Professional Documents
Culture Documents
Entrepreneurship
Entrepreneurship
1. Land.
2. Labour.
3. Capital.
4. Entrepreneurship.
The word has been derived from 17th French entrepreneur, refers to individuals who were
“undertakers” particularly the leader of military operations. Later it was used to refer other types
of adventures in civil engineering like construction of roads, bridges, harbours, etc. It was since
the 18th century that the term entrepreneur came to be used, specifically after the industrial
revolution.
Joseph. A .Scum peter defines an entrepreneur as a person who innovates, raises money,
assembles inputs, chooses managers and sets the organization going with his ability to identify
opportunities which others are not able to identify and is able to make use of them.
Peter Drucker defines an entrepreneur as one who always searches for a change responds to it
and exploits it as an opportunity. An entrepreneur innovates. Innovation is a specific instrument
of success available to entrepreneur.
J.B.Says entrepreneurs are influenced by the society [he recognizes needs and fulfils them
through organizing and managing resources] and he also influences society by creating new
enterprises.
Richard Cantillion: “Entrepreneur is the agent who buys means of production at a certain price
in order to combine them into a product that is going to sell at prices that are uncertain at the
moment at which he commits himself to the costs”
Hence an entrepreneur can be defined as a person who identifies the opportunities in his
environment and responds to opportunities in an innovative way so as to make economic surplus
by engaging himself efficiently, exploiting the environment and the opportunities it offers.
Prosperity of a nation depends upon development of nations economy. Every nation has
responsibility to ensure economic development to improve the living standards of the people,
eliminate poverty and misery.
The prosperity and the process of economic development involves improvement of gross
national product and depends on the utilization of natural resources by the human resources to
realize the productive potential of the nation. It requires increase in economic activity and the
level of consumption.
In a developing economy like Indians which is a labour abundant, capital short economy. There
is a limitation to the government effort directly involving itself in the increasing productivity
considering the reverse budgetary constraints for funds and the urgent needs for higher
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1. Initiation.
2. Establishment.
3. Maintenance.
4. Expansion.
Initiation: It is this stage that business entrepreneur conceives the idea for a business venture.
But before he finalizes on a particular business proposal, he has to make a comparative study of
the various choices available to him. Its only after making a comparative analysis of the various
choices that he has to make the right selection which should depend on his resources, attitudes,
skills, experience, etc.
Innovation is a necessary aspect at this stage. According to Drucker there are following
important condition for innovation:
Principles of innovation:
1. Purposeful and systematic innovation begin with an analysis of opportunities. It begins with
thinking and observation.
2. Innovation involves going out to look, to ask and listen.
3. The innovation to be effective, should be focused and should tackled one thing, otherwise it
may not be result oriented.
4. Most of successful innovation starts small.
Establishment: The second stage deals with establishment of the venture. This stage is a most
important one. A new entrepreneur who does not have sufficient experience must take due cares
and should be cautious. He can take the help of the professional consultancy, experienced elders.
This stage is also important because the help of the project gain strength at this stage.
Maintenance: Once the business is established it is very important to maintain on regular basis.
It is at this stage, that an entrepreneur’s commitment to the project is put to test. He has to meet
the challenge of the business and tackle issues and problems on day-to-day basis.
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Expansion: Once a project is well established and has stabilized a steady porgies can be
achieved. It is at this stage that an entrepreneur has the choice of further expansion and
diversification.
David Silver a successful venture capitalist and author described an entrepreneur as “energetic
and single minded person having a mission and clear vision, intended to create out this vision a
product or service. Following are some of the important qualities of an entrepreneur.
Apart from above mentioned qualities there are many, such as good judgment, self-
confidence, emotional stability, commercial acumen, business secrecy, clarity of objectives,
technical knowledge, persistent problem solver etc.
Economic development means the process of upward change; thereby the real per capita income
of a country increases over a period of time. Entrepreneurship plays a very important role in
economic development. It serves as a catalyst in the process of industrialization and economic
growth.
According to Joseph Scum peter “the rate of economic progress of a nation depends upon its rate
of innovation which intern depends upon the distribution of entrepreneurial talent in the
population”
Technical progress alone cannot lead to economic development, unless entrepreneurs put
technological break through to economic use. Whatever may be the state of economic
development, the importance of entrepreneurs is always there. Their efforts hold the key to
further developments.
1. Capital formation: Entrepreneurs encourage or mobilize the idle savings of the public
through the issue of various securities like equity shares, preference shares, public deposits,
debentures, etc. Even in case of sole proprietary concerns an entrepreneur helps in capital
formation by way of using one’s own and others idle funds. High rate of the over all economic
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growth
Apart from the direct employment, thus created indirect employment is also encouraged because
of backward and forward linkages.
3. Improvement in per capita income: They help to increase the gross national product [GNP]
and the per capita income, which is an important yard stick for measuring economic
development.
2. Risk taking: An entrepreneur has to take risk of the business. He faces uncertainty, which can
put his own financial security into trouble. But the manager does not take risks attached to the
manager and is not much affected by the failure of venture as he can switch over another venture.
3. Skills: An entrepreneur is primarily a manager but needs extra skills to become a successful
manager. He has to possess intuition, creative thinking, innovation skills, ability to take risk etc.
On the other hand manager needs managerial skills of different types only.
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4. Status: An entrepreneur is a self-employed person and is his own boss. He works for himself.
Manager is an employee working for his employer.
It is a multidimensional concept, which can be expressed through the model devised by John
Kao.
Entrepreneurship refers to the efforts, skills, and the tasks, which a person undertakes in order to
make use of the opportunities provided by the environment with the intention of establishing a
successful enterprise or organisation. Entrepreneurship necessarily involves person who has a
particular vision or objective that he wants to achieve further he performs the task in a particular
environment which has various aspects such as social, cultural, political, economic,
technological etc. Once the task is undertaken, its organisation and management becomes a part
of entrepreneurship. Therefore we see that the aspects of person, environment, task and the
organisation are interrelated.
Basically entrepreneur is the person, entrepreneurship is the process and enterprise is the object.
1.Visualiser. 1. Vision.
