed benefits. Be that as it may, consistence to these unbending, recommended
forms is frequently accepted as opposed to genuine. By and large, the ERP programming
is acknowledged however the practices inside the venture reflect irregularities with the
endorsed procedures of the product. One might say, assortment and adaptability in a
standard ERP usage will at present show from numerous points of view.

With changing genuine conditions, no less than three segments can structure enterprise
technique. These are:

 systematic structures for the assessment of PESTLE information at a given

time
 geographic scope of operations to oversee chances or amplify profits by
macroeconomic strengths or government controls
 ventures reconciliation to productively bolster undertaking operations

UNIT-10 Enterprise Planning Process Page 179

Strategy though Analysis
Structures of investigation typically drive an association's system. These empower the
firm to adapt to the activities of its rivals, requests of its shoppers or customers, nature
of its working surroundings, impacts of government controls in the spots where it works
together, or openings that are accessible among different elements. Here, group
arranging is significant. One gathering will regularly have practical experience in one
viewpoint like operations or government controls. Dealing with the interrelation of
PESTLE components requires collaboration in the undertaking arranging process.

A specimen system for general investigation is the SWOT analysis. Another is the
Balanced Scorecard for the analysis of performance measurement.

Strategy through Geography

Organisations strategy can likewise allude to the blend of organized activities that
address the political, monetary, social, innovative, legitimate and ecological
components that influence a business or firm. These organized activities can be nearby,
transnational, worldwide or mix of neighborhood, transnational or worldwide.
Subsequently, undertakings can have any of the accompanying geographic procedures
in their arrangements:

 Local strategy
 Provincial strategy (Europe, North America, Asia-Pacific, and so on.)
 Universal strategy
 Global strategy
 Glocal strategy

Strategy through integration of projects

In addition, since administration activities happen at the same time in a venture, key
organizers can consider operations or Venture Portfolio Administration (VPM) as
critical components in an undertaking's key arranging guide.

For example, the need key needs crosswise over many activities in organizations with
numerous item improvement ventures have made officials acquire standards from
speculation portfolio administration to better deal with the appropriation of assets
contrasted and the evaluated dangers for each venture.

Therefore, PESTLE variables prompt system arrangement that will empower the
undertaking to adjust to evolving conditions. In the interim, the systems that have been
shaped from the logical structure procedures of assessing an undertaking's condition
will prompt nitty gritty arrangements which could be a piece of a company's manual of

UNIT-10 Enterprise Planning Process Page 180

operations or activities portfolio pushes for subsidizing and execution over the units or
geographic scope of the venture.

10.4 PESTLE ANALYSIS

PESTLE evaluation (political, economic, social, technological, legal and
environmental) depicts a structure of full scale natural variables utilized as a part of the
natural checking segment of key administration. It is a piece of an outer investigation
when directing a key examination or doing statistical surveying, and gives a diagram of
the diverse large scale natural elements to be thought about. It is a key device for
understanding business sector development or decay, business position, potential and
course for operations.

The fundamental PEST investigation incorporates four elements:

Political elements are fundamentally how the administration intercedes in the economy.
In particular, political components has regions including charge approach, work law,
natural law, exchange confinements, duties, and political strength. Political components
may likewise incorporate merchandise and ventures which the administration expects
to give or be given (justify products) and those that the legislature does not have any
desire to be given (bad mark products or legitimacy bads). Besides, governments highly
affect the wellbeing, instruction, and framework of a country.

Economic variables incorporate monetary development, loan costs, trade rates, the
swelling rate. These variables enormously influence how organizations work and
decide. For instance, loan fees influence an association's cost of capital and accordingly
to what degree a business develops and grows. Trade rates can influence the expenses
of sending out merchandise and the supply and cost of imported products in an economy.

Social components incorporate the social perspectives and wellbeing awareness,

populace development rate, age dispersion, profession states of mind and accentuation
on security. High patterns in social components influence the interest for an
organization's items and how that organization works. For instance, the maturing
populace may infer a littler and less-willing workforce (in this way expanding the cost
of work). Moreover, organizations may change different administration techniques to
adjust to social patterns caused from this, (for example, enrolling more seasoned
specialists).

Technological variables incorporate mechanical perspectives like R&D action,

computerization, innovation motivators and the rate of mechanical change. These can
decide hindrances to section, least effective creation level and impact the outsourcing

UNIT-10 Enterprise Planning Process Page 181

choices. Besides, mechanical movements would influence costs, quality, and prompt
advancement.

Legal variables incorporate segregation law, customer law, antitrust law, work law, and
wellbeing and security law. These components can influence how an organization
works, its expenses, and the interest for its items.

Environmental components incorporate biological and ecological viewpoints, for

example, climate, atmosphere, and environmental change, which may particularly
influence enterprises, for example, tourism, cultivating, and protection. Besides,
developing consciousness of the potential effects of environmental change is
influencing how organizations work and the items they offer, both making new markets
and reducing or wrecking existing ones.

Statistic factors incorporate age, ethnicity, information of dialects, handicaps,

versatility, home proprietorship, business status, religious conviction or practice, culture
and convention, expectations for everyday comforts and wage level.

Administrative variables incorporate demonstrations of parliament and related

directions, universal and national gauges, neighbourhood government by-laws, and
systems to screen and guarantee consistence with these.

The model's variables will change in significance to a given organization in light of its
industry and the merchandise it produces. For instance, buyer and B2B organizations
have a tendency to be more influenced by the social components, while a worldwide
protection contractual worker would have a tendency to be more influenced by political
elements. Also, factors that will probably change later on or more pertinent to a given
organization will convey more prominent significance. For instance, an organization
which has obtained intensely should concentrate more on the monetary elements
(particularly loan costs).

Moreover, combination organizations who create an extensive variety of items, (for

example, Sony, Disney, or BP) may think that its more helpful to investigate one branch
of its organization at once with the PESTLE show, in this manner concentrating on the
particular elements applicable to that one office. An organization may likewise wish to
partition factors into geological pertinence, for example, neighbourhood, national, and
worldwide.

10.5 PLANNING AND BUDGETING

Planning is the way toward contemplating and sorting out the exercises required to
accomplish a coveted objective. It includes the creation and support of an arrangement,
for example, mental angles that require reasonable aptitudes. There are even two or three
tests to quantify somebody's capacity of planning great. Accordingly, planning is a
central property of intelligent conduct.

UNIT-10 Enterprise Planning Process Page 182

Additionally, planning has a particular procedure and is vital for numerous occupations
(especially in fields, for example, administration, business, and so forth.). In each field
there are diverse sorts of plans that assists organizations in accomplishing productivity
and adequacy. An essential, yet regularly disregarded some portion of arranging, is the
relationship it holds to suspecting or anticipating. Expecting can be portrayed as
anticipating what the future will take after, however arranging predicts what the future
should look like for changed circumstances. Arranging merges gaging with arranging
of circumstances and how to react to them. Arranging is a standout amongst the most
critical venture administration and time administration systems. Planning is setting up a
grouping of activity ventures to accomplish some particular objective. If a man does
planning successfully, they can decrease much the vital time and exertion of
accomplishing the objective. A good design is more similar to a guide. When following
an arrangement, a man can see the sum they have progressed towards their wander target
and how far they are from their goal.

The different perspectives of planning are as follows:

Psychological perspectives
Planning is one of the official elements of the cerebrum, incorporating the neurological
procedures required in the plan, assessment and determination of a succession of
contemplations and activities to accomplish a coveted objective. Different
investigations using a blend of neuropsychological, neuropharmacological and useful
neuroimaging approaches have proposed there is a positive association between ruined
arranging limit and damage to the frontal fold.

A specific region inside the mid-dorsolateral frontal cortex arranged in the frontal fold
has been embroiled as assuming an inherent part in both psychological arranging and
related official characteristics, for example, working memory.

Interruption of the neural pathways, through different instruments, for example,

horrendous mind damage, or the impacts of neurodegenerative ailments between this
area of the frontal cortex and the basal ganglia especially the striatum (cortico-striatal
pathway), may disturb the methods required for common arranging limit. Individuals
who were imagined Very Low Birth Weight (1500 grams) and Extremely Low
BirthWeight (ELBW) are at more serious hazard for different intellectual shortages
including planning capacity.

Neuropsychological tests
There are an assortment of collection of neuropsychological tests which can be used to
evaluate contrast of orchestrating limit between the subject and controls.

 Tower of Hanoi (TOH-R), envisioned in 1883 by the French mathematician

Édouard Lucas. The great form comprises of three poles and typically seven to
nine circles of along these lines littler size. Arranging is a key segment of the

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 critical thinking aptitudes important to accomplish the objective, which is to
move the entire stack to another post, following the going with standards:
 Only a solitary plate may be moved without a moment's delay.
 Each move involves taking the upper plate from one of the bars and sliding it
onto another bar, over alternate circles that may as of now be available on that
pole.
 Tower of London (TOL) test conducted in 1992 (Shallice 1992) particularly to
identify deficiencies in arranging as may happen with harm to the frontal
projection. Test members with harm to one side foremost frontal flap showed
arranging deficiencies.

The outcomes ensnaring the left foremost frontal projections association in unraveling
the TOL were bolstered in corresponding neuroimaging thinks about which likewise
demonstrated a lessening in territorial cerebral blood stream to one side pre-frontal fold.
For the amount of moves, an immense negative association was looked for the left
prefrontal range: i.e. subjects that took extra time masterminding their moves exhibited
more conspicuous incitation in the left prefrontal territory.

Public Policy and Planning

Open approach arranging incorporates ecological, arrive utilize, provincial, urban and
spatial arranging. In numerous nations, the operation of a town and nation arranging
framework is regularly alluded to as "arranging" and the experts which work the
framework are known as "organizers".

It is a cognizant and additionally sub-cognizant movement. It is "an expectant basic

leadership prepare" that aides in adapting to complexities. It is choosing future game-
plan from among choices. It is a procedure that includes making and assessing each
arrangement of interrelated choices. It is choice of missions, goals and "interpretation
of learning enthusiastically." An arranged execution conveys better outcomes contrasted
with a spontaneous one. An administrator's employment is arranging, checking and
controlling. Arranging and objective setting are imperative characteristics of an
association. It is done at all levels of the association. Arranging incorporates the
arrangement, the point of view, activity, and usage. Arranging gives more control over
what's to come.

Arranging is choosing ahead of time what to do, how to do it, when to do it, and who
should do it. This beats any issues from where the affiliation is to where it needs to be.
The arranging capacity includes setting up objectives and organizing them in coherent
request. An all around arranged association accomplish quicker objectives than the ones
that don't design before execution.

Planning Process in Management

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1. Perceiving Need for Action:

The initial phase in planning process is the attention to business opportunity and the
requirement for making a move. Present and future open doors must be discovered with
the goal that arranging might be embraced for them. The pattern of financial
circumstance ought to likewise be pictured. For instance, if thinking about the
legislature is to create country ranges as modern focuses, a farsighted agent will consider
setting up units reasonable to that condition and will profit the offices offered for this
reason. Before wandering into new regions the upsides and downsides of such tasks
ought to be assessed. A start ought to be made simply in the wake of experiencing a
point by point investigation of the new open door.

2. Social affair Necessary Information:

Before genuine planning is started applicable statistical data points are gathered. All
data identifying with operations of the business ought to be gathered in detail. The sort
of clients to be managed, the conditions under which merchandise are to be given,
estimation of items to the clients, and so forth ought to be contemplated in detail. The
statistical data points gathered will help in confining practical plans.

3. Setting Down Objectives:

Destinations are the objectives which the administration tries to accomplish. The
destinations are the final results and all energies are redirected to accomplish these
objectives. Objectives are a string which tie the entire organization. Planning begins
with the assurance of destinations. The tie amongst arranging and destinations
encourages workers to comprehend their obligations. Destinations are the aides of
workers. It is basic that targets ought to be appropriately planned and conveyed to all
individuals from the association.

4. Deciding Planning Premises:

Planning is dependably for indeterminate future. In spite of the fact that nothing might
be sure in the coming time frame yet at the same time certain presumptions should be
made for detailing arrangements. Estimates are fundamental for arranging regardless of
the possibility that all may not demonstrate remedy. A gauge implies the supposition of
future occasions. The conduct of specific factors is estimated for constituting arranging
premises.

5. Analyzing Alternative Course of Action:

The subsequent stage in planning will be picking the best strategy. There are various
methods for doing a thing. The organizer should think about every one of the choices
and afterward a last choice ought to be made. Best outcomes will be accomplished just
when most ideal method for doing a work is chosen. As indicated by Koontz and

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O'Donnell, "There is from time to time an arrangement made for which sensible options
don't exist." All the benefits and costs of techniques ought to be weighed before a last
determination.

6. Assessment of Action Patterns:

In the wake of picking a game-plan, the following stage will be to make an assessment
of those courses of activities. Assessment will include the investigation of execution of
different activities. Different components will be weighed against each other. A game-
plan might be reasonable yet it might include tremendous ventures and the other may
include less sum yet it may not be exceptionally beneficial. The assessment of different
activity designs is fundamental for appropriate arranging.

7. Deciding Secondary Plans:

Once a principle design is figured then various steady designs are required. Indeed
auxiliary designs are implied for the usage of primary arrangement. For instance, once
creation design is chosen then various plans for obtainment of crude materials, buy of
plant and gear, enlistment of work force will be required. Every single auxiliary
arrangement will be a bit of the primary arrangement.

8. Execution of Plans:

The last stride in planning process is the execution part. The arranging ought to be put
energetically with the goal that business destinations might be accomplished. The
execution will require foundation of approaches, methodology, gauges and spending
plans. These devices will empower a superior usage of plans.

In affiliations, arranging is an organization method, stressed over portraying goals for

association's future bearing and choosing the missions and resources for finish those
destinations. To meet the destinations, executives may make designs, for instance, a
procedure for progress or an advancing arrangement. Organizing constantly has a
reason. The reason might be accomplishment of specific objectives or targets.

Planning builds the productivity of an association. It diminishes the dangers required in

present day business exercises. It uses with greatest effectiveness the accessible time
and assets. Planning is to recognize what the affiliation needs to do by using the four
request which are "the place would we say we are today with respect to our business or
philosophy orchestrating? Where are we going? Where might we want to go? How are
we going to arrive?''

Many individuals consider budgeting when they're short on money. Students may like
to budget plan to make sense of how to manage with their high costs and constrained
earnings and limit the amount they have to acquire. People who are supporting
themselves strangely make spending arrangements to guarantee they're properly
appropriating their first pay checks among crisis reserve funds, retirement investment

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funds, understudy advance reimbursements, lease and utilities, and prizes for their
diligent work.

Spending designs are ordinarily associated with people of all ages who are barely
prepared to bring home the bacon, however truth be told arranging isn't just for times
when your money is tight or your life is encountering a vital move. Planning is for
everyone, rich and poor, youthful and old. Indeed, budgeting will be considerably less
demanding in the midst of progress or money related anxiety on the off chance that you
do it continually. Where do you think a Fortune 500 association like Amazon would be
today without suitable planning and budgeting? Shouldn't something be said about rich
individuals like Warren Buffett? It is extremely improbable that he or his holding
association, Berkshire Hathaway, could have gained such ground without concentrating
on their month to month, quarterly and yearly cash inflow and surge. Planning won't
just get you out of a trench – it can likewise enable you to get rich.

Organisational planning and budgeting go as an inseparable unit as the fortitude to

execute arrangements will decide the achievement or disappointment of an undertaking
methodology. In another light, growing or restricting the financial plan for a specific
operations part of the venture or a progressing venture for another will flag changes to
organisational strategy. Thus, arranging and planning are essential parts of any
enterprise system arranging frameworks as these effect the vital bearings of the
undertaking.

For example, enterprise projects have a tendency to be commonly needy with different
tasks to use a company's building, monetary and innovation assets. A statistical
surveying task will trigger an examination, improvement and designing (RD&E) extend
for another item. Thus, this RD&E venture could trigger a generation technique venture
to make the new item and no more proficient areas to convey it nearer to its objective
shoppers. Consequently, slicing the RD&E extend spending plan down the middle or
expanding it twice will have significant impacts in the long haul course of a venture as
this will influence alternate units of the firm undertaking ventures that are connected to
the RD&E extend.

Orders
Undertaking arranging and planning can be for the most part grouped into:

 unified or centralised
 degenerated or devolved
 mixture or hybrid

Unified: Base camp or official administration coordinates all arranging and spending
plans from the top then downwards in the association chain of importance. It will nearly
take after Frederick Winslow Taylor's Principles of Scientific Management.

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Lapsed: Center supervisors set arranges adequately guiding the undertaking's key
bearing. Official administration considers that the venture has information specialists
that are specialists in their separate fields. The Management Board favors the proposed
key heading under certain monetary limitations, for example, expected rates of
profitability or value.

Mixture: Official administration decides and sets the key heading of the endeavor in
light of the contributions of center administrators and the general population. In this set
up, arrangements and spending plans are arranged. Basically, budgets and plans of an
enterprise can be point by point in a top-down approach, summed up in a base up
approach, or consolidated in a top-down and base up approach.

Group Planning
Group planning of the organisation will ordinarily allude to the contribution of the
significant units of an undertaking, for example, the fund, promoting, creation or
innovation divisions. It can likewise allude to the inclusion of the geographic units of a
transnational or worldwide firm. A few ventures additionally include outer gatherings
in their gathering arranging where contributions from the urgent parts of the store
network, participation and coordinated effort, or pariahs looking-in are a piece of the
association's system. Group planning of the organisation will generally show in normal
top managerial staff or administration panel' gatherings with fluctuating frequencies, for
example, month to month, quarterly or yearly. Customary gatherings have required the
physical habitations of agents from the different specialty units of the undertaking. With
enhancements in media communications, venture gather arranging can be directed
through video conferencing where members might be scattered geologically. Be that as
it may, video conferencing still has all the earmarks of being a deficient substitute when
warm, relational relations are a piece of the company's way of life.

However for quick paced occasions like cataclysmic events or an emergency of the
budgetary markets that require prompt activity from the enterprise, video conferencing
may be the main choice. Investigating that requires the significant assets of the
enterprise will likewise involve undertaking bunch arranging. Here, big business
arranging frameworks take a strategic shape as opposed to a vital concentration to
protect the solidness or guarantee the survival of the undertaking.

10.6 PLANNING PROGRAMMING

Endeavour arranging programming will have shifted or profundity of scope however
won't basically allude to big business asset arranging programming. This will
incorporate arranging driven programming and the apparatuses to help key and strategic
getting ready for and over the venture, for example,

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  procedure development and situation arranging programming (for instance,
supporting Sales and operations arranging process)
 execution estimation and assessment programming
 extend administration programming
 information distribution center or business insight programming
 venture advancement programming

10.7 ENTERPRISE DATA PLANNING

Enterprise Data Planning is the beginning stage for big business wide change. It
expresses the goal and depicts how you will arrive. It characterizes advantages,
expenses and potential dangers. It gives measures to be utilized en route to judge
advance and modify the adventure as indicated by evolving conditions.

Information is major to speculation endeavours. Viable, financial administration of

information supports operations and empowers changes expected to fulfill client
requests, rivalry and control. Information warehouse(s) and different parts of the general
information engineering are basic to the undertaking.

EDM works has made a vital information arranging approach for the Investment Sector.
It comprises of an arranging procedure, arranging intranets, formats and preparing
materials. EDM works arranging process depends on the conviction that broad area
learning essentially abbreviates arranging emphasises and empowers continuously
higher quality intends to be delivered and actualized. This approach drives the
advancement of a powerful and financial Enterprise Data Architecture. Enterprise Data
Planning depends on demonstrated business disciplines. Key compositional layers for
information and applications are then included request to give a venture wide
comprehension of the utilizations and interdependencies of information.

This empowers the meaning of the center parts of the EDM design:

 Industry structure and business targets

 Evaluation of frameworks and administrations
 Target design for applications, information and foundation
 Target association structures
 Frameworks, database, foundation and hierarchical plans
 Business case, costs, advantages, results and dangers.

EDM works utilizes a few segments from the Open Systems Group TOGAF endeavour
frameworks arranging process. TOGAF goes about as an augmentation to great business
arranging strategies to give a structure to the advancement of the frameworks and
information compositional segments.

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James Martin was one of the pathfinders in data masterminding methods. He was one
of the first to distinguish information similar to an undertaking wide resource that
required administration. He built up a progression of devices and strategies to help that
procedure.

The majority of the expensive counselling firms built up their own techniques to address
a similar fundamental issue. Much of the time, their methodologies were joined into
their own marked framework improvement procedures that enveloped the entire
frameworks advancement life-cycle.

Others, for example, Ed Tozer, grew more engaged offerings that managed the
complexities of separating key business needs from senior administration and after that
characterizing important compositional dreams for the particular enterprise.

