404 Entrepreneurship Management – QUESTION BANK

Q: 1 Write short notes on (any four): - 16

a) McClelland’s Acquired Need Theory.
According to him a person acquires three kinds of needs as result of his life experience.
(a) Need for Affiliation – This refers to establishing & maintaining warm & friendly relationship
with fellow human beings.
(b) Need for Power – This refers to one’s desire to dominate & influence others by using physical
objects & actions.
(c) Need for Achievement – It is one’s desire to accomplish some thing with own efforts. This
implies one’s will to excel in his/her efforts.
McClelland suggested that these three needs may concurrently be acting on an individual. In case of an
entrepreneur, the high need for achievement is found as the dominant factor. As per him people with high
need for achievement can be characterized as follows: -
(a) They set moderate, realistic & attainable goals
(b) Prefer situations in which they find solutions for solving personal responsibilities.
(c) Need concrete feedback on how well they are doing
(d) They need achievements for attaining personal accomplishment.
(e) They look for challenging tasks.

(b) Monopolies & Restrictive Trade Practices Act.

The principle objectives to be achieved through this act are: -
(i) Prevention of concentration of economic power to common detriment, control of monopolies.
(ii) Prohibition of monopolies & restrictive & unfair trade practices.

The MRTP commission set up for the purpose takes appropriate action in case of unfair & monopolistic
nature of trade practices. An individual consumer or a group of consumers can approach the
commission in case they observe violation of norms laid down by the govt.

(c) Purpose & conduct of ‘Achievement Training’ for entrepreneurial development.

Achievement motivation training should be designed to increase the achievement orientation of the trainees with
the idea that positive behavior, such as striving for excellence, learning from feedback & moderate risk-taking is
initiated. Likewise it should strengthen the ability of an individual to generate alternatives as well as to solve
problems creatively. It should also develop the ability to set & define goals in life. As such, entrepreneurship
development should be viewed as behavior-oriented. One of the factors contributing to success of this training
should be that it is experience-based. In entrepreneurship training, learning by discovery is usually most preferred.
Here one is able to learn from one’s actions & behaviour in training; this being the best way to learn as it leaves a
lasting impression on the learner.
The overall objective of training should be to make the entrepreneur more professional. Managerial skills
development should also form the part of training. For any entrepreneurship development program to be
meaningful, it is important not only to motivate the trainees, but also to provide them all the skills necessary to
run the business successfully.
 (d) Factors affecting export endeavors of small scale industries.
• Technological Constraints – The technology used by Indian SSI units are not the latest ones. Thereby
the products of SSI do not compare well in with products in the international markets. There has not
been much focus on research & development on high technology as regards production in small scale
units. Majority of small scale units produce for domestic market & do not want to invest on higher
technology. Efforts by the government have also been lacking in this regard.
• Size Content – The small size of production units limit their production primarily for domestic use only.
Small scale units operating on small scale do not want to venture into big investment options & take the
risk of uncertainty & remain content with consumption in domestic market where they are assured of
demand.
• Inability to take on Promotional Activities – Due to lack of resources required for competing in world
market with multinational, many small scale units prefer to sell their products to trading agencies rather
than explore their worth in international markets. Moreover, it is difficult for a small entrepreneur to set
up his own marketing & distribution channels in foreign land where big players have established
themselves well. This issue has been appreciated by the Government & measures are being instituted to
support export activities by small scale entrepreneurs.

(e) Intellectual Property Rights.

Appropriation of business idea and its deployment in products and value chain involves knowledge assets that
form the basis on which an entrepreneur creates value. These knowledge assets are called intellectual capital.
Tangible aspect of this knowledge is called intellectual property.
• This intellectual capital being the key to competitive advantage and profitability, in free market economy,
it is prone to be utilized by the competitors.
• Enterprises protect their intellectual property assets through technology and market related actions and
through legal means also.
• Loss of knowledge to competitors diminishes the value an entrepreneur derives from the intellectual
capital or the exclusive business idea he has generated. When competition is attractive, competitors
have strong incentive to appropriate the knowledge developed by other firms.

Loss of intellectual property to competitors may happen in following manner: -

• Imitation – Competitors try to derive benefit from the investments made by innovators, without any
expenditure of resources.
• Obsolescence – Competitors may engage in innovations and produce a superior product or service as a
substitute to a firm’s production or services.
• Infringement or theft – competitors may infringe or even steal a firm’s knowledge assets through
espionage.

PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

Globalization of technological environment has brought complex challenges for firms managing their intellectual
property. Control of these activities can be accomplished through following means: -
• Unilateral Steps – A country takes an independent step to protect its citizens from piracy activities by (a)
patent, copyright & trademark laws, (b) custom service regulation to block import or export of unauthorized
material.
• Bilateral Agreement – Between two nations
• Multilateral Agreements – Many countries agree to conform to common policy framework to discourage
piracy of intellectual capital.
 (f) Preliminary & Pre-Operative (P & P) Expenses in estimating cost of the Project.
Many administrative, legal & financial expenses are incurred before the enterprise commences production. Since
these expenses are incurred prior to commencement of the commercial production, they do not form part of first-
year income & expenditure account. These expenses do not get counted under any specific head & are placed
under P & P head. Preliminary expenses are: -
(a) Establishment charges (salary & administration expenses)
(b) Rent, rates & taxes
(c) Travel
(d) Interest prior to commencement period.
(e) Insurance during installation period
(f) Mortgage expenses (stamp duty, registration & other charges in respect of loan)
(g) Trial production cost
(h) Statutory deposits (telephone, electricity, water etc.)
(i) Bureau of Indian Standards, Pollution Board, Diesel issue permit & other expenses
(j) Processing fee of financial institution
Elaboration – Pre-operative expenses & trial run need a little more elaboration. Assuming the enterprise has
taken a term loan of Rs. 10.00 lacs. The loan is drawn as follows: -
Jan 2009 - 3.00 lacs
Mar 2008 - 2.00 lacs
Jul 2008 - 3.00 lacs
Beginning Sep - 2.00 lacs
Commercial production starts only by end of Sep 08. Interest will have to be paid on above loan installments for
the period till such time production starts. Assuming interest rate of 14%, amount to be paid during construction
period will be as under: -
Jan to Sep on Rs 3.00 for 9 months - 31,500/-
Mar to Sep on Rs 2.00 for 7 months - 16,333/-
Jul to Sep on Rs 3.00 for 3 months - 10,500/-
Sep on 2.00 for 1 month - 2,333/-
-----------
60,666/-
The other aspect of trial run – trial production run entails expenditure in terms of raw material, wages for skilled
& unskilled workers, utility services, transportation & many other unforeseeable expenses which add to cost while
there is no income for the enterprise.
There can be delays in occurrence of various activities & events which may adversely affect the commencement
of the project. This will lead to increase not only in P & expenses but overall project cost also. If the time table for
implementation stretches too far, it may happen that investment requirements increase to such an extent that
venture does not remain profitable any more. Since most of the activities are interconnected, delay in one may
impinge on completion of the other. It will be a good idea to seek advice on such issues with other entrepreneurs
who may provide genuine practical tips.
Q: 1 Write short notes on (any four): - 16
(a) Factors affecting export endeavours of small scale industries. (REAPETED)
(b) High Need for Achievement, Corridor principle & Internal Locus of Control as typical
characteristics of entrepreneurs.
Psychologist David C McClelland has argued that entrepreneurs tend to have high need for achievement
(nAch). Such individual gravitate towards situations in which they can achieve results through their own
efforts, pursue moderately difficult goals & receive immediate feedback on how they are doing. Though high
nAch is found in performing managers, salespersons, professionals etc, it remains the most significant
ingredient in entrepreneurial success.
Another characteristic that has been found in entrepreneurs is an internal locus of control. Such people tend
to have belief that that they control their fate largely through their own efforts. This kind of belief guides
other high performer managers, professionals, salespersons etc. also.

This is the corridor principle which says that the process of beginning a new venture helps entrepreneurs
visualize other opportunities that they could not envision or take advantage of until they started the initial venture.
Understandably individuals who start their entrepreneurship at lower age are better placed to exploit the corridor
principle because of their potentially longer career.

(c) Objectives of Entrepreneurship Development Programmes.

Basic objectives of an entrepreneurial program can be summarized as follows: -
(a) To develop & strengthen their entrepreneurial quality/motivation.
(b) To analyze environment relating to small industry & small businesses.
(c) To expose them to the latest technological & other developments which
directly or indirectly affects them.
(d) To select project/product.
(e) To formulate project.
(f) To understand the process & procedures of setting up of small enterprise.
(g) To know & to influence the source of help/support needed for launching the
enterprise.
(h) To acquire basic managerial skills.
(i) To impart basic customer education & marketing & sales.
(j) To know the pros & cons of being an entrepreneur.
(k) To acquaint & appreciate the needed social responsibility & entrepreneurial
discipline.
Analysis has revealed that the sequence of development in individual personality, ability & capabilities in
emergence of people who opt for entrepreneurial career & who succeed in setting up a successful enterprise
follows the typical pattern: -
(a) Entrepreneurial quality/motivation.
(b) Capability for enterprise launching/resourcing.
(c) Ability for enterprise management.
(d) Some of the responsibilities to the society that promote/support them.
To encourage entrepreneurship, it is necessary to create a favourable climate & make available friendly support
systems. Essentially the task of developing entrepreneurship comprises of: -
 (a) Identifying & carefully selecting those who could be developed as entrepreneurs;
(b) Providing appropriate atmosphere, training aids & qualified & trained instructors;
(c) Developing their entrepreneurial capabilities;
(d) Ensuring they have viable project;
(e) Equipping them with basic administrative, financial & managerial capabilities; &
(f) Helping them secure necessary financial & infrastructural assistance.
Key to success lies in providing each of the above in an integrated manner since partial assistance in the form of
training or finances may not help the potential entrepreneur.

(d) General Agreement for Tariff & Trade (GATT)

The General Agreement on Tariff & Trade (GATT) was established in 1947 as a contact between the govts of 23
nations, including India. Since then the membership (Contracting Parties) of GATT has expanded to 177
countries. The GATT is meant to provide: -
• A set of rules for orderly conduct of trade
• A process of trade liberalization, by which investments, job creation & trade can be promoted.
GATT functions in three ways: -
• Formulates rules which are agreed upon by all the CPs for conducting trade;
• It acts as a forum of trade negotiations through which the trade is liberalized & made more predictable &
• It operates as an international ‘Court’ in which CPs resolve their trade disputes.

There are three fundamental principles which govern GATT. (i) Nondiscriminatory, (ii) Reciprocity & (iii)
Transparency.

• Nondiscrimination requires that once goods have entered a market, they must be treated no less
favourably than equivalent domestically produced goods.
• Principle of reciprocity requires that if one CP gives a trade concession to other, the latter has to
reciprocate with an equivalent concession.
Transparency principle prohibits a CP from protecting its industries through quantitative restrictions. If
any domestic industry has to be protected, it must be protected through custom tariff.

) Inventory Management
Related to production management is the issue of control of inventory of materials; raw material, consumables,
machine parts, office items & most importantly the finished goods. A reasonable level of these items must be
maintained to ensure uninterrupted & smooth functioning of production unit. Simultaneously it is important to
balance out the requirement judiciously & the capital blocked in maintaining the level.
Why do we Maintain Inventory – There are several reasons to carry an inventory: -
(a) To protect against uncertainties in supply, demand & lead time.
(b) To maintain independence of operations.
(c) To allow flexibility in production scheduling.
(d) To allow economic production & purchase.
(e) To provide for transit.
Inventory Decisions – Decisions to maintain inventory are based on two basic issues while dealing with
inventories at different stages of production: -
(a) How much of an item to order when inventory of that item is to be replenished.
(b) When to replenish the inventory of that item.
Based on these decisions, Inventory systems are two types:
(a) Fixed-order quantity models. These are also called Economic order quantity (EOQ) & the Q model.
(b) Fixed time period models are also called Periodical review system & P models.

