HBMG14G01 – ENTREPRENEURIAL DEVELOPMENT

NOTES
UNIT 1
PART A – 4 MARKS

1. Define Entrepreneurship.

Entrepreneurship is the process of starting a business or other organization. The entrepreneur develops a
business plan, acquires the human and other required resources, and is fully responsible for its success or
failure. A.H. Cole has defined entrepreneurship as “the purposeful activity of an individual group of
associated individuals undertaken to initiate, maintain or earn profits from production and distribution of
economic goods and services.

2. Who is an Entrepreneur?

An entrepreneur is an individual who creates a new business, bearing most of the risks and enjoying
most of the rewards. The entrepreneur is commonly seen as an innovator, a source of new ideas,
goods, services, and business/or procedures.

Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate
needs and bring good new ideas to market. Entrepreneurs who prove to be successful in taking on
the risks of a start-up are rewarded with profits, fame, and continued growth opportunities. Those
who fail suffer losses and become less prevalent in the markets.

3. What are the types of Entrepreneurs?

Entrepreneurs can be classified into four major types:

1. Innovators
2. Imitators.
3. Fabian Entrepreneurs
4. Drone Entrepreneurs or Laggards

1. Innovative Entrepreneur: The innovating individuals are only designated as entrepreneurs. The
innovative entrepreneur has a special function to perform. He is the one who sees the opportunity
for introducing a new technique of production process.

2. Imitators: They are not innovative in nature. But they are ready to adopt successful innovation as
their way of life. They are known as adoptive o imitating entrepreneurs.

3. Fabian Entrepreneurs: These would always be cautious and they neither introduce new changes
nor desire to adopt new methods innovated by the most enterprising entrepreneurs.

4. Drone Entrepreneurs: These never allow any changes in their production and the style of
functioning. They refuse to adopt any new opportunities and take risk.
4. Write down the features of an entrepreneur.

Entrepreneurship is basically an activity that helps in sensing the opportunities resourcing

“innovation” and realizing the “pay-off” through the actions performed by him or her. During this
process, the individual scans an environment for opportunities, identifies them, examines the
feasibility of converting ( or changing) that opportunity into a possible enterprise for production,
drafts plan of action and then engages oneself in such activities that would cause the product. Thus
they change the opportunities into a product or service.

5. List out the characteristics of an Entrepreneur.

The following are the main characteristics of an entrepreneur.

• Innovation (Innovator)
• An urge to achieve (Achiever)
• Organizing Capacity
• Managerial Skills and Leadership
• Risk-bearing
• Decision-Making
• Gap Filling
• Influence of Religious Beliefs
• Influence of Social, Political and Economic Structure

PART B – 6 MARKS

1. Differentiate between an entrepreneur and a Manager.

S. No. Characteristics Entrepreneur Manager

1 Motive To start venture setting up an Render services in an enterprise
enterprise already set by someone else
2 Status Owner Servant
3 Risk Assumes risk and uncertainty Manager does not bear any risk
involved in enterprise.
4 Rewards Profits, which are highly Salary which is certain and
uncertain and not fixed fixed.
5 Innovation Entrepreneur himself thinks over A manager simply executes
what and how to produce goods plans prepared by the
to meet the changing needs of entrepreneur.
the customers. Hence he acts as
innovator.
6 Qualification An entrepreneur needs to A manager needs to possess
possess qualities and distinct qualifications in terms
qualifications like high of sound knowledge in
achievement motive, originality management theory and
in thinking, foresight, risk- practice.
bearing ability and so on
2. Differentiate between an entrepreneur and a Promoter.

Entrepreneur Promoter
Entrepreneur is the person who takes the risk of Promoter is the person who undertakes to
starting and managing business. form a company with reference to a given
project and to get it going, takes the
necessary steps to accomplish that purpose.
The work of the entrepreneur is to bear the risk and Promoters work in order to set up the
make innovation in business. business and make it operational.
Entrepreneurs may or may not be specialists in the Promoters are basically specialists who
field of business work to set up a new business, expand an
existing business or combine two or more
business firms.
An entrepreneur can be a promoter A promoter may or may not be an
entrepreneur.

3. Explain the essentials of Intrapreneurship.

The following are the essential elements for the success of Intrapreneurship:

❖ The strategic and structural environment within the organization should be right. The
ambience should not stifle innovation and freedom to the employees should be given to
interact freely with each other and share ideas.
❖ An appropriate work force of enterprising people should be built in by scientific
recruitment. Talents of the employees should be recognized and their key skills should be
trained.
❖ Support system, team working, information sharing and learning are essentials for invoking
the dormant talents of employees.
❖ Successful employees should be suitably rewarded. An Intrepreneurial organization should
have a magnetic feeling in which style of management is more coaching than instructional.
Employees should be fond of their workplace.

4. Explain the importance of Entrepreneurship.

The following are the benefits of Entrepreneurship to an Organisation:

1. Development of managerial capabilities:

The biggest significance of entrepreneurship lies in the fact that it helps in identifying and
developing managerial capabilities of entrepreneurs. An entrepreneur studies a problem, identifies
its alternatives, compares the alternatives in terms of cost and benefits implications, and finally
chooses the best alternative. These managerial capabilities are used by entrepreneurs in creating
new technologies and products in place of older technologies and products resulting in higher
performance.
2. Creation of organisations:

Entrepreneurship results into creation of organisations when entrepreneurs assemble and coordinate
physical, human and financial resources and direct them towards achievement of objectives through
managerial skills.

3. Improving standards of living:

By creating productive organisations, entrepreneurship helps in making a wide variety of goods and
services available to the society which results into higher standards of living for the people.
Possession of luxury cars, computers, mobile phones, rapid growth of shopping malls, etc. are
pointers to the rising living standards of people, and all this is due to the efforts of entrepreneurs.

4. Means of economic development:

Entrepreneurship involves creation and use of innovative ideas, maximisation of output from given
resources, development of managerial skills, etc., and all these factors are so essential for the
economic development of a country.

5. What are the qualities of an entrepreneur?

Some of the principal qualities of entrepreneurs are discussed below:

• Hardwork: Most of the successful entrepreneurs work hard endlessly with the tedious,
sweat-filled hours and perseverance revive their business even from the verge of failure.
• Desire for high achievement: The entrepreneurs have a strong desire to achieve high goals
in business. This high achievement helps them to overcome the obstacles, suppress
anxieties, repair misfortunes and devise adventures to run a successful business.
• Highly optimistic: The successful entrepreneurs are not disturbed by the present problems
and they optimistically look forward to the future situations favourable to business.
• Independence: The successful entrepreneurs like to be independent and they do not like the
guidance of others in the matters of their business.
• Foresight: The entrepreneurs visualize and predict the likely changes to take place in the
market, consumer attitude, technological developments etc. and take timely action
accordingly.
• Innovative: In order to satisfy the changing tastes of the consumers from time to time, the
entrepreneurs initiate research and innovative activities to produce goods in accordance with
market demand.

PART C – 10 MARKS

1. Describe Functions of an Entrepreneur.

An entrepreneur performs all the function right from conceiving of an idea up to the establishment
of an enterprise. He is an opportunity seeker. He organises and coordinates the factors of
production. His main functions are discussed below:
• Generating Business Idea: Generation of idea is the first and foremost function of an
entrepreneur. Essentially there are only two ways in which business ideas can be created
namely (1) Generating own idea, or (ii) developing someone else’s idea. The second is far
more common because virtually every successful business is a development of an earlier
business concept. These include areas such as management buy-outs or buy-in, corporate
spin-off, franchising and buying existing business terms of generating business ideas.
• Determining business objectives: The next function of an entrepreneur is determining
objectives. He should lay down his objectives clearly. He should clearly state the nature and
type of business. In other words, he has to specify clearly whether the business, which he
decides to start, belongs to manufacturing activities or trading or service oriented
organization. It will enable him to carry on the activities without any hesitation.
• Product Analysis: The next important function of an entrepreneur is product analysis and
market research. He should contact market research in order that the data regarding the
product, which he likes to manufacture, can be systematically collected. It should be carried
on persistently because it gives him the information regarding the demand for the product,
supply of the product, price of the product, size of the customers etc.
• Deciding the form of an enterprise: Another important function of an entrepreneur is
deciding the form of an enterprise. It should be decided by taking into account the factors,
such as nature of the product, volume of investment, nature of activities, types of products,
quality of products, quality of human resources and so on.
• Promoting the enterprise: Once the form of ownership is decided, the next step is
undergoing the necessary legal formalities as required under the relevant stature, if any, to
establish an organization. In case of sole trading, concern and partnership firms, there are
not many legal formalities when compared to joint stock companies and cooperative
societies.
• Raising necessary funds: Finance is the life-blood of any business because all the activities
of a business depend on it. Hence raising of finance is considered as the most important
function of an entrepreneur. He needs funds for purchasing assets, carrying out day-to-day
activities, meeting establishing expenses etc. He raises funds internally as well as externally.
• Procurement of machine and material: The next function is procuring machines and raw
materials. Machines and equipments are purchased and installed in the initial stage itself.
While purchasing them, he should consider the aspects like technology adapted, installed
capacity of the technology adapted, installed capacity of the machines, details of
manufacturers and suppliers, country in which the machines are manufactured (whether they
were made domestically or in a foreign country). Availability of after sales service facilities
and warranty period given and so on. This enables entrepreneurs to buy quality machines at
cheaper rates.
• Recruitment: Recruiting of suitable personnel for the various activities of the enterprise is
another important function of an entrepreneur. First of all, entrepreneur has to estimate the
manpower need of the enterprise. Then he has to lay down the selection procedure. He
should devise suitable method of compensation. Arrangements should be made forgiving
training to personnel to the jobs which they have been recruited.
 • Undertaking the activities: This is the stage of implementing the project. It should be done
in a time-bound manner. He should perform it as per schedule. This will enable him to avoid
cost and time overrun and also competition.

2. Whether Entrepreneurs are born or made –Discuss.

An entrepreneur is a person or an individual who creates a business that could either be a big or a
small business venture. He or she is an innovator with great business plans, new ideas, and services.
This helps in the development of a countries economy and also providing employment
opportunities. The three most important resources that an entrepreneur requires is capital, land, and
labour. Without these, he or she will not be able to achieve their dream venture. An entrepreneur
has the ability and skills which can either lead him to the path of success where he can rise to fame.
They then look for further growth opportunities. It can also lead to a failure where he will have to
bear financial risks and also may become less popular in the market.

Are Entrepreneurs Born?

To some extent, there is truth in this statement that an entrepreneur is born. There are two types of
entrepreneurs born. First is the one who is born into a family that already owns a business. The
second type of entrepreneur is the one who has no resources and no knowledge when it comes to
investment, but he or she is full of ideas.