From these diverse sources, the thoughts of Business, Data, Applications and
Technology Architectures developed.

The Open Group Architectural Framework (TOGAF) has taken this work forward and
has set up a sound technique in TOGAF. EDM works approach is to receive these
arranging and engineering rehearses as a premise and afterward add two extra
measurements to the arranging and execution center:

 Space information of the Investments part. Speculations is a complex worldwide

industry with a typical arrangement of attributes about customers, data sellers,
rivalry and direction. Space learning altogether enhances the nature of the
arranging and execution forms
 Advancement of individuals and groups. Change is a noteworthy element of in
any Enterprise Data Management program and individuals and groups both need
improvement keeping in mind the end goal to make EDM viable all through an
association.

Check Your Progress-A

1. Define Planning programming with the help of an example.

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UNIT-10 Enterprise Planning Process Page 190

 2. Define Budgeting. Discuss the characteristic features of Budgeting.
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3. Define Planning. Discuss the characteristic features of Planning.

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Choose the correct answer option

(i) Which of the following statement best describes the Strategic fit?

a) crafting strategies based on opportunities and threats so explored.

b) predicting opportunities and threats present in the external environment.
c) reacting to opportunities and threats present in the external environment.
d) mapping the resources and activities of a firm to the external environment.

(ii) Which of the following is NOT an example of a political risk?

a) Government regulations
b) Change in technology
c) War
d) Civil unrest

Fill in the blanks

(iii) depicts a structure of full scale natural variables utilized as

a part of the natural checking segment of key administration.

(iv) depends on demonstrated business disciplines.

UNIT-10 Enterprise Planning Process Page 191

10.8 ENTERPRISE RESOURCE PLANNING
Enterprise Resource Planning (ERP) is the coordinated administration of center
business forms, frequently progressively and interceded by programming and
innovation. These business exercises can include:

 item arranging, buy

 generation arranging
 assembling or administration conveyance
 advertising and deals
 materials administration
 stock administration
 transportation and installment

ERP is generally alluded to as classification of business-administration programming—

commonly a suite of coordinated applications—that an association can use to gather,
store, oversee and translate information from these numerous business exercises.

ERP gives an incorporated and ceaselessly refreshed perspective of center business

forms utilizing basic databases kept up by a database administration framework. ERP
frameworks track business assets—money, crude materials, generation limit—and the
status of business responsibilities: orders, buy requests, and finance. The applications
that make up the framework share information crosswise over different divisions
(fabricating, obtaining, deals, bookkeeping, and so forth.) that give the information.
ERP encourages data stream between all business capacities and oversees associations
with outside partners.

Enterprise Resource framework programming is a multibillion-dollar industry that

produces parts supporting an assortment of business capacities. IT speculations have
turned into the biggest classification of capital consumption in United States-based
organizations over the previous decade. Despite the fact that early ERP frameworks
concentrated on extensive undertakings, littler endeavors progressively utilize ERP
frameworks.

The ERP framework incorporates fluctuated authoritative frameworks and encourages

blunder free exchanges and generation, subsequently improving the association's
effectiveness. Be that as it may, building up an ERP framework varies from
conventional framework improvement. ERP frameworks keep running on an assortment
of PC equipment and system setups, normally utilizing a database as a data archive.

ERP frameworks normally incorporate the accompanying attributes:

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  An incorporated framework
 Works in (or close) ongoing
 A typical database that backings every one of the applications
 A reliable look and feel crosswise over modules
 Establishment of the framework with expound application/information mix by
the Information Technology (IT) division, gave the usage is not done in little
strides

Best practices
Most ERP frameworks consolidate best practices. This implies the product mirrors the
seller's elucidation of the best approach to play out every business procedure.
Frameworks shift in how advantageously the client can change these practices.
Organizations that actualized industry best practices lessened time–consuming venture
assignments, for example, setup, documentation, testing, and preparing. Also, best
practices diminished hazard by 71% contrasted with other programming executions.

Utilization of best practices facilitates consistence with necessities, for example, IFRS,
Sarbanes-Oxley, or Basel II. They can likewise assist conform to true industry models,
for example, electronic assets exchange. This is on the grounds that the strategy can be
promptly classified inside the ERP programming, and repeated with certainty over
various organizations who share that business necessity.

Connectivity to plant floor data

ERP frameworks interface with real–time information and exchange information in an
assortment of ways. These frameworks are regularly arranged by frameworks
integrators, who bring remarkable information on process, gear, and merchant
arrangements. Direct Integration—ERP frameworks have availability (correspondences
to plant floor hardware) as a feature of their item advertising. This requires the sellers
offer particular help for the plant floor hardware their clients work. ERP sellers must be
specialists in their own particular items and availability to other merchant items,
including those of their rivals.

Database integration—ERP frameworks interface with plant floor information sources

through organizing tables in a database. Plant floor frameworks store the vital data into
the database. The ERP framework peruses the data in the table. The advantage of
organizing is that ERP merchants don't have to ace the complexities of gear
reconciliation. Availability turns into the obligation of the frameworks integrator.

Enterprise Machine Exchange Modules (EATM)— These gadgets discuss

straightforwardly with plant floor hardware and with the ERP framework through
strategies upheld by the ERP framework. EATM can utilize an organizing table, web
administrations, or system–specific program interfaces (APIs). An EATM offers the
advantage of being an off–the–shelf arrangement.

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Custom–integration arrangements—Many framework integrators offer custom
arrangements. These frameworks have a tendency to have the most elevated amount of
starting incorporation cost, and can have a higher long haul upkeep and unwavering
quality expenses. Long haul expenses can be limited through cautious framework testing
and exhaustive documentation. Custom–integrated arrangements normally keep
running on workstation or server-class PCs.

Execution
ERP's extension ordinarily suggests noteworthy changes to staff work procedures and
practices. For the most part, three sorts of administrations are accessible to help actualize
such changes—counselling, customization, and support. Execution time relies upon
business estimate, number of modules, customization, the extent of process changes, and
the status of the client to take proprietorship for the venture. Measured ERP frameworks
can be actualized in stages. The run of the mill extend for a huge venture takes around
14 months and requires around 150 advisors. Little activities can require months;
multinational and other extensive usage can take years. Customization can significantly
expand execution times. Other than that, data preparing impacts different business
capacities e.g. some expansive enterprises like Wal-Mart utilize an in the nick of time
stock framework. This diminishes stock stockpiling and builds conveyance
productivity, and requires breakthrough information.

Advantages
 ERP can enhance quality and productivity of the business. ERP can prompt
better yields that may profit the organization, for example, in client
administration and assembling.
 ERP underpins upper level administration by giving data to basic leadership.
 ERP makes a more light-footed organization that adjusts better to change. It
likewise makes an organization more adaptable and less inflexibly organized so
association segments work all the more solidly, upgrading the business— inside
and externally.
 ERP can enhance information security. A typical control framework, for
example, the kind offered by ERP frameworks, enables associations the capacity
to all the more effortlessly guarantee key organization information is not traded
off.
 ERP gives expanded chances to cooperation. Information takes many structures
in the cutting edge undertaking. Reports, records, structures, sound and video,
messages. Regularly, every information medium has its own particular
instrument for permitting coordinated effort. ERP gives a cooperative stage that
gives workers a chance to invest more energy teaming up on content as opposed
to acing the expectation to learn and adapt of conveying in different
configurations crosswise over dispersed frameworks.

UNIT-10 Enterprise Planning Process Page 194

Weaknesses
 Customization can be hazardous. Contrasted with the best-of-breed approach,
ERP can be viewed as meeting an association's most reduced shared element
needs, driving the association to discover workarounds to meet one of a kind
requests.
 Re-designing business procedures to fit the ERP framework may harm intensity
or occupy center from other basic exercises.
 ERP can cost more than less incorporated or less far reaching arrangements.
 High ERP exchanging expenses can expand the ERP merchant's arranging
power, which can build support, upkeep, and redesign costs.
 Conquering imperviousness to sharing touchy data between divisions can
redirect administration consideration.
 Combination of really free organizations can make pointless conditions.
 Broad preparing prerequisites take assets from day by day operations.
 Harmonization of ERP frameworks can be a mammoth errand (particularly for
enormous organizations) and requires a great deal of time, arranging, and cash.

Postmodern ERP
The expression "postmodern ERP" was authored by Gartner in 2013, when it initially
showed up in the paper arrangement "Predicts 2014". As indicated by Gartner's meaning
of the postmodern ERP procedure, inheritance, solid and profoundly modified ERP
suites, in which all parts are intensely dependent on each other, should at some point or
another be supplanted by a blend of both cloud-construct and in light of premises
applications, which are all the more approximately coupled and can be effortlessly
traded if necessary.

The fundamental thought is that there should in any case be a center ERP arrangement
that would cover most vital business capacities, while different capacities will be
secured by master programming arrangements that just expand the center ERP. This
idea is like the purported best-of-breed way to deal with programming usage, yet it
shouldn't be mistaken for it. While in the two cases, applications that make up the entire
are generally approximately associated and effectively exchangeable, on account of the
last there is no ERP arrangement at all. Rather, every business work is secured by a
different programming arrangement.

There is, in any case, no brilliant govern with reference to what business capacities
ought to be a bit of the center ERP, and what ought to be secured by supplementary
arrangements. As per Gartner, each organization must characterize their own
postmodern ERP procedure, in view of organization's inward and outer needs,
operations and procedures. For instance, an organization may characterize that the

UNIT-10 Enterprise Planning Process Page 195

center ERP arrangement should cover those business forms that must remain behind
the firewall, and along these lines, leave their center ERP on-premises.

10.9 SUMMARY
In this unit you learned that Enterprise Planning Process has a wider scope. Enterprise
Planning Process addresses the assets that are accessible or not accessible to a venture
and its capacity to deliver products or services. It additionally considers those
components that will emphatically or contrarily influence the association's capacity to
run these activities. You also came to know that Enterprise Resource Planning (ERP) is
the coordinated administration of center business forms, frequently progressively and
interceded by programming and innovation. Thus, Enterprise Planning provides focus
and direction to your business, enhances its competiveness and helps you to achieve
success in the ventures you undertake.

10.10 GLOSSARY

 Enterprise Resource Planning (ERP) – It is the coordinated

administration of center business forms, frequently progressively and
interceded by programming and innovation.

 Enterprise Machine Exchange Modules (EATM)— These gadgets

discuss straightforwardly with plant floor hardware and with the ERP
framework through strategies upheld by the ERP framework.

10.11 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

Ans-i Ans-d

Ans-ii Ans-b

Ans-iii PESTLE evaluation (political, economic, social, technological, legal and

environmental)

UNIT-10 Enterprise Planning Process Page 196

Ans-iv Enterprise Data Planning

10.12 REFERENCES
 Bradford and Duncan (2000). Simplified Strategic Planning. Chandler
House.
 Erica Olsen (2012). Strategic Planning Kit for Dummies, 2nd Edition, John
Wiley & Sons.
 Ginsberg, Benjamin, “The Strategic Plan: Neither Strategy Nor Plan, but a
Waste of Time,” The Chronicle of Higher Education, July 17, 2011.
 Hagel, John S. III, John Seely Brown and Lang Davison, Pull: How Small
Moves, Smartly Made, Can Set Big Things in Motion, Basic Books, 2010.
 Halal, William and Michael Marien, “Global MegaCrisis: Four Scenarios, Two
Perspectives,” The Futurist, May-June 2011.
 John Argenti (1968). Corporate Planning - A Practical Guide. Allen & Unwin.
 Max Mckeown (2012), The Strategy Book, FT Prentice Hall.
 Patrick J. Burkhart and Suzanne Reuss (1993). Successful Strategic Planning: A
Guide for Nonprofit Agencies and Organizations. Newbury Park: Sage
Publications.
 Yiftachel, Oren (1998). "Planning and Social Control: Exploring the Dark
Side". Journal of Planning Literature. 12 (4): 395–406.
 Yiftachel, Oren, 1995, "The Dark Side of Modernism: Planning as Control of an
Ethnic Minority," in Sophie Watson and Katherine Gibson, eds., Postmodern
Cities and Spaces (Oxford and Cambridge, MA: Blackwell),
pp. 216–240.

10.13 SUGGESTED READINGS

 Anil Kumar, S., Poornima, S.C., Mini, K., Abraham and Jayashree,
K. 2003.New Age Publishers, Delhi.
 Entrepreneurship Development, New Age International Publishers, New Delhi.
 Gupta, C.B. 2001. Management. Theory and Practice. Sultan Chand and Sons,
New Delhi.
 Ind.u Grover. 2008. Handbook on Empowerment and Entrepreneurship.
Agrotech Public Academy, Udaipur.
 Khanka, S.S. 1. 999. Entrepreneurial Development, S. Chand and Co., New
Delhi.
 Mary Coulter. 2008. Entrepreneurship in Action. Prentice Hall of India Pvt.
Ltd., New Delhi.
 Mohanty, S.K. 2009. Fundamentals of Entrepreneurship. Prentice Hall of
India Pvt. Ltd., New Delhi.

UNIT-10 Enterprise Planning Process Page 197

  Prasad, R. 2003. Entrepreneurship - Concepts and Cases. ICFAI Publications,
Hyderabad.
 Sagar Mondal and Ray, G.L. 2009.- Text Book of Entrepreneurship and Rural
Development. Kalyani publishers, Ludhiana.
 Singh, D.1995. Effective Managerial Leadership. Deep and Deep Publications,
New Delhi.
 Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.Vasanta Desai. 2000. Dynamics of
Entrepreneurial Development and Management.Himalaya Publishing House,
New Delhi.

10.14 TERMINAL QUESTIONS

1. Discuss the different advantages of Enterprise Resource

Planning.
2. Discuss the different elements of PESTLE analysis.
3. Discuss the different components of Planning.
4. Discuss Enterprise Data Planning with the help of an example.
5. Critically analyse the Enterprise Resource Planning in today’s context.

UNIT-10 Enterprise Planning Process Page 198

 UNIT- 11
FAMILY AND NON-FAMILY ENTREPRENEUR:
PROFESSIONALISM V/S FAMILY
ENTREPRENEURS

11.1 Introduction

11.2 History and Origin of Family Business in India

11.3 Impact of Family Businesses on the Economy

11.4 Family Business and its Characteristics

11.5 Succession Planning

11.6 Strategic Planning in Family Businesses

11.7 Family Businesses in India

11.8 The Digital Imperative of Family Business

11.9 Challenges and Factors Affecting Family Run Businesses

11.10 Advantages and Disadvantages Of Family Run Businesses

11.11 Entrepreneurship and Family

11.12 Summary

11.13 Glossary

11.14 Answer to Check Your Progress

11.15 Reference/ Bibliography

11.16 Suggested Readings

11.17 Terminal Questions

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11.1 INTRODUCTION
From your neighbouring kirana store to the city jewels shop to the illustrious industrial
houses, it is difficult to be indifferent towards the presence and domination of business
families in the Indian marketplace.

Most of the big corporate business houses like The Tatas, Ambanis , Birlas , Godrej,
Wadias , Munjals , Mahindras ,Thapars , Mittals ,Shaparji Pallonji ,Jindals, Adanis and
even a media house like TIMES Of India are all controlled by families. The family
patriarch and the family is a critical factor in understanding the business scenario in
India.

11.2 HISTORY AND ORIGIN OF FAMILY BUSINESS IN

INDIA
Family businesses have inscribed their presence since long, but have gone through some
formidable and indispensable changes owing to the dynamics of society, economy, and
family itself.

Family businesses in India can be traced back to the bazaar system of moneylending
which was monopolized notably by the Jains and Marwaris of the northern India. The
industrial version of family business is relatively new, dating back to the British Rule
and the First World War.

A conspicuous and legendary example of this is, Jamshetji Tata and the Tata family.
From Jamshetji Tata to Ratan Tata, the illustrious family has not only given India, a
multinational, multi-specialty brand house, employment to lakhs of skilled and
unskilled youth, but has been a stalwart in Industrial development.

11.3 IMPACT OF FAMILY BUSINESSES ON THE

ECONOMY
Family businesses form a backbone of the Indian economy with gross output equaling
about 60% of GDP or about 90% of India’s industrial output. To showcase the
magnitude of this number, consider the following:

 Gross output of top-50 Public Sector Units is around a third of Family

Business output
 Gross revenues of ET-500 businesses is roughly equal to the Family Business
output

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11.4 FAMILY BUSINESS AND ITS CHARACTERISTICS
DEFINING FAMILY BUSINESSES

A commercial organization in which the primary stakeholders of decision making are

multiple generations of a family- related by blood or marriage. It is one of the oldest
forms of economic organization. It is often seen that the noteworthiness of this
staggering element of economy is often underestimated. The unavoidability of
comprehending the nuances of family business and its management can be gauged from
the fact that 44% of the Forbes 400 member fortunes were derived by being a member
of or in association with a family business.

KEY CONCEPTS

Technically, a firm is said to be family-owned if a person is the controlling shareholder;

that is, a person (rather than a state, corporation, management trust, or mutual fund) can
garner enough shares to assure at least 20% of the voting rights and the highest
percentage of voting rights in comparison to other shareholders.

THE THREE CIRCLES MODEL

It is a model used to show the three facets of a family owned organization:- Family,
ownership and management. This helps us to understand how these three models
overlap.

Family circle:- It includes everyone belonging to the family. These are those people who
are considered with the social capital of the family.

Ownership circle:- Family members, investors, employee owners concerned with the
financial capital of the company (business performance and dividends).

Management circle:- Non family members who are basically employees who are
employed by the owners, fall into this category.

GENOGRAM

A genogram is an organization chart for the family. It is an enhanced family tree that
shows not only family events like births and deaths, but also indicates the relationships
(close, conflicted, cut-off, etc.) among individuals in the family. It is a useful tool for
spotting relationship patterns across generations, and decrypting seemingly irrational
behavior.

FAMILY MYTHS

Sets of beliefs that are shared by the family members by which they tend to defend
themselves from the outer tribulations.

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FAIRNESS

Fairness is a fundamental issue in family business decision-making. Solutions that are

perceived as fair by the family and business stakeholders are more likely to be accepted
and supported.

EMOTIONAL DIMENSIONS OF FAMILIES

Families have complex and dynamic emotional bonds and disputes. It is impossible to
create set rules that govern their behavior because of the inability to comprehend them
in a proper way. This is a major governing factor when it comes to family business.

11.5 SUCCESSION PLANNING

One of the most important things to understand in the working of family businesses is
succession. Basically it is determining who will take over leadership and/or ownership
of the company when the current generation retires or dies. Formulating and executing
a well defined succession plan can save the organization from many conflicts thus
preventing any inhibition to the business and failing to do so can actually question the
whole organizational structure. Having a clear statement of goals, an organized plan to
accomplish the goals, a defined hierarchy for decision-making, an established plan for
succession, and strong lines of communication will help to prevent many possible
problems from arising.

Intrusion of emotional and personal relationships should be made minimal. Only the
success of the organization should be kept in the forefront.

11.6 STRATEGIC PLANNING IN FAMILY BUSINESSES

Strategic planning—centering around both business and family goals—is vital to
successful family businesses. In fact, planning may be more crucial to family businesses
than to other types of business entities, because in many cases families have a majority
of their assets tied up in the business.

It has 4 components to it:-

1) Family planning:- In family planning, all stake holding members of the family
,together, develop a mission statement that describes the reason of their
commitment to the business. In allowing family members to share their goals,
needs, priorities, strengths, weaknesses, and ability to contribute, family
planning helps to define a vision of the company that will guide future dealings.
2) Business planning:- Business planning begins with the long-term goals and
objectives the family holds for themselves and for the business. The business
leaders then integrate these goals into the business strategy.
3) Succession planning:- It is a meticulous process consisting of various phases.

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4) Estate planning:- Estate planning involves the financial and tax aspects of
transferring ownership of the family business to the next generation. Families
must plan to minimize their tax burden at the time of the owner's death so that
the resources can stay within the company and the family.

11.7 FAMILY BUSINESSES IN INDIA

Indian family businesses houses are more diversified as compared to their global
counterparts. They are ambitious and completely acknowledge the need to
professionalize functions and operations and splash in non family members to run the
business. Also certain legal regulatory changes are making the change inevitable.

The optimistic plans of growth and strategic proliferation of family business into new
products, markets, mergers and acquisitions makes the formation of effective boards,
having people with right expertise and requirement.

FINANCING OF FAMILY BUSINESS IN INDIA

India firms tend to use external sources of finance like banks, equity financing, debt
financing more as compared to their global counterparts. But the dependence on one’s
own capital always takes an edge. The above sources are commonly used alternatives
when the latter is not adequate.

Also, another important characteristic is that family business firms no longer view
technology as an area of concern, rather it is viewed as an opportunity to reshape the
future.