(f) Purchasing a Franchise

The third major approach to developing a small business is purchasing a franchise.
A franchise is a continuing arrangement between a franchiser & a franchisee in which the franchise’s knowledge,
image, manufacturing or service experience & marketing techniques are made available to the franchisee in return
for the payment of various fees or royalties & conformity to standard operating procedures.
A franchiser is usually a manufacturer or sole distributor of a trademarked product or service who typically has
considerable experience in the line of business being franchised. Recent evidence indicates that emphasizing
franchising as an expansion strategy is likely to have positive effect on the franchiser’s growth & survival.
A franchisee is an individual who purchases a franchise and in he process is given the opportunity to enter a new
business hopefully with an enhanced chances of success. Big, successful franchisers are McDonald’s, Pizza Hut,
Bata shoes & so many others.
Franchises are normally considered to be small businesses, but not new ventures, since the creation process is
largely controlled by the franchiser, rather than the franchisee.
The primary advantage of franchising is that the franchisee gains access to the proven business methods,
established reputation, training & assistance of the franchiser so that the new venture risk is minimized. On the
other hand disadvantages are – lack of independence in regard to making major modification, considerable
difficulty involved in cancellation of franchise contracts, likelihood of continual monitoring by the franchiser &
substantial expenses that may be involved in establishing a franchise with a well known company.

Q: 1 Write short notes on (any four): - 16

(a) Management of product quality in a production unit.
An entrepreneur must define quality of his product as ‘conformation to customer satisfaction’. Product quality is
both aesthetic & functional & both have equal significance for customers to get attracted toward the product.
There are three areas you have to pay attention to maintaining quality of your product: -
(i) Suitability & quality of inputs – raw material, skilled worker.
(ii) The manner in which inputs are delivered, stored & converted into a product or service – processes
(iii) The manner in which the final product is presented & delivered to the customer, installed, used by
him – packaging, timely availability, after sales service.
To see that product quality is maintained, there are three stages of inspection: -
(i) Inspection at the time of receiving
(ii) Inspection while product is in process
(iii) Inspection of finished product.
Types of Inspection & Cost Involved
All items – raw material, bought-out parts, sub-contracted components, as well as those manufactured in-house
must be verified for quality before passing them to next operation or process. There are two types of inspections
depending upon the product type, customers’ acceptance, cost involved in inspection, possibility of defect
creeping in during any process etc.
(a) Cent per cent inspection – Every piece is inspected against pre-set specifications & then
only passed to next operation. In some cases selected components of the product may be inspected,
whereas in others inspection of all components of all pieces of product is carried out. This is highly
cost intensive & time consuming.
 (b) Sampling Inspection – In these statistical methods are used wherein quality of the lot is
decided based on inspection results of a few pieces drawn from each consignment. Based on sample
results, the whole consignment is accepted or rejected.
Total Quality Management - TQM is the way of managing future & is viewed entirely from customer’s point of
view. It is the way of managing business process at every stage, internally & externally to ensure complete
customer satisfaction. TQM is a method by which management & employees get involved in continuous
improvement of production of goods & services. It encompasses all functions, activities, employees & processes
of an organization.
“A system of continuous improvement employing participative management techniques & centered on the
needs of customers.”
Key Principles of TQM
(a) Focus on customers satisfaction
(b) Continuous improvement of quality
(c) Involvement of employees
(d) Leadership in motivating employees to put in their best
(e) Systematic improvement of operations
Training & education

(b) Venture Capitalist.

WHAT IS VENTURE CAPITAL?

By definition, venture capital is thought of as a creative capital which is expected to perform economic functions
different from other investment activities which primarily serve as expansion capital. This is some thing
entrepreneurs were ignoring in India all these years. Venture Capital is “equity support to fund new concepts that
involve high risk & at the same time has high growth & profit potential”.
It involves the process of building & financing successful self-sustaining companies very often from the scratch.
To put it briefly, it can be called as an early stage financing of new & young companies who want to grow fast.

FEATURES OF VENTURE CAPITAL

Essentially the objective of venture capital funding is to assist professional & small & medium entrepreneurs to
launch enterprise with definite promise. It provides the necessary encouragement to convert an innovative
business idea into a commercial venture.
(a) Areas of investment - Investments are generally made in high-tech areas using some new technology
or producing innovative goods using new technology
(b) High risk factor - As a matter of fact any individual venture investment is enormously risky &
chances of failure are quite high. In venture capital schemes, the business risks are usually higher,
assessment of progress more difficult & evaluation judgment more uncertain. This is because the
technology involved in such projects is untested & unproven. These are the projects that would not be
accepted by bankers as they involve high mortality risks & long gestation period.
(c) Types of risks - A venture capitalist, therefore takes four types of risks – management risk, product
risk, market risk & operations risk. If these risks are successfully tackled, then there is a high
potential for substantial rewards.
(d) Return on investment - Returns on venture capital investments are not liquid in the sense that they
are not subject to repayment on demand. The investor expects return only through the ultimate
success of the venture & consequently capital gain. Investor therefore becomes partner both in profit
& loss of the venture.
 (e) Continuous involvement – According to experts, success in venture capital most often comes from
creative partnership in which investor’s experience in the process of company formation is combined
with the entrepreneur’s zeal & enthusiasm, management skills & sizeable knowledge of market & the
technology. We may say that venture capitalists do not merely invest, they build companies. They
remain in active participation of the business because of the fact that the risks are high & the presence
of venture capitalists helps in protecting his investment & reducing uncertainties.
(f) Supporting Entrepreneurial talents – An important role of a venture capitalist is to encourage,
nurture & grow an entrepreneur where he/she has limited resources, risks are high but potential
rewards are also high, gestation period is long & where the project can not get financing from
traditional sources.
(g) Long term investment – Venture capital schemes involve long term investment, because a major
share of the capital is given to the entrepreneur in early stages & it takes time for him to create that
much profit.

SOURCES OF VENTURE CAPITAL FINANCING

In past few years, growth of venture capital firms has been quite encouraging. Opening up of business
opportunities, globalization of market, tremendous success of India’s IT sector have given huge incentives to
venture capitalists. Today there are many sources available that may be general or specialist in nature. Common
sources of investment are: -
(a) Independent Private Funds – These are the traditional sources, still important but not dominant.
These may be merchant banks or private venture capitalists that have adequate fund to fund to risk.
Private venture capital funds make investments mainly by thoroughly screening the business plan. In
fact the expertise of the management team of the enterprise may lead venture capital investment in
canalizing enterprise’s direction in a particular specialization.
(b) Clearing Bank Captive Funds – These funds are generally established by commercial banks to invest
in businesses which do not meet their regular loaning criterion. Such funds are managed by the
bank’s venture investment management team.
(c) Captive Institutional Funds – Starting from 1970s, several institutions like insurance companies,
service sector companies have also started investing in venture capital business.
Private Foundation Funds – There area many family or group owned foundations or trusts who extend financial
assistance in terms of venture funding to bright, energetic & needy young entrepreneurs. The assistance could be
in form of initial capital funding or WC funding or even new innovative venture by an existing enterprise.

(c) Achievement Training. (REAPETED)

(d) Intellectual Property Rights(REAPETED)

) Channels of distribution

There are primarily four types of distribution channels: -

(a) Manufacturer to Consumer – like Eureka Forbes selling vacuum cleaners, aqua guard water filter,
Hindustan Unilever selling water filter etc.
(b) Manufacturer-Retailer-Consumer – like TVs, Washing machines, Refrigerators etc.
(c) Manufacturer-Wholesaler-Retailer-Consumer – all common user consumable items like soaps,
tooth pastes, detergents etc.
(d) Manufacturer-Agent (Sole selling Agent) - Wholesaler-Retailer-Consumer – generally food
products, ready made garments, branded toys etc.
(e) Mail order service is also becoming quite popular these days.
For selecting the right channel, you should consider the following: -
(a) The kind of coverage your product needs. – daily usage items need wide coverage
(b) The kind of control you want to have on distribution chain.
(c) An economical distribution system with maximum market reach.
(d) Types of products you are manufacturing – for common consumables there need to be many
distribution channels, while for processed food, technical items a short distribution chain is preferred.

Expenditure Incurred in Establishing a Distribution System – You must consider following aspects to
establish & consolidate your product distribution system: -
(a) Trade discount
(b) Packing cost
(c) Inventory cost
(d) Warehousing cost
(e) Transportation cost
(f) Insurance cost
(g) Cost of finance, if any.

(f) Purchasing a Franchise(reapeted)

Q: 1 Write short notes on (any four): - 16

(a) Life path circumstances, those have an effect in the making of an entrepreneur
Several types of experiences or life-paths increase the probability of an individual take up entrepreneurship.
Major factors are discussed as follows: -
(a) Unsatisfactory Work Environment – This fosters discontent in the worker & impels him to think about
leaving & starting a new venture. Reasons for discontentment in current job may be lack of job satisfaction or
not pulling on well with the management or even lack of potential for growth in the company as the worker
assesses himself.
(b) Negative Displacement – Negative displacement or disruption occurs when circumstances in the life of
a person cause him to make major changes in his life-style. These situations could include being fired from
the job or downsized, getting a divorce, losing lifetime partner, emigrating to another country, natural
calamities forcing displacement etc. These circumstances may prove to be catalyst for an entrepreneur.
(c) Career Transition – These are the circumstances in which a person moves from one career-related
activity to another activity. Such situation could be acquiring a professional qualification, retiring from
regular service, finishing a major project, grown up children leave home & become independent relieving
parents of their responsibilities etc.
(d) Positive-Pull Influencers – Positive-pull influencers are individuals such as mentors, investors,
customers or potential partners who urge an individual to start a new venture. There are numerous examples
on this account.

(b) Retailing Services in India.

Retailing is the final link in a product supply chain to customers. In India, retailing is one of the fastest growing
industries. It is estimated to be the largest single sector (after agriculture) both in terms of turnover as well as
employment. After leading the IT bandwagon, India is poised to grow as a retail hub.
The Indian retail sector is highly fragmented with over 12 million retail outlets having average size of less than
500 sq. ft. Out of the total retail outlets in the country, nearly 40% relate to food items. Since, 1990's big industrial
houses like Rahejas, Piramals, Tatas, etc. have started entering the retail industry. As a result, the traditional
formats of kirana stores, hawkers, grocers, etc are being gradually taken over by the modern formats of
department stores, discount stores, malls, supermarkets, convenience stores, fast food outlets, specialty stores,
warehouse retailers, hypermarkets, etc.
As per the estimates, of the Rs.12,00,000 crore retail market, food & grocery retail is the single largest block
estimated to be worth Rs.7,43,900 crore, but the share of organized sector in this is miniscule. Clothing, textiles
and fashion accessories constitute the second largest block. Today, organized retail constitutes approximately 3%
of the total retail sales in the country and is growing up at a fast rate due to the entry of corporates into the sector.
It is expected to reach $100 billion by 2015 and is likely to account for 12-15 per cent of the total retail sales by
2015.
The investment opportunities in the domestic retail industry lay in most of the product categories particularly,
food & grocery (the largest category); home improvement & consumer durables; apparel & eating out; supply
chain infrastructure (cold chain and logistics); etc.
But, it is believed that the Indian format of retailing is going to retain its own touch, with numerous small
retailers and other traders being located in the city centres and the large organized retailers coming up in
the suburbs of the metropolitan cities. Small retailers would continue to occupy a niche position as
corner-side shops, because with personalized services and convenient walking distance they are able to
provide a special kind of service which will always be demanded.

