Answer 1] Define Small Scale Enterprises (SSEs)?

Explain the features of SSEs which make have an impact on the economic growth of the nation. Definition of Small Scale Industrial (SSI) Undertakings Policy Support 2.1 The investment limit for the Tiny Sector will continue to be Rs. 25 lakhs. 2.2 The investment limit for the MSME sector will continue to be at Rs. 1 crore. 2.3 The Ministry of MSME & ARI will bring out a specific list of hi-tech and export oriented industries which would require the investment limit to be raised upto Rs. 5 crores to admit of suitable technology upgradation and to enable them to maintain their competitive edge. 2.4 The Limited Partnership Act will be drafted quickly and got enacted. Attempt will be made to bring the Bill before the next session of the Parliament. 3.0 Fiscal Support 3.1 To improve the competitiveness of Small Scale Sector, the exemption for excise duty limit raised from Rs. 50 lakhs to Rs. 1 crore. 4.0 Credit Support 4.1 The composite loans limit raised from Rs. 10 lakhs to Rs.25 lakhs. 4.2 The Small Scale Service and Business (Industry Related) Enterprises (SSSBEs) with a maximum investment of Rs. 10 lakhs will qualify for priority lending. 4.3 In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs. 50 lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of Rs. 10 lakhs per project. Assistance under the NEF will be provided at a service charge of 5 per cent per annum. 4.4 The eligibility limit for coverage under the recently launched (August 2000) Credit Guarantee Scheme has been revised to Rs.25 lakhs from the present limit of Rs. 10 lakhs. 4.5 The Department of Economic Affairs will appoint a Task Force to suggest revitalisation/restructuring of the State Finance Corporations. 4.6 The Nayak Committee's recommendations regarding provision of 20 per cent of the projected turnover as working capital is being recommended to the financial institutions and banks. 5.0 Infrastructural Support 5.1 The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the country with 50 per cent reservation for rural areas. 5.2 Regarding upgrading the Industrial Estates, which are languishing, the Ministry of MSME & ARI will draw up a detailed scheme for the consideration of the Planning Commission. 5.3 A Plan Scheme for Cluster Development will be drawn up. 5.4 The funds available under the non-lapsable pool for the North-East will be used for Industrial Infrastructure Development, setting up of incubation centres, for Cluster Development and for setting up of IIDs in the North-East including Sikkim. 6.0 Technological Support and Quality Improvement 6.1 Capital Subsidy of 12 per cent for investment in technology in select sectors. An interministerial Committee of Experts will be set up to define the scope of technology upgradation and sectorial priorities. 6.2 To encourage Total Quality Management, the Scheme of granting Rs.75,000/- to each unit for opting ISO-9000 Certification will continue for the next six years i.e. till the end of the 10th plan. 6.3 Setting up of incubation Centres in Sunrise Industries will be supported. 6.4 The TBSE set up by SIDBI will be strengthened so that it functions effectively as a Technology Bank. It will be properly networked with NSIC, SIDO (SENET Programme) and APCTT. 6.5 SIDO, SIDBI and NSIC will jointly prepare a Compendium of available technologies for the R&D institutions in India and abroad and circulate it among the industry associations for the dissemination of the latest technology related information. 6.6 Commercial Banks are being requested to develop Schemes to encourage investment in

technology upgradation and harmonise the same with SIDBI. 6.7 One time Capital Grant of 50% will be given to Small Scale Associations which wish to develop and operate Testing Laboratories, provided they are of international standard. 7.0 Marketing Support 7.1 SIDO will have a Market Development Assistance (MDA) Programme, similar to one obtaining in the Ministry of Commerce & Industry. It will be a Plan Scheme. 7.2 The Vendor Development Programme, Buyer-Seller Meets and Exhibitions will take place more often and at dispersed locations. 8.0 Streamlining Inspections/Rules and Regulations 8.1 To minimise harassment to Small Scale Sector a Group will be set up to recommend within 3 months, means of streamlining inspections. This will include repeal of laws and regulations applicable to the sector that have since become redundant. 8.2 Self-certification will be progressively encouraged in lieu of inspections, which should be prescribed under the three following conditions: - On receipt of specific complaint; - Selection of unit for sample check (Say 10 per cent of total units); and - For audit and safety purposes. 9.0 Entrepreneurship Development 9.1 Capacity building in the MSME sector, both for entrepreneurs as well as workers, will be given top priority. The Ministry of MSME & ARI and Ministry of Labour will work out the strategy jointly. 10.0 Facilitating Prompt Payment 10.1 The Reserve Bank of India is being requested to appoint a Task Force to go into the question of strengthening and popularising factoring services, without recourse to the MSME suppliers. The Task Force shall give its report within six months of its constitution. 10.2 RBI is being requested to take up with the banks, the question of sub-allocating overall limits to the large borrowers specifically for meeting the payment obligations in respect of purchases from the MSMEs, either on case basis or on bills basis. 11.0 Rehabilitation of sick units 11.1 RBI is being requested to draw up revised guidelines for the rehabilitation of currently sick but potentially viable MSME units. Such guidelines should be detailed, transparent and non-discretionary. ( 12.0 Promoting Rural Industries 12.1 To support the Handloom Sector "Deendayal Hathkarga Protsahan Yojna" has been announced. The scheme has a total financial implication of Rs. 447 crores and will provide comprehensive financial and infrastructural support to weavers. 12.2 The Government is working out new comprehensive package to strengthen Khadi and Village Industries that will further upgrade the skills of Khadi Workers.

SSE CONTRIBUTION TO THE NATIONAL Employment Generation

ECONOMY

SSI Sector in India creates largest employment opportunities for the Indian populace, next only to Agriculture. It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector generates employment for four persons.

According to the SSI Sector survey conducted by the Ministry and National Informatics Centre with the base year of 1987-88, the following interesting observations were made related to employment in the

small scale sector. Generation of Employment - Industry Group-wise Food products industry has ranked first in generating employment, providing employment to 4.82 lakh persons (13.1%). The next two industry groups were Non-metallic mineral products with employment of 4.46 lakh persons (12.2%) and Metal products with 3.73 lakh persons (10.2%). In Chemicals & chemical products, Machinery parts and except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total contribution by these eight industry groups being 49%. In all other industries the contribution was less than 5%. Per unit employment Per unit employment was the highest (20) in units engaged in Beverages, tobacco & tobacco products mainly due to the high employment potential of this industry particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu. Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of 2.4 was in Repair services line. Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural areas. However, in Chemicals & chemical products, Non-metallic mineral products and Basic metal industries per unit employment was higher in rural areas as compared to metropolitan areas/urban areas. In urban areas highest employment per unit was in Beverages, tobacco products (31 persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-metallic mineral products (12). Rural Non-metallic products contributed 22.7% to employment generated in rural areas. Food Products accounted for 21.1%, Wood Products and Chemicals and chemical products shared between them 17.5%. Urban As for urban areas, Food Products and Metal Products almost equally shared 22.8% of employment. Machinery and parts except electrical, Non-metallic mineral products, and Chemicals & chemical products between them accounted for 26.2% of employment. In metropolitan areas the leading industries were Metal products, Machinery and parts except electrical and Paper products & printing (total share being 33.6%). State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment. This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal (8.5%) the total share being 27.7%. Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%), and Punjab (5.6%) together accounted for another 27.4%. Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and Dadra & Nagar Haveli. It was 12 in Maharashtra, Tripura and Delhi. Madhya Pradesh had the figure of 2. In all other cases it was around the average of 6. Production The small scale industries sector plays a vital role for the growth of the country. It contributes 40% of the gross manufacture to the Indian economy. It has been estimated that a lakh rupees of investment in fixed assets in the small scale sector produces 4.62 lakhs worth of goods or services with an approximate value addition of ten percentage points. The small scale sector has grown rapidly over the years. The growth rates during the various plan periods have been very impressive.

The number of small scale units has increased from an estimated 8.74 lakhs units in the year 1980-81 to an estimated 31.21 lakhs in the year 1999. From the year 1990-91 this sector has exhibited a comparitively lower growth trend (though positive) which continued during the next two years. However, this has to be viewed in the background of the general recession in the economy. The transiti on period of the process of economic reforms was also affected for some period by adverse factors such as foreign exchange constraints, credit squeeze, demand recession, high interest rates, shortage of raw material etc. When the performance of this sector is viewed against the growth in the manufacturing and the industry sector as a whole, it instills confidence in the resilience of the small scale sector. The estimates of growth for the year 1995-96 have shown an upswing.The growth of SSI sector has surpassed overall industrial growth from 1991 onwards.The positive trend is likely to strengthen in the coming years.This trend augurs a bright future for the small scale industry. Export contribution SSI Sector plays a major role in India's present export performance. 45%-50% of the Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector account for nearly 35% of total exports. The number of small scale units that undertake direct exports would be more than 5000.

Besides direct exports, it is estimated that small scale industrial units contribute around 15% to exports indirectly. This takes place through merchant exporters, trading houses and export houses. They may also be in the form of export orders from large units or the production of parts and components for use for finished exportable goods. It would surprise many to know that non traditional products account for more than 95% of the SSI exports. The exports from SSI sector has been clocking excellent growth rates in this decade. It has been mostly fuelled by the performance of garment, leather and gems and jewellery units from this sector.

The lucrative product groups where the SSI sector dominates in exports, are sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products. Opportunities Small industry sector has performed exceedingly well and enabled our country to achieve a wide measure of industrial growth and diversification.