INDIAN FAMILY BUSINESSES GOING GLOBAL

Geopolitical challenges, Brexit, the US elections, conflict dominated states—despite all

these issues—Indian companies continue to look favourably at expanding their global
footprint, though there has been a slight dip in the number of companies exporting
overseas.

The economic and political stability of the country is of paramount importance in

deciding to explore new markets, both for Indian businesses as well as global family
businesses. This is followed by size and growth potential. Proximity to India and
language barriers are apparently not too much of a concern for Indian family businesses
as they look at new markets.

11.8 THE DIGITAL IMPERATIVE OF FAMILY

BUSINESS
The importance of digital cannot be over-emphasized in India. Challenges such as lack
of a clear digital operations vision from the leadership, lack of skills in data analytics,
absence of a strong digital culture and training, and unclear economic benefits of
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digital investment often plague these organizations. Operational disruption on account
of a cyber security breach is another area of concern. Revenues from digitising products
and service portfolios will increase, as will improvement in efficiencies and costs thus
paving way for a more profitable business.

BUSINESS FAMILY NAME OF ESTATE

Walton family Wal-Mart

Porsche family Volkswagen

Ambani family Reliance industries

Son family Softbank

Knight family Nike

Lee family Samsung

Sandoz family Novartis

11.9 CHALLENGES AND FACTORS AFFECTING

FAMILY RUN BUSINESSES

1) Need to continually innovate:- The issue of innovation in family business is

necessary as well as debatable. It is seen that innovation is the cornerstone
parameter in the growth of a business.
2) Keeping pace with the digital and new technology:- Technological
developments have been increasing at an alarming pace. Keeping pace with it,
when the foundation of the business is on conservation is difficult
3) Ability to attract and retain the right talent:- It is important to realize that
meticulous corporate governance measures and a professionalized work system
be developed to attract the best talent pool available which would take the
business to greater heights.
4) Competition- With entrepreneurship in the air and innovation at its core, market
trends have shown unpredictable changes. Robust measures need to be taken to
survive.
5) Need to professionalize business :-Organizations need to be run systematically
and in a professional manner if it needs to garner profits in an explicable manner.
6) Complying with regulations:- Strict regulatory measures are being introduced to
control the family run business making it difficult to run on informal

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 grounds.
7) General economic situation:- The general economic paradigm of the
country is a deciding factor in any business. The dynamics of
economic forces affect the leaders and decision makers in a veritable manner.

OTHER FACTORS AFFECTING FAMILY BUSINESSES

1) Market instability in the countries

2) Succession planning within the country

3) Corruption in operating countries

4) Political environment in the country

5) Increasing outreach due to social media

6) Cyber security threats

7) Supplier and supply chain issues

8) Internal conflict within the family

9) Influence and history of family

Check Your Progress-A

Q1. Explain salient characteristics of Family Business.

Q2. What are the challenges and factors affecting family run businesses ?

Q3. Give suggestions to make family business more effective in India.

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Q4. State whether each of the following statements is True or False.

a) Family businesses in India can be traced back to the bazaar system of money
lending.

b) Family business does not have risk of ownership.

c) Formulating and executing a well defined succession plan can save the
organization from many conflicts.

d) Non family members who are basically employees who are employed by the
owners, fall into ownership circle.

11.10 ADVANTAGES AND DISADVANTAGES OF

FAMILY RUN BUSINESSES

ADVANTAGES

Stability- Certainty in leadership results in longevity, which consequently gives an

overall stability to the organization.

Commitment- When the legacy of the families are at stake, it creates a deep sense of
commitment which is impracticable when it comes to non family firms. This leads to a
better deliverance of responsibilities. Commitment to family is imbibed in every
individual which gets reflected in the coarse of their work.

Flexibility- Family members juggle through various roles and responsibilities to ensure
the success of the company. There is no hard and fast rule to work assignment.

Long term outlook- Families carry legacies, legacies that never die. They want to
create an eternal presence due to which they think of years and decades ahead. This
creates a bend towards good strategy and careful decision making.

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Decreased cost- A feeling of belongingness creates a willingness to contribute their
own finances to ensure smooth functioning. During challenging times this proves to be
a boon to the organization. This tendency to tighten one’s belt for the business to survive
is a benefit truly looked upon.

DISADVANTAGES

Lack of interest- Sometimes, when the successive members do not consider the
business lucrative and exhibit a lack of interest, it results in a stale and malfunctioning
organization with apathetic and unengaged employees.

Family conflict- Family is a complex bond of relationships and its dynamics are highly
unpredictable. In such situations conflicts are bound to arise. Deep seated, long lasting
bitter quarrels can affect every single person within the firm and can draw divisive lines.
This hampers the family businesses in a disastrous manner. One such example can be
the infamous dispute between the sons of Reliance India founder Dirubhai Ambani, Anil
and Mukesh Dirubhai Ambani. These battles create a lot of tribulation in the
marketplace as well as the whole structure of the business family.

Unstructured governance:- Issues such as internal hierarchies and rules can be of

considerable importance due to the level of inherent trust at family firms. Lack of a very
formal layout of organizational detail can be gravely detrimental to family businesses.

Nepotism:- Nepotism is that devil, which has plagued every industry across the world.
People who lack the skills, education or experience are given jobs by virtue of their
belonging to a family. This creates a sheer incompetence at higher levels and degrades
the organization in a versatile manner.

Succession Planning:- Lack of sound succession planning, because of the inability of

the leader to accept the fact that he needs to step down or because the family thinks that
there is too much trust and succession planning is futile. A succession plan is
instrumental in running of family business.

Pressure of success:- Family businesses create undue pressure on the new generations.
These business owners many also feel torn between adopting new, more popular
methods of doing things and holding tradition.

11.11 ENTREPRENEURSHIP AND FAMILY

BUSINESS

When the company is founded, the owner plays the entrepreneurial role in the
organization. They identify a good business opportunity, develop a sound plan
brimming with innovation and start a venture.

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The later generation of the family, who takeover are expected to look after and nurture
the founder’s creation and not change it or rather be entrepreneurs themselves.

But innovation and entrepreneurship is the heart of any business. It is often cited that
20-25% of businesses survive in the first generation, only 9-10% survive the second
generation and it stoops to a staggering 3-4% in the third generation. The most
significant reason for this is the lack of entrepreneurial motivation in the subsequent
generations.

Entrepreneurship, in today’s realm, is mandatory for survival itself. One such way
where business families make sure that entrepreneurship pumps the growth of the
organization is by recruiting managers inside the business who play the parts of an
entrepreneur, can identify opportunities and escalate the growth and provide a
competitive edge.

It may seem that entrepreneurship, will burn down the legacy of the family and the
leaders can become disillusioned and stick to conservative and old methodologies of
production and selling but in the era of rapid technological and social change, it is not
wise to cling to current or older lines of businesses. Innovation in product as well as the
method of selling is the need of the hour.

A very important dimension of entrepreneurship is that, you must be able to identify

growth opportunities in and out of the core industry and pursue them in an experimental
and cost effective ways.

Diversification is at the helm of affairs when it comes to entrepreneurship. Meticulous

investments which drive potential profit ventures is important for the proliferation of
the family business.

11.12 SUMMARY
Family businesses are evolving and experiencing a demeanor shift in their structure. It
is important to understand that such businesses contribute to major chunk of the
economy and form one of the most complex structures in the business management.
Careful strategizing is required in matters concerning innovation, entrepreneurship,
survival and succession. Some of these family owned businesses hold an innate potential
to transform into a multinational empire.

Today, Indian family businesses are very optimistic about their future, which is clearly
demonstrated by the heightened entrepreneurial activity being witnessed in the country.
It surely displays a significantly an ignition of innovative minds and a courage to
venture into the unexplored arenas of the business world.

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 11.13 GLOSSARY
 Family Business: A commercial organization in which the primary
stakeholders of decision making are multiple generations of a family-
related by blood or marriage. It is one of the oldest forms of economic
organization.
 Succession Planning: Basically it is determining who will take over
leadership and/or ownership of the company when the current generation
retires or dies.

11.14 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress –A

a) True

b) False

c) True

d) False

11.15 REFERENCES

 Bettinelli, C. (2011). Board of directors in family firms: An exploratory

study of structure and group processes. Family Business Review, 24, 151-169.
 Beckhard, R., & Dyer, W. G. (1983). Managing continuity in the family owned
business. Organizational Dynamics, 12 (1), 5-12
 Danes, S. M., Zuiker, V., Kean, R., & Arbuthnot, J. (1999). Predictors of family
business tensions and goal achievement. Family Business Review, 12, 241-252.
 Dunn, B. (1999). The family factor: The impact of family relationship dynamics on
business-owning families during transitions. Family Business Review, 12, 41-60.
 Dyer, W. G. (1994). Potential contributions of organizational behavior to the study of
family-owned businesses. Family Business Review, 7, 109-131.
 Habbershon, T. G., & Williams, M. (1999). A resource-based framework for assessing the
strategic advantage of family firms. Family Business Review, 12, 1-25.
 Sharma, P., & Manikuti, S. (2005). Strategic divestments in family firms: Role of family
structure and community culture. Entrepreneurship Theory and Practice, 29, 293- 311.
 Parmentier, M. A. (2011). When David met Victoria: Forging a strong family
brand. Family Business Review, 24, 217-232.

UNIT-11 Family and Non-Family Entrepreneur: Professionalism V/S Family Entrepreneurs Page 209
 DeNoble, A., Ehrlich, A., & Singh, G. (2007).Toward the development of a family business
self-efficacy scale: A resource-based perspective. Family Business Review, 20, 127-140.
 U.S. Small Business Administration (2014). Retrieved April 15, 2014, from
http://www.sba.gov/sites/default/files/FAQ_March_2014_0.pdf
 Motwani, J., Levenburg, N., Schwarz, T., & Blankson, C. (2006).Succession planning in
SMEs: An empirical analysis. International Small Business Journal, 24, 471-495.

11.16 SUGGESTED READINGS

 Anil Kumar, S., Poornima, S.C., Mini, K., Abraham and Jayashree,
K. 2003.New Age Publishers, Delhi.
 Entrepreneurship Development, New Age International Publishers, New Delhi.
 Gupta, C.B. 2001. Management. Theory and Practice. Sultan Chand and Sons,
New Delhi.
 Ind.u Grover. 2008. Handbook on Empowerment and Entrepreneurship.
Agrotech Public Academy, Udaipur.
 Khanka, S.S. 1. 999. Entrepreneurial Development, S. Chand and Co., New
Delhi.
 Mary Coulter. 2008. Entrepreneurship in Action. Prentice Hall of India Pvt. Ltd.,
New Delhi.
 Mohanty, S.K. 2009. Fundamentals of Entrepreneurship. Prentice Hall of India
Pvt. Ltd., New Delhi.
 Prasad, R. 2003. Entrepreneurship - Concepts and Cases. ICFAI Publications,
Hyderabad.
 Sagar Mondal and Ray, G.L. 2009.- Text Book of Entrepreneurship and Rural
Development. Kalyani publishers, Ludhiana.
 Singh, D.1995. Effective Managerial Leadership. Deep and Deep Publications,
New Delhi.
 Vasanta Desai. 1997 Small Scale Industries and Entrepreneurship. Himalaya
Publishing House, New Delhi.Vasanta Desai. 2000. Dynamics of
Entrepreneurial Development and Management.Himalaya Publishing House,
New Delhi.

11.17 TERMINAL QUESTIONS

1. Define Family business. How this format of business is
different from traditional form of professional businesses.
2. Discuss the impact of Family Businesses on the economy like India.
UNIT-11 Family and Non-Family Entrepreneur: Professionalism V/S Family Entrepreneurs Page 210
 3. What facets of family business are described by the Three Circles Model? Discuss in
details.
4. What do you understand by succession? Why does a family business need succession
planning?
5. How strategic planning take place in family businesses. Discuss all major components
of a strategic plan generally adopted by family businesses.
6. Write a detailed note on history of Family Businesses.
7. What factors primarily affect family businesses? Discuss in details with the challenges
faced by them in today’s business environment.
8. Discuss various advantages and disadvantages of selecting the family business format
by an entrepreneur.
9. Write a note of current state and crucial issues related to family businesses in India.
10. Discuss the role of entrepreneurship and innovation in today’s family businesses.

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 UNIT-12 WOMEN ENTREPRENEURS: CHALLENGES
AND ACHIEVEMENTS

12.1 Introduction

12.2 Objectives

12.3 Definition of women entrepreneur

12.4 Factors for the growth of women entrepreneur

12.5 Problems faced by Indian Women Entrepreneur

12.6 Steps taken by the Indian government

12.7 Suggestions to overcome challenges

12.8 Some cases of successful business entrepreneurs

12.9 Summary

12.10 Glossary

12.11 Answers to check your progress

12.12 References

12.13 Suggested Readings

12.14 Terminal Questions

12.1 INTRODUCTION
Women entrepreneurs contribute to the Indian economy in a significant manner. There
are huge number of micro, small, and medium enterprises with full or partial female
ownership. All together, these women-owned enterprises contribute 3.09 percent of
industrial output and employ approximately 8 - 8.5 million people. Approximately, 78
percent of women enterprises belong to the services sector. Women entrepreneurship is
largely concentrated towards smaller sized firms, as most of the women-owned
businesses are micro-enterprises. Despite of their contribution in the growth of economy
there are many issues which need to be addressed effectively to smoothens the growth
of women entrepreneurs. The issues need to be addressed are related to

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finances, access to the labour market, legal issues related to the industrial relations,
access over economic resources, the challenges pertaining to their male counterparts,
entrepreneurial opportunities and others. However, it has been realized that women
entrepreneurs are still untapped source of economic growth - who create new
employment opportunities and avenues for women’s economic independence.

12.2 OBJECTIVES
After reading this unit you will be able to:

-Understand the meaning of women Entrepreneurs

-Explain the factors for the growth of women entrepreneurs

- Understand challenges faced by the women entrepreneurs

-The initiative of government and other financial institution in promoting women

entrepreneur

12.3 DEFINITION OF WOMEN ENTREPRENEUR

Women entrepreneurs is defined as a “Woman or a group of women who initiate,
organize and run a business enterprise”. Government of India has defined women
entrepreneurs based on women participation in equity and employment of a business
enterprise. Accordingly, a woman run an enterprise is defined as “an enterprise owned
and controlled by a women having a minimum financial interest of 51% of the capital
and giving at least 51%of the employment generated in the enterprise to women”.

“A woman entrepreneur can be defined as a confident, innovative and creative woman

capable of achieving self economic independence individually or in collaboration,
generates employment opportunities for others through initiating, establishing and
running the enterprise by keeping pace with her personal, family and social life.” _
Kamal Singh

12.4 FACTORS INFLUENCING WOMEN

ENTREPRENEURSHIP
1 PUSH FACTORS

These factors are elements of necessity such as low family income, dissatisfied salary
packages, difficulty in looking for a job and a requirement for a flexible work

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schedule because of family responsibilities. These factors may have more importance
for women .

2 PULL FACTORS

The factors which promotes entrepreneurial drive such as related to independence, self
-fulfillment, and desire for wealth, power and social status, co-operation and support of
family members and a strong network of contacts are called pull factors. The most
important factor is self achievement expressed in terms of challenge which helps women
to start, run their own business and turn it into a profitable venture.

When a strong need for achievement could not be fulfilled through a salaried position
or when there was a desire to transform a perceived opportunity into a marketable idea,
then these factors work for a person to start their own venture.

12.5 PROBLEMS FACED BY INDIAN WOMEN

ENTREPRENEURS
1. Family ties

Women in India are emotionally attached to their families, friends and relatives. besides
they have to take care the domestic work, look after the children and other members of
the family. They have to meet the social obligations. In such situations, it becomes
difficult to concentrate and run the enterprise successfully.

2 Excessive male domination

Even though our constitution emphasize on equality between sexes, male chauvinism is
still persist. Women are not treated equal to men. Their entry to business requires the
approval of the head of the family. Entrepreneurship has traditionally been seen as a
male domain. All these issues hinders the growth of women entrepreneurs.

3 Lack of formal education:

Large percentage of women in India are lagging behind in the field of education. Most
of the women are illiterate. Those who are said to be “educated” are provided either less
or inadequate education than their male counterpart due to early marriage, brother’s
higher education and poverty. Due to lack of formal education, women entrepreneurs
remain ignorant about the development of new technology, new methods of production,
marketing and other governmental support which would encourage them to flourish.

4 Social and cultural barriers:

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The traditions and customs prevailing in Indian society towards women sometimes
obstacle their growth and prosperity. Castes and religions dominate which hinders
women entrepreneurs. In rural areas, they face more social and cultural barriers. They
are always under estimated and seen with suspicion.

5 Shortage of raw materials:

Scarcity of raw materials, unavailability of proper and sufficient raw material pose
difficulties to the enterprises run by women entrepreneurs. Women entrepreneurs face
a tough task in getting the required raw material and other necessary inputs for the
enterprises at low prices. Further they are not taken seriously by the vendors.

6 Problem of finance:

Women entrepreneurs’ faces lot of problems in raising and meeting the financial
resources need of the venture. Banks creditors and financial institutes are not very
willing to provide financial assistance to women borrowers on the ground of their less
credit worthiness and more chances of business failure. Apart from this, they also face
financial deficit due to blockage of funds in raw materials, work in –progress, finished
goods and non-receipt of payment from customers in time.

7 Tough competitions:

Usually women entrepreneurs employ poor technology in the production of goods. In a

market where there is a cut throat competition, they have to fight hard to survive in the
market against the organised sector and their male counterpart who have rich experience
and capacity to adopt advanced technology in managing enterprises

8 High cost of production:

Several factors including obsolescence due to non-adoption or slow adoption to

changing technology, high cost of finance and inefficient management contribute to the
high cost of production which in turn results in slow progress of women entrepreneurs.
Women entrepreneur

9 Low risk - bearing capacity:

Since decades women in India were under male domination they are by nature weak,
shy and mild. They cannot bear the amount risk which is essential for running an
enterprise. Lack of education, training and financial support to them also reduce their
ability to bear the risk involved in an enterprises.

10 Limited mobility:

Women mobility in India is highly limited due to social and cultural factors and inability
to drive vehicles. They have to depend on others for completion of their important task.
The delay in the work in one way or another increases the cost of goods.
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11 Lack of entrepreneurial aptitude:

Lack of entrepreneurial aptitude is a matter of concern for women entrepreneurs. They

have limited entrepreneurial nature. Even after attending various training programmes
on entrepreneurship women entrepreneurs fail to overcome the risks and problems that
may crop up in an organizational working.

12 Limited managerial ability:

Over a period of time managing a business has become difficult for a layman. It has to
be performed by efficient and trained managers. Most of the women entrepreneurs are
not very efficient in managerial functions like planning, organizing, controlling,
coordinating, staffing, directing, motivating etc. of an enterprise. Therefore, less and
limited managerial ability of women has become a problem for them to run the
enterprise successfully.

13 Legal formalities:

Fulfilling the legal formalities for running an enterprise becomes a very challenging task
on the part of a women entrepreneur because of the prevalence of corruption in
government offices. Procedural delays for various licenses, electricity, water and shed
allotments – all hampers the growth of the enterprise. In such situations women
entrepreneurs find it hard to concentrate on the smooth working of the enterprise.

14 Exploitation by middle men and agencies:

To manage a business enterprises efficiently it has become a practice to outsource some

of the services and work to the third party. The tasks like marketing, distribution and
money collection, have to be outsource to middlemen and other agencies. Middle men
and agencies exploit them. They add their own profit margin which result in less sales
and lesser profit.

15 Lack of self confidence:

There are number of problems associated with the women including social, cultural and
commercial in running an enterprise successfully. As a result they loose their confidence
and find hard to strike a balance between managing a family and managing an
enterprise. Sometimes she has to sacrifice her entrepreneurial urge in order to strike a
balance between the two.

12.6 STEPS TAKEN BY THE INDIAN GOVERNMENT

The growth and development of women entrepreneurs need to be increased because
entrepreneurial level development is not possible without the participation of women.
Therefore, a healthy environment is needed to be developed to enable women to

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participate actively in the entrepreneurial activities. There is a need of Government, non
-Government, promotional and regulatory agencies to come forward and support the
promotion of the women entrepreneur in India. The Government of India has already
formulated various training and development cum employment generations programs
for the women to start their ventures. These programmes are as follows:

Steps taken in Seventh Five Year Plan:

A special chapter on the “Integration of women in development” was introduced by

Government in seventh five year plan with following suggestions

A) Specific target group: It was suggested to treat women as a specific target groups in
all major development programs of the country.

B) Arranging training facilities: It was also suggested to devise and diversify

vocational training facilities for women to suit the changing needs and skills.

C) Development of new equipments: Efforts should be made to increase women

entrepreneurs efficiency and productivity through appropriate technologies, equipments
and practices.

D) Marketing assistance: It was suggested to provide and extend the required assistance
for marketing the products produced by women entrepreneurs.