• It is not necessary that an entrepreneur’s son or daughter has to become an entrepreneur.

However, it becomes easy for an individual who is born in a family that already runs a
business venture to get into the family business. It is because entrepreneurship runs in the
family.
• Entrepreneurs require resources like capital, land, and labour. It is usually not that difficult
to achieve these since these resources are already available in the family business.
• In such situations the drawback is that the entrepreneur born in a business family shy’s
away from starting their own business. He or she focuses only on running the family
business and to carry forward the name attached to the business for generations to come.

Are Entrepreneurs Made?

Many such individuals shape themselves to own a business. Who dares to dream big, and this is
because they have a powerful burning desire to be self-employed. Such individuals also go to any
extent to take up risks.

• Yes, Entrepreneurs are made. These are individuals who are positive and with powerful self-
confidence. They want to be admired as a self-made man or woman.
• Such individuals do not grow overnight, but they grow with time. It could be a dream or a
vision that they have always wanted to achieve since their childhood.
• Over the years, they have successfully observed the surrounding environment. Maneuvered
through many obstacles and experiences in life which has helped them to become an
entrepreneur.
 • It is their passion to create something new which makes them an entrepreneur. It can also be
said that an entrepreneur is created through education. With the knowledge that he or she
receives through lessons which help the individual to be exposed to new ideas.
• Education helps individuals discover the skills and the natural talents that they already
possess. It helps them to successfully use those skills in becoming an entrepreneur.
• However, there is one thing that education cannot teach, and that is to take risks. A self-
made entrepreneur can bear risks and take up new challenges.

3. List out and explain the types of entrepreneurs.

Entrepreneurs can be classified into four major types:

1. Innovators: The innovating individuals are designated as entrepreneurs. There is a difference between the
ordinary producers and innovators. The ordinary producers are repeating the same production for years
together whereas the innovators who produces new goods in new way and do enter into new markets by
undertaking new methods of organization. The innovative entrepreneur has a special function to perform that
is the function of new combinations and introduction of inventions in the company. He mobilized funds to
establish an enterprise, assembles the various inputs, chooses required personnel and sets the organization
going.

2. Adoptive or Imitative Entrepreneurs:

These entrepreneurs are not innovative in nature. But they are ready to adopt successful innovation as their
way of life. They are known as adoptive or imitating entrepreneurs. The imitators do follow the innovators
and design their production. What they do is , just imitate the successful entrepreneurs and combine the
business. They imitate techniques and technology innovated by others. Due to lack of funds, technology and
technical skill, the entrepreneurs in developing nations would only imitate the successful innovators of
developed nations.

3. Fabian Entrepreneurs:
These entrepreneurs would always be cautious and they neither introduce new changes nor desire to adopt
new methods innovated by the most enterprising entrepreneurs. The fabian entrepreneurs are lazy and they
would follow old customs, tradition and sentiments, with the result, they are totally uninterested in taking
risk and imitating successful entrepreneurs.

4. Drone Entrepreneurs:
These types of entrepreneurs never allow any changes in their production and style of functioning. They
refuse to adopt any new opportunities and take risk. They may even meet losses due to obsolete methods of
production, but they do not change their production methods and continue to adopt traditional ways in
production processes. They are also known as laggards who would be pushed out of the market when their
product loses its marketability.

Apart from this classification of entrepreneurs, there are some other types of entrepreneurs found in
the society. They are:

• Institutional Entrepreneurs: Creation of entrepreneurs by the government through various

financial and promotional institutions is a must for developing nation. The group of
entrepreneurs functioning in the organizations are known as institutionalized entrepreneurs.
 • Entrepreneurs by Inheritance: Inheritance of family business by the members of the
family has become usual way of accepting entrepreneurship as a vocation. In some of the
communities, the members do the family business inherited from their forefathers.
• Technologist Entrepreneurs: A man, who has completed technical education, is eligible to
become an entrepreneur in the present conditions. When the technical persons start business,
they become technologist entrepreneurs.
• Forced Entrepreneurs: The persons who are driven out from other vocations are forced to
start business to run their life. For instance, the money lenders of yester years, the rich
Indians returning from abroad and the educated unemployed are falling in this category.

4. Explain in detail about the factors influencing entrepreneurship.

Five factors will be a key to entrepreneurial success: creativity, tolerance for risk, responsiveness to
opportunities, leadership and the ability to take advantage of the rights afforded to you.

Creativity and Accumulation of Ideas

Do not be dissuaded by the challenge to be creative. You need not be the original wheel creator to
improve upon a stone cylinder. By standing on the shoulders of giants, you can take existing ideas
and make small improvements upon them. Your best ideas may come to you as you are falling
asleep or while you are taking a shower. Recognize when you have a fresh idea and do not let them
get away from you. Write them down! Not every idea has to be a home run. By accumulating your
ideas, you will be able to distil the great ones from the rest and be ready to run with the best.

Risk Tolerance and Taking Advantage of Opportunity

Rewards rarely come without risk. Your ability to take advantage of an opportunity will depend, in
part, on your tolerance for risk. As the founder of a start-up, investors will expect you to have a
vested interest in your business. If you will not bet on your idea, why should anybody else?

If you cannot afford the risk, financially or emotionally, then you might make decisions that are too
tepid to be successful. To do well, an entrepreneur needs the strong sense of self-efficacy to believe
the risk will be surmountable.

Responsiveness to Opportunity

Opportunity can leave quickly. With the internet, the spread of information and ideas has led to
deeper, faster competition to be the first mover. The ability to respond to the market and new
business opportunities can be the difference between a successful entrepreneur and a failed business
model.

To be responsive, an entrepreneur must have the flexibility of mind and resources necessary to see
and take advantage of new and upcoming possibilities. Learning from your mistakes and those of
others to implement change can keep businesses afloat. Calcifying rigidity, on the other hand, can
turn a start-up into dust.
Leadership and Inspiring Others

It is up to the entrepreneur to marshal assets. Leaders are challenged with taking possibilities and
turning them into inspiring visions for others. You will inevitably have to sell either your idea or
your product to begin your entrepreneurship. It will be up to the entrepreneur to take the idea and
turn it into actions and products to capitalize on the opportunity. Leadership can come in many
forms, but it is nevertheless essential to entrepreneurship. You must take the lead for your ideas to
come to fruition.

Intellectual Property Rights

Intellectual property laws can provide you with exclusive business rights to your ideas. If you do
not protect your ideas, they may be copied – cheaply. Once an idea is in the public domain, it may
no longer be possible to use that idea as a competitive advantage. Society values ideas being
shared.

5. Give an account of advantages that an entrepreneur enjoys and obstacles he faces.

Advantages of being an Entrepreneur:

• CONTROL. You choose the work you like to do and that makes the most of your strengths
and skills. The result can be more job satisfaction.
• EXCITEMENT. Entrepreneurship can be exciting and many entrepreneurs consider their
work highly enjoyable. Each day is filled with new opportunities to challenge your abilities,
skills, and determination.
• FLEXIBILITY. Entrepreneurs can schedule their work hours around other commitments,
including spending quality time with their families.
• FREEDOM. Freedom to work whenever they want, wherever they want, and however they
want draws many to entrepreneurship. Most entrepreneurs don’t consider their work actual
work because they are doing something they love.
• RATIONAL SALARY. As an entrepreneur, your income is directly related to your efforts
and the success of your business.

Disadvantages/Obstacles of an Entrepreneur:

• ADMINISTRATION. While making all the decisions can be a benefit, it can also be a
burden. Being an entrepreneur comes with a lot of paperwork that can take up time and
energy.

• COMPETITION. Staying competitive is critical as a small business owner. You will need
to differentiate your business from others like yours in order to build a solid customer base
and be profitable.

• LONELINESS. It can be lonely and scary to be completely responsible for the success or
failure of your business.
 • NO REGULAR SALARY. Being an entrepreneur often means giving up the security of a
regular pay check. If business slows down, your personal income can be at risk.

• WORK SCHEDULE. The work schedule of an entrepreneur can be unpredictable. A major

disadvantage to being an entrepreneur is that it requires more work and longer hours than
being an employee.

UNIT 2
PART A – 4 MARKS

1. Write a short note on Commercial Banks.

A Commercial Bank is a financial institution which performs the functions of accepting deposits
from the general public and giving loans for investment with the aim of earning profit. In fact,
commercial banks, as their name suggests, are profit-seeking institutions, i.e. they do banking
business to earn profits. They generally finance trade and commerce with short-term loans. They
charge high rate of interest from the borrowers but pay much less rate of Interest to their depositors
with the result that the difference between the two rates of interest becomes the main source of
profit of the banks.

2. What are DICs?

The District Industries Centres were established on May 8, 1978 in order to provide integrated
administrative framework at district level for promotion of small-scale industries in rural areas.
DICs are the implementing agencies of various schemes and programmes of central and state
governments. The main objective of DIC is to provide a package of assistance needed for setting up
small cottage and tiny industries under a single roof. Each district has a DIC at its head quarters and
the metropolitan cities Delhi, Mumbai, Kolkata and Chennai are kept outside the purview of DIC.

3. What are the objectives of ICICI?

The major objective of the ICICI was to meet the needs of the industry for permanent and long-term
funds in the private sector. In general, major objectives of the corporation are:

• To assist in the creation, expansion and modernisation of industrial enterprises in private

sector.
• To encourage and promote the participation of private capital, both internal and external in
such enterprises.
• To encourage and promote private ownership of industrial investment and expansion of
markets.
• To provide equipment finance.
• To provide finance for rehabilitation of industrial units.

4. State the various development banks functioning in India.

In India, we have development banks such as:

 • IDBI – Industrial Development Bank of India.
• ICICI – Industrial Credit and Investment Corporation of India.
• SFC – State Finance Corporation.
• NIDC – National Industrial Development Corporation
• IRC – Industrial Reconstruction Corporation.

5. Write short notes on IDBI.

The Industrial Development Bank of India is the apex financial institution in the field of
development banking in the country. It was established in July, 1964 with the twin objectives of:

(a) meeting the growing financial needs of rapid industrialization in the country, and
(b) coordinating the activities and assisting the growth of all institutions engaged in financing
industries.

It is an organization with sufficiently large financial resources which not only provides direct
financial assistance to the large and medium-large industrial units, but also helps the small and
medium industries indirectly by extending refinancing and re-discounting facilities to other
industrial financing institutions. Thus, the primary aim of the IDBI has been to integrate the
structure of industrial financing institutions and to fill the gap between demand and supply of term
finance in the country.

