Entrepreneurship

UNIT
01 Introduction to Entrepreneurship
Names of Sub-Units
Concept of Entrepreneurship, Importance of Entrepreneurship, History and Evolution of

Entrepreneurship, Types of Entrepreneurs, Myths of Entrepreneurship, Women Entrepreneurship in
India, Technology and Business Communication
Overview
The unit begins by explaining the concept of entrepreneurship, its importance and history. Further, the
unit explains different types of entrepreneurs. Also, the unit sheds light on myths of entrepreneurship.
Thereafter, it discusses the impact of women entrepreneurship in India. Towards the end, the unit
explains the importance technology and business communication in an enterprise.
Learning Objectives
In this unit, you will learn to:

 Explain the concept of entrepreneurship
 Discuss the importance of entrepreneurship
 Discuss the history and evolution of entrepreneurship
 List the types of entrepreneurs
 Infer the impact of women entrepreneurship in India
JGI JAIN
DEEMED-TO-BE UNIVERSIT Y
Entrepreneurship
Learning Outcomes
At the end of this unit, you would:

 Analyse the importance of entrepreneurship
 Enlist various types of entrepreneurs
 Explore myths about entrepreneurship
 Identify the impact of women entrepreneurship in India
 Recognise how technology and business communication leads to business success
Pre-Unit Preparatory Material
 https://www.youtube.com/watch?v=LB J7hvUzY
1.1 INTRODUCTION
Entrepreneurship is the centre of any economic activity and entrepreneurs are the main source
of this activity. Undoubtedly, any new product or service is motivated by consumer needs. Likewise,
entrepreneurs only fulfil the generated needs of consumers by initiating, designing, developing, and
marketing goods or services. It is the eagerness of entrepreneurs that gives birth to a new product.
Entrepreneurship is also about setting some new trends. An economy’s development, prosperity, and
lifestyle is fundamentally a collective effort and idea of various entrepreneurs directly or indirectly.
Entrepreneurship is a significant source of change in all aspects of society. It is also a symbol of business
tenacity and achievement. Entrepreneurship can be considered as one the most powerful economic
force known to humankind, which empowers individuals to seek those opportunities that are considered
as difficult problems by others.
1.2 CONCEPT OF ENTREPRENEURSHIP

Entrepreneurship is an age-old phenomenon that shows the relation between an entrepreneur’s vision
and its implementation in the business venture. In general terms, any individual who runs a business
is known as an entrepreneur. Precisely defining, entrepreneurs are referred to as those individuals
who develop their own business by organising, operating and assuming the risk of a business venture.
Entrepreneurship pertains to the concept of establishing and managing a business venture to make
profit by undertaking various risks in the corporate world. In other words, entrepreneurship is the
willingness to establish a new venture.
Entrepreneurship is also regarded as a function of perceiving consumer needs and then bringing
together the required manpower, material and capital to meet the perceived need. It also refers to the
innovative and creative response an economy and business environment receives through the activities
and functions of entrepreneurs.
Entrepreneurship also refers to the process that involves a new venture set up with the help of composite
skills that is the combination of an entrepreneur’s traits and qualities such as risk-taking ability,
imagination ability, and ability to combine and exploit factors of production (land, labour, capital,
human resource and technology).
18
UNIT 01: Introduction to Entrepreneurship JGI JAIN
Entrepreneurship refers to all those activities that an entrepreneur carries out to establish and
run the set business enterprise in agreement with the changes in the economic, social and political
environments. Entrepreneurship also involves the activities that relate to the anticipation of the likes
and dislikes of consumers, feelings and behaviours of consumers, consumer tastes and fashions and the
initiation of business ventures to fulfil all these expectations of the consumers. An entrepreneur’s ability
to risk assessment and establishing the risky business that fits into the changing economic scenario is
known as entrepreneurship.
The two major factors that verify entrepreneurship developments are as follows:
 Ability of entrepreneurs to take risk
 Achievement potential of entrepreneurs
The following are some popular definitions of entrepreneurship given by management experts:
 Arthur H. Cole has stated that “Entrepreneurship is the purposeful activity of an individual or
a group of associated individuals undertaken to initiate, maintain or organize a profit oriented
business unit for the production or distribution of economic goods and services.”
 D.C. McClelland has identified two characteristics of entrepreneurship. Firstly, doing things in a
new and better way, and secondly, decision making in conditions of uncertainty.
 Benjamin Higgins has defined entrepreneurship as, “Entrepreneurship means the function of
foreseeing investment and production opportunity, organising an enterprise to undertake a new
production process, raising capital, hiring labour, arranging for the supply of raw materials and
selecting top managers for the day-to-day operation of the enterprise.”
 According to Peter F. Drucker, “Entrepreneurship is neither a science nor an art. It is a practice. It has
a knowledge base. Knowledge in entrepreneurship is a means to an end. Indeed, what contributes
knowledge in practice is largely defined by the ends, that is, by the practice.”
1.2.1 Importance of Entrepreneurship

Entrepreneurs are the backbone of any economy. The prosperity of a nation has a direct relation to the
development of its economy. It is the responsibility of every nation to ensure economic development to
improve the standards of living of the people and eliminate poverty and backwardness. The economic
development process involves enhancement in Gross National Product and it depends on the way
physical natural resources are utilised by human resources to realise the productive potential of the
nation. The growth of a nation needs an increase in the production and level of consumption. The
significant reasons why entrepreneurship holds an imperative role in an economy are as follows:
 Creates wealth for both the individuals and for the nation: Generally, all individuals who seek
business opportunities create wealth by entering into an entrepreneurship. The wealth created by
entrepreneurs undoubtedly plays a substantial role in the development of the nation. The business
and the entrepreneur contribute in some way to the economy may be in the form of products or
services or boosting the GDP rates or tax contributions. Their ideas, thoughts, and inventions are
also of a great help to the nation.
 Provides employment to huge mass of people: It is very often said that people who do not get
employed anywhere start up the entrepreneurial venture. Both new and the existing entrepreneurial
establishments are sources of employment to a large number of people. This emphasises on the
fact that entrepreneurship is not at all a burden to an economy. Entrepreneurship heads a nation
towards better opportunities, which is a significant input to an economy.
19
JGI JAIN
Entrepreneurship
 Contributes towards research and development system: Contemporary business needs new ideas
so entrepreneurs often involve in innovations. Without numerous inventions, the world would have
been a much tough place to live in. The curiosity of entrepreneurs to do something unique often
gives rise to new products. This ultimately improves technology and assists people in completing
work easily.
 Creates challenging opportunity for the individuals: Despite being a challenging task,
entrepreneurship provides rewards much more than what one anticipates. Entrepreneurs not only
enjoy rewards at the financial level but also on an individual level. It is a source of self-satisfaction
to the entrepreneur.
 Makes the sources of self-sufficiency: Entrepreneurs not only become self-sufficient but also the
source of improving standards of living of their employees by providing salary for their work.
Entrepreneurs provide the opportunity to individuals to work in their organisation. As individuals
get jobs, they get the opportunity of self-sufficiency that is derived in the form of monetary rewards,
liberty, and the feeling of contentment from the jobs.
 Provides immense evident prospects for self-development: Individuals get the maximum scope
for growth and opportunity if they enter into entrepreneurship. Entrepreneurs get motivated by
the knowledge and skills they derive with experience. Individuals who work as employees usually
deprive form such self-development opportunities. Individuals aspiring to become entrepreneurs
also go through a grooming process when they become the entrepreneur.
1.2.2 History and Evolution of Entrepreneurship

The history of entrepreneurship is pivotal across the world, even in India. During the pre-colonial era
the Indian trade and business was at zenith. Indian’s were deemed prudent and dexterous in smelting
of metals such as brass and tin. The Kanishka Empire in the 1st century started nurturing Indian
entrepreneurs and traders. Subsequent to that period, around 1600 A.D., India formed trade allegiance
with Roman Empire. Gold was pouring from all sides. Then came the Portuguese and the English. They
invaded the Indian sea waters and slowly entered the Indian business. They coerced the entrepreneurs
to become traders and the Britisher themselves assumed the role of entrepreneurs. This was the key
reason for the decline of Indian business during the colonial era. The colonial rule made the Indian
outlook and principles rigid.
With the establishment of British rule in India, the extent of exploitation further aggravated, though
in a much more invisible and discreet in a way. Earlier, during the Moghul rule, the surplus produce
and resources were concentrated in the towns within the country but with the coming of the European
rulers the surpluses and resources of the subcontinent were drained to other countries converting India
into a colony.
In 1947, India became an independent nation following years of oppression and struggle that was
marked by widespread nonviolent resistance. Economic reforms since 1991 have transformed it into
one of the leading economies of the world. However, it still cripples with high levels of penury, illiteracy
and destitution. For an entire generation from the 1950s until the 1980s, India followed socialist-inspired
policies. The Indian economy was mired in high regulation, protectionism and public ownership,
leading to widespread corruption and slow progress. Since 1991, India has inched towards a market-
based system. Entrepreneurship in India has revolutionised owing to three dimensions, i.e., favourable
framework conditions, well-established government programmes and supportive cultural outlook.
20
1.3 TYPES OF ENTREPRENEURS

The most significant entrepreneurial traits that contribute to the success of entrepreneurs are emotional
stability, personal relations, consideration and tactfulness. In other words, the success and failure of an
entrepreneur are also related to their ability in maintaining relations with stakeholders and consumers.
The types of entrepreneurs are classified in different ways by various authors. The classification helps
the potential entrepreneurs to choose their own nature and style of entrepreneurship. Various types of
entrepreneurs are as follows:
 Business entrepreneur: Business entrepreneurs are individuals who imagine an idea for a new
product or service and then set up a business to turn up their idea into reality. They are the ones
who strike both production and marketing resources in their search of developing a new business
opportunity. Business entrepreneurs may set up a big establishment or a small business unit.
 Trading entrepreneur: Trading entrepreneurs are not concerned with the manufacturing of
products. They are the ones who undertake trading activities. They identify potential markets,
stimulate demands for their product line and create a desire and interest among buyers to go in for
their product. They are engaged in both domestic and overseas trade.
 Industrial entrepreneur: Industrial entrepreneurs meet the market needs by manufacturing
products. They do this by identifying the potential needs of the customers and accordingly tailor
the product or services. They work with the possibility of giving shape to their ideas by creating and
developing new products. They are product-oriented individuals and often start an industrial unit
too for the production of products.
 Corporate entrepreneur: Corporate entrepreneurs demonstrate their innovative skills in organising
and managing a corporate undertaking. A corporate undertaking implies a form of business
organisation that is registered under some law or statute or Act, which provides it a separate legal
entity.
 Agricultural entrepreneur: Agricultural entrepreneurs undertake agricultural activities such as
sowing, raising, reaping and marketing of crops with the help of fertilizers and other inputs of
agriculture.
 Technical entrepreneur: Technical entrepreneurs are essentially entrepreneurs of “Craftsman
type”. They develop a new and improved quality of goods because of their craftsmanship. They
concentrate more on production than marketing. They do not care much to generate sales by
applying various sales promotional techniques. They demonstrate their innovative capabilities in
matters of production of goods and rendering services.
 Pure entrepreneur: Pure entrepreneurs are individuals who are motivated by psychological and
economic rewards. To achieve personal satisfaction in work, status or ego is the main aim of
undertaking entrepreneurial activities by a pure entrepreneur.
 Induced entrepreneur: Induced entrepreneurs refer to those individuals who get attracted to policy
measures of the government and start up the entrepreneurial venture. The assistance, incentives,
concessions and necessary overhead assistance by the government induce individuals to undertake
entrepreneurial activities. The force which influences the efforts of entrepreneurs to achieve their
objectives is known as motivation. Entrepreneurs are motivated to achieve or prove their excellence
in job performance. They are also motivated to influence others by demonstrating their power thus
satisfying their ego.
 Motivated entrepreneur: New entrepreneurs are individuals who are motivated by the desire
for self-fulfilment. They come into existence because of the likelihood of making and marketing
21
JGI JAIN
Entrepreneurship
some new products for the use of consumers. As the product is developed to a saleable stage, the
entrepreneurs are further motivated by rewards in terms of profit and enlarged customer networks.
 Spontaneous entrepreneur: Entrepreneurs who start their business out of their natural talent
and instinct are called spontaneous entrepreneurs. They are individuals who are discoverers and
initiators. Their boldness and confidence motivate them to undertake entrepreneurial activities.
 Growth entrepreneur: Growth entrepreneurs are individuals who essentially take up a high growth
industry. Such entrepreneurs choose an industry with substantial growth prospects.
 Super-growthentrepreneur: Super-growthentrepreneursarethoseindividualswhomakeenormous
efforts to take their venture to enormous growth of performance. Their growth performance is
identified by the liquidity of funds, profitability and gearing of their venture.
 First-generation entrepreneur: First-generation entrepreneurs are those who start an industrial
unit by means of an innovative skill. They are essentially innovators, who combine different
technologies to produce a marketable product or service.
 Modern entrepreneur: Modern entrepreneurs are those who undertake ventures which go well
along with the changing demand in the market. They are interested in undertaking only those
ventures that suit the current marketing needs.
 Classical entrepreneur: Classical entrepreneurs are those individuals who are concerned with the
customers and marketing needs through the establishment and growth of a self-supporting venture.
They are conventional types of entrepreneurs who work with the aim of maximising the economic
return. They first aim to earn a minimum level of profit, which is necessary for the survival and
growth of the entrepreneurial venture.
 Innovating entrepreneur: Innovating entrepreneurs are characterised by aggressive grouping of
information and analysis of results, deriving from an original combination of factors. Individuals
belonging to this group are normally aggressive in experimentation by demonstrating cleverness.
1.4 MYTHS OF ENTREPRENEURSHIP

Entrepreneurship is a bid to create value by looking out for business opportunity, the management of
risk-taking appropriate to the opportunity, and through interaction and management skills to mobilise
human, financial and material resources requisite to yield profit.
There are some myths pertaining to entrepreneurship which are as follows:
 Commencing a business is easy: A majority of people, who initiate the process of starting a business
venture, fail to sustain and keep it running. Subsequent to starting a business, only one third of
entrepreneurs are able to have a positive cash flow.
 Huge amount of finance is required for a new business: A typical start-up only needs about
`1,50,000/- to start a business venture. The successful entrepreneurs, who do not believe the myth,
carve their business activities to work with limited finance. Astute entrepreneurs tend to rent office
space rather than to buy a new place and hold the money. Prudent entrepreneurs turn fixed costs
into variable costs by paying people commissions instead of salaries for example; Infosys was
started with only `10,000/-.
 Banks do not offer loan to start-ups: This is another pervasive myth. Banks and various government
institutes have brought in entrepreneurship development schemes with a view to provide finance to
budding entrepreneurs.
 Entrepreneurs are born: Many people tend to opine that entrepreneurs have intrinsic genetic
talents. However, the reality is that a person learns to become entrepreneur. The recent proliferation
22
of college and university courses on the subject supports this point. In the prevailing scenario,
entrepreneurship is being successfully taught and preached.
 Entrepreneurs need to be tech savvy: It is well known that many high-tech entrepreneurial
wizards who have developed their own business mode that is flourishing. Media attention overplays
the success of these few high-tech entrepreneurs. Only a small percentage of today’s personal
businesses are considered high tech. Entrepreneurs are those who tend to seize the opportunity in
the circumstances and capitalise on it. There are many chronicles of people who are merely high
school graduate, but have carved a niche for themselves in the business world.
1.5 WOMEN ENTREPRENEURSHIP IN INDIA

As per the general concept of an entrepreneur, women entrepreneurs may be defined as the women or
group of women who commence, organise and operate a business enterprise. Women entrepreneurs are
those women who innovate, create or engage in a business activity. The Government of India defines
women entrepreneurs with relation to women’s participation in equity and employment of a business
enterprise. Accordingly, women entrepreneurship is defined as “An enterprise owned and controlled
by a woman, having minimum financial interest of 51% of the capital and giving atleast 51% of the
employment generated in the enterprise to women”.
Women entrepreneurs have to perform an array of functions pertaining to establishment of an
enterprise. These entail the creation of an idea, its screening, selecting on the type of organisation,
developing organisational goals and objectives, planning, fulfilling preliminary and promotional
formalities, raising of capital, employing necessary workforce and operating the business.
Women entrepreneurs are less in number in India. The role of women was till recently restricted to only
kitchen and household activities. However, on account of the several schemes introduced for creation of
employment opportunities and for actuating women in business, these activities are now diversifying.
Women become both the major contributors as well as the key beneficiaries of industrial development,
as entrepreneurs they contribute their bid towards production. Therefore, women have a cardinal role
to play in the industrial production as well as in its distribution. Full participation of women in industrial
development would ensure effective utilization of labour and other resources and also promote quality
production.
Women have ventured in and have been successful in different entrepreneurial sectors of electronics,
engineering, fashiondesigning, jewellerydesigning, interiordesigning, solarcookers, dairy, foodproducts,
handlooms, handicrafts, soaps and detergents, cement, drugs, nurseries, leather, plastics, poultry,
garments, fabrics, ceramics, doll-making, catering, textiles, printing, chemicals, pharmaceuticals,
transport, communications, computers etc.
1.6 TECHNOLOGY AND BUSINESS COMMUNICATION

Before the advancement in technology, business communication was limited to formal business
letters and a conversation with the senior staff. In the current era of technological advances, business
communications have developed into a new realm. Now, messages are delivered almost at blink of an
eye, tasks are allocated and managed by computer programs and communication occurs seamlessly.
And advances in technology and business communications have enhanced flow of work and efficiency.
In every business, whether big or small, communication forms an indispensable aspect and technology
facilitates smooth flow of communication. Internally within an organisation technology streamlines
exchange of data between various sections or departments. Externally, technology has made
communication simple and ubiquitous.
23
JGI JAIN DEEMED-TO-BE UNIVERSIT Y
Entrepreneurship
Technology has helped entrepreneurs to streamline the decision making process. Through use of
advanced technology business can keep a track of customer buying preferences and market data.
Technology in form of business relevant software enables in error free reporting. Entrepreneurs are
guaranteed precision with metrics drawn from the finance, marketing and customer engagement
departments. Technology assists entrepreneurs to assess crucial data and help a business to evaluate
its weak areas and strategise accordingly.
Conclusion 1.7 CONCLUSION
 Entrepreneurship is also regarded as a function of perceiving consumer needs and then bringing
together the required manpower, material and capital to meet the perceived need. It also refers to
the innovative and creative response an economy and business environment receives through the
activities and functions of entrepreneurs.
 Entrepreneurship also refers to the process that involves a new venture set up with the help of
composite skills that is the combination of an entrepreneur’s traits and qualities such as risk-taking
ability, imagination ability, and ability to combine and exploit factors of production (land, labour,
capital, human resource and technology).
 Entrepreneurship refers to all those activities that an entrepreneur carries out to establish and
run the set business enterprise in agreement with the changes in the economic, social and political
environments.
 Entrepreneurship also involves the activities that relate to the anticipation of the likes and dislikes of
consumers, feelings and behaviours of consumers, consumer tastes and fashions and the initiation
of business ventures to fulfil all these expectations of the consumers.
 An entrepreneur’s ability to risk assessment and establishing the risky business that fits into the
changing economic scenario is known as entrepreneurship.
 The curiosity of entrepreneurs to do something unique often gives rise to new products. This
ultimately improves technology and assists people in completing work easily.
 Individuals get the maximum scope for growth and opportunity if they enter into entrepreneurship.
 Entrepreneurs get motivated by the knowledge and skills they derive with experience. Individuals
who work as employees usually deprive form such self-development opportunities.
 Entrepreneurship in India has revolutionised owing to three dimensions i.e., favourable framework
conditions, well-established government programmes and supportive cultural outlook.
 Business entrepreneurs are individuals who imagine an idea for a new product or service and then
set up a business to turn up their idea into reality. They are the ones who strike both production and
marketing resources in their search of developing a new business opportunity.
 Industrial entrepreneurs meet the market needs by manufacturing products. They do this by
identifying the potential needs of the customers and accordingly tailor the product or services
 Corporate entrepreneurs demonstrate their innovative skills in organising and managing a
corporate undertaking. A corporate undertaking implies a form of business organisation that is
registered under some law or statute or Act, which provides it a separate legal entity
 Agricultural entrepreneurs undertake agricultural activities such as sowing, raising, reaping and
marketing of crops with the help of fertilizers and other inputs of agriculture.
24
1.8 GLOSSARY
 Employment: A contract between two parties, one being the employer and the other being the
employee
 Entrepreneur: An individual who organises a business venture and assumes the risk for setting and
running up the business venture
 Entrepreneurship: An act transforming innovation into economic good
 Factors of production: Inputs used in the production process
 Innovator: A person or organisation who is the first to introduce something new and better than
before
1.9 CASE STUDY: OGE – AN ENTREPRENEURIAL VENTURE
Case Objective
The case study exhibits how a business opportunity can transformed into a business venture.
OGE, a software company, is functioning on the cutting edge of User Experience Design in healthcare.
The products and services created at OGE are proven to increase patient engagement experience while
improving health outcomes. John, the founder, takes a unique approach to innovation and business
ideas.
OGE was constituted out of a game studio in Malaysia. The founders saw an interesting opportunity in
applying design patterns from games to healthcare applications and developed a psychological model
based in part on evolutionary psychology.
These insights slowly worked their way into business plans, and ultimately into an operating business.
However, John did it a lot differently than most, which might be a large factor in the company’s success
today.
It was not the idea, inspiration, or even the technology that defined the business rather it was the team,
first. Starting with a general idea of where he wanted to go, he built a team, and let the team finds its
own way. Why take this approach? If you look at the stats, you see almost all companies fail. About 95%
of businesses don’t last longer than five years. The surface reasons for their failures vary widely, but
John’s opinion is that if you look beneath the surface, you see these reasons generally boil down to a
single factor: a lack of talent in key moments.
With this mindset and knowledge, he wanted to focus on building the best team, which can pivot and
create new value when confronted with obstacles. Since there is a low amount of venture capital
available in Malaysia to build start-ups, John tapped into his network, looking to build a team with the
energy and maturity necessary to bootstrap the business from nothing. Starting with the available
resources in the initial months, and running off the revenue they brought in, they began to refine the
process, technology, and idea over time. The philosophy used in the early days was to make sure that
someone always pays for every line of code the team wrote.
Instead of trying to find new customers for ready products, the team progressively refined their offering,
customer by customer.
25
JGI JAIN
Entrepreneurship
The team did not know exactly what would form the foundation for a scalable and repeatable product
business but certainly, they saw a lot of problems to be solved. They found people who would pay to solve
some of those problems.
Then, the challenge became how do you keep control of the innovation, own the intellectual property,
and continue to build on it? How can you do that and avoid finding yourself trapped in a sequence of
unrelated projects? To solve this, OGE was first and foremost careful in structuring their contracts so
that the company retained ownership of software IP, and secondly constantly evaluated their projects,
customers, and potential customers, looking for commonalities. From those insights, the team crafted
its sales and marketing message as a hypothesis to be tested against the market.
As an entrepreneur since 1998, John’s past experiences were very pertinent in building the team,
developing clientele, and managing it all. By utilising his relationships and past connections, he was
able to find the right people he needed. In short, the past experience was a huge contributor to the
success they have today. A wide range of experiences from everyone was critical in how clients were
handled, and how things were brought to the table for the company’s vision. He was well aware of the
fact that for the survival and success of the company with the team-first mentality, the team really
needed to perform first with taking benefits of strengths and experiences of others.
For inspiration and creativity outside the office, John has many outlets that allow him to be creative. For
instance, he has a deep artistic background, playing music, writing poetry, and playing sports such as
soccer. He has also practised martial arts, and is trained to be a composer in the past! A huge takeaway
here is that John utilises these different experiences, which helped him gain different perspectives on
life and business. These different experiences lead to great ideas that he and his team can build upon
for clients.
To keep track of the innovation in the business, regular off-site meetings are a must for everyone! Getting
people out of the flow of the work is great. As well, getting people to, at least for a time, stop working
IN the company and spend some time working ON the company. This allows everyone to be a part of
crafting the vision, and have buy-in, which is huge for employee morale and overall innovation in the
business. On top of that, OGE has a strategic council of senior people in the company, who get together
to evaluate progress towards key goals, and a weekly management meeting for a tactical process with
what is going on.
The founder, John, suggests that if you have an idea that you want to build into a great business, you
need a really great team. The wrong team or a poorly constructed team will take any opportunity or
business idea in front of them and destroy it, while a great team will always find a way to pivot out of a
bad decision. The most important question you can ask yourself is who do I trust with this mission? Not
what needs to be done, or how should it be done. Also, getting people working ON the business, instead
of IN the business is a real driver of creativity and innovation of the direction they take.
Questions
1. How John’s experience was pertinent to the new venture?
(Hint: Building the team, developing clientele, and managing it all)
2. What else does an entrepreneur with a good idea need to have a great business?
(Hint: A great team)
3. How was John able to find the right people?
(Hint: By utilising his relationships and past connections)
26
4. What were other special skills of John apart from effective team handling?
(Hint: Deep artistic background, playing music, writing poetry, etc.)
5. How can poorly constructed team harm a new business?
(Hint: By destroying any opportunity or business idea)
1.10 SELF-ASSESSMENT QUESTIONS
A. Essay Type Questions

1. Entrepreneurship is also regarded as a function of perceiving consumer needs and then bringing
together the required manpower, material and capital to meet the perceived need. Explain the
concept of entrepreneurship.
2. Entrepreneurship is important for a country for various reasons, from promoting social change to
driving innovation. Discuss the importance of entrepreneurship.
3. The types of entrepreneurs are classified in different ways by various authors. The classification
helps the potential entrepreneurs to choose their own nature and style of entrepreneurship. Explain
any two types of entrepreneurs.
4. People always get puzzled when it comes to starting an enterprise as there are a number of myths
associated with entrepreneurship. Examine a few myths of entrepreneurship.
5. According to a report, there are around 8 million women entrepreneurs in India, and 10% of all
formal enterprises are owned by women. Write a brief note on women entrepreneurship in India.
1.11 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS
A. Hints for Essay Type Questions

1. Entrepreneurship also refers to the process that involves a new venture set up with the help of
composite skills that is the combination of an entrepreneur’s traits and qualities such as risk-taking
ability, imagination ability, and ability to combine and exploit factors of production (land, labour,
capital, human resource and technology). Refer to Section Concept of Entrepreneurship
2. Entrepreneurs are the backbone of any economy. The prosperity of a nation has a direct relation to the
development of its economy. It is the responsibility of every nation to ensure economic development
to improve the standards of living of the people and eliminate poverty and backwardness. Refer to
Section Concept of Entrepreneurship
3. Business entrepreneurs are individuals who imagine an idea for a new product or service and then
set up a business to turn up their idea into reality. On the other hand, technical entrepreneurs are
essentially entrepreneurs of “Craftsman type”. They develop a new and improved quality of goods
because of their craftsmanship. Refer to Section Types of Entrepreneurs
4. Commencing a business is easy, huge amount of finance is required for a new business, banks do
not offer loan to start-ups, and so on are some myths of entrepreneurship. Refer to Section Myths of
Entrepreneurship
5. The Government of India defines women entrepreneurs with relation to women’s participation in
equity and employment of a business enterprise. Refer to Section Women Entrepreneurship in India
27
JGI JAINDEEMED-TO-BE UNIVERSIT Y
Entrepreneurship
@ 1.12 POST-UNIT READING MATERIAL
 https://www.avocor.com/blog/7-advantages-of-technology-in-business-communication/
 https://www.business2community.com/tech-gadgets/importance-information-technology- business-
today-01393380
1.13 TOPICS FOR DISCUSSION FORUMS
 Discuss with your friends how to start a business venture.
28
UNIT
02 Entrepreneurial Competence
Names of Sub-Units
To understand the Framework of Entrepreneurial Competence: Qualities of Successful Entrepreneurs,

Motives and Drives to take up Entrepreneurship, Career in Entrepreneurship, Entrepreneurial Decision
Process
Overview
The unit begins by explaining the qualities of successful entrepreneurs. Further, it delves into motives
and drives to take up entrepreneurship. Towards the end, you will be acquainted with careers in
entrepreneurship, behavioral traits of entrepreneurs and the entrepreneurial decision process.
Learning Objectives

 Explain the qualities of successful entrepreneurs
 Discuss the behavioural traits of entrepreneurs
 List the motives and drives to take up entrepreneurship
 Identify how to make career in entrepreneurship
 Outline steps in the entrepreneurial decision process
JGI JAIN
Entrepreneurship
Learning Outcomes

 Recognise the qualities of a successful entrepreneur
 Analyse the behavioural traits of entrepreneurs
 Recognise the behavioural traits of entrepreneurs
 Propose how to make career in entrepreneurship
 Examine the entrepreneurial decision process
2.1 INTRODUCTION
Entrepreneurship is the process of organising and managing a business venture and assuming risks
involved in it. It involves creating and implementing new ideas and creative solutions. Over the last
two decades, Entrepreneurship has emerged as the strongest economic force that the world has ever
experienced. It plays a vital role in employment generation, which, in turn, augments the country’s
national income. Furthermore, it helps in increasing the standard of living of individuals.
Entrepreneurship is perceived as a process by which individuals commence and manage their business
enterprises and industrial units. Entrepreneurs are those individuals who take up the risk and invest
financial resources in setting up and running business and industrial ventures. The perception of
business opportunities drives entrepreneurship.
2.2 QUALITIES OF SUCCESSFUL ENTREPRENEURS

A successful entrepreneur is referred to as a pioneer who organises and coordinates all factors of
production for a purposeful goal. An entrepreneur is capable of performing more than average capacity
tasks being performed by an employee or non-entrepreneur.
Entrepreneurs also possess an ability to decipher and evaluate new opportunities emerging in the
business environment and accordingly make the required adjustments in the economic system to
achieve business objectives.
A successful entrepreneur must possess the following qualities:
 Clear objectives: An entrepreneur should have clear goals, which correspond exactly with the
nature of business, goods to be produced and ancillary activities to be undertaken. A successful
entrepreneur should have an objective to establish the product in the market, make profits and
provide social service.
 Mental ability: It refers to the intelligence and creative thinking of an entrepreneur. An entrepreneur
must be intelligent and must have an analytical mind to analyse various problems and situations
to deal with them. An entrepreneur should be able to forecast changes and make decisions after
studying various situations.
 Business secrecy: An entrepreneur should have the ability to guard business secrets. Entrepreneurs
should understand the importance of the confidentiality of business secrets and such information
should never be disclosed to trade competitors.
 Human relations ability: The most significant entrepreneurial traits that contribute to the success
of entrepreneurs are emotional stability, personal relations, consideration and tactfulness. In other
2
UNIT 02: Entrepreneurial Competence JGI JAIN
words, the success and failure of an entrepreneur are also related to their ability in maintaining
relations with stakeholders and consumers. Entrepreneurs should have good relations with their
customers in order to gain their continued patronage and win their confidence in the products
offered to them. They should also maintain good relations with their employees and motivate them
to attain higher levels of efficiency. Entrepreneurs who believe in maintaining good relations (with
employees, suppliers, customers, creditors, etc.) are more successful in their business endeavours as
compared to those who do not believe in practicing good relations.
 Technical knowledge: Business endeavours require updated knowledge of technology. Therefore,
an entrepreneur should have a reasonable level of technical knowledge. This is one trait which
entrepreneurs can acquire by keeping themselves updated with technological advancements.
 Effective communication: Good communication means that entrepreneurs should have an ability
to put their viewpoints across effectively and clearly. A successful entrepreneur should have “the gift
of the gab”. The communication should be to the point, crisp and convincing. The communication
ability is the secret of the success of most entrepreneurs.
 Decision making: Anyone who runs a business requires to take many decisions. Therefore, an
entrepreneur must have a capacity to analyse various business aspects before reaching a final
decision.
 Energy: Entrepreneurs should be energetic enough to work for long hours. A successful business
requires time, continuous working hours and passion to achieve objectives. The constant effort of
entrepreneurs takes business to heights.
 Risk-bearing: Every business has an element of risk, that’s why an entrepreneur should be prepared
to bear both ups and downs while running a business by considering failure as a challenge and
opportunity.
 Vision and passion: Entrepreneurs must have clarity in their business vision. They should also show
enough aptitude by framing long-term and short-term goals and business objectives. The other very
significant trait that is required in entrepreneurs is that they should be passionate about their work.
 Innovative: An entrepreneur should be able to look for an opportunity in the market and capitalise
on it. Entrepreneurs are the ones who introduce new products and services in the market and try
to fulfil customer needs. Innovation also includes a production process, a new marketing strategy,
innovative advertising, etc.
 Leader: An entrepreneur needs to be a good leader, who is able to motivate and lead employees
towards success. They also have firmness, knowledge and skills to pull their businesses from a rigid
corner like excellent and successful leaders.
 Persistent: A good entrepreneur should always be determined by nature. A business is never
a sudden success. It requires immense hard work and also a little bit of luck. Despite all this,
persistent entrepreneurs make their luck. They can create opportunities if they are not presented
an opportunity. Hence, a persistent entrepreneur who works tirelessly always has a greater chance
of success.
 Ethical: The success of any business in the long-term requires ethics and integrity as vital
cornerstones. Compromised morals cannot help in running a sustainable business. Entrepreneurs
should show reliability and authenticity in business. Integrity and law should be considered as the
most significant elements of the business.
3
JGI JAIN
Entrepreneurship
2.2.1 Behavioral Traits of Entrepreneurs

Entrepreneurs bring an enormous contribution to a country’s economic growth. Therefore, developing
individual’s interest into new venture creation represents an important asset, especially for less
developed countries where entrepreneurial activities are fundamental in enhancing economic growth.
Entrepreneurship is the primary vector of economic development and competitive play and gives
the possibility of social climbing to various segments of the population. Entrepreneurship plays an
important role in the economy as driver of innovation and job creation. The recent economic crisis
turned entrepreneurial activities have an increasingly important roles in a country’s growth and
economic development by enhancing innovation and technological progress, creating employment and
promoting competition. The emergence of entrepreneurial intentions and behaviour is of the utmost
importance as the process represents the first phase in creating a business. Behavioural traits of
entrepreneurs offer a refreshingly feasible blueprint for thinking and acting in an environment that is
dynamic, rapidly changing and highly ambiguous. It provides both a guide to revitalise the organization
to find opportunities and a set of entrepreneurial principles one can use personally to transform the
area where organisation competes.
The self-confidence, energy flexibility and opportunism associated with entrepreneurial behaviour
suggest that entrepreneurs are accustomed to getting involved and expect positive results from their
involvement. In other words, they are prepared to expend energy and mental effort because they
expect and often receive appropriate or, in their terms, valuable rewards. Also, they are flexible and
opportunistic because they believe they can become involved across a broad range of situations. Internal
locus of control beliefs are essential to the success of self-motivated behaviour and form a central core
of the entrepreneur’s self-concept. However, it is equally clear that entrepreneurs will not be the only
people sharing these beliefs.
Some of the behavioral traits of entrepreneurs are as follows:
 Dexterity: The entrepreneur is acknowledged as a person having a particular skill and at the
same time a person providing others for motivation. An entrepreneur may be either being a solo
individual or individual in a group. The entrepreneur tends to possess that special skill which sets
it apart from an average man.
 Perseverance: It is a quality of continuously pursuing a goal till it is achieved. In the beginning
businesses face many problems. It requires drive and energy to overcome these problems. Successful
entrepreneurs are not diverted by failures but become more determined to pursue their efforts to
succeed in the future.
 Creativity: Though creativity is generally linked with artistic output, it is a key trait for all
entrepreneurs to possess. Creativity merely does not imply to visual elements or branding.
Entrepreneurs who can creatively resolve problems and think outside of the box when facing
everyday business obstacles, can swiftly assess and incorporate requisite amendments enhance the
business growth.
 Process oriented: Establishing viable processes in place is of utmost crucial for any budding or
successful entrepreneur. In the business world, a process is a systematic process that assists those
working within a business to fulfil necessary tasks. Processes can be used to wide range of aspects of
the business including sales, onboarding new team members, production, and product fulfillment.
 Action-oriented: A real entrepreneur is always action-oriented. The business world today is mired
with uncertainty. Thus, an entrepreneur is both a planner and a doer, dreamer and achiever. The
entrepreneur implements what it visualises.
4
When entrepreneurs have a process-oriented mindset, they tend to work smartly and adroitly.
Implementing processes in various areas of the business can enable business owners to scale new
heights and grow their business. Moreover, when entrepreneurs have cyclic processes in place, they are
able to easily equip new recruits to fulfill important tasks of the business without compromising on time
or quality.
2.3 MOTIVES AND DRIVES TO TAkE UP ENTREPRENEURSHIP

Motivation infers to the driving force within individuals, which get them to act in the ways they do.
In other words, entrepreneurial motivation implies the forces or drive present within entrepreneurs
which affect the direction, intensity and persistence of their voluntary behaviour as entrepreneurs. A
motivational entrepreneur always works with the willingness of putting efforts to achieve certain goals
with intensity and persistence.
Entrepreneurs are the ones who have dignity, self-respect, values, commitments, aspirations, dreams
besides having economic status. In reality, being monetary viable and having social recognition
motivates and drives a person to do something out of the box. Therefore, entrepreneurship is to a great
extent the product of motivation. Motivation refers to the inner motivation and drive that sparks and
sustains behaviour to gratify various needs.
In other words, human behaviour is goal- oriented or directed towards satisfaction of needs. A person’s
behaviour is influenced by various socio-psychological factors such as goals, educational and cultural
background, work experience, etc. When a person, feels a sense to do something pathbreaking or stand
apart from normal person, the urge motivates and drives the person to take action. If the action is
successful, the need is satisfied else the person alters the activity till the need is actually realised.
Some of the most prominent factors that influence entrepreneurship are as follows:
 Unsatisfactory and unacceptable work environment
 Unnecessary career transition
 Positive pull influences
Motivating Factors
Some of the motivating factors to take up entrepreneurship are as follows:
Internal Factors
 Educational qualifications
 Occupational experience
 The desire for work independently in the manufacturing line
 The desire for branch out to manufacturing from the present occupation
 Family background
 To earn profits and to possess wealth
 To engage family members along with themselves
 To possess social prestige
5
JGI JAIN
Entrepreneurship
External Factors
 Assistance from government
 Assistance from financial institutions
 Availability of technology/raw materials
 The demand for a particular product
 Wanted to utilise excess money
 Financial help from a non-governmental organisation
2.4 CAREER IN ENTREPRENEURSHIP

Entrepreneurship has gained prominence owing to a dearth of opportunities in the formal sector. With
the growing economy, the environment is favourable for taking entrepreneurship as a career.
The arduous and awarding field of entrepreneurship lay emphasis on nurturing and assimilating
contemporary techniques in the field of business. As a result,a majority of companies existing today,
commenced due to entrepreneurial activities, with aspiring individuals utilising opportunity and
developing novel business idea.
The field of entrepreneurship offers distinct opportunities, uphill challenges and rewarding benefits.
A career in entrepreneurship can be made in virtually any area, depending on the interests and far-
sightedness. Acareer in entrepreneurship spans commercial bankers, franchise operators, research
and development executives and business consultants. However, a large number of entrepreneurs tend
to remain self-employed, opting to be their bosses. Over the past years, opportunities have also been
growing in IT and engineering, offering a distinct set of growth prospects for entrepreneurs.
In order to take up entrepreneurship as a career, the first most thing a person has to do is find the
appropriate business idea and gain background knowledge. A person needs to develop a business plan
and define the target market. Subsequently, a person has to initiate networking and selling the business
idea to the targeted market.
By incorporating the business idea and floating a new venture can yield positive results. It offers a
chance to look for opportunities from a different angle. A career as an entrepreneur can broaden a
person’s horizon and open up a sea of opportunities. As opportunities surface, a entrepreneurial mindset
can assist a person in thinking about how the customers unfulfilled need can be catered to.
In the context of employment generation, the three terms i.e. income generation, self-employment
and entrepreneurship are often used interchangeably. Entrepreneurship refers to the identification
of innovative ideas, setting up of a new enterprise. Whereas entrepreneurship refers to full time
involvement in ownoccupation. One may or may not be bearing the risk, mobilising inputs, organising
production and marketing the product or service. On the other hand income generating activities are
part time, casual and practiced with a view of raising additional income. Therefore, all entrepreneurs
are self-employed and income generating persons. But all self-employed and income generating persons
may not be entrepreneurs.
The role of the entrepreneur in modern production is like that of the director of a play. Modern economic
development is closely linked with production. Modern production is highly complex. The entrepreneur
directs production and he must do whatever is necessary for its success.
6
2.5 ENTREPRENEURIAL DECISION PROCESS

Entrepreneurial process is a step-by-step method that every entrepreneur needs to follow for setting up
an enterprise. There are principally five steps an entrepreneur needs to follow.
The steps of an entrepreneurial process are described as follows:
Stage 1 - Preliminary steps: These are the initial steps that entrepreneurs need to follow for
establishing a firm. At the very first stage, the to- be entrepreneurs should show their ability to make
a decision that is going to affect the company. It would be right to say the birth of an entrepreneur
takes place at this stage. This is a significant stage as an entrepreneur searches for a business
opportunity at this stage and collects data/information from all available sources.
Stage 2 - Decision-making steps: These are the steps related to the decision making of entrepreneurs.
Entrepreneurs make efficient decisions based on the lessons learnt by them or as per their instinct
or examples of other successful entrepreneurs. In this step, the entrepreneur is generally seen
consulting with District Industrial Centre (DIC) and Micro, Small and Medium Enterprises (MSME).
Some of the major decisions taken at this stage are as follows:
 Decisions concerning the acquisition of permission, recognition and application
 Decisions related to acquisition of funds from banks or financial institutions
 Decisions pertaining to development of Preliminary Project Report (PPR)
 Decisions about the acquisition and arrangement of land, building, machinery, plant, raw
material, labour, fuel, water supply, energy, filtration, etc. Effective decisions that are
adaptable and comfortable for the business enterprise, must consider all stakeholders and
organisations who are directly or indirectly linked to the success of entrepreneurship.
Stage 3 - Planning steps: This stage is also a vital step of the entrepreneurial process as planning
is considered as an assumption or prediction of business needs and requirements to arrive at some
anticipated outcome in the future. It makes possible to review the available options and choose the
best strategy to run the business by bringing down expenses and maximising profit. Some of the
substantial planning steps include the following:
 Making plans for infrastructure such as plant and building
 Taking permission and recognition from any reputed authority or government authority as
needed
 Requesting to concerned authorities for environmental clearance
 Applying for licensing and purchasing of government managed land and if required
 Requesting and applying to concerned authorities for electric connection and water supply
 Making plans by considering the final feasibility, technical feasibility and operational feasibility
 Studying the PPR and preparing Detailed Project Report (DPR)
 Getting approval and release of loan and/or capital investment
 Acquiring machineries and planning for installation
The above list of planning steps is not an exhausted one, as entrepreneurs may also plan for all
other aspects that suit their planning of entrepreneurial function.
Stage 4 - Implementation steps: This stage of the entrepreneurial process refers to the execution of
the plan. It is the action taken by entrepreneurs to implement the plan so that the plans are put into
7
Entrepreneurship
action. Some vital steps that help in understanding that how actions in planning steps are groomed
into implementation steps are given as follows:
 Acquiring land, setting up of building and purchasing raw materials
 Installing plant and machineries, and recruiting and selecting human resource
 Getting permission and reorganisation letter, and receiving capital investment
 Initiating operation and production process
 Arranging the fuel, electricity and water supply requirements for business
 Obtaining permission and assistance from authorities for the arrangement of infrastructural
development, i.e., road, hospital, school, and residence.
Implementation steps bring the plan into actions so it is the most important and difficult step. It is
only during implementation that the actual challenges come and are figured out to generate real
value.
Stage 5 - Managerial steps: Entrepreneurs play various roles such as initiator, planner, organiser
and employer. Apart from this, entrepreneurs also do managerial duties which are also very
important for them as well as for the organisation. Some of the vital managerial duties that every
entrepreneur should take care of are as follows:
 Framing market policy and strategy
 Arranging promotion of product or services
 Deciding pricing policy
 Managing retailers and wholesalers
 Benchmarking the profit margin
 Managing marketing strategy
 Managing advertisement of product or service
 Managing distribution system for efficient distribution
 Managing warehouse
All the steps of entrepreneurial process have their importance and their own role in the development
as well as the deterioration of a business enterprise or company.
 A successful entrepreneur is referred to as a pioneer who organises and coordinates all factors of
production for a purposeful goal.
 An entrepreneur is capable of performing more than average capacity tasks being performed by an
employee or non-entrepreneur.
 Entrepreneurs also possess an ability to decipher and evaluate new opportunities emerging in the
business environment and accordingly make the required adjustments in the economic system to
achieve business objectives.
 An entrepreneur should have the ability to guard business secrets.
 Entrepreneurs should understand the importance of the confidentiality of business secrets and such
information should never be disclosed to trade competitors.
8
 Entrepreneurs should have good relations with their customers to gain their continued patronage
and win their confidence in the products offered to them. They should also maintain good relations
with their employees and motivate them to attain higher levels of efficiency.
 Entrepreneurs who believe in maintaining good relations (with employees, suppliers, customers,
creditors, etc.) are more successful in their business endeavours than those who do not believe in
practicing good relations.
 Business endeavours require updated knowledge of technology. Therefore, an entrepreneur should
have a reasonable level of technical knowledge.
 This is one trait which entrepreneurs can acquire by keeping themselves updated with technological
advancements.
 Every business has an element of risk, that’s why an entrepreneur should be prepared to bear both
ups and downs while running a business by considering failure as a challenge and opportunity
 Entrepreneurs must have clarity in their business vision. They should also show enough aptitude by
framing long-term and short-term goals and business objectives.
 The other very significant trait that is required in entrepreneurs is that they should be passionate
about their work.
 A good entrepreneur should always be determined by nature. A business is never a sudden success.
It requires immense hard work and also a little bit of luck.
 Despite all this, persistent entrepreneurs make their own luck.
 Entrepreneurs bring an enormous contribution to a country’s economic growth. Developing
individual’s interest into new venture creation represents an important asset, especially for less
developed countries where entrepreneurial activities are fundamental in enhancing economic
growth.
 Entrepreneurship is the main vector of economic development and competitive play, and gives the
possibility of social climbing to various segments of the population.
 Entrepreneurship plays an important role in the economy as a driver of innovation and job creation.
 The recent economic crisis turned entrepreneurial activities have an increasingly important role in a
country’s growth and economic development by enhancing innovation and technological progress,
creating employment and promoting competition.
2.7 GLOSSARY
 Entrepreneurship: A process of organising and managing a business venture and assuming risks
involved in it
 Entrepreneurs: An ability to decipher and evaluate new opportunities emerging in the business
environment
 Business secrecy: An ability to secure business secrets
 Leader: A person who sees how things can be improved and motivates people to move toward a
better vision
 Motivation: A driving force within individuals which get them to act in their ways
9
JGI JAIN
Entrepreneurship
2.8 CASE STUDY: CAREER AS AN ENTREPRENEUR
Case Objective
The case objective shed light on a person forming a career as an entrepreneur.
Raju was born to a destitute and impoverished family in a remote southern India called Punnaiadi in
August 1947. The village was so remote and far flung that there was not even a bus stop. The family’s
humble financial condition coerced Raju at a tender age to drop out of primary school. Raju said, “My
father, who was a poor farmer simply could not sustain to meet my educational expenses.” He left home
at a small age of 13 to earn his living.
Thereon, Raju took up a job as a busboy in a local restaurant situated in a distant resort. Raju said he
was paid a paltry salary of `20 and his job required him to wake up at dawn and work late till midnight.
Later on, he was employed at various other hotels and shops, including a vessel shop and a grocery
shop, thereby was able to save some amount of money. From the savings Raju opened his own eatery
and started operating it. Soon, Raju business flourished and was reaping reward for dedication.
Over the following years, as business thrived Raju established a chain of his restaurant of Taravana
Bhavan in Chennai and various other adjoining states. Raju became the sole proprietor of the restaurant
and continued to manage the business. His two sons Sharavan and Pukraj both earned meritorious
degrees in hotel management and started managing the business.
Over the course of time, Taravana Bhavan stepped into various avenues of the food industry and even
states. In addition, Taravana Bhavan offered home delivery of food based and take away orders across
various locations pan India. It also established its outlets in close proximity to the various railway
stations and started a service wherein customers could make an upfront payment at a city outlet for
food to be delivered at the railway station.
Taravana Bhavan various restaurants had flexible working hours. Even the food menu differed as per the
time of the day, as some items were only available in the evening hours. Taravana Bhavan offered only
vegetarian menu, predominantly South Indian food, irrespective of where the restaurant was situated,
though some regional items were also offered. From time to time, Taravana Bhavan also brought in new
innovative dishes in its menu. However, it maintained low price and sustained its rapport as a budget
friendly restaurant. Raju is still a prominent entrepreneur and is highly regarded for his perseverance
and dedication.
Questions
1. Why Raju has to give up his study?
(Hint: Since his father was poor farmer, his father was not able to provide funds for his study.)
2. What was the starting job of Raju?
(Hint: Raju started working as a cleaner in restaurant where he worked for low income.)
3. What was the first venture of Raju?
(Hint: From the money saved over years, Raju started his own restaurant.)
4. How the business diversified?
(Hint: The restaurant offered home delivery of food based and take away orders across various
locations pan India.)
10
5. What was distinct about Tarvana Bhavan menu?

