Entrepreneurial Development

169
SYLLABUS
ENTREPRENEURIAL DEVELOPMENT
MBA4th SEMESTER, M.D.U., ROHTAK
External Marks : 70
Time : 3 hrs.
Internal Marks : 30

UNIT - I
Entrepreneurial traits, types and significance; definitions, characteristics of
entrepreneurial types, qualities and functions of entrepreneurs, role and importance of
entrepreneurs in economic growth.

UNIT - II
Competing theories of entrepreneurship; entrepreneurial development programme in
India - history, support, objectives, stages of performances; planning and EDP -
objectives. target group, selection of centre, pre-training work; govt. policy towards
SSIs; entrepreneurial input.

UNIT - III
Entrepreneurial behaviour and entrepreneurial motivation; n-achievement and
management success, entrepreneurial success in rural areas; innovation and
entrepreneur; establishing entrepreneurs system.

UNIT - IV
Search for business idea, sources of ideas, idea processing, input requirments : sources
and criteria of financing, fixed and working capital assessment; technical assistance;
marketing assistance; sickness of units and remedial assistance; preparation of
feasibility reports and legal formalities and documentation.
2

MBA 4th Semester (DDE)

UNIT I

Q. Define Entrepreneur. Explain the Characteristics of An Entrepreneur.
Ans. Meaning of Entrepreneur : An Entrepreneur is a person who perceives a need and
then brings together manpower, material and capital required to meet that need. In other
words an entrepreneur is an individual or team that identifies the opportunity, gathers the
necessary resources, creates and ultimately responsible for the performance of the
organization.
An entrepreneur is a person who is able to express and execute the urge, skill,
motivation and innovative ability to establish a business or industry of his own, either alone
or in collaboration with his friends. His motive is to earn profit through the production or
distribution of goods or services. Adventurism, willingness to face risks, innovative urge and
creative power are the inborn qualities of entrepreneurship. Entrepreneurship can also be
explained as a process of executing a work in a new and better way.
Organisation

Urge Inovation

Skill Risk

Vision Enterprise

Growth

Management

Diagram : Basics of An Entrepreneur
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Definition of Entrepreneur :
According to Harbison
"An entrepreneur is not an innovation but an organization builder or one who has the
skill to build an organization and who must be able to harness the new ideas of different
innovators to the best of the organization."
Peter F. Drucker defines an entrepreneur as one who always searches for change,
responds to it and exploits it as an opportunity. Innovation is the specific tool of
entrepreneurs, the means by which they exploit change as an opportunity for a different
business or service.
Characteristics of an Entrepreneur :
(1) Vision : An entrepreneur has a dream and he visualizes the ways and means to
achieve dream. In doing so he visualizes :
Market Demands
Soicio-Economic
Technological Environment
And then based on these dynamic, he visualizes a future for his business venture.
(2) Knowledge : An entrepreneur has full knowledge about all the technicalities of his
business- be it technological, operational, financial or matket dynamic.
(3) Desire to succeed : An entrepreneur has a strong desire to succeed in life. Their
dreams are not just limited to achieving one single goal but they constantly work to
achieve higher goals.
(4) Independence : An entrepreneur needs independence in work and decision-making.
They don't follow the rules of thumb but make their own rules and destiny.
(5) Optimism : Entrepreneurs are highly optimistic about achieving their vision.
(6) Value Addition : Entrepreneurs do not follow the conventional rules of thumb. They
have a constant desire to introduce something new to the existing business. They
create, innovate or even add value to the existing products/services.
(7) Leadership : An entrepreneur exhibits the qualities of leader. They are good planner,
organizers, have good communication skill, good decision0makers, take initiative to
implement plans and are result-oriented.
(8) Hardworking : At times they are called workaholics. Work is worship for then. They
put in continuous efforts to achieve success and know that there is no substitute for
hark work.
(9) Risk-Taking Ability : Risk is an inherent and inseparable element of
entrepreneurship. He assumes the uncertainty of future. An entrepreneur guarantees
rent to the landlord, wages to employees and interest to the investor in the hope of
earning more than the expenses.
4