2. Organiser. 2. Organisation.
3. Initiator. 3. Initiative.
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4. Innovator. 4. Innovation.
5. Imitators. 5. Imitation.
6. Motivator. 6. Motivation.
7. Planner. 7. Planning.
8. Decision maker. 8. Decision making.
9. Risk bearer. 9. Risk bearing.
Intrapreneuring or corporate entrepreneurship is the process by which other new ventures are
born within the confines of an existing corporation. It involves exploring new opportunities
using the existing resources. This concept involves and requires the top executives of the
company to be encouraging and also be encouraged to be entrepreneurs within the enterprise
rather than go our and start a new venture.
2. An entrepreneur himself raises necessary capital from various resources and guarantees certain
to creditors. On the other hand an intrapreneur neither raises nor guarantees any returns to the
suppliers of capital.
3. An entrepreneur fully bears the risks of an enterprise, where as an intrapreneur does not bear
the risk completely.
Origin of entrepreneur;
1. Sociologist theory: According to this theory the presence or absence of certain social baits
motivate or de-motivate individuals from taking up entrepreneurial ventures some of the
important ones are.
a. Family background: This factor means the size of the family, type of the family along
with economic situation. To some extent joint family provides better financial security in the
form of joint property holdings, which allows an individual to undertake risks of business. Joint
family system also helps in expansion of business, at the same time, major drawback of joint
family business is lack of independence with regard to decision-making.
c. The age of entry to entrepreneurship: The time and age of starting entrepreneurial
venture, this in turn may be dependent upon social factors such as exposure to family business,
age of marriage and responsibility of supporting a family.
d. Occupational background: It has been significantly found that, people coming from a
business background in the family have a better aptitude towards entrepreneurship.
place in those situations where particular economic conditions are not favourable. Economic
incentives are one of the main drives for entrepreneurial activity, lack of vigorous economic
imperfections, insufficient and inadequate government policies, etc.
3. Psychological theory: This theory emphasises that entrepreneurship is not likely to emerge or
develop when a society has a sufficient supply of individuals possessing certain psychological
characteristics such as adventures nature, ability to take calculated risk, communication skills,
leadership qualities, hardworking by nature, etc.
According to McClelland it is high need for achievement which drives people towards
entrepreneurial activities.
This achievement motive may have origins inculcated the important factors as maternal warmth.
Motivational factors: There can be many motivational factors, which help in supplying a good
number of entrepreneurs to the economy.
Entrepreneurial ambitions:
a. Attain wealth.
b. To have self-employment.
c. Desire to fulfil ambitions of elders in the family, gain social prestige.
d. To do something creative for ones own and societies benefit.
Compelling factors:
Facilitating factors:
1. Search for business ideas: The task of promotion begins with the search for suitable business
ideas or opportunities. The sources may originate from:
f. Market survey,
i. Trade delegations, which may be either private ones or may be sponsored by the
government, explore the chances of foreign collaborations. Various government and
private agencies publish project reports, which describe in detail the technical financial
and market requirements, etc.
j. New inventions motivate entrepreneurs to adopt them and use them as a business
opportunity. Desk research is an important tool for this.
Once business ideas are discovered screening and testing of these ideas is done. First of all
technical feasibility of an idea is judged in terms of availability of technology, machinery,
equipment, skilled personnel etc. The advice and assistance of a technical expert may be
necessity for this.
A detailed financial feasibility study is very important. It includes a study of different costs
involved such as fixed cost, variable costs, overhead expenses, etc. It is also important at this
stage to make detailed profitability analysis along with thorough understanding of the BEP.
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An elaborate study of market condition is essential in order to assess the viability and future
prospects of the proposed project. A number of calculations have to be made regarding the
likely demand, expected sales volume, cost of production, selling price (along with the pricing
policy), a financial expert may be required at this stage.
After the preliminary analysis, the project is subjected with detailed analysis and evaluation from
different dimensions not only technical feasibility or financial feasibility or demand feasibility,
but also economic viability, managerial feasibility, etc. At this stage lot of information is
required. It is worth spending enough time and effort at this stage, as it is critical in the final
adoptio9n of a particular business proposal.
3. Selection of best idea: Though an entrepreneur make s a study of different business ideas, it
is very important for him to make a comparative study which helps him in knowing the relative
advantages and disadvantages, strengths and weaknesses of them. Finally after ganging or
understanding his own personal strengths and weakness, he has to make the final choice of a
particular business idea. This procedure helps him from taking a blind risk as it converts risk
into a calculated one.
4. Decide the form of ownership: It is important to decide about the form of ownership, the
entrepreneur at this stage has to be aware of the relative advantages and disadvantages of
different forms of ownership such as sole proprietary concerns, partnership concerns, joint stock
company, etc. At the same time, he has to assess the requirements of his own project and adopt
the form of ownership best suited.
5. Assemble necessary inputs and resources: Once the entrepreneur is satisfied about the
feasibility of the project, he has to assemble the necessary resources to launch the enterprise, he
has to choose the partners or collaborators, collect the required finance, acquire land and
building, plant and machinery, furniture, employees etc.
Arranging for finance is, for many ventures, the first step. A business enterprise requires finance
for fixed assets, as well as for the working capital.
6. Establishing the enterprise: After all the above procedures are being completed, comes the
stage of actual establishment of the enterprise, the reward that an entrepreneur gets for all his
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efforts is profits, prestige, economic independence, a sense of achievement and the satisfaction of
having employment for many others.
Managing a small business on a day-to-day basis calls for persistent involvement and problem
solving capacity from the entrepreneur.
8. Expansion of business: once the venture is well established and the entrepreneur is able to
foresee opportunities for his business he has the option of expansion, but before adopting any
new expansion plans he must study the pros and cons.
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CLASSIFICATION OF ENTREPRENEURS:
1. Business Entrepreneur: He is one who taps both production and marketing resources
in his search to develop a new business opportunity.
2. Industrial Entrepreneur: He is essentially a manufactures who identifies the potential
needs of customers and designs products or services to meet marketing needs. He is
basically a product-oriented entrepreneur.