(Hint: Food menu differed as per the time of the day, as some items were only available in the evening
hours.)

1. Business is an art, and not everyone can master this art. Some people have the inborn qualities to be
a successful entrepreneur, while others work to develop these qualities. Explain some qualities that
entrepreneurs must possess.
2. Business situations come with real challenges, constraints and opportunities that have direct
impact on business performance. Effective handling of these situations depends on the behavioural
characteristics of an entrepreneur including personal and business motivations, peer pressures
and cultural influences. Describe the behavioural traits of entrepreneurs.
3. People enter into the entrepreneurial world for many reasons. Some of the motives that drive these
entrepreneurs are control, freedom, impact and wealth. What serves as motivation and drive to be
an entrepreneur?
4. In India or abroad, there has been tremendous scope of entrepreneurship. Nowadays, the youth of
the nation is much more focused towards starting their own business, which has given rise to a lot
of new start-ups in the country. What are the prospects of entrepreneurship as a career?
5. As an entrepreneur, you must make different types of decisions on the everyday basis. Decision
making is one of the most critical processes; thus has to be performed systematically. What are
different stages in the entrepreneurial decision process?

1. A successful entrepreneur must have clear objectives, intelligence, creative thinking, perseverance,
dexterity, and so on. Refer to Section Qualities of Successful Entrepreneurs
2. The self-confidence, energy flexibility and opportunism associated with entrepreneurial behaviour
suggest that entrepreneurs are accustomed to getting involved and expect positive results from
their involvement. Refer to Section Qualities of Successful Entrepreneurs
3. Entrepreneurial motivation implies the forces or drive present within entrepreneurs which affect the
direction, intensity and persistence of their voluntary behaviour as entrepreneurs. A motivational
entrepreneur always works to put efforts to achieve certain goals with intensity and persistence.
Refer to Section Motives and Drives to Take Up Entrepreneurship
4. A career in entrepreneurship can be made in virtually any field, depending on the interests and far-
sightedness. Career in entrepreneurship spans commercial bankers, franchise operators, research
and development executives and business consultants. Refer to Section Career in Entrepreneurship
5. Entrepreneurial decision process is a step-by-step method that every entrepreneur needs to follow
for setting up an enterprise. There are principally five steps an entrepreneur needs to follow. Refer
to Section Entrepreneurial Decision Process
11
Entrepreneurship
 https://www.entrepreneur.com/magazine
 https://www.thebalancesmb.com/entrepreneur-what-is-an-entrepreneur-1794303
 Discuss with your friends what are their motivational factors to take up entrepreneurship as career.
12
UNIT
03 Problem Identification
Names of Sub-Units
Need for Problem Identification, Opportunity Recognition, Identify Problems and Unmet Needs,
Develop Solutions to Address Problems, Identify Market Gaps, Sensing Market Opportunities,
Evaluation of Opportunities
Overview
The unit begins with the topic of opportunity recognition which leads to the genesis of a new enterprise.
In order to meet consumer unmet needs, entrepreneurs will contemplate the new business idea which
will be discussed in the unit. Thereon, the unit will explain how the entrepreneur develops addresses
solutions to the problem. After identifying the weak links in the market, the entrepreneur seeks to fulfil
the gap which will also be discussed in the unit.
Learning Objectives

 Explain the need for problem identification
 Discuss the need for opportunity recognition and evaluation
 Describe how to identify unmet needs
 Develop solutions to problems
 Identify market gaps
JGI JAIN
Entrepreneurship
Learning Outcomes

 Examine how to identify a problem
 Recognise entrepreneurial opportunities
 Evaluate these opportunities
 Apply solutions to the problem identified
 Assess the impact of market gaps
 https://www.futurpreneur.ca/wp-content/uploads/2012/01/CYBF_Problem_Solving_20111215.pdf
3.1 INTRODUCTION
It is the new opportunity recognition that all firms focus on for a new economic shift. Recognising high
opportunities can significantly improve profit, growth, and / or competitive positioning. And this new
opportunity leads to innovation.
It is rare when entrepreneurs find quick, easy and everlasting solutions to business problems. A majority
of problems are complicated and must be evaluated from various perspectives before solutions can be
reached upon. However, by pursuing a systematic problem-solving approach, entrepreneurs have a
deeper understanding of specific business problems and find a resolution that offers the best reward
with minimal risk.
Problem identification empowers entrepreneurs to identify what sorts of problems consumers might
have. Whereas, problem-solving research enables entrepreneurs to fathom ways to resolve those
problems through marketing mix and segmentation. There are many problem identifications and
solving methods that can be achieved via conducting market research.
The problem-solving approach is a fundamental characteristic and component of starting a new
venture. Entrepreneurs devote a considerable amount of time and energy to identifying and evaluating
problems, then seek to find solutions that last longer. Problem-solving skills are of utmost importance
for the existence of an entrepreneur and they are especially crucial for the formation of the business
activity.
3.2 NEED FOR PROBLEM IDENTIFICATION

Prior to solving a problem, there is a need to identify the existence of the problem. This may seem a
quite evident statement but, quite often, problems will bear an impact for some time before they are
acknowledged or brought to the attention of someone who can do anything about them.
In many organisations it is plausible to set up a formal hierarchy of communication so that problems
are reported on time, but sometimes these systems do not always work. Once a problem has been
deciphered, its exact nature needs to be determined: what are the goal and barrier components of the
2
UNIT 03: Problem Identification JGI JAIN
problem? Some of the main elements of the problem can be underscored and a first attempt to define
the problem should be made. This definition should be clear enough for the entrepreneur to be able to
easily explain the nature of the problem to others.
A lucidly specified list of problems is more congenial to identify probable solutions. Problems can be
identified, both current and future time if corrective actions are taken.
3.2.1 Opportunity Recognition and Evaluation

In order to develop a well-rounded business opportunity, an entrepreneur will have to make use of
cognitive ability and carve objectivity in order to be able to recognise and deal with risks in pursuit of
the most viable business opportunity.
Entrepreneurial opportunities are usually perceived as instances in which new goods, services, raw
materials, organising methods can be introduced and sold at greater than their cost of production. The
entrepreneurs need to have the far-sightedness to recognise and capitalise on the market opportunity to
start to launch a new business. Furthermore, a business firm that started to fulfil the untapped market
opportunity is more favourbable to be successful compared to the one created out of a product idea that
does not align with the market.
The well-established companies such as Facebook, Airbnb, Uber and Alibaba are the examples of how
new opportunities are recognised and evaluated to float new thriving businesses. The founders of these
organisations visualised and utilised the opportunity to use a virtual platform that connects people
around the world and create a market. Therefore, identifying and choosing the appropriate opportunity
for new businesses is accounted as the most crucial trait of a successful entrepreneur.
The acknowledgment of opportunity recognition and evaluation is the fundamental step to being an
entrepreneur. An opportunity is the chance to meet the unfilled need of the target audience. Opportunity
recognition and evaluation lie at the heart of entrepreneurship.
Recognition of entrepreneurial opportunity infers to the possibility to offer new goods or services to
a target market by forming a new venture. Opportunity recognition appears to entail three distinct
processes:
 To search and acknowledge unmet market needs or underutilised resources
 To recognise a fit between particular consumer needs and resources available
 To develop a new offering so as to fulfil consumer need
It is said that the recognition and evaluation of new business opportunities often involves a pattern
recognition the cognitive process through which an entrepreneur finds a meaningful pattern in intricate
events or trends. Basic research on pattern recognition points to the that cognitive frameworks gained
through experience (e.g., prototypes) play a central role in this process.
3.2.2 Identifying Unmet Needs

Entrepreneurship is innately a social endeavor, that relies on the interactions and beliefs of a varied
ecosystem of innovators, financial backers, customers, suppliers, policymakers, etc. Thus, having an
entrepreneurial mindset is akin to the creation of social identity and the classification of oneself within
a group of similar others as entrepreneurs.
Evaluation of opportunities serves as a prerequisite to entrepreneurship. Following the recognition
of an opportunity, a budding entrepreneur should decide to harness the opportunity. At some point,
3
Entrepreneurship
entrepreneurs must swerve their emphasis from evaluating the feasibility of the different resource
combinations that ultimately lead to determining how well opportunities are leveraged. The recognition
of the unmet needs of the customers will lead to entrepreneurial excellence. In the dearth of proper
exploitation, entrepreneurs may be unable to yield financial or non-financial benefits out of the business
opportunity.
Therefore, identifying unmet needs could be a crucial aspect in the entrepreneurial process of establishing
a new venture and attaining new business heights. Prudent entrepreneur identifies unfulfilled needs
of the customer and shapes them into business opportunities. The entrepreneur who is able to meet
the desired unmet needs at the opportune time will be successful. This method is applicable to service -
oriented companies as well as product-oriented companies.
Some ways you can recognising customers unfulfilled needs to help discover new business opportunities
are as follows:
 Trace Customer Journey: When an entrepreneur is unsure about where to being, it is crucial to
determine customer’s current challenges and identify them. Tracing a customer journey map helps
the entrepreneur to evaluate every process that the customer undergoes while purchasing a product
or service.
By mapping customers’ journey, an entrepreneur can fathom potential hindrance in the process
that infers to the difference between an actual conversion or a lost opportunity. Whether or not
your customer is looking for an easy way to pivot through the offered product or needs to be more
engaged, delving into the customer journey map will help immensely.
 Utilising Existing Customer Data: In reality, an entrepreneur need not to go far to identify what the
customers’ needs are. A simple way to identify customer desires or unmet customer needs is to get
insight into data. As doing so will help an entrepreneur feel the nerve of the customer.
Study the common customer shopping preferences and aspirations regarding products and
services. Delve into the call and chat logs, buying histories, reviews, surveys, consumer forums or
social media to decipher what customers seek and what features and services they look for.
 Voice of the Customer (VoC): An ideal way to find out what the customers’ needs are by going right
to the source. Voice of the customer programs and surveys are prominent ways for obtaining real-
time feedback and insight into what customers sense or opine about products and services.
By utilising veracious customer opinions, VoC is an ideal way for an entrepreneur to deliver customer
satisfaction. It empowers you to deliver only the best product and service that your customers need.
Moreover, VoC provides an entrepreneur with important insights that can be utilised when
performing market research into what products and services customers are looking for and whether
or not a product offered would align with their needs. By keeping a close eye on customers seek, the
entrepreneur can assimilate the new trends quickly and develop the product.
Some questions that an entrepreneur can ask from customers:
 What do you think is a concern with product X?
 How satisfied are you with our product?
 How different can the product be?
 What products would you like to see added to the brand?
 What features would you like to have available to you in the future?
 Would you recommend us to your friends/colleagues?
4
 Conduct competitive analysis: Getting acquainted with the competitors and what products and
services they are offering to the customer base is crucial.
To identify exactly what other brands are offering and staying abreast with the latest trends is
important. By identifying the added on features that customers seek, can help an entrepreneur
develop and improve products that meet the unfulfilled need.
It is pivotal to note that the competitors are not merely other businesses that sell the same products
or services. Rather the competitors can be in the form of new market advancements and the latest
trends that can make or break how effective products can be offered.
Some entrepreneurs tread great lengths to stand out in the industrial competition. But it has
been found that paying heed to customers’ needs open the avenue to newer opportunities for an
entrepreneur. In the prevailing scenario, the best innovations have been unravelled by simply taking
the time to pay attention to unmet needs of the customer.
Unmet needs provide an opportunity to distinguish a product among highly competitive marketplace.
At the start, it may take some effort to find out the customers’ unmet needs but as soon as it is
deciphered, an entrepreneur is well poised to offer what the customers are looking for.
3.3 DEVELOPING SOLUTIONS TO ADDRESS PROBLEMS

As an entrepreneur, how confident a person is in understanding the need of the customers. Some
entrepreneurs tend to sell me solutions before solving the problem. There is little evidence that they
have carried out real discovery work to verify the problem or their target customers.
Developing solution to address problems pertains to harnessing path-breaking and creative solutions
to meet that gap by resolving societal, business, or technological problems. At times, personal problems
can lead to entrepreneurial opportunities if validated in the market. The entrepreneur foresees the
prospect of filling the gap with a creative solution that might entail an add-on to the existing product
or the creation of a wholly new product. In any case, the entrepreneur approaches the problem-solving
process in different ways. Problem-solving process pertains to the entrepreneur’s thought process.
Identification of opportunities and filling the gaps with new products.
For example, Tara Blake an entrepreneur witnessed an opportunity for body contouring and smoothing
undergarments. During the 1990s when Tara was getting ready for a party and was unable to find what
she required to give her a silhouette. She recognised a problem which is a market need. But her problem-
solving approach is what ignited her to turn this into a solution and create a viable product. Those
efforts came from her admitted can-do attitude. Taradevoted her efforts to creating a new garment
that fulfils the need of another woman. She met various hosiery executives, who provided her the raw
material. With the passage of time, her venture grew by leaps and bounds. The customer base increased
significantly and she is among the leading entrepreneurs.
Developing solutions to address problems have various approaches. The first and more traditional
approach an entrepreneur may utilise to solve problems is the adaptive model.
An adaptive business model means that the entrepreneur has the tools and the culture to adapt quickly
to changes in the market. Many entrepreneurs learn quickly and this learning translates into adopting
and adapting to what they have learned. Adapting the model is pivotal as it empowers the entrepreneurs
to survive in a highly dynamic environment.
The second and more innovative is the innovative model of entrepreneurial problem solving. Innovative
model utilises techniques that are oblivion to the market and that bring advantage to an entrepreneur.
5
JGI JAIN
Entrepreneurship
An innovative problem-solving approach challenges the problem definition evaluates the problem
and finds solutions. Innovative model address the questions of the existing problems. Innovative
model uses outside-the-box thinking and seeks novel resolutions. Novelty is a shared trait of creative
entrepreneurship and that is why entrepreneurs are inclined toward this method of problem solving.
According to Dr. Shaun M. Powell, a senior lecturer at the University of Wollongong, Australia Creative
entrepreneurs are notable for a distinctive management style that is based on intuition, informality
and rapid decision making, whereas the more conventional thinking styles are not in accord with the
unique attributes of creative entrepreneurs. Innovative model of problem-solving approach does not
make changes to the existing product rather is emphasises on creation of a whole new product.
Developing solutions to solve problems is a necessary part of the origin of the business process. Once the
business is up and running, problem management is completely different. Entrepreneurs cannot avoid
trouble and are usually responsible for solving all problems in start-ups or other forms of business.
Certain skills possessed by entrepreneurs make them particularly good problem solvers.
Critical thinking is a complex analysis of problem solving and decision making. Entrepreneurs analyse
and clear the level of the problem to find the core of the problem facing the company. Entrepreneurs pay
attention to the core of the problem and respond to suggestions to solve the problem in a reasonable
and open way. Critical thinking is not only important for developing business ideas - it is also a sought-
after asset in education and employment.
3.4 IDENTIFyING MARkET GAPS

A gap in the market is an opportunity to create and sell something that does not yet exist. However,
consumers want it. Market gap refers to the difference between supply and demand for that commodity.
In other words, it means that the consumer has a demand that the supply has not yet satisfied.
For businesses, a gap in the market represents an opportunity for them to expand their customer base.
You can enter the market by identifying a gap in the market and filling it.
The market gap is a place or area that the current business does not serve. For example, Netflix has filled
many market gaps over the years. First, there used to be initial mail-order movie rental and then Netflix
came up with a streaming platform. Whole Foods fills a gap in the marketplace when health-conscious
consumers want a centralised and convenient place to buy organic, healthy, and natural food. Every
successful business one can think of serves some kind of market gap.
If and entrepreneurs can find gaps in an established market, it will account for the long-term business
success. It is a key factor of accomplishment in the business world.
Many companies want to find gaps in the market. The gap in the market is a specific area. An area where
you can dominate. An area where there is little chance that others can overcome your domination. If you
are successful in finding a niche where you are the only one, that is great for your business. However,
it would be nice if you could find a space where you were the only player in an established market. The
cheapest is the one where there is little competition.
If a potential entrepreneur has a particular market, the entrepreneur can witness that most companies
are are the same as everyone else. It is not easy to find a remarkable company. A company that creates
and offers something different from others in the market.
So, entrepreneurs have to prepare so that they optimise it as a business opportunity. Something
entrepreneurs can offer in the market, something that no one else offers so far. There are some attributes
6
to the market gap, i.e., something original or something that already exists. However, an upgrade or
improvement is a significant increase in sales. But no one is trying to sell it in a new market. When
introduced into a new market, sales have increased significantly.
Unmet need of consumers or group of potential customers who have not yet purchased a good or service
A gap in the market represents an opportunity for the entrepreneur to expand or harness customer
base by raising awareness and creating targeted offers or advertising campaigns to reach untapped
markets. Identifying market gaps is an important step in increasing market penetration and the genesis
of business venture.
Following are some of the ways to identify the gap in an established market:
 Research the trends on the established market: Entrepreneurs can identify gaps in the already
established markets while researching different trends. We are swiftly heading towards a dynamic
society, the same is true for the established markets. The technological and economic forces are
changing over time and potential entrepreneurs need to take this into the consideration.
If an entrepreneur seeks to find great gaps, the person has to undergo extensive research in a specific
area. While researching, a probable entrepreneur must find as many possible things that are not
found out by other people. By undertaking market research, the entrepreneur can find out what is
amiss in the current offering and come out with a better product.
 Identify unsolved problems: When an entrepreneur conducts a market gap analysis to its very
essence, it is an answer to a problem that is currently being unsolved. Resolving prevailing problem
will enable the entrepreneur to solve the issue and, in turn, the products to practically sell themselves.
 Perform Competitors SWOT: Observing the strengths and weaknesses of the competitor will help
an entrepreneur to identify market gap. In order to do this SWOT analysis can be a useful tool:
strengths, weaknesses, opportunities and threats. Knowing the strengths of the industry competitor
will help an entrepreneur identify gaps in the product/services to offer. Identifying their weaknesses
will help the entrepreneur to determine their shortcomings. This can help an entrepreneur identify
any market need that is not currently being met.
 Find unsolved queries: To find a niche market, instead of thinking about what product or service one
can offer, think about the problem as an entrepreneur you can solve. What problems are customers
facing have that no one else has yet solved?
Qualitative market research can help entrepreneurs get information from the probable customers
about what is currently on the market in a particular niche and what kind of breakthrough will
convince them to switch brands or products.
 It is the new opportunity recognition that all firms focus on for a new economic shift.
 Recognising high opportunities can significantly improve profit, growth, and / or competitive
positioning.
 Problem identification empowers the entrepreneur to identify what sorts of problems consumers
might have. Whereas, problem-solving research enables entrepreneurs to fathom ways to resolve
those problems through marketing mix and segmentation.
 There are many problem identifications and solving methods that can be achieved via conducting
market research.
7
JGI JAIN
Entrepreneurship
 Problem-solving skills are of utmost importance for the existence of an entrepreneur and they are
especially crucial for the formation of the business activity.
 Prior to solving a problem, there is a need to identify the existence of the problem. This may seem a
quite evident statement but, quite often, problems will bear an impact for some time before they are
acknowledged or brought to the attention of someone who can do anything about them.
 Some of the main elements of the problem can be underscored and a first attempt to define the
problem should be made. This definition should be clear enough for the entrepreneur to be able to
easily explain the nature of the problem to others.
 Entrepreneurial opportunities are usually perceived as instances in which new goods, services, raw
materials, organising methods can be introduced and sold at greater than their cost of production.
 The entrepreneurs need to have the far-sightedness to recognise and capitalise on the market
opportunity to start to launch a new business.
 The well-established companies such as Facebook, Airbnb, Uber and Alibaba are the examples of
how new opportunities are recognised and evaluated to float new thriving businesses.
 The acknowledgment of opportunity recognition and evaluation is the fundamental step to being
an entrepreneur.
 An opportunity is the chance to meet the unfilled need of the target audience.
 Opportunity recognition and evaluation lie at the heart of entrepreneurship.
 Basic research on pattern recognition points to the that cognitive frameworks gained through
experience (e.g., prototypes) play a central role in this process.
 Evaluation of opportunities serves as a prerequisite to entrepreneurship. Following the recognition
of an opportunity, a budding entrepreneur should decide to harness the opportunity.
 Qualitative market research can help entrepreneurs get information from the probable customers
about what is currently on the market in a particular niche and what kind of breakthrough will
convince them to switch brands or products.
3.6 GLOSSARy
 Problem identification: A process of identifying what sorts of problems consumers might have
 Entrepreneurial opportunities: Instances in which new goods, services, raw materials, organising
methods can be introduced and sold at greater than their cost of production
 Opportunity: A chance to meet the unfilled need of the target audience
 VoC (Voice of the Customer): An ideal way for an entrepreneur to deliver on customers’ satisfaction
 Market gap: A difference between demand and supply of a commodity
3.7 CASE STUDy: RECOGNITION OF OPPORTUNITy
Case Objective
This case study exhibits how an entrepreneur recognises and identifies an opportunity.
Guru Batteries was established by the late Mr. Mahesh Kumar way back in 1961. At that time, Guru
Batteries mainly manufactured batteries for four-wheelers. It had made its name in the local market,
8
was having a decent clientele and was obtaining a healthy return on investment and Mahesh Kumar
was content with his earnings. But in 1994 he met with an unfortunate accident on the road and after a
series of operations, in order to save his life doctors had to amputate his legs. This left the family in dire
straits, as the sole beard winner of the family was completely bedridden. He had a family of six :his wife,
three children (Priya 20, Sudhanshu 19, Mayank 12) and an old mother all dependent on the earnings
coming from Guru Batteries. It was during this period that Sudhanshu left abandoned his studies and
took over the reign of his father’s business. Sudhanshu through his father’s guidance was able to bring
back keep the business buoyed through his dedication. However, Sudhanshu was not content as he was
looking for more diverse opportunities.
Sudhanshu performed a market survey and found that frequent electricity outage (load shedding) was
a serious issue that was growing day by day. The reasons for power cuts were rising consumption and
the government’s inability to supply a constant power supply. Sudhanshu recognised an opportunity in
this problem and decided to expand the business from just manufacturing batteries to manufacturing
and even assembling inverters. Sudhanshu discussed the business plan with his father and he got his
father’s assent for his diversification under the same company name.
Sudhanshu and his family resided in Pinjore, where the inverter industry was in its nascent stage. There
were a very few local and national brands. But since the entry barriers were very low, the number of
small operators had grown radically within one year. The whole north India region at that time had 28
inverter manufacturers in all and three of them hailed from the same local area as Guru Batteries.
Sudhanshu laid the foundation for the manufacturing unit on the outskirts of Pinjore and manufactured
a majority of invertor components and the associated items such as inverters cabinet and trolley parts,
etc. Based on the market recognition, Sudhanshu identified some features that were amiss in the existing
invertors. The features that made Guru batteries distinct from others were the use of MOSFET based
PWM Technology, SCR Phase control Constant Current & Constant Voltage (CC/CV) that gave longer
battery life, New Technology SCR + Transformer Electronic Controlling (long battery life and charging
even at low voltage 130V), Battery Status (in percentage form) on front panel, automatic overload reset
with buzzer warning and automatic inverter ON at input below 120 VAC and above 300 VAC.
Guru batteries even offered some add-on services with the purchase of invertors such as Annual
Maintenance Contract, warranty repair, out-of-warranty repairs, factory parts, extended warranties,
technical assistance and UPS start-up assistance.
Guru batteries witnessed immediate returns and even positive feedback from customers. Guru batteries
even started getting corporate and residential orders and all eulogised the product. Sudhanshu shifted
the factory to a new premise four times the present size in terms of area and capacity, bought few more
sophisticated machines and became the leader in the inverter market in Pinjore. He also went ahead
and got ISO 9000 quality certification for the product and since then there has been no looking back. But
Sudhanshu’s quest for more has not yet ended and he wants to venture into something else.
Questions
1. In which product did Mahesh Kumar deal with?
(Hint: Mahesh Kumar’s business firm Guru Batteries mainly manufactured batteries for four-
wheelers.)
2. Why Mahesh Kumar had to relinquish his business?
(Hint: Mahesh Kumar met with an unfortunate accident on the road and after a series of operations.)
9
JGI JAIN
Entrepreneurship
3. What was the first step in diversification at Guru batteries?

(Hint: Sudhanshu performed a market survey and found that frequent electricity outage (load
shedding) was a serious issue)
4. How were the products of Guru Batteries different from the competitors?
(Hint: The features that were absent in competitor products were MOSFET based PWM Technology,
SCR Phase control Constant Current & Constant Voltage (CC/CV) that gave longer battery life, etc.)
5. What was the customer response to the products offered by Guru batteries?
(Hint: the customers highly regarded the products offered by the company and even obtained
corporate offers.)

1. Identifying a customer’s problems is the first step for entrepreneurs in developing a new product.
What is the need for problem identification?
2. Entrepreneurial opportunity is the point at which identifiable consumer demand meets the feasibility
of satisfying the requested product or service. What do you infer by opportunity recognition and
evaluation?
3. In today’s time when customer needs are quickly evolving, every enterprise has to play smart, adopt
customer-centric innovation and deploy small improvements in the customer experience from time
to time. Why should an entrepreneur identify customers’ unmet needs?
4. Entrepreneurial problem solving is the process of using innovation and creative solutions to solve
the problems or gaps. What is the importance of problem-solving approach in entrepreneurial
success?
5. Market gaps are basically opportunities disguised as voids. A gap in the market is an area that
current enterprises are not serving. Write a brief note on the identification of market gap.

1. Prior to solving a problem, there is a need to identify the existence of the problem. This may seem
a quite evident statement but, quite often, problems will bear an impact for some time before they
are acknowledged or brought to the attention of someone who can do anything about them. Refer
to Section Need for Problem Identification
2. Entrepreneurial opportunities are usually perceived as instances in which new goods, services, raw
materials and methods can be introduced and sold at costs greater than their cost of production.
Refer to Section Need for Problem Identification
3. Identifying unmet needs could be a crucial aspect in the entrepreneurial process of establishing a
new venture and attaining new business heights. Prudent entrepreneur identifies unfulfilled needs
of the customer and shapes them into business opportunities. Refer to Section Need for Problem
Identification
10
4. Problem solving is a fundamental characteristic and component of starting a new venture.

Entrepreneurs devote a considerable amount of time and energy to identify and evaluate problems,
then seek to find solutions that last longer. Refer to Section Developing Solutions to Address Problems
5. A gap in the market is an opportunity to create and sell something that does not yet exist; however,
consumers want it. In other words, a market gap refers to the difference between supply and demand
for a commodity. Refer to Section Identifying Market Gaps
 https://smepals.com/market-gap-ideas
 https://www.marketingdonut.co.uk/market-research/spotting-gaps-in-your-market
 Discuss with your friends and find out come unmet needs of the customers which can be fulfilled by
having a new business venture.
11
UNIT
04 Idea Generation
Names of Sub-Units
Sources of ideas, idea generation methods, brainstorming, secondary research, creativity and
innovation, idea vs. opportunity matching, selection of ideas, ideas to marketplace, idea testing with
potential customers
Overview
The unit begins by providing you with an insight into the concept of idea generation and the various
sources of idea generation. The unit will also shed light on brainstorming and secondary research for
developing a business idea. Towards the end, you will study the testing idea with potential customers.
Learning Objectives
 Explain the concept of idea generation
 Discuss the importance of idea generation
 Describe the idea generation methods
 Elaborate the selection of ideas
Learning Outcomes
 Shed light on the importance of idea generation
 Delve into idea generation methods
 Analyse the idea testing with potential customers
JGI JAIN
Entrepreneurship
 http://www.ddegjust.ac.in/studymaterial/mba/cp-401.pdf
4.1 INTRODUCTION
Being able to start and run a business is referred to as entrepreneurship. One of the most important
things in entrepreneurship is the production of ideas. The concept proposed here should be capable
of resolving an issue. Once the entrepreneur perceives opportunities, it becomes important for him to
scan the environment. It is quite possible that many of the promising opportunities might not make
commercial sense. Scanning involves the close examination of the environmental conditions and their
impact upon the business idea. It’s not a flimsy exercise; rather, it’s an attempt to look beyond the
obvious prospects to developing trends. It is possible to change, adapt, reorganise, substitute, combine,
reverse, and so on.
4.2 CONCEPT OF IDEA GENERATION

With problems growing and changing in every dimension, it is understood that today’s problems
cannot be solved by yesterday’s ideas. Therefore, the demand for creativity began to increase day by
day. Companies that innovate to solve problems with their products and services have understood
that they need to be different to stay strong in the face of growing competition and stand apart from
the competition, which can only present with creativity. They strive to have a competitive advantage
by placing their importance ahead of their competitors. In addition to established companies in the
market, companies trying to enter the market need to come up with innovative ideas and develop them
to build a healthy and strong foundation for themselves and maintain their sustainability.
For the design and selling of new products, marketing strategy, and writing effective advertising text,
idea generation is critical. However, formal research on basic incentives to motivate people to focus their
resources on new and relevant ideas is limited. Traditional idealistic methods have been found to have
a number of flaws. Because awards are often dependent on the group-level output of brainstorming
sessions, participants frequently free ride on the efforts of others.
Idea generation is the first step in product development. This forces entrepreneurs to research workable
product options. It is an important step for entrepreneurs it helps them to solve problems and meet the
unmet customers’ needs. This necessitates market research as well as a SWOT analysis. Entrepreneurs
should come up with a profitable idea that is distinct from their competitors.
Ideas that bring value to customers, benefits to entrepreneurs, benefits to society and can be turned into
products and services are called business ideas. The business idea will support customers, society and
entrepreneurs who are able to meet a wide variety of demands and solve problems. A business idea is
the first step in formation of business. A business idea is people-oriented. Everyone has different needs
and problems. When people solve their problems, meet their needs, their life becomes easier. Unmet
needs and unresolved issues make life difficult for people.
Making people’s lives easier represents a certain level of prosperity. There is an ever-changing order
of magnitude of human needs and problems. Because technological, economic, social and cultural
changes also modify this order. The order that emerges from this change presents opportunities and
opportunities for manifesting business ideas. In this case, it is necessary to be aware and understand
2
UNIT 04: Idea Generation JGI JAIN
the changing signals in order to find the business idea and seize the opportunity and convert that
opportunity into a business idea.
4.2.1 Importance of Idea Generation

Developing a business idea is the first step taken by an entrepreneur to establish an organisation. It
involves recognising opportunities and moulding them into feasible business concepts. It also requires
acquired knowledge, data, research and ideas to transform information into something that can be
applied to a new situation or problem. An entrepreneur should think about the following questions
when establishing a business idea:
 How do you add value to your customers?
 How would the company’s products vary from those of its competitors?
 What would be the sales, marketing, and distribution strategies?
Answering these questions involves a deeper process of critical and creative thinking. An entrepreneur
with his thorough knowledge, attitudes, beliefs and habits make reflective judgement to form an idea,
which further forms a business concept. Apart from this, the entrepreneur needs to first find out the
opportunity and should then determine the way through which that opportunity can be utilised to shape
it into a business idea. Further, the entrepreneur needs to convert that business idea into a successful
business venture.
4.3 SOURCES OF IDEAS

Ideas must meet the needs of today and tomorrow and solve customers’ problems. In this case, it is
necessary to base on the requirements and problems to come up with a business idea. Customers
may not know or have difficulty expressing themselves. Therefore, it is necessary to make it possible
to understand the customer’s insights, i.e., to articulate the needs, requirements and problems
that they have difficulty expressing. Hence, innovative companies or budding entrepreneurs adopt
customer outreach programmes such as living with customers or working with customers. In addition,
programmes such as open innovation and simultaneous projection began to be used. By applying them,
entrepreneurs aim to capture the changing needs and demands of customers before anyone else and
turn them into business ideas.
A well-thought and well-presented business idea will always find a probable investor. Business ideas
created with viable insights have always appealed to angel investors and risk capital companies.
Besides, although, business ideas that have low potential success and performance are applied, they
have a very short life.
Some of the key sources of idea generation are as follows:
 Customers: All marketing activities focus attention on the needs and wants of customers. It has
been observed in various studies that clients often give very good suggestions for providing such
information which can be obtained with the help of regular customer service on other techniques
such as group discussions and interviews.
 Distribution channel members: Distribution personnel who are in touch with the customer often
suggest new product development. Good marketing companies generally keep regular contact with
distributing personnel to not only defined various information from their existing but also apprise
about new products or modifications made by them. The dealer conference can also bring about
such a new idea.
3
JGI JAIN
Entrepreneurship
 Competitors: All marketing companies closely monitor developments made by competitors and
these are collected by their own sales force and agents. A company should watch out for such
developments by its competitors. Thus, building their new product development activities.
 Market: A business idea can only be successful when it has commercial value, i.e., when the market
accepts it. The second most important aspect of a successful business idea is determining the size
of the target market for the product or service being offered and how that product or service sets it
apart from other competing products and services.
 Emulate developed nations: People in less developed countries generally follow the trends of
industrialised nations. For example, video, washing machines, microwaves, etc., are now in India
that were earlier used in America and Europe before the 1980s.
As a result, keeping up with advances in advanced countries can help an entrepreneur come up
with effective company ideas. Entrepreneurs may go to other nations to get information for new
products or processes. Business delegations from many chambers of commerce, etc., visit foreign
markets to learn about foreign cooperation and other types of business ideas.
 Marketing research and advertising agencies: Advertising agencies/dealers can often offer novel
ideas to the budding entrepreneur as these agencies are engaged in studying consumer and market
trends, lifestyle changes, etc.
 Mass media: Mass media, including television, newspapers, the Internet, radio and magazines, are
potential sources of ideas, information sharing and seizing opportunities. One way to generate a
business idea is to take a close look at the advertisements and advertisements in these media. While
reading magazines or newspapers, one can easily come across a sales business that interests you.
The media can also cover fashion trends and the urgent needs of clients with whom you can start
a business. For example, if you find out that there is a high need for fitness and healthy eating
practices, you can start a fitness center and eat healthy.
4.4 IDEA GENERATION METHODS

In general, entrepreneurs identify more ideas than opportunities because many ideas are typically
generated to find the best way to capitalise on an opportunity. Several techniques can be used to
stimulate and facilitate the generation of new ideas for products and services.
Every entrepreneur’s lifeline is idea generation, and it’s one of marketing’s most valuable assets. Some
people are considered to be better at generating ideas than others because of their innate ability to
perceive things.
The process of generating, developing, and transmitting abstract, tangible, or visual ideas is known as
idea generation. Idea generation, as the initial stage of the idea management funnel, is simply concerned
with determining a solution to a problem.
It’s rare for the best ideas to come to us in an instant, while some people appear to have a knack for
coming up with quick solutions. Great ideas, on the other hand, take time to develop and mature. As a
result, idea generation is critical since it allows you to think beyond the obvious or sensible.
It is rare for the best ideas to pop into our heads instantaneously – though sometimes it seems some
people have a gift for generating instant solutions. Instead, great ideas take time to develop and mature.
Therefore, idea generation is important because the process expands your thinking beyond the obvious
or rational.
4
4.4.1 Brainstorming
Brainstorming is used to generate ideas, but not for analysing or decision making. A brainstorming
session is conducted to create an enthusiastic atmosphere and generate a slew of ideas. It is meant to
be freewheeling and lively. Freewheeling infers to the carefree expression of ideas without restraint. A
brainstorming session is aimed at a particular topic regarding which a team of people is directed to
come up with creative ideas. In such a session, a person expresses an idea while the other person reacts
to it and all the exchanged ideas are recorded for the future course of action.
Brainstorming revolves around the fact that people can be induced to higher creativity by meeting
others and engaging in an organised group experience. Brainstorming is an ideal method as no
criticism is allowed and there is the free flow of high-quality ideas. Brainstorming has a higher prospect
of success when efforts are diverted towards a specific product or market condition. A brainstorming
session can generate more ideas than a conventional meeting as brainstorming emphasises creativity
rather than evaluation.
4.4.2 Secondary Research

The secondary research refers to the data which is already compiled, collected, organised and published.
Source of secondary research can be government agencies, professional associations or other reports
and business research. Most studies are secondary studies in the case of a small business with a limited
budget because they are usually speedier and less expensive than primary research.
Budding entrepreneurs can also browse through magazines, commercial journals and industry
publications, reference libraries and can be submitted to secondary education by contacting the
Association of Industry or Trade Organisation.
4.4.3 Creativity
Each innovation necessarily starts with the generation of creative ideas. A basic definition of creativity
is the ability to produce novel original/unexpected work that is high in quality and is appropriate useful.
Psychologists, on the other hand, typically define creativity as the ability to generate both original and
adaptable ideas. In other words, the concepts must be both novel and practical. As a result, creativity
allows a person to adapt to new situations and address difficulties that arise unexpectedly.
The process of generating ideas can be considered as creativity. It is the ability to develop fresh and
possibly beneficial ideas for products, services, or procedures by integrating existing ideas, modifying
or reapplying them in new ways for new purposes. Regardless of its various definitions, creativity is
inherently social, and it is commonly understood that any creative idea or product originates through
the interaction of the individual creator, others, and the environment. Thus, the context including social
processes, management policies and situational influences plays an important role in organisational
creativity and consequently in idea generation
4.4.4 Innovation
Innovation serves as a prerequisite in all areas of idea generation. The consumer researcher, product
developer, and product designer are expected to be creative, but operational employees in production
and marketing often have fresh ideas because they are continually presented with challenges that need
to be solved. The question is how to collect and develop these concepts. The ancient suggestion box, as
well as its modern equivalents of e-mail and text message, provide an avenue for ideas at the workplace,
5
JGI JAIN
Entrepreneurship
but there is also a need for personal contact, both to encourage and collect ideas.. Many senior staff
members struggle to provide creative stimulation to individuals while simultaneously maintaining
open lines of communication.
4.4.5 Idea vs. Opportunity Matching

Ideas are solutions to problems and are very important in fuelling creativity in your business. On the
other hand, an opportunity is something (idea, circumstance, situation) that can lead to a desirable and
viable business. They may or may not come from an idea. Opportunity is valuable. Ideas as inspiration
include hard work and brainstorming. These things need focus and events. Ultimately, these will be
backed by investors.
Converting an idea into an opportunity is a process that entails the following:
 Strategic fit: To have an opportunity, an entrepreneur ought to have something which the customers
yearn or is unfulfilled by the competitors.
 Business plan: An aspiring entrepreneur must have a business plan to transform an idea to an
opportunity.
 Team: A team that will work in collaboration to deliver on an opportunity. A team is an amalgamation
of thoughts from individuals who possess varied skill sets.
 Leadership: Guide your team effectively.
 Resources: These are required to churn the idea into an opportunity.
4.5 SELECTION OF IDEAS

The strong screening factors, with which the product idea must agree, arise from the project aim and
the project constraints. The overall aims of the company always take precedence over other factors.
Any notion will serve as a springboard for further concrete thinking while keeping business in mind.
An entrepreneur must analyse a concept on the basis of reality in order to do so. The product’s viability
must be determined, to evaluate up to what extent it is really going to satisfy the needs or wants of the
people. The customers’ readiness to pay should also be checked with the help of some experimental
research at a small scale which is normally taking place informally. At the primary stage, if it seems
fruitful, then it should be further considered otherwise develop a new opportunity.
The crux of idea screening is to zero in on successful ideas and filter the ideas which could be failures.
Idea screening can be based on implied knowledge of the individual and of the company, with little new
explicit information sought in or outside the company. But the aim in successive screenings is to build
up the necessary information for the decisions to be made in a quantitative, objective way.
Because screening is both a reiterative and progressive process, it is necessary to refer back to the
first screening even in the final screening in case the product description has changed and it no longer
meets the initial screening criteria. Product idea descriptions or concepts, screening parameters, and
screening methodologies are all included in idea screening.
There should be descriptions of the product idea that everyone involved in the screening understands
and appreciates equally. Many people participate in product testing. Employees of the organisation
make the initial selection based on a basic pass/fail purpose, limits, and other key factors. It can be done
by one person, but it is best to have representatives from different areas of the business. Once product
descriptions are written, it is important to involve the consumer or in food and industrial marketing
6
of the customer. This usually involves focus groups initially but as the number of products is reduced,
consumer or market surveys on three to five products are carried out to give quantitative data on the
acceptance and the predicted market potential. Company personnel is also involved - again in groups
or by a survey.
It is often helpful for people from different parts of the business to evaluate product ideas based on a
number of factors and then combine them. This highlights all possible issues during further development.
Checklists or probability techniques can be used. The ultimate refinement is, of course, done by senior
management at the end of the first phase, based on feasibility studies of the final product concept.
4.5.1 Ideas to Marketplace

The globalisation process, experienced by most economies over the last decade, has unleashed the
importance of the innovative capacity of firms, regions and countries in their search for competitive
advantage and efficiency. New forms of organisation and interaction among enterprises, as well as
between corporations and other institutions, have resulted from the new technology dynamics imposed
on business settings, assisting in the hunt for increased competitiveness and long-term survival.
To build a business that will last, the business must solve a problem. This problem should be something
the customers are either familiar with or feel the need to be fulfilled. Usually, start-ups describe their
service as something that will help make the market be sustainable or build a community around an
idea.
People use markets for much the same reasons they buy products in general. Things such as quality,
price and convenience are what matters most. Some of the ideas to the marketplace are as follows:
 E-commerce marketplace: Ecommerce marketplaces are quite a fad nowadays and entrepreneurs
tend to harness this platform. The most obvious example is Amazon, but also other pioneering
e-commerce platforms such as Flipkart and Myntra are good examples of where the industry is
going.
 Talent marketplace: Freelancing and consulting are fast emerging. For instance, one in three
American professionals work as freelancers and half of the population is expected to shift to the
gig economy in the coming few years. At the same time, companies also tend to benefit from flexible
working.
 Rental marketplace: Airbnb is regarded as one of the largest marketplace businesses today. People
need accommodation and transport. These are things most are ready to pay for. It does not culminate
with vacation rentals, though. People need to rent venues such as event spaces and transportation
such as boats.
 B2B marketplace: Marketplace ideas are not just restricted to consumer marketplaces. B2B
marketplaces provide a specific product or service to B2B companies. These can be customised
services or tools or machines for a particular type of business. Indian marketplace’s such as
ShopClues and Paytm are among the most pivotal B2B marketplaces.
4.5.2 Idea Testing with Potential Customers

