Merge 789

CHAPTER-7
SMALL-SCALE
ENTERPRISES
A U T H O R : A L PA N A T R E H A N
© 2011, Dreamtech Press :: Chapter 7 1

DEFINE SMALL-SCALE ENTERPRISES
 An SSE can be defined as a privately owned and operated

business unit that is composed of a small number of
employees and has relatively low turnover.
 Small enterprises are those in which the management lies in
the hands of one or two people who are responsible for the
major decisions. --- P. Neck (1977)

ENTERPRISES INCLUDED IN SMALL-
SCALE SECTOR
 Small-Scale Industrial Undertaking
 An industrial undertaking in which the investment in fixed assets,
such as plant and machinery (whether held on ownership terms, on
lease, or by hire-purchase) does not exceed ` 1 crore.
 Ancillary Industrial Undertaking
 An industrial undertaking that deals with the production of spare
parts, components, sub-assemblies, and tooling, or the rendering of
services.
 Micro or Tiny Enterprise
 An enterprise in which investment limit in plant and machinery is
` 25 lakhs irrespective of location of the unit.

DISTINCTION AMONG MICRO, SMALL AND
MEDIUM ENTERPRISES
Enterprises Investment in Plant and Investment in Equipment
Machinery in in Service Sector
Manufacturing Sector
Micro Enterprises Does not exceed ` 25 lakhs Does not exceed ` 10 lakhs
Small Enterprises More than ` 25 lakhs, but More than ` 10 lakhs, but
does not exceed ` 5 crores does not exceed ` 2 crores
Medium Enterprises More than ` 5 crores, but More than ` 2 crores, but
does not exceed ` 10 does not exceed ` 5 cores
crores

CHARACTERISTICS OF SMALL SCALE
ENTERPRISES
 Labor Intensive
 SSEs provide employment opportunities to individuals in urban and rural
areas, which, in turn, enhances the economic position of the country.
 Flexibility
 SSEs adapt themselves as per the dynamic industrial environment.
 Innovative
 SSEs use new and innovative materials, methods of production, markets,
sources of materials, and even new forms of organizations, such as sole
proprietorship, partnership, and co-operatives.
 Decentralization
 SSEs facilitate a balanced growth of the economy as a whole due to
dispersal of industries.
 Outlet of Entrepreneurial Spirit
 The enthusiasm, perseverance, and creativity of an individual, who
establishes the enterprise.

ROLE OF SSE S IN THE DEVELOPMENT OF
AN ECONOMY
Utilization of Domestic Technology
Tapping of Savings
Better Utilization of Local Resources
Poverty Alleviation
Higher Productivity
Complement to Large Industries
Employment Generation
Contribution to Decentralization
Export Contribution
Regional Balance and Rural Development

SMALL-SCALE ENTERPRISES IN INDIAN
ENVIRONMENT
 There is an experienced note-worthy growth of the SSEs after
independence.
 They have played significant role in economic development,
employment generation, and growth in export.
 SSEs in India are of the following two types:
 Traditional
 Includes khadi, village industries, handlooms, handicrafts, sericulture, and
coir industries
 Modern
 Includes textile products, wood, furniture, paper and printing, metal
products, chemicals, rubber and plastic products, electrical machinery,
and transport equipment

FACTORS INFLUENCING THE SMALL-
SCALE ENTERPRISES
Political Factors
Economic Factors
Technological Factors
Socio-Cultural Factors

INDUSTRIAL POLICIES RELATED TO
SMALL-SCALE ENTERPRISES
 Providing tax concessions to SSEs to promote investment in the
small-scale sector
 Granting relief to small-scale entrepreneurs in terms of repayment
of loans
 De-licensing the small-scale sector substantially
 Increasing technological facilities
 Facilitating adequate flow of credit
 Improving infrastructure facilities and promoting marketing of
products
 Improving access to latest information by automating the
government depar tments meant for suppor ting the small-scale
sector
 Initiating various ser vices, such as advisor y and mentoring
ser vices, technology business incubators, and supplier rating
accreditation ser vices
STRATEGIES RELATED TO SMALL-SCALE
ENTERPRISES
 It include plans or schemes meant for the progress of SSEs by
the government.
 Mahalanobis was the first strategy formulated by the
government for the promotion of SSEs and was evolved during
the 2ndFive Year Plan.
 The strategy envisaged that small-scale sector would have to
bear the responsibility of fulfilling the growing needs of
consumer goods in the economy.