3. Trading Entrepreneur: He is one who undertakes trading activities and is not
concerned with manufacturing work. He identifies potential market, stimulates
demand for his product line and creates desire and interest among buyers to buy his
products.
4. Professional Entrepreneur: He is one who is interested in promoting enterprises. His
focus is on floating new enterprise.
5. Agricultural Entrepreneurs: These are entrepreneurs who undertake agricultural
activities such as raising and marketing of crops and related agricultural inputs such
as fertilizers, etc.
1. Growth: They are individuals who necessarily take up a venture, which is growth
oriented and has a high potential for development and expansion.
2. Classical: A classical entrepreneur is one who is stereotype and whose aim to
maximise his economic returns at a level which is consistent with the survival of the
firm either with or without the element of growth.
3. First Generation Entrepreneurs: He is one who has started the business venture for
the very first time. Though such a person may have the family background of some
business, still he is referred to as first generation entrepreneur for having started a
venture unrelated to the family business.
4. Inherited Entrepreneur: Those who have inherited family business or who have
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already got an experience from the family business and want to diversify a little from
the family business are called as inherited entrepreneurs.
5. Forced Entrepreneurs: They have been forced in taking entrepreneurship either due
to family pressures or due to some inevitable condition.
6. Unprofessional Entrepreneurs: They are ones who either by habit or experience, are
deviated from the required basics of managing an enterprise.
7. Fabian Entrepreneurs: Such an entrepreneur is very cautious while practicing any
change, he has neither the will to introduce new change nor the desire to adopt new
methodologies innovated by others. His dealings are based upon customs, tradition,
religion and past practices. They are not much interested in taking risk.
8. Drone Entrepreneur: He is characterised by a refusal to adopt any change and use the
opportunities to make changes in production. Such entrepreneurs even make losses
but avoid change when the product looses marketability and their operations become
uneconomical they are pushed out of the market. They are conventional in the sense
that they stick to old ideas and products.
According to age there may be young, middle, aged and old entrepreneurs.
The priorities and capabilities of these age groups are often different, though the
young entrepreneurs are likely to take more risks; it is the older entrepreneurs who are
more experienced and likely to take better decisions.
Entrepreneurial Promotion: The entrepreneurial sector is a key, are required special attention
essential for economic growth. Amidst growing problems of unemployment and high cost of
living, the medium and small enterprises assumes great importance. They create employment
opportunities not only for the entrepreneur but also for a few more. Small industries are best
suited for capital short and labour abundant economies. Further they ensure better distribution of
income, they are also important fro the point view of balanced regional growth. More the
number of entrepreneurial activities better will be the utilisation of idle resources. In addition to
all the above benefits they accelerate the rate of economic development because of the
phenomenon of backward and forward linkages along with the fact that they add to the export
earnings.
Because of all the above-mentioned reasons, entrepreneurial promotions have been adopted as an
important part of government agenda. Both central and state assume, the responsibility for
encouragement and development of entrepreneurs. These are under taken to ensure, an adequate
and skilful supply of entrepreneurs to the economy. Entrepreneurial promotion has to tackle the
issue from two angles. The first one being recognition and removal of barriers to
entrepreneurship and secondly identify and encourage potential entrepreneurs by way of
providing entrepreneurial development programmes and creating a support structure
(institutional).
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Entrepreneurs are not necessarily born; they can be developed through education training and
experience. Development of entrepreneurs means inculcating entrepreneurial skills required for
setting up and operating business units. Entrepreneurial development is an ongoing process, but
needs to be well organised. Its basic purpose is to motivate persons for entrepreneurial career
and to make them capable of perceiving and exploiting business opportunities. EDP is not
merely a training program but it is the process of,
Barriers to entrepreneurship:
While making he study of barriers it would be apt to also know the facilitating factors. These
can be,
EDPs have become a novel approach towards harnessing the vast untapped human resource.
They are one of the most talked about social development activities. EDPs bring about a change
in perception and recognition of the critical role that the entrepreneurs play in industrial
development and creating avenues for self-employment.
In short, EDP may be defined as the program designed to help an individual in strengthening his
entrepreneurial motive and encouraging his entrepreneurial role effectively. The short-term
objective of an EDP is to help a participant in the fixation of his goal of life as an entrepreneur
and provide necessary guidance and support. The long-term objective of an EDP is equipping the
participants with necessary skills required by them to become successful entrepreneurs. The next
important objective is to provide a constant supply of entrepreneurs to the economy.
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Phases of EDP:
1. Initial or pre-training phase: This is the phase, which involves identification and
selection of potential entrepreneurs and providing initial motivation to them. The main
activities of this phase are:
1. Creation of an infrastructure for training.
2. Preparing or finalising an appropriate syllabus. This also includes a
detailed list of the various contents of the training program.
3. Selecting well-experienced trainers.
4. Designing the techniques of training.
5. Selection of capable and potential entrepreneurs.
2. Training or Development Phase: In this phase the training is actually imparted. The
type of training is different for different target groups. It may be skill based training
program or it may also be a trait based training program or it may also be a trait-based
training. One of the important objectives at this stage is to bring about desired changes in
the behaviour of the trainees, which may be,
1. Attitudinal tuning towards entrepreneurship in general and towards the
proposed project idea in particular.
2. Trying to find out if the individual is motivated enough to actually take up
the venture along with the associated risk.
3. How and what entrepreneurial traits should the individual have, which are
the traits which the individual lacks.
4. Does he posses the required basic knowledge.
5. Is he capable of mobilising the right resources even under stressful
conditions.
3. Post EDP or Follow-up stage: The objective of this phase is to assess how far the
objectives of the program have been actually achieved. Monitoring and follow-up reveals the
drawbacks of the earlier phases.
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Institutional Support:
Institutional and support to entrepreneurship development:
It is an all India institution set-up by public financial institutions, Government of Gujarat and
Government of India. Its been established at Ahmedabad and was started in the year 1983.
Xavier Institute for Social Welfare [1974]: It is operating in the Ranchi district of Bihar ever
since 1974. Its main focus is on training rural entrepreneurs. It operates in cooperation with
other social organisations operating in villages of Ranchi district, it offers a six-month program
to tribal with some literacy levels and such programs include identification and selection of
candidates, motivational training, and managerial training along with placement for practical
training. It also helps preparation of project reports including market survey’s, financial
assistance and finally follow up and concealing.