Testing a business idea is a prerequisite for a successful venture. If an entrepreneur blindly assumes
that an idea will turn into a huge success, the person jeopardises time, money and other resources
invested in coming up with it. Companies often skip this step because they precipitate the launch of their
products.
7
Entrepreneurship
Some entrepreneurs do not create a business plan or business model based on their test or market
research and tend to continue the business venture without a roadmap. Moreover, they do not know
exactly know who their target audience is. Until an entrepreneur test ideas with probable customers,
the entrepreneur will not know whom to serve. Without this information, the business will not sustain
itself, staving the organisation from getting anywhere with the product idea, even if it is a great one.
Contemplating how many customers the entrepreneur needs to serve, baffles even professional
statisticians. In general, if the business idea for a product or service is aimed at individual consumers or
several other businesses, it is prudent to test it on as many customers as possible and at an affordable
price.
 Entrepreneurship is being able to create and run a business. In entrepreneurship, idea generation is
one of the main factors that lead to its success.
 The idea thought of here should be able to solve a problem. Once the entrepreneur perceives
opportunities, it becomes important for him to scan the environment.
 It is quite possible that many of the promising opportunities might not make commercial sense.
Scanning involves close examination of the environmental conditions and their impact upon the
business idea.
 With problems growing and changing in every dimension, it is understood that today’s problems
cannot be solved by yesterday’s ideas. Therefore, the demand for creativity began to increase day
by day.
 Companies that innovate to solve problems with their products and services have understood that
they need to be different in order to stay strong in the face of growing competition and stand apart
from the competition, which can only present with creativity.
 Companies strive to have a competitive advantage by placing their importance ahead of their
competitors.
 In addition, to established companies in the market, companies trying to enter the market need
to come up with innovative ideas and develop them to build a healthy and strong foundation for
themselves and maintain their sustainability.
 Ideas that bring value to customers, benefits to entrepreneurs, benefits to society and can be turned
into products and services are called business ideas.
 The business idea will support both customers, society and entrepreneurs who can meet a wide
variety of demands and solve problems.
 A business idea is the first step in the formation of business.
 A business idea is people-oriented. Everyone has different needs and problems.
 When people solve their problems, meet their needs, their life becomes easier. Unmet needs and
unresolved issues make life difficult for people.
 Developing a business idea is the first step taken by an entrepreneur to establish an organisation.
 It involves recognising opportunities and moulding them into feasible business concepts.
 It also requires acquired knowledge, data, research and ideas to transform information into
something that can be applied to a new situation or problem.
8
 A well-thought and well-presented business ideas will always find a probable investor.
 Business ideas created with viable insights have always appealed to angel investors and risk capital
companies. Besides, although business ideas that have low potential success and performance are
applied, they have a very short life.
4.7 GLOSSARY
 Entrepreneurship: It is the ability to create and run a business

 Scanning: It involves close examination of the environmental conditions and their impact upon the
business idea
 Idea generation: It is crucial for the design and marketing of new products, for marketing strategy
and for creating effective advertising copy
 Distribution personnel: They are the ones who are in touch with the customer often suggest new
product development
 Mass media: It includes television, newspapers, the Internet, radio and magazines are potential
sources of ideas, information sharing and seizing opportunities
4.8 CASE STUDY: IDEA GENERATION
Case Objective
This case study highlights how a novel idea turned into an illustrious company.
Dr. Verghese is regarded as the Father of India’s white revolution and is a synonym for the cooperative
milk sector. Dr. Kurien started Amul India at Anand Gujarat with his cooperative movement. New
forms of organisation and interaction among enterprises, as well as between corporations and other
institutions, have resulted from the new technology dynamics imposed on business settings, contributing
in the hunt for greater competitiveness and long-term survival.
The White Revolution, known as Operation Flood, was kickstarted in 1970. It was by virtue of National
Dairy Development Board (NDDB) and was the world’s biggest dairy development programme. It
transfigured India from a milk scarce nation into the world’s largest milk producer.
Dr. Verghese Kurien the serving chairman and founder of Amul was also appointed as the Chairman of
NDDB and recognised as the mastermind behind Operation Flood. The brain behind operation Flood.
Chairman, NDDB Unit 1981, Dr. Kurien was felicitated with World Food Prize in 1989, Magsaysay Award
1963 and Padmavibhushan from Government of India.
Kurien started the Amul experiment without any capital base. He acquainted himself with the villagers
in Kaira district of Gujarat and started a novel experiment in the collection of milk from villagers, testing,
storage and distribution. He worked on the principle of equitable distribution of the gains of the venture
and a process of learning for all who were involved. He was also responsible for the development of
the surrounding villages, bringing in new technologies from various sources in dairying, the health of
animals, animal husbandry and feeds.
Kurien also arranged pasteurisation, making butter, ghee, other products of milk with better and faster
transport facilities for the milk. The experiment got stage by state successes leading to the availability
9
JGI JAIN
Entrepreneurship
of milk and milk products to large parts of Gujarat and Mumbai and in addition, providing gainful
employment and all round prosperity to the farmers in Gujarat. The innovative way of handling this
unique project were the brainchild of Kurien. Kurien is known for his frankness and result-oriented
approach in all his projects as well as in his personal life. Operation Flood was an ambitious nationwide
dairy development project which helped an estimated 10 million families.
The result of operation flood was that
 It helped India become the largest producer of milk at a time when children were undernourished
because of a lack of milk.
 Milk was limited in urban areas, while milk farmers in rural areas struggled to make a living.
Distribution was a major issue, but there were also vested interests, a lack of knowledge, and
inadequate infrastructure. The Kaira Milk Cooperative in Anand demonstrated how difficulties
could be solved.
 The While Revolution discovered a means to supply low-cost milk to malnourished children in
Mumbai and Gujarat, as well as later all over India. The technique and technologies used were then
copied by others.
 Kurlen’s idea was simple: put power in the hands of the people.
 Professional management, teaching farmers to use superior equipment, and new methods meant
the professionalisation of farming. From creating “milk roads” to voting in elections, empowering
the masses and generating positive social change in rural areas is a priority.
Questions
1. Who is regarded as the father of White Revolution?
(Hint: Dr. Verghese is regarded as the Father of India’s White Revolution and is a synonym for the
cooperative movement.)
2. What was initially done by Dr. Verghese and his friend?
(Hint: formulated the process of making milk powder and condensed milk from buffalo milk.)
3. What happened by the formation of operation white flood?
(Hint: It transfigured India from a milk scarce nation into the world’s largest milk producer.)
4. How Dr. Verghese started the operations
(Hint: He started a novel experiment in the collection of milk from villagers, testing, storage and
distribution)
5. What other path-breaking acts were done by Dr. Verghese?
(Hint: Surrounding villages, bringing in new technologies from various sources in dairying, the
health of animals, animal husbandry, feeds, etc.)
10

1. Idea generation is crucial for the design and marketing of new products, for marketing strategy and
for creating effective advertising copy. Refer to Section Concept of Idea Generation
2. Developing a business idea is the first step taken by an entrepreneur to establish an organisation.
It involves recognising opportunities and moulding them into feasible business concepts. It also
requires acquired knowledge, data, research and ideas to transform information into something
that can be applied to a new situation or problem. Refer to Section Concept of Idea Generation
3. Two sources of idea generation are as follows:
 Competitors: All marketing companies closely monitor developments made by competitors and
these are collected by their own sales force and agents. A company should watch out for such
developments by its competitors. Thus, building their new product development activities.
 Market: A business idea can only be successful when it has commercial value, i.e., when the
market accepts it.
Refer to Section Sources Of Ideas
4. Brainstorming is used to generate ideas, but not for analysing or decision making. A brainstorming
session is conducted to create an enthusiastic atmosphere and generate a slew of ideas. It is meant
to be freewheeling and lively. Refer to Section Idea Generation Methods
 https://ideadrop.co/innovation -management/top -five -favourite -idea-generation -

techniques/#:~:text=Idea%20generation%20or%20ideation%20is,basis%20of%20your%20
innovation%20strategy
 Discuss and perform market analysis and find out which venture you can start on your own based
on the market need.
11
UNIT
05 Internal Environment Analysis
Names of Sub-Units
What is business environment, types of environment, need for business environment analysis,
concept of internal environment analysis, identifying available resources, developing a unique selling
proposition, identifying strengths and weaknesses, assessing the availability and advantage of
resources, assessing the capability to attract investments.
Overview
This unit will begin by introducing you to the business environment and the types of environment. The
unit will also acquaint you with the concept of internal environment analysis. Also, the unit explains
to develop a Unique Selling Proposition and identify strengths and weaknesses.
Learning Objectives

 Discuss the business environment
 Explain types of environment
 Outline the need for business environment analysis
 Express the concept of internal environment analysis
 Describe how to identifying available resources
JGI JAIN
Entrepreneurship
Learning Outcomes
After studying this unit, you would:

 Define the business environment
 Describe the internal environment analysis
 Explain identifying strengths and weaknesses
 Illustrate assessing the availability and advantage of resources
 Examine the capability to attract investments
 https://www.toppr.com/guides/business-environment/
5.1 INTRODUCTION
Marketing involves the challenging task of ensuring the ongoing survival and growth of profit-seeking
organisations in a highly competitive environment. Modern organisations usually operate in an
extremely unsteady environment, organisations can only survive if they know what is going on in the
environment. The marketing environment is a component of the business environment that directly or
indirectly influences the company’s capacity to promote and perform efficiently.
Most of the successful companies have now realised that the marketing process is a never-ending series
of opportunities and threats. Marketing environment analysis is the process of gathering, filtering
and analysing information relating to the marketing environment. It further involves the process of
monitoring the changes taking.
5.2 WHAT IS BUSINESS ENVIRONMENT?

Internationalisation or globalisation of business has become a subject of very serious discussion in the
national economic policies and corporate board room. International trade is growing faster than world
output and international investment is growing much faster than global trade.
To different people, globalisation means different things. It is a new paradigm for some, a set of
new beliefs, working techniques, and economic, political, and socio-cultural realities in which old
assumptions are no longer applicable. It entails integration with the global economy for emerging
countries. Globalisation, in simple economic words, is the process of integrating the entire world into
one massive market. All trade barriers between countries must be removed as part of this unification.
Hence, globalisation aims at removing isolations of different economies.
Business environment refers to all the external forces which have a bearing on the functioning of
business. The literary meaning of business environment means the surroundings and external objects
influences. The totality of all conditions, events, and forces that surround and effect a company is
referred to as the business environment. A company’s survival is threatened by the business climate.
The current business climate provides numerous prospects for market exploitation.
According to William F. Glucck and Lawrance R. Jauch, “The Business Environment includes factors
outside the firm, which can lead to opportunities for or threats to the firms. Although there are many
2
UNIT 05: Internal Environment Analysis JGI JAIN
factors, the most important of the factors are socio-economic, technological, suppliers, competitors
and government.”
5.2.1 Types of Environment

Confining business environment to uncontrollable external factors, it may be classified as economic
environment and non-economic environment. The economic environment encompasses the country’s
economic conditions, policies, and system. Social, political, legal, technological, demographic, and
environmental environments are all part of the non-economic environment. All of these factors influence
the firms’ strategies, and any changes in these areas are likely to have a significant impact on their
operations. Let’s take a look at each of these business environments in more detail.
1. Economic environment
 Economic Conditions: A nation’s economic conditions relate to a set of economic factors that
have a significant impact on corporate organisations and activities. These include GDP, per
capita income, markets for products and services, capital availability, foreign exchange reserves,
foreign trade growth, capital market strength, and so forth. All of this contributes to a faster
rate of economic growth.
 Economic Policies: Economic policies set by the government from time to time have a direct
impact on all corporate activities and operations. Industrial policy, fiscal policy, monetary policy,
foreign investment policy, and export-import policy are some of the most important economic
policies (Exim policy)
2. Non-economic environment
 Social environment: Social elements such as cultures, traditions, values, beliefs, poverty, literacy,
and life expectancy rate are all part of the corporate social environment. The social structure and
ideals that a society cherishes have a significant impact on how businesses operate. During the
festival season, for example, there is a surge in demand for new clothes, sweets, fruits, flowers,
and other items. Consumers are becoming increasingly concerned about the quality of things
as the literacy rate rises. More nuclear households with single child concepts have emerged as
a result of changes in family makeup. As a result, demand for various types of household goods
rises.
 Political environment: This includes the political system, government policies and attitudes
toward business, and unionism. All of these factors have an impact on the strategies used
by businesses. The government’s stability has a significant impact on business and related
activities. To various interest groups and investors, it gives a signal of strength and confidence.
Furthermore, the political party’s philosophy has an impact on the corporate organisation
and its operations. You may be aware that Coca-Cola, a popular cold beverage, had to close
its operations in India in the late 1970s. Similarly, trade union actions have an impact on how
businesses operate. In India, the majority of labour unions are linked with various political
parties. Strikes, lockouts, and labour conflicts, among other things, have a negative impact
on corporate operations. However, in today’s competitive business world, trade unions have
matured and begun to contribute positively to the success of businesses and their operations by
allowing workers to participate in management.
 Legal environment: This refers to a set of laws and regulations that govern how businesses
operate. Every company must follow the law and operate within its boundaries. The following
are some of the most important laws that affect businesses:
 The Factories Act, 1948
3
JGI JAIN
Entrepreneurship
 The Factories Act, 1948

 Industrial Disputes Act, 1972
 Payment of Gratuity Act, 1972
 Prevention of Food Adulteration Act of 1954
 Industries (Development and Regulation) Act of 1951
 Technological environment: It includes the methods, techniques, and approaches used in the
production and distribution of goods and services. Different countries’ technical environments
have an impact on product design. Electrical appliances in the United States and many other
nations, for example, are designed for 110 volts. When these are built for India, however, they must
be 220 volts. The pace of technical change in today’s competitive age is quite rapid. As a result, in
order to survive and expand in the market, a company must adapt to technological advances on
a regular basis. It should be emphasised that scientific research for product enhancement and
innovation is a regular activity in most large industrial organisations. In reality, no company
can afford to stick with outmoded technologies.
 Demographic environment: This refers to the population’s size, density, distribution, and pace
of increase. All of these variables have an impact on demand for various goods and services. For
example, in a country with a high population rate and a significant proportion of children, there
is a greater need for infant supplies. Similarly, people in cities and towns have different needs
than people in rural areas. The rapid growth of the population means that labour is readily
available. These incentivize businesses to employ labor-intensive production practises.
5.2.2 Need for Business Environment Analysis

A thorough study of the internal environment of the business will help us to know the strengths of the
business. As an example, there is a need for business environment analysis if the organisation is better
at defining policies and making better decisions relating to the work environment, training, transfer,
promotion, and so on.
 Weakness can be deciphered: Study of the business environment will not only help in detecting the
strengths of the business but also its weakness. Every organisation has some weakness along with
its strengths. After successful detection steps to overcome them can be easily taken.
 Opportunities can be identified: The term “opportunity” refers to a good situation for a company’s
growth and general development. Opportunities can be easily identified by conducting a thorough
analysis of the company environment. As a general rule, any firm should aim to seize chances as
quickly as feasible.
 Threats can be identified: Threats refer to the unfavourable conditions for the business which
adversely affect the functioning of the business. These threats may originate from competitors and
many other factors. Therefore, if the business environment is properly studied these threats can be
easily detected and can be timely defused.
5.3 CONCEPT OF INTERNAL ENVIRONMENT ANALYSIS

The marketing strategy of every business organisation is influenced by a large number of internal
factors within the organisation. This Internal environment is regarded as a pivotal component of the
business environment as these elements can influence the activities decisions and operations of the
organisation.
4
In other way, the internal environment refers to all members in the organisation, their culture, the
events and various factors within an organisation that can affect the decision-making process in the
organisation. These members imply all those entities that are inextricably linked to the organisation
such as the employees, channel partners, vendors or suppliers, shareholders, managing director and
board of directors.
The internal factors that are within the control of the organisation are as follows:
 Vision, mission and objectives: While the mission of an organisation elucidates the company’s
business and the purpose for its existence, the vision sheds light on its future position. The objectives
infer to the ultimate motto of the company and the methods employed to meet those objectives.
 Organisational structure: The hierarchal composition of the organisation ascertains the way in
which activities are directed so as to reach the ultimate goal. These activities entail the delegation
of the task, coordination, the composition of the board of directors and degree of supervision. The
organisation’s structure can be in the form of matrix structures, functional structures, divisional
structure and bureaucratic structures.
 Corporate culture: Corporate culture or organisational culture refers to the set of values, beliefs
and behaviour that an organisation holds. The corporate culture of the organisation determines
how employees and management interact and manage internal affairs.
 Human resources: Human resource is considered as the most valued asset of the organisation.
The success or failure of an organisation predominantly hinges on the human resources of the
organisation.
5.3.1 Identifying Available Resources

Internal factors are inner strengths and weaknesses, which are either tangible or intangible, that an
organisation exhibits. It is believed that these elements can strongly affect a company’s performance
and the capability of meeting its objectives. If they have a favourable impact on your business, they are
considered as strengths but some as weaknesses may refrain from the development of your company.
Some of the most important factors are human resources, capital resources, such as finance or
premises, organisational structure and innovation. For a new business, these should be definitely taken
into consideration.
5.3.2 Developing A Unique Selling Proposition

A USP, or unique selling proposition, is the one thing that sets your company apart from the competitors.
It’s a distinct advantage that distinguishes your company from the competition in your market.
Developing an opinionated and deliberate USP aids in the focus of your marketing strategy and drives
message, branding, copywriting, and other marketing decisions. A USP should, at its heart, instantly
address a potential customer’s most pressing query when they come across your brand: A unique selling
position (USP) is a statement that sums up how your company, product, or service differs from the
competitors. It identifies what distinguishes your company from the competition and why your target
customers should choose you over the competition.
The process of developing a unique selling proposition encourages you to consider how you benefit
your clients and why they should buy from you rather than a competition. It can aid in the clarification
of your products, the methods through which you engage with your target group, and, of course, the
5
JGI JAIN
Entrepreneurship
messaging you employ to express your benefits.While developing USP, the following points should be
noted:
 Who do you work for? To put it another way, who is your target audience?
 What do they require? In other words, what do you have to offer? This might be for your entire
business or for a single product or service.
 In one sentence, how would you describe your company? To put it another way, what industry or
sector do you belong to?
 What distinguishes your business or service? Keep in mind that this must be relevant to your
potential clients.
 With whom do you compete? This aids in framing how you and your consumers perceive you.
5.3.3 Identifying Strengths And Weaknesses

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and it is used to define the specific
Strengths, Weaknesses, Opportunities, and Threats that are strategic elements for a given firm. A SWOT
analysis should show an organization’s key competencies as well as opportunities that it is now unable
to exploit owing to a lack of resources.
Because of its simplicity and power in developing strategy, the SWOT analysis framework has achieved
widespread adoption. A SWOT analysis, like any other planning tool, is only as good as the data that
goes into it. To identify important challenges in an organization’s environment, research and correct
data are required.
The internal strengths and weaknesses analysis focuses on the internal elements that provide the
company particular advantages and disadvantages in meeting the target market’s needs.Strengths are
foundational skills that give a business an edge in meeting the needs of its target markets. Any analysis
of a company’s strengths should be market / customer driven, as strengths only make sense when they
help the business meet customer needs.
All of a company’s constraints in establishing or implementing a strategy are referred to as weaknesses.
Customers often identify problems that the business cannot see, thus weaknesses should be viewed
from their perspective as well. When analysing strengths and weaknesses, focusing on the market does
not entail ignoring the strengths and flaws of a non-market approach. Rather, all organisations must
match their strengths and limitations to the needs of their customers. True core competencies are only
those strengths that are relevant to addressing consumer needs.
5.3.4 Assessing the Availability and Advantage of Resources

The company and its environment are closely linked and interdependent. The environment affects
business and business affects the environment. The success of a business lies in understanding the
changes of the environment and adjusting its business policies accordingly. The ever-changing business
environment brings with it both the opportunities and the risks or uncertainties that can make or
break the future of the business. The importance of assessing the availability and benefits of resources
can be explained as follows:
1. Early fathoming of opportunities enables a business organisation to be the first to capitalise them.
2. A business organisation should form its policies considering the demands of environment.
3. The study of business environment is crucial to ensure full utilisation of resources such as financial
resources, human workforce and physical resource.
6
4. Environment analysis enables the company to decipher strengths and weaknesses.

5. Environment analysis assists the organisations to find out threats and opportunities available to
business.
6. Environment analysis helps organisation to incorporate latest technological development which
results in enhanced efficacy.
7. Scanning the business environment help to understand political scenario and its effect on business.
8. Scanning the business environment empowers organisation to understand monetary policies of
government and its probable impact on business.
5.3.5 Assessing the Capability to Attract Investments

The words “ability”, “skill” and “ability” are used interchangeably, you distinguish a few. In technical
aspect, you infer to the functional competence of an individual or the fundamental competence of an
organisation on social issues, you refer to the leadership capacity of an individual or the capacity of an
organisation.
When a corporation delivers on the combined competences and abilities of its employees, organisational
capabilities emerge. Although an individual employee may be technically proficient or possess
leadership qualities, the organisation as a whole may or may not share these qualities. (If it does, people
who succeed in these areas are likely to be engaged; if not, they are likely to be frustrated.) Furthermore,
organisational competencies enable a corporation to translate its technological expertise into tangible
results. If the organisation isn’t able to spark change, a core competency in marketing, for example,
won’t bring value.
 Marketing involves the challenging task of ensuring the ongoing survival and growth of profit-
seeking organisations in a highly competitive environment.
 Because modern organisations usually operate in an extremely unsteady environment, organisations
can only survive if they know what is going on in the environment.
 The marketing environment is a component of the business environment that directly or indirectly
influences the company’s capacity to promote and perform efficiently.
 To different people, globalisation means different things. It is a new paradigm for some, a set of
new beliefs, working techniques, and economic, political, and socio-cultural realities in which old
assumptions are no longer applicable. It entails integration with the global economy for emerging
countries. Business environment refers to all the external forces which have a bearing on the
functioning of business.
 The literary meaning of business environment means the surroundings, external objects influences
etc.
 The business environment is made up of all situations, events, and influences that surround and effect
a company; the economic environment is made up of the country’s economic conditions, policies,
and system. Social, political, legal, technological, demographic, and environmental environments
are all part of the non-economic environment.
 As the population becomes more literate, consumers are becoming more aware of product quality.
More nuclear households with single child concepts have emerged as a result of changes in family
makeup.
7
JGI JAIN
Entrepreneurship
 The government’s stability has a significant impact on business and related activities. To various
interest groups and investors, it gives a signal of strength and confidence.
 The political party’s philosophy also has an impact on the corporate organisation and its operations.
 In today’s competitive business environment, trade unions have matured and begun to contribute
positively to the success of businesses and their operations by allowing workers to participate in
management.
 The rapid growth of the population means that labour is readily available. These incentivize
businesses to employ labor-intensive production practises.
5.5 GLOSSARY
 Marketing: It involves the challenging task of ensuring the ongoing survival and growth of profit-
seeking organisations in a highly competitive environment
 Globalisation: It has become a subject of very serious discussion in the national economic policies
and corporate board room
 Business environment: It refers to all external forces that have an impact on how a firm operates.
 Economic conditions: It refers to a group of economic elements that have a significant impact on
businesses and their operations.
 Opportunities: These basically refer to the favourable condition for the growth and overall
development of the business
5.6 CASE STUDY: SWOT ANALYSIS OF AMAZON
Case Objective
This case study exhibits the SWOT analysis of Amazon.
Amazon is the world’s leader in the e-commerce industry. With over 350 million items for sale on the
platform, Amazon is the first place, where the customers go to find the best deals and check prices.
According to Repricer Express, a repricing solution provider, Amazon conducts sales of $17 million
an hour. In addition, eMarketer, a business intelligence provider, estimated Amazon’s e-commerce
sales to be nearly half of all the retail spending in the US in 2018. Amazon has always been a source of
inspiration for many other e-commerce companies. However, it keeps on witnessing heaps of challenges
in the road along the way. Thus, the Amazon case study is suitable for your understanding of marketing
environment analysis.
AMAZON’S SWOT ANALYSIS
Strengths
Amazon is customer oriented rather than competitor focus sed e-commerce company. It has passion for
invention, commitment to operational excellence and long-term thinking.
The following are some other strengths of Amazon that set it apart:
 Brand image and recognition
 Cost leadership
8
 Innovation and uniqueness

 Scalability and advanced technology
 Customers’ happiness is their first priorityStrategic partnerships
 Efficient distribution system
Weaknesses
The company pays immediate attention to problem areas and stands when it comes to its weaknesses.
Here, are the weaknesses of Amazon:
 Lack of substantial physical presence
 Free shipping
 Low profitability margins
 High level of competition
Opportunities
Opportunities can come in a variety of shapes and sizes. The solution is to recognise them as soon as
they become available and seize them before they are taken by others.
Some of the opportunities for Amazon can be:
 Market expansion
 Creation of own product line
 Expansion of offerings
Threats
A threat can jeopardise the brand’s image from the outside and can cause problems for it in the short
and long run. Let us have a look at the possible threats for Amazon:
 Cybercrime
 Increased competition
 Policy constraints
 Unhappy competitors
Potential Strategies for Amazon
The following are some potential strategies (derived from the SWOT analysis of Amazon) that the
company can employ to remain successful in the long run:
 Amazon can consider building a substantial physical presence, which will allow the company to tap
inaccessible markets and increase its revenue.
 The company should work towards enhancing security features of its website so that customers feel
safe to share their data to make a purchase.
 The company should enter into more partnerships that are beneficial for the company.
Questions
1. What are the strengths of Amazon?
(Hint: Some of the strengths of Amazon are Brand image and recognition, cost leadership, innovation
and uniqueness.)
9
JGI JAIN
Entrepreneurship
2. What are the weaknesses of Amazon?

(Hint: Some of the weaknesses lack of substantial physical presence, free shipping and low
profitability margins.)
3. What are the threats faced by Amazon?
(Hint: Some of the threats, cybercrime, increased competition and policy constraints.)
4. What are the various opportunities Amazon can harness?
(Hint: Some of the opportunities for Amazon are market expansion, creation of own product line
and expansion of offerings.)
5. What is the potential strategies of Amazon?
(Hint: Amazon can consider building a substantial physical presence, which will allow the company
to tap inaccessible markets and increase its revenue.)

1. Write a brief note on business environment.
2. Summarise economic conditions of a nation.
3. Describe social environment.
4. Define internal environment.
5. Outline the need to have USP.
A. Hints For Essay Type Questions

1. Business environment refers to all the external forces which have a bearing on the functioning
of business. The literary meaning of business environment means the surroundings and external
objects influences. Refer to Section What is Business Environment
2. The economic conditions of a nation refer to a set of economic factors that have great influence
on business organisations and their operations. These include gross domestic product, per capita
income, markets for goods and services, the availability of capital, foreign exchange reserve, growth
of foreign trade and strength of capital market. All of these help in improving the pace of economic
growth. Refer to Section What is Business Environment
3. The social environment of business includes social factors such as customs, traditions, values,
beliefs, poverty, literacy and life expectancy rate. The social structure and the values that a society
cherishes have a considerable influence on the functioning of business firms. Refer to Section What
is Business Environment
4. The marketing strategy of every business organisation is influenced by a large number of internal
factors within the organisation. This internal environment is regarded as a pivotal component of
the business environment as these elements can influence the activities decisions and operations of
the organisation. Refer to Section Concept of Internal Environment Analysis.
10
5. The process of creating USP forces you to think about how exactly you benefit your customers and
why they should buy from you, not a competitor. It can help you clarify your offerings, the channels
you use to reach your target audience and of course, the messaging you use to communicate your
benefits. Refer to Section Concept of Environment Analysis.
 https://www.oecd.org/daf/inv/investment-policy/36671400.pdf
 https://www.investopedia.com/articles/financial-theory/11/how-venture-capitalists-make-
investment-choices.asp
 Discuss with your friends how political stability affects the business. Take a look at the recent
political development in your country.
11
UNIT
06 External Environmental Analysis
Names of Sub-Units
Elements of external environment, PEST to PESTEL to STEEPLE, identifying opportunities and threats
in the external environment, matching internal environment factors to the external environment
factors, political environment and government policies.
Overview
This unit will begin with elucidating you about the elements of the external environment and what are
the effects of the external environment. The unit will also shed light on PEST to PESTEL to STEEPLE.
Learning Objectives
 Describe the elements of the external environment
 Outline the external environment analysis
 Explain the PEST to PESTEL to STEEPLE
 Discuss the opportunities and threats
 Evaluate the internal and external environment factors
JGI JAIN
Entrepreneurship
Learning Outcomes
 Describe the elements of the external environment
 Outline the external environment analysis
 Illustrate the PEST to PESTEL to STEEPLE
 Discuss identifying opportunities and threats
 Evaluate the internal and external environment factors
 https://corporatefinanceinstitute.com/resources/knowledge/strategy/pestel-analysis/
6.1 INTRODUCTION
A successful organisation foresees, deciphers and capitalises on changes within and outside its
environment. The market environment of an organisation can be divided into micro and macro factors
that affect the environment. Micro-environmental factors include suppliers, marketing agencies,
customers and macro-environmental factors include demographics, social culture, politics, technology
and legal environments. These macro or external environmental factors cannot be controlled and
generally affect all participants from the entire industry rather than a single organisation.
To understand any business, the key step is to explore all the factors related to the business and correctly
judge their impact on the business. Some many factors and forces have a considerable impact on any
business. All these forces can be found under a word called environment. Therefore, understanding
the business means understanding its environment. The environment refers to all external forces that
affect the company’s operations.
6.2 ELEMENTS OF EXTERNAL ENVIRONMENT

The external marketing environment takes into account all the external factors that can impact
the organisation’s existence and are beyond the organisation’s control. These external marketing
environment factors exert a considerable influence on any organisation’s marketing strategy. The major
macro marketing environment forces to deal with are political, economic, socio-cultural, technological,
legal and environmental.
A company and the forces operate in a larger macro environment that shapes opportunities and pose
threats to the company. These factors are generally more uncontrollable than the micro forces.
The external environment can have a huge impact on a company and its work environment;
nevertheless, most companies only have a limited power to alter these factors. Individual companies
can occasionally impact external trends, such as when Intel’s inventions influence technological trends
in the microprocessor, microcomputer, and software industries.
As a result, while enterprises may have some impact over the broader environment, the focus of this
book will be on analysing and responding to this segment of the environment. Global socio-cultural,
economic, technological, and political/legal influences are the most essential elements in the broad
environment as they relate to a corporate organisation and its job environment.
2
UNIT 06: External Environmental Analysis JGI JAIN
Elements of external environment are as follows:

 Demographic environment: Demography is the study of the population and its characteristics.
Organisations are always interested in the population-related growth index of markets because
the ultimate market growth rate, in the long run, depends largely on the growth of the population.
Several factors related to the population, such as size, growth rate, age distribution, religious
composition and literacy levels, form a part of the macro-environment. Aspects, such as household
spending patterns, regional characteristics, population shifts, also need to be analysed as they form
an essential part of the demographic environment.
 Socio-cultural environment: These are core cultural values that are found stable and deeply rooted
in societies. The beliefs, values and norms of a society determine how individuals and organisations
relate to each other. The social and cultural environment has the maximum impact on consumers.
Social forces shape the consumption habit of people. It is a distinct way of life of a group of people and
their complete design of living. It is everything that is socially learned and shared by the members of
society. The marketing manager needs to understand how the consumers react to different products
and marketing practices in a social setting.
 Technological environment: Technology has accelerated the pace of change in the marketplace.
Technological life cycles are shortening day by day and the introduction of new products has
become a normal phenomenon of the marketplace. Companies are open to exploiting unlimited
opportunities in the field of marketing to provide better products and services. Companies, such as
Sony, 3M, Samsung and Wipro, have increased their research and development budget manifold to
always be ahead of their competitors.
 Legal environment: Organisations are bound to work within the legal framework as enshrined by
the laws of the countries they operate in. Organisations have to weigh the implications of all the
legal provisions related to their business. The major rules safeguarding consumers, competition, and
organisations must be well-understood by the organisation. Laws like the Consumer Protection Act,
Intellectual Property Rights, FEMA, and Labor Laws can have a significant impact on a company’s
operations.
 Economic and monetary environment: The economic environment of the countries also exerts a
great influence on marketing decisions as it affects the purchasing power of the consumer. The
economic environment, implies all those macroeconomic factors such as income distribution, level
of saving, debt and credit available to consumers and also the stages in the business cycle. The
economic environment determines the strength and size of the market. The purchasing power of
consumers relies on current income, prices, savings, the circulation of money in the economy and
credit facilities available. Situations in the economic environment offer an opportunity and also
pose threats to the organisations.
 Political environment: Political parties influence and can affect the smooth flow of organisational
operations such as the case of Enron in Maharashtra and KFC in Karnataka. The economic
environment is often regarded as a by-product of the political environment. Developments on the
political front keep affecting the economy all the time.
6.3 EXTERNAL ENVIRONMENT ANALYSIS

The social environment of a market depends on the demographics of a market and the cultural and
social aspects of society. Population growth, market composition, life expectancy, changing lifestyle, etc.,
all affect the overall social environment. For instance, due to women’s empowerment and improvement
in the education level of girl children, the participation of women in the economy has increased which
has helped in increasing the overall economic activity level.
3
JGI JAIN
Entrepreneurship
External analysis of business operations involves identifying strategic opportunities, threats and
issues that affect key elements of successful operations. This analysis is necessary to formulate and
manage strategies in all areas of the business, including the marketing activities of the organisation.
This analysis mainly includes the study of the external environment in which commercial companies
operate.
Marketing environment analysis is a strategic tool that enables an organisation to determine the internal
and external factors that can affect the organisation’s operations or work smoothly. The environmental
analysis attempts to obtain information on current market conditions and the influence of external
factors beyond the control of the organisation. These variables play a key role in attracting potential
customers in response to changes in market trends and conditions. This is the process of collecting,
analysing and predicting external environmental information to identify opportunities and threats
facing the company.
The need for analysing the market environment is as follows:
 To know the prevailing trend, observe it and know the strengths of organisation
 To discern which events and trends are favourable from the standpoint of the firm and which are
unfavourable
 To figure out the opportunities and threats hidden in the environmental events and trends
 To project how each factor of the environment will be at a future point in time
 To gauge the scope of various opportunities and ascertain which of these may be more favourable
SWOT analysis represents the analysis of strengths, weaknesses, opportunities and threats. SWOT
is a technology used to determine the competitive index of an organisation and formulate strategic
planning. SWOT analysis aims to provide a realistic, factual and data-driven view of the strengths and
weaknesses of the organisation. To cope with the external environment, the organisation performs a
SWOT analysis.
Strengths and weaknesses are internal factors, while opportunities and threats are external factors in
nature that affect the business performance. SWOT analysis is an effective technique to understand the
internal and external environment of a company, which helps to formulate better strategies.
6.3.1 PEST to PESTEL to STEEPLE

Each organisation operates in a specific environment. The environment of an organisation includes
external factors that affect or may affect the operations of the organisation. Environmental factors
include cooperative partners, competitors and players who shape the rules of the market, but also the
changing lifestyles of technological progress.
There are variations of PEST Analysis that bring other factors into consideration. These include:
 PESTLE/PESTEL: Political, Economic, Socio-Cultural, Technological, Legal, Environmental.
 PESTLIED: Political, Economic, Socio-Cultural, Technological, Legal, International, Environmental,
Demographic.
 STEEPLE: Social/Demographic, Technological, Economic, Environmental, Political, Legal, Ethical.
Gathering data is only the first step in performing a PEST analysis. After then, the information must be
assessed. Although numerous aspects in the external world are changing, not all of them are impacting
or may be affecting an organisation. As a result, it’s critical to figure out which PEST factors represent
4
UNIT 06: External Environmental Analysis JGI JAINDEEMED-TO-BE UNIVERSIT Y
opportunities or risks for a company and only include them in a PEST study. This helps you to concentrate
on the most critical developments that may have an influence on your business..
PEST analysis is often used to evaluate a new market’s potential. The more negative forces that are
affecting a market, the more difficult it is to do business in that market. The hurdles that must be
overcome greatly diminish profit potential, and the company can simply opt not to participate in that
market at all.
A PESTEL analysis or PESTLE analysis (erstwhile known as PEST analysis) is a framework or tool
used to evaluate and observe the macro-environmental factors that may have a grave induce on an
organisation’s functioning. This tool is instrumental when commencing a new venturing or forging into
a foreign market. It’s frequently combined with other analytical business techniques like SWOT analysis
and Porter’s Five Forces to create a clear picture of a scenario and link internal and external elements.
Political, Economic, Social, Technological, Environmental, and Legal (PESTEL) elements are an acronym
that stands for Political, Economic, Social, Technological, Environmental, and Legal factors.However,
over past several years people have expanded the framework with factors such as Demographics,
Intercultural, Ethical and Ecological resulting in variants such as STEEPLED, DESTEP and SLEPIT.
PESTEL encompasses the most relevant factors in general business.
Figure 1 shows PESTEL analysis:
P E S T E L
• Government • Economic • Population • Technology • Weather • Discrimina
policy growth growth rate incentives • Climate tion laws
• Level of • Environm
• Political • Exchange • Age • Antitrust
innovation ental policies
stability rates distribution • Climate
laws
• Corruption • Interest rates • Career • Automation • Employment
R&D activity change
• Foreign trade • Inflation attitudes • lows
• Pressures from
• Technological
policy rates • Safety NGO’s • Consumer
change
• Tax policy • Disposable emphasis protection
• Technological
• Labour law income • Health awareness laws
• Trade • Unemploy conscious • Copyright
restrictions ment rates ness and patent
• Lifestyle laws
attitudes • Health and
• Cultural safety laws
barriers
Figure 1: PESTEL Analysis

Source: https://www.business-to-you.com/scanning-the-environment-pestel-analysis/
The standard approach is to run through each area of STEEPLE and determine external factors that are
relevant to the product or service. Each factor can be perceived as an opportunity or a threat. Prioritise
these factors and develop an action plan to address each opportunity or threat.
STEEPLE analysis is used to evaluate and act on the external factors that might influence the success of
the business functioning. It is a list of areas to work through so and identify opportunities and threats
so that you can make plans accordingly.
5
JGI JAIN
Entrepreneurship
The following steps are required to do a STEEPLE analysis:

1. Get teamtogether: Assemble organisation’s team and if possible, include some impartial, trustworthy
colleagues from outside the organisation.
2. Explain the purpose: To brainstorm and then prioritise actions relating to external factors, in order
to optimise product success.
3. Brainstorm STEEPLETo prompt the team, use a STEEPLE cheat sheet. Record dangers and
possibilities in each area – S, T, E, E, P, L, E,
4. Prioritise: Sort the aspects from the brainstorm into the ones that the team believes will have the
greatest impact and are most likely to happen.
5. Take action: Plan and delegate actions to mitigate the threats and to exploit the opportunities for
each prioritised item.
A STEEPLE analysis is most useful to generate a thorough view of external factors when planning
to launch a new product in the market. It can also be used at any time to revitalise plans relating to
external factors, as the world is constantly evolving around us.
Business owners spend a great deal of time on the internal capabilities of their business. External factors
have an equally important impact on the success of a business. STEEPLE analysis is a great way to foster
productive discussion. This helps determine how the business addresses the external environment.
STEEP analysis addresses the following questions:
 How much importance does culture have in the market? What are its determinants?
 What technological advances are likely to emerge and affect the market?
 What are the wider economic factors?
 What are the industry’s environmental concerns?
 What is the political situation of the country? How can it affect the industry?
6.3.2 Identifying opportunities and threats

Each organisation operates in a specific environment. The environment of an organisation includes
external factors that affect or may affect the operations of the organisation. Environmental factors
include cooperative partners, competitors, players who shape the rules of the market, but also the
changing lifestyles of technological progress.
The following area analyses are used to look at all external factors affecting a company:
 Customer analysis: It covers segments, motivations and unmet needs
 Competitive analysis: It identifies strategic groups as well as evaluates performance, image, their
objectives, strategies, culture, cost structure, strengths and weakness
 Market analysis: It evaluates the overall size, projected growth, profitability, entry barriers, cost
structure, distribution system, trends and key success factors
 Environmental analysis: It scans technological, governmental, economic, cultural, demographic,
scenarios and information-need areas
 Goal: To evaluate external opportunities, threats, trends and strategic uncertainties
Two reference systems can be used to analyse the environment i.e., external or functional dimensions.
External stakeholders include competitors (including potential ones), suppliers, recipients, various
6
institutions, etc. Politics, technology, financial conditions, ecology, etc. Opportunities are good
environmental tendencies and phenomena that, when appropriately exploited, can boost development
or mitigate risks. An opportunity is a chance for good things to happen. It does not, however, have the
same meaning as “unexpected benefit,” because it is the result of extensive study and development as
well as rigorous analysis, rather than an occurrence.
Opportunities revolve around the organisation’s environment in a specific location and within a specific
period. Organisations can use these conditions to achieve strategic objectives. Successful organisations
do not wait for opportunities to appear but must work hard and continue researching to create
opportunities that are classified as possible to promote the organisation External factors to achieve its
objectives. The opportunities can be seen in the environment in which the organisation operates. When
organisations leverage the conditions that prevail in the environment to plan and execute strategies
that benefit them, opportunities arise. By taking advantage of opportunities, organisations can gain
a competitive advantage over competitors. Opportunities may arise due to the market, competition,
industry/government and any technology change.
Threats arise when any conditions in the external environment affect the continuity and profitability
of the organisation. For organisations, it is critical to anticipate threats and act on them before they
affect operations and longevity. For organisations, threats may be unfavourable government policies,
new competitors, new technologies, negative public images, changing trends, shortages of suppliers of
raw materials, etc.
When identifying opportunities and threats, it is important to follow these guidelines:
 When enlisting opportunities, the organisation must take into account fast-developing technologies,
availability of new materials, new customer categories, a shift in customer tastes, market growth,
new uses for old products (think about how mobile phones and even glasses now function as
cameras and computers), new channels of distribution or location opportunities, positive changes
in the highly competitive environment, other forces that can affect organisation’s success, etc.
 When enumerating threats, it is prudent to consider market shrinking, changes in consumer
tastes and buying trends, commodity shortages, economic slowdown, change in regulations,
changes affecting business access, upcoming competitive businesses and competitive mergers or
collaboration. Also, the organisation must take into account the impact of expired patents, labour
issues, global issues and new products that may make the products obsolete or superfluous.
6.3.3 Matching Internal and External Environment Factors

The internal analysis lays emphasis on evaluating the overall aspects of the organisation. Although
internal analysis at times considers the behaviour of external organisations or changes in the market,
it predominantly focuses on the internal characteristics of related organisations. For example,
internal analysis can enable the organisation’s management to identify strong and weak aspects in an
organisation without having to consider the performance of the competing organisation.
In the context of strategic management, internal analysis is crucial for several reasons. The company
may disburse more in some areas owing to internal inefficacy or inappropriate utilise the existing
resources. The only way to identify such gaps and get a real understanding of how resources are being
used in the organisation is through internal analysis.
The external analysis focuses less on the company itself than on its business environment (including
competitors). The term is mostly self-explanatory looking at external business analysis factors instead
of internal factors.
7
Entrepreneurship
The number of new competitors stepping into the industry, the cost of the materials used to make a
product, or the regulatory framework set by the government - all are examples of external variables
affecting the organisation and should be factored into the process of external analysis.
Strategic management is a powerful way to manage a business. Due to the innate analytical nature of
this approach, the organisation must utilise analytical tools inside and outside the business to make
management decisions. Through the use of prominent SWOT and PESTLE models, you can delve into the
world of business analysis.
 A successful organisation foresees, deciphers and capitalises on changes within and outside its
environment. The market environment of an organisation can be divided into micro- and macro-
factors that affect the environment.
 Micro-environmental factors include suppliers, marketing agencies and customers and macro-
environmental factors include demographics, social culture, politics, technology and legal
environments.
 These macro or external environmental factors cannot be controlled and generally affect all
participants from the entire industry rather than a single organisation.
 The external marketing environment takes into account all the external factors that can impact the
organisation’s existence and are beyond the organisation’s control.
 External marketing environment factors exert a considerable influence on any organisation’s
marketing strategy.
 The major macro marketing environment forces to deal with are political, economic, socio-cultural,
technological, legal and environmental.
 Global socio-cultural, economic, technological, and political/legal influences are the most essential
elements in the broad environment as they relate to a corporate organisation and its task
environment.
 Demography is the study of the population and its characteristics. Organisations are always
interested in the population-related growth index of markets because the ultimate market growth
rate, in the long run, depends largely on the growth of the population.
 The social and cultural environment has the maximum impact on consumers.
 Social forces shape the consumption habit of people. It is a distinct way of life of a group of people
and their complete design of living.
 Organisations are bound to work within the legal framework as enshrined by the laws of the
countries they operate in.
 Organisations have to weigh the implications of all the legal provisions related to their business.
 The economic environment of the countries also exerts a great influence on the marketing decisions
as it affects the purchasing power of the consumer.
 The economic environment implies all those macroeconomic factors such as income distribution,
level of saving debt and credit available to consumers and also the stages in the business cycle.
 The social environment of a market depends on the demographics of a market and the cultural and
social aspects of society.
8
 Population growth, market composition, life expectancy, changing lifestyle, etc., all affect the overall
social environment.
 External analysis of business operations involves identifying strategic opportunities, threats and
issues that affect key elements of successful operations. This analysis is necessary to formulate and
manage strategies in all areas of the business, including the marketing activities of the organisation.
 The environmental analysis attempts to obtain information on current market conditions and the
influence of external factors beyond the control of the organisation.
6.5 GLOSSARY
 External environment: It can have a huge impact on a company and its work environment, but
individual companies often only have a limited power to alter these factors.
 Demographic environment: Demography is the study of the population and its characteristics
 Socio-cultural environment: These are core cultural values that are found stable and deeply rooted
in societies
 Legal environment: Organisations are bound to work within the legal framework as enshrined by
the laws of the countries they operate in
 Marketing environment analysis: It is a strategic tool that enables an organisation to determine
the internal and external factors that can affect the organisation’s operations or work smoothly
6.6 CASE STUDY: SWOT ANALYSIS OF APPLE INC.
Case Objective
This case study highlights Apples’ internal and external analysis.
SWOT analysis is an analysis of a company or organisation’s strengths, weaknesses, opportunities

and threats. Apple had launched its new phone iPhone 7 in an event. It has also expanded its business
boundary by launching an Apple watch and Bluetooth headphones also known as AirPod.
Apple’s Strengths
iPhones have developed their own distinct brand character. People are willing to spend thousands of
dollars on an iPhone. Apple’s logo has become a status symbol in recent years. Apple’s product design is
also artistic, yet simple, rich and royal, as well as inventive. Customers trust Apple, and its brand value is
well-known around the world. Apple’s brand value is so great that most of its goods are frequently pre-
ordered around the world. Apple also uses its image to promote a way of life that is full of inventiveness,
luxury, and smoothness. This is how it promotes its products:
As a path into its created and planned world, rather than as a simple gadget. This is why, with items
such as Mac Laptops, iPhones, and iPads, its revenues and, as a result, profit margins are excessively
large.
Apple’s Weaknesses
One of the greatest weaknesses of Apple is its high prices of products. Although its prices are high, it
restricts its buyers from upper middle class to high class. Usually, a PC can be bought for $200. On the
9
JGI JAIN
Entrepreneurship
contrary, Apple’s Mac laptop costs around $1100 - $1200+. If offered at a sale price, the sales reduce the
price of the product by only $50 - $100. Only the students can get the laptops at discounted prices. If you
take globally, then several lower-class people couldn’t afford to buy Apple products. Apple ignores this
class of customers. You can say that this is a great weakness of Apple Inc.
Apple’s Opportunities
Apple has witnessed a potential advantage in teaming up with various solid and existing brands
identified with its commercial centre. With its new AirPods, it has collaborated with Beats earphones to
present the new remote Beats X close by its iPhone 7. Moreover, Nintendo is bringing another amusement,
Mario Run, to iPhone — consolidating the Apple name with the notable diversion face of Nintendo. This
is another incredible brand that could get gigantic numbers from its numerous fans all over the world.
Apple’s present advancement can be derided, criticised or cheered. In any case, the business openings
from working together with other expansive brands over the world will profit from the Apple brand
monstrously, insofar as it keeps on building up these business connections.
Apple’s Threats
Since its inception, Apple Inc’s greatest threat has been innovation. It continues to produce the same
types of goods. After a while, the usual consumer may lose interest. While Apple’s structure is smooth
and short-sighted, that is actually, what makes it simple to imitate. Worldwide stores sell counterfeit
renditions of iPhones and iPod contacts which, outwardly, look about indistinguishable.
Furthermore, numerous individuals fall for the tricks of ‘overly cheap Apple items’ sold on the web.
Another threat to Apple products is competition. Companies such as Samsung has captured the market
with the launch of the concept of androids in the market. Apple has heightened its competition by not
providing earphones in its new model, iPhone 7. Moreover, android companies are providing the same
facilities at much cheaper rates.
Questions
1. How did Apple expand its business boundaries?
(Hint: iPhone 7, Bluetooth headphones, watches, etc.)
2. What is Apple’s strength?
(Hint: iPhones have created a unique brand identity for themselves. People are willingly ready to
spend lakhs in the name of iPhone.)
3. What were the threats to Apple Inc?
(Hint: Innovation, competition, etc.)
4. State Apple’s weaknesses.
(Hint: One of the greatest weaknesses of Apple is its high prices of products. Although its prices are
high, it restricts its buyers from upper middle class to high class. Usually, a PC can be bought for
$200.)
5. Which all products are launched by Apple recently?
(Hint: Apple launched the new phone iPhone 7, soon it will be launching the Apple watch and
Bluetooth headphones.)
10

1. External marketing environment takes into account all the external factors. Explain the external
environment.
2. Demography is the study of the population. Describe the elements of the external environment.
3. Economic environment of the countries also exerts a great influence on the marketing decisions.
Elaborate the economic and monetary environment.
4. Express the need to study the marketing environment.
5. Delve into PESTEL analysis or PESTLE analysis.