E) Decision- Making process: Involvement of women in decision-making process

should be encouraged.

Steps taken by Government during Eight Five- Year Plan:

The Government of India developed special programs to increases employment and

income - generating activities for women in rural areas. The following plans are lunched
during the Eight -Five Year Plan:

A) Prime Minister Rojgar Yojana and EDPs were introduced to develop

entrepreneurial qualities among rural women.

B) “Women in agriculture‟ scheme was introduced to train women farmers having

small and marginal holdings in agriculture and allied activities.

C) To generate more employment opportunities for women KVIC took special

measures in remote areas.

D) Women cooperatives schemes were formed to help women in agro based industries
like dairy farming, poultry, animal husbandry, horticulture etc. with full financial
support from the Government.

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E) Several other schemes like integrated Rural Development Programs (IRDP),
Training of Rural youth for Self employment (TRYSEM) etc. were started to alleviated
poverty. 30 -40% reservation is provided to women under these schemes.

3 Steps taken by Government during Ninth Five Year Plan:

Economic development and growth is not achieved fully without the development of
women entrepreneurs. The Government of India has introduced the following schemes
for promoting women entrepreneurship because the future of small scale industries
depends upon the women- entrepreneurs:

Swarna Jayanti Gram Swarozgar Yojana and Swaran Jayanti Sekhari Rozgar
Yojana were introduced by government to provide reservations for women and
encouraging them to start their ventures.

New schemes named Women Development Corporations were introduced by

government to help women entrepreneurs in arranging credit and marketing facilities.

State Industrial and Development Bank of India (SIDBI) has introduced following
schemes to assist the women entrepreneurs. These schemes are:

(i) Mahila Udyam Nidhi

(ii) Micro Cordite Scheme for Women

(iii)Mahila Vikas Nidhi

(iv) Women Entrepreneurial Development Programmes

(v) Marketing Development Fund for Women

Consortium of Women entrepreneurs of India

It provides a platform to assist the women entrepreneurs to develop new, creative and
innovative techniques of production, finance and marketing. There are different bodies
such as NGOs, voluntary organizations, Self - help groups, institutions and individual
enterprises from rural and urban areas which collectively help the women entrepreneurs
in their activities.

Training programmes:

The following training schemes especially for the self employment of women are
introduced by government:

(i) Support for Training and Employment Programme of Women (STEP).

(ii) Development of Women and Children in Rural Areas (DWCRA).

(iii) Small Industry Service Institutes (SISIs)

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(iv) State Financial Corporations

(v) National Small Industries Corporations

(vi) District Industrial Centres (DICs)

Mahila Vikas Nidhi:

SIDBI has developed this fund for the entrepreneurial development of women especially
in rural areas. Under Mahila Vikas Nidhi SIDBI grants loan to women are given to start
their venture in the field like spinning, weaving, knitting, embroidery products, block
printing, handlooms handicrafts, bamboo products etc.

Rashtriya Mahila Kosh:

In 1993, Rashtriya Mahila Kosh was set up to grant micro credit to poor women at
reasonable rates of interest with very low transaction costs and simple procedures.

Stand up India Scheme

The “Stand up India Scheme” is being launched now to promote entrepreneurship

among Scheduled Caste/Schedule Tribe and Women for loans in the range of Rs. 10
Lakhs to Rs. 100 Lakhs. The Scheme is expected to benefit large number of such
entrepreneurs, as it is intended to facilitate at least two such projects per bank branch
(Scheduled Commercial Bank) on an average one for each category of entrepreneur.
The broad features of the scheme are as under:-
I. Composite loan between Rs. 10 lakh and upto Rs.100 lakh, inclusive of working
capital component for setting up any new enterprise.
II. Debit Card (RuPay) for withdrawal of working capital.
III. Credit history of borrower to be developed.
IV. Refinance window through Small Industries Development Bank of India (SIDBI)
with an initial amount of Rs.10,000 crore.
V. Creation of a corpus of Rs. 5,000 crore for credit guarantee through NCGTC.
VI. Handholding support for borrowers with comprehensive support for pre loan
training needs, facilitating loan, factoring, marketing etc.
VII. Web Portal for online registration and support services.

Check Your Progress- A

Q1. Explain stand Up India Scheme.

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Q2. What are the factors that have influenced the growth of Women
entrepreneur?

Q3. What are the steps taken by the government in the Seventh Five Year plan
for the growth of women entrepreneurs?

Q 4 Write full form of the following acronyms

(i) STEP Support for Training and Employment Programme of Women

(STEP).

(ii) DWCRA Development of Women and Children in Rural Areas (DWCRA).

(iii) SISIsSmall Industry Service Institutes (SISIs)

(vi) DICs District Industrial Centres (DICs)

12.7 SUGGESTIONS TO OVERCOME

CHALLENGES
In India, the potential for women’s entrepreneurship is immense and women’s increased
participation in economic activities has gained a national priority. However, women
entrepreneurs are still not yet widely supported and accepted. The efforts to develop
women need to be substantiated and strengthened. To lead women towards
entrepreneurship by creating an enabling environment, a series of recommendations are
mentioned below under the following heads

a) Role of Government

b) Role of Business Development Service (BDS) Providers

c) Role of Supporting Organizations

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d) Access to Finance

e) Access to Market

f) Access to Infrastructure and social service

g) Access to Technology

h) Other measures to create enabling environment

Role of Government:

Overall Policy Direction

Policies for women’s entrepreneurship should follow a comprehensive approach rather

than be piecemeal. They should encourage subsector clusters by providing infrastructure
facilities and services, such as training and banking to MSMEs. The Government needs
to ensure the availability of credit for fixed assets and working capital, focusing on
timeliness and adequacy in a gender-sensitive manner. Policies to facilitate income tax
rebates and tax reliefs to women entrepreneurs can be introduced. Income tax rates
should be reduced for women.

Evaluation and Up Gradation of Policies

There is a need to periodically evaluate the impact of MSME-related policies on the

success of women-owned businesses and the extent to which such businesses take
advantage of these policies. Good practices should be disseminated and shared broadly.
Women entrepreneurs should extensively make use of the various schemes provided by
the Government. Suggestions should be given to the national mission for
entrepreneurship to ensure it is gender-sensitive.

Provision of amenities: It is desirable to establish amenities for women entrepreneurs

in industrial areas, such facilities should be characterized by easy mobility and
proximity to residential areas with regular bus service, child-care facilities, etc.

Assistance and awareness creation

Central and State governments should assist women entrepreneurs to participate in

international, national and local trade fairs, exhibitions and conferences. Such activities
should be organized regularly. Incentives to women for entry in MSME sector as
entrepreneurs should be offered.

Attempts by various NGO's and GO’s to spread information about policies, plans and
strategies on the development of women in the field of industry, trade and commerce
are playing a crucial role and should be supported.

Procedural simplification

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The procedures and formalities should be simplified for registration of business,
financial and legal assistance, subsidies, concessions, relief etc, from various
government and non governmental departments.

Role of the state governments

State governments should ensure the adequate availability of trained workers; upgrade
the skills of those already in the MSME sector, and upgrade products and processes, in
line with changing demand patterns, so that women entrepreneurs can keep abreast of
world standards of quality and productivity. Transfer of technology from the research
institutes to the entrepreneurs should be ensured. Commercializing local innovation
would be more appropriate for women entrepreneurs. State government should create
“one-stop shops” for Government services/schemes/ programs for women
entrepreneurs.

Role of BDS Providers

Women in business should be offered soft loans and subsidies. Financial institutions
should give more working capital assistance to women-headed organizations. BDS
Providers should come up with the provision of micro credit system for women-led
enterprises at the local level.

All-India forums for women entrepreneurs should be established to discuss the issues
and, grievances, women face in their businesses. Such forums should enact in giving
suitable decisions in favour of women entrepreneurs and take a strong stand against any
policy or measure that obstruct women’s economic empowerment and women’s
entrepreneurship.

Awareness for women business development at all levels i.e., at government, BDS
support and at

entrepreneurial level, is lacking. Efforts are to be made to supplement existing network

to improve access of women and to reduce barriers to their entry into business.

Role of Supporting Organizations

There is an urge for greater transparency and renewed efforts to increase the awareness
of existing regulations, and support mechanisms. Amongst women in business or
enterprising women. Among other means, this could be achieved by publishing various
women MSMEs laws and rules in local languages and by allowing the sale of such
booklets and related applications. Periodic open forums of various regulatory
departments such as excise, license, registrar, industrial schemes, tax departments, and
directorate of industries should be widely disseminated among women entrepreneurs to
create conducive environment.

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 Training institutions should look ahead and provide training for their staff, update their
curriculums, and facilities in line with the times and to better meet pressing and evolving
demands.

Subsector-specific support should be created at district level for women entrepreneurs.

Such mechanism should be autonomous and work independently of the government,
with focused strategy of intervention, after identifying the key constraints for a specific
subsector.

It is suggested that NABARD and SIDBI take the initiative to draw the attention of the
operating managements of the banks to create a potentially growing and profitable
business segment. To overcome the technical deficiency at the branch level, the lead
bank office in the district should establish a women cell to provide specialized assistance
to all the branches.

Access to Finance

Banks and financial institutions offer excellent financial schemes for women
entrepreneurs but there is a lack of wider awareness among women about such schemes.
A re-evaluation of the way women business clients are treated might alleviate many
gender -related problems experienced by women.

There is a dire need to have large number of awareness workshops/camps in different

centres to introduce financial schemes available to women and to formulate a strategy
to avoid discrimination, especially in small centres.

Banks should have collateral-free lending, set quotas to women entrepreneurs for
lending, as well as guarantee scheme for zero-collateral lending. Safe lending should be
replaced by priority lending for women. Consortia (group) lending for women should
be made available.

Banks should keep regular monitoring of women entrepreneurs’ loans and helping
women entrepreneurs to develop project. Banks having considerable lending to women
should be offered incentives.

Every girl should have a bank account; it should be made mandatory because it will
make them eligible for bank loans in the future. Women business loans should have
lower interest rates. International capital should be made available, and regulations need
to be simplified.

Access to Market

Special efforts are needed to facilitate unmediated access for women to invest in human
capital, to the factors of production, to productive assets and productive markets.

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Marketing assistance should be designed by promoting linkages between women
enterprises of various sizes, by way of legitimate subcontracting and where appropriate
franchising or other forms of inter-firm cooperation. Women enterprises for export
marketing should be encouraged through coordinated efforts, assisting in quality
standards, and by providing information of foreign markets as well as by assisting them
in overseas representation Quota in government purchase with minimum percentage and
margins in auctions .

Access to Infrastructure and social service

Development of infrastructure must be accompanied by policies that encourage women

to engage in income-generating activities, including education, training and extra
benefits such as child care facilities. Government should keep some priorities for
women entrepreneurs for allocation of industrial plots, sheds and basic
infrastructure/amenities. Investments in infrastructure networks and education for
women should be encouraged. Waiver on stamp duty and registration charges for
Women to create their properties should be offered. Infrastructure advantages to
women entrepreneurs should be promoted by both public and private sector in form of
“special zones”. It would reduce their burden of developing the infrastructure.

Access to Technology

The establishment of technology centres to provide help to women entrepreneurs is

really needed. Universities and technical colleges should be given a greater role in the
development and dissemination of technologies to promote women enterprises. To
upgrade technologies in the women entrepreneurship development, credit should be
made available on a preferential basis to women business units that want to modernize.
The need exists for the adaptation of technology by the women enterprises .

Other measures to foster an enabling environment for women entrepreneurs:

Removing socio cultural barriers

There is a need to change in attitude in the society pertaining to the role of women in
society. However societal changes do not occur overnight; it is a gradual and slow
process. But without this change the above-proposed subsidies, credit allocation, and
other measures aimed towards women entrepreneurship may not bring significant
change.

Initiation into professional work: Usually families provide financial and emotional
support to sons for setting up a business or profession. But women should also be
encouraged that their skills and knowledge, if utilized could provide them with
profitable occupation.

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Self-recognition: Women should recognize their own needs and give their needs an
expression. They must be motivated to be actively involved in entrepreneurial activities.

Encouragement and motivation: Role models to encourage women to take up

entrepreneurship should be created and social media/ media should project working
women in a more positive way, showcasing such role models.

Training needs requirement

The study provides a clear picture of the types of difficulties women entrepreneurs
face at the conception, inception and operation stages of enterprise building. These
difficulties could be solved if a package of need-based training covering product
selection, market and investment information, training in management and behavioural
skills and competencies could be developed and offered. Women intending to start
business should be encouraged to participate in business-training courses. The
professional education and training should start from school level. Women must be
educated and trained to acquire the skills and knowledge in all the functional areas of
business management. Vocational training should be provided by Government and
private institutions, specifically for women, as an option to college education, especially
in non-traditional areas. Vocational training for women needs to be associated with
complementary programmes combining it with management and entrepreneurial
training, which could further stimulate women’s interests in creating
enterprises. - An awareness programme should be conducted on a mass scale among
women about the various areas to conduct business. Skill development should be done
in women's polytechnics and industrial training institutes. Skills can be put to work in
training-cum-production workshops. Women entrepreneurship should be promoted
through education by introducing Entrepreneurship as a subject after 8th grade.

Role of NGOs

Attempts by various NGOs to spread information about policies, plans, and strategies
on the development of women in the field of industry, trade and commerce need to be
supported and sustained. NGOs should participate actively in women entrepreneurship
development programmes.

Role of FLO (FICCI Ladies Organization)

FLO can work in conjunction with the Government and other agencies to

- Establish a National Women Entrepreneurship Fund

- Operate women entrepreneur guidance and training cells across its many chapters

- Undertake gender-sensitization training for various agencies.

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It needs to be stated that women in India represent about 49 per cent of the country’s
total human resources. Unless women contribute more economically, the country cannot
progress. Their participation and contribution to the overall development of the country
should be facilitated.

12.8 SOME CASES OF SUCCESSFUL BUSINESS

ENTREPRENEURS
1. Dr. Kiran Mazumdar-Shaw, Chairman & Managing Director of Biocon Ltd.,
who became India’s richest woman in 2004, was educated at the Bishop Cotton Girls
School and Mount Carmel College in Bangalore. She founded Biocon India with a
capital of Rs.10,000 in her garage in 1978 – the initial operation was to extract an
enzyme from papaya.

2. Ekta Kapoor, creative head of Balaji Telefilms, is the daughter of Jeetendra and
sister of Tushar Kapoor. She has been synonymous with the series of soap operas on
Indian TV.After her most famous venture ‘Kyunki Saas Bhi Kabhi Bahu Thi’ which was
aired in 2000 on Star plus. Ekta outshines Indian Television. At the 6th Indian Telly
Awards 2006, she bagged the Hall Of Fame award for her contributions in Indian
Cinema.

3. Neelam Dhawan, Managing Director, Microsoft India, leads Microsoft India. She
is a graduate from St. Stephens College in 1980. She passed out from Delhis Faculty
Of Management studies in 1982. After that she was keen on joining FMCG majors like
Hindustan Lever and Asian Paints. However both the companies rejected Dhawan, as
they did not wish to appoint women for marketing and sales.

4. Naina Lal Kidwai, - She was the first Indian woman to graduate from Harvard
Business School. According to the Economic times, she is the first woman to head the
operations of a foreign bank in India ( HSBC). Fortune magazine listed Kidwai among
the world top 50 Corporate Women from 2000 to 2003.

5. Indu Jain was the Chairman of the Times Group-one of the most powerful and
largest Media house of India . Indu Jain is known by many different identities -
spiritualist, humanist, entrepreneur, and educationalist but most prominently she played
the role of the Chairman of Times Group. Indu Jain is the perfect picture of the
successful Indian Woman entrepreneur.

6. Priya Paul, - she has a bachelor’s degree in Economics from Wellesley College,
USA. She has joined family business, and is currently the Chairperson of Park Hotels.

7. Simone Tata, She has been instrumental in overhauling a subsidary of Tata Oil
Mills into the largest cosmetic brand in India – LAKME.. She became a part of Lakme
during 1961 and has been responsible for turning the company into one of the

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biggest brands of fashion in India. She is the Chairperson of Trent Limited, a subsidary
of Tata Group.

8. Mallika Srinivasan, currently the Director of TAFE- Tractors and Farm

Equipment, India , was honored with the title of Businesswoman of the Year during
2006 by the Economic Times..

9. Preetha Reddy- She is a Managing Director of Apollo Hospitals, Chennai, one of

the largest healthcare conglomerates of India,. She is one of the top most business
woman of India in the segment of Health Care Industry.

10. Shahnaz Hussain Current position: CEO, Shahnaz Herbals Inc, Shahnaz Hussain
is the biggest name in herbal cosmetics industry in India. She has introduced a number
of trend setting herbal products. Currently, the Shahnaz Husain Group has over 400
franchise clinics across the world covering over 138 countries. Her pioneering work got
recognition from Govt of India when she was conferred with prestigious Padma Shri
award in 2006.

11. Vaidya Manohar Chhabria Chairman of Jumbo Group. The wife of a late
Manohar Rajaram Chhabria is now leading Jumbo Group, a Dubai based Dollar 1.5
billion business conglomerate. She was ranked 38th most powerful women by the
Fortune Magazine in 2003.

12. Lalita Gupte & Kalpane Morparia Joint Managing Directors of ICICI Bank, have
made immense contribution to the banking sector in India.

Women like these are an inspiration for all other women who strive to achieve great
heights in their lives. Taking them as our role models each one of us can be there where
they are right now. All we need have is faith in ourselves, confidence and above all a
fixed aim that we need work towards.

12.8.1 Characteristics of successful women entrepreneurs

1) Positive attitude: A positive attitude is one of the most important factor in turning the
ideas into practical programs and finally putting them into action. With a positive
attitude, the ground for innovations and solution will be provided and would lead to the
flow of energies. Entrepreneurship is a difficult task, and if negative attitudes dominate
the mind, the endeavors will come to an end at the instance of facing the first hurdle.

2) Overcoming the obstacles: The women entrepreneurs should turn the threats into
opportunities for the organization. They must learn a lesson from every problem that
crops up. Gradually, they will realize that the problems are not as big as they have
projected.

3) High self-confidence: Being self-confident and powerful mean creative and moving
on the right path. When the individual has a positive image of herself, responsible and
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accountable, she has a stronger sense of entrepreneurship. Employees and vendors will
cooperate her in a more confident manner.

4) The sense of being helpful to others: Studies show that women have a higher
capability to become influential on others by being helpful to them. confidence to make
a positive change in the lives of others is one of the most important characteristics of
the entrepreneur women, and it is counted as an important factor in their economic
growth. Researchers have shown that among different motives such as a high income,
the demonstration of capabilities, making use of university degrees, etc. the sense of
being helpful to others and making a positive change in the lives of others are the most
important motive for the women entrepreneurs.

5) Honesty: To be successful there is no need to step on others in order to reach high.

Fraudulent practices and unhealthy competitiveness is more common in men rather than
women. This factor infuses the sense of trust on women entrepreneurs. Everyone likes
to work with trustful and honest people.

6) Balancing between life and work: the women who can balance life and work tend to
be more successful. A balanced life helps the mind for creative ideas. Some of the
Statistics show that the women entrepreneur who have family responsibilities are more
successful.

7) Goal-directedness: The goals are the dreams that are supplemented by clear
practical programming. The goals are to be written down clearly and precisely and
should be achievable. . The researches show that the women who have clear and detailed
roadmap tend to be more successful. This applies for both the woman and man
entrepreneurs; however, because the women have family responsibilities, having
roadmaps help them to make a good balance between life and work.

8) Precision: The detection of vacuums in the market to be filled with entrepreneurship

is a strategic task in every business. The identification of the unfulfilled needs is the key
to successful production. The women, due to their watchfulness and high precision, are
more capable than men in recognizing those needs.

9) Training: Generally Women entrepreneurs transfer their working knowledge to their

successors, and develops a culture of transferring of the experiences from one person
to another through training pragrammes and regular orientations. This characteristic also
leads to their ability to take advantage of the experience of others, as well.

10) Long-term vision: Cautiousness and anticipation are among the special
characteristics of the woman entrepreneurs. Because of the long-term vision of the
women in facing the problems their resistance against failure is higher in them.
Cautiousness and anticipation do not root out the obstacles but minimizes them.

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 Although throughout the world the number of woman entrepreneurs is
lower than the men’s, but all things being equal their success rate is higher.

Check Your Progress- B

Q1. List some qualities of successful women entrepreneurs.

Q2. Discuss the role of FLO?