Q. Define Entrepreneurship. Discuss the main Entrepreneurship Traits.
Ans. Meaning of Entrepreneurship : Entrepreneurship refers to a process of action an
entrepreneur undertakes to establish his enterprise. It is a creative and innovative response
to the environment. In other words entrepreneurship can be defined as an ability to discover,
create or invent opportunities and exploit them to the benefit of the society, which in turn
brings prosperity to the innovator and his organization.
Definition :
B. Higgins, in his book "The economic Development" has said. "Entrepreneurship is meant
the function of seeking investment and production opportunity, organizing an enterprise to
undertake a new production process, raising capital, hiring labour, arranging the supply of
raw materials, finding site, introducing a new technique and commodities, discovering new
sources of raw materials and selecting top managers of day to day operations of the
enterprise."
Concept of Entrepreneurship : Concept of entrepreneurship can be explained with the
help of following diagram

Entrepreneur Entrepreneurship Enterprise

Person Process of Action Object

Concept of Entrepreneurship
Characteristics of Entrepreneurship : The characteristics of entrepreneurship are:

Construction
Skill
Decision
Strong desire
to reap
benefits

Innovative
Urge

Entrepreneurship
Economic
Activity

Gap-Filing
Function
Management
Skill

Risk-Bearing
Leadership
Quality
Dynamic
Process
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Entrepreneurship Traits : A successful entrepreneur must possess the following traits:
(1) Mental Ability : Mental ability consists of intelligence and creative thinking. An
entrepreneur should be intelligent and must have an analytical mine. He should have
the capacity to analyse the problem and able to study the various situation under
which decision have to be made.
(2) Clear Objectives : An entrepreneur should have a clear objective. Without objective
an entrepreneur cannot success. So a successful entrepreneur must have the
objective to establish his product in the market, make profit and also render social
service.
(3) Business Secrecy : An entrepreneur must be able to guard business secrets.
Leakage of business secrets to trade competitors is a serious matter. So the
entrepreneur should be able to make a proper selection of his subordinates.
(4) Human Relations Ability : An entrepreneur must have good relations with his
customers to earn profit and win their confidence in his product. He must also maintain
good relation with his employees.
(5) Effective Communication : Good communication also means that the entrepreneur
has the ability to put his point effectively and with clarity. Communication ability is the
secret of the success of most entrepreneurs.
(6) Technical Knowledge : The entrepreneurs are dealing with situations where
sophisticated technology is involved. The entrepreneur must have a reasonable level
of technical knowledge.
(7) Decision-Making : Running a business requires taking a number of decision. Hence
an entrepreneur should have the capacity to analyse the various aspects of the
business for arriving at a decision.
(8) Risk-Bearing : 'No risk, no business' or 'no risk, no gains'. Risk is an inherent and
inseparable element of entrepreneurship. He assumes the uncertainty of future.
(9) Self-Confidence : Entrepreneurs must have the mental capacity to face any situation.
They should also have the ability to inspire other. They must have the confidence in
themselves and the determination to achieve their goals.
Entrepreneurial Traits can be explained with the help of following diagram:

Technical
Knowledge
Self
Confidence
Human
Relation Abilitv

Clear
Objectives

Enterpreneurial
Traits
Business
Secrecy

Decision
Making

Risk
Bearing

Mental
Ability
Effective
Communicatio
n
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Q. Explain the Types of Entrepreneur.
organization.
Types of Entrepreneur : Types of entrepreneur are:
(A) Classification on the Basis of Ownership :
(1) Founder or "Pure Entrepreneurs" : Those individuals who are the founder of the
business. They are the ones who conceptualize a business plan and then put in efforts
to make the plan a success.
Example : Dhirubhai Ambani of the Reliance Group.
(2) Second-generation operators of family-owned business : They are individuals
who have inherited the business from their fathers and forefathers.
Example : Like Mukesh Ambani and Anil Ambani sons of Dhirubhai Ambani of the
Reliance Group now split into two: Reliance Industries Limited and Reliance-Anil
Dhirubhai Ambani Group.
(3) Franchisees : It is a method of doing business wherein the parent owner licenses his
trademarks and tried and proves methods of doing business to a franchisee in
exchange for a recurring payment.
Example : NIIT has given its franchisee operations to local players after thorough
scrutiny and proper training.
(4) Owner-Manager : When a person buys a business from the founder and then invests
his time and resources in it he is called the owner-manager.
Example : Like Sabeer Bhatia is the founder entrepreneur of Hotmail.
(B) Classification on the basis of Personality Traits and their style of running the
business :
(1) The Achiever : These types of entrepreneurs have personal desires to excel. The
only drive that pushes them is the desire to achieve something in life, the desire to
make a mark in society, the desire to prove their excellence. They do not need any
external stimulus but are self-driven.
(2) The Induced Entrepreneur : These types of entrepreneurs are induced by some
external factors to start a business. The external factors could be like:
Government Policies
Unemployment
Family Support
Facilitating Institutional Support etc.
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(3) The Idea Generator : These kinds of entrepreneurs are highly creative people who
are always in search of innovative ideas for setting up new business ventures. They
enjoy the First Movers' Advantage and are able to skim higher profits from the market.
(4) The Real Manager : The real managers run the business in a systematic manner.
They analyse business situation, assess the demands of future, both in terms of
opportunities and threats and then take actions based on the above assessments.
(5) The Real Achievers : The real achievers are full of life. They are looking for the
achievement of not even their goals but also of people associated with themselves like
employees, suppliers and distributors.
(C) Classification based on the type of Business :
(1) Industrial Entrepreneur : Industrial entrepreneur is an entrepreneur who is into
manufacturing of a product. He identifies the needs and wants of customers and
accordingly manufactures products to satisfy these needs and wants.
(2) Trading Entrepreneurs : Trading entrepreneur is one who undertakes trading
activities and is not concerned with the manufacturing of products. He identifies
potential markets, stimulates demands and generates interest among buyers to
purchase a product.
(3) Corporate Entrepreneur : Corporate entrepreneur is a person who demonstrates his
innovative skill in organizing and managing a corporate undertaking which is
registered under some act that given it a separate legal entity.
(4) Agricultural Entrepreneur : Agricultural entrepreneurs are those entrepreneurs who
undertake business related to agricultural activities. Like farm equipments, fertilizers
and other inputs of agriculture.
(D) Classification on the Stages of Development :
(1) First Generation Entrepreneur : A first-generation entrepreneur is one who starts an
industrial unit by means of an innovative skill. He is essentially an innovator combining
different technologies to produce a marketable product or service.
(2) Modern Entrepreneur : A modern entrepreneur is one who undertakes business to
satisfy the contemporary demands of the market. They undertake those ventures
which suit the current socio-cultural trends.
(3) Classical Entrepreneur : A classical entrepreneur a stereo-type entrepreneur is one
whose aim is to maximize the economic returns at a level consistent with the survival
of the firm, with or without element of growth.
(E) Other :
(1) Innovative Entrepreneur : Innovative entrepreneurs are full of creative ideas and
offer innovate products to the society. It is because of these innovative entrepreneurs
that many important changes occur in our society.
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(2) Imitative Entrepreneurs : Imitative entrepreneur adapt a successful innovation.
They are risk-aversive and so they do not try out new ideas or products.
(3) Drone Entrepreneurs : Drone entrepreneurs are not open to creativity and change.
They do not like changing the working of organizations with the changing times.
(4) Copreneurs : When both husband and wife together start and run a business venture
then they are called copreneurs.
Q. Explain the qualities and functions of the entrepreneurs
organization.
Qualities of An Entrepreneur : An entrepreneur is a person who takes risk of setting up his