ENTREPRENEURIAL SUCCESS IN RURAL
INDIA
 According to the third census on SSI:

 1,05,21,190 units of small-scale enterprises in India
 44 lakhs SSEs
 61 lakhs SSSBEs
 Several entrepreneurship development programs have started by
Indian government
 Crucial factors for rural entrepreneurship development programs:
 Communication technology
 Knowledge management
 Science and business education
 Accessibility to information

STEPS FOR ESTABLISHING
ENTREPRENEURIAL SYSTEM
• Providing proper infrastructure and related services

to enable the establishment of enterprises
1
• Imparting entrepreneurial training

2
• Providing support and resources to entrepreneurs

3

ASSISTANCE FOR SMALL-SCALE
ENTERPRISES
• Financial assistance
1
• Technical assistance
2
• Marketing assistance
3

FINANCIAL ASSISTANCE
 An SSE cannot exist without the proper arrangement of

financing.
 The success of SSEs in developing countries, such as India, is
laid by several financing programs by the government.
 The government through financing programs provides finance
to SSEs at less interest rates as compared to prevalent
commercial rates.
 The Prime Minister’s RozgarYojna is a scheme introduced by
the government to encourage the youths of the country to
involve in entrepreneurial activity.

TECHNICAL ASSISTANCE
 SSEs lack in accessing technology due to poor consultancy

support/services for technological information.
 Some of the centers established by the government are as
follows:
 National Small Industries Corporation Limited (NSIC)
 Software Technology Parks (STPs)

MARKETING ASSISTANCE
 The small-scale sector is characterized by the absence of

strong brand presence in the market and unorganized
marketing network.
 Some of the schemes implemented by the government are as
follows:
 Government Purchase and Price Preference Policy
 Market Development Assistance (MDA) Scheme
 Vendor Development Programs (VDPs)

SICKNESS IN SMALL-SCALE
ENTERPRISES
 One which fails to generate internal surplus on a continuing

basis, and depends for its survival on frequent infusion of
external funds. --- State Bank of India
 A unit may be defined as sick, if it had incurred cash loss for

one year and, in the judgment of the bank, is likely to
continue to incur cash losses for the current year as well as
the following year and which has an imbalance in its financial
structure, such as current ratio of less than 1:1 and worsening
debt equity ratio. --- Reser ve Bank of India (1976)

REASONS FOR SICKNESS IN SMALL-
SCALE ENTERPRISES
 Lack of Management Expertise

 Resistance to Apply Basic Management Principles
 Lack of Working Capital
 Improper Cash Management
 Inadequate Planning and Controlling
 Lack of Marketing Expertise
 Lack of Technical Expertise
 Improper Assessment of Viability of Projects
 Changes in Government Policy

ACTIONS TAKEN BY THE GOVERNMENT TO
PREVENT SICKNESS
 RBI Guidelines
 Monitoring Programs
 Government Policy
 Rehabilitation of Sick Units
 Rescheduling/Rephasement of Loans/Advances
 Debt Reconstruction Scheme (DRS)
 Kapur Committee
 Bureau of Industrial and Financial Reconstruction (BIFR)
 Negotiated Settlement Scheme

ORGANIZATIONAL STRUCTURE OF A
SMALL-SCALE ENTERPRISE
Owner
Production Marketing
Assistant Assistant
Multiplication Processing Storage Promotion Distribution Sales

EXPORT PROMOTION MEASURES BY
GOVERNMENT OF INDIA
 Marketing assistance and export promotion scheme

 Participation in the International Exhibitions/ Fairs
 Training Programmes on Packaging for Exports
 Market Development Assistance Scheme for MSME exporters (MSME-
MDA)
 National Award for Quality Products
 Packaging for exports
 Technical & managerial consultancy services
 National awards for quality products

INSTITUTIONAL SETUP FOR EXPORT
PROMOTION
 Trade Fair Authority of India

 Indian Institute of Foreign Trade (IIFT)
 Export Credit Guarantee Corporation (ECGC)
 Export houses

RECAP
 The small-scale sector strives to make efficient utilization of

capital, land, and labor to produce goods and services.
 The small-scale sector contributes around 40% to the total
exports of the country; therefore, accounts for an important
segment of the Indian economy.
 The Indian government has recognized the contributions of
the small-scale sector in the socio-economic development of
the country.
 The government has set the target of annual growth of 12%
and creation of 4.4 million additional jobs in the small-scale
sector.