Q3. MCQs

1. Chairman and managing Director of Biocon Ltd.

i. Dr. Kiran Mazoomdar Shaw
ii. Ekta kapoor
iii. Hema malini
iv. None of the above

2 “Kyunki Saas bhi kabhi Bahu Thi” was directed by

i. Karina kapoor
ii. Ekta kapoor
iii. Indra Noori
iv. None of the above

3 First Indian Women Graduated from Harvard Business School

i. Malika Srinivasan
ii. Simone Tata
iii. Preetha Reddy
iv. Naina Lal Kidwai

4. Chairperson of Park Hotels

i. Indu Jain

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 ii. Priya Paul
iii. Simone Tata
iv. Ranjana Kumar

12.9 SUMMARY
Women entrepreneurship is both about women’s position in the society and about the
role of entrepreneurship in the same society. Women entrepreneurs face many obstacles,
specifically in marketing their product (including family responsibilities), that have to
be overcome in order to give them access to the same opportunities as men. Women
have the basic indigenous knowledge, skill, potential and resources to establish and
manage enterprise. Now, the need is for knowledge regarding accessibility to loans,
various funding agencies, procedures regarding certification, awareness on government
welfare programmes, motivation, technical skill and support from family government
and other organization. Moreover, formation and strengthening of women
entrepreneur’s network must be encouraged. The banking institutions must offer
formalized credit facilities, and this sector must be included in the registered sector
category by the government to promote entrepreneurship among rural women. This
support will help the women to strengthen their family bonds through financing their
businesses, and thus help in the economic growth of the country. Thus, it can be asserted
that women entrepreneurs can perform better, both in urban and rural areas, given that
the government provides them assistance periodically.

12.10 GLOSSARY
 BDS Business Development Service
 CGTSI Credit Guarantee Fund Trust for Small Industries
 DFIs Development Financial Institute
 EDP Entrepreneurship Development Program
 FIs Financial Institutions
 GDP Gross Domestic Product
 GOWE Growth Oriented Women Entrepreneurs
 MFIs Microfinance Institutions
 MFW Marketing Fund for Women
 MSMED Micro, Small And Medium Enterprise Development
 MSMEs Micro, Small, And Medium Enterprises
 NABARD National Bank for Agriculture and Rural Develop
 NGO Non-Governmental Organisation

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  RBI Reserve Bank of India
 SHG Self-Help Group
 SIDBI Small Industries Development Bank of India
 SME Small And Medium Enterprises
 SSE Small-Scale Enterprises
 SSI Small-Scale Industries
 TREAD Trade-Related Entrepreneurship Assistance And Development

12.11 ANSWERS TO CHECK YOUR PROGRESS

Check your progress A

Ans 1. Stand up India Scheme

The “Stand up India Scheme” is being launched now to promote entrepreneurship

among Scheduled Caste/Schedule Tribe and Women for loans in the range of Rs. 10
Lakhs to Rs. 100 Lakhs. The Scheme is expected to benefit large number of such
entrepreneurs, as it is intended to facilitate at least two such projects per bank branch
(Scheduled Commercial Bank) on an average one for each category of entrepreneur.
The broad features of the scheme are as under:-
I. Composite loan between Rs. 10 lakh and upto Rs.100 lakh, inclusive of working
capital component for setting up any new enterprise.
II. Debit Card (RuPay) for drawal of working capital.
III. Credit history of borrower to be developed.
IV. Refinance window through Small Industries Development Bank of India (SIDBI)
with an initial amount of Rs.10,000 crore.
V. Creation of a corpus of Rs. 5,000 crore for credit guarantee through NCGTC.
VI. Handholding support for borrowers with comprehensive support for pre loan
training needs, facilitating loan, factoring, marketing etc.
VII. Web Portal for online registration and support services.

Ans 2 .1 PUSH FACTORS

Push factors are elements of necessity such as insufficient family income, dissatisfaction
with salaries job, difficulty in finding work and a need for flexible work schedule
because of family responsibilities. These factors may have more importance for women
than for men.

2 PULL FACTORS

Factors that work as entrepreneurial drive factors relate to independence, self -

fulfillment, entrepreneurial drive and desire for wealth, power and social status, co-
operation and support of family members and a strong network of contacts. The most

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prominent factor is self achievement expressed in terms of challenge which helps
women to start, run their own business and turn it into a profitable venture. When a
strong need for achievement could not be fulfilled through a salaried position or when
there was a desire to transform a perceived opportunity into a marketable idea, then
these factors work for a person to start their own venture.

Ans 3 In the seventh five year plan A special chapter on the “Integration of women in
development” was introduced by Government with following suggestion:

A) Specific target group: It was suggested to treat women as a specific target groups in
all major development programs of the country.

B) Arranging training facilities: It is also suggested in the chapter to devise and

diversify vocational training facilities for women to suit their changing needs and skills.

C) Developing new equipments: Efforts should be made to increase their efficiency and
productivity through appropriate technologies, equipments and practices.

D) Marketing assistance: It was suggested to provide the required assistance for

marketing the products produced by women entrepreneurs.

E) Decision- Making process: It was also suggested to involve the women in decision-
making process.

Ans 4.

(i) Support for Training and Employment Programme of Women (STEP).

(ii) Development of Women and Children in Rural Areas (DWCRA).

(iii) Small Industry Service Institutes (SISIs)

(vi) District Industrial Centres (DICs)

Check your progress B

Ans 1.Charachterstics of successful women entrepreneurs

1) Positive attitude

2) Overcoming the obstacles

3) High self-confidence

4) The sense of being helpful to others

5) Honesty

6) Balancing between life and work

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7) Goal-directed

10) Long-term vision

Ans 2. Role of FLO (FICCI Ladies Organization)

FLO can work in conjunction with the Government and other agencies to

- Establish a National Women Entrepreneurship Fund

- Operate women entrepreneur guidance and training cells across its many chapters

- Undertake gender-sensitization training for various agencies.

Ans 3 1- I, 2- iii, 3- iv, 4-ii

12.12 REFERENCES
Aparijita Sinha, ―What are the problems faced by Women
Entrepreneur in India? http://www.preservearticles.com/201101153366/problems-
faced-by-women-entrepreneur.html.

Cohoon, Wadhwa & Mitchell,(2010), ―The Anatomy of an Entrepreneur- Are

Successful Women Entrepreneur Different From Men?‖Kauffman, The foundation of
entrepreneurship.

Anita Tripathy Lal(November 15, 2012)―Women Entrepreneurs in India - Over the

Years!‖ Fore School of Management.

Goswami, Arun Kumar 1998 Empowerment of Women in

Bangladesh‗,Empowerment: A Journal of Women for Women, vol. 5, pp. 45-54.

Hossain, K S and M Rahman 1999, Role of Grameen Bank in Entrepreneurship

Development: A Study on Some Selected Entrepreneurs‗, Islamic University Studies
(Part C), vol. 2, pp 7-13.

Hisrich, R D & Brush C 1984, The woman entrepreneur: Management skills and
business problems‗. Journal of Small Business Management, vol.22, No. 1,pp. 30-37.
Kayed, Rasem N and M Kabir Hassan 2010, The motives and the incentives in Islamic
entrepreneurship‗, Dhaka University Journal of Business Studies. vol.15. pp.67-78

http://ijariie.com/AdminUploadPdf

http://internationalseminar.org

http://shodhganga.inflibnet.ac.in
UNIT-12 Women Entrepreneurs: Challenges and Achievements Page 233
http://ssijmar.in

http://tmimtjournal.org/Pdf

http://www.fiwe.org/

http://www.gnlu.ac.in

http://www.hgsitebuilder.com

http://www.ifc.org/wps/wcm

http://www.ijetmas.com

http://www.ilo.org/wcmsp5

http://www.iosrjournals.org/iosr-jbm/papers/Vol15-issue3/C01530914.pdf

http://www.oecd.org/cfe/smes/31919215.pd...

http://www.preservearticles.com/20110115...

http://www.publishyourarticles.net

http://www.studymode.com

http://www.unescap.org

http://www.womenentrepreneurship.in/2013/01/what-are-problems-faced-by-
women.html

https://www.ripublication.com/ijmibs-spl/ijmibsv4n2spl_16.pdf

https://www.scribd.com/document/323113414/Female-Entrepreneur

https://www.thebalance.com

12.13 SUGGESTED READING

Desai, Vasant, (2006), Small-Scale Industries and Entrepreneurship,
Himalaya Publishing House, Mumbai

Gupta, C.B and Srinivasan, N.P, (2008), Entrepreneurship Development in India,

Sultan Chand & Sons, New Delhi
Hisrich, Robert D. and Michael P. Peters (1995), Entrepreneurship: Starting,
Developing and Managing a New Enterprise, 3rd Edition, Illinois:Richard D Irwin.

UNIT-12 Women Entrepreneurs: Challenges and Achievements Page 234

 12.14 Terminal Questions
1. Discuss the challenges faced by women Entrepreneurs.

2. What are the various schemes undertaken by SIDBI and SBI for promoting the
growth of women Entrepreneur

3. Suggest some ways to overcome challenges faced byss women entrepreneurs.

4. Write Short Notes on

i. Women entrepreneurs

ii. Factors influencing the growth of women entrepreneurs

5. Mention the profile of at least five successful women entrepreneurs.

UNIT-12 Women Entrepreneurs: Challenges and Achievements Page 235

 BLOCK V
Entrepreneurship Development in India

UNIT-13 Entrepreneurship Development Programmes Page 236

UNIT-13 ENTREPRENEURSHIP DEVELOPMENT
PROGRAMMES

13.1 Introduction
13.2 Objectives
13.3 Sustainable Entrepreneurship Development
13.4 Need and Importance of EDP
13.5 Objectives of EDP
13.6 Stages of EDP
13.7 Components of EDP
13.8 Institutions Involved In Promoting EDP
13.9 Challenges in Running EDP
13.10 Measuring Performance of EDP
13.11 Summary
13.12 Glossary
13.13 Answers to Check Your Progress
13.14 References
13.15 Suggested Readings
13.16 Terminal Questions

13.1 INTRODUCTION
EDP (Entrepreneurship Development Program) can be explained as a programme which
is formulated to generate entrepreneurial skills among individuals. In other words, it
means creating a program aimed towards nurturing and developing the entrepreneurial
abilities in humans which are needed to establish and successfully run an enterprise.
Thus, this concept of entrepreneurship development programme is aimed at furnishing
a person with some required abilities and knowledge which is required for starting and
functioning of the enterprise

Entrepreneurship development (ED) refers to the process of sharpening the

entrepreneurial skills, capabilities and filling the knowledge gaps through specially
UNIT-13 Entrepreneurship Development Programmes Page 237
designed training programs for individuals as well as development of Institutions. It
mainly aims to enrich and qualify the base of the entrepreneurs which further leads to
economic development and employment generation. Entrepreneurship development
concentrates on the individuals who are willing to expand or start a new business. It
focuses on potential of growth and innovation in any given sector especially in the
Micro, small and medium enterprises (MSME) segment.
Entrepreneurship is mainly built up to tackle the problem of unemployment in the
country as well as to enhance the competition and potential of growth in businesses.
Many initiatives are taken by the governments to develop and boost up the idea of
entrepreneurship in the minds of people. By giving some aids and assistance to improve
the capabilities and skills of the existing and potential entrepreneurs, it is expected that
they would succeed in running successful enterprises.

Entrepreneurial Development Programme refers to an intervention aimed at boosting

the motive for entrepreneurship in an individual and upgrading his skill sets and abilities
for running a business enterprise in the most efficient manner. Hence EDP can be
termed as a motivation builder for an individual by way of creating a positive influence
in his resolve to start an enterprise. This is done by way of providing relevant inputs
and skill development by experts. There are many types of programs which are
conducted to suit the particular needs of the potential or existing entrepreneurs like
making Business Plan, idea generation and vetting, making financial reports, fulfilling
legal requirements on tax, environment and other areas etc. All these can be organised
separately or under one comprehensive program and are hence part of EDP. As business
environment and technology keeps changing, it is essential to organise such programs
for capacity building of small entrepreneurs.

A well designed EDP should include:

1. Sharpening of entrepreneurial skills, traits, behaviour and capabilities.

2. Mentorship on industrial opportunities, rewards, incentives, rules and regulations.

3. Development of managerial, operational and functional capabilities.

13.2 OBJECTIVES
After reading this unit you will be able to:

UNIT-13 Entrepreneurship Development Programmes Page 238

-Understand the concept of Entrepreneurship Development Program (EDP)

-Explain the objectives of organising EDP.

- Understand the components of an EDP

- Know about some of the Institutions engaged in conducting EDP.

- Understand about the challenges of organising an EDP.

13.3 SUSTAINABLE ENTREPRENEURSHIP

DEVELOPMENT
Entrepreneurship development is about assisting the individuals who want to establish
and grow their businesses which can provide great value addition. For this we first need
to identify the different growth sectors or demographical areas which may have potential
of success. Once that has been done, we need to set some criteria for selection of
beneficiaries who can reap these opportunities and become entrepreneurs.
Entrepreneurship development programme requires an organized structure which
attempt to choose these focused groups that may have some key prerequisite knowledge
for success. Beneficiaries might be individuals or groups. Entrepreneurship
development programme must support and aid the entrepreneur to recognize
opportunities and formulate unique business plans, based on the investigation of the
conditions and their own intellectual skills. These programmes may also help the
entrepreneurs to expand or diversify their existing businesses based upon their
prerequisite knowledge of the product and capabilities in the particular sector without
disturbing the local market. Hence, the EDPs normally aim at:

 Creating Entrepreneurship Awareness

 Development of the competencies (skills, capabilities, experiences and
behaviour) which are most important to identify the market opportunities and
proper organization of resources to meet them.
 Improvement of business performances for growth and defending competition
in particular industry.

13.4 NEED AND IMPORTANCE OF EDP

EDP is an organized program that inspires prospective entrepreneurs towards their
goals. It is used as a motivational tool to encourage and assist individuals thinking of

UNIT-13 Entrepreneurship Development Programmes Page 239

starting an enterprise. It provides them the patience and direction to deal with any type
of situation that might arise during the course of managing or launch of a business. EDPs
help to improve productivity and investment that may directly lead to improvement in
economic development which in turn directly leads to positive impact on the economy.
Thus, the main reason behind establishment of these programs is:

 To help potential entrepreneurs realise their dream

 To increase employment which in turn helps in economic development
 To expand micro and small scale industries
 To help in industrialization and economic growth

EDPs can lead to sustainable economical development in many ways:

 Creation of employment opportunities: Generation of employment

opportunities is one of the most important aims of any economic development
plan. Since EDPs help in promoting entrepreneurship, it helps create sustainable
employment avenues for promoters as job seekers can be converted into job
givers. With the spread of entrepreneurship, new areas of business can emerge
as well and larger geographies can be covered. This leads to increase in
employment opportunities in a large manner. Thus not only does the
entrepreneur creates a space for him to lead an independent and passionate life
but also creates job opportunities for a vast majority.
 Helps in achieving balanced regional development: EDPs can help in
achieving balanced regional development as promotion of micro and small
enterprises leads to a balanced and widely inclusive economic growth rather as
compared to differentiated growth caused by heavy industries. Micro and small
units can be established in backward and subserviced areas with minimal
resources. Given the right stimulus, people will be willing to start businesses
with support from the government. EDPs can foster this by enabling local people
gain capabilities to start an enterprise. Once few individuals start their
enterprises successfully, it can prompt others to follow suit and hence a catalytic
effect can be seen. This may lead to a homogeneous spread of industry in all
areas thereby eliminating regional disparities.
 Utilisation of local resources: In the absence of local units, most of the times
the local resources, be it material or human, remain untapped or are provided

UNIT-13 Entrepreneurship Development Programmes Page 240

 to outer locations at a cost. If local residents take the mantle of entrepreneurship,
then these resources can be well utilised with a cost advantage to the business.
For this the EDPs can help people in identifying the best utilisation of resources
by guiding them through training, workshops, mentorship and other
interventions. This will in turn help in sustainable progress of the area as a whole
and with the passage of time, newer capabilities can bring diversification to
existing activities.
 Increase in per Capita Income: Entrepreneurs are always engaged in finding
value addition opportunities. They tend to take up every opportunity that comes
their way and in doing so also align with many people through partnerships or
strategic alliances. This results in increased production capacity and hence more
opportunities for employment and asset generation. This increases overall
economic activity and hence results in increased per capita income. EDPs can
be major contributors in this as they can help entrepreneurs to execute their ideas
into viable businesses.
 Improvement in the standard of living: EDPs can play a crucial role in
educating and sensitising entrepreneurs to produce goods and services in the
most cost effective manner as well as improve the value proposition for the
customer. Better products at affordable prices can help raise standard of living
of consumers. This however requires optimum use of available resources,
constant upgradation of technology, quality assurance and extended outreach.
EDPs can provide the entrepreneurs latest knowledge about technological
innovations and also give them hands on training to experience the benefits of
using these innovations for improving their offerings. This ultimately leads to
better living standards for the people serviced by the entrepreneur.
 Economic Independence: Entrepreneurs constantly try to improve current
offerings and introduce new products and services. Many times they try to
introduce affordable substitutes of expensive imported products in the country.
This in turn helps the country save on foreign exchange. At the same time they
also try to expand the footprint of their business by exporting their products
across the world earning much needed foreign exchange in return. Producers in
a country like India they have a definite cost advantage over their western
counterparts. This results in economic independence of the country. EDPs can

UNIT-13 Entrepreneurship Development Programmes Page 241

 help businessmen in improving their export potential through knowledge on
international business.
 Reducing social tension: EDPs provide people with proper guidance, education
and training to open their own enterprises and apply their skills and talent in the
right direction which can reduce social tensions arising out of frustration due to
lack of economic opportunities.
 Formation of capital: Most of the entrepreneurs during initial stage or during
expansion need capital which can be sourced from formal and informal sources
of credit or investment from the public, private and Institutions. This results in
fruitful utilisation of savings as it results in further formation of capital which is
vital for any prospering economy. EDPs can hence be the route to enhance
capital formation in the country.

 Increased Overall Development: Setting up of an enterprise always leads to a

multiplier effect which boosts overall development. Investment leads to
employment which creates demand due to higher income and thereby leading to
establishment of more units in diverse sectors. This creates overall development
as investments are further made in public and private sector to boost industries.
Also, the success of one enterprise becomes an inspiration for others to replicate
resulting in boost in entrepreneurial spirits of the society.

Check Your Progress-A

Q1. State the concept of Entrepreneurship Development

Program?

Q2. Explain the purpose of organising an EDP?

Q3. In what ways do you think can an EDP help an entrepreneur?

UNIT-13 Entrepreneurship Development Programmes Page 242

13.5 OBJECTIVES OF ENTREPRENEURSHIP
DEVELOPMENT PROGRAM
Each EDP has a designed objective around which it is structured to fulfill the needs of
the participants. However, the major objectives of Entrepreneurship development
programs can be summarized as under:

1. To find out the potential entrepreneurs

One of the basic objectives of carrying out entrepreneurship development
programme is identification of individuals or groups among large population
who have the potential to start their own businesses. Thus, various methods like
surveying, interviews, and questionnaires are used to study the individuals
.Specific characteristics are focused to find out the potential entrepreneurs and
they are guided accordingly during EDPs.

2. To develop necessary skills among identified entrepreneurs

The basic step after identifying the potential entrepreneurs is to develop skills
among them which will help them in their respective businesses. Such skills may
include basic skills like communication skills, business environment
information, marketing and production, legal and financial matters, making
project reports etc. All of these need to be integrated into the program as per the
needs of the participants.

3. To build up the entrepreneurial spirit

One of the most crucial thing for developing entrepreneurs and their businesses
is spirit of entrepreneurship. Such spirit drives them throughout business for
making the business grow and successful. Hence, EDP mainly focuses on
developing entrepreneurial spirit.

4. To develop risk taking and decision making abilities among entrepreneurs

The entrepreneurs are those who take risk and grab the opportunities before
others and by such decision making abilities, create chances for their growth
and development. Thus EDPs also focus on developing risk taking abilities
among identified potential entrepreneurs.
UNIT-13 Entrepreneurship Development Programmes Page 243
 5. To develop industrially backward regions

EDP is also aimed to develop the regions which are backward in the area of
industrial development. Thus by creating business units which are set up by
potential entrepreneurs EDP help to develop the region with creation of goods
and services. It also creates large amount of employment resulting in overall
development.

6. To make potential entrepreneurs able enough to select the right investment

option

Many people willing to do business are confused over their options or different
choices when they wish to enter the business. Many of them possess capital and
spirit for business but due to lack of clear information they can’t choose the best
option for investment into business. Thus EDPs help and guide potential
entrepreneurs to select projects which can provide optimum returns.

7. To build up skills for running business unit efficiently

There are certain skills needed to run the business in order to have growth and
development of the business .These specific skills and necessary knowledge is
provided to entrepreneurs so that they can run their business unit successfully
and can gain good returns on investment.

8. To increase overall employment

As the business unit set up by potential entrepreneurs create jobs and

employment. Thus entrepreneurship development programmes mainly
emphasizes on creating business units and subsequent employment generation.

