Entrepreneurship Development

and Small Business

Enterprises

Second Edition

Poornima M. Charantimath
Kamataka Law Society's Institute of
Management Education and Research, Belgaum

PEARSON

Chennai • Delhi
 Contents

Foreword xiii Lecture Method 34

From the Academia xiv Participative Methods 35
From the Industry xv The Process of Entrepreneurial Development 36
Preface xvii Summary 38
Key Terms 38
Case Study 39
PART 1: ENTREPRENEURIAL PERSPECTIVES Discussion Questions 39
Activity 40
1 Entrepreneurship 2 Project 40
Introduction 3 Endnotes 40
Evolution of the Concept of Entrepreneurship 4
Richard Cantillon 4 3 Women Entrepreneurs 42
Adam Smith 5
Jean-Baptiste Say 5 Introduction 43
Francis Walker 5 Womens Entrepreneurship in Asia 46
Joseph Schumpeter 5 Womens Entrepreneurship in India 46
Entrepreneurship Today 5 Challenges Faced by Women Entrepreneurs 49
Who Is an Entrepreneur? 6 Microsphere 49
How Do I Become an Entrepreneur? 6 Mesosphere 49
Advantages of Being an Entrepreneur 7 Macrosphere 49
Types of Entrepreneurs 7 Strategies for the Development of Women
Intrapreneurship 8 Entrepreneurs 50
Difference Between a Manager and an Encouraging Home-based Businesses 50
Entrepreneur 8 Widespread Business Education 51
Entrepreneurial Competencies 10 Better Financial Assistance 51
Capacity Building for Entrepreneurs 14 Wider Access to Technology 51
Summary 16 Group Entrepreneurship/Grassroots
Key Terms 16 Entrepreneurship Through Self-help Croups 51
Case Study 17 Institutions Supporting Women Entrepreneurs
Discussion Questions 18 in India 54
Consortium of Women Entrepreneurs of India (CWEI) 54
Activity 18 Federation of Indian Women Entrepreneurs (FIWE) 55
Project 18 FICCI Ladies Organization (FLO) 55
Endnotes 18 Women's India Trust (WIT) 56
Association of Women Entrepreneurs of Karnataka
2 Entrepreneurial Development and Training 20 (AWAKE) 56
Special Bank Schemes Promoting Women's
Introduction 21 Entrepreneurship 56
Entrepreneurial Environment 21 Cent Kalyani of Central Bank of India Credit Scheme 56
Global Entrepreneurship Environment 21 National Bank for Agriculture and Rural
Business Climate in India 22 Development (NABARD) 57
Environmental Factors Affecting Entrepreneurial Growth 24 Small Industries Development Bank of India 58
Creating a Favourable Environment for Women Entrepreneurs from Around the World 58
Entrepreneurship 27 Mary Kay Ash 58
Models of Entrepreneurial Development 28 Jenna Jameson 59
Psychological Models 28 Anita Roddick 59
Sociological Models 29 Oprah Winfrey 59
Integrated Models 30 Madame C. J. Walker 59
Entrepreneurial Motivation 31 Coco Chanel 59
Need for Achievement (nAch) 32 Debbi Fields 60
Thematic Apperception Test (TAT) 32 Estee Lauder 60
Entrepreneurship Motivation Training (EMT) 32 Arianna Huffington 60
Entrepreneurship Training Methods 34 Women Entrepreneurs in India 60
viii / CONTENTS

Kiran Mazumdar-Shaw 61 The Fourth All-India Census of MSME 100

Ritu Kumar 62 Problems Pacing the MSME Sector 102
Womens Empowerment Through Role of Clusters in Promoting MSME 104
Entrepreneurship 63 Summary 105
Ilie Gender and Development Approach 63 Key Terms 105
Shri Mahila Griha Udyog Lijjat Papad (SMGULP) 64
Case Study 106
Summary 65
Key Terms 65 Discussion Questions 107
Case Study 66 Activity 107
Discussion Questions 67 Project. 107
Activity 67 Endnotes 108
Project 67
Endnotes 67 PART 2: NEW VENTURE CREATION