own venture for perceived reward. He is a person who initiates the idea, formulates the plan,
organizes resources and puts the plan into action to achieve his goals. The entrepreneur
must have following qualities:-
1. Planner : Entrepreneur has a strong desire to achieve a higher goal and make their
dreams come true. So the entrepreneur must have these quality to achieve the target
an entrepreneur cannot achieve the target.
2. Technician : An entrepreneur must have the technical knowledge. He should know
that how to use the resources and achieve the target.
3. Risk Bearing Ability : Risk is very important element. An entrepreneur must have
capacity to bearing risk an entrepreneur cannot success.
4. Decision Maker : Decision making is the process of choosing best alternative among
various alternatives. An entrepreneur must have these qualities because decision
making affect the profitability and reputation of the enterprise.
5. Ability to Find and Explore Opportunities : Entrepreneurial persons are quick to
see and seize opportunities. They show an innovative turn of mind and convert
difficulties into opportunities.
6. Motivator : An entrepreneur must have a motivator. He inspires the employees to
achieving the target. Without motivation an entrepreneur cannot achieve the target.
So motivation is very necessary for achieving the target.
7. Future Oriented : Entrepreneur shows a high level of future orientation. They do not
allow the past to obsess them. They are oriented towards present and future.
8. Interpersonal Skills : An entrepreneur is a person who during the course of his
activities he should be a person who likes working with people and who has skills of
dealing with people.
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9. Facing Uncertainty : An entrepreneur is a person who faces uncertainty. The future is
uncertain. So the decision of entrepreneur affects the profitability and reputation of the
enterprise.
10. Coordination : An entrepreneur must have a coordinator. He allocates the resources
and utilizes the resources for achieving the target. Without coordination an
entrepreneur cannot achieve the target.
Functions of Entrepreneur : An entrepreneur has to perform the following function:
1. Risk taking and Uncertainty Bearing : The future is unpredictable. The
entrepreneur has to take risks in these circumstances. If the venture succeeds, the
entrepreneur profits; if it doe not, losses occur. Thus, taking risks forms an important
entrepreneurial function.
2. Taking Business Decisions : All decision concerning business are taken by the
entrepreneur. He has to formulate an action plan regarding the product and quality of
the product to be produced. He has to evolve the best possible method of production
which would earn him a sizeable profit.
3. Managerial Functions : The entrepreneur performs various managerial functions.
The entrepreneur arranges finance, purchase raw materials, provides the necessary
infrastructure for production. The entrepreneur has a multifaced personality when he
undertakes managerial functions.
4. Innovation : The most important function of an entrepreneur is innovation. He
introduces far-reaching improvements in the quantity and quality of production line.
He considers the economic viability and technical feasibility of an invention.
5. Coordination : The entrepreneur coordinates the other factors of production.
Coordination involves selection of the right type of factors, employment of each factor
in the right quantity, use of the best technical devices, division of labour, reduction of
waste etc.
6. Maintain Good-Relations : An entrepreneur must have good relations with his
customer to earn profit and win their confidence in his product. He must also maintain
good relations with his employees.
7. Analysis the Environment : An entrepreneur analysis the environment. Environment
are those factor which affect the business. There are two type of environment:
Internal Environment : Internal environment are controllable
External Environment : External environment are beyond the control of the
business.
8. Planning : Planning is the first function of the management. Planning is deciding in
advance what is to be done, how is to be done, which is to be done, by whom is to be
done. It is very necessary function of entrepreneur. Without planning an entrepreneur
cannot achieve the target.
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9. Utilizes the Resources : An entrepreneur allocates the resources and utilizes the
resources. An entrepreneur must utilize the resources for the achievement of the
objectives. If the entrepreneur doe not utilizes the resources he cannot become a
successful entrepreneur.
Q. Explain the Role and Importance of Entrepreneur in Economic Growth.
organization.
Role of Entrepreneur in Economic Growth : The position 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 higher complex. The entrepreneur directs
production and he must do whatever is necessary for its success. His role in modern
economic development has at least three aspects:
(1) The entrepreneur co-ordinates the other factors of production. This involves not only
assembling the factors, but also to see that the best combination of factors is made
available for the production process.
(2) The entrepreneur takes risks. This is the important function of the entrepreneur and