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Management Development Institute [MDI]: This institute has been set up primarily to impart
managerial training in order to improve and develop the quality of day-to-day management of
business, which is very critical for its success. It has been supported by and sponsored by
industrial finance corporation of India (IFCI) and was set up at Gurgoan in 1973 Haryana. The
main goal of MDI is to improve managerial effectiveness in not only industries but also the
banking sector of the economy.
1. Bank of India –NAYE: It functions in the states of Punjab, Rajasthan, Himachal Pradesh,
J&K, Chandigarh and Delhi.
2. Dena Bank – NAYE-Madras.
3. Punjab National Bank-NAYE, which is operative in Bihar and West Bengal.
The centre acts as a house of information on economic situation, legal requirements, government
policies and procedures, etc.
Technical consultancy organisations (TCO s): There are 17 TCO s set up to provide industrial
consultancy and training. These have been started with the support of all India financial
institutions and state government. These organisations provide comprehensive package of
services to potential entrepreneurs. Its basic functions include:
Incentives:
The importance of small industries being what it is, incentives by the government have assumed
prime significance.
Because of all the above-mentioned reasons it becomes very important for the central
government to take and initiate all the important steps required to develop the entrepreneurial
sector. The central government gives various incentives to encourage peo0le to take up
entrepreneurial ventures by making them attractive from the point of view of earnings.
Incentives:
1. Subsidies.
2. Bounties.
3. Concessions.
Incentives: The term incentives refer to an encouraging action. It is a motivational force, which
makes an entrepreneur take the right decision and act accordingly. Broadly speaking incentives
includes subsidies, bounties and concessions.
Subsidy: It denotes a single lump sum given by the government to an entrepreneur to cover a
part of the expenditure made towards a particular head of expenditure.
The term bounty denotes a bonus or financial aid which is given to industry in order to help it
complete with other units, objective of incentives is to motivate people to set up new venture in
the larger interest of the society.
Concession refers to a reduction on prices of certain inputs required by an entrepreneur. For ex:
Concession on raw materials, power tariffs, water tariff, etc. They may be in addition to another
scheme already prevailing.
1. To remove regional disparities in development: Certain regions of the country are over
crowded with industries, where as there are other regions and areas which remain
backward and ignored for want of facilities for industrial development. Incentives are
used as a bait to lure people towards entrepreneurship in these regions, in spite of the
deficiencies. In the long run backward areas become developed thereby bringing about
balanced regional growth.
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The central government is operating three major schemes namely: [financial incentives].
1. Central Investment subsidy scheme: This was introduced in the year 1971 and has been
modified from time to time, the scheme is for encouraging setting up of industries into centrally
notified backward areas for setting up industries in category and back ward areas subsidy is
allowed at the rate of 25% subject to a maximum of Rs.25 lakhs (enhanced to Rs. 50 lakhs for
setting up an electronic industries in hilly districts) It is 15% and 10% subject to a maximum of
Rs. 15 lakhs and Rs. 10 lakhs for category Band C.
2. Trans port Subsidy Scheme: This scheme was introduced in 1971 and is applicable to hilly,
remote and inaccessible regions. It covers the entire northeastern region including Sikkim, J&K
Himachal Pradesh, hill districts of U.P, Lakshadweep, Andaman and Nicobar Islands and
Darjeeling district of W.B.
Transport subsidy is paid on the transport costs of industrial raw materials, which are brought
into and finished goods taken out to identify the railheads or ports. In the Northeastern region
subsidy is available at the rate of 90% and for Himachal Pradesh, hill districts of U.P and
Darjeeling it is 75%.
So far, around 51 growth centres in ----- districts have been identified mainly in the state of
Rajasthan, Orissa, U.P., Karnataka, M.P., Bihar, Maharastra, W.B., Tripura, Nagaland,
Arunachal Pradesh and Mizoram have been approved by the government of the development of
infrastructure facilities.
4. Subsidised Consultancy services: [other services] New entrepreneurs entering the field of
medium industry in the country can have market studies for the products undertaken by TCOs at
cheaper cost.
Technical assistance is important for the development of small-scale industries. The government
aims at providing complete technical, economical and managerial consultancy services to small-
scale industries in order to upgrade the skills of workers, increase employee productivity and
wages, reduce the cost of production and strengthen competitive positions of small units.
The industrial services are provided through industrial extension centres located at different parts
of the country. The small industries service institutes are state level agencies, which provide
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coordinated services. The SISIs assist individual units to solve common technical problems,
suggest improved designs and more up-to-date techniques of production, train the workers for
improved management etc.
1. Advise on improved technical processes and the use of modern machines and equipment.
2. Demonstration of the use of modern machines either through workshops or through
mobile services.
3. Research on proper use of equipment.
4. Training classes in different technical traits.
5. Information is also made available to exercise on technical matters.
6. Assistance in supply of machinery on hire purchase: The reluctance of small scale industries
to install modern and update machinery is due to the lack of investable funds or lack of fixed
capital. It was against this background that national small industries corporation (NSIC), fully
owned government of India undertaking was set-up. It provides assistance to SSIs for acquiring
machinery on hire purchase basis. The interested entrepreneur is expected to apply to NSIC in
the prescribed application form with a description of the equipment required by them. The terms
and conditions of repayment are fixed by NSIC depending on the value of the machinery
sanctioned for hire purchase.
In addition to the above, the chief controller of imports and exports, New Delhi issues import
licenses for import of machinery, which is of foreign origin on the basic of recommendations of
the state directorate of industries.
7. Subsidies for market studies: New entrepreneurs who are setting up their ventures for the first
time in the country can have market studies for their products undertaken by TCOs at a cheaper
cost.
8. Marketing assistance: The problem of marketing constitutes one of the major problems of
SSIs the Problem of marketing constitutes one of the major problems of SSIs. The absence of
the market for the product often leads to sickness at the same time we can find many small scale
industries which work at lower capacities through the installed capacity is much larger. As a
result of this they are unable to sustain themselves in the market. Economies of scale are often
missing in SSIs.
