Business plan

Non certified wooden handicraft

Submitted to
Dr H.S. Gupta
(I.F.S)

Submitted by
Gautam Kumar Gulshan(1066)
Isha Aiyyar(1067)
Jaideep(1068)
Jitesh shrives(1069)
Prakash Kamble(1070)
Non Certified Wooden Handicraft

General Scope and potential of forest based products in India- domestic

demand of supplies

Introduction

Handicrafts are unique expressions and represent a culture, tradition and heritage of a
country. Wooden handicrafts are specialized skills passed on from one generation to the next.
The term 'wooden handicrafts' refers to a wide range of wooden items carrying utilitarian and
artistic value that are made by hand, or with the use of simple tools. Indian wooden
handicrafts reflect unmatched workmanship, fine designs, and subtle elegance.

Definition according to Govt. of India:

Handicraft can be defined, which is made by hand; should have some artistic value; they may
or may not have functional utility.

Definition According to United Nations Educational, Scientific and Cultural

Organization/Information Technology Community (UNESCO/ITC):
Handicrafts can be defined as products which are produced either completely by hand or with
the help of tools. Mechanical tools may be used as long as the direct manual contribution of
the artisan remains the most substantial component of the finished product.
Handicrafts are made from raw materials and can be produced in unlimited numbers. Such
products can be utilitarian, aesthetic, artistic, creative, culturally attached, decorative,
functional, traditional, religiously and socially symbolic and significant.

Wood craft is the artistic practice of shaping and decorating wooden objects. India is famous
for wooden handicrafts. Skilled craftsmen of each state create handicrafts using wood that is
available locally.
The most common varieties used to make Indian handicrafts are teak, sheesham, sal, oak,
mango, ebony and mahogany. Sandalwood, rosewood and walnut are the exotic varieties and
are expensive and are used in producing fine pieces of furniture and decorative items.
There has been a complete revival of the traditional and antique wood craft, owning to its
uniqueness and demand in India and abroad. Indian artisans are experimenting with designs
to create a blend of traditional and modern woodcraft. Each piece of Indian wooden
handicraft is a labor of love, sweat, and patience, which no machine can replicate.

Certified and Non- certified

Wood that comes from the well managed forest certified by reputed agency (mostly Forest
Stewardship Council - FSA) is known as certified wood where as the wood from a forest
which is non certified by these agencies is called as non certified wood. With regards to
these the products such as handicrafts which are made from the wood from certified forests
can be classified as certified wooden handicrafts and the handicrafts which are made from
non certified wood can be classified as non-certified wooden handicrafts.

As in case of diamonds an uncertified diamond is exactly the same as a certified diamond,

except that it’s lacking the piece of paper with grading information. A non-certified diamond
is not necessarily better or worse than a certified one; the only difference is that the non-
certified diamond’s grading is not fully known

Similarly a non certified wooden handicraft is as good as certified wooden handicrafts in

quality it just don’t have any certification that it is from a well managed forest still there is
huge difference between price of certified wooden handicrafts and non-certified wooden
handicrafts. The reasons behind the difference in price can be the established supply chain,
established distribution chain, proper marketing plan considering the target customer,
organized co-ordination and management of skilled labour, raw material supply production
and product marketing

General scope and potential

India, in spite of having 2.5% of the world’s geographic area and 1.8% of the world’s forests,
sustains 16% of the planet’s human population and 18% of its livestock population. Forestry
contribution is 1.7% of nation’s GDP. Due to problems associated with the valuation of
forests and services, unrecorded removals, illegal harvesting, etc. the exactness of the
contribution has not been established. A large part of the forest production consisting of fuel,
fodder, medicine and food are removed without payment and without any record by the rural
and tribal people. According to Ahmed (1997), the total annual value of India’s harvest of all
forest produce is estimated to be Rs. 300,000 millions (compared to the investment of Rs.
8000 in the sector). The low estimate of contribution to the GDP resulted in low priority for
forestry investments in five-year plans. Efforts are needed for monitoring the services
provided by the forests so as to appreciate their contribution to human well being.

Role in Indian Economy

The wooden handicrafts industry plays an important role in the Indian economy. This
industry requires low capital investment and other resources. The wooden handicraft sector
provides a high ratio of value addition, and has emerged as one of the major sources of
foreign exchange earnings for India.