CHAPTER-8
INSTITUTIONAL
SUPPORT FOR SMALL
ENTERPRISES

INSTITUTIONS SUPPORTING SMALL-
SCALE ENTERPRISES
 Central level
 SSI Board
 KVIC
 MSME-DO
 NSIC
 NIESBUD
 IIE
 State level
 SIDCs/sIIcS
 SDIs
 DICs
 Others
 Industry Associations
 Non Governmental Organizations
KHADI AND VILLAGE INDUSTRIES
COMMISSION (KVIC)
 Refers to a legal body formed by an Act of Parliament (No. 61 of
1956) in April, 1957
 The functions of KVIC are as follows:
 Planning and organizing training of individuals employed or seeking
employment in khadi and village industries
 Building up reserves of raw material and supplying them to individuals
engaged or likely to be engaged in production of handspun yarn, khadi, or
village industries
 Facilitating production and marketing of khadi or products manufactured
by village industries
 Encouraging research in the technology used in khadi and village
industries
 Promoting cooperative efforts among the manufacturers of khadi or
individuals engaged in village industries
 Establishing quality standards and ensuring that products of khadi and
village industries adhere to the set standards
MICRO, SMALL, AND MEDIUM ENTERPRISES DEVELOPMENT
O R G A N I Z AT I O N ( M S M E - D O )
 Formulates, coordinates, implements, and monitors various

policies for the growth of SSEs
 The services rendered by MSME-DO are follows:
 Advising the government in policy formulation for the promotion and
development of SSEs
 Providing techno-economic and managerial consultancy, common
facilities, and extension services to SSEs
 Providing facilities for technology upgradation, modernization, quality
improvement, and infrastructure
 Developing human resources through training and skill upgradation
 Providing economic information services
 Maintaining a close link with the central ministries, planning
commission, state governments, financial institutions and other
organizations concerned with the development of SSEs

NATIONAL SMALL INDUSTRIES
CORPORATION LIMITED (NSIC)
 Aims at promoting, helping, and nurturing the development

and growth of SSEs
 It provides the following technical support services to SSEs :
 Advising on application of new techniques
 Providing material testing facilities through accredited laboratories
 Facilitating product design including Computer Added Design (CAD)
 Providing energy and environment services at selected centers
 Facilitating classroom and practical training for skill upgradation

NATIONAL INSTITUTE FOR ENTREPRENEURSHIP
AND SMALL BUSINESS DEVELOPMENT (NIESBUD)
 Coordinates and monitors the activities of agencies involved

in entrepreneurship development for SSEs
 The objectives of the NIESBUD are as follows:
 Evolving standardized materials and processes for selection, training,
support and sustenance of entrepreneurs
 Conducting training programs for promoters, trainers, and
entrepreneurs
 Formulating scientific selection procedure
 Developing training aids, manuals, and tools
 Sharing international experience and expertise in entrepreneurship
development
 Undertaking research and exchange experiences globally in
development and growth of entrepreneurship
 Creating environment suitable for the emergence of entrepreneurship

INDIAN INSTITUTE OF
ENTREPRENEURSHIP (IIE)
 Focuses on entrepreneur ship development by providing training, research,
and consultancy ser vices to SSEs
 The activities of IIE include the fo llowing:
 Evolving strategies and methodologies for different target groups and locations, and
conducting field tests
 Identifying training needs and offer training programmers to government and non-
government organizations engaged in promoting and supporting entrepreneurship
 Documenting and disseminating information needed for policy formulation and
implementation related to self-employment
 Identifying, designing, and conducting training programs for existing entrepreneurs
 Preparing and publishing literature related to entrepreneurship and industrial
development
 Organizing seminars, workshops and confer conferences for providing a forum for
interaction and exchange of views by various agencies and entrepreneurs
 Conducting research for generating knowledge to accelerate the process of
entrepreneurship development
 Acting as a catalyst for development of self-employment/entrepreneurship,
industry/business