PART B – 6 MARKS

1. State the functions of NSIC.

The functions of National Small Industries Corporation Ltd. (NSIC) are listed below:

• Financial Assistance: NSIC provides financial assistance for the production and marketing
activities under one roof. It gives working capital finance to small entrepreneurs as well as
export orient units. It also provides pre and post shipment finance. Besides, it assists in the
preparation of proposal and completion of formalities.
• Provides for equipment leasing: Its equipment leasing scheme enables leasing of
equipment for modernization, expansion and diversification of new as well as existing
enterprises. It enables the completion of import formalities under single window scheme.
Under the scheme, it procures licence and opens letter of credit.
• Hire purchase financing: All SSI units registered with DIC having investment in fixed
assets upto a maximum of Rs. 300 lakhs are eligible to get hire purchase financing facility
of machines. The units may be of old ones or newly established enterprises. Security in the
form of 25% investment in NSIC or collateral security is to be given. The rate of interest is
normally charged at 14.5%.
• Enables single point registration: NSIC enables small scale industrial units to register
them under a single point. Registered units can get tender sets free of cost and also
intimation of tenders issued by DGS and D in advance. Such units are exempted from
earnest money deposit. It need not give security deposit.
 • Facilitates Training: NSIC has set up five training centres at Okhler (Delhi). Howrah,
Chennai, Rajkot and Hyderabad so as to provide training. These centres also organize
special training programmes, develop prototypes of machines and tools and import
substitutes.
• Enables small scale enterprises to obtain required technologies: It has set up technology
transfer centre to enable small scale enterprises to get the required technology. It also
publishes journals, catalogues, conference papers etc. in the field of science and technology.
It also organizes seminars and conferences.
• Assists in Marketing: It participates in global tenders on behalf of small scale enterprises.
It helps them in the production of quality products. It organizes trade fair and exhibitions.
• Export assistance: As NSIC is a recognized export house, smart-scale units can export
their products through it and avail export benefits. NSIC itself spends marketing and quality
goods at cheaper rates.

2. What are the functions of SISI?

Small Industries Service Institutes (SISIs) were set up with an objective of providing consultancy
and training to small entrepreneurs. It covers both existing as well as prospective entrepreneurs.
The Industrial Management Training Division of the DCSSI’s office coordinates its activities. At
present there are 28 SISIs and 30 branch SISIs are functioning all over the country.

Functions:

1. To serve as interface between central and state governments.

2. To render technical support services.
3. To conduct entrepreneurship development programmes.
4. To initiate promotional programmes.
5. To assist in preparing project profits, training trade and market information, economic
consultancy, state industrial potential survey and modernisation studies.
6. Co-ordination with DICs.
7. Preparation of directory of specific industry.
8. To control the pollution.
9. Other action plan activities assigned by head quarters.
SISIs and its branches have common facility workshops in various trades. There are at present 42
such common facility workshops attached to SISIs/Branch SISIs.

3. What are the differences between commercial bank and development banks?

Commercial Banks Development Banks

Provide short term loans
Accept deposits from the public
Direct finance to customers
Play an important role in the money market
Provide long term loans
Accept deposits from Commercial Banks.
Central and State Governments.
Provide refinancing facilities to Commercial
Banks
Play an important role in capital market by
providing long term loan and under taking hire
 purchase, lease finance, housing loan.
Public Sector banks have their share capital Central and State governments contribute
contributed by the government while private capital.
sector banks have share capital contributed by
the public.
Promote savings among the public and help They promote economic growth of the country.
commercial activities

4. Discuss the functions of SIDO.

Small Industries Development Organization (SIDO) was established in 1954 on the basis of the
recommendations of the ford foundation. SIDO provides economic information services and
advises government in policy formulation for the promotion and development of SSIs.

Its main functions are:

1. Co-ordination – SIDO’s functions relating to co-ordination are as follows:

• It evolves a national policy for the development of SSI units.

• It coordinates the policies and programmes of various state governments.

2. Industrial Development: its functions relating to industrial development are as follows:

• Reserving items for the production of SSI units.

• Collecting data on consumer items imported to encourage the selling up of industrial units
to produce them by giving necessary assistances.

3. Extension: Besides the above said functions, it performs the following extension functions also

• Provision for technical services for improving technical process, production planning,
selecting appropriate machinery, preparing factory layout and design.
• Providing consultancy and training services for strengthening the competitive ability of SSI
units.

5. Give an account of the working of the SFCs.

At the time of forming the Industrial Finance Corporation, it was recognized that an all India
Institution like the IFCI cannot cater to the needs of all types of industries particularly small and
medium industries in different states.

Objectives of the SFCs: The principal object of the SFCs is to provide medium and long-term
financial assistance to small industrial enterprises particularly in circumstances when normal
banking accommodation is not available. This assistance is available for satisfying medium and
long-term capital requirements.
Forms of Assistance of the SFCs: The SFCs are permitted to provide assistance to industrial
concerns in the following forms:

1. Guaranteeing loans or advances or subscribing to debentures of industrial concerns,

repayable within 20 years.
2. Guaranteeing loans obtained by industrial concerns on such terms and conditions as may be
mutually agreed upon. But they should be repayable within 20 years.
3. Guaranteeing deferred payment of any industrial concern, which purchases capital goods
within India.
4. Underwriting the issue of stocks, bonds or debentures of industrial concerns subject to their
being disposed of in the market within 7 years.
5. Providing foreign exchange loans under the World Bank Scheme.
6. Participating in equity capital of small scale industrial units coming up in backward areas.

PART C – 10 MARKS

1. State the financial assistance provided by the government to the small scale industries.

The following are some of the financial assistance provided by the government to small scale
industries.

1. Reservation: To protect the small-scale industries from the competition posed by large-
scale industries, the Government has reserved the production of certain items exclusively
for the small-scale sector. The number of items exclusively reserved for the small-scale
sector has been considerably increased during the Five Year Plan period and now stands at
822.
2. Preference in Government purchase: The Government as well as Government
organizations show preference in procuring their requirements from the small-scale sector.
The National Small-Scale Industries Corporation assists the SSI units in obtaining a greater
share of Government and Defence purchases.
 3. Price Preference: The SSI units are given price preference up to a maximum of 15 percent
in respect of certain items purchased from both small-scale and large-scale units.
4. Supply of raw materials: In order to ensure regular supply of raw materials, imported
components and equipments, the Government gives priority allocation to the small-scale
sector as compared to the large-scale sector. Further, the Government has liberalized the
import policy and streamlined the distribution of scarce raw materials.
5. Excise duty: In respect to SSI units, excise duty concessions are granted to both registered
and unregistered units on a graded scale.

2. Describe the functions of DIC (District Industries Centre).

The District Industries Centre Programme was started in 1978 as a centrally sponsored scheme with
an object of providing all the services and support to village and small-scale enterprises under a
single roof for the effective development of small scale industry in the widely dispersed rural areas
and small towns of the country.

The important functions of DICs are summarized as follows:

1. Identification of Entrepreneurs: DICs’ main function is to identify new entrepreneurs for

which they conduct motivated programmes throughout the district, especially in the head
quarters of Panchayat Union.
2. Conducting Surveys: DICs conduct survey on the potential of industries to select projects.
They conduct survey of the existing and traditional and new industries, raw materials and
human resources. Based on these surveys and reports they offer technical advice to
entrepreneurs so that they select the projects that are suitable to them.
3. Registration under SSI: They register the SSI, which selects the projects provisionally
initially, and thereafter permanent registration is also made. Registration enables SSI units
to get assistance from financial institutions.
4. Recommending the loan: DICs recommend the application form of SSI units for the
purchase of land and buildings to various financing institutions functioning at state and
centre levels.
5. Guiding in selection of Machinery and Equipment: DIC guide the entrepreneurs in
selecting suitable machinery, equipment, material etc. It issues necessary certificate for
importing and exporting machinery etc. The DIC indicates the locations where from
machinery and equipments can be acquired and also arrange for supply of machinery on hire
purchase basis.
6. Help in getting clearance from various departments: DICs help entrepreneurs to get
clearance from various departments such as electricity department, pollution control board
and so on.
7. Sanctioning of interest-free sales tax loans: DICs sanction for the interest free sales tax
loan up to 5 % of the total fixed assets.
 8. Providing Training: DICs also conduct training courses for the entrepreneurs of small and
tiny units. They act as an intermediary between the entrepreneurs and the small industries
service institutes in order to introduce new and improved products and quality developed by
the latter to the former. They also assist institutions which give training to rural small
entrepreneurs.
9. Giving self-employment to unemployed youths: DICs give opportunity to unemployed
educated youths between the age of 15 and 25 years to become self-employed.
10. Giving special attention to Khadi and Village industries: DICs give special attention to
the development of Khadi and village industries and other cottage industries. They also keep
close contact with the state khadi board and organize training programmes for rural artisans.

3. Explain the role of Commercial Banks and Entrepreneurial Development.

Commercial banks assist in providing the financial requirements of entrepreneurs for their projects.
The total bank borrowings may take the form of term loan or working capital loan. The Indian
commercial banks generally do not make advances for longer periods.

The Government of India, to encourage term financing by commercial banks, sponsored a formal
scheme of term loans in 1958, under which the banks were to be provided refinancing facilities
against approved term loans from the Refinance Corporation for Industrial Ltd (RCI).

• Refinance facility to Commercial banks: This was granted only against those term loans
which fulfil the following eligibility requirements.
1. The loans should be for a period ranging between three to ten years.
2. The maximum amount of loan to any one party under the scheme should not
exceed Rs. 1 crore outstanding.
3. The loan should have been granted for the purpose of increased production in
industries which are listed for development in the five year plans or which
serve the purpose of the plans.
• Participation Loans: The commercial banks also finance large industrial projects in
participation agreement with other term lending institutions and IDBI. Such participation
loans have a common term loan agreement. The participating banks decide on the amount of
contribution by each bank and other terms and conditions for the loan repayment
programme. The banks charge and agreed uniform rate of interest to the entrepreneurs
availing the loans.
• Situations for term financing: Term financing is mainly availed by entrepreneurs for the
establishment of the new industrial units, acquisition of fixed assets, expansion of capacity
or modernization and so on.
• Commercial Bank’s method of sanctioning term loans: Commercial banks have devised
an application form to be filled by aspirant borrowers. The bankers, on receipt of
applications, make a preliminary examination of the project proposal and whether it has an
acceptable purpose and falls in line with Government’s policy. They also check whether the
promoters are in possession of industrial licence, approvals for foreign collaboration, capital
goods clearance for import of equipment. The banker’s next step is the appraisal of the loan.
4. Detail about Functions, Management and Activities of the IFCI.

Government of India set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a
special act. This is the first financial institution set up in India with the main object of making
medium and long term credit to industrial needs.

The functions of the IFCI are as follows:

➢ The corporation grants loans and advances to industrial concerns.