By its less capital intensive and high labour absorbtion nature, SSI sector has made significant contributions to employment generation and also to rural industrialisation. This sector is ideally suited to build on the strengths of our traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices. The opportunities in the small scale sector are enormous due to the following factors : - Less Capital Intensive - Extensive Promotion & Support by the Government - Reservation for Exclusive Manufacture by small scale sector - Project Profiles - Funding - Finance & Subsidies - Machinery Procurement - Raw Material Procurement - Manpower Training - Technical & Managerial skills

- Tools & Tools utilisation support - Reservation for Exclusive Purchase by Government - Export Promotion - Growth in demand in the domestic market size due to overall economic growth - Increasing Export Potential for Indian products - Growth in Requirements for ancillary units due to the increase in number of greenfield units coming up in the large scale sector. So this is the opportune time to set up projects in the small scale sector. It may be said that the outlook is positive, indeed promising, given some safeguards. This expectation is based on an essential feature of the Indian industry and the demand structures. The diversity in production systems and demand structures will ensure long term co-existence of many layers of demand for consumer products / technologies / processes. There will be flourishing and well grounded markets for the same product/process, differentiated by quality, value added and sophistication. This characteristic of the Indian economy will allow complementary existence for various diverse types of units. The promotional and protective policies of the Govt. have ensured the presence of this sector in an astonishing range of products, particularly in consumer goods. However, the bug bear of the sector has been the inadequacies in capital, technology and marketing. The process of liberalisation will therefore, attract the infusion of just these things in the sector. Economic Indicators The Small Scale Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of our late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of small scale enterprises. Small Scale Sector has emerged as a dynamic and vibrant sector of the economy. - Today, it accounts for nearly 35% of the gross value of output in the manufacturing sector and over 40% of the total exports from the country. - In terms of value added this sector accounts for about 40% of the value added in the manufacturing sector. - The sector's contribution to employment is next only to agriculture in India. It is therefore an excellent sector of economy for investment.

######################################### 2]Identify an entrepreneur of your choice who has set up a small scale unit. Enumerate the steps, which helped him/her reach the final project.

The entrepreneur is a small scale manufacturer of First step

garments.

PRODUCT IDENTIFICATION : PRODUCT IDENTIFICATION The overriding reason for anyone to think of establishing a SSI unit can be summarised in one word - OPPORTUNITY. If one can see an opportunity to provide a product or service in a manner to generate sufficient surplus, then one way is to start up a SSI unit. This is the first step towards setting up a industry and is called This entrepreneur surveyed the market for various Products in the market demand. He found a great the opportunity in the garment segment. He could sell in the local/ national and also export. ====================================== FORM OF OWNERSHIP : FORM OF OWNERSHIP SOLE PROPRIETORSHIP FAMILY OWNERSHIP PARTNERSHIP This is the entrepreneurs personal decision. He decided to keep the ownership within the family. ========================================= Location of unit : Location of unit PROXIMITY TO SOURCE OF RAW MATERIALS NEARNESS TO THE MARKET GENERAL BUSINESS CLIMATE OF THE REGION CLIMATE AND ENVIRONMENTAL FACTORS He decided to locate the plant/office, just outside the city of Mumbaiclose to the market/ supply of fabrics/ transport/shipping facilities. ==================================== APPROVALS : APPROVALS Every SSI unit has to comply with various regulations in force. These include regulatory, taxation, environmental and certain product specific clearances.

APPROVALS Licensing in the Industries sector is governed by the licensing exemption notification issued by Govt. of India in July 25 1991 under the Industries (Development and Regulation) Act, 1951. In SSI, there are virtually no licensing restrictions. No industrial license is required except in case of 6 product groups included in compulsory licensing (These products groups mainly cover products that can only be made in large sector) He applied for all the required approvals with the help of a legal counsel. ============================= CLEARANCES : CLEARANCES An entrepreneur has to obtain several clearances or permissions depending upon the nature of his unit and products manufactured clearances Regulatory or Taxation Clearances Registration under Sales Tax Act - Commercial Tax officer of area concerned Registration under Central Excise Act - Collector of Central Excise or his nominee for area Payment of Income Tax - ITO of the area concerned Registration of Partnership deed - Inspector General of area concerned Calibration of weights & measures - Weights and Measures Inspector of State Power Connection - Designated Officer of State Electricity Board Employee strength exceeding 10 with power connection or 20 without power - Chief Inspector of Factories

He obtained all clearances from the various government departments with the help of legal counsel. ========================== Arrangement of finance : Arrangement of finance FIXED CAPITAL : THE FINANCE REQUIRED FOR SETTING UP INFRASTRUCTURE LIKE LAND, BUILDINGS, MACHINERY ETC.. This can be generated by PARTNERSHIP BANK LOANS

the

With the help of a professional technical consultant, and a chartered accountant, he arranged the fixed capital requirements, =============================== ARRANGEMENT OF FINANCE : ARRANGEMENT OF FINANCE WORKING CAPITAL: It is necessary for buying raw materials and recurring expenditure. It hugely depends on the financial position of the firm. With the help of a professional technical consultant, and the business plan. ================================ ORGANIZATION a chartered accountant, he developed

He developed an organization , with some experienced managers. 1.production/operation manager 2.merchandising manager 3.finance manager 4.marketing manager ================================== starting production : He conducted the starting production After the basic trial runs, commercial production has to begin with proper quality checks in place. =============================== Marketing the product : Marketing the product This is the last but the most important step in realizing the business ambition. No business is complete without selling the products and ensuring that the revenues flow into the organisation. Marketing is the prime way to enhance the business and the best way to survive in this competitive world. He asked the marketing manager to prepare a market plan ---national market / export market [usa].

Sources of capital to finance He started looking for other forms financing,other than the banks , like Joint ventures/ investors etc

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Answer 3]Give an overview of Technical Feasibility and know-how with special reference to scope of technical arrangements and provision of technical know how. Technology Feasibilty Definition: The process of proving that the concept is technically possible. Objective: The objective of the technical feasibility step is to confirm that the product will perform and to verify that there are no production barriers. Product: The product of this activity is a working model. Technical Activities: During the technical feasibility step the following must be completed. Test for technical feasibility; -Examine the operational requirements; -Identify potential safety and environmental hazards; -Conduct a preliminary production feasibility assessment; -Conduct a preliminary manufacturing assessment; -Estimate engineering prototype costs Technical Information: The technical feasibility step generates knowledge about the product or process's design, performance, production requirements, and preliminary production costs. Assessment: Do you have a working model of the product? Have you evaluated the safety factors of the model? Have you evaluated the environmental factors? Have you evaluated the feasibility of producing the product? Have you measured how the product will perform? Do you have a design for the product? Do you have a design for the production process? ============================== KNOW -HOW Know-how is practical knowledge of how to get something done, as opposed to know-what (facts), know-why (science), or know-who (networking). Know-how is often tacit knowledge, which means that it is difficult to transfer to another person by means of writing it down or verbalising it. The opposite of tacit knowledge is explicit knowledge. In the context of industrial property (now generally viewed as intellectual property (IP)), know-how is a component in the transfer of technology in national and international environments, co-existing with or separate from other IP rights such as patents, trademarks and copyright and is an economic asset. Definition of industrial know-how Know-how can be defined as confidentially held, or better, 'closely held' information in the form of unpatented inventions, formulae, designs, drawings, procedures and methods, together with accumulated skills and experience in the hands of a licensor firm's professional personnel which could assist a transferee/licensee of the object product in its manufacture and use and bring to it a competitive advantage. It can be further supported with privately maintained expert knowledge on the operation, maintenance, use/application of the object product and of its sale, usage or disposition. The inherent proprietary value of know-how lies embedded in the legal protection afforded to trade secrets in general law, particularly, 'case law'. Know-how, in short, is "private intellectual property". The 'trade secret law' varies from country to country, unlike the case for patents, trademarks and copyright where there are formal 'conventions' through which subscribing countries grant the same protection to the 'property' as the others; examples of which are the A trade- secret may be defined as it is information it is secret, not absolutely so there is intent to keep it secret

 it has industrial, financial or trade application it has economic value For purposes of illustration, the following may be a provision in a license agreement serving to define know-how: Know-how shall mean technical data, formulae, standards, technical information, specifications, processes, methods, code books, raw materials, as well as all information, knowledge, assistance, trade practices and secrets, and improvements thereto, divulged, disclosed, or in any way communicated to the Licensee under this Agreement, unless such information was, at the time of disclosure, or thereafter becomes part of the general knowledge or literature which is generally available for public use from other lawful sources. The burden of proving that any information disclosed hereunder is not confidential information shall rest on the licensee. Show-how Show-how is a diluted form of know-how as even a walk-through a manufacturing plant provides valuable insights to the client's representatives into how a product is made, assembled or processed. Show-how is also used to demonstrate technique.[ An enlarged program of show-how is the typical content of Technical Assistance Agreements where the licensor firm, if one is involved, provides a substantial training program to the client's personnel on-site and off-site. (Note: such training does not imply any grant of 'license'.)[ ============================= Agreements should be put in writing to avoid confusion. There are several different types of agreements or contracts --- both verbal and written. Notwithstanding stories about handshake deals that worked out perfectly, written agreements are far superior to verbal agreements because they help eliminate ambiguity between the parties. Written agreements can vary from a few words or lines scribbled on a napkin to a document containing hundreds of pages. The longer an agreement the more important it is that the agreement be well structured and organized, especially in situations where the agreement is being drafted by a nonattorney. 1. Write an introduction section stating the names of the parties and their addresses. If a party is a company instead of an individual, the place of incorporation or organization of the company should be included with the company's address. 2.Create a preamble section summarizing the business and areas of expertise of each party to the agreement and identifying the general purpose and objective of the agreement. Start each sentence in this section with the word "Whereas." 3.Create the main body of the agreement. This section will cover the length or term of the agreement, the technology or product being sold or licensed, the service being contracted, and the price to be paid for the product, service or technology. Be precise in drafting these sections to avoid vagueness and ambiguity. Recite the exact intention of the parties in these paragraphs and sections. 4.Create a "General Provisions" section providing for the law that will govern any disputes concerning the agreement, stating whether and under what circumstances the rights or obligations under the agreement may be assigned to third parties. State what will occur in the event any part of the agreement is ruled invalid or unenforceable by a court of law. Include the circumstances under which performance of obligations may be waived and establish that the entire agreement is set included in the written agreement signed by the parties. These are standard provisions that should be in every agreement. 5.Avoid using legalese or terms you are not familiar with. Use plain English as much as possible. -----------------------------Instructions 1.Write an introduction section stating the names of the parties and their addresses. If a party is a company instead of an individual, the place of incorporation or organization of the company should be included with the company's address.