(c) Objectives of Entrepreneurship Development Programmes. (REAPETED)

(d) Venture Capitalists (REAPETED)

(e) Means of finance for a project (include less common sources also)
How would you meet the expenses relating to project cost? There are common sources, as well as less utilized
sources. Public issues, bought-out deals & other such avenues are normally beyond the reach of a small
entrepreneur, so we are not discussing these here.
Most common Types of Finance
Term Loan – This type of loan facility is extended by State Financial Corporations in some cases commercial
banks against the strength of the project & after carrying out project appraisal. If the project cost is large (say, in
excess of Rs. 1.5 crores), the loan may be granted by state level industrial development institutions or national
financial institutions. The loan is repayable, depending on the case, in five to eight years.
Subsidy – If the project implementation has social development as one of the objectives or the project is started in
remote or backward areas, central as well as state governments may extend facilities in terms of subsidizing land
cost, machinery cost, building cost etc. Amount of subsidy will depend on the location, & the project scale
(micro/mini or small scale).
Equity Capital – This is the money that can be raised by persuading friends, relatives & other persons to invest
money in the project without offering any legal assurance for payment of interest or security. In a small
enterprise, it is unlikely that others contribute money without such assurance. People may contribute based on
your reputation, your family reputation, profit potential of the project or at times even as charity if the project is
for social welfare. The financial institutions expect a certain minimum %age of project cost to come in shape of
promoter contribution; the %age may vary depending on the project features. The range of expected minimum
promoter contribution ranges from 15% - 22.5% of the project cost.
Less Common Sources of Finance
(a) Deposit or Private Loan – on mortgage of machinery or vehicles etc.
(b) Deferred Payment loan – by the supplier on payment of machinery & allied equipment
(c) Special Assistance – SC, ST, Physically Challenged, Women entrepreneurs are given encouragement
by the central or state government.
(d) Venture Finance – This is generally given in case of risky propositions or ideas. We will discuss it
later in a separate session.
Deciding on Taking Loan
While seeking money for business, one need not look at the easily available sources, but must explore possible
sources & then decide about the most suitable & proper mix of getting finance. A major problem that
entrepreneurs face is either lack of knowledge about sources of fund or inability to decide from where to get
funds. Though availability of funds is the main criteria for an entrepreneur, the terms & procedures involved in
procuring these funds need to be carefully examined in deciding the effectiveness & usefulness of those funds.
While deciding about the source of finance one must consider: -
(a) The cost of funds – terms & conditions, rate of interest etc.
(b) Time factor: (i) Period for which funds are needed (ii) time taken to obtain money
(c) Purpose for which funds are needed.
(d) Governmental regulations & norms of financial institutions.
(e) Repayment capacity & pattern.

(f) Entrepreneurship stimulants

A variety of factors have helped to stimulate entrepreneurial activities & encourage economic development in our
country. Some of these stimulants are: -
(a) Increasing focus on capital formation, making capital available to the entrepreneur to start the new
enterprise.
(b) The environment to transform scientific & technical development in to economically viable projects.
(c) Supportive government policies & programs.
(d) Availability of sufficient training facilities.
(e) Collaborative relationship between business & research efforts & easy transferability of technology to
the market place.
(f) Endeavour to create ideal climate for innovation & the entrepreneurial activities.

Q: 3 (a) What are the factors primarily responsible for an individual’s desirability and - 10
feasibility of becoming an entrepreneur?

INTRODUCTION
What makes an entrepreneur create a successful new business? Researchers, sociologists, economists have been
exploring several avenues – characteristics of an entrepreneur, life-path circumstances of an individual,
environmental factors & finally they examined the desirability & feasibility of becoming an entrepreneur which
also affects the decision to engage in entrepreneurship. Following three basic factors are mainly responsible for an
individual’s desirability & feasibility of becoming an entrepreneur.
• Personal Characteristics
• Life-Path Circumstance
• Environmental Factors
 Personality Characteristics
PERSONAL CHARACTERISTICS
One fascinating question surrounding entrepreneurship is whether entrepreneurs possess personality traits &
background experience that sets them apart from others.Perception of
Desirability New
Life Path Circumstances
(a) Personality Characteristics – Given the variety& of businesses that Venture
entrepreneurs have created,
identifying characteristics that entrepreneurs have in Feasibility
common is a formidable task. Search has yielded only a
few common personality characteristics.
Psychologist David C McClelland has argued that entrepreneurs tend to have high need for achievement
(nAch). Such individual gravitate towards situations in which they can achieve results through their own
Environmental Factors
efforts, pursue moderately difficult goals & receive immediate feedback on how they are doing. Though high
nAch is found in performing managers, salespersons, professionals etc, it remains the most significant
ingredient in entrepreneurial success.
Another characteristic that has been found in entrepreneurs is an internal locus of control. Such people tend
to have belief that that they control their fate largely through their own efforts. This kind of belief guides
other high performer managers, professionals, salespersons etc. also.
One characteristic that sets entrepreneurs apart from managers etc. is high tolerance for ambiguity, ability to
continue functioning effectively & persist even when situations are highly uncertain. Since entrepreneurship
involves starting new organizations, a great deal of uncertainty is frequently experienced. Manager may not
have the same degree of tolerance for ambiguities & uncertainties.
(b) Background Characteristics - Inquiries into child hood family environment have considered factors
like, birth order of the child & parent’s occupation. First born or the only child is considered to have greater
share of parent’s time leading to increased self confidence.
On the other hand, there is considerable evidence that entrepreneurs tend to have self employed fathers &
quite a few time self employed mothers also or jointly owned business. Having one or both parents as
business owners provides a salient incentive for potential entrepreneur.
Education & level of awareness is another important factor. Though entrepreneurs may be less educated than
managers or professional, they have accumulated good knowledge about the type of enterprise they intend to
start. It is seen that female entrepreneurs generally have high level of education.
Common range of age for entrepreneurs is between 25 – 40 years. This is not rigid though; entrepreneurs
below 25 years & up to the age of 55 years have also endeavoured to start new ventures.
Work history & related experience is a significant factor in initiating a new venture. It has been observed that
in a new venture, one of the founders had worked in the same industry for long enough to gain adequate
experience & expertise in the field. Creating new venture seems to be easier after the first one. This is the
corridor principle which says that the process of beginning a new venture helps entrepreneurs visualize other
opportunities that they could not envision or take advantage of until they started the initial venture.
Understandably individuals who start their entrepreneurship at lower age are better placed to exploit the
corridor principle because of their potentially longer career.
 Understandably individuals who start their entrepreneurship at lower age are better placed to exploit the
corridor principle because of their potentially longer career.

LIFE-PATH CIRCUMSTANCES
Several types of experiences or life-paths increase the probability of an individual take up entrepreneurship.
Major factors are discussed as follows: -
(a) Unsatisfactory Work Environment – This fosters discontent in the worker & impels him to think about
leaving & starting a new venture. Reasons for discontentment in current job may be lack of job satisfaction or
not pulling on well with the management or even lack of potential for growth in the company as the worker
assesses himself.
(b) Negative Displacement – Negative displacement or disruption occurs when circumstances in the life of
a person cause him to make major changes in his life-style. These situations could include being fired from
the job or downsized, getting a divorce, losing lifetime partner, emigrating to another country, natural
calamities forcing displacement etc. These circumstances may prove to be catalyst for an entrepreneur.
(c) Career Transition – These are the circumstances in which a person moves from one career-related
activity to another activity. Such situation could be acquiring a professional qualification, retiring from
regular service, finishing a major project, grown up children leave home & become independent relieving
parents of their responsibilities etc.

(d) Positive-Pull Influencers – Positive-pull influencers are individuals such as mentors, investors,
customers or potential partners who urge an individual to start a new venture. There are numerous examples
on this account.

FAVOURABLE ENVIRONMENTAL CONDITIONS

A number of environmental conditions appear to influence entrepreneurs. Generally, they deal with the basic
perquisites of running a business, such as adequate financing, technical skilled labour force, accessibility of
suppliers, accessibility of customers or new market, easy availability of land, transportation & support services.
Other indirect conditions those who provide support may be presence of incubator organizations, government
influences, experienced entrepreneurs, support network, proximity of universities, attitude of the population &
their living conditions etc. Incubator organizations are those whose purpose is to nurture new ventures in their
early stages by providing space, stimulation, support & a variety of basic services at reasonable charges.
Support networks typically important to entrepreneurs are moral-support network and professional-support
network. Moral support network would include family members & friends who provide continuous
encouragement, understanding & even assistance whenever needed. Professional support network encompasses
cooperative relationship with experts who provide advice & counsel that help an entrepreneur function
effectively. This type of network would include business associates, professional associations, personal
affiliations such as sports activities, civic groups, school/college alumni group etc.

PERCEPTION OF DESIRABILITY & FEASIBILITY

When all above mentioned factors & circumstances act positively on an individual in providing him
encouragement towards entrepreneurship, he increasingly perceives entrepreneurship as desirable. However, with
perceived desirability potential entrepreneur must also make a dispassionate assessment of the feasibility of
creating the new enterprise. While personal characteristics & life-path circumstances play a major role in making
this judgment, environmental conditions are a critical aspect of feasibility assessment.
 (b) What considerations will you have while formulating objectives for your project? - 6
What primary objectives do you think you must select for your project?
Project objective is an important element in project planning cycle. Project objectives are concerned with defining
in a precise manner what the project is expected to achieve & to provide a measure of performance for the project
as a whole. Objectives are the foundation on which the entire edifice or the project design is built.

Objectives
OBJECTIVES CONSIDERATIONS & PROJECT OBJECTIVES
Essential features for consideration while formulating project objectives Internal
Organization are: -
(a) Specific not general Rate of Return

(b) Not overly complex

A Scheme
(c) Measurable, tangible, verifiable
(d) Realistic & attainableSize Social Benefits

(e) Established within bounds of personal resource

(f) Consistent with resources available & anticipated for the project
(g) Consistent with organizational plans, policies & procedures
Project objectives are aimed to complete the project on time, with in contemplated cost & at a profit. Objectives
of social projects are service oriented.
Primary objectives of a project are: -
(a) Maximization of the market value of equity
(b) Maximization of net present value
(c) Maximization of rate of return at low risk
(d) Start production as planned
(e) Optimal use of resources
(f) Fulfillment of social responsibility
Q: 3 (a) Discuss the basic elements of the ‘Process of Motivation’ & describe how Maslow - 6 has
tried to explain the entrepreneurial motivation through his ‘Need Hierarchy Theory’.
Motivation is an indispensable function of management. Motivation encompasses complex aspect of human
behaviour to which contributions have been made by sociologists, social anthropologists, psychologists &
business executives. According to Dalton E McFarland, “Motivation refers to the way in which urges, desires,
drives, striving, aspirations or needs direct, control or explain the behaviour of human being”.
Motivation can be defined as a process that motivates a person in to action & induces him to continue the course
of action for the achievement of his goals. It is an ongoing process because human needs/goals are never
completely satisfied.
Basic elements of process of motivation are (i) Motive (ii) Behaviour (iii) Goal.

MOTIVATION THEORIES
Number of theories have been propounded to explain people’s behaviour relating to motivation, human life &
work. Two theories are prominently discussed: -
2. Maslow’s Need Hierarchy Theory – This theory is based on human needs. Needs are classified into a
sequential priority from lower to higher. As per Maslow, all human needs can be classified in five need-
clusters.
(a) Physiological Needs – relates to basic human needs like food, clothing, shelter, air, water & other
basic necessities of life. These needs exert tremendous pressure on human behaviour.
(b) Safety & Security Needs – After satisfying physiological needs, safety & security needs come in
to sight. These needs find expression in such desires as economic security & physical security
concerns. Entrepreneur is motivated to earn more to meet these needs.
(c) Social Needs – This need refers to belongingness with the society. All individuals want to be
recognized by others in the society & that motivates him to interact with others.
(d) Esteem & Status Needs – An entrepreneur works to attain esteem in society. The ownership &
self control over enterprise satisfies his esteem need by providing him status, respect, reputation
& independence.
Self Actualization Needs – This refers to the feeling of fulfillment. On attaining desired success level, an
entrepreneur reaches the stage of self actualization or fulfillment.

(b) Briefly explain the characteristics of an Entrepreneur. Also enumerate what

additional personal characteristics Robert Hisrich identified in an Entrepreneur
The characteristics of an entrepreneur that contribute to success are the result of his achievement motivation.
McClelland in his book “Future of Entrepreneurship in India” has identified an entrepreneur as a person with
high degree of technical competence, initiative, good judgment, intelligence, leadership qualities, self confidence,
energy, positive attitude, creativeness, fairness, honesty, tactfulness, emotional stability.
An entrepreneur with higher level of following traits stands better chances of success as compared to others: -
1. Mental Ability – This consists of intelligence & creative thinking. An entrepreneur must be able to
analyze various problems & situations in order to tackle them. He should be able to anticipate change &
prepare himself to deal with them.
2. Clear Objective – An entrepreneur should be clear about his objective as to the exact nature of goods or
services to be produced/provided & should be able to work out the subsidiary activities to be
undertaken.
3. Business Secrecy - An entrepreneur must be able to guard business secrets. He should be able to make
correct selection of his assistants.
4. Human Relation Ability – The most important personality traits contributing to the success of an
entrepreneur are emotional stability, personal relations, considerations & tactfulness. He must maintain
 good relations with his customers as well as with his employees – to motivate them to perform with
high level of efficiency.
5. Communication Ability – An entrepreneur who is able to effectively communicate with customers,
employees, suppliers & creditors is more likely to succeed than others.