the quantum of profit he receives is directly proportionate to the risks he takes. Risks
are generally based on the anticipation of demand.
(3) Finally the entrepreneur innovates. Innovation is different from invention. Invention is
the work of scientists. Innovation implies the commercial application of an invention.
As an innovator the entrepreneur assumes the role of a pioneer and an industrial
leader. The entrepreneur can undertake anyone type of the following five categories of
innovation:
(i) The introduction of a new good or a new quality of a good
(ii) The introduction of a new method of production
(iii) The opening of a new market
(iv) The conquest of a new source of supply of raw materials
(v) The carrying out of a new organization of any industry.
Importance of Entrepreneur in Economic Development : Every country tries to achieve
maximum economic development. The economic development of a country to a large extent
depends on human resources. But human resource alone will not produce economic
development-there must be dynamic entrepreneurs. Importances of entrepreneurs in
economic development are:
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(1) Employment Generation : Growing unemployment particularly educated
unemployment is an acute problem of the nation. If a hundred persons become
entrepreneur they not only create a hundred jobs for themselves but also provide
employment to many more. These enterprises grow providing direct and indirect
employment to many more. Thus entrepreneurship is the best way to fight the evil of
unemployment.
(2) National Income : National Income consists of goods & services produced in the
country and those imported. The goods & services produced are for consumption
within the country as well as to meet the demand of exports. The domestic demand
increases with ever increasing population and standard of living. The export demand
also increases to meet the needs of growing import due to various reasons. An
increasing number of entrepreneurs are required to meet this increasing demand for
goods and services. Thus entrepreneurship increases the national income.
(3) Dispersal of Economic Power : When a society produces a small number of
entrepreneurs the enterprise due to lack of competition grow into a few big business
houses. This results in concentration of wealth in a few families. This can have a
serious social and national implication. When the number of entrepreneurs increases,
a large amount of national wealth is also shared by a large number of entrepreneurs,
thus dispersing wealth. This dispersal of wealth promotes the real socialism and
makes the economy healthy.
(4) Balance Regional Development : The growth of industry and business leads to a
large number of public benefits like road, transport, health, education, entertainment
etc. A rapid development of entrepreneurship ensures a balanced regional
development. When the new entrepreneurs grow at a faster pace, in view of the
increasing competition in and around the cities, they are forced to set up their
enterprise in the smaller towns away from big cities. This helps in the development of
the backward regions.
(5) Economic Independence : Entrepreneurship is essential for national self-reliance.
Businessman export goods and services on a large scale and earn the scarce foreign
exchange for the country. Such import substitution and export promotion help to
ensure the economic independence of the country.
(6) Reducing Unrest and Social Tension Amongst Youth : Many problems associated
with youth and social tensions are rightly considered to be due to youth not being
engaged in productive work. In the changing environment where we are faced with the
problem of recession in wage employment opportunities, alternative to wage career is
the only viable option. The country is required to divert the youth with latent
entrepreneurial traits from wage career to self employment career. Such alternate
path through entrepreneurship could help the country in defusing social tension and
unrest amongst youth.
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(7) Improvement in Living Standards : Entrepreneurs set up industries which remove
scarcity of essential commodities and introduce new products. Production of goods on
mass scale and manufacture handicrafts etc. in the small scale sector help to improve
the standard of life of a common man. These offer goods at lower costs and increase
variety in consumption.
(8) Harnessing Locally Available Resources and Entrepreneurship : India is
considered to be very rich in natural resources. A few large scale industries started by
entrepreneurs from outside the state in economically backward areas may help as
models of pioneering efforts, but ultimately the real strength of industrialization in
backward areas depends upon the involvement of local entrepreneurship in such
activities. Increased activities of local entrepreneurs will also result in making use of
abundantly available local resources.
(9) Innovations in Enterprises : Business enterprises need to be innovative for their
survival and better performance. Entrepreneurship development programmes are
aimed at accelerating the pace of small firms' growth in India. Increased number of
small firms is expected to result in more innovations and make the Indian industry
compete in international market.
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ENTREPRENEUR DEVELOPMENT
MBA 1st Semester (DDE)