2.Create a preamble section summarizing the business and areas of expertise of each party to the agreement and identifying the general purpose and objective of the agreement. Start each sentence in this section with the word "Whereas." 3.Create the main body of the agreement. This section will cover the length or term of the agreement, the technology or product being sold or licensed, the service being contracted, and the price to be paid for the product, service or technology. Be precise in drafting these sections to avoid vagueness and ambiguity. Recite the exact intention of the parties in these paragraphs and sections. 4.Create a "General Provisions" section providing for the law that will govern any disputes concerning the agreement, stating whether and under what circumstances the rights or obligations under the agreement may be assigned to third parties. State what will occur in the event any part of the agreement is ruled invalid or unenforceable by a court of law. Include the circumstances under which performance of obligations may be waived and establish that the entire agreement is set included in the written agreement signed by the parties. These are standard provisions that should be in every agreement. 5.Avoid using legalese or terms you are not familiar with. Use plain English as much as possible. ====================== Implementing technical know how. AN EXAMPLE OF KNOWHOW IMPLEMENTATION Implementation simply means carrying out the activities described in your work plan. Executing a project is a very complex mission, as it requires the coordination of a wide range of activities, the overseeing of a team, the management of budget, the communication to the public, among other issues. Independent of whether it is a social project to raise the awareness and promote hygiene or it is a construction project for service delivery, there is a certain process that has to be followed. Project implementation (or project execution) is the phase where visions and plans become reality. This is the logical conclusion, after evaluating, deciding, visioning, planning, applying for funds and finding the financial resources of a project. The implementation of projects in sustainable sanitation and water management is complex. It requires the coordination of a wide range of activities, diverse institutional arrangements, and different time frames . There is not one typical project in water and sanitation, as the actions may vary from the construction of a new infrastructure, to the introduction of new ways of working. Projects in this area cover issues such as: social development, health, environmental sustainability, institutional strengthening, technical implementation, pilot plants, service delivery, social marketing, hygiene promotion, sanitation promotion and capacity building. It is important to take into account that independently of the nature of the project, implementation takes time, usually more than it is planned, and that many external constraints can appear, which should be considered when initiating the implementation step (i.e. seasonality in availability of community engagement/resources) Objectives of the Implementation Phase The objectives of the implementation phase can be summarised as follow: Putting the action plan into operation . Achieving tangible change and improvements . Ensuring that new infrastructure, new institutions and new resources are sustainable in every aspect . Ensuring that any unforeseen conflicts that might arise during this stage are resolved . Ensuring transparency with regard to finances . Ensuring that potential benefits are not captured by elites at the expenses of poorer social groups How to Get Started

Before implementing the action plan, it is important to ensure that all the roles and responsibilities are distributed and understood. The basic requirement for starting the implementation process is to have the work plan ready and understood by all the actors involved. Technical and non-technical requirements have to be clearly defined and the financial, technical and institutional frameworks of the specific project have to be prepared considering the local conditions. The working team should identify their strengths and weaknesses (internal forces), opportunities and threats (external forces). The strengths and opportunities are positive forces that should be exploited to efficiently implement a project. The weaknesses and threats are hindrances that can hamper project implementation. The implementers should ensure that they devise means of overcoming them. Another basic requirement is that the financial, material and human resources are fully available for the implementation . Other actions need to be taken before work can begin to implement the detailed action plan, including: Scheduling activities and identifying potential bottlenecks. Communicating with the members of the team and ensuring all the roles and responsibilities are distributed and understood. Providing for project management tools to coordinate the process. Ensuring that the financial resources are available and distributed accordingly. Tips for Implementing Successful Projects Field management staff must make time to establish an atmosphere of candour and trust with partners during implementation so that concerns may be raised (and often resolved) informally. Realistic long-term planning of finances is key to the implementation of an action plan. A communication strategy can be used to raise awareness of the positive benefits for the community, as well as explaining that there are necessary trade-offs, such as the introduction of water pricing, which will not please everybody. This will help to further strengthen local ownership of the plan and encourage public participation in the implementation of projects. At the end of a planning and implementation cycle, a press release is useful to highlight successful stories and announce the publication of a final document such as a water report . Expectations among stakeholders and the general public are likely to be high following the participatory approach to the development of the preceding stages of the planning process. It is therefore important that actions are visible and demonstrate tangible results early to build confidence in the process. Implementation of Engineering Projects and Service Delivery The detailed design, tendering, and construction of the infrastructure will take place during this step. Depending on the situation and the complexity, the project might be implemented through a formal construction contract or a voluntary community approach. Formal written contracts are required where external contractors undertake specialist construction or installation work. This work should be awarded through a competitive tender process to ensure value for money . Other procurement strategies could be a design and build scheme, and a build, own, operate and transfer conception . When formal contracts are used, there is the risk of leaving out the social framework and the needs of the users. Therefore, it is necessary to integrate the community during the implementation step, in order to create ownership of the new infrastructure . In community-managed projects, the members of the community are involved in the construction and installation of the new infrastructure through voluntary labour agreements, in-kind contribution, food for work schemes, and self-help programmes where the communities are provided training and resources to carry out the work themselves . It is generally more cost-effective to use labour from within the community as much as possible. However, there has to be some guarantee of quality and an understanding of the scope of the work. It is useful to have a written agreement between the primary and secondary stakeholders (community and government) defining roles and responsibilities and also agreeing the scope of the works. This will avoid confusion or disagreement later on in the project . It is important to take into account that in urban or peri-urban areas many people already earn a

living and would not be prepared to contribute labour to a water supply or sanitation scheme but would rather contribute cash. This situation needs to be assessed at the early stages of a project . A strategy for capacity development should be prepared in order to ensure an effective construction, operation and maintenance work. Training activities will target technicians, masons, users, and other service providers. These activities aim at building the required capacities for the implementation and can be carried out through workshops, specialised training courses, learning by doing approach, amongst others. Whatever method is selected, the construction and installation activities must be carried out under the supervision of experts and engineers. "The level of supervision required will naturally depend on the complexity of the construction work. However, if the design includes any engineering specification, then qualified staff should be available on a full-time basis to oversee construction of the works. The quality of work will suffer if supervision is inadequate because corners may be cut, inferior materials used, and safety compromised" . The involvement of the designers is also needed during the construction stage, particularly to answer questions and make changes in the design when improvements and adaptations are required. A practical implementation plan should be prepared by the implementation team to define real time schedule of delivery of services, such as : When the purchase of materials is completed. When the excavation is finished. When the structures of the buildings are constructed. When the commissioning is expected. Other aspects that have to be taken into account during the construction phase are: sourcing, availability of funds, payment procedures, preparation of contracts, supervision of community labour, division of labour between women and men . Local practices and skills should be exploited in the design and construction of the infrastructure, for instance, in some countries the quality of concrete work is very poor, while masonry skills are excellent. Similarly, local materials and construction methods should be employed wherever possible. This may not always be possible, for example if rotary drilling in rock is required, but the community should be consulted because they may have their own ideas. In some cases the use of local materials is unacceptable to the partners if it is of a very low quality; it would probably not be cost-effective to purchase local asbestos cement pipes with a design life of five years, if imported ones have a design life of 30 years Implementation of Social Projects As mentioned before, social projects are also very common in the water and sanitation field, as they usually target the human factor that is crucial for achieving sustainability of the SSWM measures. These projects are usually related to the change of behaviours and strengthening of capacities by awareness raising campaigns, training activities, institutional set-ups, etc. As these projects cover a wide range of activities that are case-specific, how the implementation will take place will vary from case to case. However, the implementation of a project will always be successful if management strategies and coordination guidelines are clearly defined. Independent of the type of project to be carried out, a work plan is needed indicating the pursued objectives, the expected results, the activities to be developed, as well as the budget available and timeframe given. Each of the activities has to be assigned to a particular individual, department or organisation that should have proven experience and the capacity to achieve the goals. Local community workers, who can speak the local languages, are the first to integrate in the project, as these types of actions require that the implementers know the culture of the community to gain their trust and achieve a real impact. It is of primordial importance that the financial resources are readily available at the beginning of the action, so the members of the team have the budget to initiate the activities and cover their own expenses. The management team should look for strategic partnerships with local leaders and spokespersons, giving institutional backup to the actions. Directors and CEOs of the leading

organisation should participate in the opening ceremonies or kick-off meeting supporting the local workers, thus facilitating future activities that will be done in the field. An activity and financial reporting procedure has to be prepared and communicated to the members of the team. It should be clear from the beginning of the action, how all the costs incurred will be reported and reimbursed. It is important to keep procedures as simple as possible, using simple tables and template for reporting costs, field visits, interviews, workshops, meeting minutes, etc. A controlling strategy has to be developed, in order to monitor the work done on the field. A clearly defined decision making process will set the roles and responsibilities of the members of the team: field worker ->task leaders -> work package leader -> project manager -> coordinator of the project -> steering committee. This ladder will allow for immediate correction of actions and efficient use of (human) resources. Communication channels should be kept open between the field workers and the management team, making use of mobile phones, SMS, E-mails, etc. It is important to avoid overloading the team with bureaucratic procedures that nobody will follow (like newsletters, long reports, weekly E-mails, etc). Instead, monthly meetings should be planned, bringing the field workers together to report, exchange experiences and learn from each others successful and failing stories. Applicability Implementation is the desired step after the carrying out of a participatory planning process, as it represents the realisation of the plans and activities described in the strategy paper. Advantages Implementation gives the opportunity to see the plans become a reality Execution of projects allows end-users to have access to better services and living environment Success stories and experiences can be shared with specialists from other cities and towns, encouraging others to adopt similar approaches, which in turn may improve water resources management in the local area