1. The external marketing environment takes into account all the external factors that can impact
the organisation’s existence and are beyond the organisation’s control. These external marketing
environment factors exert a considerable influence on any organisation’s marketing strategy. Refer
to Section Elements of External Environment
2. Demographic environment: Demography is the study of the population and its characteristics.
Organisations are always interested in the population-related growth index of markets because the
ultimate market growth rate, in the long run, depends largely on the growth of the population. Refer
to Section Elements of External Environment
3. The economic environment of the countries also exerts a great influence on the marketing decisions
as it affects the purchasing power of the consumer. The economic environment implies all those
macroeconomic factors, such as income distribution, level of saving, debt and credit available
to consumers and also the stages in the business cycle. Refer to Section Elements of External
Environment
4. The need for analysing the market environment is as follows:
 To know the prevailing trend, observe it and know the strengths of organisation
 To discern which events and trends are favourable from the standpoint of the firm, and which
are unfavourable
 To figure out the opportunities and threats hidden in the environmental events and trends
Refer to Section External Environment Analysis
5. A PESTEL analysis or PESTLE analysis (erstwhile known as PEST analysis) is a framework or tool
used to evaluate and observe the macro-environmental factors that may have a grave induce on an
organisation’s functioning. This tool is instrumental when commencing a new venturing or forging
into a foreign market. Refer to Section External Environment Analysis
11
Entrepreneurship
 https://www.futurelearn.com/info/courses/online-business-success-planning/0/steps/16163
 https://www.groupmap.com/portfolio/pestle-analysis/
 Discuss with your friends some of the new technological changes that have altered the way
organisations operate.
12
UNIT
07 Competitive Environment Analysis
Names of Sub-Units
Understand the existing competition both domestic and international, industry analysis using the
tool Michael Porter’s five forces, studying the competitor strategies
Overview
This unit begins by explaining the need for assessing the existing level of competition in both the
domestic and the international markets. Further, the unit explains the concept of industry analysis
wherein Michael Porter’s Five Forces Model is discussed. Towards the end, the unit describes how
important it is for an organisation to study the strategies of its competitors.
Learning Objectives

 Explain the significance of assessing the existing level of competition
 Discuss domestic and international marketing efforts
 Describe the concept of industry analysis
 State the importance of Michael Porter’s Five Forces Model
 Study competitors’ strategies
JGI JAIN
Entrepreneurship
Learning Outcomes

 Assess the existing level of competition
 Prepare for domestic and international marketing
 Examine the industrial environment
 Identify how Michal Porter’s five forces model helps organisations
 Analyse competitor’s strategies
 https://www.uj.edu.sa/Files/1001210/Subjects/Chapter%2011%20SWOT%20ANALYSIS.pdf
7.1 INTRODUCTION
Organisation’s works in a dynamic environment which influence their working, operations and
objectives. External environment includes the economic, political and legal, demographic, social,
competitive, global demand and technology. Each of these areas presents a unique set of challenges and
opportunities for businesses.
Business proprietors and managers exercise greater control over the internal business environment,
including day-to-day decisions. They can select the supplies they buy, the employees they hire, the
products they sell and where they sell those products. They use their expertise, knowledge and resources
to create goods and services that delight current and future customers. External environmental
influence an organisation as a whole is not under management control. Organisations must constantly
scan environment and adjust their businesses accordingly.
7.2 EXISTING LEVEL OF COMPETITION

Competition takes place between organisations that sell similar products and services and deal in the
same industry to increase their income, profits and market share. Competition in the marketplace
pushes companies to increase sales volume using the four components of the marketing mix, also known
as the four Ps. P’s stands for product, place, promotion and price. Understanding of the competition is
necessary in designing a successful marketing strategy. If an organisation does not know its competitors
and is unaware of its strengths and weaknesses, another company can likely join the competition and
get a competitive advantage, for example, by offering products at lower prices. Identifying competitors
and staying informed about their products and services is essential for staying competitive in the
marketplace and vital for the survival of any business.
Competitors directly influence the business and decisions an individual form. Imagine two online
clothing stores that threaten each other in terms of business growth and profitability. Other stores also
tried to provide the compelling offer so that they can get more leads, customers which can increase
their sales and sell unpopular products.
The competitive environment also has a positive effect on customers. To court the attention of consumers,
companies tend to offer high quality products at reasonable prices. In addition, companies must deliver
their products through innovation. However, competition can make it difficult for a business to survive.
2
UNIT 07: Competitive Environment Analysis JGI JAIN
For example, several sellers of a particular product are located at one place or location. One of the sellers
set a low price and gives a discount, this may make other less competitive. To fight competitively, an
organisation needs to analyse the level of competition in the domestic as well as international market.
7.3 DOMESTIC MARKET

The domestic market is also calledthe internal market or home market. In the domestic market, goods
and services are exchange for money within the borders of a country. It is a much smaller market than the
international, external, foreign or global markets. In a domestic market structure, all the organisations
tend to have a similar set of economic, social, competitive, market and technological challenges.
Some organisations choose to lay sole emphasis on their domestic market, meanwhile, others may
choose to expand and move into foreign markets. Domestic trading is attractive as the distribution
and sales process is simple. An organisation may go international or in other regions. This brings in the
related logistical hurdles. The domestic customer size can be used to check whether to branch out or to
continue to serve the domestic market.
Domestic marketing refers to the conduct of marketing activities within national borders, which
implies that it comprises marketing activities in the local market and has a limited scope. It requires
less investment than international marketing. In home or domestic marketing, only single currency of
the country is used and organisation uses similar policies and strategies.
7.3.1 International Market

International expansion is the trend of most companies. Nowadays, it can be said that marketing
greatly affects the operation of a business. For businesses that already have a good business in the
country, but want to attack the international market, international marketing is the solution one is
looking for. However, not everyone understands this term well and uses it most appropriately, for their
professional situation.
According to Cateora and Graham, “international marketing is the performance of business activities
designed to plan, price, promote and direct the flow of a company’s goods and services to consumers or
users in more than one nation for a profit.” Whether national or international, the marketing objective
remains the same for marketers. The goal is to make a profit by selling products or services in geographic
areas where they need them.
International marketing is defined as the performance of business activities designed to plan, price,
promote and direct the flow of goods and services from a business to consumers or users in multiple
countries for profit. The only difference between the definitions of national marketing and international
marketing is that in the latter case, the marketing activities take place in more than one country.
Whether national or international, the marketing objective remains the same for marketers. The goal is
to make a profit by selling products or services in geographic areas where they need them.
International marketing also facilitates in fostering social and cultural exchange among various
nations across the world. For instance, in a country like India, people relish consuming intercontinental
dishes, including Mexican, Chinese and Italian food, which is a fine example of a socio-cultural exchange.
International marketing is important owing to following reasons:
 To make optimum utilisation of resources (including surplus production) at a global level
 To actuate world export trade and offer benefits of the same to various participating countries
 To provide the benefit of comparative cost to countries participating in international marketing
 To enable the international trade free and fair by eliminating the barriers of trade
3
Entrepreneurship
International marketing means entry into international markets by:

 setting up a branch/subsidiary abroad for:
 Processing
 packaging
 assembly
 Negotiating licensing/franchising arrangements
 Establishing joint ventures
 Offering consultancy services
 undertaking turnkey projects abroad
 Sub-contracting
 countertrading
 Importing for export production
Some of the merits of international marketing are as follows:
 Owing to geographical factors and natural constraints, if a product cannot be manufactured
domestically, but through international marketing, the item is readily available.
 International marketing offers a superior way of life to the citizens of a country by offering them a
wide array of products and ventures.
 International marketing helps people from different countries to improve their lifestyle. People can
easily buy high quality products that are not made in their home country from international brands.
It serves as a platform where different reputable brands can sell their products in various countries.
 International marketing leads to the speed of industrial development of the country. It creates
demand for new products that increase the scale of activities of industries.
 It helps companies mitigate costs by producing bulk goods. Companies operating in the international
market operate on a large scale, which helps them achieve cost competitiveness in national and
international markets.
7.4 INDUSTRY ANALYSIS

Industry analysis examines how a company perceives itself in comparison to others in the same niche. It
is a tool that allows an organisation to understand its position among competitors in the same industry.
By performing industry analysis, an organisation can better plan effective strategies for its business.
An industry is made up of a group of companies that provide closely substituted products or services.
The products meet the same basic consumer needs. Industry analysis is performed by a business entity
or specifically an entrepreneur to determine the factors affecting the industry in which they have or
are planning to invest. Potential new entrants, the situation of competitors, buyers and suppliers have
a direct impact on the performance of an industry. The concept of industry analysis provides business
actors with the necessary information from which to develop an effective plan to deal with it. The
industry analysis helps in recognising opportunities, threats to overcome them and gain competitive
edge.
The industrial environment vastly affects the business operations of a company. Therefore, a business
needs to align its strategy with the industry environment. If this becomes very difficult or impossible, the
company must reshape as per the industry environment by incorporating the right strategy. Industry
analysis provides essential information on industry situations.
4
From this analysis, organisations can gain insight into many industry-related issues such as:
 Economic aspects like size of the market, customers and sellers, updating and out-dated technology,
nature of standardisation of product
 Competitive index
 Predominant driving forces
 Competitor’s Monetary and competitive positions
 Strategies
 Industry’s key success factors
 Attractiveness of the industry
Industry’s competition analysis includes the Michael Porter’s Five Forces Model, PESTEL.
Organisations use this model to analyse the competitive environment in the industry in which their
company is operating its business. This model provides a framework to identify industry-related
opportunities and threats. Let us understand this model in detail.
7.4.1 Michael Porter’s Five Forces

An industry refers to a set of organisations that delivers similar products or services. Different
organisations in an industry compete with one another to gain a bigger share of the market. For
example, some of the strongest players in the Indian IT industry are Infosys, TCS, HCL, Wipro and
Mahindra Satyam. Industry also includes different stakeholders, such as buyers and suppliers. To
formulate competitive strategies, an organisation needs to analyse the industry in which it operates. An
organisation needs to analyse the profitability of a particular industry before entering it.
Harvard University professor Michael E. Porter developed an effective model for industry analysis. The
model is known as ‘Porter’s Five Forces Model.’ In this model, Porter argued that profitability in an
industry depends on the level of competition in the industry. Therefore, strategists in an organisation
need to analyse different factors that shape industry competition. In the article, “How Competitive
Forces Shapes Strategy” in the Harvard Business Review, Porter mentioned five competitive forces that
determine the intensity of competition in an industry. The forces, as mentioned by Porter, are shown in
Figure 1:
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Treat of Substitute Products/Services
Competitive Rivalry among Existing Competitors
Figure 1: Porter’s Five Forces Model
5
Entrepreneurship
Let us discuss Porter’s five forces model in detail.

1. Threat of new entrants: A profitable industry attracts new entrants that may lead to lesser sales
volume and revenue for existing organisations. The degree of threat of new entrants in an industry
depends on the industry’s entry barrier. The lower the entry barriers, the higher the threat of new
entrants is. Entry barriers, such as high investment requirements, strict government policies,
lack of access to raw materials and lack of experience, act as demotivators for new entrants. In
industries with high entry barriers, the entry of new organisations becomes restricted. However,
low entry barriers in an industry attract new players to enter an industry and put pressure on the
price level. Therefore, low entry barriers limit the profit potential of an industry. New entrants may
enter the market with higher quality products and low prices despite these barriers. The strategists
of existing organisations should identify and monitor the new entrants’ strategies.
2. Bargaining power of suppliers: It acts as a force of competition in an industry. The suppliers of
raw materials of an organisation may have high or less bargaining power. It refers to the ability
of suppliers to increase the price of products supplied to organisations in the industry. A high
bargaining power of a supplier may hamper the supply of raw materials to an organisation. If the
bargaining power of the supplier is high, the profit potentiality of the industry would be relatively
low. The bargaining power of the supplier is high if a few suppliers are supplying to a relatively high
number of organisations in the industry, or if the product or service is unique and there is no good
substitute available for the products.
3. Bargaining power of buyers: It refers to the degree to which buyers can influence the price of the
product. A high bargaining power of buyers acts as competitive pressure for an organisation. If
the bargaining power of the buyer is high, the profitability of the industry is highly affected. The
bargaining power of the buyer is high if the buyer purchases a significantly large portion of the
product or service of the supplier. In addition, the bargaining power of the buyer is high if the buyer
can easily switch to other organisations. A low bargaining power enables the organisation to pass
the cost to buyers. It affects the profitability of an industry substantially. The following are the
factors responsible for strengthening the bargaining power of buyers:
 Bulk purchases by buyers
 Few buyers of products
 Products purchased by buyers are standard or undifferentiated
4. Threat of substitute products/services: Substitutes are alternative products available in the
market for a product. Examples of substitute products are tea and coffee or bulbs and tube lights.
A laptop is a substitute for PCs. The presence of substitute products puts a ceiling on the prices of
products. It plays an important role in determining the profitability of an industry. The threat of a
substitute limits the profit potential of an industry as organisations cannot charge the customer a
higher price. For example, if the price of Pepsi increases, consumers would immediately switch to
Coca-Cola. Therefore, the threat of substitutes plays an important role in determining an industry’s
profitability. Organisations have to formulate strategies according to the presence or absence of
substitutes in an industry.
5. Competitive rivalry among existing competitors: It presents the intensity of competition among
different organisations in an industry. If the rivalry is weak, there will be less competition. Intensified
rivalry among organisations reduces the possibility of making profits in an industry. According
to Porter, the intensity of competition among different players in an industry depends on various
factors, such as several competitors, the growth rate of the industry, nature of the product or
service, product diversity and exit barriers. The higher the intensity of competition, the lower the
profitability of an industry is.
6
7.4.2 Studying Competitor Strategies

An in-depth analysis of strategies used by competitors is one of the most important components of
comprehensive market analysis. In-depth analysis enables business to assess strengths and weaknesses
of competitors and implement strategies. The following are the key points related to the analysis of
competitor strategies:
 The rivalry is reduced in a perfectly competitive market where buyers and sellers are more and the
product is uniform.
 Understanding competitor’s assumptions, motives and the strategies to respond to a competitive
attack.
 Conducting a SWOT analysis
 Conducting a financial analysis
 Finally, competitor’s ability to react to change
 Competition takes place between organisations that sell similar products and services and deal in
the same industry to increase their income, profits and market share.
 The competitive environment also has a positive effect on customers. To court the attention of
consumers, companies tend to offer high quality products at reasonable prices.
 To fight competitively, an organisation needs to analyse the level of competition in the domestic as
well as international market.
 The domestic market, also known as the internal market or home market, is where goods and
services are bought and sold within the borders of a country.
 Domestic marketing refers to the conduct of marketing activities within national borders, which
means it refers to marketing activities in the local market and has a limited scope. It requires less
investment than international marketing.
 International expansion is the trend of most companies. Nowadays, it can be said that marketing
greatly affects the operation of a business. For businesses that already have a good business in the
country, but want to attack the international market, international marketing is the solution one is
looking for.
 Industry analysis examines how a company perceives itself in comparison to others in the same
niche. It is a tool that allows an organisation to understand its position among competitors in the
same industry.
 The most widely used model for an industry’s competition analysis is Michael Porter’s Five Forces
Model. Organisations use this model to analyse the competitive environment in the industry in which
their company is operating its business. This model provides a framework to identify industry-
related opportunities and threats.
7.6 GLOSSARY
 Bargaining power: It is a relative ability of parties to exert influence over each other
 Industrial environment: It is a diverse operating conditions in a particular industry
 SWOT: It is a technique to analyse Strengths, Weaknesses, Opportunities and Threats
7
JGI JAIN
Entrepreneurship
7.7 CASE STUDY: COCA-COLA COMPETITIVE ANALYSIS
Case Objective
The case study explains how competitive analysis is performed by Coca-Cola.
The Coca-Cola develops core strategies to make sure that all communication is consistent in all the
markets. Coca-Cola system attempts to maximise its resources for profitable growth and market
leadership. Coca-Cola’s marketing department perform product advertisement, marketing and
promotion. If all departments perform their duty effectively, then the objectives of the Coca-Cola
Company will be met. Coca-Cola swapped some brands and bought about 17% stake in Monster Beverage
Corp. for about $2.15 billion, increasing its bet on the rapid growth of the energy-drink market. Under
the agreement, the two companies will share their production, marketing and distribution.
Marketingintermediaries helped Coca-colain promoting, selling anddistributing goods to the consumers.
Intermediaries encompass marketing agencies, distribution firms and resellers. For example, in a deal,
Coke joined hands with a US-based company Wendy that it will provide coke to all the fast food chains
located in the US. In this case, Wendy is an important example of an intermediary for coke. Suppliers
offer raw materials and resources that are required by the firms to produce goods and services. For
example, bottling partners are a company-owned entity, namely Hindustan Coca-Cola Beverages Ltd.
Suppliers always play a crucial role in the operations of every firm.
Customers of coke differ massively in terms of age. From kids to youngsters, youngsters to elders and
elders to older people, coke has always captured high customer attention for decades. For example,
with the help of a market survey, Coke finds that one million US population drinks coke with breakfast
every single day. This is how coke has been favourite drink of customers for centuries. A recent survey
shows that coke is the only product in the world of which more than 85% of the population is well aware.
All companies have to keep the updated study of their customers. In the case of coke, the company has
always maintained excellent customer retention. Coca Cola’s annual Stakeholder Panel is particularly
insightful with members of the Panel drawn from NGOs, academia, investors, trade associations,
suppliers and other technical experts. The Panel’s scope is to identify emerging risks and opportunities
as well as encourage the company to demonstrate ever-greater leadership and innovation.
Source: https://www.slideshare.net/TannuBhatnagar/marketing-management-38228513
Questions
1. Describe the micro business environment components of Cola-Cola as in the case mentioned above?
(Hint: Marketing intermediaries, suppliers, customers, stakeholders.)
2. List down the methods in which Coca-Cola maintained its customer base?
(Hint: Coke finds through the market survey that one million of the US population drinks coke with
breakfast every day. This is how coke has been a favourite drink of customers for centuries.)
3. Explain the customer base for Coca-Cola.
(Hint: Customers of coke differ massively in terms of age. From kids to youngsters, youngsters to
elders and elders to older people.)
4. Elaborate the role of Coca-Cola marketing intermediary.
(Hint: Company in promoting, selling and distributing its goods to the end customers.)
5. Who are the members of Coca-Cola’s stakeholder panel?
(Hint: NGOs, academia, investors, trade associations, suppliers and other technical experts.)
8

1. There is huge increase in the level of competition. Describe the level of competition in the domestic
market.
2. International marketing demands higher investment than country marketing. Explain the concept
of international marketing.
3. This tool that allows an organisation to understand its position among competitors in the same
industry. Describe the concept of industry analysis.
4. Explain Michael Porter’s Five Forces model.
5. Write a short note on analysis competitor strategies.
7.9 ANSWERS AND HINTS TO SELF-ASSESSMENT QUESTIONS

1. In a domestic market structure, all the organisations tend to have a similar set of economic, social,
competitive, market and technological challenges. Refer to Section Existing Level of Competition
2. International marketing also refers to the conduct of marketing activities beyond national borders
and refers to marketing activities in the global and extensive market. It demands higher investment
than country marketing. Refer to Section Existing Level of Competition
3. Industry analysis examines how a company perceives itself in comparison to others in the
same niche. It is a tool that allows an organisation to understand its position among competitors
in thesame industry. Refer to Section Industry Analysis
4. Harvard University professor Michael E. Porter developed an effective model for industry analysis.
The model is known as ‘Porter’s Five Forces Model.’ In this model, Porter argued that profitability in
an industry depends on the level of competition in the industry. Refer to Section Industry Analysis
5. An in-depth analysis of strategies used by competitors is one of the most important components
of comprehensive market analysis. It allows an organisation to assess competitor’s strengths and
weaknesses in the marketplace and implement effective strategies to improve its competitive
advantage. Refer to Section Industry Analysis
 https://www.inc.com/encyclopedia/industry-analysis.html
 https://www.investopedia.com/terms/p/porter.asp
 Take any brand and analyse its performance by applying Porter’s five forces model.
9
UNIT
08 Business Plan
Names of Sub-Units
Meaning of Business Plan, Entrepreneurial Process, Importance of Business Plan, Components

of Business Plan, Reasons for Failure of Business Plan, Business Model Canvas, Value Proposition,
Criteria for selection of Product/Service
Overview
This unit begins with the explanation of business plan and entrepreneurial process. This unit also
describes the importance of business plan, components of business plan and reasons for failure of
business plan. Further this unit discusses the business model canvas, value proposition, criteria for
selection of Product/Service.
Learning Objectives

 Explain the meaning of business plan
 Discuss the importance of business plan
 Elucidate on the components of business plan
 Describe the reasons for failure of business plan
JGI JAIN
Entrepreneurship
Learning Outcomes
 Assess the importance of economics
 Assess the meaning of business plan
 Evaluate the reasons for failure of business plan
 Analyse the business model canvas
 Examine the criteria for selection of product/service
 https://www.uvm.edu/vtvegandberry/Pubs/SampleFoodBusinessPlanOklahomaState.pdf
8.1 INTRODUCTION
Planning is the most important step for starting a business. A carefully designed business plan has the
potential to change the simple business idea/ innovation into a successful business venture. Business
plan can be referred as a useful and versatile tool that guides a businessman’s and other stakeholders.
Because of globalisation, business environment is very competitive. All the organisations whether large
or small cannot survive for long time without proper planning.
Business plan can be considered as the road map for starting and operating the business at the initial
level. A good business plan is able to highlight different opportunities by analysing and comparing
the external and internal environment. This also helps to assess business feasibility and to arrange
resources in the good manner for leading to the success. Business plan informs necessary details to all
concerned stakeholders such as venture capitalist and other financial institutions, the investors, the
employees along with functional requirements (Marketing, Finance, Operations & Human Resource) for
running a business.
8.2 MEANING OF BUSINESS PLAN

A business plan refers to a formal statement of plans of an organisation. It explains the business goals
of the organisation as well as the means to achieve those goals. It seeks to address the strengths,
weaknesses, opportunities and threats of starting a venture. A business plan differs from organisation
to organisation depending on various factors, such as complexity in organisational structure, types of
products and services, and demand for the product.
A business plan is a blueprint of business procedures, methods, missions that would shape a business
idea. It helps in creating a strong bond with the suppliers and various other parties. Thus, it helps
in securing the favourable credit terms. Business plans shows the vision and future plans by the
organisation which induces the investors and lenders to take interest and understand the new venture,
relate it.
The following are some of the salient features of a business plan:
 It provides a clear idea of what the founders and the enterprise expect to accomplish in the future.
 It elucidates the benefits of products and services to be given to customers.
2
UNIT 08: Business Plan JGI JAIN
 It presents concrete evidence of the marketability of products or services.

 It provides the details of the manufacturing process and associated costs.
 It states how the entrepreneurs’ products are better than that of its competitors.
 It consists of realistic financial projections.
8.2.1 Importance 0f Business Plan

The business plan is important due to following reasons:
 Feasibility: A business plan will enable the entrepreneur to ascertain whether to pursue for the
venture is rewarding or not without actually committing to it and losing the two most pivotal
resources that is finance and time.
 Acts as a blueprint: The business plan will offer an elaborative outline of the business that will
induce capital and enable people be devote their actions but will also enable to equalise emotions
and circumvent from committing mistakes, which at the formative stages can be very detrimental.
 Identifying weak links: Apart from precluding the entrepreneur from making grave mistakes,
business plans can also help to decipher innate and unrealised weak links in the business. Moreover,
through a business plan, one can also obtain useful opinions and feedbacks.
 Raising capital: Having a business plan will make it much smoother to arrange for capital as it
will become very easy to interact and approach probable investors. It will give an in dept outlook
of the business, which will also ensure entrust faith among the investors. A business plan gives an
elaborative review of the business and is an important tool for entrepreneurs to obtain monetary
assistance for the business.
8.2.2 Components of Business Plan

Creating a business plan is the first step in the planning process of an enterprise. An enterprise needs to
conduct a lot of research to develop an effective business plan.
The following are the essential components of an effective business plan:
 Title page: It includes the name of the business, date of commencement and the name, address,
and contact number of the entrepreneur or the concerned person. The cover page can be simple or
complex, depending upon the choice of the entrepreneur.
 Table of Contents (ToC): It consists of main headings and subheadings with related page numbers.
The structure of the ToC may vary from one enterprise to another depending upon the scale and
nature of the business operation. An entrepreneur generally prepares the table of content after
adding all the features of the business plan.
 Executive summary: It is an overview of the entire business plan and sheds light on all the key
aspects of the business plan in brief. It contains basic information such as the name of an enterprise
and its location, nature of business, types of products or services, and financial requirements. The
executive summary may also contain important points or news about the enterprise, which attract
investors, suppliers, and other target audiences. It is the most critical section from the readers’
point of view because people generally go through this to decide whether to read other sections. The
executive summary should not exceed 3-4 pages and should be short and comprehensible. It should
provide the technical, marketing, managerial and financial details of the venture.
 Description of the business: It furnishes the details of the business opportunity and the strategy
to capture that opportunity. It contains a detailed description of the enterprise’s background,
3
JGI JAIN
Entrepreneurship
country of origin, strengths of employees, stakeholders, products and portfolio. The description of
the enterprise comprises the historical background and current status of the enterprise as well as
details about its products and services.
 Market analysis: Ideally, the market analysis will show that the entrepreneur is well versed with
the industry and the specific market it is planning to enter. In that section, an entrepreneur need to
use data and statistics to talk about where the market has been, where it is expected to go, and how
a company will fit into it. In addition, an entrepreneur has to provide details about the consumers
you will be marketing to such as their income levels. Further, information about markets, pricing
systems, methods of distribution, sales forecast, etc., to be enclosed.
 Competitive analysis: Business plan shows clear comparison of the business to direct and indirect
competitors. Entrepreneurs need to show that they know strengths and weaknesses and how the
business function accordingly. If there are any issues that could prevent entrepreneur from entering
into the market such as high upfront costs. This information will go under market analysis section.
 Description of management and organisation: Following the market analysis, the business plan
will outline the way that how the entrepreneur’s firm will be set up. An entrepreneur can create a
diagram that maps out the chain of command. Do not forget to indicate whether the business will
operate as a partnership, a sole proprietorship, or a business with a different ownership structure.
 Financial projections: In the final section of the business plan, one has to reveal the financial goals
and expectations based on market research. The entrepreneur has to foresee revenue for the first 12
months and annual projected earnings for the second, third, fourth and fifth years of business. The
following schedules and statements are to be included Start up projections, income statement, cash
flow statement, balance sheet, and break-even analysis.
Different components of strategic management, such as the enterprise’s vision, mission, profile
and external environmental objectives, need to be considered before creating a business plan. A
comprehensive study of these components helps in designing effective plans for the future of the
enterprise. The process of building these components in a systematic manner is called strategic intent.
8.2.3 Reasons for Failure of Business Plan

There are a plethora of factors that make a viable business plan. An ideal business plan ought to be free
from errors and an error-free business plan will impose investors’ faith in the idea of the entrepreneur.
Formulation of a potential business plan entails proper time, tenacity and frequent revisions. However,
in a bid to secure timely funding and launch start-up, certain mistakes may happen. Some of the common
errors in business plans are:
 Unrealistic financial projection: Many entrepreneurs form unrealistic financial investment that
they think their start-up will be able to secure. Anticipating unrealistic financial assistance from
investors can be a common error in a business plan. Financial institutes and investors are wary of
dispensing their money and they portray a true picture about the current situation of the start-up
and where it will probably be in the near future. Therefore, if entrepreneurs set too high expectations
from their business plan, they might be displeased if the business plan gets rejected.
 Undefined target audience: Entrepreneurs base the start-up on the needs and aspirations of
customers. But, in case entrepreneurs are unaware of the target audience, they might end up being
sidelined. In this dynamic world, the competition is sky high and each organisation strives to stand
out of the other. If the target audience is not defined, entrepreneurs might be perplexed about which
type of customers they should cater to. There, it is pertinent to mention who the target audience is
for the entrepreneurs.
4
 Ignoring business risk: By excluding risks in a business plan, entrepreneurs can imperil the growth
of the start-up. Entrepreneurs must be prudent and precisely identify the threats that may affect the
operations. While formulating a business plan, it is pivotal to state the business risk. Entrepreneurs
need to be proactive in dealing with unforeseen risks such as the change in demand or supply, rising
competition level, change in the political environment and economic fluctuations.
 Obscuring weakness: Every start-up has some shortcomings, but hiding them from the business
plan would not solve the problem. In case entrepreneurs put forward the business plan to the
investor, and the investor finds out that the weakness is intentionally hidden by the entrepreneur, it
may disgruntle the investor. A viable business plan should cover the strategy to combat and address
the weaknesses.
 Inconsistency: Revising a business plan many times, and frequently changing the target audience
or being unstable with the business strategies may make the investor think that the entrepreneur
lacks professionalism. An impactful business plan takes time and should be formulated with utmost
precision. Entrepreneurs can update the business plan, but if it is frequently updated, then it may
seem as if it is haphazardly prepared. It also shows a lack of professionalism on the part of the
entrepreneur and may make the investor disinterested.
8.3 BUSINESS MODEL CANVAS

The business model canvas is an instrumental tool to enable an entrepreneur to decipher a business
model in an easy and structured way. Through the use of business model canvas the entrepreneur
can gain insights about the customers to cater, what value propositions are provided through which
channels and how the firm will earn a revenue. Through the use of business model canvas can fathom
his business model as well as that of a competitor.
Business model canvas is a one page outline that delineates both what the firm does and how does it
functions. Business model canvas provides structured conversations for the management and strategy
by giving insight about the the important activities and challenges associated with the desired initiative
and how they correlate. Business model canvas was first propounded by Osterwalder and Pigneur,
which is beneficial for both existing and upcoming organisations and businesses.
Existing businesses can create new initiatives and scout for opportunities while creating more efficacies
by elucidating on potential trade-offs and aligning activities. Budding entrepreneurs can utilise
it to plan and work out how to make their offering tangible. Business model canvas offers a visual
representation of prevailing or new business models, usually incorporated used by strategic managers.
Business canvas model offers a holistic outlook of the business as a whole and is especially instrumental
in giving a comparative analysis on of the impact of an increase in investment may have on any of the
contributing factors. A business canvas model gives provides an insight into how a company creates
and delivers on the value.
8.3.1 Value Proposition

A value proposition pertains to the value a company ensures to deliver to customers in order to allure
them to buy the company’s product. A value proposition is an integral aspect of a company’s overall
marketing strategy. The value proposition offers a declaration of intent or a statement that makes a
company’s brand awareness to consumers by elucidating to them what the company stands for, how it
function and why it promises to deliver.
5
JGI JAIN
Entrepreneurship
The value proposition is the reason why customers switch from one brand over another. It solves a
customer issues or gratifies a customer need. A value proposition comprises a selected range of products
or services that fulfil to the needs of a distinct customer category. The value proposition is a horde of
advantages that a company assures to its customers. Some value propositions may be creative and
depict a new or exciting offer. Others may be akin to prevailing market offers, but with add on features
and attributes.
A value proposition can be exhibited as a business or marketing proposal that a company utilises
to delineate why a consumer should opt for the organisation’s product or service. Value proposition
statement, if worded correctly, assures a probable consumer that a particular product or service the
company offers will enhance the value or better resolve a problem for them than products offered by
competitors.
Value proposition tends to answer the following:
 What value do we deliver to the customer?
 Who are the customer’s and what are their problems/issues that are to be solved?
 Which customer needs are we satisfying?
 What bundles of products and services are we offering to each customer segment?
Value proposition should encompass three cardinal elements:
 Relevance: Why should the customers buy the your product or service? What customer needs the
product will fulfil?
 Value: How will the customers by use of your product or service? How can the company’s product
further help them with their bottom line?
 Uniqueness: How unique is the company’s offering compared to the competitors?
8.3.2 Criteria for Selection of Product/Service

An entrepreneur can form an opinion on whether to sell a totally new product or change the existing
product and then offer it in the market. The decision pertaining to what to sell, how to sell and whom it
is to be sold hinges of on different criteria. The selection of the product/service infers to the process by
which the entrepreneur selects, evaluates and ultimately offers the products that the consumer will use
and consume will be used and consumed by the consumer. Some of the criteria for selection of product/
service are as follows:
 Cost: If the entrepreneur is contemplating of an entirely new product, then the input the cost will
be much high as it entails the cost of research and development apart from other than initial
investment for procurement of new machinery, employee training and incur cost of raw material. If
mere modification to an existing product is required, than the cost will be somehow low. Therefore,
varying upon the cost or the extent to spend the type of new product can be evaluated.
 Differentiation: The extent to which an entrepreneur can create a brand image, service product
creation or rapport delineate its differentiation. An entrepreneur must choose such a product which
makes it stand apart it from competitors.
 Product type: If an entrepreneur chooses a high end product such a car or jewellery, then it is a very
upfront investment is prerequisite which would need monetary assistance from sources such as a
financial investment, share, debentures or secured loans. When products are semi luxurious like
TV, DVD, washing machine then the investment will be comparatively less. Unlike, if the product is
6
non-luxurious, maybe soap, vegetables, cloth a low investment is required. Thus, varying upon the
product type, the financial strength can be selected.
 Personal factors: The nature of an entrepreneur is also critical factor. If the entrepreneur is self-
reliant, optimistic, willing to take risk, versatile, creative, dynamic and possess through knowledge
of market then the entrepreneur can take up a completely new product making decision other than
continuing with the prevailing product.
 A business plan refers to a formal statement of plans of an organisation. It explains the business
goals of the organisation as well as the means to achieve those goals. It seeks to address the strengths,
weaknesses, opportunities and threats of starting a venture.
 A business plan differs from organisation to organisation depending on various factors, such as
complexity in organisational structure, types of products and services, and demand for the product.
 A business plan will enable the entrepreneur to ascertain whether to pursue for the venture is
rewarding or not without actually committing to it and ending up losing the two most pivotal
resources that is are finance and time.
 The executive summary may also contain important points or news about the enterprise, which
attract investors, suppliers, and other target audiences. It is the most critical section from the
readers’ point of view because people generally go through this to decide whether to read other
sections.
 The executive summary should not exceed 3-4 pages and should be short and comprehensible. It
should provide the technical, marketing, managerial and financial details of the venture.
 A good business plan will present a clear comparison of the business to direct and indirect
competitors. Entrepreneurs need to show that they know strengths and weaknesses and how the
business functions accordingly.
 Components of strategic management are vision, mission, objectives, need to be considered before
creating a business plan.
 A comprehensive study of these components helps in designing effective plans for the future of the
enterprise.
 Entrepreneurs base the start-up on the needs and aspirations of customers.
 In case entrepreneurs are unaware of the target audience, they might end up being sidelined.
 In this dynamic world, the competition is sky high and each organisation strives to stand out of the
other.
 The business model canvas is a an instrumental tool to enable an entrepreneur to decipher a
business model in an easy and structured way.
 Through the use of business model canvas the entrepreneur can gain insights about the customers
to cater, what value propositions are provided through which channels and how the firm will earn
a revenue.
 The Business canvas model offers a holistic outlook of the business as a whole and is especially
instrumental in giving a comparative analysis on of the impact of an increase in investment may
have on any of the contributing factors.
 A business canvas model gives an insight into how a company creates and delivers on the value.
7
JGI JAIN
Entrepreneurship
8.5 GLOSSARY
 Business plan: It explains the business goals of the organisation as well as the means to achieve
those goals.
 Title page: It includes the name of the business, date of commencement and the name, address, and
contact number of the entrepreneur or the concerned person.
 Table of contents (ToC): It consists of main headings and subheadings with related page numbers.
 Executive summary: It is an overview of the entire business plan and sheds light on all the key
aspects of the business plan in brief.
 Market analysis: It shows that entrepreneur is well versed with the industry and the specific market
it is planning to enter.
8.6 CASE STUDY: BUSINESS PLAN BY DHIRUBHAI
Case Objective
The aim of this case is to describe the business plan of Dhirubhai.
In 1962, Dhirubhai commenced the Reliance Commercial Corporation with a starting capital of ` 15,000.
The main business operation of Reliance was to import polyester yarn and export spices. The business
was established in collusion with Champaklal Damani. Dhirubhai set up first office at the Narsinatha
Street in Masjid Bunder. The size of the office was 350 sq ft. room with a telephone, one table and three
chairs.
In 1965, Champaklal Damani and Dhirubhai Ambani dissolved their long term partnership and Dhirubhai
started on his venture. Dhirubhai was a risk taker who considered building inventories, anticipating
price rise and reap profits. In 1968, he moved to an up market apartment at Altamount Road in South
Mumbai. Ambani’s net worth was estimated at about `10 lakh by late 1970s.
Dhirubhai started his first textile mill in 1977. Textiles were manufactured using polyester fibre yarn.
Dhirubhai started “Vimal”, a brand named after Ramaniklal Ambani’s son, Vimal Ambani. Extensive
marketing of the brand “Vimal” in the interiors of India made it a household name. Franchise retail
outlets were started and they used to sell “only Vimal” brand of textiles. In the year 1975, a Technical team
from the World Bank visited the Reliance Textiles’ Manufacturing unit. This unit had been accredited
with the rare distinction of being certified as “excellent even by developed country standards” during
that period.
For the logo of Reliance Industries Limited, Dhirubhai Ambani is credited with starting the equity cult
in India. More than 58,000 investors from various parts of India subscribed to Reliance’s IPO in 1977.
Dhirubhai convinced large number of small investors from rural Gujarat that being shareholders of
his company would be profitable. Reliance became first private sector company whose Annual General
Meetings were held in stadiums. In 1986, The AGM of Reliance Industries was held in Cross Maidan,
Mumbai which was attended by more than 35,000 shareholders and the Reliance family. Dhirubhai
convinced a large number of first-time retail investors to invest in Reliance. Ambani’s net worth was
estimated at about Rs.1 billion by early 1980s.
Over the years, Dhirubhai diversified the business into core specialisation and had an array of businesses
such as petrochemicals, telecommunications, information technology, energy, power, retail, textiles,
8
infrastructure services, capital markets and logistics. The company as a whole was quoted by the BBC
as “a business empire with an estimated annual turnover of $12bn and an 85,000- strong workforce”.
From beginning, Dhirubhai was highly revered. His excellence in the petrochemical business and his
story of rags to riches made him a role model for many people. As a quality of business leader, he was
also a motivator. He gave few public speeches, but the words he spoke are still remembered for their
value.
Questions
1. What was the first most business of Reliance?
(Hint: The primary business of Reliance Commercial Corporation was to import polyester yarn and
export spices.)
2. Why Dhirubhai and Champaklal parted away?
(Hint: It is believed that both had different ideology and perspectives on how to conduct business.)
3. Why the World Bank visited Reliance textiles?
(Hint: The unit had earned are distinction of being certified as “excellent even by developed country
standards” during that period.)
4. Which is the first ever company to hold an annual general meeting in stadium?
(Hint: Reliance Industries was the first private sector company whose Annual General Meetings
were held in stadiums)
5. In which all sectors did the company diversified?
(Hint: Technology, energy, power, retail, textiles, infrastructure services, capital markets and
logistics.)