STATE INDUSTRIAL DEVELOPMENT/ INVESTMENT
CORPORATIONS (SIDCS/SIICS)
 Provides technical and financial assistance to industrial units

 The major activities of SIDCs are as follows:
 Providing term finance to all small, medium and large enterprises
 Subscribing to shares and debentures of enterprises for financial
assistance
 Formulating feasibility studies and encouraging private
entrepreneurs to establish their own enterprises in the state
 Setting up industrial ventures in joint and assisted sector by
collaborating with private entrepreneurs
 Motivating entrepreneurs by implementing scheme of Industrial
Development Bank of India

DISTRICT INDUSTRY CENTERS (DICS)
 Promotes SSEs in rural areas and small towns

 The activities of DICs are as follows:
 Conducting surveys to assess industrial potential of a district
 Preparing an action plan for industrial development
 Evaluating investment proposals received from entrepreneurs
 Guiding entrepreneurs in buying appropriate machinery, equipment,
and raw material
 Suggesting appropriate marketing strategies to entrepreneurs
 Maintaining links with research and development institutions for
quality improvement and technology upgradation
 Conducting training programs for artisans
 Providing self-employment to educated unemployed youth

INDUSTRY ASSOCIATIONS
 Help in supporting SSEs by providing them with a platform to

raise industry related issues and promote their activities
 The major industry associations include:
 Federation of Indian Chambers of Commerce and Industry (FICCI)
 Works with the government for increasing efficiency, competitiveness, and
global opportunities for SSEs by providing specialized services
 PHD Chamber of Commerce and Industry (PHDCCI)
 Works with the senior government officials and task forces that pool
knowledge and experience for overall benefit of the business community
 World Association for Small and Medium Enterprises (WASME)
 Informs the promotion of SMEs in member countries and markets the
products of SMEs
 Indian Council of Small Industries (ICSI)
 Aims at extending assistance to the small and cottage enterprises that
further leads to the overall growth of the economy

NON-GOVERNMENTAL ORGANIZATIONS
 They provide financial assistance, marketing, training, and legal

advice to SSEs.
 They help entrepreneurs in dif ferent states by conducting various
micro-financing activities for them.
 They suppor t by setting sub-contract exchanges that help in the
following ways:
 Collecting data on the manufacturing capacities of SSEs
 Obtaining the details of the items that are required by large units and can be
produced in SSEs
 Setting up the data bank to provide the information to SSEs and large
industries
 Conducting programs for promoting the products manufactured by SSEs
 Arranging buyer-seller meets to display products of SSEs required by large
undertakings
 Matching the requirements of large undertakings with the capacity of SSEs

INSTITUTIONS PROVIDING FINANCIAL
ASSISTANCE
 Small Industries Development Bank of India (SIDBI)
 Provides credit flows to SSEs in the areas of transport, healthcare, and
tourism
 Focuses on assisting individuals establishing SSEs
 Provides assistance the following two ways:
 Direct Assistance
 Indirect Assistance
 State Financial Corporations (SFCs)
 Spreads industrial culture in rural, semi-urban, and backward areas of
different states in India
 Provide term loans to small and medium enterprises for procuring
various assets, such as land, building, and machinery
 Provide non-fund based services, such as merchant banking, under-
writing of public issues, project counseling, bill discounting, and
leasing and hire purchase to SSEs
SCHEMES FOR TECHNOLOGICAL
UPGRADATION OF SMALL ENTERPRISES
 ISO 9000/14001 certification fee reimbursement scheme
 Micro and Small Enterprises Cluster Development Program
MSE-CDP
 Credit Linked Capital Subsidy Scheme (CLCSS), to improve the
competitiveness of MSMEs
 National Manufacturing Competitiveness Program (NMCP)
 Skill development programs
 Integrated Infrastructure Development (IID) Scheme
 Other Facilities and Incentives for Indian MSMEs
 Prime Minister’s Employment Generation Program (PMEGP)
 Scheme for rejuvenation, modernization, and technology
upgradation of the coir industry

RECAP
 Small-Scale Enterprises (SSEs) face a number of problems

due to inadequate capital, low productivity, and lack of
infrastructure facilities.
 Government of India has formed the Ministry of Micro, Small
& Medium Enterprises (MSME), which is focused on the growth
and development of the small-scale sector.
 The Ministry of MSME provides special facilities and support
services to SSEs through its central and state level
institutions.
 The main objective of these institutions is to enhance the
competitiveness of SSEs in the market.