Robert D Hisrich identified a few more personal characteristics that an entrepreneur should possess.
1. Commitment – An entrepreneur must be committed to achieve the goal he has set for himself. He must be
an example of commitment to his employees.
2. Motivator – He should build a team, keep it motivated & provide an environment for individual growth &
career development.
3. Self Confidence – He must have strong belief in himself, his capabilities & his capacity to deal with
unanticipated situations.
4. Long Term Involvement – An entrepreneur must be committed to the project or to his business functions
for sufficiently long duration. Thereafter he could delegate it to a already groomed competent
successor.
5. High Energy Level – Success of an entrepreneur demands the ability to work long hours for sustained
period of time.
6. Persistent Problem Solver – An entrepreneur must have an intense desire to complete a task by solving
all intermediate problems. Creativity is an essential factor in problem solving.
7. Goal Setter – He should be able to set challenging yet realistic & achievable goals.
8. Moderate Risk Taker – An entrepreneur should have the capacity to take moderate risks & he should
learn from each small or big failure.

(d) What do you understand by PAN, Assessing Year & Accounting Year?
Permanent Account Number (PAN) - PAN is an all India, unique number of 10 characters allotted by the
Income Tax Department. It is permanent for your life, and will not change with change of your address or
station, or change of your Assessing Officer, etc. A PAN number is essential for filing returns. For this, you
need to apply for a PAN card if you don't already have one. You can avail a PAN card by downloading Form
49A and submitting it in the nearest PAN facilitation centre, or by filling an online form.
Assessment Year & Accounting Year – These expressions mean the period of twelve months commencing
on the 1st day of April every year & ending on 31st March of following year. The year for which & in which
income tax is paid is called “Assessment Year” or “Income Tax Year”, while the year in respect of the income
which the tax is levied & calculated is called “Previous Year” or “Accounting Year”.

Q: 3 (a) Individual’s desirability & feasibility of becoming an entrepreneur depends upon certain
factors. Discuss these factors.

ANS-- Following three basic factors are mainly responsible for an individual’s desirability & feasibility of
becoming an entrepreneur.
 Personal Characteristics
 Life-Path Circumstance
 Environmental Factors
FIGURE chapter 1.3 slide no 4
Personality Characteristics
One fascinating question surrounding entrepreneurship is whether entrepreneurs possess personality traits &
background experience that sets them apart from others.
Personal Characteristics
 Given the variety of businesses that entrepreneurs have created, identifying characteristics that
entrepreneurs have in common is not an easy task. There are only a few common personality
characteristics attributed to entrepreneurs -
 Psychologist David C McClelland has argued that entrepreneurs tend to have high need for achievement
(nAch).
 Such individual gravitate towards situations in which they can achieve results through their own efforts,
pursue moderately difficult goals & receive immediate feedback on how they are doing. Though high
nAch is found in performing managers, salespersons, professionals etc, it remains the most significant
ingredient in entrepreneurial success.
 Another characteristic that has been found in entrepreneurs is an internal locus of control.
 Such people tend to have belief that that they control their fate largely through their own efforts. This
kind of belief guides other high performer managers, professionals, salespersons etc. also.
 One characteristic that sets entrepreneurs apart from managers etc. is high tolerance for ambiguity, ability
to continue functioning effectively & persist even when situations are highly uncertain.
 Since entrepreneurship involves starting new organizations, a great deal of uncertainty is frequently
experienced. Manager may not have the same degree of tolerance for ambiguities & uncertainties.
Life-Path Circumstances
 Several types of experiences or life-paths increase the probability of an individual take up
entrepreneurship.
 Major factors are discussed as follows: -
 Unsatisfactory Work Environment
 Negative Displacement
 Career Transition
 Positive-Pull Influencers
Favourable Environmental Conditions
 A number of environmental conditions appear to influence entrepreneurs. Generally, they deal with the
basic perquisites of running a business, such as adequate financing, technical skilled labour force,
accessibility of suppliers, accessibility of customers or new market, easy availability of land,
transportation & support services.
 Other indirect conditions those who provide support may be presence of incubator organizations,
government influences, experienced entrepreneurs, support network, proximity of universities, attitude of
the population & their living conditions etc.
Incubator organizations are those whose purpose is to nurture new ventures in their early stages of evolution
by providing space, stimulation, support & a variety of basic services at reasonable charges.
 Support networks typically important to entrepreneurs are moral-support network and professional-
support network.
 Moral support network would include family members & friends who provide continuous encouragement,
understanding & even assistance whenever needed.
 Professional support network encompasses cooperative relationship with experts who provide advice &
counsel that help an entrepreneur function effectively.
 This type of network would include business associates, professional associations, personal affiliations
such as sports activities, civic groups, school/college alumni group etc.
 (b) Discuss the principles of ‘Effectual Reasoning’. How these differ from those of ‘Causal
Reasoning’?

ANS- Effectual Reasoning: The Principles

Effectual reasoning is indeed a convincing & logical alternative to causal rationality: -
 While causal reasoning focuses on expected return, effectual reasoning emphasizes affordable
loss.
 While causal reasoning depends upon competitive analysis, Effectual reasoning is built upon
strategic partnership.
 While causal reasoning urges the exploitation of pre-existing knowledge & prediction, Effectual
reasoning stresses the leveraging the contingencies
Affordable Loss Principle
 While managers are taught to analyze the market & choose target segments with the highest potential
return, entrepreneur tend to find ways to reach the market with minimum expenditure of resources such as
time, efforts, & money.
 Several expert entrepreneurs would not do any traditional marketing, but would take the product to the
nearest possible potential customer even before it is built.
 In finding the first customer in near vicinity, whether with in their geographic vicinity, with in their social
network or with in their area of professional expertise, entrepreneurs do not tie themselves to any
theorized or pre conceived market.
 Instead they open themselves to surprises as to which market or markets they will eventually end up
building their business in or even which new market they will end up creating.
The Strategic Partnership Principle
This is another key principle where focus is more on building partnerships rather than doing a systematic
competitive analysis. Since entrepreneurs tend to start the process without assuming the existence of
predetermined market for their idea, detailed competitive analyses do not seem to make any sense to them at the
start up phase. Instead entrepreneurs focus on making partnership right from the start. In fact, the ideal beginning
for a successful startup seems to be the induction of customers into strategic partnership.
The Leveraging Contingencies Principle
This third principle of effectual reasoning is the heart of entrepreneurial expertise – the ability to turn the
unexpected into the profitable.
Entrepreneurs always live by the motto – “ready-fire-aim”. They do not spend too much time doing – ready-aim-
aim-aim, if they do so, they would never see many good things that would happen if they actually start doing &
then aim & find out where your target is.
FIGURE- chapter 1.4 slide 6,7
Causal Reasoning Vs Effectual Reasoning
Causal Reasoning
 The word “effectual” is inverse of “causal”. In general in mgt programs across the world, students are
taught causal or predictive reasoning – in every functional area for business.
 Causal rationality begins with a pre-determined goal & a given set of means & seeks to identify the
optimal – fastest, cheapest, most efficient, etc – alternatives to achieve the given goal.
 This form of causal reasoning is often called “strategic thinking”.
 Underlying all the principles of effectual reasoning is a coherent logic that rests on a fundamentally
different assumption about the future than causal reasoning.
 Causal reasoning is based on the logic – to the extent that we can predict the future, we can control it.
This is the reason both academics & practitioners in business spend enormous time, resources & energy
on developing predictive models.
 Effectual reasoning on the other hand is based on logic – to the extent we can control the future, we do
not need to predict it.
 Entrepreneurs choose to view the future thro’ effectual logic.
Q: 3 (a) List out the schemes of benefits & incentives Indian Government has extended for the
growth of small scale entrepreneurship in our country.

ANS--- E D Programme Organizations

Steps taken by the government in creation of institutional infrastructure for entrepreneurship development: -
 Entrepreneurship Development Institute of India (EDII) was established in March 1983 at
Ahmedabad under financial institutions like IFCI, IDBI, SBI etc. as a resource organization at
national level.
 The same year National Institute for Entrepreneurship & Small Business Development
(NIESBUD) was raised in NOIDA, near Delhi with the objective of co-coordinating activities
related to entrepreneurship & small business development.
 Rural Entrepreneurship Development Institute (RED) was established in Ranchi in 1983.
 National Institute of Micro Small & Medium Enterprise (NIMSME) established in Delhi in 1960
later shifted to Hyderabad in 1962 as Central Industrial Extension Training Institute (CIETI).
 The National Science & Technology Entrepreneurship Development Board (NSTEDB),
established in 1982 by the Government of India under the aegis of Department of Science &
Technology, is an institutional mechanism to help promote knowledge driven and technology
intensive entrepreneurship.
 Aim of the Board, having representations from socio-economic and scientific Ministries/
Departments, is to convert "job-seekers" into "job-generators" through Science & Technology
(S&T) interventions.
 Indian Institute of Entrepreneurship (IIE) was established in the year 1993 at Guwahati by the
Ministry of Small Scale Industry, as an autonomous national institute.
 The institute started its operations from April 1994 with the cooperation of North East Council
(NEC), Govts of Assam, Arunachal Pradesh and Nagaland and SIDBI

National Institute for Entrepreneurship & Small Business Development (NIESBUD)

 NIESBUD is an apex body for coordinating & overseeing the activities of various institutions & agencies
involved in entrepreneurship development.
 The institute is responsible for evolving model syllabi for training various target groups – by effective
training strategies, methodologies, manuals & tools; facilitating & supporting Central/State govt. &
private agencies in executing programs; maximizing benefits & accelerating entrepreneurship
development; conducting programs for motivators, trainers & entrepreneurs which are commonly not
undertaken by other agencies.
 Since, development of entrepreneurship & self employment is basically promotional & industrial
extension activity; the programmes organized by the institute are mostly funded by the government.

(b) Discuss the principles of ‘Effectual Reasoning’. How these differ from those of ‘Causal
Reasoning’?
ANS------ ans is already discuss in previous question 3(b)

Q: 4 (a) What is a ‘Business Plan’? Why is it written? Who all would be interested in your Business
Plan & why?

ANS-- What is a business plan?

 A formal statement of a set of business goals, objectives,
 It specifies the reasons & justifies why they are believed to be attainable,
 It spells out the action plan for reaching those goals.
It also contains background information about the organization or team attempting to reach those goals.
Why Write a Business Plan?
 The preparation of a written business plan is not the end-result of the planning process. Importance lies in
the realization of that plan towards the ultimate goal.
 However, the writing of the plan is an important intermediate stage – if you fail to plan can mean plan to
fail.
 For a startup making a plan shows that the entrepreneur has done his/her homework before starting the
venture.
Purpose of the Business Plan
Business plan serves following critical functions: -
 Helps in tangibalizing the vague ideas.
 Aims to freezing the milestones and deliverables.
 Helps management or an entrepreneur to clarify, focus and research their project's development
and prospects.
 Provides a well thought out and logical framework within which a business can develop and
pursue business strategies over the next three to five years.
 Serves as a basis for discussion with third parties such as shareholders, financial institutions,
banks, investors etc.
 Offers a benchmark against which actual performance can be measured and reviewed.
Who will be interested in Business Plans?
 Venture Capitalists - Venture capital assessment of business plans - focus on qualitative factors such as
team, product idea & implementation process. .
 Potential Partners/Investors – They evaluate company’s prospects through current status & the business
plan.
 Attorneys and accountants – working on your behalf or working on behalf of financers, VCs, legal
personnel in govt. department etc.
 Leasing companies – the people who will lease out land, building, equipment, machinery & at times
power also.
 Total Quality Management
 Banks & Financial Institutions – Since they would be financing the very conception & progress of the
enterprise, they would be very carefully assessing the business plan for its integrity & potential. They
would be looking for: -
 Basic value proposition
 Market size, segmentation, target customers, competitors
 Entry barriers, IP protection, Unique Selling Points
 Technology expertise and domain knowledge
 Alliance and strategic partnerships
 Promoters, Board of Directors, Top management
 Team (Project management, execution capabilities)

(b) Briefly discuss the managerial duties you as an entrepreneur must perform for success of
your enterprise?
ANS – not found
Q: 4 (a) What do financers look for in ‘Product or Service’, ‘Market’ & Marketing Strategy’ parts
of your business plan?