######################################### 4]Examine the factors involved in deciding the location of a plant while setting up a SSE? SSE PLANT LOCATION Why do firms locate where they do? There is no single answerdifferent firms choose their locations for different reasons. Key determinates of a location decision are a firm's factors of production. For example, a firm that spends a large portion of total costs on unskilled labor will be drawn to locations where labor is relatively inexpensive. A firm with large energy demands will give more weight to locations where energy is relatively inexpensive. In general, firms choose locations they believe will allow them to maximize net revenues: if demand for goods and services is held roughly constant, then revenue maximization is approximated by cost minimization. The typical categories that describe a firm's production function are: Labor. Labor is often and increasingly the most important factor of production. Other things equal, firms want productivity, in other words, labor output per dollar. Productivity can decrease if certain types of labor are in short supply, which increases the costs by requiring either more pay to acquire the labor that is available, the recruiting of labor from other areas, or the use of the less productive labor that is available locally. Land. Demand for land depends on the type of firm. Manufacturing firms need more space and tend to prefer suburban locations where land is relatively less expensive and less difficult to develop. Warehousing and distribution firms need to locate close to interstate highways. Local Infrastructure. An important role of government is to increase economic capacity by improving

quality and efficiency of infrastructure and facilities, such as roads, bridges, water and sewer systems, airport and cargo facilities, energy systems, and telecommunications. Access to Markets. Though part of infrastructure, transportation merits special attention. Firms need to move their product, either goods or services, to the market, and they rely on access to different modes of transportation to do this. While transportation has become relatively inexpensive compared to other inputs, and transportation costs have become a less important location factor, access to transportation is still critical. That long-run trend, however, could shift because of decreasing funds to highway construction, increasing congestion, and increasing energy prices. Materials. Firms producing goods, and even firms producing services, need various materials to develop products that they can sell. Some firms need natural resources: a manufacturing sector like lumber needs trees. Or, farther down the line, firms may need intermediate materials: for example, dimensioned lumber. Entrepreneurship. This input to production may be thought of as good management, or even more broadly as a spirit of innovation, optimism, and ambition that distinguishes one firm from another even though most of their other factor inputs may be quite similar. The supply, cost, and quality of any of these factors obviously depend on market factors: on conditions of supply and demand locally, nationally, and even globally. But they also depend on public policy. In general, public policy can affect them through: Regulation. Regulations protect the health and safety of a community, and help maintain the quality of life. However, simplified bureaucracies and straightforward regulations can help firms react quickly in a competitive marketplace. Taxes. Firms tend to seek locations where they can optimize their after-tax profits. But tax rates are not a primary location factor, they matter only after corporations have made decisions on labor, transportation, raw materials, and capital costs. Within a region, production factors are likely to be similar, so differences in tax levels across communities are more important in the location decision than are differences in tax levels between regions. Financial incentives. Governments offer firms incentives to encourage growth. Generally, economic research has shown that most types of incentives have had little significant effect on firm location between regions. However, for manufacturing industries with significant equipment costs, property or investment tax credit or abatement incentives can play a significant role in location decisions. Incentives are more effective at redirecting growth within a region than they are at providing a competitive advantage between regions. Firms locate in a city because of the presence of factors other than direct factors of production. These indirect factors include agglomerative economies, also known industry clusters, location amenities, and innovative capacity. Industry Clusters. Firms tend to locate in areas where there is already a concentration of firms like their own. The theory works in practice because firms realize operational savings and have access to a large pool of skilled labor when they congregate in a single location. Quality of Life. A region that features many quality amenities, such as good weather, recreational opportunities, culture, low crime, good schools, and a clean environment attracts people simply because it is a nice place to be. A region's quality of life attracts skilled workers, and if the amenities lure enough potential workers to the region, the excess labor supply pushes their wages down so that firms can find skilled labor for a relatively low cost. Innovative capacity. Increasing evidence suggests that a culture promoting innovation, creativity, flexibility, and adaptability will be essential to keeping MANY cities economically vital and internationally competitive. Innovation is particularly important in industries that require an educated workforce. High-tech companies need to have access to new ideas typically associated with a university or research institute. Government can be a key part of a community's innovative culture, through the provision of services and regulation of development and business activities that are

responsive to the changing needs of business. =================================================== THE GLASS FACTORY SELECTED THE LOCATION FOR THE FOLLOWING REASONS. Land. The GLASS FACTORY needs land for buildings and associated uses, and the built space itself. Location, cost, and quality of the space matter to all firms. The GLASS FACTORY is being offered an attractive term. ------------------------------------------------------------------------------------Labor. For this GLASS FACTORY , labor is the largest operating cost, and the single most important factor to the firm deciding where to locate is the cost. Also the quality / quantity of skilled labor is plenty. ---------------------------------------------------------------------Access to Markets. GLASS FACTORY access the markets by moving people and goods via transportation systems. - Excellent transportation systems is available. - Physical distance to markets is short. -Telecommunications systems are also important. ---------------------------------------------------------------------------------Local Infrastructure. This city has modern and efficient physical infrastructure, including roads, bridges, airport and cargo facilities, and telecommunications. The local government maintains and improve the quality and efficiency of public infrastructure. ---------------------------------------------------------------------------------------Materials. GLASS FACTORY needs for their inputsraw materials and the labor pool. which is available in abundance. ------------------------------------------------------------------------------Regulation. Permitting procedures and environmental regulations have an impact on the monetary cost of doing business and on the amount of time it takes to brings a product to market. The local governement offer convenient procedures and business friendly regulations. ----------------------------------------------------------------------------------------------------------------Taxes. Tax rates for businesses and individuals, as well as unemployment insurance and worker compensation costs, affect the cost of doing business in a given location. The local governement offer attractive tax concessions on a long term basis. -------------------------------------------------------------------------------Financial Incentives. Governments offer firms financial incentives to encourage growth or other public goals. Incentives are typically tax breaks for firms that locate in a specific area. -------------------------------------------------------------------------------------Entrepreneurship. Entrepreneurs channel innovative ideas into new firms, and new firms tend to locate where the founder lives. If existing residents have entrepreneurial skills, they are likely to create new businesses. THE GLASS FACTORY OFFERS FRANCHISE OPPORTUNITIES FOR LOCAL DISTRIBUTORS. -------------------------------------------------------------------------Quality of Life. All the factors that contribute to an area's quality of life, such as educational quality, crime rate, and the environment, can affect the ability of the business to attract qualified labor. Workers want to live in a stable, pleasant community, and will be attracted to jobs in regions with a high quality of life. ==================================================== #########################################

Answer 5]Describe the financial ratios commonly used by entrepreneurs to assess their own performance. Any successful business owner is constantly evaluating the performance of his or her company, comparing it with the company's historical figures, with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of your company's effectiveness, however, you need to look at more than just easily attainable numbers like sales, profits, and total assets. You must be able to read between the lines of your financial statements and make the seemingly inconsequential numbers accessible and comprehensible. This massive data overload could seem staggering. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify your company's strengths and weaknesses, evaluate its financial position, and understand the risks you may be taking. As with any other form of analysis, comparative ratio techniques aren't definitive and their results shouldn't be viewed as gospel. Many off-the-balance-sheet factors can play a role in the success or failure of a company. But, when used in concert with various other business evaluation processes, comparative ratios are invaluable. This DETAILS contains descriptions and examples of the eight major types of ratios used in financial analysis: Income, Profitability, Liquidity, Working Capital, Bankruptcy, Long-Term Analysis, Coverage, and Leverage. I. Purposes and Considerations of Ratios and Ratio Analysis II. Types of Ratios III. Income Ratios IV. Profitability Ratios V. Net Operating Profit Ratios VI. Liquidity Ratios VII. Working Capital Ratios VIII. Bankruptcy Ratios IX. Long-Term Analysis X. Coverage Ratios XI. Total Coverage Ratios XII. Leverage Ratios XIII. Common-Size Statement XIV. Resources I. Purposes and Considerations of Ratios and Ratio Analysis Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Although ratios report mostly on past performances, they can be predictive too, and provide lead indications of potential problem areas. Ratio analysis is primarily used to compare a company's financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis, you can identify trends, good and bad, and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses, both in and out of your industry. There are several considerations you must be aware of when comparing ratios from one financial period to another or when comparing the financial ratios of two or more companies. If you are making a comparative analysis of a company's financial statements over a certain period of time, make an appropriate allowance for any changes in accounting policies that occurred during the same time span. When comparing your business with others in your industry, allow for any material differences in

accounting policies between your company and industry norms. When comparing ratios from various fiscal periods or companies, inquire about the types of accounting policies used. Different accounting methods can result in a wide variety of reported figures. Determine whether ratios were calculated before or after adjustments were made to the balance sheet or income statement, such as non-recurring items and inventory or pro forma adjustments. In many cases, these adjustments can significantly affect the ratios. Carefully examine any departures from industry norms.