9. To develop entrepreneurial discipline among people

EDP also aims to develop entrepreneurial discipline among people such that it
will help them to cope with challenges faced during business deals.

10. To train entrepreneurs about laws and regulations

UNIT-13 Entrepreneurship Development Programmes Page 244

 Without proper knowledge of laws and acts related to industry, it can create legal
problems for entrepreneurs. Thus to avoid any such possibility, one of the
important objective of an EDP is to equip the potential entrepreneurs with
thorough knowledge of laws and regulations.

13.6 STAGES OF EDP

The EDP starts with selection of a potential area from existing government policy
guidelines/socio-economic reports post which techno-economic survey and
feasibility study is done. It then is followed by identification of potential and existing
entrepreneurs interested in starting new
business/expansion/diversification. The next step is Training of beneficiaries and
leads to follow up and consultancy services.

There are three broad phases of an Entrepreneurship Development Program namely:

 Pre –Training phase

 Training phase
 Follow up phase

Pre-Training Phase

This is the initial phase and it includes the activities and preparations carried
out to launch the training program. This involves identifying and selecting
potential entrepreneurs and providing necessary guidance and motivation to
them. The selection can be done based upon demographics and socio cultural
data (age, education, work exp, financial resources, type of business etc),
motivation factors (pull factors, source of encouragement, credibility,
endurance, concreteness of plans), psychological test results (traits like risk
taking, need for achievement). Thus it consists of the following activities-

 Selecting entrepreneurs for training program through a selection committee

 Arranging infrastructure for the program
 Arranging resource person/faculty for the program
 Necessary steps for program inauguration
 Publicity and campaigning about the program

UNIT-13 Entrepreneurship Development Programmes Page 245

Training Phase

The main objective behind this training program is to develop skill and motivation
among the potential entrepreneurs. During the training program both theoretical and
technical knowledge is given to the participants. The resource person must ensure that
the trainees are benefitted by the program and have developed better entrepreneur skills.
The business inputs can be given by professionals, industry executives, consultants and
so on. Industrial visits can be arranged so that the trainees will have a good knowledge
about the operating conditions. During the training phase the following will be ensured-

 Increasing the motivation level of entrepreneurs

 Behavioral pattern must be in a goal oriented manner
 Making the entrepreneurs more optimistic
 Improving the guts to take more risk
 Developing more self confidence
 Developing more sense of responsibility
 Develop strong sense of perseverance and commitment

After the end of this phase the participant should be willing to adopt entrepreneurship
as the best possible career option and be positively oriented towards venturing into a
new activity. This resolve should come out of the confidence gained through knowledge
and experience gained during the EDP.

Follow up phase

This is the post training phase and deals with review and evaluation of the programme
conducted. All the training modules should be analysed and their impact on participants
should be gauged. The outcome of the program is compared with the planned outcome
and deviation if any has to be carefully recorded. This can be done by obtaining
feedback, monitoring of participant activity and taking opinion from experts. It
involves review of all the three stages of Pre-program, actual conduction of program
and post training.

UNIT-13 Entrepreneurship Development Programmes Page 246

13.7 COMPONENTS OF EDP

 Introducing Entrepreneurship to Participants: At the outset, the participants

are introduced to the world of entrepreneurship, what it means and how it can
change the life of an individual and the society. They are also briefed about state
of the economy, the present opportunities and the areas where the business
prospects are promising. They are also told about the government or institutional
support related to entrepreneurship.

 Motivation Achievement Reinforcement: The participants are to be motivated

through various inspiring anecdotes and logical reasoning so that they are
willing to take their first step confidently. As entrepreneurship entails risk
taking, it is extremely important to instil among the potential candidates a
positive outlook about the decision to be taken by them. Since addressing
behavioural and psychological issues is a critical component of any
entrepreneurship development program, experts in such fields are hired for the
purpose.

 Institutional and Market Linkage: One of the most crucial assistance required
by the budding entrepreneurs is support related to marketing and distribution
linkage as well as information and support from public and financial Institutions.
They have to be informed about various platforms available for assistance
including government offices, development agencies, banks and financial
institutions on one hand and suppliers of raw materials, equipments and
distribution on the other. These agencies can be associated with proposed EDPs
by way of sponsorship so that the participants can interact with them during the
course of the program and clear their doubts.

 Industry Visit and Market Immersion: It is very important to expose

participants with the real life industry work environment so a day or two may be
devoted for a tour of plant locations of small businesses. A first hand witness of
the proceedings gives the trainees a good idea about how the system and
procedures in running a business as well as interaction with existing

UNIT-13 Entrepreneurship Development Programmes Page 247

 successful entrepreneurs. Also, they should be asked to conduct market surveys
on product or service of their choice. They should be instructed about methods
of conducting scientific surveys as well as assist them in compilation of data and
its interpretation. This should help them in a better understanding of the market
requirements and how best they can serve those.

 Managerial Inputs: As majority of the participants lack formal management

education background, it is important to impart some basic managerial skills in
specialized functional areas like marketing, finance, distribution, personnel
management etc. This can be done by way of including simple case studies, real
life examples and role-plays during the course of the EDP.

 Feasibility Studies and Project Reports: A large amount of the EDP is to be

devoted on making detailed project reports containing technical and financial
aspects of the business proposal. The participants should be actively involved in
this process as this will give them a deep insight into the scale and scope of their
proposed business activity. Subject specialists should be called upon for this
exercise. Feasibility study should be well explained to the trainees so that they
can assess the risk and return aspect of their investment. This is the outcome of
any extensive EDP where the participant can come up with a good understanding
of all the aspects of the business enterprise he wants to venture into

13.8 INSTITUTIONS INVOLVED IN PROMOTING EDP

Different central and state level agencies, institutes or organisations at state and central
level supporting the entrepreneurs for development of entrepreneurship. Entrepreneurs
are playing major or potential role in order to enhance economic growth of particular
nation.

Government of India is giving technical, financial and other mutually beneficial things
to the potential/new and to existing entrepreneurs in order to overall economic
development of the country.

UNIT-13 Entrepreneurship Development Programmes Page 248

The various agencies like NIESBUD, EDII, TCO as well as KVIC, SIDBI etc are
engaged in identifying, developing, promoting and economically supporting the
entrepreneurs.

NIESBUD (National Institute for Entrepreneurship and Small Business

Development):

This institute is located in Noida of Uttar Pradesh. It is a premier organisation under the
administrative control of Ministry of skill development and entrepreneurship,
Government of India. It is entrusted with the task of coordinating the activities of
different agencies engaged in the task of entrepreneurship development. NIESBUD
organises different entrepreneurial development programmes in various fields. The
main goal of NIESBUD is to identify, promote and creation of new entrepreneurs and
provision of financial support and development of existence entrepreneurs.

EDII (Entrepreneurship Development Institute of India)

This institute is located in Ahmedabad, Gujarat and is a state level institute. It is a

pioneer in entrepreneurship development and is engaged in creation and motivation of
entrepreneurs in different fields. It also runs various academic courses along with
research programs related to Entrepreneurship.

Check Your Progress-B

1. EDP stands for

2. The three broad phases of an Entrepreneurship Development
Program are
3. EDP can help a prospective entrepreneur in drafting

4. The national level government Institute for conducting EDPs across the
country is

13.9 CHALLENGES IN RUNNING EDP

In EDPs, the major problem is of implementation rather than the strategy. Some of the
challenges limiting EDP success are as under:

No Policy at the National Level

UNIT-13 Entrepreneurship Development Programmes Page 249
There is no standardised policy framework for conducting EDPs at national level. This
leads to gaps in planning as well as implementation of the programs.

Problems at the Pre Training Phase

Not much due diligence is done in the pre training phase due to which the entire
process suffers from serious gaps leading to failure of EDP in meeting objectives.

Mode of Selection and Over Estimation of Trainees

The selection of participants for an EDP has to be done very carefully. Very often than
not, this is not done properly and capabilities and intentions of individuals are
overestimated due to which the entire exercise becomes futile.

Duration of EDPs

The duration of EDP has to be in sync with the requirements of the participants as well
as the nature of input. Less than required duration can leave participants confused and
wanting for more while excessively long duration can wane off their interest.

Non Availability of Infrastructural Facilities

Getting suitable infrastructure like proper classroom, audio-visual facilities, furniture,

practical training space etc is a challenge especially in semi-urban and rural locations.
In the absence of this, the resource persons cannot deliver to the best of their
capabilities.

Improper Methodology

Many times the EDP organisers employ the same kind of standardised methodology
for all kinds of participants which is not useful as delivery has to be customised as per
needs of the target group.

Non Availability of Competent Faculty

Scarcity of competent faculty for covering specialised functional areas is a big

challenge in organising EDPs at far off locations.

UNIT-13 Entrepreneurship Development Programmes Page 250

Poor Response of Financial Institutions

It is important to garner support from financial institutions for creating linkage between
them and aspiring entrepreneurs. However, many times they do not show enthusiasm
due to which the goal is not achieved.

13.10 MEASURING PERFORMANCE OF EDP

The effectiveness of EDPs can be assessed by some of the below mentioned
measurable parameters:

1. How active have the participants been during the program?

2. How many new business units have been set up?
3. How much new investment has been made post program in a
community/location?
4. How much financial investment has come through?
5. How many new jobs have been created?
6. How many new people have been locally employed?
7. What is the increase in profitability of participant’s business?
8. What is the increase in turnover?
9. Is there any marked improvement in the quality of the existing product/service
10. Has the loan recovery improved in the lending institutions?

13.11 SUMMARY
Entrepreneurship development programs are an important component of the overall
strategy of fostering entrepreneurial activity in any society. They act as catalyst in
fuelling aspirations of potential entrepreneurs as well as inspire people with lack of
knowledge and direction to streamline their innovative ideas and urge to start a new
business. The EDPs are organised to provide the participants with information, skill
development, managerial acumen, financial guidance and motivation to start and
successfully run a business enterprise. Various Government institutions and agencies
along with private sector organisations organise such EDPs on a regular basis. There are
various challenges in successful conduct of these programs but sustained improvements
in content, delivery and organisation can lead to meaningful impact in promotion of
entrepreneurship in the society.

UNIT-13 Entrepreneurship Development Programmes Page 251

13.12 GLOSSARY
 MSME: Refers to the segment of Micro, Small and Medium Industries
 EDP: Entrepreneurship Development Program. It is a training, skill development
and awareness program for existing or would be entrepreneurs.
 Feasibility Study: A study conducted to find out whether the proposed project is
fruitful or not
 Project Report: A document containing technical and financial details of the
proposed project and which is submitted to banks/financial institutions or other
agencies
 Potential Entrepreneurs: Individuals/group of people who wish to undertake a
new business activity.

13.13 ANSWERS TO CHECK YOUR PROGRESS

1. Entrepreneurship Development Program
2. Pre –Training phase, Training phase and Follow up phase
3. Detailed Project Reports
4. NIESBUD

13.14 REFERENCES
1. Acs, Z. (2006). How is entrepreneurship good for economic
growth? Innovations Technology Governance Globalization,
1(1), 97-107.
2. Adjimah, H. (2011), Step by step guides to setting up your business:
Entrepreneurship Development I Excel Publications: Accra.
3. Charney, A., Libecap, G.D. (2000), The Impact of entrepreneurship education:
An evaluation of the Berger Entrepreneurship Programme at the University of
Arizona, 1985-99. Tucson: Ewing Marion Kauffman Foundation.
4. Charntimath, P. (2006), Entrepreneurship development and small business
enterprise. New Delhi: Pearson Education.
5. Garavan, N.T., O’Cinneide, B. (1994), Entrepreneurship education and
training programmes: A review and evaluation-Part 1. Journal of European
Industrial Training, 18(8), 3-12.

UNIT-13 Entrepreneurship Development Programmes Page 252

 6. Storey, D. (2000) ‘Six steps to heaven: Evaluating the impact of public policies
to support small businesses in developed economies’, in D. L. Sexton and H.
Landström (eds) The Blackwellbook of entrepreneurship, pp. 176–94. Oxford:
Blackwell.
7. Timmon, J. (1990) : “New venture creation: Entrepreneurship for the 21st
century” (5th Edition) IrwinMcGraw-Hill, Boston.

13.15 SUGGESTED READINGS

1. Entrepreneurship Development by B. S. Sabharwal
2. Skill Development and Entrepreneurship in India by
Rameshwari Pandya
3. Entrepreneurship by Robert D Hisrich
4. Entrepreneurship Development by Dr. S L Gupta and Dr. Arun Mittal
5. Management and Entrepreneurship by N V R Naidu and T Krishna Rao
6. Entrepreneurship by David H Holt
7. Entrepreneurship Development by Sangeeta Sharma
8. Entrepreneurship Development and Small Business Enterprise by
Poornima M Charantimath

13.16 TERMINAL QUESTIONS

1. What role can Entrepreneurship Development Programs play
in promoting entrepreneurship?
2. List out the components of an EDP along with example of any sector.
3. Discuss the various phases of an EDP in detail.
4. What are the challenges in successful conduct of an EDP?
5. What in your opinion can be done to strengthen EDPs for rural areas in
India?

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UNIT-14: ROLE OF VARIOUS INSTITUTIONS IN DEVELOPING
ENTREPRENEURSHIP IN INDIA

14.1 Introduction
14.2 Objectives
14.3 Need of Institutional Assistance
14.4 Ministry of Skill Development and Entrepreneurship
14.5 NEISBUD
14.6 Indian Institute of Entrepreneurship
14.7 State Industrial Development Corporation
14.8 SIDBI (Small Industries Development Bank of India)
14.9 Technical Consultancy Organisation
14.10 Indian Investment Centre
14.11 District Industries Centre
14.12 Entrepreneurship Development Institute (EDI)
14.13 Small Scale Industries Board (SSIB)
14.14 Khadi and Village Industries Commission (KVIC)
14.15 Micro, Small and Medium Industries Development Organisation (MSME-DO)
14.16 National Small Industries Commission (NSIC)
14.17 Small Industries Service Institution (SISI)
14.18 National Bank for Agriculture and Rural Development (NABARD)
14.19 Commercial Banks
14.20 Incubators at Educational Institutions
14.21 Summary
14.22 Glossary
14.23 Answer to Check Your Progress
14.24 Reference/ Bibliography
14.25 Suggested Readings
14.26 Terminal & Model Questions

14.1 INTRODUCTION
India being one of the most populous countries in the world presently also has a
significantly young (between the age of 18 and 35) population for which creating jobs
is a key challenge for any government. Even after attaining requisite qualification, the
youth has to deal with the problem of unemployment. As per the findings from the

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National Sample Survey Office in 2013, only 25% of the Young with a qualification of
diploma or above are employed. India is now the fastest growing economy and to benefit
from this there has to be growth in employment opportunities. Promotion and
development of entrepreneurship is considered a major intervention from the
government to tackle this issue.
It is in this endeavour that the Govt has established some Institutions which can aid and
foster the development of entrepreneurship. These Institutions carried out a variety of
roles like skill development among youth, promoting business ventures by way of
launching new schemes which provide support in the form of interest incentives and
subsidies, credit to ventures which are newly established as well as conducting various
research studies and surveys to help potential entrepreneurs in launching and carrying
out business activities successfully.
Some of the important Institutions aiding entrepreneurship are introduced further in this
unit.

14.2 OBJECTIVES

After reading this unit you will be able to:

-Understand the scope and nature of Institutional assistance for entrepreneurs

- Get a glimpse of the various Institutions working for providing assistance to

entrepreneurs.

- Know about government’s role in promoting entrepreneurship in the country.

14.3 NEED OF INSTITUTIONAL ASSISTANCE

Most of the entrepreneurs in the micro and small enterprises sector are small scale
investors with limited means. They have scarce capital as well as technical resources.
They also find it risky to go invest heavily and are unable to spend much on training as
well as knowledge resources. In such a scenario, the government helps these potential
and established entrepreneurs to get access to capital at reasonable cost, market and
other information, training programmes as well as various incentives to start an
enterprise. Various Institutions have been established to achieve this purpose.

14.4 MINISTRY OF SKILL DEVELOPMENT AND

ENTREPRENEURSHIP

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This is the apex level government body responsible for undertaking interventions for
promoting entrepreneurship as well as helping entrepreneurs in their capacity building
and creating an entrepreneur friendly business environment in the country. The various
prominent Institutions working under the aegis of this Ministry include the Directorate
General of Training (DGT), National Skill Development Agency (NSDA), National
Skill Development Corporation (NSDC), Indian Institute of Entrepreneurship (IIE),
National Institute for Entrepreneurship and Small Business Development (NIESBUD),
Sector Skill Councils (SSC). The Ministry also rolled out the National Skill
Development Mission in 2015 which has the seven overall objectives of Institutional
Training, Infrastructure, Convergence, Trainers, Overseas Employment, Sustainable
Livelihoods and Leveraging Public Infrastructure.

14.5 NEISBUD
There are many agencies and institution participating in entrepreneurial development
programs across India. To coordinate and manage their activities, their activities, the
National Institute for Entrepreneurship and Small Business Development (NIESBUD)
was established by the Ministry of small scale industries in 1983. It is a leading
organization which works under Ministry of Skill Development and Entrepreneurship.
It aims at promoting and supporting the cause of small businesses by way of multiple
interventions like providing training, education and consultancy services to the required
entities/sectors.

It has been certified as an ISO 9000:2008 in March 2014. It facilitates activities like
Training of Trainers (TOT), Management Development Programs and Cluster
Interventions. This institute organizes entrepreneurship development programs,
prepares manuals, produces educational videos, promotes potential entrepreneurs and
its training activities facilitates stimulating, supporting, and sustaining entrepreneurship
all over the world.

As per data given by NIESBUD, it has given training to more than three lakh aspirants
(till March 2016) through 36,877 training programs. These programs also include
international participants from more than 30 countries throughout the world.

Major Activities of NIESBUD

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 1. Support for Entrepreneurship Development Programs.
2. Giving training to trainers / Promoters.
3. Focusing on issues and problems related to small businesses.
4. Creating and capacity building of Institutes for Entrepreneurship Development
Programs.
5. Develop the National/International forum for the exchange of ideas and
experiences.
6. Development of entrepreneurial culture.
7. Facilitates Services to affiliate members.
8. Promoter of entrepreneurship and small businesses.
Objectives:

1. To develop standard materials and procedures for undertaking selection,

training, handholding support for existing and would-be entrepreneurs.
2. To serve as a National institute speeding up the Entrepreneurship development
process having an impact on the society.
3. To support the organizations conducting training and other entrepreneurship
development activities.
4. To compile and provide entrepreneurship related resource material to
entrepreneurs and entrepreneurship trainers through continuous research.
5. To constantly update entrepreneurs, consultants and trainers through well
designed training programs.
6. To provide consultancy for promoting entrepreneurship and small business
development.
7. To compile and share experiences related to developments in entrepreneurship
at national and international level.
8. To provide platforms at domestic and international level for exchange of
information and ideas for formulating government policies related to
entrepreneurship.

14.6 INDIAN INSTITUTE OF ENTREPRENEURSHIP-IIE

The IIE came into existence in 1993 in Guwahati, Assam through an initiative by the
Ministry of Micro and Small Enterprises which is now functions as an autonomous
Institute under the newly formed Ministry of Entrepreneurship. It is focused on

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development of entrepreneurship by providing training, research, and consultancy
services to the MSME sector. Its various objectives and functions are outlined as under:

1. Designing and conducting training programmes for entrepreneurship

development
2. Undertaking research in various areas of entrepreneurship.
3. Designing various strategies and pedagogy for beneficiaries depending upon
their demographics and geographical locations.
4. Identification of training needs of human resources engaged in promotion and
development of entrepreneurship in public and private sector and offering them
programs as per their needs.
5. Providing information and input for formulation of policy on self employment
and documentation of the same.
6. Promoting greater use of Information Technology.
7. Bringing out publications related to entrepreneurship development and other
industry matters.
8. Providing a platform for interaction between various government agencies and
prospective entrepreneurs by organising conferences, workshops and seminars.
9. Providing required consultancy to existing and potential entrepreneurs.
10. Coordinating and collaborating with other Institutions towards research,
training and outreach in areas related to entrepreneurship.

14.7 STATE INDUSTRIAL DEVELOPMENT CORPORATION

They are at the fore front of the industrialization at the state level. They act as catalysts
for development of industries in state. They cater both to small units as well as the
industry at large by providing all kinds of infrastructural facilities (including land and
water supply) and development. In addition to this they also organise various
promotional exercises as well as provide credit facilities to business units.

Some examples of SIDCOs are:

Kerela Small Industries Development Corporation Limited

Small Industries Development Corporation of Jammu and Kashmir

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Tamil Nadu Small Industries Development Corporation Limited (TANSIDCO)

Their key objectives include developing industrial areas, ensure market facilities and
establishing new development centres.