The Product or Service

 It is important for the reader to thoroughly understand your product or the services you plan on providing.
 It is important to discuss the competitive advantage your product or service has over the competition. Or,
in a new market, why there is a need for your product in the market.
 Any barriers that you face in bringing the product to market.
 Areas that should be covered in this section include:
 Is your product or service already on the market or is it still in the research and development
stage?
 If you are still in the development stage, what is the roll out strategy or timeline to bring the
product to market?
 What makes your product or service unique? What competitive advantage does the product or
service have over its competition?
 Can you price the product or service competitively and still maintain a healthy profit margin?
The Market
 Finding a Niche - A market in its entirety is too broad in scope for any but the largest companies
to tackle successfully.
 The best strategy for a smaller business is to divide demand into manageable market niches.
 Small operations can then offer specialized goods and services attractive to a specific group of
prospective buyers.
 There are undoubtedly some particular products or services you are especially suited to provide.
Study the market carefully and you will find opportunities.
 While researching your own company's niche, consider the results of your market survey and the
areas in which your competitors are already firmly situated.
 Try to find out if an opening exists for your product or service, find the right configuration of
products, services, quality, and price that will ensure the least direct competition.
The Marketing Strategy
Once you have identified who your market is, you'll need to explain your strategy for reaching the market and
distributing your product or service.
 Analyze your competitors' marketing strategies to learn how they reach the market. If their
strategy is working, consider adopting a similar plan. If there is room for improvement - work on
creating an innovative plan that will position your product or service in the minds of your
potential customers.
 Developing an innovative marketing plan is critical to your company's success. Investors look
favorably upon creative strategies that will put your product or service in front of potential
customers.
 Once you have identified how you will reach the market, discuss in detail your strategy for
distributing the product or service to your customers.
 Will you personally deliver, mail order, hire sales reps, contract with distributors or resellers,
etc.?
 (a) What is Industrial Disputes Act 1947? What all authorities have been specified - 8
under the act to whom industrial disputes can be referred to? Briefly discuss the important
provision of this act as related to occurrence of a dispute.

INDUSTRIAL DISPUTE ACT, 1947

Applicability
 This Act applies to all factories & establishments regardless of number of employees on its roll. It applies
to all businesses, trades, undertakings, services etc. An industrial dispute is the one that may arise
between:
 Employers;
 Employers & Employees or
 Employees
 It may relate to employment or non-employment, terms of employment, conditions of employment of an
employee & whenever any dispute arises out of retrenchment or termination of services of an employee
notwithstanding that no other workman or any union is party to the dispute.
Authorities under this Act
 The Act provides for the reference of industrial disputes to authorities viz;
 Works Committee
 Conciliation Officer
 Board of Conciliation
 Court of Inquiry
 Labour Court
 Industrial Dispute Tribunal
 National Tribunal
Important Provisions of the Act
1. If any dispute exists or is apprehended, the govt. representative may refer the dispute to a Board
for promoting a settlement thereof along with any matter connected with or relevant to the dispute
to a court of inquiry or tribunal.
2. Normally an award bestowed by any authority has to be enforced with in 30 days of publication.
3. When a labour court, tribunal directs by its award, reinstatement of any worker & the person
appeals in higher court against it, the employer shall be liable to pay such a workman during the
pendency of appeal full wages last drawn by him.
2. No workman employed in any industrial unit shall go on strike & no employer shall declare lock-out:
1. During the pendency of conciliation proceedings before a labour court, tribunal; & minimum two
months after the conclusion of proceedings.
2. During the pendency of arbitration proceedings before an arbitrator & two months after the
conclusion of such proceedings.
3. During any period in which a settlement or award is in operation in respect of any matters
covered by the settlement or award.
3. Any workman who commences a strike which is illegal shall be punishable with imprisonment and/or
fine.
4. Any employer who declares lock-out which is illegal shall be punishable with imprisonment and/or fine.
5. Any person who instigates or incites others to take part in a strike or lock-out which is illegal shall be
punishable with imprisonment and/or fine.
6. Whenever a worker who has completed one year or more continuous service is laid off; he shall be paid
50% of total wages for all days, maximum up to 45 days during which he is laid off. After expiry of 45
days the workman can be retrenched from service with due compensation.
7. An entrepreneur who wants to close down his enterprise should serve a notice of at least 60 days to all
workmen before the actual date of closure. He will inform the govt. department also at the same time
stating reasons in detail.
 8. A temporary workman employed for a period of one year or more will have to be made a regular
employee in the company.
9. Workers employed in public utility services shall not go on strike & the employers in such industries shall
not resort to lock-outs without giving a notice of minimum 14 days.
10. Workers employed in an industrial unit shall not go on strike (a) during the pendency of conciliation
proceedings, (b) during the pendency of proceedings before a labour court or tribunal or (c) during the
period in which a settlement award is in operation.
11. No person shall knowingly expend or apply any money in direct furtherance of support or any illegal
strike or lock-out.

Q: 4 (a) What is a ‘Business Plan’? Why is it written? Who all would be interested in your -6
business plan & why?
SOLVED

(b) Discuss what all would you cover in ‘Market Demand Analysis’ & ‘Technical - 10 Feasibility
Analysis’ as related to project feasibility study of your project

ANS--MARKET ANALYSIS
Market analysis is a method of screening project ideas as well as means of evaluating the product’s
feasibility in terms of market. Analysis should generally cover: -

a) What is the customer base? --- target market

b) Which type of product is being offered? (e.g., onlyceiling fans or table fans, wall fans, mini fans, pedestal
fans or more variety of fans etc.)- product mix
c) What will be the design? (3 wings, 4 wings or both, 24”, 36” or bigger, single colour or colour choices)
--product
-- features
d) How its going to be sold? through retailer or wholesaler? ---distribution channels
e) What will be price tag on each product?-- pricing decisions
f) How will customer know that the particular product is in the market?-- promoting the product
g) Market Analysis is required to: -
a) Know about profit possibility.
b) Modify the product as per customers’ choice.
c) Decide on a right brand name.
d) Decide on packaging based on qualities.
e) Buy & stock right quantity of raw material.
f) Employ right type & right number of people.
g) Plan right type of distribution system.
h) Design effective advertising & promotion.
i) Decide the price acceptable to customers.
j) Prepare short term & long term plans.
k) Search for profitable finance policy – credit sale, sale on advance etc.
l) Decide about future expansion.
m) Look for right kind of equipment & tools.
In effect market analysis should be carried out keeping consumers’ interest as the primary concern.

TECHNICAL ANALYSIS
 It relates to the technical study to establish whether the product & production processes are technically
feasible or not, & whether it offers basis for estimation of cost.
 It also provides basis for consideration of the effects of various technical alternatives.
 Technical analysis should review the techniques & processes to be used for product manufacture.
  Following questions may be relevant at the stage of feasibility analysis: -
 What are the exact design specifications of the product going to be manufactured?
 How do the product & the process compare with contemporary products & processes?
 What technique & process have you selected for product manufacture?
 Are selected techniques & processes convincingly sound?
 Where the technical know-how to come from?
 Are technical know-how arrangements reliable?
 What plant & machinery or equipment is needed?
 What are the detailed specifications for the plant equipment & machinery?
 Who is supplying the plant equipment & machinery?
 Are the means to evaluate above equipment available?
 How does the above equipment compare with other such equipment in technical specifications &
pricing & after sales services?
 What will be the machinery procurement & erection schedule?
 What will be the layout of various sections & departments in the factory?
 What are the equipment/facility requirements for purposes allied to production? (QC, pollution
control, warehousing, transport, communication etc.)
 What are raw material & packaging requirements?
 What arrangements will be made to meet these? How satisfactory are the arrangements?
While carrying out technical analysis, it must be kept in mind that most of the technical issues have financial
implications also.

Q: 4 (a) Write a short note on “Business Model” explaining its components? -6

(SLOVED)
(b) Discuss the growth of BPOs in domestic market. What do you think are the -5
challenges in domestic BPO market? (SLOVED)
(c) Briefly discuss as to what action should be taken to encourage entrepreneurship in our
country?
ANS—Ans of this question is similar of this question which already solved

Q: 5 (a) Discuss the factors that affect the growth of entrepreneurship in a region or in a region or
in a country.

FACTORS AFFECTING ENTREPRENEURSHIP GROWTH

 Entrepreneurship has opened avenues of great scope in Indian economy.
 Our national economy is most suited to the growth of small business enterprises. Small business units
offer a more convenient means of nurturing & developing entrepreneurship by providing the means of
entry into business for new entrepreneurial talents.
 Small scale industries are labour intensive & play an important role in solving the problem of
unemployment.
 These industries provide industrial experience & serve as training ground for a large number of
entrepreneurs.
 However, in spite of favourable policies, governmental support, change in attitude of the society, the
growth of entrepreneurship in India suffers due to certain factors inherent in our social system.
 Growth of entrepreneurship in any country or region is generally affected by following factors:
 Economic Factors
 Infrastructural Facilities
 Availability of Capital
 Market Risks
 Availability of Skilled Labour
  Social Factors
 Cultural Factors
 Personality Factors
 Psychological & Sociological Factors

(b) Express your opinion on ‘Corporate Ethics’? How do you explain that business houses can
not function without social sanction?

UNDERSTANDING CORPORATE ETHICS

Corporate Businesses are Social Entity
 Milton Friedman, Noble Laureate in Economics (1976), had asserted that the sole objective of a business
is and should be the maximization of shareholder's value. Social missions according to him are the
responsibilities of individuals, social agencies and the government.
 However, businesses today far from being a profit making institution is largely looked upon as a social
institution pursuing a social mission and having a far reaching influence on the way people live and work
together.
 Modern corporate do not operate in isolation. The resource they make use of are not limited to those of
the proprietors and the impact of their operation is felt also by many a people who are in no way
connected with the business.
 The shareholders, the suppliers of resources, the consumers, the employees, the local community and the
society at large are affected by the way an enterprise functions.
Corporate Require Social Sanctions
 The successful functioning of a firm requires social sanction. No business can exist without the
acceptance and sanction of the society in which it carries out its activities.
 The organization is so dependent on its social environment that it's very existence, survival and growth
depends on its acceptance and approval by the society.
 Way back in 1963 Peter F Drucker the renowned management guru in his book entitled "The Practices of
Management" stated that the relationship between business and society is "like the relationship between a
ship and the sea which engirdle it and carries it, which threatens it with storm and shipwreck, which has
to be crossed but which is yet alien and distant, the environment rather than the home of the ship.
 But the society is not just the environment of the enterprise. Even the most private to private enterprise is
an organ of the society and serves a social function.
 Given the mutual relationship between the business and the society, Business cannot and should not be
allowed to conduct itself in a manner that may be detrimental to the interest of the society.
How the business should conduct its multidimensional activities in order to pursue its social obligations in
a transparent manner forms the subject matter of corporate ethics.

Q: 5 (a) Briefly discuss the importance of ‘Market Demand Analysis’ in market feasibility study of
your project. (solved)

(a) Discuss the issues connected with ‘Technical Feasibility Analysis’ for your project – 5
feasibility study. (solved)
(c) While planning post production finances, what care do you take in working out:
(i) Capacity utilization & income estimate.
(ii) Expenditure estimate
(iii) Depreciation
NOT FOUND
Q: 5 (a) You are buying a small business, how will you go about it & what factors would you
consider before negotiating the deal.

BUYING A SMALL BUSINESS

What does Small Business Comprise of?
Buying an existing small business is no doubt less risky than starting one from scratch. Because, unlike a
startup:
 The business has equipment and inventory;
 The business already has a location, & if it is on lease, maybe there's a few more years left on the
lease;
 The business has employees, some of whom you may actually want to keep;
 The business has customers, most of whom probably will stick with you (unless this is a
professional service business or practice); &
 Most importantly, the business has a track record; one can look at the business’ books, records
and tax returns and get some idea of how much money you will make.
Business Valuation
Accurate business valuation is one of the most important aspects as this has a major impact on the
price that a business will be acquired for. Business valuation reports generally get more detailed and
expensive as the size of a company or complexity of product & manufacturing processes increase.
The five most common ways to valuate a business are:
 Asset valuation,
 Historical earnings valuation,
 Future maintainable earnings valuation,
 Relative valuation (comparable company & comparable transactions),
 Discounted cash flow (DCF) valuation

Factors to be Considered While Buying a Small Business

 Demographic and political changes – why is he selling the business?
 Owner's Discretionary Income or ODI – is income good enough for sustenance?
 Purchasing part business – do you want entire business or only space & location?
 The location of the nearest big competitor – any big business house planning to open the shop
here?
 Sales taxes – has previous owner settled all sales tax dues?
 Local business reputation – how do local people rate the business in terms of quality, ethics,
customer service etc.