Indian wooden handicrafts are much sought after the world over, and form an important
export commodity of India. Although India's handicraft exports show a consistent increase of
sixteen per cent every year, its share in the international market is not more than two per cent.

Wooden Handicrafts industry in India provides huge employment opportunities to the people
of the rural areas for this industry is highly labour. In fact the sector of wooden handcrafts in
India is the second biggest employment provider in the country. The industry provides
intensive employment to more than six million artisans who are mainly village people. In the
industry of Wooden Handcrafts in India, the rural people who usually work are women and
the weaker sections of the society. Thus the industry helps these people of the villages by
making them financially independent. The various products of Wooden Handicrafts industry
in India are furniture, boxes, photo frame, table, chess sets, penholders, wooden cupboards,
flower vases, and napkin rings.

Wooden Handicrafts industry in India has helped to uplift the condition of the rural people of
the country. The government of India thus must take steps in order to ensure that the industry
of Wooden Handicrafts in the country continues to grow and prosper. For this in its turn will
help the rural people of India to become financially more secure.

The Indian handicrafts industry is highly labour intensive, cottage based and decentralized
industry. The industry is spread all over the country mainly in rural and urban areas. Most of
the manufacturing units are located in rural and small towns, and there is huge market
potential in all Indian cities and abroad. The industry of Wooden Handicrafts in India reflects
the correct shades of rural traditional style and beauty. Wooden Handicrafts in India also
reflect the spirit of the rural craftsmanship of the country.

Handicraft industry is a major source of income for rural communities employing over six
million artisans including a large number of women and people belonging to the weaker
sections of the society.

Wooden Handicrafts industry in India has registered significant growth in the last few years.
According to the national census of handicrafts, undertaken by the National Council for
Applied Economic Research the value of handicrafts produced last year were of Rs 26, 213
Crores.

The Indian Handicraft Industry is showing continuous growth rate of 16% every year.

In spite of having diversified products, some part of Indian market are still untapped and
market is price sensitive. Products are high priced in big and metro cities, which are beyond,
reach of people belonging middle and lower middle class.
The states where Indian wooden handicraft items are manufactured are Kashmir, Himachal
Pradesh, Uttar Pradesh, and South India. Wooden handicrafts are mainly produced in these
states for the raw material for the manufacture of wooden handicrafts is easily available in
these states.

The area for setting up a handicraft manufacturing unit is decided after surveying all the
potential areas. We have selected Timrani, Harda as the location of our manufacturing unit.
This place is surrounded by sub tropical dry and wet deciduous type of forests. It is full of the
species we require for our product as raw material.
Also the surrounding area is famous for its traditional skilled work of handicraft. The major
requirement of our business is skilled and semi skilled labour which is available at reasonable
wage rate in this region. The idea behind employing local labour is that it will be more cost
effective.
Product

Our major product of wooden handicraft can be segregated under the following categories.

 Antique Woodcraft
 Wooden furniture
 Wooden Gift Items
 Wooden Kitchen accessories
 Wooden Toys and Games
 Wooden Statues
 Wooden blinds for corporate as well as domestic purposes

At initial stage we have decided to concentrate our resources and efforts on these product
categories only. After the establishment of the plan we will expand our product category.

Source of finance

We have considered the following agencies as the potential source of finance for our
business investment. After evaluation of each of this agency on the basis of some criteria we
have selected Kshetriya Grameen Vikas Bank as our source of finance.
 SWOT Analysis of the Indian Strengths
handicrafts industry
 Abundant and cheap labour hence
can compete on price
 Low capital investment and high
ratio of value addition
 Aesthetic and functional qualities
 Wrapped in mist of antiquity
 Handmade and hence has few
competitors
 Variety of products which are
unique
 Exporters willing to handle small
Threats
orders
 Increasing emphasis on product
development and design up Decline in India’s share
Opportunities gradation due to:

 Rising appreciation for handicrafts by

consumers in the developed countries  Better quality products
 Widespread novelty seeking produced by competitors
 Large discretionary income at disposal from Europe, South
of consumer from developed Africa, South Asia, etc.
countries  Better terms of trade by
 Growth in search made by retail competing countries
chains in major importing countries  Consistent quality and
for suitable products and reliable increasing focus on R&D
suppliers. Opportune for agencies to by competing countries
Weaknesses
promote marketing activities  Better packaging
 Use of e-commerce in direct  Stricter international
 Inconsistent quality
marketing standards
 Inadequate market study and
marketing strategy
 Lack of adequate infrastructure and
communication facilities
 Capacity to handle limited orders
 Untimely delivery schedule
 Unawareness of international
standards by many players in the
market
Marketing plan

Various strategies that will be used being a new entrant are

The major strategy we are going to apply in marketing of the product is to have a holistic and
integrated approach of marketing from within the plant to the target customer.
When all of the departments of any organization work together to serve the customers’
interests, the result is integrated marketing. Integrated marketing takes place on two levels.
First, the various marketing functions—sales force, advertising, customer service, product
management, marketing research—must work together.