With a view to extend a helping hand to SSIs the government has offered the facility of
government stores purchase program, which offers the market for the SSIs.
Training programmes on marketing, packaging for exports and seminars on various aspects of
export development in the small sector are organised.
10. Seed capital assistance: One of the constraints faced by first generation entrepreneurs and
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also technical entrepreneurs is the lack of resources to meet the minimum promoters contribution
to help entrepreneurs to overcome this problem IDBI has come up with the scheme which has
become popular as a seed capital assistance.
The objective of this scheme is to create new generation entrepreneurs who have all the
necessary traits of a good entrepreneur along with an economically viable project idea, but
whose financial resources are limited. It aims at providing finance for the very nominal charge
for meeting the risk capital requirements of entrepreneurs. The scheme is expected to promote a
wider dispersal of entrepreneurs thereby assisting in a wider dispersal of ownership and control
of industrial undertakings. To be eligible for this scheme the entrepreneur should be technically
qualified or should possess relevant experience and skills. The following categories re eligible
for this assistance:
STATE INCENTIVES:
It refers to different types of incentives schemes, which a stage government provides in order to
assist and develop entrepreneurship and enterprise. Though there may be several central
incentive schemes available, it is the state government incentives, which attract entrepreneurs to
actually start their ventures in a particular state. The objectives of state incentives are, to provide
assistance and facilities to motivate potential entrepreneurs and to achieve a balanced growth for
the state. State incentives must be so devised as to synchronize private gains with social returns
in an efficient cost effective manner.
The state of Maharashtra has assumed the status of a modern state the incentives provided by it
are covered under the package scheme of incentives of 1988.
For the purpose of 1988 scheme, the areas in the state have been divided into different categories
as a, b, c, d and no industries districts.
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Contribution towards cost of feasibility study the implementing agency may give up to 75%
contribution towards the cost of preparation of the feasibility study, which may be undertaken by
the implementing agency itself or by any other agency approved by. If the project is
implemented, the contribution shall be treated as an unsecured loan for a period of five years.
Additional incentives: Additional incentives shall be available to the eligible units for a period
of additional 1 yea and upto additional 10% of the fixed capital investment separately for the
following credit points.
1. Energy saving d4evices: The admissibility (eligibility) in this regard could be determined
by the government in consultation with the energy department. Those projects, which
install energy saving devices, fall under the purview of additional incentives.
2. Installation of effluents treatment plants: The incentive shall be admissible for those
eligible units, which abide by the stipulations of the population control board or the
environmental department of the government.
3. Employment of local persons: This incentives hall be applicable to those unit which
employ minimum of 80% of the local people in the non supervisory category and 50% in
supervisory category. The unit is expected to maintain this level of employment,
throughout the period of eligibility.
District Industries Centres: DICs were set-up in the year 1978 with a view to speed up small
industries development, in fact many other agencies have also been set up with the same
intention, such as small industries service institutes (SISI) Small industries development
organisation (SIDO) and small industries development corporation. (SIDCO).
DICs focus their attention on industrial development in rural areas. It was felt that large cities
and state capitals were the main focus of attention at the cost of neglect of districts.
The efficiency and productivity of any DIC depends upon the general manager and his team of
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other managers. The general manager of DIC is of the rank of joint director of industries is
normally assisted by a team of seven managers, each manager is in-charge of one specialised
activity like for example, Manager of economic investigations, manager credits, manager
research investigations, manager marketing, etc.
Functions of DIC:
1. DICs undertake various motivational programs and are involved with EDPs.
2. Selection of projects: DIC with the help of their specialised services help a new
entrepreneur with the selection of a project.
3. Provisional registration: After the selection of suitable project, the SSIs are given the
provisional registration which is of great help in getting assistance of different types from
other agencies, specially the financial institution.
4. Procurement of fixed assets: DICs sponsor the loan applications for the purchase of fixed
assets like land and building and also plant and machinery.
5. DICs assist SSIs in getting various clearances from different government departments,
which helps, in the speedy implementation of the project.
6. Special assistance to village artisans: It assists and arranges for the financial assistance
with the lead bank in-charge of the area.
7. DICs also assist in the procurement of raw materials, which are short in supply by way of
coordinating with the other state level agencies.
8. Self-employment for educated, but unemployed youth: This scheme was introduced in
1983-84 for the rural youth between the ages of 18 and 25, with a minimum qualification
of SSLC.
9. DICs also assist the rural artisans to get subsidies like power etc.
Thus DICs are supposed to provide assistance to entrepreneurs under one rule.
National Small Industries Corporation [NSIC]: NSIC were started in the year 1955 with the
object of supplying machinery and equipment to small industries on hire purchase basis and also
to assist them in getting government orders. The head office of the corporation is at Delhi. It
has four regional offices at Mumbai, Chennai, Calcutta and Delhi. It also has 11 branch offices.
Following are the main functions of NSIC:
1. Making plant and machinery and other technical equipments available to SSIs on a hire
purchase basis.
2. To help and develop SSIs as ancillary units to larger units.
3. NSIC also helps the small industries in marketing by providing certain marketing
facilities.
4. To distribute raw materials through their depots.
5. To construct industrial estates.
The NSIC has taken up the challenging task of promoting and developing SSIs almost from
scratch and has adopted on integrated approach to achieve the socio economic objectives.
Small Industries Service Institutes [SISI]: Established in the year 1956 it offers the following
forms of assistance:
1. Technical consultancy and advisory services: This is with regard to selection of
profitable enterprises and choice of appropriate machinery, appraisal of machinery.
2. Training facilities: Training is provided for workers in basic traits in the workshops,
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which are attached to this institute. This helps development of rural industries.
3. Marketing assistance: Economic information on the nature and extent of the market for
specific products is collected and furnished to SSIs.
4. SISI provide testing facilities: Testing facilities are provided in the laboratories and
workshops attached to the respective SSIs are located at Delhi, Bombay, Chennai,
Calcutta, Bangalore and Hyderabad.