➢ Granting of loans both in rupees and foreign currencies.
➢ The corporation underwrites the issue of stocks, bonds, shares, etc.
➢ The corporation can grant loans only to public limited companies and co-operatives but not
to private limited companies or partnership firms.

Organization and Management:

The Head Office of the IFCI is in New Delhi. It has also established its Regional offices in
Mumbai, Chennai, Kolkata, Chandigarh, Hyderabad and Guwahati.

The IFCI is managed by a Board of Directors, headed by a Chairman, who is appointed by the
Government of India, in consultation with RBI. The chairman holds his position for a period of 3
years, subject to extension.

Of the 12 directors, 4 are nominated by the IDBI, three of whom are experts in the fields of
industry, labour and economics and the fourth is the General Manager of the IDBI. The remaining 8
directors are nominated.

Activities of the IFCI:

The promotional activities of IFCI are explained below:

1. Soft Loan Assistance: This scheme provides soft loan assistance to existing industries in
small and medium sector for developing technology through in-house resources.
2. Entrepreneur Development: IFCI provides financial support to EDPs conducted by
several agencies all-over India in co-operation with Entrepreneurship Development Institute
of India.
3. Industrial Development in Backward Areas: IFCI also take measures to promote
industrial development in backward areas through a scheme of concessional finance.
4. Subsidised Consultancy: The IFCI gives subsidised consultancy for,
(i) Small Entrepreneurs for Meeting the cost of project
(ii) To do market research
(iii) Reviving sick units.
(iv) Implementing Modernization
(v) Controlling Pollution in Factories
 5. Management Development: To improve the professional management, the IFCI sponsored
the Management Development Institute in 1973. It established the Development Banking
Centre to develop managerial, manpower in industrial concern, commercial and
development banks.

5. Explain the various forms of assistance rendered by SIDBI.

The Small Industries Development of India (SIDBI) , a wholly owned subsidiary of IDBI, is the
principal financial institution for promotion, financing and development of industry in the small,
tiny and cottage sectors and coordinating the functions of other institutions engaged in similar
activities.

Forms of Assistance of SIDBI:

1. Refinancing of term loan granted by SFCs, SIDCs, Commercial Banks and other eligible
financial institutions.
2. Direct discounting and rediscounting of bills arising out of sale of machinery/capital
equipment/components by manufactures in the small scale sector.
3. Providing term loans and equipment finance to existing well-run small scale units taking up
technology upgradation/modernization.
4. Providing assistance for infrastructure development, creation of marketing channels and for
the development of industrial areas.
5. Providing equity type assistance to special target groups like new promoters, women and
ex-servicemen under schemes like seed capital scheme, National Equity Fund (NEF),
Mahila Udayam Nidhi (MUN) and self-employment scheme for ex-servicemen (SEMFEX).
6. Providing resource support and offering technical and related support services for the
development of small sector.
7. SIDBI grants direct assistance as well as refinance loans extended by primary lending
institutions for financing export of products manufactured by industrial concerns in the
small scale sector.
8. SIDBI provides services like leasing, factoring etc. To Industrial concerns in the small scale
sector.
9. SIDBI extends financial support to state small industries development corporations for
providing scarce raw materials and marketing the end products of industrial units in the
small scale sector.
10. SIDBI provides financial support to National Small Industries Corporation for providing
leasing, hire-purchase and marketing support to industrial units in the small scale units.
UNIT 3
PART A – 4 MARKS

1. What is break-even point?

Break-even point analysis is the analysis of cost volume profit relationships. Breakeven point is the
point at which total cost equals total revenue. It is a point of no profit, no loss. This is the point
where total costs are recovered. If sales go up beyond the break-even point, enterprise makes profit.
If they come down, it makes loss.

2. State the meaning of feasibility study.

Feasibility study refers to a structured and systematic analysis of the various aspects of a proposed
entrepreneurial venture designed to determine its workability. A well prepared feasibility study can
be an effective evaluation tool to determine whether an entrepreneurial idea is a potentially
successful one. It can also serve as a basis for all important business plans.

3. What is meant by project report?

Project report is a written document that summarises a business opportunity and defines how the
identified opportunity is to be seized and exploited. It is a scheme to design a proposal of something
intended or devised. It helps in identifying and clarifying many of the issues that need to be
addressed as an entrepreneurial venture organized, launched and managed.

4. List out the sources of business areas.

The various sources of ideas are:

❖ Personal interest or hobbies.

❖ Work Experience
❖ Products and services currently available.
❖ Discussion with people.
❖ Success of friends and relatives.
❖ Experience of existing entrepreneurs.
❖ Short supply/excess demand for certain goods.
❖ Advertisements.
❖ Exhibitions and trade fairs.
❖ Creative Thinking
❖ Research Institutions.

5. What are the sources of finance?

The two main sources of finance are:

(i) Internal Sources: The internal sources of financing could be owner’s capital known as
equity, deposits and loans given by the owner, partners, directors, as the case may be to
the enterprise.
 (ii) External Sources: The external sources of financing could be funds known as long
term funds like shares, debentures, financial institutes and short term funds like
commercial banks, public deposits etc.

PART B – 6 MARKS
1. Explain the concept of project life cycle.

Every project has a beginning, a middle period during which activities move the project toward
completion, and an ending. A standard project typically has the following four major phases. Taken
together, these phases represent the path a project takes from the beginning to its end and are
generally referred to as the project “life cycle”.

i. Initiation Phase: During this phase, the project objective or need is identified. This can be
a business problem or opportunity. An appropriate response to the need is documented with
recommended solution options. Once the recommended solution is approved, a project is
initiated to deliver the approved solution and a project manager is appointed. The major
deliverables and the participating work groups are identified, and the project team begins to
take shape. Approval is then sought by the project manager to move onto the detailed
planning phase.
ii. Planning Phase: The next phase is where the project solution is further developed in as
much detail as possible and the steps necessary to meet the project’s objectives are planned.
In this step, the team identifies all of the work to be done. The project’s tasks and resource
requirements are identified, along with the strategy for producing them. This is also referred
to as “scope management”. A project plan is created outlining the activities, tasks,
dependencies and timeframes.
iii. Implementation (Execution) Phase: During the third phase, the implementation phase, the
project plan is put into motion and the work of the project is performed. It is important to
maintain control and communicate as needed during implementation. Progress is
continuously monitored and appropriate adjustments are made and recorded as variances
from the original plan. Once all of the deliverables have been produced and the customer
has accepted the final solution, the project is ready for closure.
iv. Closing phase: During the final closure phase, the emphasis is on releasing the final
deliverables to the customer, handing over project documentation to the business,
terminating supplier contracts, releasing project resources, and communicating the closure
of the project to all stakeholders. The last remaining step is to conduct lessons-learned
studies to examine what went well and what didn’t.

2. What is financial appraisal?

Financial appraisal is an objective evaluation of the profitability and financial strength of a business
unit. Many a times, the terms financial performance appraisal and financial statement analysis are
used as synonymous. The techniques of financial statement analysis are used for the purpose of
financial appraisal.
The appraisal of the financial aspects involves scrutiny of the following:

1. Cost of the project and means of financing: The financial plan for meeting the cost of the
project depends on how accurately the cost is estimated. The estimate will have to provide
for
• Land and site development
• Plant and machinery
• Technical know-how fees.
• Preliminary expense.
• Pre-operative expense
• Interest during construction
2. Cash flow estimates: In the cash flow statement, profit is the most important source of
inflow and profit depends on how accurately the cost of production and sales estimates has
been arrived at. Profit that is considered as an inflow could increase or decrease depending
on management policies followed in the borrowing unit.
3. Projected balance sheets. The projected balance sheets report the effect of the plan of
operations on the assets, liabilities and capital of the business unit. In analyzing the
projected balance sheets, attention is to be focused on the movement of funds and also
analyze the impact of the term loan granted by the financial institution on the assets and
liabilities of the business unit.

3. What do you mean by feasibility report? Explain its contents.

The feasibility report is prepared by the promoter after the project’s formulation stage has been
passed by the project. The report that contains all the factors that contributes for the feasibility
(possibility) of the project is known as feasibility report.

The feasibility report contains the following information:

1. Introduction: A general descriptive explanation about the nature and extent of the industry
is given in this part. It analyzes the public policy with respect to the industry along with
capital investment, nature of production and form of organization of the industry.
2. Selection of project – an overview: The feasibility report should contain a description
regarding the process and know-how chosen for the project. Among other things, details
regarding the area chosen for the project, the facilities available in that area and the
environment benefits should be presented.
3. Project Analysis: Project Analysis means identification of problem and selects the problem
suitable for the situation. A detailed statement regarding the resources required for
consumption and production and various cost of operation should also be given.
4. Market Research: Marketing analysis involves examining the supply and demand factors
of the product, as well as the requirements of the product, considering the competitors prices
and the price trends for the past years.
5. Financial Analysis: The objective of financial analysis is to describe the project from the
financial angle and its characteristics. It concerns with the estimation of various costs,
including project operating costs and project funds requirements.
 6. Socio-cost benefit analysis: The overall benefit of the project on the society should be
stated in the feasibility report. While financial analysis describes the project from the
profitability point of view, social-cost benefit analysis evaluates the project from the point
of view of national viability.

4. What are the various methods of generating ideas?

There are four different approaches to generate ideas. They are:

1. Environmental Scanning: This technique can be used to screen large amounts of

information to detect emerging trends. Some important ideas that stimulate the own idea
creation by scanning the world are
• Read local and other major metropolitan newspapers.
• Read business publications.
• Read popular consumer and news magazines
• Review government and consumer publications.
• Pay attention to commercials
• Browse through the magazine section of a bookstore.
• Walk through a local shopping mall to see what’s there
2. Creativity and creative problem solving: Creativity is the ability to combine ideas in a
unique way or to make unusual associations between ideas. The whole area of creativity and
creative problem solving are a structured technique for generating ideas.
3. Brainstorming: This is an idea-generating process for developing creative solutions that
encourages as many alternatives as possible. It is done with a group of people (friends and
colleagues). The purpose is to be an idea-generating process that opens up as many
alternatives as other people’s remarks stimulate a chain reaction of ideas.
4. Focus Groups: The final structured approach to generate ideas is the use of focus groups.
Here, a moderator focuses the group discussion on whatever issues are being examined. The
group might look at a proposed product and answer specific questions asked by the
moderator.