14.8 SIDBI (SMALL INDUSTRIES DEVELOPMENT BANK OF

INDIA)
SIDBI came into existence as an independent entity and created by an Act of Parliament
in 1990. It is one of the prominent Institutions for promoting micro and small enterprises
as well as providing credit to them under specially tailored schemes. It also helps in the
functioning of the other institutes which are engaged in the similar activities. It has
helped to make the best use of the existing network of institutes serving the small sector.
It has also collaborated with various international and national development
organizations for helping and serving the small scale sector.

SIDBI has its head office at Lucknow and has 5 regional offices, 73 branches throughout
the country. It serves the small scale sector providing its assistance through various
institutions such as commercial banks. The Bank has also provided indirect assistance
like refinancing and bills rediscounting through 888 primary lending institutions which
includes banks and SFC. Support and development services focuses upon the enterprise
promotion and focus upon the rural industrialization, technology upgradation,
information dissemination, environment management and human resource development
of small scale industry sector. SIDBI has been named as one of the top development
banks by various international publications.

Various programs like mahila vikas nidhi, micro credit schemes, rural industries
programs and also entrepreneur development programes are conducted by the bank. It
has two funds- one for development and the other for development assistance. National
equity fund and farmed funds are now handled by SIDBI. The financial assistance is
provided through commercial banks, cooperative banks, RRB, SFC, NSIC, SIDC and
SSIDC. It also helps National Small Industrial Corporation (NSIC) providing financial
support for hire-purchase, leasing and marketing support to industrial units in the small
sector. There are a total of 869 institutions that are eligible for assistance from SIDBI.

The key functions of SIDBI are as follows:

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  Providing refinance on credit facilities given by banks or other
institutions(SFC/SIDC)
 Seed capital to the entrepreneurs through equity type assistance under national
equity funds.
 Resource support to NSIC and other institutions concerned with small
industries also share capital &resource support to small industries.
 Discounting and rediscounting of bills arising out of selling of machinery or
equipment by manufacturing in small scale sectors on deferred credit
 Rediscounting of short term bills out of sales of products of small scale sector.
There are various schemes which have been initiated by SIDBI for the
upliftment of the MSME sector.

SIDBI provides direct, indirect and micro finance facilities as under:.

 Direct Finance: Providing Term Loan facility, Cash Credit limits for working
capital, Debtor or Receivables Finance, Forex loans, Schemes for energy
conservation, equity participation etc.
 Indirect Finance: Providing refinance on credit facilities provided by the
primary lenders like Banks (public and private), State financial Institutions etc
which have branches spread all across the country. 
 Micro Finance: Small finance i.e. credit to small entrepreneurs and
businessmen for establish their business. 

Associates of SIDBI:
1. Credit Guarantee Fund Trust For Micro And Small Enterprises (CGTMSE)

It was set up by SIDBI in the year 2000 in collaboration with Government of India.
It guarantees SME loans given by member lending institutions.

2. SME Rating Agency Of India Ltd (SMERA)

SIDBI and other leading banks came up with SMERA in September 2005 .They
provide reliable, transparent and comprehensive ratings and risk profiling.

3. Indian SME Asset Reconstruction Company Ltd (ISARC)

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 This is India’s first MSME which is focused on asset Reconstruction Company. It has
been set up for the resolution of non-performing assets (NPA) which will help in the
easier flow of credit from the banks to the MSME.

4. Indian SME Technology Services Ltd (ISTSL)

It was set up in November 2005 to provide a platform for the MSME’s to get
opportunities at the international level for getting new technologies.

5. Delhi Financial Corporation (DFC)

DFC was set up under the state financial corporation act, 1951. It aims at providing
easy and customised finance to MSE sector thereby promoting entrepreneurship.

14.9 TECHNICAL CONSULTANCY ORGANISATION

Technical Consultancy Organizations are made to provide consultancy services in
technical areas for various industry projects. They have been formed by various
financial institutions in joint collaboration with banks and state level financial
institutions. So far, we have 18 state level TCOs across India.

Functions:

 Establishing and developing industry clusters

 Carrying out various surveys and feasibility studies
 Planning and designing infrastructure facilities
 Research on management aspects, energy and environmental issues
 NPA reduction and recovery in various financial Institutions.
 Organising various vocational training programmes.
 Preparing detailed project reports for industry
 Planning and organising various Entrepreneurship Development Programs
 Conducting market research for various products and services
 Assistance in Merchant banking
 Providing guidance and consultancy for export houses

14.10 INDIAN INVESTMENT CENTRE

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 The IIC is the destination for providing all information related to the investment and
industrial policy and procedure, promotion and assistance, incentives as introduced by
the Government from time to time. The information is provided to all the prospective
investors without any cost. It also has its branch offices in various cities like Abu
Dhabi, Singapore, London, New York, Frankfort and Tokyo with the head quarter
being located at New Delhi.

Functions:

 To provide a single window facility to all foreign investment proposals in India for
potential businesses and helping them in easy processing of their project applications.
 To communicate all relevant information, policies and promotions, incentives etc
to the Non- resident Indian community for investment in the country.
 To provide all require statistical data and research inputs to the NRI community
for making up their investment decision.
 To assist the NRIs in getting requisite business approvals from the various
Government departments.
 To help Indian nationals interested in establishing businesses abroad through joint
ventures.
 To help create and flourish the small scale sector in India.
 To become a platform where ideas, policies, issues related to entrepreneurship can
be discussed and exchanged.
 To create an infrastructure enabling training to existing and potential entrepreneurs
from various corners of the country.

14.11 DISTRICT INDUSTRIES CENTRE (DIC)

The District Industries Centre was established in May 1978 with the purpose to promote
small scale and cottage industries beyond big cities & state capitals to the district
headquarters. DIC started with the aim of developing tiny, cottage, small industries in
the country.

The DIC Programme was launched on 1st May, 1978 for providing an administrative
framework at the district level which will look at the problem of the industrialisation in
the district. Till then, the entrepreneurs had to run to other many agencies and had to
approach number of authorities for this purpose. Under the aegis of District
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Industries Centre, the entrepreneurs can get all the assistances and facilities at the sub-
district and district level.

Role of the District Industries Centres (DICs)-

The main functions of the District Industries Centre are as under:

 To assure raw material requirements of various units, their prices and sources,
to arrange huge buying of raw materials and their distribution to the
entrepreneurs.
 To organise capacity building programs for small entrepreneurs and liaison for
the same with other Institutions.
 To undertake research and development in selected product lines and quality
control methods.
 To liaison with lead banks and other financial institutions, to elicit applications,
monitor flow of industrial credit in the districts and also to the entrepreneurs.
 To organize marketing outlets, deal with procurement agencies of government,
transmit market intelligence to the entrepreneurs, conduct market development
programmes, arrange market surveys, etc.
 To provide all support and services needed by small entrepreneurs that include
identification of a suitable scheme, preparation of feasibility report, machinery
and equipment arrangements, supply of raw materials, loan facilities and provide
assistance in marketing and forward linkage.

The Small Industries Development Organisation or SIDO came into existence in 1954
with an aim to foster the growth of SME sector in India and is presently functioning
under Development Commissioner for SMEs under the Central Government. It has now
been replaced by MSME-DO or Micro, Small and Medium Enterprises Development
Organisation.

14.12 ENTREPRENEURSHIP DEVELOPMENT INSTITUTE (EDI)

EDI was established in 1983 as an apex entrepreneurship promoting Institute in the
country. It was promoted by IFCI, IDBI, ICICI and SBI along with support from the
Govt. of Gujarat and is situated in Ahmedabad. Padma Shri awardee Dr. V G Patel
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was the founder Director of this not-for-profit Institution. Its mission is to become a
catalyst in generating entrepreneurship development and to facilitate the aspiring
entrepreneurs with training, research, education. Also transition of the existing SME s
into growth oriented enterprises.

EDI philosophy is build around the believe that entrepreneurship is a crucial tool that
will facilitate the growth of society by providing progressive young entrepreneurs who
will generate innovations and ideas which will lead to the optimum usage of
resources.EDI provides several programmes under strategically planned centers to
sensitize environment, strengthen institutional linkage and networking, generate
awareness and also impart training in specialized fields such as:

 Entrepreneurship Education & Research

 Micro Enterprises, Micro Finance and Sustainable Livelihood
 SMEs & Business Development Services
 Social Entrepreneurship & Corporate Social Responsibility
 Cluster Competitiveness, Growth & Technology
 Women Entrepreneurship & Gender Studies

EDI has set up 12 state level entrepreneurship development institutes and centers
which include:

 Entrepreneurship education and research

 Micro enterprises ,micro finance and sustainable livelihood
 SME’s and business development services
 Centre for cluster competiveness, growth and technology
 Social, entrepreneurship and corporate social responsibility
 Women entrepreneurship and gender studies

The sharing of resources have led EDI earn support from UNIDO, ILO,
European Union, World Bank, Commonwealth Secretariat etc. EDI has been
selected for HRD Research and Training by The Economic and Social
Commission for Asia and the Pacific (ESCAP) network of centres of excellence.
The Ministry Of External Affairs Of India has assigned the Institute to set up
entrepreneurship development centres in Myanmar, Vietnam, Laos and
Cambodia Apart from that, the institute is also working on creating
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 entrepreneurship development centers in Kazhakistan and Uzbekistan. The
Institute offers two Post Graduate diplomas, namely in Development Studies and
Business Entrepreneurship.

Check Your Progress-A

Q1. What is the role of Institutions in developing

entrepreneurship in India?

Q2. Briefly explain the role of NIESBUD?

Q3. What is the significance of DICs in assisting entrepreneurs in the country?

14.13 SMALL SCALE INDUSTRIES BOARD (SSIB)

It is the top level advisory board constituted by the Government of India to seek advisory
support on all crucial issues related to micro and small enterprises in India. It was first
created in 1954 and is reconstituted every two years.

Functions-

 They decide upon policies and programs for SSEs

 Credit facilities, Taxations, and Modernization of Enterprise under the small
scale is hold by this SSEs
 They help in development of enterprises in backward and needy regions, such
as north-east and rural areas.
 Ancillary Growth and quality Improvement, and marketing assistance for
MSMEs

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14.14 KHADI AND VILLAGE INDUSTRIES COMMISSION (KVIC)
KVIC is a legal body emerging out of an Act of Parliament of India in 1957 and has
been in service of expanding small business units across the country.

Objectives of KVIC

 Development of rural and khadi enterprises

 Improving living standard of people in village and helping them in eliminating
various social as well as poverty related problems.
 Helping rural community to become self reliant by way of creating opportunities
in business.
 Creating or providing an opportunity for rural population to undertake various
productive and creative activities.
 It normally engages in its activity of promoting, assisting and organising
programs and schemes for expansion of khadi and village industries in
collaboration with other government agencies dealing with rural development.

Function of KVIC

 Training of individuals is planned and organized so that they get employment

in khadi and village industries.
 Building up of reserves of raw materials and supplying them to individuals
engaged in khadi and village industries.
 They encourage and assist rural population in creation of common service
facilities for the processing of raw materials or semi finished goods.
 Assisting in production as well as marketing of khadi and other rural produce.
 Stimulating research and development in the area of technology used by rural
industries.
 Promoting Cooperative Organisations for artisans involved in khadi and
village industries.
 Issues quality confirmation and other certificates to units meeting the specified
criteria to enable the goods to be recognised for quality by the market.
 Making quality standards for khadi and village industries and encouraging
them to fulfil these standards.

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14.15 MICRO, SMALL AND MEDIUM INDUSTRIES
DEVELOPMENT ORGANISATION (MSME-DO)
Earlier known as the SIDO, the MSME-DO or the Micro, Small and Medium
Enterprises Development Organisation has been established as an apex body to
provide consulting services to the Ministry of Micro, Small and Medium Enterprises
by way of a four dimensional function of formulation, coordination, implementation
and monitoring of all the programs, policies and interventions to be undertaken for
the development of the MSME sector. It has a vast network comprising of thirty
MSME Development Institutes, twenty eight branch offices, four testing centres and
many other autonomous Institutes. It is also known as the MSME Development
Commissioner’s Office. Its activities range from preparing various project reports
on technical and managerial aspects as well as conducting audits on energy and
pollution. It provides assistance and support in the key areas of infrastructure,
technology and funding. The key role of MSME-DO can be summarised as under:

 Advising the government on issues related to development of the SME sector in

India.
 Provide managerial and technical consultancy services for the SME sector.
 Organising training and development programs for people engaged in SME
sector.
 Compilation of economic information and analysis.
 Maintaining liaison with various government ministries at centre and state level,
Institutions and development agencies concerned with the growth of SME
sector.

14.16 NATIONAL SMALL INDUSTRIES COMMISSION (NSIC)

The NSIC was established in 1955 and is another national Institution engaged in
promotion and development of SME sector in the country and has also been awarded
ISO 9001 certification. NSIC works from over 120 offices and assists small enterprises
with a set of specially tailored schemes. Apart from this, NSIC provides various
technical support services to SSEs through its technical service and extension centres.

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Its objectives and functions are summed up as under:

 It promotes technological up gradation and modernization, and quality

consciousness.
 Strengthening linkage between large and medium enterprises
 Increasing export products from SSEs
 Consultation of deployment of new technologies
 Assistance in testing facilities for various materials at accredited labs.
 Aids in Product Designing through CAD.
 It provides solutions on environmental and energy issues.
 Designs and Conducts various training programs for stakeholders.
 Assistance on international trade to prospective customers
 Contributes in designing policy framework for small businesses.
 Undertakes various interventions for entrepreneurship development.

14.17 SMALL INDUSTRIES SERVICE INSTITUTION (SISI)

In order to assist small potential investors across all states, the Government has
established Small Industries Service Institutes (SISI) in each state. They work under the
office of Development Commissioner, Ministry of Micro, Small and Medium
Enterprises. There are 28 such Institutions along with many other branches set up at the
state capitals and other major venues. They undertake various technical, managerial and
other administrative issues related to entrepreneurship.

Functions of SISI

1. To provide all possible assistance related to investment in fixed assets, adopting

technical standards, improving performance etc to all existing as well as
potential investors.
2. To conduct all training programs related to entrepreneurship development across
the country.
3. To provide expert consultancy to Central and State governments on devising
policies related to small scale industry sector.
4. To provide assistance in testing facilities for products as well as raw materials
in case of new and small business units.

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 5. To conduct and disseminate information related to market research for
products and services.
6. To recommend small businesses for credit sanctions to financial institutions.
7. To scrutinize and select small business suppliers for Government purchase
programs.
8. To undertake various technical feasibility, financial viability and economic
analysis.
9. To promote and assist in development of ancillary industries.
10. To create interactive platforms through seminars, workshops and meetings for
entrepreneurs and development agencies.

The SISIs are specially engaged in organising various Entrepreneurship Development

programs related to environmental issues, quality control, innovation and technology
penetration, management skill development etc. These programs are aimed at
unemployed youth so that they can look at alternate options of livelihood. Lectures and
discussion forums are organised to sensitise participants on issues related to financial
management, various schemes launched by banks as well as state and central
government, product quality and testing, packaging and promotion, distribution
channel, establishing market linkages and exposure to global exports. Various
entrepreneurs as well as domain experts participate as resource persons in such
programs which help prospective entrepreneurs in fine tuning their project reports and
realize their dream of setting up their own enterprise.

14.18 NATIONAL BANK FOR AGRICULTURE AND RURAL

DEVELOPMENT (NABARD)
NABARD is one of the biggest financial institutions dedicated towards agriculture and
rural development in India. It was established in 1982 and started with an initial capital
of Rs.100 crores and as of financial year ending 2016, it had gone up to Rs.5,000 crores.
The two shareholders in NABARD are the Govt of India with 99.60% shares while the
Reserve Bank of India has 0.40% holding. (Source: Nabard Official website)

NABARD discharges its duty by undertaking the following roles:

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 1. It is the apex financial institution for providing assistance to organisations
engaged in providing credit for various rural development projects.
2. It takes interventions related to improving credit delivery, capacity building of
credit personnel, dealing with various credit institutions etc.
3. It acts as a coordinator between various agencies involved in rural
development works and maintains liaison with them. It also participates in
policy making on various aspects of rural and agriculture development.
4. It acts as a refinancing organisation to various lenders engaged in financing for
rural development.
5. It is involved in continuous monitoring and assessment of all the projects
refinanced to member institutions.
6. It also organises various training and development programmes for
Institutions and staff involved in rural development interventions.

14.19 COMMERCIAL BANKS

Almost all the banks have their own MSME products along with lending in government
aided schemes for fuelling growth in MSME sector. Refinance schemes like MUDRA
(launched recently by the Govt of India) are also implemented through these banks in
the public and private sector. They provide the first point of contact to any budding
entrepreneur looking for debt capital at affordable rates. Since most of the cash strapped
individuals with entrepreneurial mindset face difficulty in obtaining bank credit due to
lack of collateral security and providing third party guarantee, the banks provide MSME
credit under the CGTMSE (Credit Guarantee Trust for Micro and small enterprises)
coverage. This collateral and third party guarantee free credit facility is provided upto
an amount of Rs.200 lakhs by Banks which are eligible institutions under CGTMSE.
Also, commercial banks provide loans under very economical rates to entrepreneurs as
such lending is classified under priority sector lending which is mandated by RBI to be
up to 40% of total lending. This way Banks are one of the most fundamental pillars of
institutional support to entrepreneurship.

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14.20 INCUBATORS AT EDUCATIONAL INSTITUTIONS
Various professional educational Institutions have included Entrepreneurship as a key
element of their courses. Various student E-cells are formed where students organize
events like workshops, investor-student entrepreneur interactive sessions, idea
generation contests etc. to promote the idea of entrepreneurship among students. Going
a step further various institutions, prominent among them being Indian Institutes of
Technology (IITs) and Indian Institutes of Management (IIMs) have now established
Incubators inside their campuses. An incubator is a facility where budding entrepreneurs
have access to office infrastructure, mentoring support, trial production, legal and
financial expertise at one place. Since they have limited capital resources initially to
avail these facilties incubators can provide them such handholding support in return for
a fee or share in equity. IIM Ahmedabad started its Centre for Innovation, Incubation
and Entrepreneurship (CIIE) in 2001 and is today a leading educational institution
incubator. With support from faculty, industry and students IIM Bangalore, IIM Kolkata
and IIM Lucknow have also started their incubators.

Check Your Progress-B

1. The organisation providing refinance for rural development

projects is
2. EDI is situated at
3. Collateral free loans up to Rs.200 lakhs for SME are guaranteed to banks by

4. NIESBUD stands for

5. Indian Institute of Entrepreneurship is located at

6. CGTMSE was setup by
7. Information and Assistance on doing business in India is provided to NRIs by

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 8. Entrepreneurship assistance and promotion at district level is done by

14.21 SUMMARY
Entrepreneurship has been considered as one of the most effective intervention to create
employment opportunities and all round growth in the economy. Also, the MSME sector
is the largest employment generating industry segment for the country. In light of the
above, the Government has established various Institutions that aid in promotion and
assistance of entrepreneurship development. Some of these important institutions are
NEISBUD, Indian Institute of Entrepreneurship, State Industrial Development
Corporation, SIDBI (Small Industries Development Bank of India), Technical
Consultancy Organisation, Indian Investment Centre, Small Industries Development
Organisation, Entrepreneurship Development Institute (EDI), Small Scale Industries
Board (SSIB), Khadi and Village Industries Commission (KVIC), Micro, Small and
Medium Industries Development Organisation (MSME-DO), National Small Industries
Commission (NSIC), Small Industries Service Institution (SISI), National Bank for
Agriculture and Rural Development (NABARD), Commercial Banks, Incubators at
Educational Institutions. They are engaged in designing policy for industrial units,
launching schemes for setting up small business units, organising Entrepreneurship
Development Programs and undertaking various studies and research projects to
contribute towards industrial growth by fuelling entrepreneurship among the aspiring
citizens.