KVIC (Khadi and Village industries commission): It is a statutory organisation engaged in the
task of promoting and developing Khadi and village industries with a view to promote
employment opportunities in the rural areas. It was established in 1975 and it took over from All
India Khadi and Village Industries Board, which was set up in 1953.
The board’s objectives that KVIC has set for itself are:
1. Providing employment.
2. Providing saleable articles.
3. Creating self-reliance among the people and building strong rural community spirit.
For the year 1993-94 the estimates of production of the KVIC sector is Rs. 2,899,000000 and of
employment is 52.5 lakhs.
Once the feasibility studies for a chosen project are over and the project report is ready, the
entrepreneur has to initiate steps for the actual implementation of the project. This involves
bringing together the important inputs namely land and building, labour, machinery, staff, etc.
Finance is required to assemble all the essential factors of production.
The entrepreneur has the responsible task of raising finance for his business. Financial
management is very important for any business not only at initial stages but, throughout the life
of the business. Success of a business depends upon proper management of finance at all times,
just as more of capital than required (excess capital0 results in higher costs, lack of it can result
in various types of blockages like production blockage, delay in processing orders, delay in
repairs of machinery, etc.
There are certain features, which are special to small-scale industries in terms of financial
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planning:
1. High proportion of working capital: Due to the labour intensive technology that SSIs
usually adopt, a large proportion of total funds is required in the form of liquid assets.
2. Normally the SSIs in India are either proprietary concerns or partnership undertakings.
Thus the amount of owned funds is lesser and dependency on borrowed funds is high.
3. Low credit standing: The creditworthiness of a new entrepreneur is generally low. It
takes him sometime to establish the business and earn a market standing. Thus he has to
provide for adequate securities in order to avail on loans.
4. Small entrepreneurs many times do not have the required information regarding the legal
aspect and documentation procedures to be followed at different stages for different
purpose. It is also difficult for him to seek the opinion of legal experts at every step.
Assessment of capital requirement: The capital requirement for any business is basically of two
types fixed capital and working capital. Fixed capital refers to the capital required in the
purchase of fixed assets like land and building, plant and machinery, furniture, etc. These heads
of expenses are relatively fixed in nature and are not repetitive in the shorter period. On the
other than working capital requirement is towards meeting thee operating expenses of a business
on a day to day business, for example, raw materials, wage and salary bills, power and water
tariffs, maintenance of machinery, etc.
From the point of view of the time period for which a loan is availed there can be three
categories of loans:
1. Short term loans: They are availed for a period of less than one year.
2. Medium term loans: are available for a period of 1-5 years.
3. Long-term loans- are those which a re available for more than 5 years.
1. Cost of promotion: The expenses incurred on setting up of the entropies are called cost
of promotion. This forms a major cost factor.
2. Cost of fixed assets: The amount of fixed capital required depends upon factors such as
3. Method of acquiring fixed assets: The method or modes of payment towards the
purchases of fixed assets are an important determinant. For example if a business unit
buys all machines that it requires on entire amount being paid cash down will need more
of fixed capital as compared to a unit which buys its machinery on a hire purchase basis.
Likewise a unit, which prefers an owned building, needs much higher fixed capital than a
unit, which prefers a rented accommodation.
Fixed investment:
It is the capital required by any enterprise to carry out day-to-day activities. It is also called the
“challenging” or “circulating” capital. Since the money circulates in various forms of assets in a
continuous manner. Ex: Funds once tied up in the forms of raw material are later converted into
finished goods, which are ultimately sold.
In the balance sheet the working capital is reflected by those items of assets and liabilities which
are changing their form i.e. current assets and current liabilities.
Gross working capital: It means the total value of current assets. Current assets refer to those
assets, which get converted to cash within a period of 1 year. This includes cash in hand, cash at
bank, Bills receivable, stock or inventory and other short-term investments. Thus gross working
capital is equal to current assets.
Net working capital: IT implies to the extent or excess of current assets over current liabilities.
Current liabilities include accounts payable, bills payable short-term outstanding expenses. The
net working capital = CA-CL.
Sources of working capital: The variable working capital is funded through short-term funds.
The major sources of short-term funds are:
1. Trade credit.
2. Bank credit.
3. Factoring.
4. Accrual accounts.
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1. Trade credit: It is also referred to as mercantile credit. It is the credit extended by the
supplier/seller of goods to the buyer as incidental to trade. It arises out of transfer of ownership
of goods.
2. Bank Credit: Banks are the largest sources of short-term finance to small-scale industry.
They provide assistance in following ways:
1. Loans: It is an advance where a lump sum amount is given to the borrower at an agreed
rate of interest. The borrower has to pay interest on the entire amount of loan whether he
withdraws a part of it or whole amount.
2. Cash credit: It is an arrangement under which the borrower is allowed to borrow money.
The cash credit limit is fixed after taking into account the repaying capacity and credit
worthiness of the borrower. The borrower may withdraw money as and when required
and has to pay the interest on the amount actually withdrawn rather than the total amount
sanctioned.
3. Over Draft: It is a facility that a banker gives to the current account holder to withdraw
upto a certain limit over and above his credit balance in the account. This facility is
provided for a very short period, i.e. for about a week.
4. Discounting of a bill: Banks provide facility of discounting bills of exchange. The holder
of the bills (who also happens to be creditor to some other party.) Holder of the bill can
get it discounted with his banker. It helps him to raise funds much earlier than maturity
time of the bill.
4. Accrual account: There is a time gap between receipt of income and making payment of the
expenditure incurred. During this time gap the outstanding expenses help an enterprise in
meeting some of the urgent working capital requirement. Ex: Wages and salaries, taxes which
are due and are not paid immediately. Wages and salaries are paid in the first week of the
month, next to the month of service rendered. Similarly a provision for tax is credited at the end
of the financial year but tax is actually paid only after the assessment year.
The institutions, which provide short-term loans towards working capital requirements, are
commercial banks, cooperative banks, private moneylenders and at times schedule and
unscheduled commercial banks.
Small-scale industries find it difficult to secure adequate finance from institutional sources even
for short-term working capital needs because of certain inherent limitations. Organised credit
institutions are generally quite sceptical (cautious) of lending to small-scale industries as they
consider it risky.