1. Business plan explains the business goals of the organisation. Explain the concept of business plan.
2. According to your understanding of the unit, list down some of the salient features of business plan.
3. Business plan will offer an elaborative outline of the business. What is the importance of a business
plan?
4. Explain any one reason for failure of a business plan.
5. A value proposition is an integral aspect of a company’s overall marketing strategy. What do you
infer by value proposition?
9
Entrepreneurship

1. A business plan refers to a formal statement of plans of an organisation. Refer to section Meaning
of Business Plan
2. The following are some of the salient features of a business plan:
 It provides a clear idea of what the founders and the enterprise expect to accomplish in the
future.
Refer to section Meaning of Business Plan
3. The business plan is important due to following reasons:
 Feasibility: A business plan will enable the entrepreneur to ascertain whether to pursue for the
venture is rewarding or not without actually committing to it and ending up losing the two most
pivotal resources that is finance and time.
Refer to section Meaning of Business Plan
4. One of the reasons for the failure of a business plan is:
 Undefined target audience: Entrepreneurs base the start-up on the needs and aspirations of
customers. Refer to section Meaning of Business Plan
5. A value proposition pertains to the value a company ensures to deliver to customers in order to
allure them to buy its product. Refer to section Business Model Canvas
 https://www.investopedia.com/terms/b/business-plan.asp
 https://www.thehartford.com/business-insurance/strategy/writing-business-plan/main-
components
 Discuss and try to develop a business plan with help of your friends.
10
UNIT
09 Marketing Plan
Names of Sub-Units
Market Analysis, Market Research, Feasibility Report, Market Segmentation, Developing the Product
Mix, Developing the Marketing Mix, 4Ps and the 7Ps
Overview
The unit begins by explaining the concept of market analysis. Further, the unit discusses the importance
of marketing research and the steps involved in it. Also, it familiarises you with the significance of the
feasibility report and its elements. The unit explains the concept of market segmentation. Towards the
end, the unit describes the concept of product mix and marketing mix.
Learning Objectives

 Explain the concept of market analysis
 Discuss the significance of marketing research
 List the elements of the feasibility study
 Describe the concept of market segmentation
 Outline the aspects of product and marketing mix
JGI JAIN
Entrepreneurship
Learning Outcomes

 Analyse the market
 Prepare for marketing research
 Examine the elements of the feasibility study
 Classify customers into different market segments
 Distinguish between product mix and marketing mix
 https://www.uww.edu/Documents/acadaff/AssessmentDay/BasicMarketingResearchVol1.pdf
9.1 INTRODUCTION
Stiff competition and ever-changing customer preferences have necessitated organisations around the
world to introduce innovative products and services to gain high market share. However, introducing
innovative products and services for business organisations requires a well-thought strategy and
extensive research. Organisations cannot afford to launch a new product or offer a new service in the
market and expect to attract customers without having a clear picture of the market.
For this, organisations either conduct marketing research themselves or hire external agencies to
undertake the research activity for them. The marketing research process starts with defining the
problem, identifying alternative solutions to the problem, selecting the best course of action and defining
objectives. Thereafter, managers need to develop research plans, collect and analyse market data and
present the findings that effective business decisions can be taken. They may use primary data or
secondary data or both for the research purpose. In addition, there can be various approaches adopted
by managers to collect data in the research process. Some of these approaches are observations, focus
groups, surveys, questionnaires, etc.
9.2 MARKET ANALYSIS

Market analysis, a key part of any business plan, refers to a quantitative and qualitative assessment of
a market. The main aim of performing market analysis is to show the investors that the organisation
knows its market well and the market is large enough to build a sustainable business. It focuses on:
 Size of the market both in volume and in value
 Various customer segments and buying patterns
 Level of competition
 Economic environment in terms of barriers to entry and regulation
Market analysis is a systematic process that involves several steps, which are explained as follows:
1. Taking the overview of industry: In this step, an organisation describes the industry and discusses
the direction in which it is headed. In this step, all key industry metrics, such as size, trends
and projected growth, are taken into account. The industry overview shows investors that the
2
UNIT 09: Marketing Plan JGI JAIN
organisation understands the larger landscape that it is competing in. More importantly, it helps
the organisation to have insight into whether there will be demand for its products in the future
and how competitive the industry is likely to be. For example, if the organisation is in the business of
selling mobile phones, it will want to know if the demand for mobile phones is growing or shrinking.
If one is opening a restaurant, he/she will want to understand the larger trends of dining out.
2. Defining the target market: The target market is the most important part of market analysis. This
is where it is explained who the ideal customer is. Through the course of analysis, different types of
customers will be identified. When there is more than one type of customer, market segmentation is
done. A detailed explanation of market segmentation is given in the next sections of the unit.
3. Assessing the level of competition: Market analysis does not reach any conclusion without knowing
the level of competition in the market. Beyond knowing what other businesses the organisation
is competing with, a good competitive analysis will point out competitors’ weaknesses that the
organisation can take advantage of. With this knowledge, the organisation can differentiate itself
by offering products and services that fill gaps that competitors have not addressed.
4. Pricing and forecasting: The final step is to do pricing and create a sales forecast. Customers
generally relate high prices to quality.
Once the organisation has an idea of pricing, it should think about how much it expects to sell. Here,
industry research will come into play. For example, if one is opening a new type of grocery store, then he/
she will want to know how much people spend on groceries in the same area. In such a case, the forecast
should reflect a realistic portion of the market.
9.3 MARKETING RESEARCH

The American Marketing Association (AMA) defines, Marketing research refers to the systematic
gathering, recording and analyzing of data about problems relating to the marketing of goods and
services.
Thus, marketing research is a process that aims at solving marketing problems and grabbing
opportunities in the market. The major objective of marketing research is to inform the organisation
about various needs, attitudes and behaviour of customers. In addition, it also aims at determining
available profitable opportunities in the market. It should be noted that marketing research is different
from market research. Market research involves research of a specific market, whereas marketing
research deals with all marketing issues such as research, pricing and distribution of new products.
Thus, marketing research is a broader concept than market research. Organisations conduct marketing
research to know the demands of their customers, market requirements, degree of market competition,
the performance of distribution channels, etc. Apart from this, marketing research can be conducted by
organisations to have insight into:
 Changes in technology: In today’s dynamic business environment, technology is subject to frequent
changes. This largely affects the development of new products and the production process of
organisations. For example, marketing research can be conducted to understand the growth of
e-books, which can minimise the demand for printed books.
 Changes in consumer tastes: Stiff competition in markets has led to rapid changes in consumers’
tastes and preferences. If an organisation does not respond timely to these changing consumer
preferences, consumers may shift to other brands. Marketing research helps marketers to determine
the changing demands of customers and fulfil them.
 Changes in the product range of competitors: To survive in today’s marketplace, organisations
are coming with new products with varied pricing policies almost daily. The introduction of new
3
JGI JAIN
Entrepreneurship
products can be a threat for organisations dealing with similar products. For example, Microsoft
X-Box has challenged Sony’s PlayStation.
 Changes in economic conditions: Fluctuations can take place in the economy of any country.
Marketing research can help organisations in having insight into current economic conditions and
anticipating future changes, which may impact the sales of different products of organisations.
For example, in tough economic conditions, consumers may opt for only products of necessity
rather than luxury items. After providing insight into changes in technology, consumer tastes,
the product range of competitors and economic conditions, marketing research can help
organisations in:
 Gaining a more detailed understanding of consumers’ needs: Marketing research can help
business organisations to have a customer feedback on the prices and packaging of products,
their experience with the product/service, and so on.
 Reducing the risk of product/business failure: There is no guarantee that a new idea will
be a commercial success. However, accurate and up to date information on the market can
enable business organisations to make informed business decisions.
 Forecasting future trends: Marketing research cannot only help business organisations to
provide information about the existing state of the market but also forecast future customer
needs. Organisations can then make required changes to their product portfolios and levels
of output to remain successful.
9.3.1 Steps Involved in the Marketing Research Process

Marketers follow a systematic and formalised process of marketing research to obtain accurate
market information. The process of marketing research is shown in Figure 1:
Define the Problem Develop the Research Design Collect the Information
Analyse Information Present the Findings Make the Decision
Figure 1: Marketing Research Process

Let us now discuss the steps involved in the marketing research process.
1. Define the problem: This is the first step in the marketing research process. At this stage,
organisations try to identify problems faced by them. The problem should be clearly defined and
the reason for research should also be spelled out. For any researcher, knowledge of the research
problem is necessary. Defining a research problem means deciding borders within which a
researcher needs to conduct research and fulfil predetermined objectives. A research problem
should be defined systematically with the help of steps given as follows:
a. Preparing the statement of the problem in a simple way
b. Understanding the nature of the problem
c. Surveying the available literature
4
d. Developing ideas through discussion

e. Rephrasing the research problem
Defining a research objective is necessary otherwise wrong objective leads to an inaccurate path and
the whole research may go in vain. Defined objective takes to correct path and avoid unnecessary
data form accumulation. Therefore, defining the research objective is necessary otherwise the cost
and time of the company become fruitless.
2. Develop the research design: Developing a research plan or designing research refers to formulating
hypotheses and questionnaires for the research. This step requires ample time and expertise.
Research design is a blueprint to conduct marketing research. It helps in obtaining necessary
information about the market by developing a planned and structured research strategy. It acts as a
holistic guideline for researchers and helps them to conclude the research study in an efficient way.
In today’s competitive environment, important decisions regarding any problem cannot be carried
out without conducting a planned study. Knowledge of interconnections among various concepts of
research design helps managers to undertake the study efficiently. Three types of research change
it to design. They are: exploratory, descriptive and causal.
 Exploratory research design: An exploratory design is used when the objective is to explore the
market, the consumer, the products; typically, when the organisation is entering a new market
or a new product category.
 Descriptive design: It helps to diagnose the research problem further with probes and prompts,
answering the whys, how, whereas and whens. Following types of more descriptive questions
that researchers need to asked to the right customers to avoid the confusion in report:
(i) Why are dealers promoting the particular product more in the market?
(ii) Why do the customers prefer competitors’ products?
(iii) How does cut the product price?
(iv) How should we price our products?
 Causal research design: In such research design, the researchers want to observe cause and
effect between variables, such as price, promotions and sales. Because of this, it is known causal
research objective. If a marketer wants to launch a new product in the market, then what will
be the effect in the market, customer will buy the new product or not? Or, If the customers do
not buy the new product, then what is the reason for not choosing the new product to buy? In
other words, to know the cause for not buying, hence, causal research design includes various
elements of cause and effect in the marketing.
3. Collect the information: Collecting data refers to gathering field information by conducting
computer-assisted, in-home and telephonic interviews with customers. The other ways to gather
field information are traditional mails and mail panel surveys. Data can be collected by:
 Personal/face to face
 Telephonic
 Online - websites, mails, mobile platform, mail panels
 Direct mailers location tests mall intercept interviews
Appropriate data is mandatory for the successful completion of a research study. Thus, collecting
data forms a significant step in the research process.
4. Analyse information: Interpreting research findings refers to the process of editing, coding and
verifying data. Survey forms are inspected, edited and corrected by market researchers. Generally,
5
JGI JAIN
Entrepreneurship
the researcher collects data whether quantitative or qualitative, in its raw form. Since the data
available to a researcher is raw therefore, he/she first needs to process data to make it fit for analysis.
Data processing deals with transforming data from complex to easily readable information so that
it can easily be analysed.
5. Present the findings: Presenting research findings refers to formulating a written report that
describes all processes used in the marketing research. The main findings, conclusions and
recommendations are presented comprehensibly in the report, which can be further used in the
decision making process.
6. Make the decision: A research is conducted to solve a problem and take decisions based on the
solution. At this step, the marketing decision support system (MDSS) helps managers to take better
decisions. In the words of John Little, Faculty, MIT Sloan, MDSS is a coordinated collection of data,
systems, tools, and techniques, with supporting software and hardware, by which an organisation
gathers and interprets relevant information form business and environment and turns it into a
basis for marketing action.
9.4 FEASIBILITY REPORT

A feasibility study takes into consideration project’s relevant factors into consideration including
economic, technical, legal and scheduling considerations for completing the project successfully. Project
managers after performing a feasibility study, a report is prepared which is called a feasibility report.
This report gives a rationale for the feasibility of the recommendations determined by the problem
analysis. This report details whether or not a project should be undertaken and the reasons for that
decision. The following are the contents of a feasibility report:
 Introduction/executive summary: It states the objectives of the report and of the project, terms of
references, constraints within which it has been conducted, etc. Also, it contains a concise summary
of the major recommendations of the report.
 Background: background discussion are done to make the rest of the report meaningful to readers.
Background checks explain the proposed plan and background of the situation.
 Outline of the system: Outline of system involves description of project, type and quality of product
and also outlines the general business model.
 Methodology: It involves discussion on the method of analysis for a feasibility study. Generally,
Return on Investment (ROI) analysis is used for comparing overall profitability.
 Overview of alternatives: It explains alternatives and information on different business processes
and describes the major possible alternatives.
 Conclusion: This includes, the individual conclusions, and final conclusion, which is the one that
states which is the best choice.
 Recommendation: The final section echo the most important conclusions leading to the
recommendation and then state the recommendation emphatically.
9.5 MARKET SEGMENTATION

Organisations often provide different variants of a product in a market. For example, Tide Laundry
Detergent is marketed under various sub-brands, such as Tide Plus, Tide Naturals, Tide Coldwater
Liquid, Tide Sport and Tide Ultra. Tide laundry detergent offers various variants, such as Tide Plus and
Tide naturals to cater to the different needs of its target customers. Though the basic function of all
6
the washing powders is same, i.e., cleaning; different variants help in attracting different customers by
adding certain dissimilar values to each sub-brand. Here lies the concept of market segmentation. When
a large homogenous market is defined and subdivided into evidently recognisable segments having
similar needs or demand characteristics, it is called market segmentation. In the given example, Tide
laundry detergent offers various variants, such as Tide Plus and Tide naturals to cater to the different
needs of its target customers.
In simple words, market segmentation is a process of dividing the market into various segments based
on differing needs and then deciding which of these needs it can fulfil with offerings. Markets can be
segmented based on demographic, geographic, psychological and behavioural variables of customers.
By segmenting the market, marketers have a better understanding of their targeted audience and how
they can shape the future course of actions to withstand stiff competition.
9.5.1 Selecting the Market Segment

The evaluation of market segmentation is followed by the selection of a profitable segment of the
market. Selecting the market segment involves finding the target market to sell products. The target
market can be defined as a market in which an organisation decides to utilise its marketing efforts.
Targeting is not an easy process in this competitive world. The marketers have to design new and better
ways of targeting the market. Organisations keep on changing their product line as per the requirement
of customers while entering a new market segment. Continuous research is required to select a target
segment. The basic techniques of selecting a market segment are as follows:
 Single segment concentration: It helps in selecting the most attractive segment by an organisation.
It is often known as concentrated segmentation. Small-scale organisations with limited resources
often target a single segment.
 Selective specialisation: It focuses on multiple market segments. Here, an organisation uses
expertise in fulfilling the needs of the selected segments. For example, Hyundai has different models,
such as Santro Xing, Verna, Elantra, Santa Fe and Xcent, that cater to customers having different
levels of income.
 Product specialisation: It focuses on providing different products for different types of segments.
The focus of an organisation is more on products rather than segments. An organisation using
such a strategy earns a substantial reputation in producing those specific products. For example,
Nokia manufactures mobile phones for different customer segments. They have basic phones for
low-income groups and smart phones, especially for high-end customers.
 Market specialisation: It refers to concentrating on the needs and wants of customers belonging
to a specific market. It also involves some risks as the organisation caters to only a specific market.
For example, the profitability and sustainability of the organisation are affected when there is a
recession in the market.
 Full market coverage: It emphasises the importance of supplying products for all segments of the
market. Full market coverage helps an organisation to expand its market and earn more revenue.
For example, Tata Motors Limited manufactures cars for all the segments in the market.
9.6 PRODUCT MIX

The product mix is a set of similar or non-similar products, produced by an organisation. There can be
one or more product lines in a product mix. A product line is a collection of associated products under a
single brand sold by the same organisation.
7
JGI JAIN
Entrepreneurship
Different elements of the product mix in an organisation are shown in Figure 2:
ORGANISATION
Product Line 1 Product Line 2 Product Line 3
Product Width
Product Product
Product
Lenght
Product Product Product
Product Depthe
Figure 2: Different Elements of Product Mix

Source: https://corporatefinanceinstitute.com/resources/knowledge/other/product-mix/
These all elements help in the analyses. Let us discuss the elements in detail.
 Length: It refers to the total number of items available in the product lines. It can be calculated with
the help of the following formula:
Length = Product lines × Products in each product line
For example, if an organisation has 5 product lines and 10 products under each product line, then
the length of the mix will be 50 (5 × 10).
 Width: It refers to the total number of product lines in an organisation. For example, Coca-Cola deals
in soft drinks, juices, mineral water, and hence the width of the product mix of Coca-Cola is three.
 Depth: It refers to the total number of items in a product mix. For Example, Colgate has diverse
variations under the same product line, like Colgate Advanced, Colgate Active Salt and Colgate
Sensitive.
 Consistency: It measures the extent the product lines of an organisation are related to each other.
For example, if an organisation produces shampoos, oil, conditioners and other hair care products,
it could be said that it maintains a good consistency in its product lines.
9.7 MARKETING MIX

The term ‘marketing mix’ was introduced by Neil Borden, in an article called ‘The Concept of the
Marketing Mix.’ However, in 1960, E. Jerome McCarthy proposed a 4Ps classification of the Marketing
Mix. This traditional concept of marketing mix includes the product, price, place and promotion. A
marketing mix can be defined as a collection of tools that can be used in achieving marketing objectives.
It uses the four Ps as its tools to decide the marketing strategy. In other words, the marketing strategy
relates to the formulation and implementation of the marketing mix that is product, price, place and
promotion. Let us discuss the 4Ps of the marketing mix in detail:
1. Product: It involves a combination of tangible (goods) and intangible (idea, service, etc.) elements to
satisfy customers. It is traded for money or any other trading unit which has some value attached
8
to it. Tangible products may include cars, batteries, computers and refrigerators and can be
manufactured in a large quantity. On the other hand, intangible products can be in the form of
services, people, places or ideas. Customers search for an assortment of benefits when they purchase
a tangible or intangible product. Intangible products are produced on a small scale and can be
customised. For example, car and home loans, insurance and consulting are services produced as
per the requirement of customers.
2. Price: It refers to money a customer pays for a product/service. In other words, price denotes the
value of products/services to a customer. Customers usually evaluate this value by calculating the
difference between the prices they pay and the satisfaction they receive from products/services.
Pricing or valuing of services is usually harder than the pricing of products. While products can be
priced easily by calculating raw material costs, services include costs such as labour, material cost
and overhead costs which are not easy to be calculated. For example, a restaurant not only charges
for the food served but also for the ambience provided to its customers.
3. Place: Place, the ‘third P’ of the marketing mix, refers to the distribution of products/services and
therefore deals with the development of distribution strategies. The main aim of these distribution
strategies is to make products and services available and accessible to customers whenever they
want to make a purchase. As part of ‘place’, organisations need to make decisions related to the
channels of distribution such as their geographical coverage, location of the service outlets and
inventory.
Therefore, you can define place/distribution as a step in the economic process that brings goods
and services from those who make them to those who use them. Distribution can be done through
a direct distribution channel that doesn’t include any middlemen and this is known as a zero level
channel. In other words, products are directly made available to end customers. Some companies go
in for direct distribution, such as Eureka Forbs, Tupperware and Asian Sky Shop.
Another type of distribution channel is an indirect distribution channel. This involves middlemen for
the distribution of products to end customers. Sometimes direct selling is not possible for companies
that produce goods on a large scale and find it difficult to go in for distribution. It is much easier to
distribute goods through middlemen who have easy access to the far reaches of the market.
4. Promotion: ‘Promotion’ refers to any activity that an organisation uses to communicate with
customers about its offerings. Therefore, promotion represents all communications methods that a
marketer can use to reach out to customers. These promotional programs inform customers about
the service provider, as well as the products and services it offers.
Promotion plays an important role in encouraging repeat visits and developing customer loyalty. In
addition, it can be used to create and maintain a strong and unique image of the service provider.
This image helps to develop customer loyalty and creates a strategic advantage.
The marketing mix gets extended to include 3 more Ps and these are:
5. People: It is also an important element of the marketing mix. In an organisation, people define
a service or employer. Suppose you are running an IT organisation, then the engineers in the
organisation will define you or you are an owner of a restaurant, then your chef and service staff
will define you. Another example can be the banking sector. Suppose you are a branch manager in
a bank, then the staff in your branch and their behaviour towards customers will define you. It is
generally said that in the case of a marketing mix, people are responsible for making or breaking
an organisation. Therefore, these days many organisations are involved in training their staff with
the focus on client satisfaction. Many organisations undergo for certifications to show that their
employees are better than the employees working in other organisations.
9
Entrepreneurship
6. Process: The service process is the method by which a service is delivered to the intended user.
Consider an example of two well-known organisations– McDonalds and Fedex. Both organisations
can provide quick service because of their confidence in their processes. The service process is how
a service is delivered to the end customer. Both these companies thrive on their quick service and
the reason they can do that is their confidence in their processes. Moreover, both of them also keep
in mind that the services they are providing must not only be delivered quickly but also without
any loss in quality of services. Therefore, the process of a service delivering organisation is of high
importance. Generally, companies involved in delivering services create a blueprint of a particular
service, which they want to deliver to the client or before establishing the service. In the blueprint,
companies define the process of the service product before delivering it to the end customer.
7. Physical evidence: It is also an important element of the service marketing mix. As you know, services
are intangible, therefore, to make the experience of using the service better, tangible elements are
also added to the service. Consider an example of two restaurants, one of which delivers good food
and another one also delivers good food but with nice music, ambience, well seating arrangement,
etc. As a customer, which one will you prefer for dining? The answer is pretty obvious, the second one.
This is called physical evidence. Many times, physical evidence plays a key role as a differentiator in
service marketing.
 A market analysis, a key part of any business plan, refers to a quantitative and qualitative
assessment of a market. The main aim of performing market analysis is to show the investors
that the organisation knows its market well and the market is large enough to build a sustainable
business.
 Marketing research is a process that aims at solving marketing problems and grabbing opportunities
in the market. The major objective of marketing research is to inform the organisation about various
needs, attitudes and behaviour of customers.
 Steps involved in the marketing research process are defining the problem, developing the research
design, collecting the information, analysing information, presenting the findings and making the
decision.
 Market segmentation is a process of dividing the market into various segments based on differing
needs and then deciding which of these needs it can fulfil with offerings. Markets can be segmented
based on demographic, geographic, psychological and behavioural variables of customers.
 The product mix is a set of similar or non-similar products, produced by an organisation. There can
be one or more product lines in a product mix.
 A marketing mix can be defined as a collection of tools that can be used in achieving marketing
objectives. It uses four Ps as its tools to decide the marketing strategy.
9.9 GLOSSARY
 Primary data: It includes the facts and figures collected through original research from various
sources such as surveys, telephone, mail, the Internet and in-person
 Secondary data: It includes the facts and figures gathered from previous market reports such as
government census
10
 Survey: It is a detailed study of a market or geographical location to collect data on attitudes,

opinions and satisfaction levels of consumers by polling a segment of the population
 Questionnaire: It is a research instrument comprising a series of questions and other prompts to
collect data from respondents
9.10 CASE STUDY: MANAGERIAL DECISION-MAKING THROUGH MARKET

RESEARCH
Case Objective
This case study discusses an overview of Marketing Research as a tool for making managerial
decisions.
Royal Ahold is a world supermarket leader based in Netherlands. The supermarket has over 1,750 outlets,
including the flagship Albert Heijn supermarkets. Worldwide, Ahold caters to 20 million customers on
weekly basis across 3,400 stores in 17 countries, namely, the US, Europe, South American Countries and
some of the Asian countries. Customer orientation is the top priority of Royal Ahold, which it targets to
achieve. It has formulated a slogan that says customer comes first: ‘However big we become, however
international, it is ultimately the customer who determines our success’.
Of late, Royal Ahold wanted to strengthen the means and mechanisms for sustaining its philosophy of
‘customer comes first’. This was not due to any slackness on the part of the business units or any other
factors, such as competitors adopting a new strategy to thwart the leadership position. It was simply
because the processes were becoming monotonous and that they wanted something new to serve the
customer in a better way by understanding their needs and requirements more specifically.
Thus, they adopted some of the measures which are enumerated here:
 Applying the recommendations of audit findings from A.C. Nielsen to obtain global trends, customer
behaviour and the opportunities for market expansion
 Applying the concept of focus groups which were the major source of information about customers
and potential customers. Further, they deployed, various observational approaches such as
customer behaviour in the store and what customers think about the store.
 Sharing the best practices and the know-how among the various managers and other researchers
Thus, by implementing these strategies Royal Ahold was able to improvise their processes and was thus
able to serve their customer in a more efficient manner.
Source: Data retrieved from: Ahold.com,. (2015). The Netherlands. Retrieved 29 October 2015, from https://www.ahold.com/Media/The-
Netherlands.htm
Questions
1. What strategies could be adopted by Royal Ahold to live up to the maxim of ‘customer comes first’?
(Hint: Conducting primary market research on the customers, conducting secondary research to
understand consumer behaviours, taking direct interviews with the customers, asking customers to
fill feedback forms.)
2. Among the several means and mechanisms of achieving customer focus, which one of them in your
opinion will be the most effective? You must support your answer with relevant examples.
(Hint: Taking direct feedback from the customers as this will ensure two-way communication.)
11
Entrepreneurship

1. Market analysis, a key part of any business plan. Explain the concept of market analysis and the
steps involved in it.
2. Marketing research can be conducted by organisations to have insight into changes. Describe how
marketing research helps organisations.
3. Write a short note on the feasibility study.
4. Discuss the importance of market segmentation.
5. Define the marketing mix.

1. Market analysis, a key part of any business plan, refers to a quantitative and qualitative assessment
of a market. Refer to Section Market Analysis
2. Marketing research can be conducted by organisations to have insight into changes in technology,
changes in consumer tastes, changes in the product range of competitors, etc. Refer to Section
Marketing Research
3. A feasibility study is an analysis that takes all of a project’s relevant factors into account—including
economic, technical, legal and scheduling considerations—to ascertain the likelihood of completing
the project successfully. Refer to Section Feasibility Report
4. Market segmentation is a process of dividing the market into various segments based on differing
needs and then deciding which of these needs it can fulfil with offerings. Refer to Section Market
Segmentation
5. A marketing mix can be defined as a collection of tools that can be used in achieving marketing
objectives. Refer to Section Marketing Mix
 https://www.businessnewsdaily.com/15751-conduct-market-analysis.html
 https://corporatefinanceinstitute.com/resources/knowledge/other/product-mix/
 Suppose you have joined as a market researcher in an organisation. You have been asked to prepare
a marketing Intelligence Report for a new company planning to enter the online cab aggregator
industry which comprises big players such as Ola and Uber. What environmental factors would you
consider for preparing this report?
12
UNIT
10 Financial Plan
Names of Sub-Units
Meaning of Financial Plan, Break-Even Analysis, Pro Forma Profit & Loss Statements, Pro Forma of
Balance Sheets and Cash flow and Funds Flow Statements
Overview
The unit begins by explaining the meaning of financial plan and break-even analysis. Further, it
describes the Pro Forma Profit & Loss Statements and Pro Forma of Balance Sheets. The unit explains
the cash flow and funds flow statements.
Learning Objectives
 Explains the meaning of financial plan
 Elaborate the break-even analysis
 Define the profit & loss statements
 Describe the balance sheets
 Elaborate the cash flow and funds flow statements
JGI JAIN
Entrepreneurship
Learning Outcomes
 Assess the financial plan of the organisation
 List down the concept of break-even analysis
 Evaluate the financial statements
 Appraise the cash flow statements
 Examine the fund flow statements
 https://www.ifec.org.hk/web/common/pdf/publication/en/IEC-financial-planning-booklet.pdf
10.1 INTRODUCTION
Every new enterprise whether small, medium or large needs money to run a business so that makes
financing and investment decisions about raising money and the source of generating finance. Business
finance refers to the financial wherewithal needed by an enterprise to run its operation. Business
finance involves the process of evaluating the needs, making wise financial and investment decisions for
effectively utilising the funds to keep the business operating smoothly and efficiently. Business finance
is an important tool for entrepreneurs who have the vision to establish a thriving enterprise.
A financial statement refers to a formal and written record of all the financial activities and financial
conditions of a company. Financial statements contain a structured, organised and detailed summary
of all the business processes. These determine the financial conditions in terms of the strengths and
weaknesses of a business at the end of an accounting period. There are three major types of financial
statements of companies – the profit and loss account, the balance sheet, and the cash flow statement.
The profit and loss account or the income statement shows the revenues and expenses of a company
during a particular period. It indicates how revenues are transferred into net income. The main objective
of the profit and loss statement is to show managers and investors whether the business entity has
made a profit or loss during a reported period.
The balance sheet refers to the summary of the fiscal balances of a company. In the balance sheet, the
assets, liabilities and owner’s equity are listed as of a specific date such as the end of a fiscal year. Very
often the balance sheet is described as a “snapshot of a business organisation’s financial condition” in
financial accounting.
The balance sheet is the only financial statement that shows an entity’s financial position at a single point
in time, generally at the end of the accounting year. Financial statement analysis provides a pathway
to measure the elements of financial liquidity, past performance and profitability of the organisation. It
focuses on the significant relationship between different variables of financial statements.
2
UNIT 10: Financial Plan JGI JAIN
10.2 MEANING OF FINANCIAL PLAN

Financial plan refer to estimating the requirement of capital and determining its competition. It is
deciding in advance the financial policies concerned with procurement, investment and administration
of funds of an organisation.
A financial plan enables an organisation to prepare a statement that includes the estimation of the
capital amount and composition. The quantum of funds required is based on the assets requirements of
the business. An organisation must also decide the time at which funds will be needed.
The main objective behind making financial plan is to determine the pattern of financing. An organisation
can raise finance through number of ways.
The selection of the source of finance should be done carefully. Some organisation raise funds through
shares and debentures, some take the loan.
Once an organisation selects a pattern of financing, it becomes complicated to change financial plan.
Following are the objectives of financial planning:
 To determine the capital requirements (short term and long term) of business
 To determine the capital structure (composition of capital, i.e., debt-equity ratio)
 To determine the financial policies related to cash control, lending, borrowings, etc.
 To maximally utilise the scarce financial resources in the best possible manner at least cost for
getting maximum ROI (Return on Investment).
Financial planning helps to frame business objectives, policies and procedures, programmes and
budgets concerned with the financial activities. Financial planning helps ineffectively and adequately
estimating the financial and investment policies. The importance of financial planning is as follows:
 It helps to remove the shortage of funds by ensuring adequate funds.
 It ensures a reasonable balance between outflow and inflow of funds thus it brings stability.
 It ensures that the suppliers of funds are easily investing in businesses that exercise financial
planning.
 It helps in making growth and expansion programmes.
 It ensures the long-run survival of the organisation.
 It reduces uncertainties with regards to changing market trends which can be faced easily through
enough funds.
 It helps in reducing the uncertainties that are a hindrance to the growth of the organisation. This
helps in ensuring stability and profitability in concern.
Following are the characteristics of a sound financial plan:
 A financial plan should be simple and can be easily understood even by a layman
 A financial plan must cover the overall objectives of the organisation
 A financial plan should procure funds at the lowest cost
 A financial plan must reduce dependence on outside sources
 A financial plan emphasis retaining a part of profits for ploughing back
 A financial plan is flexible, not rigid as it gives a scope for adjustments
3
JGI JAIN
Entrepreneurship
 A financial plan ensures the solvency and liquidity of the business

 A financial plan should focus on reducing the cost burden
 A financial plan ensures that the profitability of the enterprise is not adversely affected
10.3 BREAK-EVEN ANALYSIS

Break-even analysis is a generally used method to study the cost volume profit analysis.
The break-even point refers to that point where the total costs of an organisation are equal to its total
revenue and the net income are equal to zero. At this point, the organisation incurs neither any cost nor
does it realise any profit. Organisations determine the relationship among costs, revenues, sales volume
and profits by undertaking the break-even analysis. It is also known as the profit contribution analysis.
The break-even analysis helps in determining the output level at which the cost and revenue achieve
equilibrium. At the BEP, the income of an organisation equals the sum of its fixed and variable costs. The
BEP is also the point where expenses equal revenue. Break-even analysis technique can be explained in
two ways:
1. In a narrow sense, it is concerned with computing the break-even point. At this point of production
level and sales, there will be no profit and loss, i.e., the total cost is equal to total sales revenue.
2. In a broad sense, this technique is used to determine the possible profit/loss at any given level of
production or sales.
Break-even analysis is also known as cost-volume-profit analysis. Break-even analysis is the study of
the relationship between selling prices, sales volumes, fixed costs, variable costs and profits at various
levels of activity.
Break-even analysis is a widely used technique to study the cost-volume profit relationship. The
narrower interpretation of the term break-even analysis refers to a system of determination of that
level of activity where total cost equals total selling price.
The broader interpretation refers to that system of analysis that determines probable profit at any level
of activity. It portrays the relationship between the cost of production, the volume of production, and
sales value.
The break-even analysis is based on the following assumptions:
 Cost is divided into fixed cost and variable cost
 Fixed cost remains constant at every level of production
 Variable cost changes whenever there is a change in output
 Selling price remains constant for every level of production
 Production and sales remain constant
 Operational efficiency of the organisation would remain the same
The advantages of break-even analysis are as follows:

 Helps in budgeting, forecasting, and controlling the cost of an organisation
 Helps in predicting the profit and loss of the organisation with the proportionate changes in the cost
and volume of production
 Assists in product decision, pricing of the product, and selection of the channel of distribution
4
 Helps in studying the relation between the cost, profit, and volume of production
 Helps in ascertaining the margin of safety for the organisation
 Assists the management of an organisation in making various decisions such as determining the
future strategy and better placement of the product in the market
Some of the limitations of break-even analysis are as follows:

 Based on unrealistic assumptions such as goods are sold at the same price at different levels of
output, fixed costs always remain constant despite output changes, etc. However, fixed costs may
tend to vary when output goes beyond a certain level.
 Based on an unrealistic assumption that cost behaviour is linear and variable cost always moves in
direct proportion to the cost. However, in reality, variable costs may move with the level of output,
but not necessarily in direct proportions.
 Concentrates only on the profit and not on the profitability of an organisation. It ignores the impact
of increase in the capital of the organisation on the production of goods. As most of the organisations
have limited capital, therefore, the usage of capital for increasing the production would affect the
other necessary activities of the organisation.
 Provides no solution to combat the risk and uncertainty involved in the employment of the capital.
 Serves only the short-term objective of the organisation. The BEP determines only the short-term
profitability of the organisation.
 Creates confusion in discriminating between fixed and variable costs in some circumstances.
10.4 PRO FORMA PROFIT & LOSS STATEMENTS

The profit and loss account is prepared so as to ascertain the net profit earned and the net loss suffered
by a business over a given accounting period. Therefore, this statement depicts the financial position
of the business. In other words, the profit and loss account is a statement that shows expenditures,
revenues and net income of a company. The company’s profit and loss account is a brief description of
the company’s revenue, expenses and net profit (or net loss) for any particular period of time. It may
be produced on a monthly, quarterly, bi-annually or annual basis. In most cases, it is produced on an
annual basis along with other financial statements.
The profit and loss account is a statement that reflects the company’s financial performance to its
investors, management and other interested parties. In simple words, the profit and loss account is the
explanation of the company’s profitability over a particular period of time.
Let us now discuss the components of the profit and loss account which are given as follows:
 Revenue: Revenue is the total amount of money received by a business entity after selling its products
or services. Generally, revenue is also known as sales revenue or net sales, and it can be calculated
by deducting sales return, discounts and allowances from total sales. It is recorded at the top of the
income statement and because of this it is also known as “top line”.
 Cost of goods sold (COGS): The COGS includes all direct costs involved in the process of production.
For example, the costs of raw material, labour, factory overheads, depreciation on plant and
machinery, etc.
 Gross profit or gross loss: It is the difference between the revenue received and the cost of goods
sold for a particular period of time.
5
Entrepreneurship
 Operating expenses: Operating expenses are the expenses that a business entity has to bear in day-
to-day business operations. For example, amortisation of intangible assets, advertising and sales
expenses, researchand development, rent of building, etc.
 Administrative expenses: Administrative expenses are those expenses which are not directly related
to the process of production. These expenses are related to management and supporting activities
of a business organisation. For example, depreciation on a corporate office building, salary of top-
level managers, legal charges, functional cost of HR department, functional cost of IT department,
functional cost of the finance department, etc.
 Operating income: The operating income can be calculated by subtracting administration and
operating expenses from gross profit. It is also known as Earnings Before Interest and Taxes (EBIT).
 Other expenses: Other expenses are those expenses which are not related to the core operations of a
business enterprise and these expenses do not contribute anything to the process of production. For
example, income tax paid to the government, interest paid for borrowings, etc.
 Net profit or net loss: It can be calculated by deducting all expenses from revenue. It is recorded at
the end of the income statement and because of this, it is also known as ‘bottom line’. Net profit/loss is
also known as “accounting profit/loss” because many non-cash transactions, such as amortisation
or depreciation, are included under it.
All the above items appear on the debit or credit side of the profit and loss account.
The items that appear on the debit side of the profit and loss account are as follows:
 Expenses incurred in business: These are divided into two parts:
 Direct expenses are recorded in the income statement.
 Indirect expenses are recorded on the debit side. Indirect expenses are further categorised as
follows:
 Selling expenses: These include all expenses relating to sales such as carriage outwards,
travelling expenses, advertising or distribution costs.
 Office expenses: These include all expenses incurred on running an office such as office
salaries, rent, tax, postage or stationery.
 Maintenance expenses: These include all expenses related to the maintenance of assets such
as repairs and renewals or depreciation.
 Financial expenses: These include all expenses related to interest paid on loan, discount
allowed.
The items that appear on the credit side of the profit and loss account are as follows:
 Gross profit
 Other gains and incomes of the business, such as interest received, rent received, discounts earned
and commission earned.
In nutshell, a Profit and Loss Account depicts the below-mentioned information:
Revenue/Net sales (–
) Cost of Goods sold
= Gross Profit
+ Other incomes
= Total income
6
(–) Operating expenses

(–) Administrative expenses
(–) Distribution costs
(–) Other expenses
= Operating income/Earnings before interest and tax (EBIT)
(–) Interest paid
= Profit before tax (PBT)
(–) Income tax
= Net profit
Schedule III of the Companies Act, 2003, lays down a new format for the presentation of Profit and Loss
(P&L) account of corporate bodies. It permits the use of the vertical format of presentation only. The
revised format of P&L Account is Shown in Figure 1:
Profit and Loss statement for the year ended 31st March, 2011
Figures as at the Figures as at the

Particulars Note No end of Current End of Previous
Reporting Reporting
I. Revenue from operations
II. Other Income
III. Total Revenue (I + II)

IV. Expenses:
Cost of materials consumed
Purchase of Stock-in-Trade
Changes of inventories of finished goods, work-
in-progress and Stock-in-Trade
Employee benefit expense
Financial costs
Depreciation and amortization expense
Other expenses
Total Expenses
V. Profit before exceptional and extraordinary (III – IV)
items and tax
VI. Exceptional Items
VII. Profit before extraordinary items and tax (V – VI)
VII. Extraordinary Items
IX. Profit before tax (VII – VIII)
X. Tax expense:
(1) Current tax
(2) Deferred tax
7
JGI JAIN
Entrepreneurship
Figures as at the Figures as at the

Particulars Note No end of Current End of Previous
Reporting Reporting
XI. Profit (Loss) from the period from continuing (VII – VIII)
operations
XII. Profit/(Loss) from discontinuing operations
XIII. Tax expense of discounting operations
XIV. Profit/(Loss) from Discontinuing

operations (XII – XIII)
XV. Profit/(Loss) for the period (XI + XIV)
XVI. Earning per equity share:

(1) Basic
(2) Diluted
Figure 1: Revised Format of P&L Account

Source: https://ashishtater.wordpress.com
10.5 PRO FORMA OF BALANCE SHEETS

In simple words, a balance sheet refers to a statement that summarises and presents the financial
position of a company on any given date. It shows assets and liabilities of the organisation. The main
aim of preparing a balance sheet is to determine the exact financial position of the organisation. In a
balance sheet, the debit balances are reflected by the assets and credit balances are reflected by the
liabilities. A number of steps are involved in preparing a balance sheet. The first step is transferring
all nominal accounts in the trial balance to the trading and profit and loss account. Next, the personal
accounts of customers are grouped under the heading of sundry debtors, the entities from whom the
amounts of sold goods and services are due.
Similarly, you need to group all balances of suppliers under the single heading of sundry creditors, the
entities to whom the organisation owes money or payment. In the end, the real and personal accounts
are grouped as assets and liabilities, and are arranged in a proper way. The resultant statement obtained
is called the balance sheet.
The American Institute of Certified Public Accountants defines the balance sheet as a tabular statement
of summary of balances (debits and credits) carried forward after an actual constructive closing of
books of account and kept according to the principles of accounting.
In the balance sheet, assets are represented on the right side and liabilities are represented on the left
side. It is also known as the statement of sources of funds and application of funds. The financial position
of the organisation includes its economic resources (assets), economic obligations (liabilities) and the
owner’s equity. A balance sheet is the detailed summary of the basic accounting equation:
Assets = Liabilities + Owner’s Equity
8
“The format of a financial statement prescribed in Schedule III of the Companies Act, 2013 is applicable
for all companies” voluntarily from April 1, 2015 and mandatorily from April 01, 2016. As per Schedule
III, the vertical format has now been permitted for the balance sheet. The balance sheet should include
the following items and in the order is mentioned in Figure 2:
Balance Sheet as at 31st March, 2011
Figures as at the
Figures as at the
End of Previous
Particulars Note No End of Current
Reporting
Reporting Period
Period
I. Equity and Liabilities
(1) Shareholder’s Funds

(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-current Liabilities

(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long term provisions
(4) Current Liabilities

(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
II. Assets
(1) Non-current assets

(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
9
JGI JAIN
Entrepreneurship
Figures as at the
Figures as at the
End of Previous
Particulars Note No End of Current
Reporting
Reporting Period
Period
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets
(2) Current assets

(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Total
Figure 2: Revised Pro forma of Balance Sheet

Source: https://ashishtater.wordpress.com
10.6 CASH FLOW AND FUNDS FLOW STATEMENTS

The cash flow statement is one of the most significant financial statements issued by any company. The
cash flow statement measures the actual cash generated by the company within a particular period of
time. The words “cash flow” in the name of this statement refers to the amount of cash that comes into
or goes out of the company. Cash flows of any company are categorised into two types:
 Cash inflow
 Cash outflow
Cash inflow refers to the total amount of cash that comes into the organisation through various activities.
For example, cash received on behalf of sales, cash received from the sale of assets, loan received, issue
of debentures, issue of shares, interest received, dividend received, etc. On the other hand, cash outflow
refers to the total amount of cash that goes out of the company through various activities. For example,
cash purchase of raw material, purchase of assets, the redemption of debentures, cash payment for
wages, income tax payment, repayment of the loan, interest paid, the dividend paid, etc. The cash
inflows and outflows of any company can be further classified into three activities. These activities are:
 Operating activities
 Investing activities
 Financing activities
10
These activities are discussed below:

 Operating activities are those activities that are related to the core business operations of a
company, and these include all the activities that are related to the revenue generation of the
company. For example, cash sales of goods, payment made to suppliers, commission, cash payment
of salaries, etc.
 Investing activities are those activities that are related to the purchase or sale of long-term
investments and assets. For example, cash purchase of plant and machinery, old machinery sold for
cash, investment in government bonds, etc.
 Financing activities are those activities that are related to financial transactions of a business and
these activities provide the overview of cash used in business financing. For example, loan received
issue of shares, payment of dividend, repayment of the loan, issue of debentures, etc.
A cash flow statement fulfils several objectives of an enterprise. The objective of the cash flow statement
is to provide information about the cash inflows and cash outflows to all stakeholders. It depicts the
organisation’s liquidity position or its ability to meet current expenses using available resources. The
main objectives of a cash flow statement are as follows:
 Cash flow statements provide knowledge of the cash position. It indicates changes in the cash
position as well as the reasons for the changes.
 Cash flow statements are useful for providing a business with a general idea of how it will make
ends meet in the short term, and thereby maintaining the short-term and long-term solvency. This
aspect is also useful for external investors to analyse the liquidity and solvency of an organisation.
 Cash flow statements are useful to the management for preparing dividend and profit retention
policies.
 Cash flow statements guide the management to evaluate the changes in cash position.
 Cash flow statements provide the details about the performance of operational, financial and
investment activities for effective decision making.
 Cash flow statements provide information about the factors causing the cashflows.
 Cash flow statements guide the management to take a decision about short-term obligations.
 Cash flow statements provide the details about the sources of cash and applications of cash during
a given period.
 Cash flow statements provide a base for the preparation of cash budgets.
The limitations of cash flow statements are as follows:

 It is based on cash flows and records the movement of cash. Only cash transactions are recorded.
Thus, it ignores the accrual concept of accounting.
 It is not a complete substitute for the income statement or the profit and loss account. The net cash
flow calculated in the cash flow statement cannot be equal to the net profit calculated under a profit
and loss account. As it considers only the inflows and outflows of cash, the net cash flow of a certain
period does not necessarily mean the net profit of the business, as net profit is determined using
both cash as well as non-cash transactions.
 It ignores non-cash transactions. For example, the purchase of fixed assets by the issue of shares or
debentures.
11
Entrepreneurship
 It cannot substitute a balance sheet. It cannot indicate the correct financial position of an
organisation. The cash flow statement does not provide comprehensive detail of the financial position
of anorganisation as non-cash items of expenses and incomes are excluded from the statement.
 It cannot substitute a fund flow statement.
Funds Flow Statement

Fund flow statement discloses the analytical information about the different fund sources and their
application in an accounting cycle. Fund flow statement deals with the financial transactions which
change either the amount of CA (current assets) and CL (current liabilities), (in the form of change in
working capital) or fixed assets, long-term loans including ownership fund.
The fund flow statement gives clear images of funds movement between the opening and closing dates
of the Balance Sheet. This statement is also known as the statement of sources and applications of
funds, movement of funds statement, inflow and outflow of fund statement, etc.
No doubt, Funds Flow Statement evaluates the future flows of a firm on the basis of past data.
 Business finance is an important tool for entrepreneurs who have the vision to establish a thriving
enterprise.
 Financial statements contain a structured, organised and detailed summary of all the business
processes.
 There are three major types of financial statements of companies – the profit and loss account, the
balance sheet and the cash flow statement.
 Financial plan refers to estimating the requirement of capital and determining its competition.
It is deciding in advance the financial policies concerned with procurement, investment and
administration of funds of an organisation.
 Break-even analysis is a generally used method to study the Cost volume profit analysis. The break-
even point refers to that point where the total costs of an organisation equal to its total revenue and
the net income are equal to zero.
 The profit and loss account is prepared so as to ascertain the net profit earned and the net loss
suffered by a business over a given accounting period. Therefore, this statement depicts the financial
position of the business.
 Balance sheet refers to a statement that summarises and presents the financial position of a
company on any given date.
 The cash flow statement is one of the most significant financial statements issued by any company.
The cash flow statement measures the actual cash generated by the company within a particular
period of time.
 The fund flow statement discloses the analytical information about the different fund sources and
their application in an accounting cycle.
12
10.8 GLOSSARY
 Financial statement: It is a formal and written record of all the financial activities and financial
conditions of a company
 Profit and loss account: It is a statement that reflects the company’s financial performance to its
investors, management and other interested parties
 Cost of goods sold (COGS): It includes all direct costs involved in the process of production
 Administrative expense: It includes those expenses which are not directly related to the process of
production
10.9 CASE STUDY: CASH FLOW STATEMENT OF PAL AND BOSE LTD
Case Objective
This case study aims to highlight the role of the cash flow statement in business.
Link Lever Limited is a manufacturer of industrial locks, fasteners and hold fasts. It commenced its
operations from Gorakhpur, Uttar Pradesh in 2002. The organisation tasted considerable success
and acceptance among customers. As a result, the owners decided to expand their operations. The
organisation grew from a five-member association to 50 employees operating from a small set-up in
Kanpur, UP. It was named Pal and Bose (PB) Ltd. after its founders Arunashu Pal and Tamal Bose. The
CEO, Arunashu Pal decided to open a modern manufacturing unit in Jharkhand. He decided to diversify
his business for better growth prospects. He needed to meet the following requirements:
1. Set up the proposed new plant outside U.P.
2. Purchase modern machinery
3. Train employees
4. Advertise and promote business
5. Obtain a license for advanced technology from foreign collaborators
To achieve this, the management decided to obtain a loan of `5000000 from the State Bank of India.
The SBI visited Pal and Bose (PB) Ltd. to assess the organisation’s creditworthiness. The bank requested
financial statements of the organisation, including the balance sheet, P&L statement and cash flow
statement as per AS-3.
The cash flow statement of Pal and Bose Ltd. is as follows:
Particulars Amount (` in 000)
Cash flows from operating activities

Net income 2500
Add: Non Cash transactions

Depreciation and amortization 125
Provision for Bad Debts 20
13
JGI JAIN
Entrepreneurship
Particulars Amount (` in 000)
Less: Non-operational income

Gain on sale of facility (65)
Total Cash inflow from Operating Activities 2580
Cash flows from investing activities

Purchase of property, plant, and equipment 500
Less: Proceeds from sale of equipment 35
Net cash used in investing activities (465)
Cash flows from financing activities

Proceeds from issue of common stock 150
Proceeds from issuance of long-term debt 175
Less: Dividends paid 46
Net cash used in financing activities (280)
Net increase in cash and cash equivalents 1835
Cash and cash equivalents at beginning of period 4824
Cash and cash equivalents at end of period 6659
The net cash flows from the operating activities of Pal and Bose Ltd. are ` 71,35,000 which implies that
the organisation can support dividend payments to shareholders. However, outflows from financing
activities are ` 5,54,000 which signifies that the proceeds from shares are less than the payments for
interest and dividends. The organisation is not strong enough to repay the loan and thus, the SBI declines
the loan application made by Pal and Bose Ltd.
Questions
1. Do you think SBI’s reason to not provide Pal and Bose with loans is justified? Discuss.
(Hint: The outflows from financing activities are `5,54,000 which signifies that the proceeds from
shares are less than the payments for interest and dividends. The organisation is not strong enough
to repay the loan.)
2. From the net cash flows from each of the activities, assess the financial position of Pal and Bose Ltd.
(Hint: Cash and cash an equivalent at the beginning is an amount of `15,60,000 while that at the
end of the year is an amount of `17,30,000 suggesting an improvement in the overall cash. However,
outflows are more than inflows from financing activities which shows that Pal and Bose are not
capable of giving out dividends to repay loans.)
14
3. Do you think that SBI would find the payment of a dividend of `5,00,000 as not being prudent since
the organisation has borrowed and has a negative cash outflow from financing activities?
(Hint: The outflows from financing activities are `5,54,000 which signify that the proceeds from
shares are less than the payments for interest and dividends. The dividend payment is `5,00,000.
The organisation could perhaps conserve cash at this stage.)