CHAPTER-9
CHALLENGES FOR
SMALL ENTERPRISES

PROBLEMS FACED BY SMALL
ENTERPRISES
Managerial Problems
Financial Problems
Marketing Problems
Human Resource Problems
Raw Material-Related Problems
Technological Problems

MANAGERIAL PROBLEMS FACED BY
SMALL ENTERPRISES
 Most of the SSEs are not managed effectively and efficiently
 SSEs generally lack managerial capacities to successfully
implement new opportunities
 SSEs also have an insufficient number of trained and
experienced employees as they cannot pay high salaries
 The different Government initiatives to overcome managerial
problems are:
 Management Training Programs
 National Institute for Micro, Small and Medium Enterprises
 National Institute for Entrepreneurship and Small Business
Development, Noida
 Indian Institute of Entrepreneurship (IIE), Guwahati

FINANCIAL PROBLEMS FACED BY SMALL
ENTERPRISES
 SSEs are unable to borrow at reasonable interest rates due to
their low goodwill
 For rejection of consignment and delay in payment small
enterprises need to close their operations
 The Government initiatives to overcome financial problems
are:
 Priority Sector Lending Policy
 Credit Guarantee Cover Fund Scheme
 Policy Package for Stepping up Credit to Small and Medium
Enterprises (SMEs)
 Small Industries Development Bank of India (SIDBI)
 State Financial Corporations (SFCs) and State Industrial Development
Corporations (SIDCs)

MARKETING PROBLEMS FACED BY SMALL
ENTERPRISES
 Dependency on outside sources tends to raise the cost of
their products and services
 SSEs, being unaware of marketing concepts and strategies,
hesitate opting for efficient marketing techniques
 Small scale entrepreneurs do not accurately understand what
kind of products are in actual demand in the market
 The Government initiatives to overcome marketing problems
are:
 Consortia and Tender Marketing Approach
 Single Point Registration for Government Purchase Scheme
 Exhibitions and Technology Fairs
 Facilitation in Export of Products and Projects

HUMAN RESOURCE PROBLEMS FACED BY
SMALL ENTERPRISES
 SSEs generally face difficulty in acquiring and retaining
employees with proper knowledge and skills
 Small enterprises cannot offer equal compensation to
employees
 The Government initiatives to overcome human resource
problems are:
 Various training programs, seminars, and workshops to bridge the
skill gaps of employees in SSEs conducted by NSIC
 Some of the institutes focusing on human resource
development of SSEs :
 Indian Institute of Entrepreneurship(IIE), Guwahati
 Fragrance and Flavour Development Centre, Kannauj
 National Institute for Micro, Small and Medium Enterprises(NIMSME),
Hyderabad
RAW MATERIAL-RELATED PROBLEMS
FACED BY SMALL ENTERPRISES
 Non-availability of raw materials on a timely basis or

insufficient quantity of raw materials
 Scarcity of basic raw materials needed for daily production
 The Government initiatives to overcome raw material-related
problems are:
 NSIC and Small Scale Industries Development Corporations
 Raw Material Assistance Scheme

TECHNOLOGICAL PROBLEMS FACED BY
SMALL ENTERPRISES
 Unable to use the latest techniques of production due to lack
of capital
 The productivity and quality of products of SSEs tends to be
low
 The Government initiatives to overcome technological
problems are:
 ISO 9000/14001 Certification Fee Reimbursement Scheme
 National Manufacturing Competitiveness Program (NMCP)
 Credit Linked Capital Subsidy Scheme (CLCSS)

ROLE OF CENTRAL AND STATE GOVERNMENTS
IN PROMOTING SMALL ENTERPRISES
 Entrepreneurship Development Programs (EDPs)

 Rajiv Gandhi Udyami Mitra Yojana (RGUMY)
 Scheme of Survey, Studies, and Policy Research
 Micro, Small, and Medium Enterprise Development (MSMED)
Act, 2006
 Reservation Policy of Government