Small-scale industries on the other hand find it quite difficult to provide securities to the lending
institutions because
a. Their limited equity base.
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Because of all the above-mentioned reasons the financial institutions find it difficult to asses or
evaluate the credit worthiness of the borrower. This problem is more so in the case of 1st
generation entrepreneurs. In the context of the above mentioned situation it is relevant to
mention that SSIs should be given a special treatment because of their antique and important
position in the Indian economic scene. SSIs play a very important role in tackling the twin
problems of regional imbalance and high rate of unemployment.
1. In case all the required information is not available or the relevant documents are not
available, whatever information is available should be presented in a balanced manner.
Entrepreneurs can make use of professional consultants, futurists and other experienced
people.
2. Details regarding nature of the unit and its products.
3. Data regarding performance, estimated cost of production and selling price.
4. Entrepreneurs may attach a copy of the feasibility study report along with loan
application.
5. In case of a unit has already availed the provisional registration, and copy of the same
may also be enclosed.
6. Estimates regarding the growth prospects should be mentioned.
7. The entrepreneur must reveal the other sources of finance also.
8. The purpose of the loan must be clearly mentioned.
9. Results expected on availed finance should be made known.
10. Units must be able to provide acceptable evidence for verification if required.
11. It is in their own interest that units must maintain audited account.
12. All the loans availed should be used for the purpose mentioned in the loan application.
13. In case the future of the business is dependent heavily on one person, his life must be
well insured.
There is a need for greater cooperation and coordination between the SSIs and the financial
institutions. Though it is important for the financial institutions to safeguard their interest still
keeping in view the enormous importance of small scale importance, they have to make certain
compromise regarding financing the small sector.
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Sources of finance
IFCI was established in 1948 under the IFCI act, with the objective of making medium and
long-term credit to eligible industrial concerns. IFCI has the distinction of being the first
development bank of independent India. IFCIs primary role is to provide direct financial
assistance to eligible medium and large-scale industries, but it has initial responsibility by
way of its promotional role of helping and developing the small-scale sector. It provides the
much-needed guidance through specialised agencies in project identification, counselling,
development of ancillary and small-scale industries.
IFCI has been authorised by the industrial finance corporation (amendment act 1982) to
undertake certain incidental activity. These include undertaking research and surveys,
assistance and undertaking merchant banking operation.
1. Being a development bank, the IFCI has undertaken a number of development activities.
These include guidance to new and tiny, small-scale and medium-scale entrepreneurs in
project identification, implementation and management, etc.
2. IFCI helps SSIs by subsidising the costs of feasibility or project reports, market studies,
survival of sick units, encouraging the in-house R&D facilities to capable industries.
3. IFCI also taken up underwriting of shares of public limited companies.
4. It also provides development and assistance to the primary lending institutions, which are
in direct contact with the small-scale industries.
However IFCI ordinarily does not grant assistance for the purpose of working capital as this
aspect is taken care of by commercial bank.
It was set-up on 1st July 1964 as the apex institution in the field of industrial finance.
The important objectives of IDBI are to coordinate, regulate and supervise the activities of all
financial institutions providing term finance to industrial undertakings, which has the important
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duty of bridging the gaps between demand for financial accommodation and its supply.
IDBI provides assistance to small-scale units indirectly through its refinance and rediscounting
schemes. It is not possible for IDBI to reach individual small-scale units directly. Therefore
IDBI provides refinance of loans given by commercial banks and state finance corporation to the
small sectors.
1. Refinance assistance: IDBI replenishes loans provided by commercial banks and also
cooperative banks, RRBs (Regional Rural Banks) SFCs, SIDCs (Small Industrial
Development Corporation) SIIC (Small Industries Development Corporation) to small-
scale sector. IDBI has imposed ceilings on rates of interest, which the primary lending
institutions can charge to the borrowers. This is to ensure that it is the borrowers who are
ultimately benefited.
2. Rediscounting of bills: IDBI provides indirect assistance by way of rediscounting of
genuine trade bills, which have been discounted by the primary lending institutions.
3. Automatic refinance scheme: The objective of this scheme is to avoid delays in the grant
of financial assistance to the small sector. Loans upto 7.5 lakhs are fully refinanced and
assistance is sanctioned within days. Under this scheme, concessional interest rates are
charged to a physically handicapped, SC, ST categories upto Rs. 50,000.
4. Composite loan scheme: Under this scheme small and cottage industries in villages and
towns with a population not exceeding 5 lakhs, assistance up Rs. 50,000 is given.
5. Seed capital assistance: This scheme is basically fro assisting new entrepreneurs who lack
finance of their own to set-up small-scale units. This assistance is given by IDBI in the
form of soft loans to priority sector, sole proprietary and partnership firms upto Rs. 15
lakhs. This assistance is repayable over a period of 10 years. It is operational through
State Finance Corporations and Small Industries Development Corporation.
6. Credit guarantee scheme: IDBI provides guarantees to banks and other financial
institutions for loans made to small-scale units. The guarantee extends to 75% of the
amount in case of a default of the amount guaranteed.
7. IDBI also provides assistance to NSIC.
8. Export finance: IDBI operates nearly three important schemes with the objective of
encouraging exports from small-scale sector.
3. SIDBI: It is one of the primitive institution providing financial assistance and support to the
small sector.
It was started in 1990 2nd April as a subsidiary of IDBI. It functions as the apex institutions from
the small-scale industries. It has the responsibility of overall coordination of the different
financial institutions working are aid of small sector.
SIDBI was formed by transfer of small industries development fund and the national equity fund
from IDBI.
The disbursements of SIDBI are over 4,000 crores in the recent past.
It was formed under state finance corporation act 1951. The SFCs have been established
throughout the country in all the states and the union territory. SFCs are basically catering to the
small sector. Fixed capital requirements including medium and long-term loans. Following are
the important activities of SFCs:
1. Providing medium and long-term loans.
2. Providing guaranteeing seminars to small sectors from the loans raised by them in the
capital market.
3. Undertaking of issues.
4. Subscribing directly to the debentures of newly formed enterprise.
5. Operating the refinance schemes of IDBI functioning of SFCs is that out of its total
operations 90% are for the small-scale sectors.