1. A financial plan enables an organisation to prepare a statement. Define financial planning.
2. The BEP is also the point where expenses equal revenue. Elaborate the concept of break-even
analysis.
3. This statement depicts the financial position of the business. What is profit & loss statements and
balance sheet?
4. Cash flows of any company are categorised into two types. Explain the concept of cash flow
statements.
5. Fund flow statement discloses the analytical information. Define fund flow statements.

1. Financial plan refers to estimating the requirement of capital and determining its competition.
It is deciding in advance the financial policies concerned with procurement, investment and
administration of funds of an organisation. Refer to Section Meaning of Financial Plan
2. Break-even analysis is a generally used method to study the Cost volume profit analysis.
The break-even point refers to that point where the total costs of an organisation equal to its total
revenue and the net income are equal to zero. Refer to Section Break-Even Analysis
3. The profit and loss account is prepared so as to ascertain the net profit earned and the net loss
suffered by a business over a given accounting period. Therefore, this statement depicts the financial
position of the business. Refer to Section Pro Forma Profit & Loss Statements
4. The cash flow statement is one of the most significant financial statements issued by any company.
The cash flow statement measures the actual cash generated by the company within a particular
period of time. Refer to Section Cash flow and Funds Flow Statements
5. Fund flow statement discloses the analytical information about the different fund sources and their
application in an accounting cycle. Refer to Section Cash flow and Funds Flow Statements
 h t t p s :/ / w w w . r a y m o n d j a m e s . c a / b r a n c h e s / p r e m i u m 2 / p d f s / 1 7 - b d m k t - 0 5 9 1 0 3 1 7 _
fundamentalsfinancialplanningbrochure-v1.pdf
15
JGI JAIN
Entrepreneurship
 Discuss the difference between cash flow and fund flow statements.
16
UNIT
11 Sources of Funding
Names of Sub-Units
Importance of Funding means of sources, incubation of centers, investors, elevator pitch, seed capital,
angel investors, angel networks, venture capitalists, private equity,
Overview
The unit begins by explaining the business finance and importance of funding. Further, it discusses
the means of sources of funds.
Learning Objectives

 Summarise the meaning of business finance
 Describe the importance of funding
 Classify the sources of funds
 State angel investors and angel networks
 Define the debt funding
JGI JAIN
Entrepreneurship
Learning Outcomes

 Identify the incubation centers
 Select the investors
 Evaluate the elevator pitch
 Analysethe venture capitalists
 Support the private equity
 https://www.fullertonindia.com/knowledge-center/business-finance.aspx
11.1 INTRODUCTION
Entrepreneurs must estimate the financial requirement of their business. These financial requirements
can be for long-term as well as short-term. For estimating these requirements, entrepreneurs make
financial plans for today (present) and tomorrow (future). Entrepreneurs must ascertain the money
needed for buying fixed assets and for performing daily business operations. The financial estimation
mustbedoneby theentrepreneurbasedon financialprinciplessuchasspendless thanyou(entrepreneur)
earn and put your (entrepreneur) money, i.e., profit to a business.
The entrepreneur must not have inadequate or excess funds because when there are inadequate funds,
business operations of the enterprise get affected. Excess funds may tempt the entrepreneur to get
involved in extravagant spending. While estimating the financial requirement, the entrepreneur must
consider the following things:
 Promotional expense that includes incorporation and consultancy fee.
 Fixed asset expense that involves the cost of purchasing such as land and building, tools and
equipment and furniture.
 Working capital includes the cash balance that an entrepreneur must have in hand.
 Financial cost involves the cost of brokerage and commission.
 Business establishment cost.
11.2 IMPORTANCE OF FUNDING

For starting a business, entrepreneurs need funds. It is challenging to find an appropriate source of
financing in a competitive business environment. Entrepreneurs may require funds to start a new
business or for expansion or diversification.
Business finance is the money or capital employed in the business. The foundation of a business is
finance which is needed for purchasing business assets, machines and equipment, raw materials and
other things for the smooth flow of economic activities.
2
UNIT 11: Sources of Funding JGI JAIN
Business finance can be defined as “the provision of money at the time when it is needed by a business”.
The amount of capital invested in business depends upon the type of business organisation the
entrepreneur wants to set up. Large capital is needed at the time of starting the enterprise. Some capital
is required for carrying out the daily business operations. When the enterprise grows and business
operations expand, more funds are needed. Entrepreneurs invest money in installing new technology,
which is a long-term investment. New technology means upgraded software, new machinery and tools
for performing business processes with higher efficiency and higher quality without taking much time.
11.2.1 Means of Sources

Money is considered the bloodline for any enterprise. When starting a business, entrepreneurs find out
the suitable way to finance the start-up. The funds required for a business highly depend on the nature
of the business and its type.
There are different sources of raising finance for the business. The sources to raise finance are of
different types:
 Long-term financing: It is the long-term capital need of the business for more than 5 or 10 years. The
entrepreneur uses this source of finance to do capital expenditure in purchasing fixed assets such as
machinery and plant equipment. Part of working capital that permanently stays with the business
is also financed with long-term sources of funds. Long-term financing sources can be in the form of:
 Share capital
 Retained earnings
 Bonds
 Term loan from a bank
 Medium-term financing: It is a medium-term capital need of the business in which the finance
is provided for 3 to 5 years. Medium-term financing sources are used for business expansion. The
medium-term sources of financing are:
 Borrowings from banks
 Public deposits
 Lease financing
 Loans from financial institutions
 Short-term financing: It refers to the capital requirement of the business for the period, not more
than 1 year. The requirement for short-term finance arises when an entrepreneur needs to purchase
current assets for the business, such as raw material and inventory. Short-term financing is also
known as working capital. The short-term sources of finance are:
 Trade credit
 Short-term loans from commercial banks
 Fixed deposits for 1 year or less
 Advances received from customers
 Creditors
 Bill discounting
3
JGI JAIN
Entrepreneurship
Figure 1 shows some sources of financing a new enterprise:
Self-funding
Crowd-funding
Angel Investment
Business Incubators and Accelerators
Winning Contests
Bank Loan
Government
Business Credit Card
Figure 1: Some Sources of Business Financing

These sources of financing are explained as follows:
 Self-funding: This is also called bootstrapping. It is the most common way of financing start-ups at
an initial stage. First-time entrepreneurs often opt for this way. They invest their savings or arrange
money from their family and friends. This is the easiest method which involves less formalities and
no or less cost of raising funds. Cost of raising funds refers to the interest charged by the person or
institution such as a bank for providing funds to the entrepreneur for investing in a business.
 Crowd-funding: This is a new way of raising funds for the start-up. It is similar to a loan, contribution
from persons at a particular time by putting a well-explained description of business (business
goals, expected profit and funds needed.) on a crowd-funding platform. People contributing money
also promise to pre-buy the product.
 Winning contests: Many are organised to help entrepreneurs grab the opportunities for fund-
raising. The one who wins the competition is awarded with a particular amount which helps the
entrepreneur start the enterprise.
 Bank loan: Banks provide loans for working capital and for other purposes too. To raise funds from
banks in the form of loan, an entrepreneur has to submit the business plan, valuation details, and
project report. On the basis of these documents, banks may sanction the loan amount.
 Government: The Government of India (GOI) sanctions some amount for providing help to the start-
ups to increase business in the country.
 Credit cards: Business credit cards are the most easily and readily available methods to finance a
business and get instant money. These cards also charge interest on the amount spent via the credit
cards.
Incubation Centers
Incubation is a unique and highly flexible combination of business development processes, infrastructure
and people designed to nurture new enterprises by providing assistance, tools and networks to perform
4
business operations smoothly, whereas accelerators help enterprises take a giant leap such as expansion
of business or its diversification. Startup incubators play the most needed and important part of the
startup ecosystem. Some startup incubation centers in India:
1. CIIE IIMA: Some of the startups funded by this incubator are:
 EzySolare
 Glowship
 Glass
2. IAN incubator: Some of the startups funded by this incubator are:
 FarMart
 NativeSpecial
3. Pupilfirst: Some of the startups funded by this incubator are:
 MindHelix Technologies
 finahub
 tagNpin
Investors
Investors are the individuals who invest money in an entity for a financial return. The prime objective
of any investor is to maximise return by minimising risk.
Investors are those persons who invest in a business to get ownership of the company. Following are
the types of investors:
1. Retail or Individual Investor: These are the investors who invest in securities and assets on their
own, in smaller quantities. The stocks these investors buy (in round numbers such as 25, 50, 75 or
100) are part of their portfolio and do not represent those of any organisation.
2. Institutional Investor: These are those investors or companies that invest money to buy securities
or assets such as real estate. Unlike individual investors, institutional investors buy stock in hedge
funds, pension funds, mutual funds and insurance companies. These investors are not the beneficiary
of the earnings from the investment but the company as a whole act as a beneficiary.
Elevator Pitch
Elevator pitches in terms of finance are the entrepreneur who tries to convince a venture capitalist that
a business idea is worth investing in. For example Shark tank. In this, the entrepreneur presents a very
formal presentation in front of the investors to raise seed capital.
The elevator pitch form of financing is also used by:
 Project managers
 Salespeople
 Job seekers
While pitching, the person must share the reason why his/her product, idea or project is worth investing
in. The person should also explain the features, benefits and cost savings.
5
JGI JAIN
Entrepreneurship
Seed Capital
It is a form of financing in which entrepreneur turn to people (family and friends) for initial investments.
This financing is called seed capital.
Seed capital is also known as seed money or seed financing because it is money raised by a business in its
infancy or early stages. Seed capital is not a huge amount of money as it comes from personal sources.
Seed capital is used for making operating expenses of the new business for example,:
 Rent
 Equipment
 Payroll
 Insurance
 Research and development costs (R&D)
Angel Investors
This is a type of financing in which the individuals having surplus cash are interested to invest in the
start-ups. These investors collectively analyse the business proposal before making any investment and
also monitor and advise the entrepreneur in making business-related decisions.
These are persons or individual who invests in a new or small business venture, providing capital for
start-up or expansion. Angel investors have spare cash available and are searching for a higher rate of
return (25 to 60 percent) than would be given by more traditional investments.
Angel Networks
Angel networks are the group of angel investors organised for investing collectively, operating more
effectively and providing mutual support. Angel networks are also called angel groups.
Angel network members meet for presentations from entrepreneurs, after which they review the business
proposals and make decisions on investments. Angel networks sometimes also invest collaboratively
with other such groups.
Venture Capitalists
These are the person or organisations that invest in ventures, provide capital for a startup or expansion.
The majority of venture capital seeks higher rates of return. Venture capital refers to the kind of equity
financing which provides a medium for raising funds for new start-ups. Venture capital firms are
the group of investors who use private equity investment techniques and invest in new enterprises by
subscribing its shares. These firms also manage the money of investors who are interested in taking the
equity stakes in private, new or medium-small scale enterprises. These enterprises have a high growth
potential; however, investing in these enterprises is very risky. Venture capital funds are dedicated to
funding new enterprises. The guidelines that are issued by the Securities and Exchange Board of India
(SEBI) regulate the venture capital firms. These firms make sure that investor’s money is utilised for
funding the projects having a huge potential to grow. The capital is provided to the enterprises based
ontheir assets, size and product development stages.
The characteristics of venture capital firm are:
 It provides funds to the enterprise as an early-stage investment
6
 It also extends funds for expansion.

 It purchases the equity stakes of the enterprise and takes some ownership of it.
 It gives expert opinion and knowledge of different investors, which help the enterprise make further
advancements.
 It facilitates the entrepreneur in making new products or services.
 It helps the entrepreneur acquire the latest technologies to improve the efficiency of the enterprise.
 It provides investors to the new enterprise who invest in the project of the enterprise and help in its
rapid growth.
 It has some ownership in the new enterprise; so, venture capital firm takes part in the decision-
making of the enterprises.
Private Equity
Private equity is private financing which is composed of funds and investors that directly invest in private
companies. Private equity investors provide funds to install new technology, make new acquisitions,
expand working capital and bolster organisation’s balance sheet. Private Equity firms help companies
to grow and then reap benefits after the companies go public or merge with other firms.
LBO
LBO represents the leveraged buyout which is the acquisition of other organisation using a significant
amount of borrowed money to meet the cost of acquisition. The assets of the organisation being
acquired are considered as the collateral for the loans, along with the assets of the acquiring company.
The leveraged buyout model offers a lot of benefits. You acquire another company at almost no risk and
they pay off the debt, not you.
Debt Funding
This is a type of funding which occurs when a firm raises money for working capital or capital
expenditures by selling debt instruments to individuals or institutional investors. Lenders become
creditors and receive a promise that the principal and interest on the debt will be repaid. The other
way to raise capital in debt markets is to issue shares of stock in a public offering; this is called equity
financing.
A company can choose debt financing, which entails selling fixed income products, such as bonds, bills
or notes to investors to obtain the capital needed to grow and expand its operations. When a company
issues a bond, the investors that purchase the bond are lenders who are either retail or institutional
investors that provide the company with debt financing. The amount of the investment loan—also
known as the principal—must be paid back at some agreed date in the future. If the company goes
bankrupt, lenders have a higher claim on any liquidated assets than shareholders.
The formula for the cost of debt financing is:
KD = Interest Expense x (1 - Tax Rate)
where KD = cost of debt
Since the interest on the debt is tax-deductible in most cases, the interest expense is calculated on an
after-tax basis to make it more comparable to the cost of equity as earnings on stocks are taxed.
7
Entrepreneurship
 Business finance is the money or capital employed in the business.

 Some sources of finance are self-funding, crowdfunding, angel investment, bank loan and
government.
 The entrepreneur must ascertain the money needed for buying fixed assets and performing daily
business operations.
 Long-term financing is the capital need of the business for more than 5 or 10 years.
 Medium-term financing is the capital need of the business in which the finance is provided for 3 to
5 years.
 Short-term sources of finance refer to the capital requirement of the business not more than 1 year.
 Venture capital refers to a kind of equity financing that provides new start-ups the ability to raise
funding.
 Venture capital firms are the group of investors which use private equity investment techniques for
investing in the new enterprise by subscribing to its shares.
11.4 GLOSSARY
 Angel investment: It is the type of financing in which individuals having surplus cash are interested
to invest in the start-ups
 Bootstrapping: It is the method of financing start-ups at the initial stage
 Borrowed capital: It is the amount of money collected by the entrepreneur by issuing debentures
or bonds
 Working capital: It is the amount by which Current Assets (CA) exceed Current Liabilities (CL)
11.5 CASE STUDY: INACCURATE COST ESTIMATION OF THE RAJIV GANDHI SEA
LINK PROJECT
Case Objective
The aim of this case study is to highlight management and execution of Rajiv Gandhi Sea Link project.
The Rajiv Gandhi Sea Link project, which is also known as Bandra-Worli Sea Link project, is considered
to be an engineering marvel. It is one of the most complex projects carried out in India. The total length
of the sealink is 5.6 km, out of which 3.8 km has been constructed over the sea. After its inauguration,
this eight-lane sea-link project has reduced the travel time (during peak hours) between Bandra and
Worli by almost an hour, i.e., from 50-70 minutes to 20-30 minutes. The Bandra-Worli sea link has an
average daily traffic of around 37,000 vehicles.
This project was a part of Phase I of Western Freeway that was proposed to reduce the traffic congestion
in Mumbai by constructing a freeway on the entire western coastline. It also has a 16-lane toll plaza with
an electronic toll collection system at Bandra. The electronic toll payment system allows commuters to
pass without stopping. Figure A shows Bandra Cable-Stay Bridge:
8
Figure A: Bandra Cable-Stay Bridge

Source: https://www.roadtraffic-technology.com/projects/bandra/
The Bandra-Worli sea link project was managed by Maharashtra State Road Transport Corporation
(MSRTC) and executed by Hindustan Construction Company (HCC) along with its foreign partner China
Harbour Engineering Corporation. HCC also had a damage liability of the project for 5 years. Initially,
this project was conceived in the late 1990s and project construction was started in the year 2000. The
initial cost of the project was estimated at around ` 350 crores and it was estimated that the project
would be completed by 2004. However, the project missed several deadlines and it was opened for
commuters in June 2009.
During the project, there were constant changes in the master plan of the bridge design that led to
delays in completing the project deadline. It also led to a huge gap in estimated and actual costs. The
initially planned outlay of the project was around ` 350 crores which were revised to ` 1,306 crores in
August 2004. The overall project construction was finished in March 2010 with a delay of almost 6 years.
By this time, the actual cost had crossed ` 1,600 crores. It was estimated that the project was built with
a total cost of ` 1,684 crores.
During the project, there were irregularities found in the transfer of grants from the government to
the construction company due to which HCC became more dependent on external sources of finance.
There were also many other important reasons for this wrong cost estimation that led to an increase in
the project cost. Some of these reasons were wrong estimation of cash flows, changes in plans, changes
in bridge design, changes in cable used, wrong selection of design consultant and non-achievement of
milestone due to poor project progress.
Questions
1. Who managed and executed the Rajiv Gandhi Sea Link project?
(Hint: Maharashtra State Road Transport Corporation, Hindustan Construction Company)
2. What were the main problems of the project?
(Hint: Drastic increase in project costs and project delays.)
3. List the reasons for cost increase in the Rajiv Gandhi Sea Link project.
(Hint: Wrong estimation of cash flows and selection of wrong design consultant.)
9
Entrepreneurship
4. According to you, why is it important to estimate the accurate cost of the project?
(Hint: No wastage of money, proper usage of finance, no delay in completion)
5. What must be kept in mind while estimating the cost of the project?
(Hint: Nature of business, availability of funds, stakeholders, budget and time limit of project
completion)

1. The foundation of a business is finance. Explain the importance of business finance.
2. Money is considered as the bloodline for any enterprise. There are different sources of raising
finance for the business. Describe the source of finance.
3. Incubation is a unique. Explain with example the meaning of incubators.
4. Angel investors have spare cash available. Define angel investor and angel networks.
5. Evaluate the concept of venture capital.

1. Business finance can be defined as “the provision of money at the time when it is needed by a
business”. Refer to Section Importance of Funding
2. Some sources of finance are self-funding, crowdfunding, angel investment, bank loan and
government. Refer to Section Importance of Funding
3. Incubation is a unique and highly flexible combination of business development processes,
infrastructure and people, designed to nurture new enterprises by providing assistance, tools and
networks to perform business operations smoothly. Refer to Section Importance of Funding
4. An angel investor refers to a person or individual who invests in a new or small business venture,
providing capital for start-up or expansion. Refer to Section Importance of Funding
5. Venture capital refers to the kind of equity financing which provides a medium for raising funds for
new start-ups. Refer to Section Importance of Funding
 https://www.toppr.com/guides/business-studies/financial-management/meaning-of-business-
finance/
 Discuss the concept of fixed and working capital.
10
UNIT
12 Technology and Operations Plan
Names of Sub-Units
Selection of Technology, Decision on Types of Processes, Plant Layout, Selection of Machinery, Capacity
Planning, Quality Parameters and Make or Buy Decisions
Overview
The unit begins by explaining the concept of the selection of technology. Further, it discusses the
decision on types of processes, plant layout and make or buy decisions.
Learning Objectives

 Summarise the meaning of technology
 Describe the types of processes
 Classify the plant layout
 State the quality parameters
 Define the make or buy decisions
JGI JAIN
Entrepreneurship
Learning Outcomes

 Identify the plant layout
 Select the types of processes
 Evaluate the capacity planning
 Analyse the quality parameters
 Justify the make or buy decisions
 https://www.iare.ac.in/sites/default/files/PPT/IARE_PLMH_PPT.pdf
12.1 INTRODUCTION
To run a successful organisation, it is important to weigh all available alternative technologies and select
the one that is most appropriate in the prevailing circumstances. According to James Lundy, Layout
identically involves the allocation of space and the arrangement of equipment in such a manner that
overall operating costs are minimized. Plant layout is a floor plan for determining and arranging the
designed machinery and equipment of a plant, whether established or contemplated, in the best place,
to permit the quickest flow of material, at the lowest cost and with the minimum handling in processing
the product, from the receipt of raw material to the shipment of the finished product. An optimum
layout provides maximum satisfaction to all concerned parties including:
 Shareholders
 Management Employees
 Consumers
12.2 SELECTION OF TECHNOLOGY

The technological requirements of an organisation must be analysed in detail to evaluate its technical
feasibility. Organisations can acquire the same product or service by using different technologies.
For example, electricity could be generated using solar energy, thermal energy, hydraulic energy and
nuclear energy. The feasibility of technology can be measured based on the following:
 Specifications of a product/service
 Uncertainties and interdependence on other technologies
 Developmental imperatives such as employment opportunities, maximum use of indigenous
resources and reduction in income disparities
 Schedule
 Relevance of the technology with project objectives
 Ease of availability
 Indigenous availability of relevant technology
 Dependence on non-renewable sources of energy
2
UNIT 12: Technology and Operations Plan JGI JAIN
 Organisation’s capacity to adopt the technology

 Operational parameters required to adopt the technology
 Timely availability of manpower with the required skill set for installation, operation and
maintenance of the technology
 Cost of acquiring, installing and maintaining the technology
 Safety parameters of using the technology
 Requirement or availability of research and development in the organisation
 Obsolescence of technology
The selected technologies also need to be assessed concerning their acquisition aspects. These aspects
include the available modes of procuring the technology and associated costs. Some important questions
that organisations should seek to answer before adopting technology for an organisation are as follows:
 Is the technology available as technical know-how, a technical collaboration, or a joint venture?
 Are any patents, trademarks or licences involved in the adoption of the technology?
 What are the terms and legal obligations for adopting the technology?
 Does the technology need to be procured from a specific country or company?
Assessing the selected technologies on this basis would help an organisation in finalising a particular
technology for its organisation.
12.3 DECISION ON TYPES OF PROCESSES

Process design refers to creating or developing a workflow or process for a business completely from
scratch. A process or workflow can be said as the sequence of repeated steps or procedures which an
individual or team must perform to operate a business, accomplish goals and improve productivity.
Figure 1 shows the types of processes in the business:
PRIMARY PROCESS:
- Strategic planning
- Operations management
- Evaluate performance
- Communication
- Continuous improvement
MANAGEMENT PROCESS:
-R&D
- Design & development
- Production manufacturing
- Manage orders
- Delivery
SUPPORT PROCESS:
- Infrastructure & procurement

- Control of document & data
- Acquisition & supply management
- Human resource
Figure 1: Types of Processes in Business
3
JGI JAIN
Entrepreneurship
When an entrepreneur designs a business process it should structure business processes into 3 types:
1. Operational process
2. Supporting process
3. Management process
Let us understand these processes:
Operational Process or Primary Processes

Operational process enables an organisation to answer the question of how does or will business
generate income? Operational process refers to the procedures and tasks which play a key and direct
role in the production of outputs from the inputs. Inputs consist of:
 Labour  Raw equipment  Money
Outputs consist of:

 Final product or service  Level of customer satisfaction
In general, if an organisations process falls under the below categories, it can be termed as operational:
 The development of the final product or service
 The marketing of the final product or service
 The customer service and support an organisation offers – even after the sale
Supporting Processes - Secondary Processes

Supporting processes are the activities that do not generate income themselves, but are there to serve
the internal body of staff across the organisation. Supporting processes bring value to the organisation
but not in the form of money.
For example, the human resource department in an organisation does not necessarily give money to the
organisation but without the Human resource department employees would not be paid.
Supporting processes extends support for the operational processes to be carried out effectively, and
are either, or both: strategically important and necessary.
Management Processes- Tertiary processes

Management processes involve coordination of the above processes. These processes include:
 Planning  Monitoring  General overseeing
Management process means ensuring that the team is meeting targets that the workplace is
compliant and safe and that concerns of employees are dealt with among other managerial duties.
Management process also involves recognising potential threats or opportunities, identifying talents
and recommending them for some training and development programs or a new client.
Although as supporting processes, management does not give direct income to the organisation, these
processes optimise income opportunities and adapt the business when necessary. Strong management
processes are the key to resilience within a business.
4
12.4 PLANT LAYOUT

The term ‘plant layout’ refers to the physical set up of production equipment, administration office,
utility equipment, storage equipment, transportation equipment, raw material, labour and service
facilities used in a production unit. A robust plant layout offers the product to be produced with the
minimum unit cost in the shortest period. Plant layout serves as a prerequisite for efficacy in operations
and provides solutions to many problems.
It is responsible for the proper arrangement of machines, equipment and service departments. The
basic objective is to achieve the efficiency of men, materials, machines and methods in a plant through
proper coordination.
The objectives of a good layout are as follows:
 Plant layout should provide overall satisfaction to all concerned.
 Plant layout should provide material handling and internal transportation from one operation to
the other.
 Plant layout should utilise the space most effectively, maybe cubical utilisation.
 Plant layout should provide workers convenience; promote job satisfaction and safety for them.
 Plant layout should avoid the unnecessary investment of capital. It should help in the effective
utilisation of labour.
 Plant layout should ensure productivity and better quality of the product along with minimum
capital cost.
Plant layout is a plan for effective utilisation of facilities for the manufacture of products involving a
most efficient and economical arrangement of machines, materials, personnel, storage space and all
supporting services, within available floor space. “Plant layout is a plan of optimum arrangement of
facilities including personnel, equipment’s, storage space, material handling equipment and all other
supporting services along with the decision of best structure to contain all these facilities.”
(i) Plant layout is very complex; because it involves concepts relating to such fields as engineering,
architecture, economics and business management.
(ii) Most the managers now realise that after the site for plant location is selected; it is better to develop
the layout and build the building around it – rather than to construct the building first and then try
to fit the layout into it.
Following are the principles of plant layout:

An entrepreneur while designing the plant layout must keep in view the following principles:
 Minimum movement principle: Materials and labour should be moved over minimum distances,
saving cost and time of transportation and material handling.
 Space utilisation principle: All available cubic space should be effectively utilised (horizontally and
vertically).
 Flexibility principle: Plant layout must be flexible, adaptable to changes for any expansion or
technological development.
 Interdependence principle: Interdependent operations and processes should be located near each
other; to minimise product travel.
 Overall integration principle: All the plant facilities should be fully integrated into a single operating
unit; to minimise the cost of production.
5
JGI JAIN
Entrepreneurship
 Safety principle: Facility should be comfortable and safe for the workers.
 Smooth flow principle: The layout should reduce work bottlenecks and facilitate the uninterrupted
flow of work.
 Economy principle: The layout should aim at effecting the economy in terms of investment in fixed
assets.
 Supervision principle: The plant layout should facilitate good supervision of all employees.
There are four types of plant layout, i.e., product (also called line layout) layout, process layout
(functional), combination layout and fixed position layout.
In product layout, all the machines are arranged in the sequence, as required to produce a specific
product. Product layout is also known as the line layout because machines are arranged in a straight
line. The raw materials (input) are fed at one end and taken out as finished products from the other end.
In process layout, all machines performing similar work or operations are grouped at one location in
the shop and they will be clustered as groups.
Combination layout is a combination of the two basic layouts to derive the advantages of product and
process layouts. For example, refrigerator manufacturing uses a combination layout. Process layout is
used to produce various operations such as stamping, welding and heat treatment being carried out in
different work centres as per requirement. The final assembly of the product is done in a product type
layout.
Fixed position layout is also known as stationary layout in which men, materials and machines are
brought to a product that remains in one place owing to its size. For example, ship-building, air-craft
manufacturing, wagon building as well as heavy construction of dams and bridges.
An organisation using the product layout should consider the following points while grouping different
machines:
 All the machines and equipment should be arranged in a sequence as required in operations.
 Two machines should not be coinciding with each other.
The following are the advantages of the product layout:

 Requires minimum material handling cost
 Reduces bottlenecks in the production process
 Provides better control of the production process
 Reduces manufacturing time
 Requires minimum inspection
However, the following are the disadvantages of the product layout:

 Provides lesser flexibility
 Requires huge investments for arranging and grouping different machines
 Requires the execution of individual incentive schemes, which can be difficult for an organisation
 Lacks specialised supervision
6
12.5 SELECTION OF MACHINERY

The machinery and equipment should possess some specific and desirable characteristics or criteria to
be best suited to the desired task. Following are some of the criteria:
 They must fit into the system
 They must be simple as possible
 They must require minimum space
 They must be flexible and adaptable
 They must require a minimum of loading, unloading and re-handling
 They must call for as little maintenance, repair, power and fuel as possible
 They must have a long useful life
 They must be capable of higher capacity utilisation
 They must operate efficiently and economically
12.6 CAPACITY PLANNING

Capacity refers to the ability to achieve, store or produce. For an organisation, the ability of a given
system to produce output within a specific period is capacity. In operations, deciding in advance the
amount of the input resources needed to produce relative output over the period is called capacity
planning.
In general, terms capacity is referred to as maximum production capacity, which can be attained within
a normal working schedule.
For an organisation it is very important to do capacity planning as it helps in optimum utilisation of
resource and decision-making processes. Figure 2 shows the steps involved in capacity planning:
Determine if existing
hardware is meeting
the company’s needs
Determine the
company’s future
needs
Implement CAPACITY
Capacity
Planning
PLANNING
Identify
opportunities
to consolidate
Determine whether
the existing
infrastructure can
support anticipated
growth
Figure 2: Capacity Planning
7
JGI JAIN
Entrepreneurship
Following are the classification of the capacity planning based on the timeline:
 Long-term capacity planning: This depends on various other capacities, such as design capacity,
production capacity, sustainable capacity and effective capacity. Design capacity refers to the
maximum output possible as indicated by the equipment manufacturer under ideal working
conditions. Production capacity refers to the maximum output possible from equipment under
normal working conditions or days. Sustainable capacity refers to the maximum production level
achievable in realistic work conditions and considering normal machine breakdown, maintenance,
etc. Effective capacity refers to the optimum production level under predefined job and work-
schedules, normal machine breakdown, maintenance, etc.
 Medium-term capacity planning: This planning is undertaken by the organisation for 2 to 3 years.
 Short-term capacity planning: This planning is undertaken by the organisation for a daily weekly
or quarterly time frame.
Capacity planning aims to meet the current and future levels of the requirement at a minimal wastage.
The long-term, medium-term and short-term types of capacity planning are based on:
 Lead strategy capacity planning: Adding capacity in anticipation of very high demand for the
product.
 Lag strategy capacity planning: Adding capacity in anticipation of very low demand of the product.
 Match strategy capacity planning: Adding capacity in small amounts concerning the anticipated
demand signals and current market potential of the product.
Following are the factors affecting capacity planning:

 Production facility (layout, design and location)
 Product line or matrix and production technology
 Human capital (job design and compensation)
 Operational structure (scheduling and quality assurance)
 External structure (policy and safety regulations)
12.7 QUALITY PARAMETERS

The parameters of good quality are difficult to determine, however, the information can be termed as
of good quality if it meets the norms of impartiality, validity, reliability, consistency and age. Let us
understand some quality parameters:
 Impartiality: no bias, no distorted view of the situation. The partiality creeps in, if the data is
collected with a preconceived view, a prejudice and a predetermined objective or a certain motive
 Validity: clear purpose of the information
 Reliability: connected to the representation and the accuracy of what is being described
 Consistency: information must relate to a consistent base or a patter
 Age: old information does not meet any characteristics of the information viz., the update of
knowledge, the element of surprise and the reduction of uncertainty and the representation
8
Figure 3 shows the quality parameters:
Functional
features
(usability)
Compliance with Complementary

standards features
Types of quality
Durability Reliability
parameters
Practicality,
Aesthetics
adaptability
Perceived
quality
Figure 3: Quality Parameters
12.8 MAKE OR BUY DECISIONS

A make-or-buy decision refers to the act of choosing between manufacturing a product in-house or
purchasing it from an external supplier.
These decisions are also called outsourcing decisions. A make-or-buy decision compares the costs and
benefits linked with producing a necessary good or service internally to the costs and benefits associated
with hiring an outside supplier for the resources in question.
For comparing costs accurately, an organisation must consider all aspects related to the acquisition and
storage of the items vs. creating the items in-house, which may require the purchase of new equipment
as well as storage costs.
Following points must be considered if the decision is related to make the product in-house:
 Cost considerations (less expensive to make the part)
 Desire to integrate plant operations
 Productive use of excess plant capacity to help absorb fixed overhead (using existing idle capacity)
 Need to exert direct control over production and/or quality
 Better quality control
 Design secrecy is required to protect proprietary technology
 Unreliable suppliers
 No competent suppliers
 Desire to maintain a stable workforce (in periods of declining sales)
9
JGI JAIN
Entrepreneurship
 Quantity too small to interest a supplier

 Control of lead time, transportation and warehousing costs
 Greater assurance of continual supply
 Provision of a second source
 Political, social or environmental reasons (union pressure)
 Emotion (for example, pride)
Following are some of the factors which may influence an organisation to buy a part externally:
 Lack of expertise
 Suppliers’ research and specialized know-how exceeds that of the buyer
 cost considerations (less expensive to buy the item)
 Small-volume requirements
 Limited production facilities or insufficient capacity
 Desire to maintain a multiple-source policy
 Indirect managerial control considerations
 Procurement and inventory considerations
 Brand preference
 Item not essential to the firm’s strategy
The two most important factors to consider in a make-or-buy decision are:
i. Cost
ii. Availability of production capacity
Following are the elements of the “make” analysis:
 Incremental inventory-carrying costs
 Direct labor costs
 Incremental factory overhead costs
 Delivered purchased material costs
 Incremental managerial costs
 Any follow-on costs stemming from the quality and related problems
 Incremental purchasing costs
 Incremental capital costs
Cost considerations for the “buy” analysis include:

 Purchase price of the part
 Transportation costs
 Receiving and inspection costs
 Incremental purchasing costs
 Any follow-on costs related to quality or service
10
 To run a successful organisation, it is important to weigh all available alternative technologies and
select the one that is most appropriate in the prevailing circumstances.
 Some important questions that organisations should seek to answer before adopting technology for
an organisation are as follows:
 Is the technology available as technical know-how, a technical collaboration or a joint venture?
 Are any patents, trademarks or licences involved in the adoption of the technology?
 What are the terms and legal obligations for adopting the technology?
 Does the technology need to be procured from a specific country or company?
 Process design refers to creating or developing a workflow or process for a business completely
from scratch.
 Operational process refers to the procedures and tasks which play a key and direct role in the
production of outputs from the inputs.
 Supporting processes are the activities that do not generate income themselves, but are there to
serve the internal body of staff across the organisation.
 Management process means ensuring that the team is meeting targets that the workplace is
compliant and safe and that concerns of employees are dealt with among other managerial duties.
 The term ‘plant layout’ refers to the physical set up of production equipment, administration office,
facilities used in a production unit.
 There are four types of plant layout, i.e., product (also called line layout) layout, process layout
(functional), combination layout and fixed position layout.
 Capacity refers to the ability to achieve, store or produce.
 In operations, deciding in advance the amount of the input resources needed to produce relative
output over the period is called capacity planning.
 The parameters of good quality are difficult to determine; however, the information can be termed
as of good quality if it meets the norms of impartiality, validity, reliability, consistency and age.
12.10 GLOSSARY
 Plant layout: It refers to the physical set up of production equipment, administration office, utility
equipment, storage equipment, transportation equipment, raw material, labour and service
facilities used in a production unit
 Capacity: It refers to the ability to achieve, store or produce
 Process design: It refers to creating or developing a workflow or process for a business completely
from scratch
 Make-or-buy decision: It refers to the act of choosing between manufacturing a product in-house or
purchasing it from an external supplier
 Supporting processes: These are the activities that do not generate income
11
JGI JAIN
Entrepreneurship
12.11 CASE STUDY: MATERIAL MANAGEMENT AT ELEGENT LTD.
Case Objective
This case study aims to describe the ways to manage material in the organisation.
Elegent Ltd. deals in spare parts and components of vehicles. The organisation was facing a slew of
problems as the operations happened haphazardly. The owner of Elegent Ltd. was perplexed about the
way the organisation’s operations were managed.
The organisation lacked codification of materials, hence, during the production, it was arduous for
workers to locate materials. The store of Elegent Ltd. was mismanaged and all materials were lying in
a helter-skelter manner. There was a high lag time as the majority of workers’ time was consumed to
look for materials. As a result, productivity was reduced and costs were rising. Some auto parts were
quite heavy and required a special crane to lift them from one place to another. However, Elegant Ltd.
did have the requisite machinery to move heavy spare parts. The movement of heavy parts was done
manually by workers, which posed serious hazards and there were chances of work-related injury to
workers.
To overhaul material management, the owner of Elegant Ltd. decided to bring in necessary changes.
Firstly, all materials were coded and properly stored in the allocated space. Proper storage of parts
ensured the reduction of workers’ lag time and production function happened smoothly. The coding
of materials helped workers to retrieve materials easily. Hoists were purchased and used to move
heavy auto parts. Hoists minimised the chances of human injury and the operations happened swiftly.
The result of this was that the worker’s output increased as they were able to focus on core areas of
operation. The overall work efficiency increased significantly and the manufacturing time of auto parts
was reduced to a great extent.
Questions
1. What were the various issues in operations?
(Hint: Haphazardly managed operations, no codification of materials, etc.)
2. How the workers retrieved the materials to manufacture auto parts?
(Hint: Workers used to look out for materials required. There were no set standards.)
3. What was done to smoothen operations?
(Hint: The materials were coded and properly stored at allocated space, hoists were incorporated,
etc.)
4. What were the results of changes?
(Hint: Work efficiency increased significantly and manufacturing time of auto parts was reduced to
a great extent.)
12

1. Discuss capacity planning.
2. Explain the plant layout concept.
3. Describe the elements of make-analysis.
4. Evaluate the concept of make-or-buy decisions.
5. Define process design.