5. Explain the stages in opportunity analysis.

Opportunity analysis involves the following three steps:

• Scanning the Environment of Business: The first step in opportunity analysis is

environmental scanning. It enables generation of ideas. It is always on the part of the
potential entrepreneur to generate as many ideas as possible.
• Shortlisting the opportunities: Opportunities are unlimited in environment. So the
prospective entrepreneurs generate many ideas, which necessitate the shortlisting of
opportunities to three of four for closer analysis and observation. Once the entrepreneurs
finalize the opportunities he should discuss about the ideas, its pros and cons as to the
techno economic viability with financial institutions etc. If their comments and views are
negative, entrepreneurs should drop such products and go in search of new opportunities.
 • Finalization of the product: The next step is finalizing the product. Here, it is essential to
assess some parameters before deciding on the product. These parameters include the
following:
• Total investment required for the venture.
• Return on investment expected from the venture
• Return on equity
• Expected sales volume
• Profits and profitability

PART C – 10 MARKS

1. Explain the various sources of ideas.

The various sources of idea are:

1. Personal Interests or Hobbies: An important source of ideas is personal interests or

hobbies. Many entrepreneurial ventures were formed because of an entrepreneurs love of
doing something such as restoring antique automobiles, baking grandma’s brownies etc.
2. Entrepreneurs work experience: Another potential source of ideas, and a popular one is
an entrepreneurs work experience knowledge and skills. By tapping into the knowledge of a
particular industry or market gained by working in it, an entrepreneur can pinpoint area of
potential opportunity.
3. Products and services currently available: The third source of possible ideas is looking at
products and services currently available. Here, both familiar and unfamiliar ones are to be
analyzed.
4. Discussion with people: Another source of potential entrepreneurial ideas is discussing
with others. While discussing with others one may secure many useful ideas.
5. Success of friends and relatives: Successful stories of friends and relatives are another
source of ideas. Such stories are capable of inspiring people and drive them to appraise and
undertake new projects.
6. Experience of existing entrepreneurs: Sharing the experience of entrepreneurs in the field
will give vague ideas of possible projects. This kind of information will definitely enable an
entrepreneur to generate business ideas. Such kind of ideas will definitely succeed if
converted into projects and commercialized.
7. Short supply/excess demand for certain goods: In real life, we come across short supply
of certain products. It shows clearly that production of those goods will be definitely
successful.
8. Advertisements. A close analysis of message given by advertisements in various media
will disclose what kinds of products are commonly produced in our country. This sort of
analysis would help an entrepreneur to decide his products, its quality, cost etc.
9. Exhibitions and Trade Fairs: Visiting exhibitions, trade fairs and industrial fairs may give
a lot of ideas for products.
10. Research Institutions: Research Institutions are in a position to supply a list of new
products developed. These institutions may be approached to select a suitable and viable
project.
2. State the elements of project formation.

‘Formation of a Project Report’ divides the process of project development into eight distinct and
sequential stages. These stages are:

1. General Information:
• Biodata of promoter i.e. name, address, qualification, experience and other
capabilities of the entrepreneurs.
• Industry profiles i.e. the industry to which the project belongs, past performance,
present status etc.
• Constitution and Organization covering organizational structure and constitution i.e.
registration etc.
• Product Details – Utility, range, design and relative advantages.
2. Project Description: Covering details like location of enterprise, availability of raw
materials, skilled labour, power, fuel, water, pollution control, transport facilities,
production process etc.
3. Market Potential: Covering details like demand and supply position, expected price
marketing strategy, after sales services etc.
4. Capital costs and sources of finance: Estimate containing various components of capital
like land and building, plant and machinery installations cost, preliminary expenses etc. The
various sources of finance should be stated mentioning owner’s contribution and funds
raised from financial institutions.
5. Assessment of Working Capital: The requirement for working capital and its sources of
supply, length of working capital cycle should be estimated and mentioned.
6. Other Financial Aspects: For judging profitability of the project, a projected profit and
loss account indicating sales revenue, cost of production, allied cost and profit should be
prepared. A projected balance sheet, cash flow statement should be prepared.
7. Economic and Social Valuables: Various socio economic benefits expected from the
project should be included in the project report. It can be employment generations, import
substitutions, exports, local resource utilization, development of areas etc.
8. Project Implementation: The timetable for implementations of the project should be stated
and project delay resulting in cost overrun should be avoided. Delay in the project can affect
financial availability of the project. It is in the interest of the entrepreneur to check out an
implementation schedule and ensure timely completion of all activities involved in the
setting up of an enterprise.
3. Distinguish between PERT & CPM.

BASIS FOR COMPARISON PERT CPM

Meaning PERT is a project management CPM is a statistical technique
technique, used to manage of project management that
uncertain activities of a project. manages well defined activities
of a project.
What is it? A technique of planning and A method to control cost and
control of time. time.
Focus on Event Activity
Model Deterministic Model Probabilistic Model
Estimates Three time estimates One time estimate
Appropriate for High precision time estimate Reasonable time estimate
Management of Unpredictable activities Predictable activities
Nature of jobs Non-repetitive nature Repetitive nature
Critical and Non-Critical No differentiation Differentiated
activities
Suitable for Research and Development Non-research projects like civil
Project construction, ship building etc.
Crashing concept Not Applicable Applicable

4. Describe the guidelines for project feasibility study.

The guidelines for feasibility report are:

1. General Information: This should include an analysis of the industry to which the project
belongs. It should deal with the past performance of the industry. The description of the
type of industry should also be given. It should also contain information about the enterprise
submitting the feasibility report.
2. Preliminary Analysis of alternatives: This should contain present data on the gap between
demand and supply for the outputs which are to be produced, data on the capacity that
would be available from the projects that are in production or under implementation at the
time the report is prepared, a complete list of all existing plants in the industry and a list of
prepared projects.
 3. Project Description: The feasibility report should provide a brief description of the
technology/process chosen for the project. Information relevant to determining optimality of
the location chosen should also be included to assist in the assessment of the environmental
effects of a project.
4. Marketing Plan: The methods and data for marking estimates of domestic supply and
selection of the market areas should be presented. Estimates of the degree of price
sensitivity should be presented. It should also contain an analysis of past trends in prices.
5. Capital Requirements and costs: The estimates should be reasonably complete and
properly classified. Information of all items of costs should be carefully collected and
presented.
6. Operating requirements and costs. Operating costs are essentially those which are
incurred after the commencement of commercial production. Information about all items of
operating cost should be collected. It relates to the cost of raw materials and intermediates,
fuel, utilities, labour, repair and maintenance.
7. Financial Analysis: The purpose of this analysis is to present some measures to assess the
viability of the project. A proforma balance sheet for the project data should be presented.
8. Economic Analysis: Social profitability analysis needs some adjustment in the data relating
to the costs and returns to the enterprise.
9. Miscellaneous Aspects: The preceding areas are deemed appropriate to almost every new
small enterprise. Other items may be considered important is to be spelled out in the project
report.

5. Briefly explain the various sources of long-term finance.

The Sources of Long Term Finance are those sources from where the funds are raised for a longer
period of time, usually more than a year. Long term financing is required for modernization,
expansion, diversification and development of business operations. The various sources are:

1. Equity Capital: The Equity Capital refers to that portion of the organization’s capital,
which is raised in exchange for the share of ownership in the company. These shares are
called the equity shares. The equity shareholders are the owners of the company who have
significant control over its management. They enjoy the rewards and bear the risk of
ownership. However, their liability is limited to the amount of their capital contributions.
The Equity Capital is also called as the share capital or equity financing.
2. Preference Shares: Preference share capital is another source of long-term financing for a
company. As the name suggests, these shares carry preferential rights over equity shares
both regarding the payment of dividend and the return of capital. These shares carry a fixed
rate of dividend and such dividend must be paid in full before the payment of any dividend
on equity shares. Similarly, at the time of liquidation, the whole of preference capital must
be paid before any payment is made to equity shareholders.
3. Ploughing Back of Profits: A new company can raise finance only from external sources
such as shares, debentures, loans, etc. But, an existing company can also generate finance
through its internal sources i.e. retained earnings or ploughing back of profits. When a
company does not distribute whole of its profits as dividend but reinvests a part of it in the
 business, it is known as ploughing back of profits or retention of earnings. This method of
financing is also known as internal financing or self-financing.
4. Debentures: Debentures are one of the frequently used methods by which a company raises
long-term funds. Funds acquired by issue of debentures represent loans taken by the
company and are also known as ‘debt capital’. A debenture is a certificate issued by a
company under its seal acknowledging a debt due by it to its holders. In USA there is a
distinction between debentures and bonds. There, the term bond refers to an instrument
which is secured on the assets of the company whereas the debentures refer to unsecured
instruments.
5. Loans from Financial Institutions: Financial Institutions are another important source of
long-term finance. In India, a number of special financial institutions have been established
by the Government at the national level and state level to provide medium-term and long-
term loans to the industrial undertakings. Financial institutions established at the national
level include Industrial Development Bank of India (IDBI), Industrial Finance Corporation
of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI), Industrial
Reconstruction Corporation of India (IRCI), Unit Trust of India (UTI), Life Insurance
Corporation of India (LIC), General Insurance Corporation (GIC) etc.
6. Lease Financing: Lease is a contract between the owner of an asset and the user of such
asset. Owner of the asset is called ‘Lessor’ and the user is called ‘Lessee’. Under the lease
contract, the owner of the asset surrenders the right to use the asset to another party for an
agreed period of time for an agreed consideration called the lease rental. The lessee pays a
fixed rental to the lessor at the beginning or at the end of a month, quarter, half year, or year.
At the end of the period of lease contract, the asset reverts back to the lessor, who is the
legal owner of the asset.

UNIT 4
PART A – 4 MARKS

1. State the objectives of EDP.

The important objectives of EDP can be stated as follows:
❖ Developing and strengthening entrepreneurial quality in them
❖ Analyzing environmental set up as to small business and industry.
❖ Selecting project.
❖ Formulating the project.
❖ Understanding the process and procedure of setting up small enterprise.
❖ Knowing the sources of assistance for setting up an enterprise.
2. Who provides EDP Training?

EDP training is provided by the qualified trainers through EDP. Success of EDPs depends on the
trainers. They should be committed, competent and qualified. Trainers must be fully acquainted
with whatever is latest in their respective fields. Different types of entrepreneurial training
programmes are organized in different countries to suit the local condition.

3. What are the roles of EDP?

EDP is considered as the most important instrument to solve the problem of poverty and
unemployment. It ensures through establishment of SSI all over nation. EDP performs the
following roles
❖ Stimulatory Role
❖ Supportive Role
❖ Sustaining Role
❖ Socio-Economic Role

4. State the needs of EDP.

The need for EDP can be visualized from the following:

❖ EDP facilitates in removal of industrial slums because it leads for decentralization of
industries.
❖ It facilitates in harnessing of locally available resources which are abundant by providing
training and education to entrepreneurs.
❖ It helps in improving standard of living of the people because innovation leads to production
of goods and services in a wide sphere.
❖ It facilitates balanced regional development as it enables development of entrepreneurs in
different areas of the state or country.