UNIT II

Q. Explain the Theories of An Entrepreneurship.
Ans. Meaning of Entrepreneurship : Entrepreneurship refers to a process of action an
entrepreneur undertakes to establish his enterprise. It is a creative and innovative response
to the environment. In other words entrepreneurship can be defined as an ability to discover,
create or invent opportunities and exploit them to the benefit of the society, which in turn
brings prosperity to the innovator and his organization.
Theory of Entrepreneurship : Main theories of entrepreneurship are summarized as
follows:
(1) Entrepreneurship : A Function of Innovation: Joseph A. Schumpeter (1934), for the
first time, put the human agent at the centre of the process of economic development
and assigned a critical role to the entrepreneurship in his theory of economic
development. He considered economic development as a discrete technological
change. The process of development can be generalized by five different types of
events:
(i) Firstly, it can be the outcome of the introduction of a new product in the market.
(ii) Secondly, it can be the result of a new production technology.
(iii) Thirdly, it may arise on account of a new market.
(iv) Fourthly, it may be the consequences of a new source of supply.
(v) Fifthly, it may be due to the new organization of any industry.
According to Schumpeter
(i) Development is not an automatic process, but it must be deliberately and actively
promoted by some agency within the system, Schumpeter called the agent who
initiates the above changes as an entrepreneur.
(ii) He is the agent who provides economic leadership that changes the initial conditions
of the economy and causes discontinuous dynamic changes.
(iii) By nature, he is neither technician, nor a financier, but he is considered an innovator.
(iv) Entrepreneurship is not a profession or a permanent occupation and therefore, it
cannot formulate a social class like capitalists.
(v) Psychological, entrepreneurs are not solely motivated by profit.
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(2) Entrepreneurship : An Organisation Building Function: Fredrick Harbison states that
the 'organisation building' ability is the most critical skill needed for the industrial
development. According to him entrepreneurship means the skill to build an
organization. Harbison spots the crux of the entrepreneurship in his ability to multiply
himself by effectively delegating responsibilities to others. The main features are:
(i) Unlike Schumpeter, Harbison's entrepreneur is not an innovator but an
'organisation builder' who must be able to harness the new ideas of different
innovators to the rest of the organization.
(ii) Such persons are not always the men with ideas or men who try new
combinations of resources but they may simply be good leaders and excellent
administrators.
(iii) Harbison's definition of entrepreneurship lays more stress on the managerial
skills and creativity so far as organisation is concerned.
(3) Entrepreneurship : A Function of Managerial Skill and Leadership: Hoselitz states
that a person who is to become an industrial entrepreneur must have additional
personality traits. In addition to being motivated by the expectations of profit he must
also have some managerial abilities and more important he must have ability to lead.
Hoselitz maintains that financial skills have only a secondary consideration in
entrepreneurship. According to him managerial skills and leadership are the important
facts of entrepreneurship. He identifies three types of business leadership in the
analysis of economic development of under-developed countries:
The merchant money lender type
The managerial type
The entrepreneur type.
(4) Entrepreneurship : A Function of High Achievement: Mc Clelland states that a
business man who simply behaves in traditional ways is not an entrepreneur.
Moreover, entrepreneurial role appears to call for decision making under uncertainty.
Mc Clelland identified two characteristics of entrepreneurship firstly "doing things in a
new and better way" and secondly "decision making under uncertainty". Persons with
high achievement would take moderate risks. They would not behave traditionally (no
risk). The high achievement is associated with better performance at tasks which
require some imagination, mental manipulation or new ways of putting things together,
and such people do better at non routine task that require some degree of initiative or
even inventiveness. People with high achievement are not influenced by money
reward as compared to people with low achievement. People with low achievement
are prepared to work harder for money or such other external incentives. For people
with high achievement, profit is a measure of success and competency.
(5) Entrepreneurship : A Function of Social, Political and Economic structure: John
Kunkel states that the industrial entrepreneurship depends upon four structures which
are found within a society or community.
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(i) Limitation Structure: The society limits specific activities to members of
particular subcultures. This limitation structure affects all the members of a
society.
(ii) Demand Structure: The limitation structure is basically social and cultural but the
demand structure is mainly economic. The demand structure is not static, and
changes with economic progress and government policies. Demand structure
can be improved by providing material rewards.
(iii) Opportunities Structure: This structure is necessary to increase the probability
of entrepreneurial activity. The opportunity structure constitutes the availability
of capital, management and technological skills, information concerning
production methods, labours and markets. All the activities associated with the
effective planning and successful operation of industrial enterprises.
(iv) Labours Structure: Kunkel argues that the labours supply cannot be viewed on
par with the supply of other material conditions like capital. He states that
labours means 'men' and is a function of several variables. The supply of factory
labours is governed by available alternative means of livelihood, traditionalism
and expectations of life.
(6) Entrepreneurship : 'Input Completing' and 'Gap filling' Function: Liebenstein