4 Family Business 70 6 Identification of Business Opportunities 110

Introduction 71 Introduction 111
Role and Importance of the Family Business 71 What Defines a Good Business Opportunity? 111
When Is an Idea an Opportunity? 113
Contributions of Family Businesses in India 73 How to Generate Business Ideas 113
Stages of Development of a Family Business 73 What Leads to the Creation of Opportunities 115
Characteristics of a Family-owned Business How to Identify a Business Opportunity 117
in India 74 Mobility of Entrepreneurs 118
Various Types of Family Businesses 74 Geographica! Mobility of Entrepreneurs 118
Roles, Responsibilities, and Rights of Family Occupational Mobility 119
Members in a Family Business 75 Business Opportunities in India 119
Founder 75 Models for Opportunity Evaluation 120
Owners (Shareholders) 75 The RAMP Model 121
Directors (Board of Directors) 75 Mullins's Seven-domain Framework 121
Family Members 75 Summary 123
The Three-circle Model of Family Business 75 Key Terms 123
Challenges Faced by Family-owned Businesses 77 Case Study 124
Succession in Family Business 79 Discussion Questions 126
Improving the Performance of a Family Business 80 Activity 126
Summary 82 Project 127
Key Terms 82 Endnotes 127
Case Study 82
Discussion Questions 83 7 Project Management and Financing 130
Activity 83 Introduction 131
Project 83
Project Manager 132
Endnotes 84
Project Life Cycle 133
Project Scheduling 134
5 Micro, Small, and Medium Enterprises 86 Gantt Charts 134
Introduction 87 Network Techniques 135
Role and Importance of Micro, Small, and Project Management Software 138
Medium Enterprises 88 Microsoft Project 138
InstaPlan 138
Concepts and Definitions of MSME 90 Yojana 139
The MSMED Act, 2006 91 PRISM Project Manager 139
Government Policy Initiatives Since 1948 93 PRIMAVERA 139
Report of the Task Force on MSME 95 Capital Budgeting 140
Growth and Development of MSME in India 96 Generating an Investment Project Proposal 140
Current Scheines for MSME 98 Project Analysis 140
Credit Guarantee Trust for Micro and Small Market Analysis 141
Enterprises (CGTMSE) 99
Technology Upgradation Schemes 99 Technical Analysis 141
Marketing Assistance Scheme 99 Financial Analysis 141
Certification Scheme 99 Economic Analysis 142
Credit Rating Scheme 99 Ecological Analysis 142

Project Evaluation and Selection 142
The Payback Period 142
Accounting Rate of Return (ARR) 142
Net Present Value (NPV) 143
Internal Rate of Return (IRR) 144
Benefit-Cost Ratio (BCR) 145
Project Financing 147
Equity Financing 147
Angel Investing 148
Debt Financing 148
Miscellaneous Sources 149
Project Implementation Phase 149
Capital Structure and Cost of Capital 149
Detailed Project Report 150
Summary 152
Key Terms 152
Case Study 153
Discussion Questions 154
Activity 155
Project 155
Endnotes 155
Annexure 155
8 Business Plans
Introduction 159
Purpose of a Business Plan 159
Contents of a Business Plan 160
Cover Page and Table of Contents 160
Executive Summary 161
Business Concept 161
Business Strategy 161
Management Summary 161
Marketing Plan 162
Operations Plan 162
Financial Plan 162
Appendix 162
Presenting a Business Plan 163
Oral and Visual Presentation 164
Why Do Some Business Plans Fail? 164
Procedure for Setting Up an Enterprise 166
Selection of a Project 166
Decide on the Constitution 168
Obtain Registration 168
Obtain Clearances from Departments as
Applicable 168
Arrange for Land/Shed 168
Arrange for Plant and Machinery 170
Arrange for Infrastructure 170
Prepare Project Report 171
Apply for and Obtain Finance 172
Implement the Project and Obtain Final
Clearances 172
Summary 173
Key Terms 173
Case Study 174
Discussion Questions 177
Activity 177
Project 177
Endnotes 177
CONTENTS / ix
Annexure 178
Business Plan I: Micro, Small, and Medium Enterprises
(MSME) Clinic 178
Business Plan II: Fragrance House 191
9 Institutions Supporting Business Enterprises 204
Introduction 205
Central-level Institutions 206
National Board for Micro, Small, and Medium
Enterprises (NBMSME) 206
The Khadi and Village Industries Commission (KVIC) 207
The Coir Board 207
MSME-DO 208
National Small Industries Corporation (NSIC) 208
National Science and Technology Entrepreneurship
Development Board (NSTEDB) 209
National Productivity Council (NPC) 209
Entrepreneurship Development Institute of India (EDI) 210
National Research Development Corporation of India
(NRDCI) 211
National Entrepreneurship Development
Institutes 212
State-level Institutions 215
State Directorate of Industries and Commerce 215
158 District Industries Centres (DIC) 215
State Financial Corporation (SFC) 216
State Industrial Development Corporation (SIDC) 216
State Industrial Area Development Board (SIADB) 216
Other Institutions 217
National Bank for Agriculture and Rural
Development (NABARD) 217
Housing and Urban Development Corporation
(HUDCO) 218
Technical Consultancy Organization (TCO) 219
Small Industries Development Bank of India (SIDBI) 220
Export Promotion Councils (EPCs) 220
Industry Associations 221
Non-Governmental Organization (NGOs) 222
Business Incubators 223
Summary 226
Key Terms 226
Case Study 227
Discussion Questions 228
Activity 228
Project 228
Endnotes 228
10 Business Organization and Business Laws 230
Introduction 231
Sole Proprietorship 231
Joint Hindu Family Business 232
Partnership 232
Limited Liability Partnership (ELP) 233
Joint Stock Company 234
Corporate Governance 238
Cooperative Society 238
Franchising 239
Business Laws 241
The Indian Contract Act, 1872 243
The Sale of Goods Act, 1930 244
The Indian Partnership Act, 1932 244
X / CONTENTS