1. In operations, deciding in advance the amount of the input resources needed to produce relative
output over the period is called capacity planning. Refer to Section Capacity Planning
2. The term ‘plant layout’ refers to the physical set up of production equipment, administration office,
facilities used in a production unit. Refer to Section Plant Layout
3. Following are the elements of make analysis:
 Incremental inventory-carrying costs
 Direct labor costs
Refer to Section Make or Buy Decisions
4. A make-or-buy decision refers to the act of choosing between manufacturing a product in-house or
purchasing it from an external supplier. Refer to Section Make or Buy Decisions
5. Process design refers to creating or developing a workflow or process for a business completely
from scratch. Refer to Section Decision on Types of Processes
 https://www.ou.edu/class/che-design/design%201-2013/Layout.pdf
 Discuss the objective of a good plant layout.
13
UNIT
13 Organisation Plan
Names of Sub-Units
Forms of Organisations, Organisation Design and Organisation Structure
Overview
The unit begins by explaining the form of organisation. Further, it discusses the concept of organisation
design and organisation structure.
Learning Objectives

 Summarise the meaning of forms of organisation
 Describe the proprietorship and partnership
 Classify the forms of organisation
 Elucidate the legal issues involved in establishing a business
 Define the organisation design and structure
JGI JAIN
Entrepreneurship
Learning Outcomes

 Identify the forms of organisation
 Select the partnership type
 Evaluate the legal issues in business
 Analyse the organisation design
 Justify the organisation structure
 https://www.economicsdiscussion.net/organisation/forms-of-business-organisation/31599
13.1 INTRODUCTION
Before choosing a type of business ownership, an entrepreneur must know about all forms of business
ownership in a detailed manner. Various production and distribution activities are done by people in
several parts of the country by constituting different kinds of organisations. The ownership patterns
are taken as the basis for categorising business organisations. For example, if there is single ownership
in the business, then it is called sole proprietorship. This choice of business ownership influences many
managerial and financial issues, such as tax payment, capital involved, risk, control, the life of venture,
profit-sharing, liability and secrecy. The first step in establishing a new organisation is deciding whether
there will be one owner of the organisation or multiple owners (shareholders). Some forms of business
organisations are sole proprietorship, partnership, company and cooperative organisation. A sole
proprietorship is considered one of the most common and simplest kinds of business ownership.
13.2 FORMS OF ORGANISATIONS

There are three principal forms of establishing a business organisation, which are sole proprietorship,
partnership and joint-stock company. The oldest of these forms is the sole proprietorship. Most small
shops in villages, towns and cities selling various kinds of daily use items are of this kind. In comparison,
if two or more persons decide to set up a business for sharing the profits earned, it is called partnership.
A partnership between persons can be established through an agreement that can be either written
or oral. Further, oral agreements may lead to ambiguity and disputes in a future period. Hence, it is
better to have a written agreement between partners. Next is the joint-stock company, which is the
incorporation of a large number of persons who have come voluntarily to start a bigger business with
a unique name, perpetual succession, limited liability and a common seal.
When selecting a form of business organisation, one must consider different variables, such as cost of
formulation, ease of operations, the risk involved and liabilities.
Following are the important factors that every entrepreneur should take into consideration before
selecting a legal business structure:
 Cost of starting up: In a sole proprietorship or partnership firm, the starting up cost is less. However,
in a public or private company, the cost of starting a business is very high.
2
UNIT 13: Organisation Plan JGI JAIN
 Ease of doing business: In a sole proprietorship, it is easy to establish and operate, but a partnership
agreement requires partners to decide priorities for starting business operations. A company
involves more work and is essential for the company to adhere strictly to state requirements.
 Termination: In partnership and sole proprietorship firms, the business automatically terminates
in cases of death, the withdrawal of a partner, retirement and bankruptcy. However, business
organisations such as cooperative organisations and joint-stock company have perpetual succession.
 Public information: In public or private companies, there is a lack of secrecy because it is mandatory
from the government’s side to present the financial records to the registrar and the public. But for
business organisations, such as sole proprietorship, it is not mandatory to present the financial
information to the registrar or the public.
 Risk: In business organisations, such as partnerships and a sole proprietorships, there is a huge risk
involved. For instance, in a sole proprietorship or partnership firm, the members or partners have
unlimited liability and they are personally liable to pay the debts and face the obligations arising
from the business operations.
 Control: In a sole proprietorship, the owner has full control over the business and in partnership, the
control is shared among the partners or members.
 Capital raised: In a sole proprietorship, partnership and cooperative organisations, the capital
raised by the members is limited because they contribute the amount from their savings or take
a loan from a bank, but in the case of a joint-stock company, there is large capital invested by the
shareholders as they allow the public to subscribe the shares of the company at some price.
 Selling: In a sole proprietorship, it is easy to sell business assets and terminate the business without
taking permission from the government. In the case of partnership and joint-stock company, it
becomes difficult to dissolve or terminate the business or exit from it.
13.2.1 Proprietorship
The term ‘sole proprietorship’ is a combination of two words, wherein ‘sole’ means ‘single’ and
‘proprietorship’ means ‘ownership’. Therefore, a sole proprietorship is that form of business organisation,
in which there is only one business owner. This form of business is the simplest one for starting and
operating business promptly. In a sole proprietorship, the owner can take the money on credit and can
also employ persons for any assistance. ‘Sole traders’ is another name given to sole proprietors, who are
responsible for the outcome (either profit or loss) of business.
This form of business is suitable for the:
 Businesses that do not need much capital
 Businesses that require quick decisions
 Businesses where there is limited risk
 Businesses in which the owner’s attention is required to analyse the tastes and preferences of
customers
 Businesses in which there is no requirement for skilled management
The characteristics of a sole proprietorship are as follows:

 The sole proprietorship does not require any kind of registration or incorporation because there is
no separate law to govern this form of business organisation.
 The owner of the business has unlimited liabilities.
3
JGI JAIN
Entrepreneurship
 The proprietor alone is the bearer of all the profits and losses of the business.
 The business and the owner are the same in the eyes of law, hence, there is no separate legal entity.
 The continuity of business depends on the proprietor. The death, retirement, mental conditions,
imprisonment, bankruptcy, etc., will impact the sole proprietorship.
The advantages of a sole proprietorship are as follows:

 The owner will enjoy full control over the business.
 The owner will make fast decisions according to his/her wish.
 The confidentiality is maintained as the proprietor does not require the owner to publish financial
accounts (balance sheet) for the public.
 The owner does not require to share profits with anyone.
The disadvantages of a sole proprietorship are as follows:

 There is unlimited liability for the proprietor.
 The proprietor has to invest capital alone which is limited.
 The life cycle of this form of business is undecided as it is linked with the proprietor.
 The proprietor may not have the essential skills to run the business efficiently.
13.2.2 Partnership
According to the Indian Partnership Act, 1932, partnership is the relation between two or more persons
who have agreed to share the profits from a business carried on by either all of them or any of them
on behalf of/acting for all.
Partners sign an agreement that can be oral or written. The agreement must be stamped properly. The
written agreement is called the partnership deed and the firm established is called the partnership
firm. The registration of the partnership firm is not mandatory, but partners can register the firm with
the appointed registrar of the government and can avail of concessions or benefits of the government
schemes.
The characteristics of partnership are as follows:
 The partnership firm is not considered a separate legal entity, but there should be a legal agreement
signed by all the partners.
 The liability shared by the partners in a partnership firm is unlimited, which means if there is a loss
in business, then all the partners are liable to pay the debts even from their savings or by selling
personal assets.
 The life of a partnership firm depends on the death, retirement, insanity, bankruptcy, etc., of the
partners. In case of death or any other issue of one partner, other partners can continue the
partnership by making a new agreement.
 The minimum number of partners for making a partnership firm is two and maximum is twenty,
but, for banking, the maximum number of partners is ten.
 The partnership firm is a mutual agency in which the operations are carried out by all the partners
or any one of them acting for all.
4
Let us discuss the types of partners in detail:

 Active partner: This partner is responsible for actively taking part in the business operations of
the partnership firm. The active partner provides the capital and has a share in the profit of the
business. The active partner also has unlimited liability and can work as an agent for the rest of the
partners.
 Dormant partner: This partner is also called a sleeping partner. The dormant partner does not take
part in the routine functioning of the partnership firm but is responsible for contributing capital
and has a profit share. This partner also has unlimited liability.
 Secret partner: This partner is not known to the public. The secret partner does not represent the
partnership firm to external agents, but contributes capital, has a share in profits and also has
unlimited liability such as other partners.
 Nominal partner: This partner neither contributes capital nor has a profit share. The nominal
partner allows the partnership firm to use his/her name or goodwill. This partner shares unlimited
liability like other partners.
 Partner by estoppel: This partner is not a partner, but by his/her words and conducts, the external
parties believe that he/she is one of the partners of the particular partnership firm. This partner
also has unlimited liability.
The advantages of a partnership are as follows:
 It is quite simple to form a partnership firm as no legal formalities are required to form it.
 It is easy to arrange large capital in comparison to a sole proprietorship because there are two or
more partners who arrange the funds called capital for starting the business.
 It is flexible to make changes in a partnership firm because there are no legal procedures involved.
 It utilises every partner’s managerial ability, experience and goodwill for the growth of the business.
 It is easy for the partners to manage risk.
The disadvantages of partnership are as follows:

 In a partnership, there are chances of a lack of harmony among partners as the partners tend to
blame each other if any mistake occurs.
 In a partnership, the capital raised by each partner is limited because the maximum number of
partners cannot exceed more than twenty.
 In a partnership firm, there is a lack of public faith because there is no legal formation and
functioning.
 In a partnership, there are chances that a firm may dissolve due to the death or insolvency of the
partner. Insolvency is the condition when a person is or partners are unable to pay the bills, dues or
debts.
13.2.3 LLP
The Law defines Limited Liability Partnership as:
A corporate business vehicle that enables professional expertise and entrepreneurial initiative to
combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability
while allowing its members the flexibility for organizing their internal structure as a partnership.
5
JGI JAIN
Entrepreneurship
Following are the features of LLP:

 It has a separate legal entity, i.e., the LLP and the partners are distinct from each other.
 It needs at least two partners to form an LLP but there is no limit on the maximum number of
partners.
 It has no requirement of minimum capital contribution.
 The LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only and
would be available for use by any enterprise.
Following are the benefits of forming an LLP:

 The liability of each partner is limited to his share as written in the agreement filed at the time of the
creation of LLP as compared to partnership firms which have unlimited liability.
 It has a low cost of formation and is easy to form.
 The partners are not liable for the acts of each other and can be held liable only for their acts as
compared to partnerships wherein they can be held liable for the acts of their partners as well.
 Less restrictions and compliance are enforced on an LLP by the government as compared to the
restrictions enforced on a company.
 As a juristic legal person, an LLP can sue in its name and be sued by others. The partners are not
liable to be sued for dues against the LLP.
13.2.4 Public Limited

A public limited refers to a voluntary association of members who are incorporated, and therefore have
a separate legal existence and the liability of whose members is limited.
Public limited are listed on the stock exchange where its share/stocks are traded publicly.
Let us understand this concept in detail:
A joint stock company is the incorporation of a large number of persons who have come voluntarily to
start a bigger business with a unique name, perpetual succession, limited liability and a common seal.
According to Prof. L.H. Haney, A joint stock company is a voluntary association of individuals for
profit, having a capital divided into transferable shares, the ownership of which is the condition of
membership.
In a joint stock company, the whole capital is divided into transferable shares. The owners of the shares
are called shareholders who have the right to take part in the management of the business and decision-
making. The owner and the company are considered different from each other, and the company is
treated as a separate legal entity in the eyes of law.
Let us discuss the types of companies in detail:
 Private company: All those companies that restrict shareholders’ rights to transfer the shares
to other people are called private companies. These companies have a minimum of two and a
maximum of fifty members. It does not invite the general public to invest its deposits in the company
by subscribing to its share capital. A private company has a minimum paid up capital of ` 1,00,000.
 Public company: All those companies that are not private are called public companies. The minimum
number of members required in public companies is seven. A public company allows the general
public to subscribe to its shares and also permits to transfer shares. The minimum paid up capital
of a public company is ` 5,00,000.
6
13.2.5 Legal Issues

When an entrepreneur establishes business, there are many legal requirements that an entrepreneur
has to adhere to. Some of the important legal requirements are:
1. The legal structure of business: An entrepreneur needs to decide on the legal status or structure of
the company. The chosen legal structure of an entrepreneur will affect how business operations run.
Structure of business will have implications on how an entrepreneur pays taxes and keep accounts.
Following are the most widely used business legal structures:
 Limited partnership or Sole proprietorship
 Limited Liability Company (LLC)
 Corporation
 S-corporation
To decide on which legal structure or status is best for a new business, an entrepreneur must
consider all liability issues linked with the company. An entrepreneur must think of a tax structure
that will be best for business.
2. Trademark: Before choosing a business’s official name, an entrepreneur needs to do a meticulous
online search for finding out if there is any other business using that name for operating. This will
help to avoid infringing upon another company’s trademark and getting caught up in a trademark
opposition action.
After selecting the official company name, register your trade name and logo as a trademark which
will restrict others from registering their company under the same name.
3. Licenses: An entrepreneur needs several types of licenses or permits before opening a business.
The number of licenses depends on the type of establishment the entrepreneur wants to run. An
entrepreneur at least requires a business license, trading license and sales tax permit.
For example, for opening a restaurant, pub or catering company, an entrepreneur has to register
with the local governing body for food standards and health and safety oversight.
An entrepreneur must do some additional research and contact relevant local government agencies
for specific licenses to legally run a business.
4. Zoning laws: If an entrepreneur is looking for a good location for an office, then he/she should
ensure that the area is properly zoned for the type of business he/she plans to run. Entrepreneur
must search and ask local government bodies to be certain that he/she can open a business in that
particular area.
5. Relevant health and safety laws: As an entrepreneur, he/she must assume several important health
and safety responsibilities, like employees’ work safety and healthy environment. Also consider well-
being of clients and visitors inside, outside and business premises.
Perform risk assessment, mitigate risks or hazards which may include changing some standards
or operating procedures and removing some fixtures to ensure that employees and members of the
public are safe.
6. Insurance: An entrepreneur must check various legislations under which it can come such as
Employees State Insurance Act, Code on Wages and Code on Industrial Relations.
7. Confidentiality and non-disclosure agreements: When an entrepreneur has to work with partners
for business financing or entering into contracts with suppliers, he/she must ensure that parties
must have entered into non-disclosure agreements.
7
JGI JAIN
Entrepreneurship
13.3 ORGANISATION DESIGN AND ORGANISATION STRUCTURE

Organisation design is a sequential method for identifying and shaping how the organisation is
structured and operated. Organisation design involves various aspects of life at work that includes:
 Team formations
 Shift patterns
 Lines of reporting
 Procedures of decision-making
 Channels of communication
Organisation design can be re-aligned according to the needs of the organisation such as current
goals and business changes. It aims to improve the technical and interpersonal side of the workplace.
Implementation of an efficient organisational design makes an organisation more effective, focused by
improving internal operations, interdepartmental relationships and working efficiency.
While implementing organisation design, management may enforce many strategic changes for
achieving the desired outcomes. There can be clashes between work-processes and the occasional trade-
offs. Changes in the design of the organisation may not be as smooth as the management will as them
to be. However, many organisations have been quite successful in implementing such changes with
an eye on the big picture and have communicated their strategies with transparency to their human
resource to avoid resistance, which helped them to bring future-embracing changes in their structure.
Organisation design is a framework architecture in which an organisation runs its business.
For designing such a framework, the management draws objectives that ensure:
 A great business growth model
 Efficiency and profits
 Excellent customer service
 Management of process
 Good workforce productivity
 Less operational expenses
 Increased human resource engagement
Organisation structure is different from organisational change. Organisational structure is mapping

out the departments and different teams to work in each department in hierarchical order according
to the goals and objectives. Organisational structure illustrates the roles and responsibilities given to
different departments.
Following are some organisational structure:
 Functional structure: In the functional structure of the organisation, every part of the organisation
is grouped according to its job function.
 Divisional structure: The divisional structure is typical of larger companies that operate in bigger
geographical areas or they operate in different domains for different products.
 Matrix structure: A structure that results by combining two or more types of organisational
structures, such as by combining the functional and divisional structures is called the matrix
structure.
8
 Project structure: A project structure is created as a separate unit or division within a permanent
functional structure; drawing specialists and workers from various functional departments who
work under the overall leadership, control and coordination of a project manager to complete
projects of a technical and costly nature. According to George R. Terry, A project organisation is
a preferred means whenever a well-defined project must be dealt with or the task is bigger than
anything, the organisation is accustomed to.
 There are three principal forms of establishing a business organisation, which are sole proprietorship,
partnership and joint-stock company.
 When selecting a form of business organisation, one must consider different variables such as cost
of formulation, ease of operations, the risk involved and liabilities.
 Sole proprietorship is a form of business organisation in which there is only one business owner.
 ‘Sole traders’ is another name given to sole proprietors, who are responsible for the outcome (either
profit or loss) of business.
 The sole proprietorship does not require any kind of registration or incorporation because there is
no separate law to govern this form of business organisation.
 Partnership is the relation between two or more persons who have agreed to share the profits from
a business carried on by either all of them or any of them on behalf of/acting for all.
 A public limited refers to a voluntary association of members who are incorporated, and therefore
have a separate legal existence and the liability of whose members is limited.
 In a joint stock company, the whole capital is divided into transferable shares. The owners of the
shares are called shareholders, who have the right to take part in the management of the business
and decision making.
 Before choosing a business’s official name, an entrepreneur needs to do a meticulous online search
for finding out if there is any other business using that name for operating.
 Organisation design is a sequential method for identifying and shaping how the organisation is
structured and operated.
 Organisational structure is mapping out the departments and different teams to work in each
department in hierarchical order according to the goals and objectives.
 Some of the organisational structures are functional structure, divisional structure, matrix
structure and project structure.
13.5 GLOSSARY
 Sole traders: The sole proprietors who are responsible for the outcome (either profit or loss) of
business
 Active partner: Partner who is responsible for actively taking part in the business operations of the
partnership firm
 Private companies: All those companies that restrict shareholders’ rights to transfer the shares to
other people
9
JGI JAIN
Entrepreneurship
 Public companies: All those companies that are not private

 Organisation structure: It illustrates the roles and responsibilities given to different departments
13.6 CASE STUDY: WORKING OF A PROJECT ORGANISATION STRUCTURE
Case Objective
This case study aims to describe how a project structure works.
The US Financial Services Company wanted to establish a PMO due to a lack of IT project portfolio
visibility. There was no process to prioritise projects and when done resulted in immature prioritisation
and approvals. For this problem, the company hired a professional project management consultant
PCube.
The consultant was faced with the task of setting up and delivering a functional Project Management
Office (PMO), which would provide a clear picture of all business projects and their relative priorities.
This needed to be done to enable effective decision-making and control. Program and project success
can be managed effectively with the help of a PMO because it ensures required planning and control
and timely delivery. PCube sets up the PMO by following a five-stage roadmap as follows:
 Maturity level 1: This is an initial or an ad-hoc PMO stage where there is no formal PMO probably
because the organisation did not deem it necessary till then or because it had failed in the previous
implementation.
 Maturity level 2: A PMO at level 2 maturity (planned/repeatable PMO) means that it is engaged in
strategically important projects in a multi-project environment or that it lays emphasis over best
practices to be followed in projects.
 Maturity level 3: A PMO at the third level of maturity is a defined or an organised PMO. A defined
PMO provides effective mentoring and training to all project managers and teams. In addition, it
also performs the oversight function which means that it continually supports current projects.
 Maturity level 4: A PMO at the fourth level of maturity is an integrated or a managed PMO. This type
of PMO provides proactive support to the organisation’s program and projects.
 Maturity level 5: A PMO at the fifth level of maturity is the most developed form of a PMO and is an
optimised or sustained PMO.
The consultant set up the PMO as a new centre of excellence by following four phases as mentioned:
 Defining the PMO: First of all, before a PMO was planned; the organisation was asked to identify its
goals and objectives. In addition, it must also identify and define necessary functions, roles, controls
and the desired level of PMO maturity.
 Developing PMO roadmap: Next, the consultant established a roadmap for the implementation of
PMO which involves people, processes and tools. The roadmap was developed keeping in mind the
values, capacity and ability of the organisation to implement controls.
 Implementation and delivery: After developing a roadmap for PMO implementation, an initial PMO
was rolled out to gain control of programs and projects. The initial PMO was gradually transformed
into a PMO that could support the organisation’s program and demands of projects.
 Consolidation: After initially deploying a PMO, the consultant knew that its client wanted to achieve
a PMO of a Level 2 maturity wherein the PMO could help it in prioritising the projects.
10
PCube implemented a maturity level 2 PMO for the Financial Company that could capture, prioritise,
approve and manage projects within the portfolio of the organisation. As a result of PMO implementation,
the project managers use project ranking criteria and pipeline reviews to select and accept projects. In
addition, the PMO also provides the portfolio and resource visibility with a capacity-demand view of all
projects.
Questions
1. What do you understand by ‘maturity levels’?
(Hint: five-stage roadmap, strategically important projects)
2. Explain the project structure.
(Hint: separate unit or division, project manager, specialist and workers)
3. Why PMO was established?
(Hint: lack of IT project portfolio visibility, no process to prioritise projects)
4. Describe the characteristics of maturity level 3.
(Hint: defined or an organised PMO, mentoring and training)
5. What were the phases for consultants set up for excellence?
(Hint: defining PMO, establish a roadmap, implementation)

1. List down the factors which every entrepreneur should take into consideration before selecting a
legal business structure.
2. Define sole proprietorship and its characteristics.
3. Explain the characteristics of a partnership.
4. Examine the types of partners.
5. Justify the organisation structure.

1. When selecting a form of business organisation, one must consider different variables, such as
cost of formulation, ease of operations, the risk involved and liabilities. Refer to Section Forms of
Organisations
2. The term ‘sole proprietorship’ is a combination of two words, wherein ‘sole’ means ‘single’ and
‘proprietorship’ means ‘ownership’. Refer to Section Forms of Organisations
3. The partnership firm is not considered a separate legal entity, but there should be a legal agreement
signed by all the partners. Refer to Section Forms of Organisations
4. The types of partners are active, dormant, secret, nominal and partner by estoppel. Refer to Section
Forms of Organisations
11
Entrepreneurship
5. Organisation structure illustrates the roles and responsibilities given to different departments.
Refer to Section Forms of Organisations
 http://eeedrmcet.zohosites.com/files/IV%20Year/SEM%207/POM/POM_L9.pdf
 Discuss the role of organisation design in making an organisation successful.
12
UNIT
14 SMEs in India
Names of Sub-Units
Introduction to SMEs, role of SMEs in India, classification of MSMEs, analysis of problems for Indian
SMEs, analysis of sickness in SMEs, concept of causes of sickness and government support to SMEs.
Overview
This unit begins by meaning of SMEs, it discusses the classification of MSMEs. The unit analyse the
problems for Indian SMEs. Analysis of government support to SMEs, analysis the causes of sickness
and sickness in SMEs.
Learning Objectives

 Explain the meaning of SMEs
 Discuss the classification of MSMEs
 Describe the analysis of problems for Indian SMEs
 Extent the sickness in SMEs
 Classify the causes of sickness
JGI JAIN
Entrepreneurship
Learning Outcomes

 Assess the meaning of SMEs
 Examine the sickness in SMEs
 Analyse the classification of MSMEs
 Evaluate the problems for Indian SMEs
 Identify the causes of sickness
 https://www.cgap.org/sites/default/files/CGAP-Small-and-Medium-Enterprises-Jan-2011.pdf
14.1 INTRODUCTION
SME sector of India is considered as the backbone of economy contributing to 45% of the industrial
output, 40% of India’s exports, employing 60 million people, create 1.3 million jobs every year and
produce more than 8000 quality products for the Indian and international markets. With approximately
30 million SMEs in India, 12 million people expected to join the workforce in next 3 years and the sector
growing at a rate of 8% per year, Government of India is taking different measures to increase their
competitiveness in the international market.
Several factors that have contributed towards the growth of Indian SMEs. Few of them includes funding
of SMEs by local and foreign investors, the new technology that is used in the market is assisting SMEs
to add considerable value to their business, various trade directories and trade portals help facilitate
trade between buyer and supplier and thus reducing the barrier to trade.
With this huge potential, backed up by strong government support, Indian SMEs continue to post their
growth stories. Despite of this strong growth, there is a huge potential amongst Indian SMEs that still
remains untapped. Once this untapped potential becomes the source for growth of these units, there
would be no stopping to India posting a GDP higher than that of the US and China and becoming the
world’s economic powerhouse.
Manufacturing Enterprises – Investment in Plant & Machinery

Description INR USD ($)
Micro Enterprises Up to Rs. 25Lakhs Up to $ 62,500
Small Enterprises above Rs. 25 Lakhs & up to Rs. 5 Crores above $ 62,500 & up to $ 1.25 million
Medium Enterprises above Rs. 5 Crores & up to Rs. 10 Crores above $ 1.25 million & up to $ 2.5 million
Service Enterprises – Investment in Equipment’s

Description INR USD ($)
Micro Enterprises Up to Rs. 10Lakhs Up to $ 25,000
Small Enterprises above Rs. 10 Lakhs & up to Rs. 2 Crores above $ 25,000 & up to $ 0.5 million
Medium Enterprises above Rs. 2 Crores & up to Rs. 5 Crores above $ 0.5 million & up to $ 1.5 million
2
UNIT 14: SMEs in India JGI JAIN
Entrepreneurship and small business are very closely intertwined to the degree that they are used
interchangeably more often than not as if they mean the same thing. Although entrepreneurship and
SMEs play an important role in job, income and societal change, particularly in developing economies,
they are still not synonymous. This paper argues that entrepreneurship differs from SMEs by closely
examining the literature on the two. Despite their differences, entrepreneurship and SMEs play
significant roles in an economy’s development and growth. SMEs are seen to account for quite a large
proportion of the business sector while entrepreneurial enterprises are seen as the drivers of economic
growth and job development Entrepreneurship is a process that leads to the growth or creation of start-
ups and small and medium-sized enterprises and business projects. Finally, this paper concludes with a
framework of the relationship diagram that substantiates their discrepancies and similarities.
SMEs or small and medium-sized enterprises, are defined differently around the world. The country a
company operates in provides the specifics on the defined size of an SME. The sizing or categorisation
of a company as an SME, depending on the country, can be based on a number of characteristics. The
traits include annual sales, number of employees, the number of assets owned by the company, market
capitalisation or any combination of these features. The United States also defines SMEs differently
from one industry to another.
14.2 ROLE OF SMES IN INDIA

Small and medium enterprises (SMEs) have a key role in ensuring economic growth sustainably and
exclusively. They are often the source of innovative ICT-enabled solutions that make a long-lasting
impact in global, regional and national economies and they are an important source of new jobs,
especially for youth. SMEs make up more than 95% of all businesses worldwide and represent a path out
of poverty for many developing countries.
 Bringing equitable development: The SME sector has succeeded in reducing the regional imbalances
through a more equitable distribution of the nation’s resources and will continue to do so in 2021.
Apart from directly providing for rural areas, this sector has been largely responsible for being
ancillary units to the large industries. This is because large industries mostly cater to the developed
parts of the country. Through SMEs they can reach a wider and remote areas which, in turn, leads
to growth and development in these regions.
 Increasing employment opportunities: The SME sector is said to be the largest creator of
employment opportunities in our country, at a relatively low cost of capital. In comparison to the
larger industries, the sector is said to provide four times more employment. Employing lakhs of
people from even the most backward areas, no wonder that SMEs are called the ‘Engine of Growth.’
Furthermore, SMEs will also continue to invest in upgrading the skills and training of employees.
 Boosting the manufacturing sector: There is a wide classification of industries under the MSME
sector, the majority of which fall under the purview of manufacturing. As India treads the path
towards self-reliance, SMEs in manufacturing are investing in substantial modernisation, technology
up-gradation and infrastructure development, a trend that will continue in 2021. All of these feats
require significant capital. Thanks to the easy availability of SME loans today, small and medium
businesses can continue strengthening this industry in the years to come.
 Improving Export Competitiveness: SMEs can improve trade significantly by exporting a wide
range of products internationally. This can boost their profits, which is pivotal in reducing their
dependence on direct subsidies and protection from the government. Some of the high -performing
items exported by the SMEs are ready-made garments, leather goods, engineering items and
processed goods. In 2021, the percentage contribution of its exports is expected to go up due to
reduced regulations.
3
JGI JAIN
Entrepreneurship
 Favour’s flexibility and innovation: Many technological processes and innovations are attributed
to small and mid-size enterprises (SMEs). Since large enterprises tend to focus on improving the
old products to produce more quantities and obtain general benefits of dimensional economy such
companies are not as flexible as the SMEs.
In order to be successful, the SMEs focus is on creating the new products or services, hence, they
are capable of adapting faster to the changing requirements of the market. SMEs play a vital role in
shaping a country’s economy. They can be considered as an attractive and huge innovative system.
Due to the socially and economically beneficial effects of the SMEs, the sector is considered an area
of strategic interest in an economy.
 Creates a more competitive and healthier economy: Small and medium-sized enterprises stimulate
competition for the design of products, prices and efficiency. Without SMEs, large enterprises would
hold a monopoly in almost all the activity areas.
 Assists big enterprises: Small and medium-sized enterprises help large companies in some areas
of operation that they are better able to supply. Hence, SMEs are dissolved immediately, the big
enterprises will be forced to be involved in more activities, which may not be efficient for these
enterprises. Activities such as supplying raw materials and distributing the finished goods created
by big enterprises are developed more efficiently by SMEs.
The significance of small and medium-sized enterprises is also recognised by the governments.
Hence, they offer regular incentives to SMEs, such as easier access to loans and better tax treatment.
14.2.1 Classification of MSMEs

Government of India enacted Micro, Small and Medium Enterprises Development Act, 2005, (MSME
Act) under which classification of micro, small and medium enterprises (MSME) was dependent on two
factors: (i) investment in plant and machinery; and (ii) turnover of the enterprise. It is also pertinent to
note that different thresholds were prescribed for being classified as an MSME based on the aforesaid
factors, for enterprises engaged in manufacturing and services sector.
However, recently, under Aatmanirbhar Bharat Abhiyan (ABA), Ministry of Micro, Small and Medium
Enterprises, vide its notification dated June 1, 2020, revised MSME classification by inserting a composite
criterion for both investment in plant and machinery and an annual turnover of enterprises. Also, the
distinction between the manufacturing and the services sectors under the erstwhile MSME definition
has been done away with. This removal will create parity between the sectors.
A comparison of the erstwhile MSME classification to the revised classification where the investment
and annual turnover, both are to be considered for classification of an enterprise as an MSME, is set out
as follows elaborate below table a little.
Erstwhile MSME Classification

Criteria: Investment in Plant and Machinery/Equipment
Classification Micro Small Medium
Investment not more Investment not more Investment not more than
Manufacturing Enterprises than INR 25 lakhs than INR 5 crores INR 10 crores
Enterprises rendering Investment not more Investment not more Investment not more than
Services than INR 10 lakhs than INR 2 crores INR 5 crores
4
Revised MSME Classification (w.e.f. July 1, 2020)

Composite Criteria: Investment in Plant and Machinery/Equipment and Annual Turnover
Classification Micro Small Medium
Investment in P&M/ Investment in P&M/ Investment in P&M/
Manufacturing Enterprises Equipment not more equipment not more equipment not more than
and Enterprises rendering than INR 1 crore and than INR 10 crores and INR 50 crores & annual
Services annual turnover not annual turnover not turnover not more than
more than INR 5 crores more than INR 50 crores INR 250 crores
The new classification of MSMEs shall be effective from July 1, 2020. This new classification has been
introduced by the Government to boost businesses and put the rest for growing fear among MSMEs
of losing benefits granted under the MSME Act on account of outgrowing the erstwhile thresholds
of classification. While this is a welcome initiative by the Government, various questions remain
unanswered, namely - what constitutes “plant and machinery”, will the previous guidelines on the
calculation of investment towards plant and machinery still be applicable.
Further, it is pertinent to note that Finance Minister has clarified that start-ups are eligible to avail
relief measures announced for MSME under the ABA. While start-ups are not explicitly covered under
the definition of MSMEs, start-ups operating and engaged in the manufacturing and services sector
may consider registering themselves as an MSME on the Udyog Aadhar Portal (considering the revised
classification of MSMEs). By registering as an MSMEs, start-ups can avail the various other benefits
offered to MSMEs under the ABA. Official notifications, in this regard, are awaited.
For a company manufacturing goods-
 Micro-Enterprise- Up to Rs. 25 lakhs
 Small Enterprise- Rs. 25 lakhs – 5 crores
 Medium Enterprise- Rs. 5 crores – 10 crores
For a service organisation-

 Micro Enterprise- Up to Rs. 10 lakhs
 Small Enterprise- Up to Rs. 10 lakhs – 2 crores
 Medium Enterprise- Rs. 2 crores – 5 crores
Due to this classification, the government had to incur expenses to physically verify the actual assets
and chart up the actual investments made.
Now, the government has passed a new bill, which classifies the MSMEs based on their annual turnover
instead of investment.
The revised basis for classification of MSMEs based on turnover has made it easier for both the
government and the industries to recognise a business as an MSME.
The Government can look up in the GST database to match the actual turnover cited by an organisation
and accordingly classify it into the MSME category.
Unlike the previous classification basis where the criteria were different for goods and service sector, in
the revised parameters there is just one on the basis of classification for goods and service sector.
5
JGI JAIN
Entrepreneurship
14.3 PROBLEMS FOR INDIAN SMES

India is one of the fastest-growing economies in the world. In the last half-decade, the economic growth
has steadily accelerated and most importantly, remained very stable. This growth has been driven by
robust socio-economic policies of the government, an influx in the domestic and foreign capital and rise
in disposable income and consumption among many other positive attributes. One other major factor
that is being touted as the backbone of India’s economy is Small and Medium Enterprises (SME) sector.
Whether it is agriculture, manufacturing or service industry, SMEs are mushrooming in a myriad of
sectors across the country. Statistics show that SMEs accounts for 45% of industrial output and 40%
of the total exports in India. It generates employment for 60 million people and creates 1.3 million jobs
every year. Given that a majority of India’s population lives in villages and Tier-1/Tier 2 cities, the SME
sector has also emerged as a key factor to urbanise rural India.
However, in spite of its contribution to the socio-economic growth of India, SMEs face several problems:
1. Inadequate access and marketing platform:
SMEs in India have been subjected to weak marketing linkages. Due to factors such as insufficient
government support, lack of adequate marketing facilities, the path for the marketing and sale of
SME products will continue to be a challenging one in future.
For marketing of products or services internationally, SMEs are always constrained by the scarcity
of budget, which in turn has limited their growth.
2. Lack of access to new technology:
Although technology has advanced in recent years, thanks to the proliferation of mobile phones and
the internet, the continuance of low technology use by SMEs has always resulted in low productivity.
This has rendered them uncompetitive in the ever-widening market.
Though SMEs in metropolitan cities have now shown their positive attitude towards the technological
uptake, the rural destinations are still not advanced. This will continue to be a challenge in 2018 also.
3. Lack of required credit:
The most significant constraint to the growth of SMEs in our country relates to inadequate capital
and credit facilities. In the coming year also, SMEs are bound to face the situations of complex
collaterals by the banks, cumbersome sanction procedures, delay in disbursement and high rate
of interest on the SME loan. Difficulty in obtaining an easy and timely credit is a crucial factor
hampering the SME growth.
4. Cumbersome regulatory practices:
The regulatory practices such as construction permits, resolving insolvency, collateral securities/
guarantees and taxation . will continue to be the constraining factors for many SMEs in 2018.
The absence of a common regulatory body and inadequate provisions for start-ups will affect the
growth of such enterprises.
5. Ease of doing business remains a bottleneck:
Most start-ups in India face the problem in the initial stages because of too many regulations and
approvals. Even as India managed to jump places in the World Bank’s Ease of Doing Business index,
there are several loopholes in the system that keep businesses on the edge and prevent them from
expanding or flourishing. Many times, entrepreneurs are demotivated to start up because of troubles
relating to MSME loans, enforcing contracts and dealing with construction permits. The time taken
by businesses to enforce a contract remains longer, at 1,445 days, than it was 15 years ago (1,420
6
days). There have been significant changes in terms of registering a new business which has come
down to 30 days from 127 days, local entrepreneurs have to still wait and clear 12 procedures to start
a business in Mumbai, whereas globally it takes just five procedures on an average.
6. Lack of financial expertise:
Even as entrepreneurs keep devising new strategies and plan the expansion of their existing
business, there are still a large number of entrepreneurs who lack the financial knowledge to steer
the business in the right direction. Those entrepreneurs without sound financial knowledge may not
be in a position to make crucial business decisions related to MSME loans. In absence of financial
knowledge, you may end up taking wrong decisions that may cost the business unless you are seeking
any external advice. Also, the knowledge about finance is important you have to rely on an MSME
loan to tide over crises that may knock at the door anytime. Hence, it is important to understand
everything related to MSME loans, find out about the MSME loan interest rate and compare the
same in the market before availing of a loan.
7. Lack of Access to Financing Solutions:
Most businesses face perennial problems of accessing finance or availing an MSME loan even as
the government has implemented measures to make credit for businesses readily available to
foster entrepreneurship. The regulatory loopholes that cause a delay in getting licenses, insurance
and certifications also hamper the prospects of MSMEs. Most businesses face problems related to
manufacturing, timely purchase of raw materials or even access to new technologies or acquire
new skills due to lack of funding. Another major problem is the economic slowdown that has led to
liquidity crunch but the government had given a breather to MSMEs by asking banks not to declare
any stressed loan on account of MSMEs as NPA till March 2020 and work on recasting their debt.
8. Technology remains a major deterrent:
Most businesses fail to reap the benefits of the latest technological developments in their sector
due to a lack of expertise and awareness. Hence MSMEs need to be apprised of the technological
developments that are significant for the growth of their businesses. It is important for scientific
research bodies to remain involved with the local MSME clusters and take notice of their technology-
related problems and issues. However, there have been concerted efforts to offer solutions to MSMEs
on these issues as the government is working towards the launch of E-commerce portal ‘Bharat
Craft’ that will act as a direct interface between sellers and buyers.
9. Labour issues:
Most SMEs face frequent labour issues and especially in the new normal times, the ongoing migrant
crises have manifested themselves as the most difficult areas for industries to operate in such times
of pandemic. Apart from labour problems, businesses also need to emphasis on skill development,
training and ensuring market linkages to facilitate both the urban and the rural micro-entrepreneurs.
The emphasis on skill development can benefit the sector substantially and more so at the time of
crisis.
10. Lack of Trust:
It is seen that banks refrain from extending MSME loans since the amount remains small and
also, banks believe MSMEs lack the required repayment capacity. In such a situation, they end up
implementing strict regulations on these start-ups. Some businesses also fail to keep track of their
credit rating that hampers the prospect of availing loans. Moreover, traditional lending options
make it difficult for business owners to meet strict eligibility criteria besides the lengthy procedure
of MSME loan approval further dampens their spirits.
7
Entrepreneurship
14.3.1 Sickness in SMEs

The global experience indicates that in the process of economic and industrial development, a certain
level of industrial sickness is inevitable to exist as the inefficient units are bound to be displaced from
the industrial scene by more efficient ones. For example, during the period 1972 to 1983, the number of
bankruptcies per annum has increased from around 10,000 to more than 25,000 in the United States,
from less than 7,000 to around 20,000 in Japan, from around 4,000 to more than 10,000 in West Germany
and from 3,000 to more than 12,000 in the United Kingdom.
Sickness in the Indian industries has grown rapidly in recent years and has assumed alarming
proportions, particularly in small-scale industries. During 1980-81, while non-SSI sick units experienced
an increase of 67% only, SSI sick units recorded an increase of the order of 857%. Sickness has become an
endemic and epidemic in small-scale enterprises in India.
Considering the impending effects of sickness on the national economy, it will be interesting to examine
the incidence of sickness in small-scale enterprises in the country. One simple and commonly used
method to examine the same is to know the number of sick small-scale industries (SSI) and amounts
outstanding in them. Data on the number of sick SSIs and the amount is outstanding against them in
the books of scheduled commercial banks as at the end of March since the year 1999 is presented in the
following table.
Table: Incidence of Sickness in SSIs

(` Crores)
Year All India Data

No. of Sick Units Amount Outstanding ` Amount Outstanding per Unit
1,993 2,23,176 3,443 0.015
1,994 2,56,452 3,680 0.014
1,995 2,68,815 3,547 0.013
19% 2,62376 3,722 0.014
1,997 2,35,032 3,609 0.015
1,998 2,21,536 3,857 0.017
1,999 3,06,261 4,313 0.014
2,000 3,04,235 4,608 0.015
2,001 2,49,630 4,506 0.018
2,002 1,77,336 4,819 0.027
2,003 1,67,980 5,706 0.034
2,004 1,43366 5,773 0.040
2,005 1,38,041 5,380 0.039
2,006 1,26,824 4,981 0.044
2,007 1,14,132 5,267 0.046
Around 10% of total SSIs have fallen sick, i.e., one out of every ten SSIs has become sick. It is encouraging
to note that while there has been a decline in the number of sick SSIs since 2001, bank outstanding per
unit has increased during the same period.
8
This decline does not seem due to the government policies but due to increasing awareness about
business/industries among people entering the entrepreneurial career. Increase in bank outstanding
per unit is understandable in the sense that the bank ceilings have been raised from time to time.
As on March 2007
State Number of Sick Amount Number of Sick Amount
SSI Units Outstanding SSI Units Outstanding
Tamil Nadu 9488 875.3 9895 1002.35
Maharashtra 8665 630.63 7401 540.04
Gujarat 3699 420.37 3350 271.45
Uttar Pradesh 15751 416.8 13309 823.39
West Bengal 31568 377.28 28592 352.9
Odisha 7421 346.46 3602 70.92
All India 126824 4981.13 114132 5266.65
The growing incidence of sickness in SSIs has become all-pervasive in terms of ownership (public and
private sector), across states and industries. Yet what is evident from the above table is that the number
of sick units and the share of credit involved in sick units as a percentage of total expenditure to small
enterprises is high in the states/regions having a high rate of industrialisation .
An important inference from the above data is that sickness tends to creep in at the initial stages in
small enterprises. As has been noted by Dr. Rakesh Mohan, Deputy Governor, RBI in his Bharti Annual
Lecture at Entrepreneurship Development Institute of India, Ahmedabad on 28-03-2008: “There is some
corroborating evidence suggesting the difficulty of entry of new business entrepreneurs. When we look
at the World Bank surveys on doing business across countries, India typically ranks quite low in the
range of 120-130. At the same time, we find that both the level of profit of the corporate sector in India
and the growth of profits is among the highest in the world…. Once you get in, it is easy to grow but
getting in the first place, is difficult.”
Some of the entrepreneurs have also opined on similar lines. Small enterprises are not being financially
strong and they are more susceptible to even minor malfunctions and tend towards sickness. Small
enterprise is beautiful but at the same time highly sensitive also. Therefore, a small enterprise, such as
a sapling or a baby, has to be nurtured in the initial stages.
The stress-induced at the initial stage, if it is not managed promptly, it leads to sickness and ultimately
closure of the unit in most cases. Just as the high infant mortality rate in the Indian population, Sande
Sara (1988) in his research study has a found high infant mortality rate among the small-scale industries
in India.
As there is much possibility of sickness setting in small enterprises at the initial stages. Therefore, the
banks should be more carefully monitor the working of small enterprises in the initial stages.
While examining the incidence of industrial sickness, the viability position of sick industries seems the
most important from the point of view of the effects of sickness on the economy. Following table bears
out data on the viability position of sick SSIs during the recent two years of 2006 and 2007.
9
JGI JAIN
Entrepreneurship
Table: Viability Position of Sick Small Enterprises

(` Crore)
Particulars At the end of March

2,006 2,007
Number of Total Sick Units 1,26,824 1,14,132
Number of Potentially Viable Units 4,594 4,287
Number of Non-viable Units 1,22,230 1,09345
% of Non-viable Units to Total Sick Units 96.8 95.6
Ratio between Viable to Non-viable Units 1 : 30 1 : 27
Number of Units under Nursing Programmes 12 7
% of Units under Nursing Programmes to Viable Units 0.26 0.16
As regards the viability status of sick SSIs, it is found alarming and precarious. It is found that out of
every 10 sick SSIs, sickness in as many as 9 units have advanced to the extent of rendering the units
beyond cure, i.e., non-viable. Speaking alternatively, these non-viable units cannot be cured, and thus
they are as good as dead.
Only 0.26% of sick viable units in 2006 and 0.16 % of sick viable units in 2007 were put under nursing
programs suggesting that some viable sick units in the absence of nursing/rehabilitation programmes
may become non-viable in course of time.
However, both the number of sick SSIs and the non-viable sick SSIs has decreased slightly during 2006-
07. This is perhaps due to the rehabilitation efforts of the government and the functioning of different
agencies working to control the sickness in SSIs in the country.
Causes of Sickness
The different types of industrial sickness in Small Scale Industry (SSI) fall under two important categories.
They are as follows:
External Causes
1. General recessionary trend: Sometimes a general depression hits the industrial unit. This is reflected
in the lack of demand for industrial products in general. An overall slowdown in economic activities
affects the performance of individual projects. Improper demand estimation for the products to
project lands the industrial units in difficulties.
2. High prices of inputs: When the costs of manufacture are high and sales realisation low, the
industrial unit cannot stand in the market. This happens when the prices of inputs such as price of
fuel such as petroleum during energy crisis goes up whereas the competitive forces keep down the
prices of the products.
3. Non-availability of raw materials: When the supplies of raw materials are not available regularly
or in good quality, the industrial units are bound to be in trouble. This often occurs in the case of a
supply of imported raw materials.
4. Changes in government policies: Industrial sickness is also caused by certain changes in policy
designs of the government. These frequent changes affect the long-term production, financial
10
and marketing planning of an industrial unit. Changes in Government policies regarding imports,
industrial licensing, taxation can make viable units sick. For example, liberal import policy since
1991 has rendered many small-scale industrial units sick.
5. Infrastructure bottlenecks: Often the infrastructure difficulty is responsible for industrial sickness.
No industrial unit can survive prolonged transport and power bottlenecks.
Internal Factors
1. Project appraisal deficiencies: The industrial unit becomes sick when the unit has been launched
without a comprehensive appraisal of the economic, financial and technical viabilities of the project.
2. Industrial unrest and lack of employee motivation: When there is labour discontent, no industrial
unit can function smoothly and efficiently. When labour lacks their motivation then no good results
can be expected and this results in sickness and non-viability of several industrial units.
3. Wrong choice of technology: If the promoters use the wrong technology, results are bound to be
unsatisfactory. Many industrial units, especially in the small-scale sector, do not seek professional
guidance in installing the correct machinery and plant. If the machinery and plant installed turn
out to be defective and unsuitable, they are bound to suffer losses and become sick and non-viable.
4. Marketing problems: The industrial unit becomes sick due to product obsolescence and market
saturation. The industrial unit becomes sick when its product mix is not attuned to the consumers
demand.
5. Wrong location: If the location of an industrial unit happens to be defective either from the point of
the market or the supply of inputs, it is bound to experience insurmountable difficulties.
6. Lack of finance: Inadequate financial arrangements or in the absence of timely financial aid an
industrial unit is bound to come to grief. It will not be able to withstand operational losses.
7. Improper capital structure: If capital structure proves to be unsound or unsuitable especially
on account of delayed construction or operation, it will result in cost overruns or unduly large
borrowing and create financial trouble for the unit concerned.
8. Management deficiencies: The biggest cause of industrial sickness is the managerial inefficiency.
Lack of professional management or experienced management and the existence of hereditary
management is an important cause of industrial sickness. Inefficient management results in
the inability to perceive things in proper perspective devoid of routine considerations. Inefficient
management is also unable to build up a good team and inspire confidence for an organised
collective effort and takes autocratic and high-handed decisions.
9. Voluntary sickness: There is some sickness that is voluntarily invited by the entrepreneurs for
various motives such as getting government concession or aid from financial institutions. Thus,
industrial sickness cannot be attributed to any single or simple cause but may be the result of a
combination of the number of allied causes.
14.3.2 Government Support to SMEs