II. Types of Ratios Income Profitability Liquidity Working Capital Bankruptcy Long-Term Analysis Coverage Leverage III. Income Ratios Turnover of Total Operating Assets Net Sales = Turnover of Total Operating Assets Ratio Total Operating Assets* Obviously, an increase in sales will necessitate more operating assets at some point (sales may rise without additional investment within a given range, however); conversely, an inadequate sales volume may call for reduced investment. Turnover of Total Operating Assets or sales to investment in total operating assets tracks over-investment in operating assets. *Total operating assets = total assets - (long-term investments + intangible assets) Note: This ratio does not measure profitability. Remember, over-investment may result in a lack of adequate profits. Net Sales to Tangible Net Worth Net Sales = Net Sales to Tangible Net Worth Ratio Tangible Net Worth* This ratio indicates whether your investment in the business is adequately proportionate to your sales volume. It may also uncover potential credit or management problems, usually called "overtrading" and "undertrading." Overtrading, or excessive sales volume transacted on a thin margin of investment, presents a potential problem with creditors. Overtrading can come from considerable management skill, but outside creditors must furnish more funds to carry on daily operations. Undertrading is usually caused by management's poor use of investment money and their general lack of ingenuity, skill or aggressiveness. *Tangible Net Worth = owner's equity - intangible assets Gross Margin on Net Sales Gross Margin* = Gross Margin on Net Sales Ratio Net Sales By analyzing changes in this figure over several years, you can identify whether it is necessary to examine company policies relating to credit extension, markups (or markdowns), purchasing, or

general merchandising (where applicable). *Gross Margin = net sales - cost of goods sold Note: An increase in gross margin may result from higher sales, lower cost of goods sold, an increase in the proportionate volume of higher margin products, or any combination of these variables. Operating Income to Net Sales Ratio Operating Income = Operating Income to Net Sales Ratio Net Sales This ratio reveals the profitability of sales resulting from regular business as well as buying, selling, and manufacturing operations. Note:Operating income derives from ordinary business operations and excludes other revenue (losses), extraordinary items, interest on long-term obligations, and income taxes. Acceptance Index Applications Accepted = Acceptance Index Applications Submitted Obviously, a high sales volume that comes from just two or three major accounts is much riskier than the same volume coming from a large number of customers. Losing one out of three major accounts is disastrous, while losing one out of 150 is routine. A growing firm should try to spread this risk of dependency through active sales, promotion, and credit departments. Although the quality of customers stems from your general management policy, the quantity of newly opened accounts is a direct reflection on your sales and credit efforts. Note: This index of effectiveness does not apply to every type of business. IV. Profitability Ratios Closely linked with income ratios are profitability ratios, which shed light upon the overall effectiveness of management regarding the returns generated on sales and investment. Gross Profit on Net Sales Net Sales - Cost of Goods Sold = Gross Profit on Net Sales Ratio Net Sales Does your average markup on goods normally cover your expenses, and therefore result in a profit? This ratio will tell you. If your gross profit rate is continually lower than your average margin, something is wrong! Be on the lookout for downward trends in your gross profit rate. This is a sign of future problems for your bottom line. Note: This percentage rate can and will vary greatly from business to business, even those within the same industry. Sales, location, size of operations, and intensity of competition are all factors that can affect the gross profit rate. V. Net Operating Profit Ratios Net Profit on Net Sales EAT* = Net Profit on Net Sales Ratio Net Sales This ratio provides a primary appraisal of net profits related to investment. Once your basic expenses are covered, profits will rise disproportionately greater than sales above the break-even point of operations. *EAT= earnings after taxes Note: Sales expenses may be substituted out of profits for other costs to generate even more sales and profits. Net Profit to Tangible Net Worth EAT = Net Profit to Tangible Net Worth Ratio

Tangible Net Worth This ratio acts as a complementary appraisal of net profits related to investment. This ratio sizes up the ability of management to earn a return. Net Operating Profit Rate Of Return EBIT = Net Operating Profit Rate of Return Ratio Tangible Net Worth Your Net Operating Profit Rate of Return ratio is influenced by the methods of financing you utilize. Notice that this ratio employs earnings before interest and taxes, not earnings after taxes. Profits are taken after interest is paid to creditors. A fallacy of omission occurs when creditors support total assets. Note: If financial charges are great, compute a net operating profit rate of return instead of return on assets ratio. This can provide an important means of comparison. Management Rate Of Return Operating Income = Management Rate of Return Ratio Fixed Assets + Net Working Capital This profitability ratio compares operating income to operating assets, which are defined as the sum of tangible fixed assets and net working capital. This rate, which you may calculate for your entire company or for each of its divisions or operations, determines whether you have made efficient use of your assets. The percentage should be compared with a target rate of return that you have set for the business. Earning Power Net Sales X EAT = Earning Power Ratio Tangible Net Worth Net Sales The Earning Power Ratio combines asset turnover with the net profit rate. That is, Net Sales to Tangible Net Worth (see "Income Ratios") multiplied by Net Profit on Net Sales (see ratio above). Earning power can be increased by heavier trading on assets, by decreasing costs, by lowering the break-even point, or by increasing sales faster than the accompanying rise in costs. Note: Sales hold the key. VI. Liquidity Ratios While liquidity ratios are most helpful for short-term creditors/suppliers and bankers, they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of your business. Current Ratio Current Assets* = Current Ratio Current Liabilities* Popular since the turn of the century, this test of solvency balances your current assets against your current liabilities. The current ratio will disclose balance sheet changes that net working capital will not. *Current Assets = net of contingent liabilities on notes receivable *Current Liabilities = all debt due within one year of statement data Note: The current ratio reveals your business's ability to meet its current obligations. It should be supplemented with the other ratios listed below, however.

Quick Ratio Cash + Marketable Securities + Accounts Receivable (net)

= Quick Ratio

Current Liabilities Also known as the "acid test," this ratio specifies whether your current assets that could be quickly converted into cash are sufficient to cover current liabilities. Until recently, a Current Ratio of 2:1 was considered standard. A firm that had additional sufficient quick assets available to creditors was believed to be in sound financial condition. Note: The Quick Ratio assumes that all assets are of equal liquidity. Receivables are one step closer to liquidity than inventory. However, sales are not complete until the money is in hand. Absolute Liquidity Ratio Cash + Marketable Securities = Absolute Liquidity Ratio Current Liabilities A subsequent innovation in ratio analysis, the Absolute Liquidity Ratio eliminates any unknowns surrounding receivables. Note: The Absolute Liquidity Ratio only tests short-term liquidity in terms of cash and marketable securities. Basic Defense Interval (Cash + Receivables + Marketable Securities) = Basic Defense Interval (Operating Expenses + Interest + Income Taxes) / 365 If for some reason all of your revenues were to suddenly cease, the Basic Defense Interval would help determine the number of days your company can cover its cash expenses without the aid of additional financing. Receivables Turnover Total Credit Sales = Receivables Turnover Ratio Average Receivables Owing Another indicator of liquidity, Receivables Turnover Ratio can also indicate management's efficiency in employing those funds invested in receivables. Net credit sales, while preferable, may be replaced in the formula with net total sales for an industry-wide comparison. Note: Closely monitoring this ratio on a monthly or quarterly basis can quickly underscore any change in collections. Average Collection Period (Accounts + Notes Receivable) = Average Collection Period (Annual Net Credit Sales) / 365 The Average Collection Period (ACP) is another litmus test for the quality of your receivables business, giving you the average length of the collection period. As a rule, outstanding receivables should not exceed credit terms by 10-15 days. If you allow various types of credit transactions, such as a retail outlet selling both on open credit and installment, then the ACP must be calculated separately for each category. Note: Discounted notes which create contingent liabilities must be added back into receivables. Inventory Turnover Cost of Goods Sold = Inventory Turnover Ratio Average Inventory Rule of Thumb: Multiply your inventory turnover by your gross margin percentage. If the result is 100 percent or greater, your average inventory is not too high.