The Limited Liability Partnership Act, 2008 245 Financial Appraisal 275
The Indian Companies Act, 1956 245 Turnaround Strategy 275
The Negotiable Instruments Act, 1881 246 Winding Up of a Company 276
The Information Technology Act, 2000 247 Exit Strategy 278
Intellectual Property Rights 249 Initial Public Offering 278
The Patents Act, 1970 249 Summary 279
The Copyright Act, 1957 249 Key Terms 280
The Trade Marks Act, 1999 250
The New Designs Act, 2000 251 Case Study 281
The Consumer Protection Act, 1986 251 Discussion Questions 282
The Right to Information Act, 2005 252 Activity 282
The Competition Act, 2002 252 Project 282
The Foreign Exchange Management Act Endnotes 282
(FEMA), 1999 253
Summary 254 12 Financial Management in Enterprises 284
Key Terms 254 Introduction 285
Case Study 255 Functions of Financial Management 285
Discussion Questions 256 Accounting and Bookkeeping 286
Activity 257 Process of Accounting 287
Project 257 Types of Accounting 288
Generally Accepted Accounting Principles 288
Endnotes 258 Types of Books of Accounts 288
Financial Statements 289
Balance Sheet 290
PART 3: MANAGEMENT OF ENTERPRISES Profit and Loss Account 292
Cash Flow Statements 292
11 Preventing Sickness in Enterprises 260 Working Capital Management 294
Introduction 261 Calculation of Working Capital Cycle 295
Ratio Analysis for Working Capital
Specific Management Problems 262 Management 296
Management Deficiency 262 Sources of Working Capital 296
Finance 262
Manufacturing and Technical Problems 262 Break-even Analysis 298
Product Flanning 263 Financial Ratio Analysis 299
Selection of Equipment, Plant, and Liquidity Ratios 300
Machinery 263 Activity/Turnover Ratios 300
Human Resource Development 263 Debt/Solvency Ratios 301
Technical Know-how 263 Profi tability Ratios 301
Preparation of Project Report 263 Capital Market Ratios 302
Industrial Sickness 263 DuPont Analysis 303
Definition of Sickness 264 Summary 304
Definition of Sick Enterprises—Micro and Small Key Terms 305
Enterprises 264 Case Study 306
Sick Industrial Companies Act, 1985 265 Discussion Questions 309
National Company Law Tribunal (NCLT) 266 Activity 309
National Company Law Appellate Project 309
Tribunal (NCLAT) 266
Endnotes 310
Industrial Sickness in India 267
Sickness in Micro, Small, and Medium
Enterprises 267 13 Operations and Human Resource
Causes of Industrial Sickness 269 Management in Enterprises 312
Symptoms of Industrial Sickness 270 Introduction 313
Prediction of Sickness 271
Operations Management 313
Process of Industrial Sickness 272
Normal or Healthy 272 Operations Strategy 314
Tending Towards Sickness 273 Demand Forecasting 315
Incipient Sickness 273 Forecasting Models 315
Complete Sickness 273 Technology Management 316
Rehabilitation of Sick Units 274 Production Management 317
Technical Appraisal 274 Production Flanning and Control (PPC) 317
Commerciai Appraisal 274 Work Content and Capacity Determination 318
Management Appraisal 274 Supply Chain Management 319
 CONTENTS