5. List out the methods of Evaluation of EDP.

The following criteria should be considered to assess the effectiveness of EDPs in motivating the
entrepreneurs.
❖ Activity level of respondents.
❖ New enterprise creation
 ❖ Employment generation in quantifiable terms.
❖ Creation of job opportunities both directly and indirectly
❖ Increase in sales and profit.
❖ Enterprise expansion.
❖ Enterprise Transformation
❖ Total investments made
❖ Number of people employed.

PART B – 6 MARKS
1. Discuss the course curriculum of EDP in detail.

In India, the course contents of EDP are uniform. They are in line with the objectives of EDP.
Duration of the training programme usually ranges between four to six weeks. The ideal numbers in
a group is 30 to 35. It consists of 6 inputs namely.
1. Introduction to Entrepreneurship: This is the first stage in EDP where trainees are
introduced to the fundamentals of entrepreneurship. They are exposed to general knowledge
of entrepreneurship namely, role of entrepreneurs in economic development of nation,
qualities of entrepreneur etc.
2. Motivating Entrepreneurs: Once the fundamentals are made known to the trainees, the
next step is taking initiative to motivate them towards entrepreneurship. At this stage efforts
are taken to inject confidence and positive attitude among the participants towards business.
3. Imparting Managerial Skills: Managerial skills are a must for running an enterprise,
whether big or small. Therefore it imparts basic and necessary managerial skills in various
functional areas of management like finance, production, HRM etc.
4. Exposure to support system and procedure: The next step is making the participants
aware of the various policies and procedures formulated by the government, various
industrial service agencies, financial institutions etc,, which aid in setting up and running
enterprises in the country.
5. Guidance to conduct feasibility studies: Knowledge about the conduct of feasibility study
is a must for the trainees. Here, Trainees are provided with information and counselling to
various business opportunities in the area in which EDP is conducted.
6. Taking for field visits: Under this input, trainees are taken to industries to familiarize with
real-life situation of the entrepreneurs in small business. It gives them first-hand knowledge
and exposure to the participants regarding the problems as well as prospects of an industry.

2. How will you evaluate on EDP?

The following criteria must be used to assess the effectiveness of EDPs in motivating the
entrepreneurs:
1. Activity level of the respondents.
2. New enterprise creation.
3. Employment generation in quantifiable terms.
4. Creation of job opportunities both directly and indirectly.
5. Increase in sales and profit.
6. Enterprise expansion.
7. Enterprise transformation.
8. Improvement in quality of products or services.
9. Repayment of loans.
10. Total investments made.
11. Investments in fixed assets made.
12. Number of people employed.

3. Explain the various methods of entrepreneurial training.

Entrepreneurial training can be done using the following methods:

➢ Individual Training: A single individual is selected for training under this method. This
method of training is most suited where a complicated skill is to be taught to an individual.
➢ Group Training: This method of training is more suitable for a group of individuals with a
similar type of work and where similar general instructions are to be given to all.
➢ Lecture Method: Under this method the instructor communicates in theory and the practice
to be followed by trainees. The queries, clarifications or doubts of the trainees are cleared on
the spot.
➢ Written Instruction Method: This method aims at providing written material for future
reference by the learners. It is generally adopted where a standardized production system is
followed.
➢ Demonstration Method: This method aims at providing practical exposure to the trainees
by the trainer for better understanding.
➢ Conference Method: Under this method experts in different fields share their ideas aimed
at providing knowledge to trainees for improving their effectiveness.
➢ Meetings: This method aims at providing opportunity to the trainees to discuss various
problems confronting them. It enables them to exchange ideas and views on various issues
and finally arrive at firm conclusions based on discussion.

4. What are the factors of entrepreneurial performance?

Entrepreneurial performance is a function of the following factors.
➢ Socio Cultural Background of the Entrepreneur (SB): This implies the environment in
which the entrepreneur was born and brought up. It conditions the values and attitudes of
the entrepreneur.
➢ Motivational Force(MF): It implies the motives which prompts a person to undertake
entrepreneurship e.g. wealth, status, self employment etc.
➢ Knowledge and Ability of the Entrepreneur (KA): It refers to the education, training and
experience of the entrepreneur.
➢ Financial Strength (FS): It means the funds which an entrepreneur can mobilize from
internal and external sources.
➢ Environmental Variables (EV): This consists of government policies, market conditions,
availability of technology and labour situation.

5. State the important institutions providing assistance for entrepreneurial development at

the national and state level.

Important institutions providing assistance for entrepreneurial development at the national and state
level are:
1. At the National Level:
➢ Small Industries Development Corporation (SIDC)
➢ Industrial Development Bank of India (IDBI)
➢ Industrial Finance Corporation of India (IFCI)
➢ Industrial Credit and Investment Corporation of India (ICICI)
➢ National small scale Industrial development corporation (NSSIDC)
➢ Small Industries Development Bank of India (SIDBI)
➢ Khadi and Village Industries Centre (KVIC)
2. At the State Level:
➢ Small Industries Service Institute (SISI)
➢ District Industries Centre (DIC)
➢ State Finance Corporation (SFC)
➢ State Small Industries Corporation (SSIC)
➢ State Industries Promotion Corporation (SIPC)

PART C – 10 MARKS

1. Discuss the achievements of EDP.

EDP enables entrepreneurs in initiating and sustaining the process of economic development in the
following ways:

❖ Creation of Employment Opportunities: Unemployment is one of the most important

problems confronting developing and underdevelopment countries. EDPs enable
prospective entrepreneurs in the selling up of their own units, thus enabling them to get self
employment with the setting up of more and more units both small and large scale.
❖ Capital Formulation: It is not possible to set up an enterprise without adequate funds.
Entrepreneur, as an organizer of factors of production, employs his own as wells as
borrowed resources /for setting up his enterprise. Entrepreneur mobilises idle savings of the
public and put them to productive use. In this way he helps in capital formation which is so
essential for industrial and economic development of a country.
❖ Balanced Regional Development: Small scale units can be set up in industrially backward
and remote areas with limited financial resources. Successful EDPs assist in accelerating the
pace of industrialization in the backward areas and reduce the concentration of economic
power in the hands of a few.
❖ Use of Local Resources: In the absence of any initiative local resources are likely to remain
unutilized. Proper use of these resources can result in the progress or development of the
area and that too at lower cost. Alert entrepreneurs seize the opportunity and exploit it in the
best interests of the area and industry.
❖ Improvement in per Capita Income: Entrepreneurs are always on the lookout for
opportunities. They explore and exploit the opportunities. They take lead in organizing
various factors of production by putting them into productive use through the setting up of
enterprises. This will lead to more production, employment and generation of wealth in the
form of goods and services. It will result in increase in overall productivity and per capital
income in the country.
❖ Improvement in the standard of living: Entrepreneurs help in production of wide variety
of goods and services by adopting latest innovations. By making efficient use of the
resources, they start producing better quality products at lower prices to the consumers
which result in improvement in standard of living of the people.
❖ Economic Independence: Entrepreneurs enable a country to produce a wide variety of
better quality goods and services and that too at competitive prices. They develop substitute
of the goods being imported and thus prevent over-dependence on foreign countries and at
the same time help in savings of precious foreign exchange.
❖ Preventing Industrial Slums: Industrially developed areas are faced with problem of
industrial slums which result in over burdening of civic amenities and adverse impact on the
health of people. Dispersal of industries can help in the overcoming of this problem. EDPs
 can help in preventing spread of industrial slums by providing various incentives, subsidies
and support to entrepreneurs for setting up their enterprises in industrially backward areas.
❖ Reducing Social Tension: Unemployment amongst the young and educated people is
emerging as the major cause of social unrest. People are bound to feel frustrated if they fail
to get gainful employment after completion of their education. EDPs can help in
channelizing the talent of this section of society in the right direction by providing proper
guidance, training and assistance in setting up enterprise.
❖ Facilitating overall development: An entrepreneur acts as a catalytic agent for change
which results in chain reaction. With the setting up of an enterprise the process of
industrialization is set in motion. This unit will generate demand for various types of inputs
required by it. This leads to overall development of an area due to increase in demand and
setting up more and more units there.

2. Discuss the problems faced by EDP.

Organizing and conducting EDPs is not an easy task. It involves many problems which lead to low
level of performance. Some of problems are:
1. Lack of specialized organizations: Lack of adequate number of specialized organizations
is first and foremost problems of EDPs. Even the organizations which are functioning in the
field lack in commitment and sincerity. Hence, there is lack of motivation among the
organizations to create interest among participants to become entrepreneurs.
2. Lack of Trainers: Trainers are not found in adequate numbers. Even those who are
available are not dedicated to their jobs. They are not found up to the level to motivate the
participants to start their ventures.
3. Lack of conductive environment: Lack of conductive environment is another problem of
EDPs. It makes the trainers’ role ineffective.
4. Selection of wrong trainees: Trainees selected for attending EDPs should have interest in
the field of entrepreneurship. Otherwise, it will be a mere waste. EDPs are conducted to
motivate the trainees to start their own ventures. If it does not result in creating interest in
starting the venture, it will result in utter failure of the EDP.
5. Selection of wrong projects: Projects selected should be of potential ones so that
entrepreneurs can succeed in their ventures. But most the time, the projects selected are
unsuitable to the situation and trends prevalent in the business environment. The main
reason for that is lack of knowledge on the part of trainees as well as trainers.
6. Apathetic Attitude of the support agencies: Apathetic attitude of the support agencies
such as banks, financial institutions etc to support entrepreneurs stands as another hurdle in
the success of EDPs.
 7. Lack of entrepreneurial environment and culture: In our country, there is lack of
entrepreneurial environment and culture, which is a must for the healthy development of
entrepreneurship in the country. If the environment is not conductive, entrepreneurs may
find it difficult to start their venture.
8. Lack of support: After training, entrepreneurs need adequate counselling, support services
etc for grounding their projects. In our country, follow-up action is not adequate which
creates lots of troubles in entrepreneurs.