We plan to have a strong feedback system in which the record of each product, its demand
and the variations in its price are documented. This record is provided to supervisors as well
as to the artisans so they can have clear idea of what is in demand and why it is in demand.

Steady supply with timely delivery to fulfil the demand of the domestic area as well as
outside area and good quality would be one of the strategic strength of the marketing plan.

Apart from good quality good designs are an important factor. These designs will be based on
traditional pattern so that it can impress foreign customer.

Besides from these efforts e-commerce is also a promotional tool for marketing of this
product. So we will do online selling also in order to promote my product.
So orders will also be taken online apart from fax and telephonically.

Wooden handicraft is being an unbranded commodity, so as such the manufacturers incur no

promotional expenditure. Sometimes they just increase the commissions or the margins of
these, if the targets are achieved enormously.
But in order to differentiate the product and capture the existing market and to develop strong
customer base, some strategic marketing plan is necessary to be designed and implemented.
4Ps of marketing

Marketers use numerous tools to elicit the desired responses from their target markets. These
tools constitute a marketing mix. Marketing mix is the set of marketing tools that the firm
uses to pursue its marketing objectives in the target market. McCarthy classified these tools
into four broad groups that he called the four Ps of marketing: product, price, place, and
promotion. Marketing-mix decisions must be made to influence the trade channels as well as
the final consumers. Typically, the firm can change its price, sales-force size, and advertising
expenditures in the short run. However, it can develop new products and modify its
distribution channels only in the long run.

Product Place
Product variety Channels
Quality Coverage
Design Locations
Features Inventory
Packaging Transport
Sizes
Services
Warranties
Returns

Promotion Price
Sales promotion List price
Advertising Discounts
Sales force Allowances
Public relations Payment period
Direct marketing Credit terms

We will consider all the Ps of considerable importance. But as our products is all about the
quality and uniqueness of product the more emphasis will be given on the product aspect of
the market. We plan to work on all the components of the 4Ps because Sellers’ four Ps
correspond to the customers’ four Cs in following way.

Four Ps Four Cs

Product Customer solution

Price Customer cost
Place Convenience
Promotion Communication

Winning companies are those that meet customer satisfaction economically and conveniently
and with effective communication.

Our business will be guided by the marketing concept. The marketing concept holds that the
key to achieving organizational goals consists of the company being more effective than its
competitors in creating, delivering, and communicating customer value to its chosen target
markets. The marketing concept rests on four pillars: target market, customer needs,
integrated marketing, and profitability.

Market Segmentation and Target Market

Companies do best when they choose their target market(s) carefully and prepare tailored
Marketing programs identifying correct target market understanding the customer needs is
very essential in this case. We have selected upper middle class and upper class people as our
major target market. We have selected this category of people because our product is for the
people who have already fulfilled their basic needs and those who are looking for something
more than that, also these are the people whose family annual income is in such a range that
they can spend outside their planned budget.

Value chain
Channels as partners: From thinking of intermediaries as customers to treating them as
partners in delivering value to final customers.

The distribution and selling of the product will be done in two ways.
1. Distributors
The local shops which deal with handicraft and other decorative products will be
allowed to sale our product. These local shops must be located at some prestigious
and well known market area of the cities where our target customers visit frequently.

2. Retail stores
 We also plan to have our own retail stores in cities as well as at the tourist place in the
state where demand of such product is quite significant.

Promotion
We plan to promote our product in various handicraft expos and exhibitions all over
the nation
We also plan to organize our own exhibitions at places where there is significant
market potential
We will also seek Publicity through printing and electronic mode and brand building
campaign.
We will also conduct Market assessment, product assessment study and Study cum
exposure tours for artisans and other stake holders’ tour.