The small-scale business sector, also known as Small and Medium Enterprises (SME) sector, contributes
around 40% to the total GDP of India. This sector plays a vital role in increasing employment opportunities
in India but faces tough competition from privately-funded businesses. Therefore, the Government of
India (GoI) offers multiple loan schemes to finance these small-scale businesses. These loans can be used
by the SMEs to fund their operations, purchase new equipment and expand their business.
11
Entrepreneurship
Here are the schemes offered by the government:

 MSME government business loan scheme: The Government of India launched this scheme as
a working capital loan and an MSME can get a loan sanctioned of Rs. 1 crore in just 59 minutes.
This loan is granted at an interest rate of 8% so that the re-payment is easy on the pockets of the
takers. Enter the GST identification number of the business, followed by Income Tax Returns in XML
format. Upload the bank statement for the last 6 months in the business account. Enter the personal,
educational and ownership criteria of the director and submit the application.
 MUDRA business loan: Under this scheme, small businesses and start-ups are given financial
support through low-cost credit. This loan is financed through public and private sector banks. An
MSME working in the manufacturing, trading and service sector can avail of this loan. There are
three subheads of this scheme – Sishu loan up to Rs. 50,000, Kishor loan up to Rs. 5,00,000, and Tarun
loan up to 10,00,000.
 Credit guarantee fund scheme for micro and small businesses: This loan scheme allows funding
without collateral to businesses that fall under the MSME sector. These loans can be granted to
both the new and the existing enterprises. The Credit Guarantee Fund Trust was established by the
Ministry of MSMEs and the Small Industries to implement the CGFMSE scheme.
 Udyogini: As the name of the scheme suggests, it is a scheme that has been initiated for empowering
Indian women. The funding under this scheme is given to support women in meeting their capital
requirements for starting a business. The maximum loan granted under this scheme is ` 15,00,000.
An eligible woman entrepreneur must be between the age of 18 years to 55 years. And the annual
income of the woman’s family must not be above ` 15,00,000. Carry passport-sized photographs,
Below Poverty Line Card, birth certificate, Caste Certificate, Aadhar Card, passbook or bank account,
ration card and certification of income to apply for the loan.
 National small industries corporation subsidy: The primary function of this ISO certified
government scheme, is to aid the growth of MSMEs by providing services including finance, market,
technology and others across the country. For the MSMEs, the NSIC has initiated two schemes–
a. Marketing support scheme: This scheme is vital as the MSMEs must be aided to provide the
growth in the current competitive market.
b. Credit support scheme: The financial assistance is provided to procure raw materials, for
marketing activities and for financing with banks through syndication to MSMEs.
 SME sector of India is considered as the backbone of the economy contributing to 45% of the
industrial output, 40% of India’s exports, employing 60 million people, create 1.3 million jobs every
year and produce more than 8000 quality products for the Indian and international markets.
 With this huge potential, backed up by strong government support, Indian SMEs continue to post
their growth stories.
 Entrepreneurship and small business are very closely intertwined to the degree that they are used
interchangeably more often than not as if they mean the same thing.
 SMEs or small and medium-sized enterprises, are defined differently around the world.
 Small and medium enterprises (SMEs) have a key role in ensuring economic growth in a sustainable
and inclusive manner.
12
 The SME sector has succeeded in reducing the regional imbalances through a more equitable
distribution of the nation’s resources and will continue to do so in 2021.
 The SME sector is said to be the largest creator of employment opportunities in our country, at a
relatively low cost of capital.
 There is a wide classification of industries under the MSME sector, the majority of which fall under
the purview of manufacturing.
 The new classification of MSMEs shall be effective from July 1, 2020.
 An important inference from the above data is that sickness tends to creep in at the initial stages in
small enterprises.
 The stress-induced at the initial stage, if it is not managed promptly, it leads to sickness and
ultimately closure of the unit in most cases.
 The small-scale business sector, also known as Small and Medium Enterprises (SME) sector,
contributes around 40% to the total GDP of India.
 The Government of India (GoI) offers multiple loan schemes to finance these small-scale businesses.
14.5 GLOSSARY
 Entrepreneurship: It is an act of being an entrepreneur or the owner or manager of a business

enterprise who, by risk and initiative, attempts to make profits
 Economic growth: It is the increase in the production of economic goods and services
 Competitiveness: It is demonstrated ability to design, produce and commercialise an offer that fully,
uniquely and continuously fulfills the needs of targeted
 Innovation: It is practical implementation of ideas that result in the introduction of new goods or
services or improvement in offering goods or services
14.6 CASE STUDY: CSR EFFORTS OF TATA STEEL (TISCO)
Case Objective
The case aims to describe the CSR efforts of TATA steel.
Tata Steel strikes a balance between economic value, ecological needs and societal value. Its vision and
aspiration are shown in its vision statement, ‘We aspire to be the global steel industry benchmark for
Value Creation and Corporate Citizenship’. During the initial years of Tata Steel, its CSR interventions
were more in the form of ‘provider’. It provided support to the society to fulfill the overall needs of the
community for its sustenance and development.
Gradually, the shift in the approach made Tata Steel a ‘catalyst’ focusing on building the community
capacity through providing training programmes and focusing on providing technical support rather
than giving support. CSR interventions of Tata Steel focused on ‘sustainable development’ to enhance
the quality of life of people. It guided the company in its race to excel in all the areas of sustainability.
JRD Tata, the Chairman of the Tata Group, believed that “to create good working conditions, to pay the
best wages to its employees and provide decent housing to its employees are not enough for the industry,
13
JGI JAIN
Entrepreneurship
the aim of an industry should be to discharge its overall social responsibilities to the community and the
society at large, where the industry is located.”
The belief of JRD Tata was considered as a guided mandate. Tata Steel, since decades, has been making
efforts and using its resources and skills to give back the community a fair share for all that has been
taken for the production and business activities. Tata Steel aids and propagates the principles of the
United Nations Global Compact as a Founder Member, is a signatory to the World Steel Sustainability
Charter and supports the Affirmative Action program of the Confederation of Indian Industry.
Tata Steel’s approach towards business has evolved from the concept that the wealth created must be
continuously returned to society in some form. The responsibility of combining the three elements of
society—social, environmental and economic—is of utmost importance to the way of life at Tata Steel.
Tata Steel’s CSR activities in India extend to the Company’s Steel Works, Iron ore mines and collieries, in
the city of Jamshedpur, its semi-urban areas and over 800 villages in the states of Jharkhand, Odisha
and Chhattisgarh.
Community involvement and development is a characteristic of all Tata Steel Group companies around
the world. It may be in the form of financial support, provision of materials and the involvement of
time, skills and enthusiasm of employees. Tata Group contributes to a very wide range of social,
cultural, educational, sporting, charitable and emergency assistance programs. Tata Steel works in
partnership with the Government, national and international development organisations, local NGOs
and the community to ensure sustainable development. The Corporate Services Division delivers these
responsibilities through several institutionalised bodies:
 Tata Steel Corporate Social Responsibility and Accountability Policy
 Corporate Social Responsibility
 Tata Steel Rural Development Society (TSRDS)
 Tribal Cultural Society (TCS)
 Tata Steel Family Initiatives Foundation (TSFIF).
 Tata Steel Skill Development Society (TSSDS)
 Education
 Medical Services
 Urban Services
 Sports Department
 Tata Steel Adventure Foundation
 JUSCO
 Other societies such as Ardeshir Dalal Memorial Hospital, Blood Banks and Kanti Lal Gandhi
Memorial Hospital.)
 Tata Relief Committee
In order to evaluate the effectiveness of social initiatives taken by Tata Steel, the company innovatively
devised a Human Development Index (HDI). In 2012-13, HDI assessment was completed for 230 villages.
Tata Steel also created a council named, ‘The Corporate Social Responsibility Advisory Council’. The aim
of creating the council is to direct the group for its social initiatives and efficient resource allocation by
considering the results of HDI.
14
Questions
1. What was the responsibility of Tata Steel as a CSR initiator?
(Hint: The three elements of society, social, environmental and economic)
2. What were the contributions of Tata Group?
(Hint: The contributions of Tata Group involved social, cultural, educational, sporting, charitable
and emergency assistance programmes.)
3. How Tata Steel worked to ensure sustainable development?
(Hint: Tata Steel worked by partnering with the Government, national and international development
organisations and local NGOs.)
4. List five instutionalised bodies which Tata Group has formed to implement CSR initiatives.
(Hint: Corporate Social Responsibility, Tata Steel Rural Development Society (TSRDS), Tribal Cultural
Society (TCS), Tata Steel Family Initiatives Foundation (TSFIF), Tata Steel Skill Development Society
(TSSDS))
5. How Tata Steel became a ‘catalyst’?
(Hint: By focusing on building community capacity through providing training programmes and
focusing on providing technical support rather than giving support.)

1. Explain the SME sector of India.
2. Discuss the role of SMEs in India.
3. Explain the classification of MSMEs.
4. Describe the Problems for Indian SMEs.
5. Explain the causes of Sickness in SMEs.
B. Hints for Essay Type Questions

1. SME sector of India is considered as the backbone of the economy contributing to 45% of the
industrial output, 40% of India’s exports, employing 60 million people, create 1.3 million jobs every
year and produce more than 8,000 quality products for the Indian and international markets. Refer
to Section Introduction
2. Small and medium enterprises (SMEs) have a key role in ensuring economic growth in a sustainable
and inclusive manner. They are often the source of innovative ICT-enabled solutions that make a
long-lasting impact in global, regional and national economies and are an important source of new
jobs, especially for youth. Refer to Section Role of SMEs in India
3. Government of India enacted Micro, Small and Medium Enterprises Development Act, 2005 (MSME
Act) under which classification of micro, small and medium enterprises (MSME) was dependent
on two factors: (i) investment in plant and machinery and (ii) turnover of the enterprise. Refer to
Section Role of SMEs in India
15
Entrepreneurship
4. India is one of the fastest-growing economies of the world. In the last half-decade, the economic
growth has steadily accelerated and most importantly, remained very stable. Refer to Section
Problems for Indian SMEs
5. The different types of industrial sickness in Small Scale Industry (SSI) fall under two important
categories. They are as follows:
1. External Causes
2. Internal Causes.
Refer to Section Problems for Indian SMEs
 https://www.smechamberofindia.com/about-msme-in-india.php
 https://www.ibef.org/industry/msme.aspx
 Discuss with your friends about the importance of SMEs for the economic growth of a country.
16
UNIT
15 Institutions that Support

Entrepreneurship
Names of Sub-Units
Introduction to institutions that support entrepreneurship, role of SIDBI and its functions, analysis
of KVIC and its structure, analysis of IDBI and its functions, concept of causes of NIESBUD and its
objectives, concept of CEDOK and its vision
Overview
This unit begins by explaining the meaning of institutions that support entrepreneurship and it
discusses the role of SIDBI and its functions. The unit analyses the KVIC and its structure. It also covers
the analysis of NIESBUD and its objectives as well as the concept of CEDOK and its vision.
Learning Objectives

 Explain the meaning of institutions that support entrepreneurship
 Discuss the SIDBI and its objectives
 Describe the KVIC and its terminology
 Extent the IDBI and its functions
 Classify the NIESBUD and its objectives
JGI JAIN
Entrepreneurship
Learning Outcomes

 Assess the meaning of institutions that support entrepreneurship
 Examine the KVIC and its structure
 Analyse the concept of CEDOK and its mission
 Evaluate the NIESBUD and its functions
 Identify the SIDBI and its objectives
 https://www.myaccountingcourse.com/accounting-dictionary/financial-institution
15.1 INTRODUCTION
The term ‘Institutional Support’ refers to the part of the economic environment of industry and business.
It consists of authorities and institutions whose decisions and active support in form of laws, regulation,
financial and non-financial help brings a lot of changes in the functioning of any business.
The institutions could be government owned, statutory, semi-autonomous or autonomous. It is the
government or government supported institutions authorised to take up certain activities – financing,
marketing, project preparation and training to promote industrial activities in the state.
There are three stages of promotion – inception stage, operational stage and expansion or diversification
stage. The Government through its plans and policies assisted the business houses in facilitating the
above stages through various specialised institutions set up as per the law. An entrepreneur who needs
to set up a business unit of his own or with his friends and relatives is supposed to know the various
institutions or organisations working as per the law for the purpose. Dissemination of information in
this regard can only help them in achieving the very dream of becoming a successful entrepreneurs.
15.2 INSTITUTIONS PROVIDING SUPPORT TO ENTREPRENEURS

Financial sectors play an indispensible role in the overall development of a country. The most important
constituents of this sector is the financial institutions which acts as a conduit for the transfer of the
resource from the net saver to net borrowers, i.e, from those who spends less than their earnings to
those who spend more than their earnings. Financial institutions have traditionally have been the major
source of long term funds for the economy. These institutions provides a variety of financial products
and services to fulfil the varied needs of the commercial sector. Besides they provide the assistance to
the new enterprises, small and medium firms as well as to the industries established in backward areas.
Thus, they have helped in reducing regional disparities by inducing widespread industrial development.
The government of India in order to provide the adequate supply of credit to the various sectors of the
economy has evolved a well developed structure of financial institutions in the country. These financial
institutions can be broadly categorised into all India Institutes, State Level Institutions, depending upon
the geographical coverage of their operations Financial sectors play an indispensible role in the overall
development of a country.
2
UNIT 15: Institutions that Support Entrepreneurship JGI JAIN
The most important constituents of this sector is the financial institutions which acts as a conduit for
the transfer of the resource from the net saver to net borrowers, i.e, from those who spends less than
their earnings to those who spend more than their earnings. Financial institutions have traditionally
have been the major source of long term funds for the economy. These institutions provides a variety of
financial products and services to fulfil the varied needs of the commercial sector. Besides they provide
the assistance to the new enterprises, small and medium firms as well as to the industries established
in backward areas. Thus, they have helped in reducing regional disparities by inducing widespread
industrial development.
The government of India in order to provide the adequate supply of credit to the various sectors of the
economy has evolved a well developed structure of financial institutions in the country. These financial
the geographical coverage of their operations Financial sectors play an indispensable role in the overall
development of a country. The most important constituents of this sector are the financial institutions
which act as a conduit for the transfer of the resource from the net saver to net borrowers, i.e., from those
who spend less than their earnings to those who spend more than their earnings. Financial institutions
have traditionally have been the major source of long-term funds for the economy.
These institutions provide a variety of financial products and services to fulfill the varied needs of the
commercial sector. Besides they assist the new enterprises, small and medium firms as well as the
industries established in backward areas. Thus, they have helped in reducing regional disparities by
inducing widespread industrial development.
The government of India to provide the adequate supply of credit to the various sectors of the economy
has evolved a well-developed structure of financial institutions in the country. These financial
the geographical coverage of their operations.
15.2.1 SIDBI
The Small Industries and Development Bank of India (SIDBI) were established on 2nd April 1990, as a
wholly-owned subsidiary of the Industrial Development Bank of India (IDBI). Their main focus is
to strengthen the MSME sector by facilitating cash flow. SIDBI is involved in the financing as well as
promotion and development of Micro, Small and Medium Enterprises (MSMEs). It is engaged in assisting
the small-scale industrial sector in the country for the development, commercialisation and marketing
of its innovative technologies and products. SIDBI administers various loan schemes through customised
financial schemes of administering Small Industries Development Fund and National Equity Fund
and others services for meeting the demand of different business projects. SIDBI further helps small-
sized industrial sector in the nation via other financial institutions such as state finance corporations,
commercial banks and state industrial development corporations. The different products and loans
offered by SIDBI are:
 SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises (SMILE)
 Smile Equipment Finance (SEF)
 Loans under Partnership with OEM
 Working Capital (Cash Credit)
 SIDBI Trader Finance Scheme (STFS)
 Loan for Purchase of Equipment for Enterprise’s Development (SPEED)
3
JGI JAIN
Entrepreneurship
SIDBI has provided direct finance to well-run companies on a selective basis for acquiring machinery and
equipment both indigenously and imported for modernisation, expansion, diversification, etc., under
the equipment finance scheme. The SIDBI offers Term Loan Assistance, Working Capital Assistance,
equity support Foreign Currency Loan, Support against Receivables, an energy-saving scheme for the
MSME sectors, and more. They also offer microfinance to small businessmen and entrepreneurs for
establishing their business.
The different functions of SIDBI are:
 To provide financial and refinance support of Small-Scale Industries (SSIs) and funding for MSME
industries
 To grant direct assistance and refinance loans extended by primary lending institutions for financing
exports of products manufactured by small scale units To provide refinance to financial institutions,
NBFCs, small finance companies and also to banks
 To offer financial services in terms of leasing, factoring and hire purchase services
 To promote employment opportunities among SSIs and assists exports
 To provide bank loans to women and an underprivileged group of people through National Equity
Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and through other specified lending agencies
15.2.2 KVIC
KVIC is a statutory body formed by the Government of India under the KVIC Act of 1956 that aims to nurse
employment and economic uplift in rural India. The term Khadi goes back to the Swadeshi Movement
launched by Mahatma Gandhi in 1920 by propagating the use of hand-woven and home-spun fabrics. It
was a form of protest to shun British goods and the simplicity of the method was remarkable. Khadi is a
hand-made cloth using the simple charkha, an implement common in rural India.
KVIC full form is Khadi and Village Industries Commission constituted as an apex body under the
Ministry of Micro, Small and Medium Enterprises to help plan, promote, facilitate, organise and aid
in the development of Khadi and Village Industries in rural India in conjunction with other agencies
involved in rural development.
Structure of KVIC:
The headquarters of KVIC is located in New Delhi and its six Zonal Offices are spread in a few main cities
of India at:
 New Delhi
 Bhopal
 Bengaluru
 Kolkata
 Mumbai
 Guwahati
Further to the zonal offices, there are 29 other offices in different states to oversee the implementation
of different programs in alignment with the commission’s objectives.
4
KVIC Terminology:
It is imperative to get a greater insight into the common terms in use for a comprehensive understanding
of the entire KVIC scheme.
1. Khadi: Originating as a political weapon in the Swadeshi Movement, it denotes hand-woven or
hand-spun fabric by using the common charkha or wheel. The common raw materials used are
cotton, silk, wool and synthetic ploy. The usual source area of the fabric in India are:
 Cotton: Andhra Pradesh, Uttar Pradesh, Bihar and West Bengal
 Silk: West Bengal, Bihar, Odisha and North Eastern States
 Wool: Haryana, Himachal Pradesh, Jammu and Kashmir
 Poly: Gujarat and Rajasthan
2. Village Industry: It denotes any industry that is located in the rural area using a fixed capital
investment per artisan or weaver not exceeding `1 lakh.
KVIC Scheme Details:

There are a host of schemes under the KVIC scheme list aimed at achieving the objectives set for the
commission.
1. KVIC PMEGP: The scheme was launched by replacing The Rural Employment Generation Programme
(REGP) and the Pradhan Mantri Rozgar Yojana (PMRY) by the Ministry of MSME. The Prime Minister’s
Employment Generation Program (PMEGP) is a credit-linked subsidy programme aimed at creating
employment opportunities across all areas of the country.
2. Interest Subsidy Eligibility Certificate (ISEC): It is designed to be the major source for KVIC Projects
involving the institutions registered with KVIC. It mobilises funds from the banking institutions to
bridge the funding gap about budgetary allocations.
3. Scheme of Fund for Regeneration of Traditional Industries (SFURTI): It aims to promote cluster
development involving Khadi and Village Industry products. The nodal agency for the implementation
of the scheme is KVIC.
4. Market Promotion Development Assistance (MPDA): It aims to augment the income of the artisans.
The distribution of assistance is in the ratio of:
 Artisans: 40%
 Producer: 40%
 Seller: 20%
5. Khadi Reform and Development Program (KRDP): The prime objective of this scheme is employment
generation and the enhanced earning of the artisans. It aids in the repositioning of the Khadi in
alignment with the current needs.
Features of KVIC Loan:

The loans under the commission are routed through and governed by PMEGP guidelines. The financial
assistance is based on various criteria related primarily to MSME specifications as under:
1. Quantum of Loan: Manufacturing Sector: Maximum ` 25 lakhs Business and Service Sector:
Maximum ` 10 lakhs
2. Per capita investment cap: Plains: ` 1 lakh Hills: ` 1.5 lakhs
5
JGI JAIN
Entrepreneurship
3. Funding pattern: The following grid is indicative of the funding pattern defined in KVIC loan
components. It is to be importantly noted that the special category includes the reserved, minorities,
women, ex-servicemen, disabled, northeast and border areas among others.
Category Beneficiary contribution Rate of subsidy
Urban Rural
General 10% 15% 25%
Special 5% 25% 35%
4. KVIC Loan tenure: The normal tenor of the loans provided under the scheme is 3 to 7 years, including
a moratorium of 6 months.
5. Margin Money: It is kept in a separate SB account with a lock-in of 3 years but adjusted with the
KVIC loan.
6. Income Ceiling: There are no income ceilings under the KVIC loan, but only that the loan is provided
for new ventures and the borrower must not have enjoyed any other loan.
15.2.3 NIESBUD
The National Institute for Entrepreneurship and Small Business Development is a premier organisation
of the Ministry of Skill Development and Entrepreneurship, engaged in training, consultancy, research,
etc., to promote entrepreneurship and Skill Development. The major activities of the Institute include
Training of Trainers, Management Development Programmes, Entrepreneurship-cum-Skill Development
Programmes, Entrepreneurship Development Programmes and Cluster Intervention.
The Institute has been actively delivering International Training for the ITEC nation participants under
the aegis of the Ministry of External Affairs. The institute has been financially self-sufficient since 2007-
08.
NIESBUD is an apex body for coordinating and overseeing the activities of various institutions and
agencies engaged in entrepreneurship development particularly in the area of small-scale industry.
The main objectives of the institute are:
1. To accelerate the process of entrepreneurship development throughout the country and among all
segments of the society.
2. To help institutions/agencies in carrying out activities relating to entrepreneurship development.
3. To evolve standardised process of selection, training support and sustenance to potential
entrepreneurs enabling them to set up and run their enterprises successfully.
4. To provide information support to trainers, promoters and entrepreneurs by organising
documentation and research work relevant to entrepreneurship development
5. To provide functional forums for integration and exchange of experiences helpful for policy
formulation and modification at various levels.
Functions
The main functions of the Institute are as follows:
 Evolving effective training, strategy and methodology
 Formulating scientific selection procedure
6
 Standardising model syllabus for training for various groups

 Developing training aids, manuals and other tools
 Supporting 9ther agencies engaged in entrepreneurship development
 Conducting such programmes for promoters, trainers and entrepreneurs which are commonly not
undertaken by other agencies
 Organising all those activities that help develop an entrepreneurial culture in the country
 Publishing literature for the furtherance of entrepreneurship and small business development
15.2.4 IDBI
Industrial Development Bank of India (IDBI) was launched under the Industrial Development Bank of
India Act, 1964 as a Development Financial Institution (DFI). The bank was established as a wholly-
owned subsidy of the Reserve Bank of India under the Industrial Development Act of 1965. The bank
was launched in 1964 as an apex institution for planning, promoting, coordinating and financing the
development of industry and institutions engaged in financing, promoting or developing industries in
the country. The main objective of setting up the IDBI was to make a coordinated and collaborated effort
for achieving maximum industrial growth. The IDBI head office is located in Mumbai and they have
five regional offices, in Kolkata, Guwahati, New Delhi, Chennai and Mumbai. Also, there are twenty-one
branch offices.
IDBI has three main areas of lending:
 Direct financial assistance to large and medium scale sectors
 Refinance assistance to state financial corporations
 Bills discounting and rediscounting.
The refinance business of IDBI is now being largely taken over by the Small Industries Development
Bank of India (SIDBI). The important objectives of the bank are as follows:
 To serve as an apex institution for term finance for the industry.
 To coordinate the working of institutions engaged in financing, promoting and developing industries
and to help and assist with the development of these institutions.
 To plan, promote and develop the industries to fill gaps in the industrial structure
 To provide technical and administrative assistance for promotion and expansion of industry
 To undertake market and investment research and surveys along with technical and economic
studies concerning the development of industry
 To help as lender of last resort to finance projects that are in tandem with the national priorities
IDBI is regarded as one of the apex institutions in the domain of development banking which has an
important role in coordinating the activities of other development banks and term-financing institutions
in the capital market of the country. The IFCI and the UT1 are the subsidiaries of the IDBI. In recent times
IDBI has started assisting in backward areas and small-scale industries
The management of IDBI consists of a Board of Directors where the chairman and Managing Director
of IDBI are appointed by the Government of India, the Deputy Governor of the RBI is nominated by the
bank and twenty other directors are nominated by the Central Government.
7
JGI JAIN
Entrepreneurship
There is an executive committee that consists of ten directors constituted by the board which also
included the Managing Director and the Chairman. The executive committee has the authority for giving
sanctions for financial assistance. Some of the institutions that are created by IDBI are the National
Stock Exchange (NSE), the National Securities Depository Services Ltd. (NSDL) and the Stock Holding
Corporation of India (SHCIL).
The functions of IDBI bank are:
 To provide direct financial assistance to industrial concerns by giving them long-term loans and
advances.
 To provide a guarantee for loans raised by industrial concerns in the open market or from banks or
other financial institutions.
 To purchase, accept, discount and rediscounting bills of exchange, debentures, promissory notes,
hundis and more industrial concerns.
 To directly subscribes to shares, bonds and debentures issued by industrial concerns and also
underwrites these issues.
 To provide and arrange technical and managerial assistance for an industrial concern or expansion
of any industry.
 To undertake investment and marketing research and other kinds of techno-economic studies that
are needed for the development of the industries.
15.2.5 NSIC
The National Small Industries Corporation (NSIC), an ISO 9000 certified company, has been working
to fulfill its mission of promoting, aiding and fostering the growth of the small-scale industries and
industry-related small services/businesses the country. There are various functions of NSIC, from which
some are discussed further in this article.
Role and Responsibility of NSIC
National Small Industries Corporation (NSIC) was set up in the year 1955 as the central government
undertaking. The main aim is to fulfil the machinery and equipment requirements for the development
of small entrepreneurs. It has been observed that the primary constraint faced by entrepreneurs is
the shortage of investible funds to purchase machinery and equipment. The non-availability of finance
deprives many new entrepreneurs of availing entrepreneurial opportunities.
NSIC has been established to cater to this need of the entrepreneur. NSIC provides equipment, plant and
machinery on a hire-purchase basis. Under its scheme, entrepreneurs can procure indigenous as well as
imported machinery. But the scheme does not include second-hand machinery and machinery costing
less than ` 1000. NSIC Registration helps to assists the entrepreneurs in procuring government orders
for various items of stores.
Discrimination is made between the units located in industrially developed regions & the units of
scheduled castes, scheduled tribes and persons with disabilities, ex-servicemen and women. New
entrepreneurs are given special incentives. For imported machinery, an entrepreneur must abide by the
provisions of the government’s import policy. Entrepreneurs have to secure the license for such imports.
In special cases, the entrepreneurs have to prepare prototypes of the machines.
Over some time, growth, transition and development, the NSIC has proved its strength within the country
and abroad. It promotes modernisation, upgrading technology, quality consciousness, strengthening
8
linkages with large and medium enterprises and enhancing export projects and products from small-
scale enterprises.
Functions of NSIC are given in Figure 1:
Provide machinery on hire-purchase scheme to small-scale industries.
Provide equipment leasing facility.
Help in export marketing of the products of small-scale industries.
Participate in bulk purchase programme of the Government.
Develop prototype of machines and equipments to pass 011 to small-scale

industries for commercial production.
Distribute basic raw material among small-scale industries through raw

material depots.
Help in development and up-gradation of technology and implementation of

modernization programmes of small-scale industries.
Impart training in various industrial trades.
Set up small-scale industries in other developing countries 011 turn-kev basis
Undertake the construction of industrial estates.
Figure 1: Functions of NSIC

Organisational Set-Up
The policy guidelines to the NSIC are provided by the Board of Directors consisting of a full-time
Chairman-cum-Managing Director, two Functional Directors, two Government Nominee Directors, one
SIDBI Nominee Director and six Non-official part-time Directors. The Corporation is manned by the
dedicated team of professionals at different levels. It operates through 123 offices located all over India
and one office located in Johannesburg (South Africa).
The National Small Industries Corporation operates through 9 Zonal Offices, 33 Branch Offices, 14 Sub
Offices, 10 NSIC Business Development Extension Offices, 5 Technical Services Centres, 3 Extension
Centres and 2 Software Technology Parks supported by the team of over 500 professionals spread
9
JGI JAIN
Entrepreneurship
across the country. To manage the operations in African countries, NSIC operates from its office in
Johannesburg.
Capital Structure & Borrowings
The authorised capital of the organisation on 31st March 2013 was 53,500 lakhs equity share of 100 each.
The subscribed and paid-up capital of a corporation on the same date was 46,299 lakhs shares of 100
each. The loan from financial institutions and banks can provide the loan. Repayment of instalments
and interest due in respect of all loans were promptly made on the due dates.
Government Grant and Subsidies
The Indian MSMEs are to upgrade their technology, quality and adoption of modern management
techniques to keep pace with the global changes Investment is the prerequisite to bring about
transformation. The availability of adequate credit at an affordable cost, thus, becomes critical for
Indian MSMEs. It needs grants and assistance from the sponsoring organisation. The government has
extended support in the form of grants and subsidies to this sector through NSIC for promoting MSMEs
by taking up Marketing Activities, Commercial Activities and General Activities.
Considering the growth potentials for MSMEs’ contribution to GDP, its export earning capacity
and thereby stabilising the balance of payment in the international trade, capabilities to promote
entrepreneurship and creation of employment, the government support for MSMEs in the form of
grants and subsidies through the NSIC increased substantially over the years.
Schemes of the Corporation
To enhance the competitiveness of MSMEs, the NSIC provides integrated support services in the areas of
Marketing, Technology, Finance, etc. It implements various schemes that include Marketing Assistance
and Performance & Credit Rating on behalf of the registered MSME.
In addition, NSIC has been set up the Training cum Incubation Centre. With large professional manpower,
it provides a package of services as per the MSME sector’s needs. It carries forward its mission to assist
small enterprises with a set of special schemes designed to put them in a competitive and advantageous
position. The schemes comprise facilitating marketing support, credit support, technology support and
other support services. It operates the countrywide network of offices and Technical Centres.
15.2.6 NEN
The National Entrepreneurship Network (NEN) is Wadhwani Foundation’s flagship initiative in India.
It was established in 2003 with a mission to inspire, educate and support high potential entrepreneurs
to create millions of high-value jobs. NEN does this by building institutional capacity for entrepreneur
support and a robust entrepreneurial ecosystem. It was co-founded with IIT Bombay, IIM Ahmedabad,
BITS Pilani, SP Jain Institute of Management and Research and the Institute of Bioinformatics and
Applied Biotechnology.
National Entrepreneurship Network or NEN is a community dedicated to fostering entrepreneurship.
Services focus on providing Institutional Capacity Building, Entrepreneur support, Entrepreneurial eco-
system & National platforms. Based on an idea by Romesh Wadhwani and co-founded with Sunita Singh,
Nilima Rovshen and Laura Parkin, the goal of the community is to enable new and future entrepreneurs
to access events and resources, share ideas and content, organise and market activities and forge
relationships across India and the world. Programmes include a variety of supports including
competitions. The offices are located in Bangalore & Palo Alto.
10
15.2.7 AWAKE
AWAKE – Association of Women Entrepreneurs of Karnataka is a not-for-profit, Non-Governmental
Organisation (NGO) based in Bangalore, India, working towards ‘Empowerment of women through
entrepreneurship development to improve their economic condition’. AWAKE strives to promote
entrepreneurship among women as a means to achieve self-reliance and socio-economic independence.
AWAKE provides support and guidance to aspiring women from rural, urban, national and international
arenas to be successful entrepreneurs, irrespective of their age, academic, social and economic
background.
AWAKE’s services are extended to women Self Help Groups (SHGs), NGOs and other development
agencies engaged in Income Generation Activities and Entrepreneurship Development. AWAKE’s
process in entrepreneurship development involves awareness programs, business counseling, training,
skill development, mentoring, business incubation, information sharing and networking, marketing
assistance, credit referral and policy advocacy. The organisation comprises women entrepreneurs from
various sectors as its members. Members of AWAKE contribute their time and expertise to support
women entrepreneurs, based on the approach ‘Entrepreneur guiding Entrepreneur’.
AWAKE has a strong support network with Government, non-government, corporate, developmental
agencies, funding and finance agencies, working with them to provide expertise in entrepreneurship
development for both the rural and the urban women. AWAKE collaborates as a resource organisation
in institutional competence building, training, policy making and enabling technology transfers for
state, national and international agencies. AWAKE fosters an entrepreneurial culture in women such
that their contribution to the global economy is recognised.
AWAKE works on the Entrepreneur guiding Entrepreneur approach, which means the organisation
comprises a pool of women entrepreneurs from various sectors as its members who contribute their
time and expertise to support women entrepreneurs.
The organisation runs awareness programs, business counseling, training, skill development, mentoring,
business incubation, information sharing and networking, marketing assistance, credit referral and
policy advocacy.
To help with its entrepreneurship development endeavors, AWAKE has built a strong network of support
with government, non-government, corporate, developmental agencies as well as funding and finance
agencies.
It has developed a unique 4S module encompassing all programs conducted to support entrepreneurs
at different stages of enterprise development. The module looks something as follows:
Stimulus
 Business Counseling
 Entrepreneurship Awareness Programmes
Startup
 Entrepreneurship Development Programme
 Skill Development Programme
 Business Incubator
 Trainer’s Training Programme
 Vocational Training Programme
11
JGI JAIN
Entrepreneurship
Sustenance
 Marketing Support
 Management Development Programme
 Credit Referrals
Support
 Research and Resource Center
 Membership Service
15.2.8 CEDOK
CEDOK established in 1992, is a Government of Karnataka Organisation promoted by the Department
of Industries and Commerce with the support of State level industrial developmental agencies, such as
 Karnataka State Small Industries Development Corporation (KSSIDC),
 Karnataka State Financial Corporation (KSFC),
 Karnataka State Industrial Investment Development Corporation (KSIIDC) and
 Karnataka Industrial Area Development Board (KIADB),
National level financial institutions, such as

 Industrial Development Bank of India (IDBI),
 Industrial Finance Corporation of India (IFCI),
 Industrial Credit and Investment Corporation of India (ICICI) and
 Government of India through Development Commissioner (SSI), New Delhi to contribute to
the development and dispersal of entrepreneurship by undertaking various entrepreneurship
development and skill development/upgradation training programmes thus expand the social and
economic base of entrepreneurial class
Vision
To make the character of entrepreneurship a DNA for our youth to undertake new ventures as a way of
life by imparting Entrepreneurship education that encompasses national and international standards
and practices.
Mission
To facilitate the emergence of an enterprising generation of entrepreneurs and to facilitate transition
of existing Small and Medium Enterprises into nimble footed, growth-oriented enterprises through
education, training, research & institution building.
Based on this belief, the mission of CEDOK is:
 To augment the supply of entrepreneurs through education, training & research
 To produce a multiplier effect on opportunities for self-employment
 To improve the managerial capabilities of small entrepreneurs
 To contribute to the dispersal of entrepreneurship and thus expand the social base of the
entrepreneurial class in urban/rural areas
12
 To be a centre of learning for the trainer – motivators on entrepreneurship development

 To contribute to the growth of entrepreneurship culture, spirit and entrepreneurship development
in developing countries
 The term institutional support refers to the part of the economic environment of industry and
business.
 It consisting of authorities and institutions whose decisions and active support in form of laws,
regulation, financial and non-financial help brings a lot of changes in the functioning of any
business.
 Financial sectors play an indispensable role in the overall development of a country.
 These institutions provide a variety of financial products and services to fulfil the varied needs of
the commercial sector.
 The Small Industries and Development Bank of India (SIDBI) were established on 2nd April 1990 as a
wholly-owned subsidiary of the Industrial Development Bank of India (IDBI).
 KVIC is a statutory body formed by the Government of India under the KVIC Act of 1956 that aims to
nurse employment and economic uplift in rural India.
 It is imperative to get a greater insight into the common terms in use for a comprehensive
understanding of the entire KVIC scheme.
 The National Institute for Entrepreneurship and Small Business Development is a premier
organisation of the Ministry of Skill Development and Entrepreneurship, engaged in training,
consultancy, research, etc.
 Industrial Development Bank of India (IDBI) was launched under the Industrial Development Bank
of India Act, 1964 as a Development Financial Institution (DFI).
 The National Small Industries Corporation (NSIC), an ISO 9000 certified company, has been working
to fulfill National Small Industries Corporation (NSIC) was set up in the year 1955 as the central
government undertaking. its mission of promoting, aiding and fostering the growth of the small-
scale industries and industry-related small services/businesses the country.
 National Small Industries Corporation (NSIC) was set up in the year 1955 as the central government
undertaking.
 The National Entrepreneurship Network (NEN) is Wadhwani Foundation’s flagship initiative
in India. It was established in 2003 with a mission to inspire, educate and support high potential
entrepreneurs to create millions of high-value jobs.
 AWAKE – Association of Women Entrepreneurs of Karnataka is a not-for-profit, Non-Governmental
Organisation (NGO) based in Bangalore, India, working towards ‘Empowerment of women through
entrepreneurship development to improve their economic condition’.
15.4 GLOSSARY
 Economic environment: It has external economic factors that influence buying habits of consumers
and businesses and therefore affect the performance of a company
13
JGI JAIN
Entrepreneurship
 Diversification: It is the risk management strategy that mixes a wide variety of investments within
a portfolio
 Commercial banks: It accepts deposits, offers checking and savings account services and makes
loans
15.5 CASE STUDY: DIGITALISATION OF SIDBI
Case Objective
This case aims to describe the digitalisation of SIDBI.
Background
Small Industries Development Bank of India (SIDBI) is the principal financial institution established on 2nd
April 1990 as a wholly-owned subsidiary of the Industrial Development Bank of India (IDBI). Their main
focus is to strengthen, promote, financing and development of Micro, Small and Medium Enterprises
(MSME) and for coordination of functions of institutions engaged in similar activities. It is engaged in
assisting the small-scale industrial sector in the country for the development, commercialisation and
marketing of its innovative technologies and products. SIDBI administers various loan schemes through
customised financial schemes of administering Small Industries Development Fund and National Equity
Fund and others services for meeting the demand of different business projects.
The following are the problems faced by SIDBI:
 For staying ahead with the changes in the industry, SIDBI decided to move towards digitalisation. In
the process, there were many challenges faced by SIDBI since they were vulnerable to online threats,
hackers, web attackers and more.
 SIDBI needed a very robust solution for its security issues since they had major important and
confidential data on their website.
 They were vulnerable to certain common kinds of security risks to the website that included SQL
injection, an old and most common attack that can happen on any website. In this attack, the
attacker injects a malicious statement or payload that controls a web application’s database server
also known as Relational Database Management System (RDMS).
 Another major problem was the theft or corruption of personal or sensitive data and database
access. Since the institution was dealing with financial services the website consisted of important
information about the customers, like login details and passwords.
 They were also at risk of another kind of attack called the Denial of Service (DoS) where multiple
compromised systems are infected with a Trojan, which is used for targeting a single system causing
a Denial of Service (DoS) attack.
Solution
SIDBI decided to take the help of ESDS VTMScan (Security as a Service) for providing the perfect solution
for SIDBI’s problems. ESDS VTMScan has an abroad scanning package that takes care of various types
of vulnerabilities and determines the security patches to be used. They offer an integrated package of
end-to-end enterprise scanning which is a comprehensive package against other solutions that offer
few modules instead of a 360° solution for risk mitigation. It effectively scans the website for malicious
virus-like malware, XSS vulnerabilities and Trojan horses. It checks the total website for issues with
14
website code, server settings, mail spam, domain reputation and more. Working with ESDS VTMScan
prove to be beneficial for SIDBI. The system was very effective and it helped to detect the virus and
malware detection issues that were not picked up earlier and it dealt with them immediately. Now the
developers have been able to take care of the issues before they aggravate. It has helped to save the
overheads for the bank through intelligent scanning by ESDS VTMScan.
Source: https://www.esds.co.in/sidbi-esds-vtmscan-case-study
Questions:
1. Why did SIDBI want to move towards digitalisation?
(Hint: SIDBI needed a very robust solution for its security issues since they had major important and
confidential data on their website)
2. How did SIDBI bring changes into their processes?
(Hint: ESDS VTMS provided them with a broad scanning package that takes care of various types of
vulnerabilities against various kinds of malicious attacks to their website and systems.)

1. Explain institutional support.
2. Discuss the SIDBI and its functions.
3. ElaboratE KVIC in brief with its structure.
4. Write a note on NIESBUD with its objectives.
5. Describe IDBI bank with its functions.
B. Hints for Essay Type Questions

1. The term institutional support refers to the part of the economic environment of industry and
business. Refer to Section Introduction
2. The Small Industries and Development Bank of India (SIDBI) were established on 2nd April 1990
as a wholly-owned subsidiary of the Industrial Development Bank of India (IDBI). Refer to Section
Institutions Providing Support to Entrepreneurs
3. KVIC is a statutory body formed by the Government of India under the KVIC Act of 1956 that aims
to nurse employment and economic uplift in rural India. Refer to Section Institutions Providing
Support to Entrepreneurs
4. The National Institute for Entrepreneurship and Small Business Development is a premier
organisation of the Ministry of Skill Development and Entrepreneurship, engaged in training,
consultancy, research, etc., to promote entrepreneurship and Skill Development. Refer to Section
Institutions Providing Support to Entrepreneurs
5. Industrial Development Bank of India (IDBI) was launched under the Industrial Development Bank
of India Act, 1964 as a Development Financial Institution (DFI). The bank was established as a wholly-
owned subsidy of the Reserve Bank of India under the Industrial Development Act of 1965. Refer to
Section Institutions Providing Support to Entrepreneurs
15
Entrepreneurship
 https://www.businessmanagementideas.com/entrepreneurship-2/institutional-support-system-
for-entrepreneurs/18184
 https://www.slideshare.net/sahilkamdar1/institutional-support-in-entrepreneurship
 Discuss with your friends about some more institutes those supporting entrepreneurship
16

Entrepreneurship

Uploaded by

Copyright:

Available Formats

You might also like

Entrepreneurship

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Entrepreneurship

Uploaded by

Copyright:

Available Formats

UNIT

Concept of Entrepreneurship, Importance of Entrepreneurship, History and Evolution of

In this unit, you will learn to:

At the end of this unit, you would:

Pre-Unit Preparatory Material

1.2 CONCEPT OF ENTREPRENEURSHIP

1.2.1 Importance of Entrepreneurship

1.2.2 History and Evolution of Entrepreneurship

1.3 TYPES OF ENTREPRENEURS

1.4 MYTHS OF ENTREPRENEURSHIP

1.5 WOMEN ENTREPRENEURSHIP IN INDIA

1.6 TECHNOLOGY AND BUSINESS COMMUNICATION

Conclusion 1.7 CONCLUSION

1.9 CASE STUDY: OGE – AN ENTREPRENEURIAL VENTURE

1.10 SELF-ASSESSMENT QUESTIONS

A. Essay Type Questions

1.11 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS

A. Hints for Essay Type Questions

@ 1.12 POST-UNIT READING MATERIAL

1.13 TOPICS FOR DISCUSSION FORUMS

 Discuss with your friends how to start a business venture.

To understand the Framework of Entrepreneurial Competence: Qualities of Successful Entrepreneurs,

In this unit, you will learn to:

At the end of this unit, you would:

2.2 QUALITIES OF SUCCESSFUL ENTREPRENEURS

2.2.1 Behavioral Traits of Entrepreneurs

2.3 MOTIVES AND DRIVES TO TAkE UP ENTREPRENEURSHIP

2.4 CAREER IN ENTREPRENEURSHIP

2.5 ENTREPRENEURIAL DECISION PROCESS

Conclusion 2.6 CONCLUSION

2.8 CASE STUDY: CAREER AS AN ENTREPRENEUR

5. What was distinct about Tarvana Bhavan menu?

2.9 SELF-ASSESSMENT QUESTIONS

A. Essay Type Questions

2.10 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS

A. Hints for Essay Type Questions

@ 2.11 POST-UNIT READING MATERIAL

2.12 TOPICS FOR DISCUSSION FORUMS

In this unit, you will learn to:

At the end of this unit, you would:

Pre-Unit Preparatory Material

3.2 NEED FOR PROBLEM IDENTIFICATION

3.2.1 Opportunity Recognition and Evaluation

3.2.2 Identifying Unmet Needs

3.3 DEVELOPING SOLUTIONS TO ADDRESS PROBLEMS

3.4 IDENTIFyING MARkET GAPS

Conclusion 3.5 CONCLUSION

3.7 CASE STUDy: RECOGNITION OF OPPORTUNITy

3. What was the first step in diversification at Guru batteries?

3.8 SELF-ASSESSMENT QUESTIONS

A. Essay Type Questions

3.9 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS

A. Hints for Essay Type Questions

4. Problem solving is a fundamental characteristic and component of starting a new venture.

@ 3.10 POST-UNIT READING MATERIAL

3.11 TOPICS FOR DISCUSSION FORUMS

Pre-Unit Preparatory Material

4.2 CONCEPT OF IDEA GENERATION

4.2.1 Importance of Idea Generation