3. Explain various phases of EDPs.

An EDP possesses the following three phases:

1. Pre-training Phase: It refers to the activities and preparatory work made before the actual
conduct of training. In this phase, preparations are made for launching the programme. It
involves the following activities:
❖ Selection of area
❖ Selection of course coordinator
❖ Arrangement of infrastructure
❖ Conduct of industrial survey to identify good business opportunity.
❖ Formulating the programme
❖ Getting support from various agencies such as DICs, SFCs etc.
2. Training Phase: It involves three phases in it, which are as follows:
(i) Raising Motivational Level i.e. Confidence Building: The entrepreneurial training
programmes are normally designed so as to increase their motivation to a higher level.
Each session in the training programme should aim at strengthening their confidence
and expanding their vision. Motivational level must be raised to a greater extent because
only motivated participants will take effort to start a venture.
(ii) Improvement of Managerial talents: Entrepreneur should be well versed with the
techniques of management. They must be able to understand the basic principles of
management. They must also be made to realize the benefits and significance of the
management functions like planning, organizing, staffing, directing, controlling and
coordinating.
(iii) Developing the technical competence: During the course of the training programme a
candidate may select one or more products for manufacture. The technical competence
suitable to the product selected should be developed in the participants.
3. Post-Training Phase: It refers to follow-up stage. In this phase, assessment as to how far
the objectives of the programme have been achieved has been made. It indicates past
performance, drawbacks if any in the past work and suggests guidelines for formulating
future policies. The activities that crop up during this phase are as below:
 ❖ Registration of enterprise.
❖ Arranging finance for starting the unit.
❖ Guidance with respect to purchase of plant and machinery
❖ Providing land, shed, power connection etc for establishing the project.
❖ Obtaining of licences for scarce raw materials
❖ Granting incentives such as capital investment subsidy, tax relief etc.
❖ Assistance by way of management consultancy.
❖ Marketing facilities
❖ Up-to-the date information of the industry.
In short, we may say that for the healthy development of entrepreneurs and enterprises, all the three
phases are necessary.

4. Discuss briefly the role of government in organising EDPs.

For organizing EDPs on a sustained manner, the Union and State governments have undertaken the
following activities.
1. Establishment of specialized institutions at National Level: The following specialized
EDP organizations have been set up by the government of India to promote entreprenurship
in the country.
❖ National Institute for Entrepreneurship and Small Business Development
(NIESBUD): It is an apex organization for organizing and conducting EDP under
Ministry of industry, Government of India. It is located in UP.
❖ Small Industries Service Institute (SISIs): It is set up by Government of India. It
has its network of branches in many states in India.
❖ National Institute for small Industry Extension and Training (NISIET): It is
located in Hyderabad. It has become the premier institution for the promotion,
development and modernization of the SME sector.
❖ Entrepreneurship Development Institute of India (EDI): It is sponsored by apex
financial institutions, namely the Industrial Development Bank of India (IDBI), the
Industrial Finance Corporation of India (IFCI), the Industrial Credit and Investment
Corporation of India (ICICI) and State Bank of India (SBI).
❖ The Indian Institute of Entrepreneurship (IIE): It was established by the
Ministry of Industry, Government of India with its headquarters at Guwahathi to
undertake training, research and consultancy activities in the field of small industry
and entrepreneurship.
2. Establishment of District Industries Centres (DIC): They have been established in every
district of almost all the states of India. It focuses primarily on entrepreneurship awareness
programmes and tiny and small scale sector projects.
 3. Introduction to Entrepreneurship Courses: Several Universities, IITs management
institutes etc have introduced the course of entrepreneurship in their curriculum to motivate
the students to choose entrepreneurial career instead of job employment.
4. Financial support by the Government/Bankers for conducting Seminars/Workshops
and Industrial potential survey: For creating awareness among the entrepreneurs about
the various incentives and benefits envisaged by the government, funding support has been
provided by the government for organizing seminars and workshops.
5. Financial support by the Government, Development Banks and Nationalized Public
Sector Banks: In order to organized EDPs, financial support is being provided by Union
and State governments, financial institutions like IDBI, IFCI, ICICI, SIDBI and public
sector banks.
6. Institutional support system for entrepreneurial development: Small scale enterprises
are important for generation of employment, utilization of available resources, and creation
of infrastructure facilities and acceleration of economic development. Need for support
service organization in our country is of much significance.

5. Explain the role of EDP.

EDP performs the following roles:

1. Stimulatory Role: It refers to all such efforts, which stimulate the emergence of
entrepreneurship in a society.
• Educating Entrepreneurs
• Publishing entrepreneurial opportunities in a planned manner
• Locating potential entrepreneurs through scientific methods
• Imparting motivational training to new entrepreneurs.
• Guiding entrepreneurs in product selection as well as preparation of project report.
• Providing data regarding technical, economical, legal and financial aspects of a
project.
• Developing new products and processes suitable to local conditions.
• Providing counselling and promotion.
• Creating a forum for entrepreneurs.
2. Supportive Role: It aims at assisting entrepreneurs to establish and operate enterprises.
This is done by group support activities. These acts includes the following:
• Registration of enterprises.
• Arranging for finance.
• Providing of land, shed, power, water etc.
• Guiding for the selection of machinery.
• Supplying scarce materials.
 • Providing of common infrastructural facilities.
• Granting tax relief and providing subsidies.
• Providing management consultancy services.
• Assisting in the marketing of products.
• Supplying necessary data.
3. Sustaining role: It enables the entrepreneurs to run their enterprises on a sustained basis. It
includes the following activities:
• Assisting in modernization, expansion and diversification of the organization.
• Helping in the production of substitute products.
• Providing the necessary finance for the maximum capacity utilization.
• Enabling repayable of principal/payment of interest.
• Reservation of products.
• Creation of new scope for marketing.
• Quality Testing/Improving Services.
4. Socio-Economic Role: Socio-economic role of EDP facilities promotion of industries as
well as status of the people in the society. It performs the following functions:
• Argumenting latent qualities of the persons to become entrepreneurs.
• Utilizing the latent and unutilized resources for the establishment of the enterprise.
• Helping dispersion of industries to promote balanced regional development.
• Creative immediate employment opportunities in small scale enterprises and
business sector.
• Ensuring more equitable distribution of national income and wealth.

UNIT 5
PART A – 4 MARKS

1. Define Franchising.

The term franchising is defined as “A form of business ownership created by contract whereby a
company grants a buyer the rights to engage in selling and distributing its products or services
under a prescribed business format in exchange for royalties or share or profits.

2. Define Women Entrepreneurs.

Women Entrepreneurs may be defined as the woman or group of women who take initiative to set
up a business enterprise and to run it smoothly. Women who innovate, imitate or adopt a business
activity are known as women entrepreneurs.
3. What is Strategy?
A strategy is a unified comprehensive and integrated plan that relate to the strategic advantages of
the firm to the challenges of the environment.
4. What is marketing mix?

The marketing mix is a business tool used in marketing and by marketers. The marketing mix is
often crucial when determining a product or brand’s offer, and is often associated with the four Ps:
Price, Product, Promotion and Place.

5. What is network?

Network is the act of developing and using contacts made in business for purposes beyond the
reason for the initial contact. In business, entrepreneurial networks are social organizations offering
different types of resources to start or improve entrepreneurial projects. Having adequate human
resources is a key factor for entrepreneurial achievements.

PART B – 6 MARKS

1. What are the problems faced by women entrepreneurs?

Being a successful entrepreneur is so difficult because it is not easy to reach. Women Entrepreneurs
face all sorts of challenges. The problems faced by women entrepreneur are detailed below:
1. Problem of finance: The main challenge is getting the funding they need to start and grow
the funding they need to start and grow their businesses. Access to capital is a serious issue
of minority and women entrepreneurs
2. Conflict between work and family: Another challenge that women entrepreneurs
particularly face is the conflict between work and family. Being an entrepreneur can be a 24
x 7 (24 hours a day, 7 days a week) commitment. Running a successful business often
means finding a healthy balance between work and family lives.
3. Shortage of Raw materials. Security of raw materials is yet another challenge that women
entrepreneurs face. They suffer from higher prices and lower discount rates.
4. Stiff Competition: Women entrepreneurs face intense competition for their goods from
organized sector and male entrepreneurs. This is because they do not have enough funds to
spend on advertisement, canvassing and publicizing their products.
5. Limited Mobility: In our country, mobility of women is highly limited on account of
various reasons. They cannot travel freely from one place to another for business reasons.
6. Low literacy rate among women: Rate of literacy among women is very low in India.
Education is important for a person to be aware of latest technology, business trends, market
knowledge etc.
2. Discuss the role of entrepreneur in generating employment opportunities.

Entrepreneur plays a significant role in generation of employment opportunities. The development

strategy of our country confronts two important problems – unemployment and poverty. These
problems can be effectively minimized by activating the human potentials through
entrepreneurship. Entrepreneurs generate employment opportunities under the following heads:
• Establishing tiny, micro and small scale enterprises: Creation of tiny, micro and small
enterprises by the entrepreneurs can lead to creation of both self-employment and wage-
employment opportunities thereby solving the problem of unemployment in the economy.
• Giving emphasis upon village and cottage industries: Upliftment of economically
backward sections of the society can be possible if self-employment opportunities can be
provided at the grass root level. To enable these, government has implemented several
antipoverty programmes.
• Utilizing the surplus labour force in industrial activities: India is a primary producing
country. This characteristic feature is further accentuated by seasonality feature of the
agriculture. Therefore, for a large part of the year, people remain more unemployed. So the
surplus labour force is transferred and utilized by the entrepreneurs in non-farm sector
activities.

3. Bring out the differences between franchising and dealership.

Franchising: A franchise is one complete business model that, either by blueprint or by a corporate
official setting up of the location, looks very much like every other business in its chain. It is
typically a “turnkey” operation in which the franchisee is purchasing a complete store with some
modification of his choice depending on the franchise agreement.

Dealership: A dealership is typically an agreement to be able to sell a specific product or service.

This agreement may or may not be exclusive based on territory. It may include the rights to be an
authorized service centre for the product. Typically, a dealer is more independent as to business
design, products available and exclusivity. To apply for a dealership is typically either free or free
with a required initial purchase and setup. Car dealerships are classic example of dealership.

4. Discuss the role of entrepreneur in the economic growth as an innovator

Entrepreneurs perform a variety of functions to provide for the acceleration of economic growth,
which are as follows:
 • Introduces new combination in the means of production: As an innovator, entrepreneur
brings out new products, new techniques of production, opens up a new market, finds out
new sources of raw materials, a new type of organization etc. All these result in growth and
development of a country’s economy through increased supply of products, savings in
production cost etc.
• Enables progress in technology: Entrepreneurs make use of potential technical knowledge,
which enables continuous technological progress. It removes diminishing returns because
technological progress leads to innovation.
• Aims at Leadership: A successful innovation aims at leadership because leadership is a
most logical attribute of entrepreneur to bring about economic development.
• Implements Skills: Entrepreneur makes use of his conceptual skills to bring about
improvement in the quality of the product. It is a continuous function of an entrepreneur.
There is no end to it. In this world of competition, innovative entrepreneur alone can
survive.