VII. Working Capital Ratios Many believe increased sales can solve any business problem. Often, they are correct. However,, sales must be built upon sound policies concerning other current assets and should be supported by sufficient working capital. There are two types of working capital: gross working capital, which is all current assets, and net working capital, which is current assets less current liabilities. Moody's Investors Service has listed net working capital since 1922. If you find that you have inadequate working capital, you can correct it by lowering sales or by increasing current assets through either internal savings (retained earnings) or external savings (sale of stock). Following are ratios you can use to evaluate your business's net working capital. Working Capital Ratio Use "Current Ratio" in the section on "Liquidity Ratios." This ratio is particularly valuable in determining your business's ability to meet current liabilities. Working Capital Turnover Net Sales = Working Capital Turnover Ratio Net Working Capital This ratio helps you ascertain whether your business is top-heavy in fixed or slow assets, and complements Net Sales to Tangible Net Worth (see "Income Ratios"). A high ratio could signal overtrading. Note: A high ratio may also indicate that your business requires additional funds to support its financial structure, top-heavy with fixed investments. Current Debt to Net Worth Current Liabilities = Current Debt to Net Worth Ratio Tangible Net Worth Your business should not have debt that exceeds your invested capital. This ratio measures the proportion of funds that current creditors contribute to your operations. Note: For small businesses a ratio of 60 percent or above usually spells trouble. Larger firms should start to worry at about 75 percent. Funded Debt to Net Working Capital Long-Term Debt = Funded Debt to Net Working Capital Ratio Net Working Capital Funded debt (long-term liabilities) = all obligations due more than one year from the balance sheet date Note: Long-term liabilities should not exceed net working capital. VIII. Bankruptcy Ratios Many business owners who have filed for bankruptcy say they wish they had seen some warning signs earlier on in their company's downward spiral. Ratios can help predict bankruptcy before it's too late for a business to take corrective action and for creditors to reduce potential losses. With careful planning, predicted futures can be avoided before they become reality. The first five bankruptcy ratios in this section can detect potential financial problems up to three years prior to bankruptcy. The sixth ratio, Cash Flow to Debt, is known as the best single predictor of failure. Working Capital to Total Assets Net Working Capital = Working Capital to Total Assets Ratio Total Assets This liquidity ratio, which records net liquid assets relative to total capitalization, is the most valuable indicator of a looming business disaster. Consistent operating losses will cause current assets to shrink

relative to total assets. Note: A negative ratio, resulting from negative net working capital, presages serious problems. Retained Earnings to Total Assets Retained Earnings = Retained Earnings to Total Assets Ratio Total Assets New firms will likely have low figures for this ratio, which designates cumulative profitability. Indeed, businesses less than three years old fail most frequently. Note: A negative ratio portends cloudy skies. However, results can be distorted by manipulated retained earnings (earned surplus) data. EBIT to Total Assets EBIT = EBIT to Total Assets Ratio Total Assets How productive are your business's assets? Asset values come from earning power. Therefore, whether or not liabilities exceed the true value of assets (insolvency) depends upon earnings generated. Note: Maximizing rate of return on assets does not mean the same as maximizing return on equity. Different degrees of leverage affect these separate conclusions. Sales to Total Assets Total Sales = Sales to Total Assets Ratio Total Assets See "Turnover Ratio" under "Profitability Ratios." This ratio, which uncovers management's ability to function in competitive situations while not excluding intangible assets, is inconclusive if studied by itself. But when viewed alongside Working Capital to Total Assets, Retained Earnings to Total Assets, and EBIT to Total Assets, it can confirm whether your business is in imminent danger. Note: A result of 200 percent is more reassuring than one of 100 percnt. Equity to Debt Market Value of Common + Preferred Stock = Equity to Debt Ratio Total Current + Long-Term Debt This ratio shows you by how much your business's assets can decline in value before it becomes insolvent. Note: Those businesses with ratios above 200 percent are safest. Cash Flow to Debt Cash Flow* = Cash Flow to Debt Ratio Total Debt Also, refer to "Debt Cash Flow Coverage Ratio" in the section on "Coverage Ratios." Since debt does not materialize as a liquidity problem until its due date, the closer to maturity, the greater liquidity should be. Other ratios useful in predicting insolvency include Total Debt to Total Assets (see "Leverage Ratios" below) and Current Ratio (see "Liquidity Ratios"). *Cash flow = Net Income + Depreciation Note: Because there are various accounting techniques of determining depreciation, use this ratio for evaluating your own company and not to compare it to other companies. IX. Long-Term Analysis Current Assets to Total Debt Current Assets = Current Assets to Total Debt Ratio

Current + Long-Term Debt This ratio determines the degree of protection linked to short- and long-term debt. More net working capital protects short-term creditors. Note: A high ratio (significantly above 100 percent) shows that if liquidation losses on current assets are not excessive, long-range debtors can be paid in full out of working capital. Stockholders' Equity Ratio Stockholders' Equity = Stockholders' Equity Ratio Total Assets Relative financial strength and long-run liquidity are approximated with this calculation. A low ratio points to trouble, while a high ratio suggests you will have less difficulty meeting fixed interest charges and maturing debt obligations. Total Debt to Net Worth Current + Deferred Debt = Total Debt to Net Worth Ratio Tangible Net Worth Rarely should your business's total liabilities exceed its tangible net worth. If it does, creditors assume more risk than stockholders. A business handicapped with heavy interest charges will likely lose out to its better financed competitors. X. Coverage Ratios Times Interest Earned EBIT = Times Interest Earned Ratio I EBIT = earnings before interest and taxes I = dollar amount of interest payable on debt The Times Interest Earned Ratio shows how many times earnings will cover fixed-interest payments on long-term debt. XI. Total Coverage Ratios EBIT + s = Total Coverage Ratio I 1-h I = interest payments s = payment on principal figured on income after taxes (1 - h) This ratio goes one step further than Times Interest Earned, because debt obliges the borrower to not only pay interest but make payments on the principal as well. XII. Leverage Ratios This group of ratios calculates the proportionate contributions of owners and creditors to a business, sometimes a point of contention between the two parties. Creditors like owners to participate to secure their margin of safety, while management enjoys the greater opportunities for risk shifting and multiplying return on equity that debt offers. Note: Although leverage can magnify earnings, it exaggerates losses. Equity Ratio Common Shareholders' Equity = Equity Ratio Total Capital Employed The ratio of common stockholders' equity (including earned surplus) to total capital of the business shows how much of the total capitalization actually comes from the owners. Note: Residual owners of the business supply slightly more than one half of the total capitalization.

Debt to Equity Ratio Debt + Preferred Long-Term

= Debt to Equity Ratio

Common Stockholders' Equity A high ratio here means less protection for creditors. A low ratio, on the other hand, indicates a wider safety cushion (i.e., creditors feel the owner's funds can help absorb possible losses of income and capital). Total Debt to Tangible Net Worth If your business is growing, track this ratio for insight into the distributive source of funds used to finance expansion. Debt Ratio Current + Long-Term Debt = Debt Ratio Total Assets What percentage of total funds are provided by creditors? Although creditors tend to prefer a lower ratio, management may prefer to lever operations, producing a higher ratio. Times Interest Earned Refer to "Coverage Ratios" XIII. Common-Size Statement When performing a ratio analysis of financial statements, it is often helpful to adjust the figures to common-size numbers. To do this, change each line item on a statement to a percentage of the total. For example, on a balance sheet, each figure is shown as a percentage of total assets, and on an income statement, each item is expressed as a percentage of sales. This technique is quite useful when you are comparing your business to other businesses or to averages from an entire industry, because differences in size are neutralized by reducing all figures to common-size ratios. Industry statistics are frequently published in common-size form. When comparing your company with industry figures, make sure that the financial data for each company reflect comparable price levels, and that it was developed using comparable accounting methods, classification procedures, and valuation bases. Such comparisons should be limited to companies engaged in similar business activities. When the financial policies of two companies differ, these differences should be recognized in the evaluation of comparative reports. For example, one company leases its properties while the other purchases such items; one company finances its operations using long-term borrowing while the other relies primarily on funds supplied by stockholders and by earnings. Financial statements for two companies under these circumstances are not wholly comparable. ####################################### 6] Write short notes on the following: a) Trade-Industry Association A trade association, also known as an industry trade group, business association or sector association, is an organization founded and funded by businesses that operate in a specific industry. An industry trade association participates in public relations activities such as advertising, education, political donations, lobbying and publishing, but its main focus is collaboration between companies, or standardization. Associations may offer other services, such as producing conferences, networking or charitable events or offering classes or educational materials. Many associations are non-profit organizations governed by bylaws and directed by officers who are also members. In countries with a social market economy, the role of trade associations is often taken by employers' organizations, which also have a role in the social dialogue. Political influence

One of the primary purposes of trade groups, particularly in the United States and to a similar but lesser extent elsewhere, is to attempt to influence public policy in a direction favorable to the group's members. This can take the form of contributions to the campaigns of political candidates and parties through Political Action Committees (PACs); contributions to "issue" campaigns not tied to a candidate or party; and lobbying legislators to support or oppose particular legislation. In addition, trade groups attempt to influence the activities of regulatory bodies. While direct contributions by PACs to candidates are required in the United States to be disclosed to the Federal Election Commission (or state and local election overseers) and are public information, and there are registration requirements for lobbyists, it can sometimes be difficult to trace the funding for issue and non-electoral campaigns. Publishing Almost all trade associations are heavily involved in publishing activities, in print, and/or online. The main media published by trade associations are as follows: Association website. The association's corporate website typically explains the association's aims and objectives, promotes the association's products and services, explains the benefits of membership to prospective members, and promotes members' businesses (for example, by means of an online listing of members and description of their businesses). Members newsletters or magazines. Whether produced in print or online, association newsletters and magazines contain news about the activities of the association, industry news and editorial features on topical issues. Some are exclusively distributed to members, while others are used to lobby lawmakers and regulators, and some are used to promote members' businesses to potential new customers. Printed membership directories and yearbooks. Larger trade associations publish membership directories and yearbooks to promote their association to opinion formers, lawmakers, regulators and other stakeholders. Such publications also help to promote members' businesses both to each other and to a wider audience. A typical membership directory contains profiles of each association member, a products and services guide, advertising from members, and editorial articles about the aims, objectives and activities of the association. The emphasis of association yearbooks on the other hand is on editorial features about the association itself and the association's industry. The opportunity to be promoted in such media (whether by editorial or advertising) is often an important reason why companies join a trade association in the first place. Generic advertising Industry trade groups sometimes produce advertisements, just as normal corporations do. However, whereas typical advertisements are for a specific corporate product, such as a specific brand of cheese or toilet paper, industry trade groups advertisements generally are targeted to promote the views of an entire industry. Below are two different general types of generic advertising used by these groups. Ads to improve industry image These ads mention only the industries products as a whole, painting them in a positive light in order to have the public form positive associations with that industry and its products.. Ads to shape opinion on a specific issue These are adverts targeted at specific issues. For example, in the USA in the early 2000s the MPAA began running advertisements before films that advocate against movie piracy over the Internet. Controversy A common criticism of trade associations is that, while they are not per se "profit-making" organizations that claim to do valuable work which is ultimately for the public benefit, they are in reality fronts for price-fixing cartels and other subtle anti-competitive activities that are not in the public interest. Anti-competitive activity Trade Associations and Antitrust. For instance, under the guise of "standard setting" trade associations representing the established players in an industry can set rules that make it harder for