14.22 GLOSSARY
 Entrepreneurship: Taking up a new business usually with an innovative idea
 NIESBUD: National Institute for Entrepreneurship and Small Business Development
 EDP: Entrepreneurship Development Program
 SIDBI: Small Industries Development Bank of India
 KVIC: Khadi and Village Industries Commission
 DIC: District Industries Commission
 CGTMSE: Credit Guarantee Fund Trust For Micro and Small Enterprises

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 14.23 ANSWER TO CHECK YOUR PROGRESS-B
1. NABARD
2. Ahmedabad
3. CGTMSE
4. National Institute for Entrepreneurship and Small Business Development
5. Guwahati
6. SIDBI
7. Indian Investment Centre
8. District Industry Centre

14.24 REFERENCE/ BIBLIOGRAPHY

1. Official websites of listed Institutions
2. MSME monitor
3. Planning Commission, Govt of India
4. Ministry of Skill and Entrepreneurship

14.25 SUGGESTED READINGS

1. Entrepreneurship Development by B. S. Sabharwal
2. Skill Development and Entrepreneurship in India by Rameshwari
Pandya
3. Entrepreneurship by Robert D Hisrich
4. Entrepreneurship Development by Dr. S L Gupta and Dr. Arun Mittal
5. Management and Entrepreneurship by N V R Naidu and T Krishna Rao
6. Entrepreneurship by David H Holt
7. Entrepreneurship Development by Sangeeta Sharma
8. Entrepreneurship Development and Small Business Enterprise by Poornima M
Charantimath

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 14.26 TERMINAL & MODEL QUESTIONS
1. What is the role of Institutions in developing entrepreneurship in the
country?
2. List out the role of NEISBUD and EDI in training on entrepreneurship related
issues.
3. How does NABARD help in promoting rural entrepreneurship in India?
4. Explain the significance of SIDBI in promotion of small industries in India.
5. How are professional educational Institutions helping entrepreneurs?

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 UNIT-15 GROWTH AND TRANSITION THROUGH
ENTREPRENEURSHIP

15.1 Introduction
15.2 Objectives
15.3 Significance of Entrepreneurship in India
15.4 Economic Growth by Entrepreneurship
15.5 Initiatives for Entrepreneurship Growth in India
15.6 Entrepreneurship and Economic Development
15.7 Role of Entrepreneurs in Transition
15.8 Summary
15.9 Glossary
15.10 Answer to Check Your Progress
15.11 Reference/ Bibliography
15.12 Suggested Readings
15.13 Terminal & Model Questions

15.1 INTRODUCTION
We are living in a dynamic world where technological advancements or disruptions are
leading our lives. This very nature of the business environment brings with it challenges
and opportunities for those who believe they can provide solutions to various problems
or better ways of doing things. These people are called entrepreneurs and are important
for the growth of any society. The governments as well as public and private
organizations believe in the idea or importance of Entrepreneurship. According to the
Schumpeterian view, the entrepreneurial process constitutes one of the key factors in
the economic development of a country/region. Entrepreneurship matters because it is,
above all, a human characteristic (Bessant and Tidd, 2011). Various big companies
today are the result of an entrepreneurial idea executed by one or group of individuals.
Their vision and passion led to establishment of large enterprises which have immensely
contributed to the society at large. It is in this context that entrepreneurial spirit and
intention is welcomed in each economy. The
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aim of this unit is to highlight the role and importance of entrepreneurship in shaping
the economic growth of a developing country like India and how it can help in balancing
growth in rural, semi-urban, backward and urban areas.

15.2 OBJECTIVES
After reading this unit you will be able to:

-Understand the role of entrepreneurship in economic growth of a country

-Explain the various stages in the life of an enterprise.

- Get information about the government interventions to boost entrepreneurship in the

country.

15.3 SIGNIFICANCE OF ENTREPRENEURSHIP IN

INDIA
Entrepreneurship especially in micro and small sector is considered as a crucial tool for
fuelling economic growth in a country because it leads to a more acceptable and
sustainable way to ensure economic development. Jobs are created leading to creation
of wealth which further helps in investment in new units and sectors. Although the
benefits of entrepreneurship are quite evident, it is difficult to find a proven mechanism
by which it can be promoted. An all round cohesive approach is usually sought under
which the government tries to create infrastructure, facilitate processes, ease flow of
credit, organise awareness programs and launch various incentives for people who are
willing to set up an enterprise.

According to the NASSCOM Ecosystem Startup Report 2015, India is now the third
leading startup originator in the world, with $5 billion worth investment in 2015 and
three to four startups emerging every day. The report suggests that the number of active
investors in the startup ecosystem in India grew from 220 in 2014 to 490 in 2015, a more
than two-fold increase in just one year. Development like such will certainly create
many job opportunities and also at the same time catching eyes of the foreign investor
as a suitable place to invest on which all together helps in to develop economy of the
nation and its foreign exchange.

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India’s economy has been quite dependent on MSME as they contribute in huge
employment generation and at the same time gives the opportunity to less skilled
workers to go for entrepreneurship. MSMEs have resulted in industrialization at far off
and remote corners as various incentives are provided to establish industries in these
areas. This has helped in ensuring more equitable distribution of national resources and
wealth as well as controlled migration. As per the Government (Ministry of MSME)
estimates this sector contributes only 8 percent to the GDP but has a share of 45 percent
in manufacturing output and a significant 40 percent share in India’s exports. It is the
highest employment provider after agriculture.

15.4 ECONOMIC GROWTH BY ENTREPRENEURSHIP

An entrepreneur is considered as a catalyst in the economic growth as his decisions
sparks a whole set of activities in the economic cycle. Entrepreneurs are always prepared
to look for new ideas and put them into practical implementation cultivating economic
prosperity of the country. Government of India heavily promotes entrepreneurship
because it contributes extensively to the socio-economic development of India. MSMEs
consist of over 36 million units as of today. They provide employment to over 80 million
people. The role of an entrepreneur is not only limited to industrial development but this
community triggers the overall development of a society. The significant roles played
by an entrepreneur in the development of an economy are as follows:
 Entrepreneur aid capital inception
Entrepreneurs while venturing into a new enterprise use their own money as well
as public money to set up the business. This way they provide a platform for
investment to the savings generated by individuals. The return on this investment
creates wealth for the entrepreneur as well as the investors which can propel
further growth in the economy. Hence the entrepreneur can be called as capital
initiator.
 Devise employment opportunities
Unemployment is one of the most serious problems which need to be addressed
in any economy. Entrepreneurs by virtue of their businesses create jobs for
others and hence bring prosperity to society at large. And with the passage of
time more employment opportunities get created due to business
UNIT-15 Growth and Transition Through Entrepreneurship Page 277
 expansion and extension. Hence entrepreneurs contribute a lot in the creation of
job opportunities which cannot be done alone by the government or large scale
industries.
 Aid balanced regional development
In order to reap the benefits of incentives provided by the government as well as
to keep the initial cost lower, the entrepreneurs prefer to invest in locations
which are derived of industrial development. This also has an impact on
development of other infrastructure like schools, hospitals, roads etc. So, the
areas or regions which are backward in nature embark upon their path towards
progress.
 Reduces centralization of economic power
Big industries although provide large scale employment and development of a
region but it also creates wealth and economic power for a handful of individuals
which may lead to monopoly and skewed society. Hence it is very important that
small entrepreneurs also participate in wealth creation and ownership so that
there is even distribution of economic strength.
 Wealth creation and distribution
Entrepreneurial ventures create more opportunities and hence generate more
wealth which improves the economy and galvanize equitable distribution of
wealth. Generally, in an economy wealth flows in a circular manner from
household to firm and vice versa. So, entrepreneurs also help in equitable
distribution of wealth.
 Strengthen gross domestic product and per capita income
Entrepreneurs always look for something new and try to think beyond the box.
They are drawn by their passion and they try to implement their pool of thoughts
into arena of action. In this process, they explore & exploit different possibilities,
bring about desirable changes in terms of technology and procedures which
improves quality and quantity of different products. By doing so, they help in
maximization of wealth and increase in per capita income.
 Refinement in the living standard
Economic growth always leads to elimination of poverty and rise in living
standards of people. This is due to the employment generation and

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 improvement in quality of life by way of innovation in the products or services
being currently offered. There is always competition and urge among the
entrepreneurs to provide additional value to their offerings at the best price
possible which ultimately benefits the customer.
 Promotes export trade
As entrepreneurs are involved in producing goods and services, they help in
promoting nation’s export and hence bringing the foreign exchange. They also
produce the goods which can be a substitute for the imported goods. Thus, by
doing this they capitalize not only the local market but also the global market
too.
 Makes country Self – Sufficient
While doing trade with different parties in different parts of the world they come
up with some unique ideas to manufacture native substitutes for the goods which
are to be imported from other parts of the world which minimizes the reliability
on foreign nations.
 Instigate backward and forward linkages
Entrepreneurs are agents of change and they like to maximize the profit by
innovation. They bring in about the desired technological changes which help
them to effectively and efficiently achieve their goal. During this process they
work towards creating backward and forward linkages thereby creating further
new enterprises.
 Accelerates overall progress
Entrepreneurs contributes to the overall progress of an economy, they are the
stimulant of change which results in better market condition and healthy
competition which ultimately results in the better goods and services. They are
innovative in nature and inspire millions of people. Entrepreneurs like Larry
Page, Bill Gates and Steve Jobs have made some revolutionary changes in the
world. With the advent of globalization, liberalization and privatization the
world is now a global village. Any change incorporated by the entrepreneurs
brings about socio-economic change which facilitates overall development of
the country.

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 Check Your Progress-A

Q1. What do you think are the factors driving entrepreneurship in the
country?

Q2. Explain how entrepreneurs bring social change in the country?

Q3. In what ways are MSMEs critical to the Indian economy?

15.5 INITIATIVES FOR ENTREPRENEURSHIP GROWTH

The Indian economy is at present the fastest growing economy in the world. There have
been various initiatives taken by the Government of India over past few decades since
the liberalization era began in 1991 to promote entrepreneurship in the country. This
includes steps like abolishing licensing system, reducing bureaucratic hurdles,
increasing transparency in decision making, minimizing regulations and launching
various entrepreneurship promoting schemes. The Indian MSME (Micro, Small and
Medium Enterprises) sector has the caliber to increase the national economic growth.
However, to function at its true potential, and to avail all national and international
opportunities, the sector still needs to be perform to its full potential. Some of the
challenges and the bottlenecks which resist this growth include lack of skilled
manpower, slow technology upgradation, sticking to old tradition methods, poor
marketing strategy, difficulty in funding, regulatory policy implementation, lacking in
R&D etc.

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The government has taken some measures and started initiatives to overcome primary
challenges like regulatory hurdles, provide financing, branding & promotions,
packaging, transportation and skilling manpower. Some of them are as under:
The MSME Act
The government changed the definition of MSMEs to streamline development for all
types of enterprises by approving the amendment of the MSME Act, 2006, with the
introduction of the Micro, Small and Medium Enterprises Development (Amendment)
Bill 2015. Some of the important provisions of the bill include:
 Enhancement in existing limit for investment in plant and machinery assets through
a change in price index and cost of inputs so that they compete with the global value
chains.
 Inclusion of all tiny or micro enterprises in rural and semi-urban areas other than
small enterprises for inclusive growth.
 Central government to revise existing capital limit for investment in the venture
through notification according to given inflation and market condition.
Loans and Finance for Technical Up-gradation
Loans and funds are raised through banks which are akey hurdle in the path of the
MSMEs for financing their upgradation and expansion activities. The government has
created funding reservoir for this purpose and budgetary allocation has been done for
the purpose. The Government has also initiated a scheme for technological upgradation
through launching Credit Linked Capital Subsidy Scheme (CLCSS) which aims to
provide upfront capital subsidies to MSMEs for upgradation of their plant and
machinery. MUDRA (Micro Units Development and Refinance Agency) Bank, a
refinance and regulating institution has been created for easy access to funding by
MSME sector.
Integrated cluster development programs

This has been done to address issues related to skills, capital, technology, quality and
training. Under this scheme, the government will help in funding the cost of projects
involved in diagnostic study, soft and hard interventions as well improvement in
infrastructure. The scale of help would depend upon the area demographics, work
undertaken etc. The clustering of units also helps to provide a platform for banks and
credit agencies to provide efficient services, reduce cost and facilitate access to next
level development process.
UNIT-15 Growth and Transition Through Entrepreneurship Page 281
Providing Marketing Assistance
 For building networking and contacts for recognition and building brand value as
NSIC helps in promoting.
 The government has made it mandatory for government organisations to procure
minimum 20% of products and services from MSMEs.
 Relaxation in taxation and turnover.
Exit of Sick and Loss Making Units
The insolvency and bankruptcy bill 2015 (“IBB”) also passed for the faster exit for
sick MSMEs within the period of 90 days.
Startup India
Startup means an entity, incorporated or registered in India:
 Not prior to five years,
 With annual turnover not exceeding INR 25 crore in any preceding financial year,
and
 Working towards innovation, development, deployment or commercialization of
new products, processes or services driven by technology or intellectual property. 

Such entities after registration would get various benefits like tax holidays, easy
compliances, self certifications, no government inspections, reduction in patent fees,
easy liquidation of business etc.
The above initiatives will further encourage entrepreneurship development and
accelerate growth across all economic sectors. These steps when combined with the
enormous MSME pool are likely to boost the economy in a significant manner.

15.6 ENTREPRENEURSHIP AND ECONOMIC DEVELOPMENT

Corporations enhance economic growth of a country by investing in new plants which
provides a lot of job opportunities. Researchers find that earlier economic development
gave attention to large corporations only thereby avoiding the innovations that come
from small businesses. However, it has now been realized that Entrepreneurship plays
a very important role in the larger economy. The economic development of a nation
depends on successful entrepreneurship shared with the strength of established
corporations. As measured by GDP per capita, the benefits of

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this mechanism vary with the national income. Self-employment provides job
opportunities and extension of markets at low levels of national income. If GDP per
capita income increases, the collaboration of new technologies permits large established
firms to assure the increasing demand of growing markets and role in the economy.

The following three components are essential towards creating a successful

entrepreneurial environment for its wider impact on the economy:

1. There should be even distribution of economic wealth between the private and
public sector
2. The industrialization activity should be spread across all demographics namely
rural, semi-urban and urban centres.
3. To spread knowledge and information and impart skills related to
entrepreneurship to people of all strata [Malenbaum 1962].

15.7 ROLE OF ENTREPRENEURSHIP IN TRANSITION

The entrepreneur’s journey has to follow various stages of the business which can also
be termed as its life cycle. These can normally be classified into four stages- Startup,
Expansion, Consolidation, Revival / Decline. The movement from one stage to another
requires different vision, strategy and decision making on part of the entrepreneur. The
challenges do not cease to exist as the competition and scale of business becomes bigger.
The various stages of transition and the entrepreneurial decision making under these
stages are described as under:

Startup Stage

This is the launch stage of the business and has the following characteristics:

a) Product or Service is newly launched and the revenue generation is too slow.
The costs far outweigh the revenues.
b) The sales are not stabilized and are uneven. The distribution network is newly
established and logistics throw up challenges. There can be confusion in each
component and many times the market may not behave as per the expectations
of the entrepreneur.

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 c) Lot of modification may be required in product, distribution system, marketing
strategy etc as per the feedback received.
d) Also at this stage the finances are limited and the investors (if any) offer little
support for contingency requirements.

The entrepreneur has to keep his calm, depend upon mentorship support and do not
take any rash decisions. This is the stage where majority of the startups fail as either
some of their pre launch premises do not match up with the reality or the customer
feedback is not in line with expectations.

Expansion Stage

After the business has passed the launch test, the model can be assumed to have gained
market acceptance. This can be interpreted as success for the entrepreneur and now he
has to embark upon the expansion stage. This stage again has lot of challenges and each
step has to be carefully taken. The following happen at this stage:

a) Expansion in capacity in order to serve larger customer base leading to high

capital expenditure.
b) Entering into previously unexplored markets by entering into new agreements
for sales and distribution.
c) Development of multiple products or new variants of the product through
continuous innovation and customer feedback with a careful eye on the
competition.
d) Expansion in human resources and increased levels of management and
reporting.
e) Decentralization and departmentalization for better management and control of
activities
f) Increased Investment and expansion of ownership through sources like venture
capital, public issues etc

This stage of transition is critical as one wrong or unproductive move might lead to a
case of lost opportunity. The entrepreneur also losses ownership proportion and more
professionals join the organisation. This requires the firm to be managed in an efficient
and prudent manner.

Consolidation Stage

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In any industry there comes a stage where there are many players in the field and the
margins begin to shrink. At this stage the business faces a stage called Consolidation
when small players merge with the bigger ones. This stage has the following features:

a) Businesses have low margins and dismal growth rates due to which small
businesses no longer find it viable to remain in the business.
b) Weaker companies fail and smaller ones are eyed for merger or acquisitions by
larger companies.
c) Capital Investments are greatly reduced as attractive expansion options cease
to exist.
d) Loss making or less profitable products are withdrawn from the market.
e) Operations are trimmed back or staff is reduced. Authority gets shifted to
lower level staff.

The entrepreneur has to take a decisive call at this stage to either let his business get
taken over by bigger established players or look for increasing scale by taking smaller
players in its fold. It is also a stage where surplus earned from the business over the
years could be invested into fruitful opportunities elsewhere.

Revival/Decline Stage

Since the business before this stage arrives at a stage of stagnation, it is important to
rekindle growth by some smart strategy failing which the decline is inevitable. The key
characteristics of this stage are as under:

a) Rethink about the current business model and developing a strategy for
rekindling growth of the business.
b) Sale of non-core businesses and introduction of new product lines is a very
popular choice for the enterprise.
c) Restructuring of organisation on the basis of revamped product portfolio,
geographical and customer segmentation.
d) Hiring newer talents and looking at acquiring promising small scale enterprises
which are looking at established players for their expansion needs.
e) When all the revival strategies fail to work it is prudent to wind up the business
rather than taking any liability that would be hard to pay back.

Many years of experience in running the business helps the entrepreneur at this stage
to work towards a turnaround strategy.
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 Check Your Progress- B

1. Entrepreneurs help in capital formation by

2. Expansion of entrepreneurship leads to of economic

power.
3. The MSME act has been modified in
4. The government has made it mandatory for government organisations to
procure minimum of products and services from MSMEs
5. The stage post expansion in an industry is termed as
stage.

15.8 SUMMARY
Entrepreneurship has been identified as one of the key interventions for aiding economic
growth in the country. It is essential for capital growth, employment creation, innovation
in product or service quality and overall economic prosperity of the society. The
government has undertaken various steps to help and encourage entrepreneurs. The
journey of an entrepreneur is usually in four stages namely launch, expansion,
consolidation and revival/decline each of which offers unique challenges.

15.9 GLOSSARY
 Economic Growth: Increase in the value of goods and services produced over
a period of time
 Investment: Act of putting money into an asset in expectation of return
 Technical upgradation: Replacing existing technology with advanced and new
technology
 Infrastructure: Basic physical and organizational facility needed for operation
of enterprise or society
 Turnover: Total Value of Sales for a given period of time
 Transition: Movement from one stage to another

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  Merger: Refers to two businesses becoming one
 Acquisition: Refers to one business acquiring another
 Margin: Normally referred to as profit per unit of sales

15.10 ANSWERS TO CHECK YOUR

PROGRESS-B

1. Channelizing public savings into investment which provides returns

2. Decentralisation
3. 2015
4. 20%
5. Consolidation stage

15.11 REFERENCES
Acs, Z. (2006). How is entrepreneurship good for economic growth?
Innovations Technology Governance Globalization, 1(1), 97-107.
Adjimah, H. (2011), Step by step guides to setting up your business: Entrepreneurship
Development I Excel Publications: Accra.
Charney, A., Libecap, G.D. (2000), The Impact of entrepreneurship education: An
evaluation of the Berger Entrepreneurship Programme at the University of Arizona,
1985-99. Tucson: Ewing Marion Kauffman Foundation.
Charntimath, P. (2006), Entrepreneurship development and small business enterprise.
New Delhi: Pearson Education.
Garavan, N.T., O’Cinneide, B. (1994), Entrepreneurship education and training
programmes: A review and evaluation-Part 1. Journal of European Industrial Training,
18(8), 3-12.
Storey, D. (2000) ‘Six steps to heaven: Evaluating the impact of public policies to
support small businesses in developed economies’, in D. L. Sexton and H. Landström
(eds) The Blackwellbook of entrepreneurship, pp. 176–94. Oxford: Blackwell.
Timmon, J. (1990) : “New venture creation: Entrepreneurship for the 21st century” (5th
Edition) IrwinMcGraw-Hill, Boston.

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 15.12 SUGGESTED READINGS
1. Entrepreneurship Development by B. S. Sabharwal
2. Skill Development and Entrepreneurship in India by
Rameshwari Pandya
3. Entrepreneurship by Robert D Hisrich
4. Entrepreneurship Development by Dr. S L Gupta and Dr. Arun Mittal
5. Management and Entrepreneurship by N V R Naidu and T Krishna Rao
6. Entrepreneurship by David H Holt
7. Entrepreneurship Development by Sangeeta Sharma
8. Entrepreneurship Development and Small Business Enterprise by
Poornima M Charantimath

15.13 TERMINAL QUESTIONS

1. How is entrepreneurship crucial to the growth
objectives of an economy?
2. Briefly point out the benefits of entrepreneurial
activity in a society.
3. What are the challenges for an entrepreneur during the expansion stage of
the enterprise?
4. State some of the initiatives undertaken by the Government to foster the
growth of entrepreneurship in the country.

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