Taxation Issues
 Unincorporated Businesses -
 If you buy a partnership or sole proprietorship, you are getting just its assets. Normally, you don't
take over business-related liabilities, including tax debts. Your contract should require the seller
to pay all debts before closing. If not, then the debts remain the seller's personal responsibility
after the transfer.
 Taxing authorities never release the seller from unpaid taxes when a business is transferred. But
you normally don't have to worry about the seller's tax debts unless the taxing authority has filed
a tax lien against the business or the owner.
 (b) Discuss the factors which contribute to competitive advantage for a company in global
market. Also bring out the issues & drivers which determine the suitability of an industry to
be a global player.

 ANS-- To create a successful global strategy, it is important for managers to first understand the nature of
global industries and the dynamics of global competition.
Competitive Advantage
Competitive Advantage from a Global Strategy can arise from the following sources:
 Efficiency
 Economies of scale from access to more customers and markets
 Exploit another country's resources - labor, raw materials, local skills
 Extend the product life cycle - older products can be sold in lesser developed countries
 Operational flexibility - shift production as costs, exchange rates, little change over time
etc.
 Strategic
 First mover advantage and only provider of a product to a market
 Cross subsidization between countries
 Technology transfer price
 Risk
 Diversify macroeconomic risks (business cycles not correlated among different
countries)
 Diversify operational risks (labor problems, floods, earthquakes, wars)
 Learning
 Broaden learning opportunities due to diversity of operating environments
 Reputation
 Crossover customers between markets - reputation and brand identification
Suitability of Industry for Globalization
 Some industries are more suited for globalization than are others. The following drivers determine an
industry's globalization potential.
 Cost Drivers
 Location & cost of strategic resources
 Differences in production in country costs
 Potential for economies of scale (production, R&D, etc.) – flat experience curve inhibits
globalization.
 Transportation costs – heavy items vs. electronic items
 Customer Drivers - Common customer needs favour globalization.
 Global customers
 Transferable marketing – brand names adoption
 Competitive Drivers
 Global competitors have advantage over local competitors
 Government Drivers
 Trade policies & regulations
 Technical standards
 Country Comparative Advantages
 Comparative advantage of a particular regions resides in -
 factor endowments – land, natural resources, size of population
 created endowments – skilled labour, technology, govt. support, culture, knowledge base
Q: 5 (a) Discuss the growth of BPOs in domestic market. What do you think are the
challenges in domestic BPO market?
Growth of Domestic BPO Market
 Lately the domestic BPO business is steadily gaining importance. Companies including IBM Daksh,
Firstsource Solutions, MphasiS BPO and Intelenet Global Services are looking to significantly increase
their presence in domestic market.
 Others, such as Wipro BPO and Infosys BPO, are waiting for the right time to enter the space as part of a
total outsourcing solution along with their IT arms.
 What has brought about this growing interest in India's BPO market? There are multiple factors for this
new opportunity.
 These include reduced costs of connectivity, the high growth pace of Indian economy, the phenomenal
growth of companies in sectors including telecomn and financial services, rising customer expectations,
Indian firms' global aspirations, & global firms entering the Indian market.

 Challenges –
There are many challenges too. India is not a homogenous market. It has myriad regional languages, varied
cultures and remote corners.
For players who are looking at scale and who have national ambitions in the domestic BPO market, this
means managing a range of complexities.
 Domestic Customer’s Demands –
Even as companies busily increase their customer base they realize that, with the Indian economy
becoming more globally integrated, customers are ever more demanding. The "new" Indian customer
is not satisfied with anything less than world-class levels of product and service quality.
 Utilization of Services –
Opportunities await BPO firms also in providing specialized services to newly emerging industries
like retail, fashion apparel or automobile components, food chains etc. such as customer relationship
management (CRM), market research, accounting, and inventory and supply chain management.
Many of these specialized services companies have the money, but not the managerial capacity or
bandwidth to automate their processes and extract efficiencies.
A new trend of "platform-based BPO" is likely to emerge in near future for domestic
customers that provide niche services in areas like credit card fulfillment, mortgage loan processing
and loan refinancing, and property & casualty insurance.
 Improving Margins –
For the economics to be viable, players will have to move from larger cities and set up
operations in Tier 2 and Tier 3 locations.
It is true that the domestic market does not require that BPO agents be trained by way of
voice, accent and culture; therefore it is less expensive and easier for service providers to move
into the smaller cities. But the challenges posed by infrastructure and the availability of senior
management must still be dealt with.
 Profitability –
The biggest challenge, however, could be around profitability. Although the costs by way of
infrastructure, wages and training are lower for the domestic market, so is the pricing.
Pricing in the India BPO market is estimated to be anywhere between 30% and 60% less than in its
global counterpart, though more experienced players insist that their domestic BPO margins are
comparable to their global business or only marginally lower
 (c) Write a short note on “Business Model” explaining its components?

BUSINESS MODEL

 To extract value from an innovation, a start-up (or any firm for that matter) needs an appropriate business
model.
 Business model is the one that converts business idea into economic value.
 For some of the start-ups with new innovative idea, known & familiar business models may not be
applicable, so a new model must be devised.
 Not only is the business model important, in some cases the innovation rests not in the product or service
but in the business model itself.
 Basic framework explaining the primary elements of a business model has been lucidly described by
Henry Chesbrough and Richard S. Rosenbloom.

Technical Business Economic

Inputs Model Outputs

Components of Business Model

 Value proposition – it is the description of the customer problem, the product that addresses the
problem, and the value of the product from the customer's perspective, i.e. the extent to which the
perceived problem will be solved.
 Market segment - the group of customers to target, recognizing that different market segments
have different needs. Sometimes the potential of an innovation is unlocked only when a different
market segment is targeted.
 Value chain structure - the firm's position and activities in the value chain and how the firm will
capture part of the value that it creates in the chain. The value chain is a collection of activities
performed to design, produce, market, develop and support its products.
 Revenue generation and margins - how revenue is generated (sales, leasing, subscription,
support, etc.), the cost structure, and target profit margins.
 Position in value network - identification of competitors, complementors, and any network effects
that can be utilized to deliver more value to the customer.
 Competitive strategy - how the company will attempt to develop a sustainable competitive
advantage, for example, by means of a cost, differentiation, or niche strategy.

(d) Discuss how Joseph Seagram’s & PLUS models help in ‘Ethical Decision-Making’
Not found

Q: 6 (a) Once you have taken up the challenge, what all will you do to be a successful
entrepreneur?
There are certain tips for those who have decided to take on the challenge.
  Concept is king –
As an entrepreneur you should be confident and thoroughly convinced that your concept will meet
with success.
There will always be the risk factor to impede your efforts.
A successful entrepreneur knows how to live with the risk factor and find ways and means to get
around it.
Recognition of opportunity and making the best use of it before anyone else does is the key.

 Feeling the pulse of the market –

A successful entrepreneur does not depend merely on a brainwave, but supplements his groundwork with
a meticulous survey of the market.
He makes sure the market is ready for the product.
The product or service being introduced should have a high level of demand; idea should be appealing to
the user.

 Marketing is indispensable –
A successful entrepreneur should be an out and out marketing professional with mastery in the art of concept
selling.
A dynamic sales- force and an aggressive sales plan will help the product get the right exposure.

 Be vigilant –
Entrepreneur's mind should always be working on ways to augment and improvise products with newer
technologies and better know-how.
Fine-tuning with customer feedback as the benchmark, re-inventing and always upgrading to newer versions
will help you keep alive and abreast of competition.
Always be on the look out for better options for your concern.

 Be Secretive –
Never give away your own secrets which might be copied, but you can always start your own business by
copying other peoples’ ideas, learn about a new home business which has been successful in
other cities while offering some additional ideas of your own.

(b) You are planning to buy a small business, how will you go about it & what factors - 6 would
you consider before negotiating the deal. (SOLVED)

Q: 6 Discuss Factory Act – 1948 & list out the entrepreneurial responsibilities as applicable to a factory
under this act.

FACTORIES ACT – 1948

Applicability
 A factory is defines as any place wherein, ten or more persons are working & in which manufacturing
process is carried out with the aid of power supplied by steam, oil or electricity.
 Premises where power is not used this number of employees can be twenty or more.

Areas of Entrepreneurial Responsibilities

 Areas of responsibilities of an entrepreneur as per Factories Act can be broadly divided in four parts: -
 Employment Conditions
 Health
 Safety Provisions
 Welfare Provisions
 Penalty for breach of provisions of the Act
Employment Conditions
1. Employment of Children
 The act fixes the minimum age of person who can enter a factory for work at 14 years.
 The act further lays down that a qualified surgeon must certify that a person has completed the
age of 14 years.
 Such certificate is to be obtained by the factory manager & must be available for inspection by
factory inspector.
 The act stipulates the number of hours of work for children between the age group of 14-17 from
4½ to 5 hours. It prohibits working at night by the children.
2. Hours of work for adults & female workers
 Act prohibits employment of women in factories between 6 p.m. & 7 a.m.
 It reduces the working hours for adult men in age group 48-54 & adult women from nine hours to
eight.
 It also specifies that working time of eight hours will not be spread over a period of 10½ hours.
 Moreover, at least half hour rest is compulsory after every 5 hours of work.
 It also specifies that those workers who have been made to work form more than eight hours a
day or more than 48 hours a week must be paid overtime @ twice their ordinary rate of wages.
 Consecutive working of more than 10 days should not be allowed
 Timings of working hours should be displayed near the office.
3. Overcrowding
 Adequate space for workers (minimum 350 cub feet) per worker is obligatory
 This aspect should be kept in mind while building the factory.
 Chief Inspector of factories will communicate to the manager as to how many maximum men can
be employed in a particular room.
4. Lighting
 Ensure that sufficient suitable lighting, natural or artificial or both are available in the work place.
 All glazed windows & skylights will be kept clean on both inner & outer surfaces & effective
measures shall be taken for prevention of glare or formation of any shadow
Health
1. Cleanliness
 The act lays down that there should be proper arrangements for waste & effluent treatment &
disposal.
 Drinking water place should be mentioned in the local language. A minimum distance of 6 mtrs
should be kept from any contaminated body/ activity.
 In the factory sufficient toilet facilities, separately for male & female workers of the prescribed
type shall be provided at convenient places.
 In addition there should be: -
 Daily sweeping of premises;
 Weekly washing/cleaning of work rooms;
 Repainting or varnishing of ceilings, walls, sides, tops of passages & staircases once in five years.
 All inside walls shall be white washed at least once in 14 months.

2. Ventilation & Temperature

 Effective & suitable provision shall be made for adequate ventilation by the circulation of fresh
air & maintenance of temperature in every work room of the factory.
 Adequate safety measures shall be adopted as regards inhalation of dust & fumes.
 Where excessively high temperature is necessary for technical reasons, adequate measures shall
be taken by the management to protect the workers from such temperature.
3. Artificial Humidification –
 In factories where humidity is artificially increased, the state govt. may make rules to regulate
humidity in such a manner so as to cause no harm to workers.
Water used for the purpose will be tested regularly.

Safety Provisions
 The act places legal responsibility on the management of maintenance & use of safety guards.
Specific provisions are as follows: -
1. Explosive Gases, Dust, Fumes
– All measures to be taken prevent any explosion by providing an effective enclosure of the
plant or machinery used for the purpose & regular removal or prevention of accumulation of
dust, gases or fumes which may cause harm to workers.

2. Safety of Factory Building & Machinery –

Any part of the building which is in such a condition that it is dangerous to human life or safety,
it will be ensured that such place is not used for work till such time it is repaired properly for use.

3. Precaution Against Fire

 Adequate means of escape for workers should be provided
 Exit doors should always be kept unlocked & unfastened & marked in the language
all workers understand
 Provision should be made for clear warning
 Passages must be kept free for giving unhindered access to means of escape.