INDUSTRIAL POLICIES FOR SMALL
ENTERPRISES
 IPR 1948
 IPR 1956
 IPR 1977
 IPR 1980
 IPR 1990
 New Small Enterprise Policy (NSEP), 1991
 Comprehensive Policy Package for Small Scale Industries and
Tiny Sector 2000
 Industrial Policy Package for SSEs2001-02
 Industrial Policy for SSEs 2003-04
 Policy Package for SSIs 2004-05
 Policy Package for SMEs 2005-06

RECAP
 Small Scale Enterprises (SSEs) come across difficulties in

every stage of their operations.
 In case of SSEs, they are often unable to obtain adequate
financial resources for purchasing equipment and machinery,
procuring raw materials, and meeting day -to-day expenses.
 Recognizing the importance of SSEs in the economic growth
of the country, the Indian government has formulated several
policies and schemes for the development and promotion of
SSEs.

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CHAPTER-7

© 2011, Dreamtech Press :: Chapter 7 1

 An SSE can be defined as a privately owned and operated

© 2011, Dreamtech Press :: Chapter 7 2

© 2011, Dreamtech Press :: Chapter 7 3

© 2011, Dreamtech Press :: Chapter 7 4

© 2011, Dreamtech Press :: Chapter 7 5

Utilization of Domestic Technology

Better Utilization of Local Resources

Complement to Large Industries

Regional Balance and Rural Development

© 2011, Dreamtech Press :: Chapter 7 6

© 2011, Dreamtech Press :: Chapter 7 7

© 2011, Dreamtech Press :: Chapter 7 8

© 2011, Dreamtech Press :: Chapter 7 10

 According to the third census on SSI:

© 2011, Dreamtech Press :: Chapter 7 11

• Providing proper infrastructure and related services

• Imparting entrepreneurial training

• Providing support and resources to entrepreneurs

© 2011, Dreamtech Press :: Chapter 7 12

© 2011, Dreamtech Press :: Chapter 7 13

 An SSE cannot exist without the proper arrangement of

© 2011, Dreamtech Press :: Chapter 7 14

 SSEs lack in accessing technology due to poor consultancy

© 2011, Dreamtech Press :: Chapter 7 15

 The small-scale sector is characterized by the absence of

© 2011, Dreamtech Press :: Chapter 7 16

 One which fails to generate internal surplus on a continuing

 A unit may be defined as sick, if it had incurred cash loss for

© 2011, Dreamtech Press :: Chapter 7 17

 Lack of Management Expertise

© 2011, Dreamtech Press :: Chapter 7 18

© 2011, Dreamtech Press :: Chapter 7 19

Multiplication Processing Storage Promotion Distribution Sales

© 2011, Dreamtech Press :: Chapter 7 20

 Marketing assistance and export promotion scheme

© 2011, Dreamtech Press :: Chapter 7 21

 Trade Fair Authority of India

© 2011, Dreamtech Press :: Chapter 7 22

 The small-scale sector strives to make efficient utilization of

© 2011, Dreamtech Press :: Chapter 7 23

© 2011, Dreamtech Press :: Chapter 8 24

 Formulates, coordinates, implements, and monitors various

© 2011, Dreamtech Press :: Chapter 8 27

 Aims at promoting, helping, and nurturing the development

© 2011, Dreamtech Press :: Chapter 8 28

 Coordinates and monitors the activities of agencies involved

© 2011, Dreamtech Press :: Chapter 8 29

© 2011, Dreamtech Press :: Chapter 8 30

 Provides technical and financial assistance to industrial units

© 2011, Dreamtech Press :: Chapter 8 31

 Promotes SSEs in rural areas and small towns

© 2011, Dreamtech Press :: Chapter 8 32

 Help in supporting SSEs by providing them with a platform to

© 2011, Dreamtech Press :: Chapter 8 33

 They provide financial assistance, marketing, training, and legal

© 2011, Dreamtech Press :: Chapter 8 34

© 2011, Dreamtech Press :: Chapter 8 36

 Small-Scale Enterprises (SSEs) face a number of problems

© 2011, Dreamtech Press :: Chapter 8 37

© 2011, Dreamtech Press :: Chapter 9 38

Human Resource Problems

Raw Material-Related Problems