KSFC was established by the government of Karnataka in March 1959 under state finance
corporati0on act 1951 for expending financial assistance tiny, small and medium scale industries
unit in the state
KSFC has a decentralised system working terms loans of upto Rs. 4.25 lakhs are sanctioned at
branch offices and loans over the Rs. 25 lakhs are sanctioned by the head office. KSFC has its
branches all over the state all state. all KSFC have zonal offices, 34 branch offices.
It was established in 1964 with the prime objective of promoting industrial growth in the state to
achieve this, KSIIDC identifies industrial opportunities, provides guidance and advise to
prospective entrepreneurs and extends necessary financial assistance. It also provides assistance
in securing single window clearances for land, power, water, etc.
It assists entrepreneurs in identifying suitable projects, keeping in view the resource availability
and the market demand. Project profiles are prepared and made available to prospective
entrepreneurs. Entrepreneurs are assisted with techno-economic reports, feasibility studies and
market surveys.
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The corporation principle objective is the promotion and development of small-scale industries
in the state.
KSSIDC has constructed over 5,230 industrial heads for SSI s all over the state. Natural
ventilation, lighting, securities and easy accessibility make KSSIDC industrial sheds an excellent
choice for entrepreneurs.
KSSIDC establishes and maintains industrial estates all over the state. A typical KSSIDC
industrial estate includes sheds of various dimensions, industrial pl0ts with good infrastructure
like roads, drainage, supply of power, water, banking, post office, canteen and other common
facilities.
KSSIDC has taken the function of supplying raw materials to SSIs in Karnataka. The raw
material supplied includes iron and steel, pig iron, coal, paraffin wax, petroleum products,
industrial rubber. It is in constant liaison with the raw materials manufactures to ensure timely
supply. Scarcity of indigenous materials is supplied with the help of imports. KSSIDC has set-
up 23 raw materials depots all over the state.
How to apply: Application forms can be collected from and submitted to the concerned chief
manager. The duty filled application must be accompanied by:
Broadly, production means conversion of raw materials into finished products. IT has been
observed that in the small-scale industries unit become sick because of lack of planning and lack
of coordination in the production process.
According to the committee on public undertaking there were delays in product output because
of poor production performance, defective procedures and high cost of production, which
resulted in heavy losses. The committee observed that the delays in the procurement of
materials, drawings, P&L, would have been avoided to a large extent with proper planning. The
committee has further stressed, the need for a special interest in the matter of stores management.
Under utilisation of labour and machines is an important reason for the losses suffered.
1. Production to order.
2. Production to stop.
In production to order goods are manufactured in order to meet the requirements of a customer.
In case of production to stop, the unit manufactures goods according to the demand for the
product. Whatever be the type of production it is necessary to plan for it.
1. Location: The location for starting a unit should be chosen after a lot of investigations.
Decision of a faulty location is not easy to mend as it involves financial commitment for
a longer period of time. It is one of the most important factors determining the ultimate
success of failure of an SSI. According to certain recent investigation it was found that
due to faulty selection for the location of an industry. Nearly 56% of small units fail
within a period of 5 yrs of their start.
The important factors to be taken into account while selecting right location are:
a. Availability of raw materials: The region where the unit proposed to be set-up
should provide at least a majority of the raw materials required. This will ensure
that continuity of supply at reasonable price. It has been found that scarcity of
important raw materials has been one of the important causes for production
blockades.
b. Availability of skilled and unskilled labour: It should be ascertained if proper
labour required is available locally. In case of non-availability of adequate labour
force they have to be brought from other places, which will result in escalation of
cost.
c. Availability of power: Consistent supply of electric power is of immense
importance to SSI. In case of unpredictable supply of electric power it is the
SSIs, which suffer the most as compared to bigger units. At times it becomes
almost essential for the SSIs to depend upon alternative source of power such as a
gen-set (diesel). In such cases there is a heavy cost escalation, which results in an
erosion of profitability.
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2. Selection of plant and machinery: After having selected a proper location of a unit, the
entrepreneur has to select the right type of machinery for his unit. At this stage the
entrepreneur must have the required information regarding the different types and brands
of the particular machinery available in the market. He must make a detailed cost benefit
analysis of the different brands along with an assessment of the different features that the
different brands offer.
3. The optimum size of the plant: Good understanding of the concept of the optimum size is
necessary to draw maximums economies in production cost.
In every industry and for every method of production within each industry there is a
minimum size of plant below which production is technically not possible and
economically unprofitable. If the cost of production varies with the quantum of output,
there has to be a particular size of operation at which the unit cost is at least. The
particular scale that ensures the most economical operations is referred to as the optimum
size of the plant.
4. Layout design: While designing a factory layout a very important aspect is the fact that
the movement of materials from one stage of manufacture to the next should be
minimum. Materials must move in a stream light fashion, which would result in an
efficient use of time causing the minimum fatigue. Unnecessary movement results in
confusion and the entire manufacturing process takes a much longer time. In industrial
life the economic and efficient usage of all the factors of production is major reason to
profitability and gives an extra edge to an entrepreneur on his competitors.
It has been observed that small industrialist generally are not very keen about the short
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floor, but they soon discover that inadequate planning of the shop floor results in various
kinds of obstructions to the smooth flow of working progress and the delays caused step
up the cost of production which erode profitability. Therefore a well-planned production
layout checks production bottlenecks.
a. SSIs can give a much better and efficient service to the customers.
b. Rush orders can be avoided.
c. Wastage and rejections of consignments by the customers can be avoided.
d. Wastage of time and effort can be avoided by having an efficient production
layout.
e. It ensures higher profit.
f. Inventory control is facilitated.
1. A first hand information relating to engineering tools, machines and must have fairly
good idea about the technology adopted for the production process.
2. Knowledge of inventory control measures along with stores information (update).
3. He must also have up to date information regarding the work in progress.
4. He must have an adequate knowledge of workers skills and capacity.
5. He must have information about the best performance on similar work with the best
combination of different machines, tools and optimum speed of machinery.
6. Data on power consumption and methods of conserving electric power is also important.