Welfare Provisions
 Facility for washing should be provided at convenient place.
 Suitable place for washing & drying of clothes also must be provided
 Suitable sitting arrangement for those workers who normally work standing must be provided.
 First aid provisions should be available at easily accessible place.

Penalty for Breach of the Provisions

 For any contravention of the Act, the occupier and the manager of a factory shall each be held guilty of an
offence which may be punishable with fine or imprisonment or both.
 Punishment may be many folds if contravention of provisions of Act is repeated.

Q: 6 (a) Describe the features of Venture Capitalist’s involvement in launch of a new -8

enterprise. Discuss salient characteristics of Venture Capital Funding.
Features of Venture Capital

 Objective of venture capital funding is to assist professional & small & medium entrepreneurs to launch
enterprise with definite promise.
 It provides the necessary encouragement to convert an innovative business idea into a commercial
venture.
 Areas of investment –

Investments are generally made in high-tech areas using some new technology or producing
innovative goods using new technology.

 High risk factor –

 Practically any individual venture investment is enormously risky & chances of failure are quite high.
In venture capital schemes, the business risks are usually higher, assessment of progress more
difficult & evaluation of judgment more uncertain.
This is because the technology involved in such projects is untested & unproven.

 Types of risks –

A venture capitalist, takes four types of risks – management risk, product risk, market risk &
operations risk. If these risks are successfully tackled, then there is a high potential for substantial
rewards.

 Return on investment –

Returns on venture capital investments are not liquid in the sense that they are not subject to
repayment on demand.
The investor expects return only through the ultimate success of the venture & consequently capital
gain. Investor becomes partner both in profit & loss of the venture.

 Continuous involvement –

Success in venture capital investment most often comes from creative partnership in which investor’s
experience in the process of company formation is combined with the entrepreneur’s innovative idea,
zeal & enthusiasm, management skills & sizeable knowledge of market & the technology.
 Supporting Entrepreneurial talents –

An important role of a venture capitalist is to encourage, nurture & grow an entrepreneur who has limited
resources, risks are high but potential rewards are also high, gestation period is long & where the project can
not get financing from traditional sources.

 Long term investment –

Venture capital schemes involve long term investment, because a major share of the capital is given to the
entrepreneur in early stages & it takes time for him to create that much profit.

Typical Characteristics of Venture Capital

 VCI (Venture Capital Investor) should be able to take quick decision, identify & appraise projects
quickly, provide good management assistance & systematically monitor the project.
 They must train their staff in providing timely assistance to entrepreneurs.
 Investor-management relationship is critically important for the success of the venture.
 The very nature of the venture financing demands that the financer should be an integral part of
the venture & must have active say in the management.
 Entrepreneur should be assured that venture capitalist will only withdraw after the venture has
been commercially established & has become profitable.
 VCs finance innovations & ideas which have potential for high growth but are yet unproven.
 This makes it a high risks, high return investment.
 In addition to finance, VCI also provides value added services & business & managerial support
for realizing venture’s net potential.
 Generally there are three types of organized or institutional venture capital funds
 Venture capital funds set up by high net worth individual investors – these VCIs take higher risks
by investing in an early stage company with little or no history & they expect a substantially high
return for their high-risk equity.
  Venture capital subsidiaries or corporations – established by major corporations, commercial
bank holding companies & other financial institutions.
 Private capital firms/funds.
 Securing an investment from an institutional venture capital funds is not very easy. Entrepreneurs
have to emphasize their managerial capabilities, market attractiveness & cash out potential.
 Success rate in securing venture capital investment does not go beyond 3-5% of total seekers.
 There are incubator entities that provide value added advisory, informational & certain amount of
support infrastructure which may include productive office environment, finance &
complementary resources.
 Incubators are mostly promoted by govts. or professional organizations seeking to develop small
enterprises in a particular area.
 Some time VCI have their own in-house incubators to support entrepreneurs in pre-venture
capital stage.

(e) Write a short note on “Business Model” explaining its components? (solved)

(f) What obstacles inhibit entrepreneurial development in our country? Enumerate.

Obstacles Inhibiting Entre’ship Development

 The obstacles which inhibited entrepreneurship in our country thus so far & which are being tackled
progressively at central & state governments levels can be summarized as follows: -
 Unwillingness to devote organizational abilities to business purposes.
 Restrictive effects of customs & traditions.
 Lack of adequate response to monetary incentives.
 High risks involved in new enterprises.
 Lack of adequate infrastructure & high cost of production.
 Market imperfections which deny potential governments the resources they need for organizing
new enterprise.
 Regional & local considerations.
 No falling back support in eventuality of failure of entrepreneurship efforts.
 The environment in India has all along not been very favourable to the promotion of
entrepreneurs.
 Stimulation of entrepreneurial qualities is a complicated long-run sociological problem. Social
institutions like community, caste, joint family system, schools & colleges are responsible to
cultivate & motivate members to entrepreneurship.
 Our social structure, however, is not conducive to promote entrepreneurship; the policies of the
govt. have been more towards promoting “imitative” or “adoptive” type of entrepreneurship
rather than “innovative”.
 Result is that country is facing tremendous brain drain. Any enterprising person not finding
suitable opportunities in India starts thinking of migrating to western countries.
Liberalization has tremendously boosted the country’s economy & has opened many avenues for in-house
growth. Government policies, banking & financial institutions, private venture capitalists are all
contributing to better environment for entrepreneurship.

Q: 6 (a) What are the issues & drivers which determine the suitability of an industry for becoming
a global player.
Suitability of Industry for Globalization

 Some industries are more suited for globalization than are others. The following drivers determine an
industry's globalization potential.

 Cost Drivers
 Location & cost of strategic resources
 Differences in production in country costs
 Potential for economies of scale (production, R&D, etc.) – flat experience curve inhibits
globalization.
 Transportation costs – heavy items vs. electronic items
 Customer Drivers - Common customer needs favour globalization.
 Global customers
 Transferable marketing – brand names adoption
 Competitive Drivers
 Global competitors have advantage over local competitors
 Government Drivers
 Trade policies & regulations
 Technical standards
 Country Comparative Advantages
 Comparative advantage of a particular regions resides in -
 factor endowments – land, natural resources, size of population
 created endowments – skilled labour, technology, govt. support, culture, knowledge base

(b) Discuss the salient features of ‘Employees Provident Fund & Miscellaneous
Provisions Act 1952’ & the major responsibilities of the employer as applicable under the
act.

Employees Provident Fund & Miscellaneous Provisions Act, 1952

Applicability

The act is applicable to every factory or establishment employing 20 or more employees.

The act however, extends exemption for an initial period of three years from commencement of the
business if the number of employees is more than 50 & for an initial period of five years if number of
employees is less than 50.

Contribution

Minimum contribution payable by an employer is 8.33% of the salary. The employee should also
make an equal contribution. The act does not specify any maximum limit.
Contribution shall be 10% in respect of establishments which Central Govt. may specify in official
gazette notification from time to time.
Other related schemes under this act.

 Employees Family Pension Fund (FPF)

An amount not exceeding 1.16% of wages should be paid out of the Provident Fund to FPF scheme,
both by the employer & the employee.
  Deposit Linked Insurance Scheme (DLI)

The scheme provides life insurance cover during the course of employees’ service.
An insurance fund may be created by the employer in which a deposit @ 0.5% of the salary of each
employee will be made by the employer.
The employee does not have to make any contribution into this fund.

Major Areas of Entrepreneurial Responsibility

 The employer must ask the employee before start of the service if he is already a member of Provident
Fund (PF) or not.
 Thereafter he should deduct PF/FPF from his wages along with equal contribution from his side &
administrative charges, DLI etc. & deposit the amount in State bank of India with in 15 days of the close
of the month.
 Employer must prepare a contribution card for every employee & update it every month.
 After expiry of one year the contribution card should be submitted to PF Commissioner along with
statement of contributions.
 If an employee leaves the establishment, he carries his contribution card along with him, duly updated &
closed.
 The employer is obliged to forward to the PF Commissioner, every month, the PF details of all
employees, with in 25 days of the close of the month.
 In addition to contribution for PF, the employer is supposed to contribute PF Admn charges (0.65%),
Deposit Linked Insurance charges (0.5%) & Insurance Admn charges (o.1%).
 There are several registers & form which an employer is supposed to maintain & which are to be
inspected by the PF Commissioner or his representative from time to time.

Q: 7 (a) Describe ‘Workmen Compensation Act 1923’ & explain the circumstances under which
the employer is duty bound to compensate the worker & circumstances when the employer
is not liable.

The Workmen’s Compensation Act 1923

 Necessity of this act was conceived with the installation of machines operated by motive power which
resulted in large number of accidents taking place. Some time the accidents happened due to employer’s
default & some time due to negligence on part of worker.
 In any case it incapacitated the worker for further working on the machinery in same capacity. In most of
the cases workers could not ask for any compensation & employers also did not want to compensate the
disabled worker.
 This resulted in enactment of Workmen’s Compensation Act. Followings are the salient provisions of the
act: -

 Employer’s Liability for Compensation –

If a personal injury is caused to a worker by an accident arising out of & in the course of his employment, his
employer shall be liable to pay compensation in accordance with the provisions of this act.

When Employer is not liable

 The injury results in partial or total disablement of a worker for less than three days.
 The injury can be directly attributed to the worker having been under the influence of drugs or alcohol.
 The injury is attributed to willful disobedience by the worker of an order expressly given.
 Willful removal or disregard by the worker of any safety guard or other device which he knew to have
been provided for the purpose.

(b) What advantage does India have in competitive manufacturing?

India Advantage

 Labour cost advantage –

India's labour cost advantage is well understood. Labour wage levels in India are amongst the
lowest in the world. What is less understood is that this advantage is likely to continue. Savings due to lower
labour cost can account for between 25-90% of the cost

 Skilled manpower –

India has one of the largest pools of English speaking, high quality, skilled manpower. This provides India
access to a large pool of highly skilled resources in some areas where global companies are facing
bottlenecks.

 Effective use of capital –

India also provides a capital cost advantage to companies seeking to build a long-term advantage through a
local presence, in such cases the capital cost advantage can enhance the return on investment in a
manufacturing facility. This has significant advantages beyond cost, such as reduction in hurdles for
investments, lower fixed costs, greater flexibility and easier risk management. It may be possible to set up a
full-fledged manufacturing facility in India, including roads, power and buildings at about 60-80% of the cost
in a developed market, due to savings in material costs, equipment and construction services.

 Raw material competitiveness –

In some industries India has a significant advantage due to its natural resources and raw materials. For
example, India has one of the richest sources of iron ore, which is a key ingredient into the competitiveness of
Indian steel companies. In addition, India has advantages in other upstream areas such as bauxite, which leads
to increased competitiveness in alumina. Also, in area such as textiles, India has a significant raw material
advantage.

(c) What is ‘Contract Manufacturing’? What are the emerging trends in this field?

 What’s contract manufacturing? –

 Today, the Indian small scale engineering industry is progressing very rapidly with overseas successes
indicating maturing of the country's small and tiny sector.
 This outsourcing of manufacturing is producing a new breed of first-time entrepreneur exporters.
 One of the fields that hold tremendous promise is contract manufacturing & especially in
computer hardware industry. The global contract manufacturing business is estimated to be close
to $149 billion and is expected to grow to $500 billion by the end of the decade—clearly a huge
market for Indian entrepreneurs to take on.
 Currently, out of top five global players in the global contract manufacturing market, three
namely Jabil, Flextronics and Solectron, are already operating in India.
 Contract manufacturing is work sub-contracted to a manufacturer by a company that owns the product design
and IPR.
In some cases, the manufacturer takes the responsibility of marketing the products using the vendor’s brand
and provides after-sales support also.