new companies to enter a market. @@@@@@@@@@@@@@@@@@@ b) Formation of the company 2. To register a company, you need to first apply for a Director Identification Number (DIN) which can be done by filing eForm for acquiring the DIN. You would then need to acquire your Digital Certificate and register the same on the portal. Thereafter, you need to get the company name approved by the Ministry. Once the company name is approved , you can register the company by filing the incorporation form depending on the type of company (Use quick links available on left panel in case steps are known) Step 1 : Application For DIN The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed time-frame as notified. You need to file eForm DIN-1 in order to obtain DIN. To get more information about the same click Director Identification Number Step 2 : Acquire/ Register DSC The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance programme are required to be filed with the use of Digital Signatures by the person authorised to sign the documents. Acquire DSC -A licensed Certifying Authority (CA) issues the digital signature. Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate under Section 24 of the Indian IT-Act 2000. Register DSC -Role check for Indian companies is to be implemented in the MCA application. Role check can be performed only after the signatories have registered their Digital signature certificates (DSC) with MCA. To know about it click Register a DSC Step 3 : New User Registration To file an eForm or to avail any paid service on MCA portal, you are first required to register yourself as a user in the relevant user category, such as registered and business user. To register now click New User Registration Step 4 : Incorporate a Company Apply for the name of the company to be registered by filing Form1A for the same. After that depending upon the proposed company type file required incorporation forms listed below. a. Form 1 : Application or declaration for incorporation of a company b. Form 18 : Notice of situation or change of situation of registered office c. Form 32 : Particulars of appointment of managing director, directors, manager and secretary and the changes among them or consent of candidate to act as a managing director or director or manager or secretary of a company and/ or undertaking to take and pay for qualification shares Once the form has been approved by the concerned official of the Ministry, you will receive an email regarding the same and the status of the form will get changed to Approved. To know more about

eFiling process click "All About eFiling" ============= Private Limited The following article disucsses the process of forming a limited liability company in India. The laws relating to registration of a limited liability company in India is contained in Companies ACt, 1956. Registrars of Companies (ROC), appointed under Section 609 of the Companies Act, by the Ministry of Corporate Affairs (MCA), is vested with the primary duty of registering companies and of ensuring that such companies comply with statutory requirements under the Act. A company can be registered with the ROC of the state under whose jurisdiction the proposed companys registered office will be situated. Pre- Registration Requirements A Private Limited Company must have a Paid-up capital of INR 100,000 and a Public Limited Company must have a paid-up capital of INR 500,000. A Private Limited Company must have a minimum of two directors and two shareholders and Public Limited Company must have a minimum of three directors and seven shareholders. The directors must have a valid Director Identification Number (DIN), allotted by the Ministry of Corporate Affairs. DIN is a unique identification number for an existing director or a person intending to become a director of a company. As per a recent amenedment to the Companies Act 1956, DIN has become mandatory for all the directors. DIN is unique and specific to an individual therefore only one DIN is allotted per individual even if the individual serves as director at multiple companies. Application for the allotment of Director Identification Number (DIN) can be obtained online on MCAs website. Duly completed DIN Application Form must be mailed to MCA DIN Cell, along with a proof of identity and a proof of residence with colored photo. The photo affixed on the form and the proofs attached must be certified by a Public Notary or Gazetted Officer or any certified professionals. No fee is charged for issuing DIN. This process takes approximately 3 to 5 working days. At least one of the directors should have a valid Digital Signature Certificate issued by the Certifying Authorities (CA) and approved by the Ministry of Corporate Affairs. The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic forms, in order to ensure the security and authenticity of the documents filed electronically. Every document prescribed under the Companies Act, 1956, is required to be filed with the digital signature of the managing director or director or manager or secretary of the company. Therefore at least one of directors must have a digital signature. Any person may make an application to the Certifying Authority for the issue of a Digital Signature in such form as may be prescribed by the Central Government. Digital Signatures are typically issued with one year validity and two year validity. The issuance cost varies depending on the CA. Digital Signatures can be obtained within an hour. Name Approval The first step in the process of formation is the application for MCAs approval of the desired name for the proposed company. Once, Company name is allotted, company registration documents are filed with respective ROC for registration. Application for name approval can be made online via MCAs portal MCA 21.Forms are available here. The following particulars are required to complete the form Name of the proposed company Location of registered office of the proposed company Main Objectives of the business of the company Names of Subscribers to the Memorandum of Association Proposed Authorized Share Capital of the Company DIN & DSC Select, at least four names (a maximum of Six names can be listed), and indicate the order of preference. Ensure that the company name is in accordance to the guidelines of the MCA, and also ensure the name is unique and does not resemble the name of any existing company in India. The company name must end with the words Private Limited or PVT Ltd. In order to have specific key

words in the name such as corporation, International, Hindustan, Industries, India etc., the proposed company should satisfy a minimum authorized capital criteria. Duly completed Form 1A for name approval must be must be submitted to the concerned ROC along with a fee of INR 500/-. The Registrar shall intimate, within two to three days, whether the proposed name is available or not. If the preferred name is not available apply for a fresh name on the same application. The name made available by the Registrar shall be valid for a period of six months. In case, if the company is not incorporated within this validity period, an application may be made for renewal of name by paying additional fees. Otherwise the name approval process has to be repeated by submitting new application after payment of requisite fees. Preparation of Documents After obtaining name approval from the ROC the following documents must be prepared to incorporate the company Memorandum of Association (MOA) Articles of Association (AOA) Form 1 providing details of promoters of the company Form 18 providing details of registered office of the company Form 32 providing details Directors of the company The Memorandum of Association is a document that sets out the constitution of the company. It contains, amongst others, the objectives and the scope of activity of the company and also describes the relationship of the company with the outside world. The Articles of Association contain the rules and regulations of the company for the management of its internal affairs. While the Memorandum specifies the objectives and purposes for which the Company has been formed, the Articles lay down the rules and regulations for achieving those objectives and purposes. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. Professional help is to be sought in the drafting of the MOA and AOA, as it contains the governing policies, rules and by-laws of the proposed venture. The draft must be carefully vetted by the promoters before printing and stamping. The MOA and AOA must be signed by at least two subscribers in his own hand, along with fathers name, occupation, address and the number of shares subscribed for and witnessed by at least one person. Then the MOA and AOA are required to be stamped & filed with the ROC. A stamp duty is required to be paid on the MOA and on the AOA. The stamp duty depends on the authorized share capital and varies between states. Details of applicable stamp duty can be obtained from here. eStamping facility is now available via MCAs portal. The document preparation process may take five to seven days. Submission of Documents Submit the following documents to the ROC with the filing fee and the registration fee: The stamped and signed Memorandum and Articles of Association (3 copies). Form-1, 18 & 32 in duplicate. Any agreement referred to in the Memorandum & Articles. Any agreement proposed to be entered into with any individual for appointment as Managing or whole time Director. Declaration of Compliance by an advocate or company secretary or chartered accountant or director, manager or secretary of the company Name availability letter issued by the ROC. Power of Attorney authorizing a person, on behalf of subscribers, any documents and papers filed for registration. The power of attorney should be given on Non-Judicial stamp paper of appropriate value and shall be submitted to the Registrar Payment of Registration Fees The fees payable to the Registrar at the time of registration of a new company varies according to the authorized capital of a company proposed to be registered. Payment for the Registration and Filing Fee