Materials Management 320 Trust Aligned with the Product 359

Inventory Management 322 Product Positioning 359
Inventory Costs 322 More Contacts Between Customers and
Inventory Control Techniques 322 Service Personnel 359
Benefits of Inventory Control 325 Customer Involvement in Production 359
Interactions Among Marketing, Operations,
Productivity 325 and Human Resources 359
Total Quality Management 325 Problems in Controlling Product Quality and
Prerequisites for TQM 326 Consistency 360
Benefits ofTQM 326 Absence of Inventories 360
Quality Management System (QMS) 327 Importance of the Time Factor 360
Maintenance 327 Structure of Distribution Channels 360
Occupational Health and Safety Advisory Essential Marketing Mix of Services
Services 330 Marketing 360
Benefits of OHSAS 18001 Registration 331 People 360
National Safety Council of India (NSCI) 332 Process 361
Environmental Management System 333 Physical Evidence 361
Benefits of Environmental Management Key Success Factors in Services Marketing
System 333 Marketing Process 362
Human Resource Management 334 Market Research 362
HRM Policy 335 Marketing Flanning 362
Functions of HRM 335 Marketing Mix 364
Industrial Relations 338 Implementation and Control 366
Employee Engagement 339 Costing and Pricing 366
Cost Ladder 367
Labour Laws 340
Indian Factories Act, 1948 341 Branding 367
Payment of Wages Act, 1936 341 New Techniques of Marketing 368
Minimum Wages Act, 1948 342 Internet Marketing 368
Payment of Bonus Act, 1965 342 Direct Marketing 368
Industrial Employment Act, 1946 342 Niche Marketing 368
Industrial Disputes Act, 1947 (82 and 84) 343 Ambush Marketing 369
Trade Unions Act, 1926 344 Green Marketing 369
Child Labour Act, 1986 344 Social Marketing 369
The Equal Remuneration Act, 1976 344 Relationship Marketing 370
Sexual Harassment ofWomen at Their Workplace Viral Marketing 370
(Prevention) Act, 2003 345 Rural Marketing 371
Laws Relating to Environment and Pollution Control 345 Global Marketing 371
Social Security Laws 346 International Trade 373
Employees' Providern Fund and Miscellaneous Provisions Tariff Barriers to Trade 373
Act, 1952 347 Non-tariff Barriers to Trade 373
Payment of Gratuity Act, 1972 347 Facilitators 374
Maternity Benefit Act, 1961 348 International Marketing Environment 375
Miscellaneous Legislation 348 Export Procedure and Documentation 376
Summary 349 Organizational Life Cycle 378
Key Terms 349 Growth Strategies 379
Case Study 350 Organic Growth 379
Discussion Questions 352 Inorganic Growth 380
Activity 353 Essence of Business Ethics and
Project 353 Corporate Social Responsibility 382
Corporate Social Responsibility 384
Endnotes 353 Social Responsibility Strategies of
Enterprises 384
14 Managing Marketing and Growth Summary 385
in Enterprises 356 Key Terms 386
Introduction 357 Case Study 388
Discussion Questions 389
Indias Growing Services Sector 357
Activity 389
Common Marketing Problems Faced
by Enterprises 358 Project 391
Differences Between Product and Endnotes 391
Services Marketing 358
Intangible Nature of the Service Product 359 Index 393