 Emerging Trends –

Looking at this emerging trend, some smart Indian hardware product manufacturing companies like D-Link,
TVS Electronics and WeP Peripherals have started offering CM services. Some important issues concerning
CM: -

 This not only helps the hardware product company de-risk its business model but also means full
utilization of its production facilities.
 And being product companies, these companies understand the client’s business more than any
other contract manufacturer.
 Contract manufacturing business provides the company stability and an assured flow of revenues.
 In hardware industry, the nature of the machinery used for manufacturing one type of product can
be profitably used for many other products.
 E.g. nature of networking products machinery is universal; the same machines can be used for
manufacturing a variety of products, right from mobile phones and PDAs to TVs and other
electronic products. One is not restricted to the computer industry alone.
 One more positive sign of India’s cost competitiveness is in its innovative design capabilities &
potential over that of China. Recently, an Indian company, WeP Peripherals won a contract
against competition from China thanks to its design expertise.
 This could be the emergence of a new trend that Indian IT industry should ideally capitalize.
 Indian hardware product companies believe that the Indian can compete with China any day on
every parameter—quality, cost, productivity, efficiency, as well as engineering and technological
capabilities, if adequate govt. support is forthcoming.
 India has been a late entrant in this emerging sector. Basically, transportation is a big pain in
India.
 That’s why software succeeded since there was no physical transfer of their finished product.
Even the Government relaxed regulations for software exports since there was no shipping of
material.
 In electronic components, if you want to export, it’s a tedious process.
 Importing process is a fairly smooth one. But if you want to export back a component, the process
will take about 4-6 weeks since five different departments are involved in it.
 The Indian skilled and semi-skilled labour pool has not been properly utilized. We have not gone
to the villages and brought people by the truck loads into the cities like China.
 They built all those factories and also made sure that dormitories were built for the workers.
China basically took care of roti, kapda and makaan.
 Though India has a manufacturing base for passive and electromechanical components, the
industry needs to invest heavily on latest technologies and take up research and development on a
massive scale.

Q: 7 (a) What is the primary basis of calculating working capital level in a functional
enterprise? How will you carry out the estimation of Working Capital?
 The first step in assessing working capital is thus, estimation of sales.

 Estimation of Sales - Estimation of sales is made logically, rationally & based on reliable data.

 Past Trend – Sales levels reached in past years are plotted fro analyzing the trend. Any abnormal
sale growth or down turn due to identifiable reasons is not counted.

 Production Capacity – Once sales volume estimations have been made, you have to verify that
your enterprise has the necessary production capacity
 Confirmed Orders & Market Share - Confirmed orders from customers should invariably be
taken in writing to ensure that there need is genuine.

 Capital Expenditure Assessment - Once well justified sales estimate based on assessed market demand
has been made, there may be need to upgrade infrastructure & increase production capacity for realizing
the estimate. This will necessitate additional capital.

Procedure for Assessing Working Capital

 After estimating sales, next action is to assess requirement of WC. Steps involved are: -
 Identify in terms of %age of sales, the following components: -
 Raw material, components & stores
 All other overheads
 Profit margin
 Determine the level of holding raw material, stores & components which you desire to hold
optimally, expressed in terms of months of consumption. Calculate the total costs estimates for
one month, including consumption of raw material, components & store.
 Calculate the total costs estimates for one month, including consumption of raw material,
components & stores.
 Take the total cost of production for one month, determine how many months or weeks of
manufactured stock that you think is necessary to hold optimally based on past experience or by
the period of carrying stock held as working capital.
 On the basis of market practice, state of competition & your own acumen for salesmanship
determine the period of credit (in months) that you might offer to your customers.
 This period multiplied by the monthly gross value of sales (including excise duty & profit) will
give you the value of bills receivable carried & held as working capital.
 Total up all the value of raw material, components & store, stocks in progress, finished goods &
bills receivable. This will give you the “Gross working capital”.
 Deduct there from value of bills payables by you on purchases & services. The remainder is “Net
working capital”.

(b) What is inventory? Why do we maintain inventory? What are the bases of
inventory decisions which guide the inventory systems to be adopted?
Why do we Maintain Inventory
 There are several reasons to carry an inventory: -
 To protect against uncertainties in supply, demand & lead time.
 To maintain independence of operations.
 To allow flexibility in production scheduling.
 To allow economic production & purchase.
 To provide for transit.
 Inventory Decisions
Decisions to maintain inventory are based on two basic issues while dealing with inventories at different
stages of production –

 How much of an item to order when inventory of that item is to be replenished?

 When to replenish the inventory of that item?

 Based on these decisions, Inventory systems are two types:

 Fixed-order quantity models. These are also called Economic order quantity (EOQ) & the Q
model.
 Fixed time period models are also called Periodical review system & P models.

Refer Slide 5.4 for explanation

(c) What do you understand by ‘Cent per Cent’ inspection & ‘Sampling Inspection’ in
quality management of your product.

 Cent per cent inspection

Every piece is inspected against pre-set specifications & then only passed to next operation.
In some cases selected components of the product may be inspected, whereas in others inspection of all
components of all pieces of product is carried out.
This is highly cost intensive & time consuming.

 Sampling Inspection –

In these statistical methods are used wherein quality of the lot is decided based on inspection results of a few
pieces drawn from each consignment.
Based on sample results, the whole consignment is accepted or rejected.

Q: 7 (a) Express your opinion on ‘Corporate Ethics’? How do you explain that no
business house can function without social sanction?
. The organization is so dependent on its social environment that it's very existence, survival and growth
depends on its acceptance and approval by the society. Way back in 1963 Peter F Drucker the renowned
management guru in his book entitled "The practices of Management" stated that the relationship between
business and society is "like the relationship between a ship and the sea which Milton Friedman, Noble Laureate
in Economics (1976) asserted that the sole objective of a business is and should be the maximization of
shareholder's value. Social missions according to him are the responsibilities of individuals, social Agencies and
the government. Business today far from being a profit making institution is largely looked upon as a social
institution pursuing a social mission and having a far reaching influence on the way people live and work
together. Modern corporate do not operate in isolation. The resource they make use of are not limited to those of
the proprietors and the impact of their operation is felt also by many a people who are in no way connected with
the business. The shareholders, the suppliers of resources, the consumers, the employees, the local community
and the society at large are affected by the way an enterprise functions.
The successful functioning of a firm requires social sanction. No business can exist without the acceptance and
sanction of the society in which it carries out its activitiesengirds it and carries it, which threatens it with storm
and shipwreck, which has to be crossed but which is yet alien and distant, the environment rather than the home
of the ship. But the society is not just the environment of the enterprise. Even the most private to private
enterprise is an organ of the society and serves a social function. Given the mutual relationship between the
business and the society, Business cannot and should not be allowed to conduct itself in a manner that may be
detrimental to the interest of the society. How the business should conduct its multidimensional activities in order
to pursue its social obligations in a transparent manner forms the subject matter of corporate ethics.

(b) What are the instruments for protection of Intellectual Property? Briefly describe. what all
types of articles are covered under ‘Copyright’?
General Mechanism for Protection of IPR

There are essentially three spheres where firms take action to protect their intellectual property from being
utilized by competitors for their benefit.

Product Market Action: - Strategic actions in product market may thwart imitation and obsolescence.
• Imitation – There are four sets of requirements for a competitor to indulge in imitation:
a) Recognition – He should be able to identify the correct intellectual capital before going any further.
b) Diagnosis – he should be able to figure out as to how this intellectual capital can be rebuilt or constructed.
c) Resources – He must have adequate know-how and resources to replicate the product.
d) Cost & Incentives – Cost benefits should be such that competitor sees profit in it.

Product development should be such that it becomes difficult for a competitor to understand the product and
its structure. In addition to obscuring the requisite information about the product firms take actions which are
visible in market place.
(a) Maintaining standard of the product – Once a standard has been established, it is difficult for
imitators to maintain same standard as the original product and still earn profit.
(b) Erecting Entry barriers – Controlling access to outlet of distribution setup, facilitators and
collaborators may help firms in avoiding erosion of intellectual capital.
(c) Limiting Pricing – Innovative firm may forego short term profit by pricing the product or service
below the cost at which rivals could imitate and manufacture the product. This could be deterrent for
rivals to go for expensive imitation.
(a) Making Collaborative Arrangements – Product created as joint efforts by collaborators will have
intellectual capital distributed. It thus becomes difficult to imitate in such an environment. A network of
firms may support each other for mutual benefit, each protecting its own and collaborators’ intellectual
capital.

• Obsolescence - Strategic action may prevent erosion of intellectual capital through obsolescence. When
any superior product appears, the innovative firm may try to maintain existing customer segment by reducing
the cost of the product or by incorporating additional features or both. Development and easy availability of
complementary product may also help in maintaining it’s the market segment.

Continual Innovations - Another way to prevent loss of intellectual capital is to upgrade or replenish it through
continual innovation.
• Incremental Innovation – This should be thought of at the evolution stage. Continuous incremental
innovation makes it difficult for competitors to catch up in imitating.
• Product Cannibalization – It means maintaining superiority in product and using the same technology for
product advancement. A firm may preempt its competitors through successive generations of superior
products that cannibalize firm’s own product technology.
• Maintaining Lead – A firm keeps a superior product up its sleeves to be released in the market in
eventuality of competitors resorting to imitation.
• Radical Innovation – Through significant investment in R&D, a firm may bring out a radical innovation
based on totally new technology to replace and overtake its own product.
Recourse to Legal Action - Product market actions and continual innovation do not prevent rivals to carry out
infringement or theft of intellectual capital. A legal strategy – privileges granted by legal system - is therefore
essential against unethical and illegal actions of competitors. Legal strategy must form part of an organization’s
overall business and technology strategy and must incorporate all aspects of legal protection to innovators and
manufacturers.

Copywrite - Copyright applies to any medium. It protects creative or artistic works. A copyrighted work can only
be copied or reproduced with the copyright owner's permission.
Items covered under copywrite are:-
• Literature - including novels, instruction manuals, computer programs, song lyrics, newspaper articles
and some types of database
• Drama - including dance or mime
• Music – creative and original of any kind
• Art - including paintings, engravings, photographs, sculptures, collages, architecture, technical drawings,
diagrams, maps and logos
• Layouts - used to publish a work, for a book
• Recordings - of a work, including sound and film
• Broadcasts - of a work
(c) Discuss salient characteristics of Venture Capital Funding. - 6 ()
(solved)

Q: 7 (a) What is the purpose of ‘Project Feasibility Analysis’? What all feasibility aspects you would
look for in each of the analysis before deciding on a project. Slide 3.2

(c) What is ‘Project Appraisal’? Who conducts it and why? What are the basic elements of
appraising the project?
Project Appraisal is an exercise whereby a lending financial institution makes an independent & objective
assessment of various aspects of an investment proposal to arrive at the financial decision. Appraisal exercises are
basically aimed at determining the viability of a project & some times also in reshaping the project so as to
upgrade its viability.

PROJECT APPRAISAL

TECHNICAL FINANCIAL COMMERCIAL ECONOMIC MANAGERIAL

LEGAL ORGANIZATIONAL ECOLOGICAL SOCIAL

Factors generally considered while carrying out appraisal are technical, financial, commercial, economic,
ecological, managerial, social & legal. Appraisal is also done to determine the market potential of the product as
well as selecting an optimal strategy. Methodology of analysis varies from project to project. Project appraisal is a
scientific tool; it follows a specific pattern. First & foremost, an analysis of region’s economy provides a general
framework within which the assessment of any project is to be carried out. This analysis indicates whether the
project is in a potential environment which will be helpful in the progress of the project. Economic, technical,
organizational, managerial, operational & financial analyses follow there after. Legal, social & ecological
analyses are generally done after viability of the project has been ascertained.

ELEMENTS OF APPRAISAL
Economical – Economic aspects of appraisal are fundamental as they logically precede all others – a bank will
not finance a project unless it is assured that the project represents a high priority use of regions resources.
Organizational & Managerial - As a lender & as a development institution, the bank places stress on the need
for an efficient organization & responsible management for execution of the project.
Technical – This is no doubt the most important aspect of appraisal. It broadly involves critical study of
following: -
(a) Location & Site
(b) Raw Material Suppliers
(c) Proximity of market
(d) Transportation facilities
(e) Power & Fuel Supply
(f) Water
(g) Plant & Machinery
(h) All aspects covered in previous session.

Operational – These aspects involve making the project operational & running it. The appraisal will include: -
(a) Manpower, trade unionism, labours tendencies etc.
(b) Labour laws & Government policies
(c) Natural Climatic Factors
(d) Taxes & fees
(e) Incentives & disincentives
(f) Socio-economic & political factors
(g) Miscellaneous factors
(i) attitude of local community
(ii) proximity of complementary industries
(iii) prospects of regional development
(iv) service facilities required by the project
(v) recreation & social facilities
(vi) proximity of metros, historical sites and so on
Financial – Already discussed under “Project Cost” above.