Financial and Economic Aspects

GENERAL ASSUMPTIONS:
The financial evaluation of the business plan covers a 5-year period. The calculations on
production and finances in the report are based on the general assumptions stated below:

a) Production will be throughout a year.

b) Raw material will be procured by us from Timarni Depot after bidding.
c) Initial level of production will be variable depending on the resources gathered for the
initial period like number of skilled and semiskilled labors Self Help Groups, raw
materials, tools etc.
d) Thereafter, the production will be dependent on market conditions like the consumption
pattern, availability of wood, labor size and skills.
e) Assuming 20% wastage of raw material in process.
f) Revenue, raw material costs, transport, labor costs, packaging material costs and utilities
are projected over the years by 15%.
g) Miscellaneous costs are projected at 15% annually.
h) Marketing/Distribution expenses are equivalent to 10% of sales.
i) 75% of Capital will be through loan and 25% will be financed by self.
j) Interest on loan is at the rate of 12% per annum.
k) Depreciation is on straight-line basis.
FINANCING ANALYSIS

FINANCING PLAN:
Owners Contribution: 2.5 lakhs(.5 lakh per member)

Loan Request:

PROPOSED LOAN TERMS:

The loan shall be repaid in 5 years and shall attract an interest of 12% per annum.

Cost of Project    
Particulars Cost   in Rs
Land & Site development 250000
Raw Material   100000
Transport, Insurance, Maintenance   15000
Building 400000
Plant & Machinery   50000
Other Fixed Assets   60000
Preoperative Expenses   150000
Preliminary Expenses   100000
Provision for Contingency   100000
WC Margin 100000
Total   1325000

Means of Finance
Particulars Cost in Rs.
Promoter's Capital 331250
Long/ medium Term Loan from Banks 993750
Total 1325000

ESTIMATED REVENUE FROM SALES

Monthly Annual
Item Unit Price No. of Units Revenue Revenue

Antique Woodcraft 300 20 6000 72000

Wooden Furniture 2200 10 22000 264000

 Wooden Gift Item 100 30 3000 36000

Wooden Kitchen Asseccories 150 30 4500 54000

Wooden Toys and Games 80 40 3200 38400

Wooden Statue 1200 15 18000 216000

Wooden Blinds 350 10 3500 42000

Total     60200 722400

PERFORMANCE ANALYSIS
         
Items Year 1 Year2 Year3 Year4 Year5
REVENUE 722400 830760 955374 1098680 1263482
           
COSTS          
Raw material 100000 115000 132250 152088 174901
Transport, Insurance, 15000 16500 18150 19965 21961.5
Maintenance
(rise by 10% yearly)          
Interest paid 119250 119250 119250 119250 119250
Depreciation(10%) 25000 25000 25000 25000 25000
Gross profit 463150 555010 660724 782378 922370
Less 20%tax 92630 111002 132145 156476 184474
Net profit 370520 444008 528579 625902 737896

EMI for loan repayment=Rs 9937.12 Per month

Economic assumptions
1. Economics of
Assumption of important cost component –
• We assume that raw material will be available at low costand locally.
• We assume that cheap and skilled labour will help us in providing benefits
• transportation will be assumed by private small truck for low supply and
hiring of transport trucks and train bogies for big consignments and shipments
• Contract farming of trees for future and strictly according to sustainability
principles and methods.
• Electricity will be taken on industrial account which will cost less in compared
to other connections account
• Equipment and training artists will be provided on large scale so that
expenditure will be less and return on investment will be more.
Assumption of output -
Assessment of profitability-profits will be assessed on quarterly basis .although
inflation and tax changes will affect profitability but still it is assumed as per present
scenario and future forecast by economical expert that for at least ten year economic
conditions of the country will be more or less same.

Raw Material For the industry:

Non certified wooden handicrafts can be segregated under the following categories.
They are:
• Antique Woodcraft
• Wooden furniture
• Wooden Gift Items
• Wooden Kitchen accessories
• Wooden Toys and Games
• Wooden Statues
• Wooden blinds for corporate as well as domestic purposes

Depending upon handicraft category raw material is used. For example for wooden
statue rosewood, sandalwood is used. Likewise for furniture depending upon the type
and durability the raw wood is selected.