must be made by Demand Draft/Bankers Cheque if it exceeds Rs.1000/. Obtaining Certificate of Incorporation The ROC will issue a Certificate of Incorporation after careful review of documents submitted. Section 34(1) cast an obligation on the Registrar to issue a Certificate of Incorporation, normally within 7 days of the receipt of documents.A Private Limited Company can start its business immediately on receiving the Certificate of Incorporation. @@@@@@@@@@@@@@@@@@@@@@ a) Market Share Analysis Market share analysis is a part of market analysis and indicates how well a firm is doing in the marketplace compared to its competitors. six factors to help estimate the value of market share : unit or dollar sales, user base (since piracy and brand switching effect), market definition (scope of definitions), scope of denominator (which other brands included), time frame length, product definition (brand, product line, or strategic business unit). A market share analysis needs to take into account the following: Total Market Size refers to the annual business volume in currency or in number of transactions; Market Growth Rate refers to the Compounded Annualized Growth Rate (CAGR) taken over a period of 3 to 5 years; Market Share is the breakup of market size in percentage terms, to help identify the top players, the middle and the "minnows" of the marketplace, based on the volume of business conducted; Market Segmentation Some of the factors that determine the market are price, quality, speed of service, ease of maintenance, and points of distribution. By mapping on quality and price parameters, it is possible to identify graphically the spaces which are crowded by service providers and which are the relatively empty spots; Key Players i.e.the top players in each segment of the market. The extent to which they provide premium quality, or premium service or price advantage, can help identify future target segments; Swot Analysis. The strengths of players as well as weaknesses/areas of improvement are needed to combat the onslaught in a marketing warfare. Strength and weakness include brand equity, geographic presence, strong management/leadership, technological edge, and patent/copyrights. Emerging Opportunities should be identified which could make the market grow faster/larger or acquire business more easily. Similarly, are there threat factors that could reduce the total market size. These could be due to regulatory guidelines, changes in fashion trends, consumer preference, macro economic events like currency crisis, import/export, war, natural calamity, or demographic shift; Business Continuity Plan: While planning for market share analysis, the worse must be planned for to ensure continuity of the concern in the event of a calamity. Companies which have a continuity plan usually sustain shocks better and ensure achievement of targeted market share. Target Market Share: Based on the above analysis, it is possible to arrive at the overall market size for the assessment period, and thereby decide on the volume of business the firm targets to achieve during the period. This helps determine the firm's targeted market share. This also helps budget for activities like budgeting for R&D, sales promotion, marketing, and training. ======================================================= Understanding market share is one of the most important metrics used by executives in any business. Through Market Share Analysis methodology, clients see how share is allocated among MARKET providers in key markets. Our detailed analysis of how provider revenue is allocated reveals what types of solutions are succeeding, which are trailing and where opportunities exist for providers to take additional share.

Other Views of Market Share Analysis We will from time to time examine markets from different perspectives to enhance our understanding of them and identify shifts which may not be evident from examination of revenue alone. Although revenue is the primary basis for our estimates of market share, metrics such as "seat share" may be used as an adjunct to revenue when looking at different markets. How Do You Use Market Share Analysis? End-user clients depend on our Market Share Analysis to validate their evaluation of a markets leading providers. Technology providers use our share analysis to better understand their own market position. The timeliness of our share data gives clients confidence in using it to support their important business decisions. Many markets are updated quarterly. All are updated annually. How Does Market Share Analysis Work? Our approach to Market Share Analysis combines primary surveys and vendor briefings with secondary research such as public financial disclosures, industry trade association material and government statistics. Multiple data points ensure that the statistics we report are objective and accurate. Our market share methodology has quality checks in place to make sure potential double-counting across sectors doesn't happen. It's another process we have in place to ensure that we accurately quantify market share, helping you make the most informed decisions possible. Any estimate of market share whether based on revenue or another metric is a combination of fact and expert judgment; backed by a methodologically sound research process. Clients are assured that even when we diverge from our standard of revenue-based share that our estimates are well supported. What is market share analysis for? Company or brand sales, measured in volume or in value, are the most direct measures of the market behavioural response. Sales analysis can be misleading, however, since it does not reveal how the brand is doing relative to competing brands operating in the same reference market. For example, an increase in sales may be due to a general improvement in market conditions and have nothing to do with the brand's performance, or the increase may be hiding a deterioration of the brand's position, for instance if it has grown, but less than its rivals. To be useful, sales analysis must therefore be complemented by a market share analysis. The reason for measuring market share is to eliminate the impact of environmental factors, which exert the same influence on all competing brands and thus allow a proper comparison of the competitive power of each. How is market share calculated? Market share is simply calculated as follows: Calculating market shares assumes that the firm has clearly defined its reference market, i.e. the set of products or brands that compete with it. Irrespective of the definition adopted for the reference market, various measures of market share can be calculated: Unit market share company or brand sales in volume expressed as percentage of total sales of the reference market. Value market share calculated on the basis of turnover rather than sales in units. A market share in value is often difficult to interpret because changes in market share reflect a combination of volume and price changes. Served-market share calculated relative to sales in the market segment(s) addressed by the firm (rather than relative to the total reference market). Note that the served-market share is always

larger than overall market share. Relative market share compares the firm's sales to that of its competitors, thus excluding the firm's own sales. If a firm holds 30% of the market, and its top three competitors hold respectively 20, 15 and 10%, and the others 25%, relative market share will be 43% (30/70). If relative market share is calculated by reference to the top three competitors, then the firm's relative market share is 67% (30/45). Relative market shares above 33% are considered to be strong. Relative market share to leading competitor is calculated by reference to the leading competitor's sales. In the previous example, the dominant firm has a relative market share of 1.5 (30/20). The relative market share of the other firms is obtained by dividing their market share by that of the leading competitor, i.e. 0.67, 0.50 and 0.33, respectively, in this example. Limitations the notion of market share needs to be used with caution, keeping the following considerations in mind: The level of market share depends directly on the choice of the basis of comparison, i.e. on the reference market. It is important to check that this basis is the same for all the brands. The hypothesis that environmental factors have the same influence on all brands is not necessarily verified. Some brands may be better or less well placed with respect to some environmental factors. When new brands are introduced into a market, the share of each participant must sales unit Totalsales unit A Brand= share Market necessarily drop, without there being any bad performance, even if some brands resist the entry of a new competitor better than others do. Market shares can sometimes fluctuate because accidental or exceptional factors, such as a large order. Sometimes the firm may deliberately provoke a drop in market share because, for example, a distribution network or a market segment is being abandoned. In addition, measuring market share can raise problems depending on the availability of the necessary information. To measure served-market share implies that the firm is in a position to evaluate total sales in each segment. Similarly, relative market share assumes knowledge of sales achieved by direct competition. Obtaining this information varies in levels of difficulty from sector to sector. In the field of consumer goods, market shares are available through syndicated consumer or dealer panels or through scanning diary panels. In the other fields, in cases where government organisations and trade associations do not provide this information, it is up to the marketing information system to arrange how to purchase or to create this information, which is vital for tracking sales performance. Quality of market share analysis Quality market share analysis helps predict future performance. The critical question addressed is: What makes up our market share? Traditional market share measures in units or in value should be complemented by an analysis of the customer base, as shown in the following examples (see Table Web 10.1), where two competitors with the same market share are compared. Table Web 10.1 Quality market share Analysis Example number Market share and customer base Brand A Brand B 1 Market share 30% 30% Composition of customer base: : High profit 15% 5% Switchable 15% 50% Unprofitable 5% 15% Loyal 65% 30%

Loyal 65% 30% Market share 30% 30% Composition of customer base: Growers 40% 20% Maintainers 25% 30% Decliners 35% 50% The question is: Which 30% market share is preferable? Looking at example 1, Brand A clearly has: 2 Less risk with fewer 'switchable' customers. A stronger financial position fuelled by more 'high-profit' customers. Fewer 'unprofitable' customers draining its resources. Competitor B's outlook is not so bright. With few high-profit customers and 50% of its customer base at risk in the switchables category, we can anticipate flat or declining sales and unattractive profitability. In example 2, similar analyses of the customer base can be made, for instance, on how many customers are growing, maintaining or declining in their spending. Market share movement analysis Consumers and dealers panels provide detailed information on market shares by region, segment, distribution network, etc. Such data allow the implementation of more refined types of analysis, used to interpret gains or losses in market shares. Parfitt and Collins (1968) have shown how to decompose market share into a number of components, which help to interpret and to predict its development. Penetration rate is the share of buyers, i.e. the percentage of buyers of brand x compared to the total number of buyers in the reference product category. Exclusivity rate, is defined as the share of total purchases in a product category reserved for brand x. This rate is a measure of the loyalty attached to brand x, given that buyers have the possibility of diversifying their purchases and acquiring different brands in the same product category. Intensity rate compares average quantities purchased per buyer of brand x with average quantities purchased per buyer of the product category. A brand's market share can be calculated from these three components as follows: Market share = Penetration rate Exclusivity rate Intensity rate Let x denote the brand and c the reference product category to which x belongs. Let us also adopt the following notations: Nx = Number of buyers of x; Nc = Number of buyers of c; Qxx = Quantity of x purchased by buyers of x ; Qcx = Quantity of c purchased by buyers of x ; Qcc = Quantity of c purchased by buyers of c . It can be verified that Market share = cccxcxxcxxxxcxccxx/NQ/NQ/NQ/NQNNQQ = To express market share in value, a relative price index must be added. This is the ratio of the brand's average price to the average price charged by all competing brands. Explaining market share movement The definition of market share outlined above can be generally applied. It permits the identification of the possible causes of observed movements in market share. The following are possible explanations of a fall in market share: The brand is losing customers (lower penetration rate). Buyers are devoting a smaller share of their purchases of the product to this particular brand (lower exclusivity rate). Buyers of the brand are purchasing smaller quantities compared to the quantities bought on average by buyers of the product (lower intensity rate).

By tracking these market indicators over time, the market analyst can identify the underlying causes of market share changes and suggest corrective measures accordingly. Measures of market share can be used from two different perspectives, as an indicator of competitive performance or as an indicator of competitive advantage. In the first case, market shares should, as much as possible, be calculated over finer divisions, i.e. by segment, by distribution network or by region. In the second case, a more aggregate basis would be more suitable because it would better reveal the strength of the market power held by the firm and the possible existence of economies of scale or of learning curve effects.

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