5. What are the various steps taken by the government of India to promote women entrepreneurship?

Development of women has been a policy objective of the government since Independence. The
number of women enterprises has increased over the years. Government and non-government
bodies have paid increasing attention to women’s economic contribution through self employment
and industrial ventures. Various policies have been formulated. Efforts are made to increase
employment and income generating activities for women under various sectors. Central and State
Governments have adopted a special strategy called “Women Component Plant”. The government
has started training programmes exclusively for self-employment of women through various
schemes such as Support for Training and Employment Programme of Women (STEP), Setting up
of Training cum Employment cum production units (NORAD) and Development of Women and
Children in Rural Areas (DWCRA).

PART C – 10 MARKS

1. Discuss the various types of growth strategies adopted by business firms.

Growth Strategies are broadly classified into two types namely

1. Internal Strategies and
2. External Strategies
1. Internal Strategies: Internal Strategies refer to the strategies that are followed by the
enterprises on their own without involving other enterprises. In other words, they grow on
their own. Examples of internal strategies are expansion and diversification of units.
• Expansion: It is one of the means of internal growth strategies. It refers to increase
in the same line of activity. It is a natural growth of business taking place in course
of time. It takes place in any of the following forms:
-Expansion through penetrating the market.
-Expansion through the development of the product.
• Diversification: It is another form through which firms grow internally. As
expansion can be followed up to a limit extent, diversification is evolved to grow
further. In expansion, firms concentrate on the existing product/market only where
growing is possible only to a certain point. This necessitates the need for adding
new products/markets to the existing line of product. This is what is called
diversification.
2. External Strategies: They are opposite to internal strategies. These strategies are adopted
involving other enterprises also. The popular forms of external strategies are:
• Joint Venture: It is one of the types of external strategy followed by business
concerns. It is a temporary partnership between two or more firms to undertake
jointly to complete a specific venture. The parties entering the venture by means of
an agreement are known as co-ventures. The agreement entered will come to an end
on the completion of the work for which it was formed.
• Merger: It refers to combination of two or more existing enterprises into one. It
may take place in two ways namely Absorption and Amalgamation.
➢ If one enterprise is acquired by another, it is called Absorption.
➢ If two or more enterprises join into one to form a new concern, it is called
Amalgamation.
• Sub-contracting: It refers to a mutually beneficial commercial relationship between
two companies. Here, contractor places order with sub-contractor for the production
 of parts, components, assemblies to be incorporated into a product sold by the
contractor. Sub contractor produces accordingly and supplies the same. In large scale
industries, sub-contracting is common because they do not produce all goods on
their own.

2. What are the promotional schemes available in India for the development of women
entrepreneurship?

Government, banks and financial institutions have introduced different schemes for the
development of women entrepreneurs in India. Important schemes are described below:
1. Development of women and children in Rural Areas (DWCRA): It is a scheme
introduced by Government of India for the encouragement of women entrepreneurship.
Generally a woman is unable to start a venture due to various reasons. The concept of
teamwork has been introduced to make them courageous enough to start their own
enterprises.
2. Scheme of IDBI: Various schemes that are designed by IDBI to assist women
entrepreneurs are detailed below:
• Interest subsidy scheme: IDBI formulated this scheme to encourage
entrepreneurial development among women. IDBI provides training and post-
training follow up expenditure up to Rs. 10000. Successful trainees are eligible for
interest subsidy up to Rs. 25,000 for one year if they start small scale unit.
• Refinance Scheme: IDBI extends refinance facilities to banks and state financial
corporations for their credits to women entrepreneurs. It is 100% in case of SFCs,
and 75% in case of commercial banks.
• Mahila Udyam Nidhi (MUN): The IDBI has set up a special fund called MUN with
a corpus of Rs. 5 crores in order to provide seed capital assistance to women
entrepreneurs who proposed to set up project in SSI sectors.
• Mahila Vikas Nidhi (MVN): It extends assistance to the voluntary agencies that are
engaged in extending to the entrepreneurs training.
• Indirect Loans: IDBI has introduced another scheme under which it grants indirect
loans.
3. Scheme of Karnataka SFC: Karnataka Government provides 5% investment subsidy to
the tiny and small scale units. Sales tax exemption is available for the women enterprises,
upto 100% of the value of fixed assets for a period of seven years.
4. Scheme of IFCI: Industrial Finance Corporation of India grants interest subsidy up to Rs.
20,000 to industrial units set up by Women Entrepreneurs.
5. Rajasthan Financial Corporations Scheme: RFC grants loan up to Rs. 10 lakhs.
Contribution towards share capital by the entrepreneurs is 10% of the project cost.
 6. SBI Stree shakthi package: The SBI introduced stree shakthi package in the year 1989
with a view to develop women entrepreneurs. Under this scheme, EDPs are exclusively
designed for women entrepreneurs, and are conducted. They are organized with the help of
SBI staff training college and the local branches.
7. SIDBI’s Assistance for Women Entrepreneurs: The Small Industries Development Bank
of India (SIDBI) has designed special schemes for providing financial assistance to women
entrepreneurs. The schemes are providing training and extension services according to their
small socio-economic status and providing financial assistance at concessional terms to help
them in setting up tiny and small units.
8. Bank of India Priyadarshini Yojana: The scheme aims at providing financial assistance to
the women entrepreneurs who comes under the following categories:
• Small business, e.g. beauty parlour, laundry, lending library etc.
• Retail traders , e.g. fair price shops, general stores etc.
• Road transport agencies e.g. auto rickshaws
• Allied agricultural activities.

3. Enumerate the factors influencing Entrepreneurial growth.

Entrepreneurship does not emerge and grow spontaneously. Rather it is dependent upon some
factors that affect entrepreneur growth. These factors are as follows:
1. Economic Factor: Economic environment exercises the most direct and immediate
influence on entrepreneurship. It has some conditions which are as below:
• Markets: The size and composition of market both influence entrepreneurship in
their own ways.
• Capital: Availability of capital help to bring together the labour at one, machine of
another and raw material of yet another to combine them to produce product.
• Labour: It is the most important factor of economic condition of entrepreneurship.
It appears that the labour problem can’t protect entrepreneurship from emerging.
• Raw Materials: Without raw materials, business can’t be started, because
production isn’t possible.
• Industrial Policy: It includes rules and incentives.
• Fiscal Policy: It includes Taxes.
2. Social Factors: Social environment in a country exercises a significant impact on the
emergence of entrepreneurship. The main components at social environment are as follows:
• Social Mobility: It means the people of society transfers from one place to another
exchange culture, attitude etc. If mobility is positive then growth is also positive.
 • Security: It is an important facilitator of entrepreneurial behaviour. Insecurity
doesn’t hinder entrepreneurship but rather that different kinds of insecurity will
result in different kinds of entrepreneurship.
• Legitimacy of entrepreneurship: Illegal activities are not allowed in business as
well as entrepreneurship. High degree of legitimacy support to start business.
3. Political Factor: It is also an important factor to the entrepreneur. A country’s growth
depends on its political factors. The political factors are as follows:
• Political Stability
• Political ideology of government
• Nature of change in political ideology
4. Psychological Factor: These factors are
• Need for achievement: It motivates to enhance business tasks for success. It is
psychological power.
• Perception and motivation: Eternally supports entrepreneurial behaviour especially
perception and motivation with positive forces to enter into business.
• Learning and personality: More learning about business increases business
efficiency.
5. Legal Factor: It means the country’s law and order situation. If the law and order situation
is kept calm and quiet the entrepreneurial growth may be high. Various types of legal
factors are Income tax law, Labor Law and Wage Law.

4. What is SSI? Describe the rationale behind reservation for SSI in the Indian economy.

A small scale industrial unit is a unit employing less than 50 persons, if using power and less than
100 persons without the use of power and with capital asset not exceeding Rs. 5 lakhs.

SSI play a significant le due to the following reasons:

• Minimum Capital: Small Industries need smaller amount of capital when compared to
large industries. But the return is relatively quick.
• Employment Opportunities: Small industries are labour intensive industries. So they
provide more employment opportunities. Further, they have greater scope for self-
employment.
• Quick Capital formation: As the return on capital is quick, the generated cash can be
reinvested. This would lead to quick capital formation.
• Skill Light: Small industries can be carried out with their own family members who have
little training. That means lesser skill is enough for running the unit. Hence, these industries
are called Skill Light industries.
 • Import Light: Small industries invest a relatively minimum portion of their capital in
imported equipments and raw materials when compared to large units i.e. it needs less
import. Hence, it does not require foreign exchange to meet their import requirements.
• Quick yielding: In case of small industries, the gestation period will be less. Therefore,
their yielding is quick.
• Balanced development: Small industries can be spread throughout the country which in
turn provide for the dispersal of industries.
• Even distribution of income and wealth: Since the small industries provide for regional
balanced development, even distribution of income and wealth is also possible.
• Flexibility: Small industries can quickly adjust with the changing conditions and habits of
the people without much dislocation. So these industries are more flexible when compared
to larger one.
• Better Labour Management Relationship: In small industries, management has a
personal contact with its workers. So the chance for industrial dispute is less.
• Less Pollution: Pollution level will be comparatively less in the case of small scale
industries.

5. Write in briefly (i) Types of Franchising (ii) Evaluation of franchising arrangement.

(i) Franchising is of three types such as

• Product Franchising: It is the oldest type of franchising. Here, a franchiser
gives right to produce and distribute his trademarked goods to a franchisee for a
prescribed fee. It is commonly found in petroleum and automobile industries.
• Manufacturing Franchising: It is an arrangement whereby franchiser gives the
dealer the exclusive right to produce and distribute the product in a particular
locality. It is commonly found in soft-drink industry.
• Business format franchising: It is of recent type of franchising. Here, a wide
range of services is offered to the franchisee. Franchiser is obligated to maintain
continuing interest in the business of the franchisee particularly in the areas such
as know-how training. Franchisee invests substantial funds from his own source.
(ii) Evaluation of Franchising arrangement:
Franchising agreement should be evaluated from the angle of each one of them as
below:
• Franchisee: To become successful in his venture, a franchisee must be willing
to work long hours, work hard and face personal sacrifice. He must know how to
enjoy working with others. He should be a good supervisor and an organized
person. He should have the ability to accept orders. He must be a fine blend of
entrepreneur as well as corporate manager.
• Industry: The second factor, which has great concern, is selecting the industry
for franchise business. While selecting the industry, the following aspects are to
be given importance:
➢ Industry’s dominant economic characteristics i.e. size, growth rate,
number of competitors etc.
➢ Nature of competition, major forces affecting the industry etc.
➢ Whether any substitute products are marketed.
• Franchisor: Franchisor’s honesty, integrity, sincerity etc are to be carefully
analyzed before selecting him as franchisor. This is because franchisor and
franchisee relationship should be smooth, cordial and understandable.