The craftsmen will be given wood that is available locally. Some of the most common
varieties used to make the handicrafts are:
• Teak,
• Sheesham,
• Sal,
• Oak,
• Mango,
• Ebony and
• Mahogany
Worth mentioning here is the fact that Sandalwood, rosewood and walnut are the
exotic varieties and are highly expensive raw materials. Hence, they will be used in
producing very niche and high end furniture and decorative items.

For the supply of raw material three sources will be used which are as follows:
• From timber depot (state forest department):
Timarni timber depot is one of the best depots in the country. The timber
procurement process involves auctioning. The price depends on species of wood and
the interested parties attending the auction. The procurement of timber will be done
by auctioning.
• From plantations in local farm by the people(Contract farming):
The local farmer will be given contract to plant certain species of timber value. These
species will be acquired on price fixed in the contract. This will ensure supply of
some species at relatively lower price as the price fixation will be done at the
plantation stage. Also this source will be sustainable in case of any problem in
acquiring timber from the timber depot.
• From plantation on acquired land(Proposed for future extension of business):
In future in order to extend the business to relatively large scale the acquisition of
land and to do plantation on the acquired land. This plantation will be used as a
backup for the supply of the timber in case of shortage. As this involves huge cost at
acquisition of land step so we will be implementing it at the later stages of the
business.

Apart from these processes some high value timber like sandal wood will be procured
from its depot and transported taking legal and safety issues into consideration.

Supply Chain of the handicraft:

The procured timber from the various sources will be transported to store house at
production site. These timbers will be then grouped into types of product to be
produced. The artisans then will add value and convert these into products. These
products are then kept into the other store house from where depending upon the
market demand the supply of product will be done through proper channel.
HRD aspect
The human capital is the most integral part of the handicraft industry. Therefore,
focussing on the human resource aspect gains utmost importance. The existing
scenario of the industry is not very promising as it is plagued by middlemen all over
the supply chain, due to which the artisans don’t get their due share. This is one of the
few reasons why handicraft industry continues to be a small/medium scale industry.
Another reason for this is the inconsistency and lack of uniformity in the finished
products, which is crucial for bringing these products to the mainstream and foreign
markets.
The handicraft industry is highly labour intensive, therefore proper focus needs to be
on the training and refinement of the existing skills. The human resources required to
achieve the due success needs to be very efficient and highly skilled. There cannot be
any compromise as far as the quality of the work is concerned. For this we can
provide the necessary training to the craftsmen. Also they can be made adept at using
updated tools and the same can be provided to then to achieve better quality of the
product. Also, we need to take care that in order to meet the demands, the very
essence and legacy of the handicrafts is not lost. There are various other roles that
HRM can play to make the industry more structured.
The craftsmen should be hired on quarterly/half-yearly basis instead of having them
on pay-roll. This would ensure the quality requirements and keep them professionally
motivated. Some of the employees who are employed for administrative and
managerial functions can be put on the pay-roll.

Legal issues:
Possible regulation affecting the forest based industry;
• Regulation of state forest department in procurement of raw materials.
• Different regulations put by the Forest Department for standards and other
aspects.
• The land acquisition act.
• Factories act.
• Taxation issues.
• Service tax at the rate of 12.5%.
• Labour act
• Restriction of employing children as labour.
Industrial Licensing is governed by the Industries (Developmental and Regulation)
Act, 1951 under which the woodbased industry was covered. There was no restriction
of putting up plywood Mill upto 1970. The only criteria was that the applicant was
required to obtain an Industrial License which was being considered by Ministry of
Industry after consulting various Ministries including Ministry of Environment &
Forests. Forest Ministry was being consulted for ascertaining sustainable raw material
of Timber for a particular project; the Woodbased Industry was more or less in
Medium and Large scale.
The Woodbased Industry was under Compulsory Industrial Licensing from 1988
whether a small scale unit or a Large/Medium unit, new undertaking or substantial
expansion would require Industrial Licence.
During 1970 there was clear cut definition of Small Scale Sector and units having an
investment of less than 7.5 lakhs in Plant and Equipment were covered under the
definition of Small Scale Sector which would be registered with the respective State
Director of Industries. At that particular stage some of the units with such investment
got themselves transferred to small scale sectors.
Meanwhile there were modern technology and machinery equipped plywood units
coming up in different places in India like North Eastern Zone. In 1997 the
Government of India totally delicensed wood based industry as a result more than
2000 small-scale units coming up.

Compliance of the regulations:

For the compliance of the regulations proactive measures are required.