identified gap filling as an important characteristic of entrepreneurship. In economic
theory the production function is considered to be well defined and completely known.
But the theory is silent about the keeper of the knowledge of production function.
Where and to whom in the firm this knowledge is supposed to be available is never
stated. It is the entrepreneurial function to make up the deficiencies or to fill the gaps.
These gaps arise because all the inputs in the production function cannot be marketed
because some inputs like motivation, leadership etc. are vague in their nature and
whose output is underminate. This "gap-filling" activity gives rise to a most important
entrepreneurial function namely "Input-Completing". He has to marshal all the inputs
to realize final products.
(7) Entrepreneurship : A Function of Group Level Pattern: Frank W. Young was reluctant
to accept the entrepreneurial characteristics at the individual level. According to him,
instead of individual, one must find clusters which may qualify itself as entrepreneurial
groups, as the groups with higher differentiation have the capacity to react. He defined
'reactiveness' or 'solidarity' as the degree to which the members of the group create,
maintain and project a coherent definition of their situation; and 'differentiation' is
defined as the diversity, as opposed to coherence, of the social meanings maintained
by the group, when a group has a higher degree of institutional and occupational
diversity, relative to its acceptance, it tends to intensify its internal communication
which gives rise to a unified definition of the situation.
Q. What are the objectives and Phases of Entrepreneurial Development
Programme.
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Ans. Meaning of Entrepreneurial Development Programme (EDPs) : Entrepreneurial
development programme means a programme designed to help a person in strengthing his
entrepreneurial motive and in acquiring skills and capabilities necessary for playing his
entrepreneurial role effectively. It is very necessary to promote his understanding to motives,
motivation pattern, their impact on behaviour and entrepreneurial value. A programme
which seeks to do this can qualify to be called as EDP.
In other words A EDP is primarily concerned with developing and motivating
entrepreneurial talent and growing him to be an effective entrepreneur. An entrepreneur
make use of the factors of production to the fullest advantage of the society, create
innovations, generate employment, improve the standard of living of people, develop
backward areas etc. EDP has an important role to play in solving the unemployment
problem.
Objectives or Need of EDPs :
(1) To formulate Project
(2) To select Project/Product
(3) To analysis the Environment
(4) To acquire the basic Managerial Skills
(5) To understand the process and procedure of setting up of enterprise
(6) Enable to communicate clearly and effectively
(7) Develop a broad vision about the business
(8) Enable to take decisions.
Phases of Entrepreneurial Developement Programme: An entrepreneurial development
programme consists of three broad phases:
(A) Initial or Pre-Training Phase : This phase includes the activities and the preparations
required to launch the training programme. The main activities are:
(i) Creation of Infrastructure for training
(ii) Preparation of training syllabus
(iii) Tie up of guest faculty
(iv) Arrangement for inauguration of the programme
(v) Designing tools and techniques for selecting the trainees
(vi) Formation of selection committee
(vii) Publicity campaign for the programme
(viii) Development of application form
(ix) Pre-potential survey of environmental opportunities.
Thus, pre-training stage involves the identification and selection of potential entrepreneurs
and providing initial motivation to them.
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Selection of potential entrepreneurs has two essential components :
1. Identifying Entrepreneurial Traits : Every participant must have a minimum level of
eligibility for developing into an entrepreneur. Entrepreneurial traits include socio-
personal and human re-sources characteristics:
(a) Socio-Personal Characteristics :
characteristics are:
The most common socio-personal
(i) Caste and Family Background : Caste and family background help create
entrepreneurial environment and occupational awareness for the
entrepreneurs.
(ii) Age : Studies have revealed that younger people are more successful
entrepreneur.
(iii) Education : A minimum level of education is essential to perform functions like
meeting officials etc.
(iv) Size and Type of Family : The size of the family and the entrepreneur's status in
the family are important.
(v) Working Hands : A small entrepreneur has generally to depend upon family
members as he cannot afford to hire workers.
(b) Human Resource Factors : These are:
(i) Achievement Motivation : It is the urge to improve one-self in relation to a goal.
(ii) Risk Taking Willingness : It refers to seeking challenge in one's activity.
(iii) Influence Motivation : It has been defined as the desire for influencing other
people and surrounding environment.
(iv) Personal Efficacy : It has been defined as the general sense of adequacy in a
person.
2. Identification of Enterprise : Once an entrepreneur having necessary socio-
personal and human resources characteristics is identified, it is necessary to identify s
suitable enterprise or project for him. The enterprise must be matched with the
potential entrepreneur. All the background information like his skills, experience in the
field, etc. should taken into consideration. The raw materials availability, the marketing
avenues and profitability of the enterprise have to be explored.
(B) Training or Development Phase : During this phase the training programme is
implemented to develop motivation and skills among the participants. The objective of
this phase is to bring desirable changes in the behaviours of the trainees. The trainers
have to judge how much, and how far the trainees have moved in their entrepreneurial
pursuit's. A trainer should see the following changes in the behaviour of participants:
(i) Is he attitudinally tuned very strongly towards his proposed project ideas?
(ii) Is he motivated to plunge for entrepreneurial venture and risk that is expected of
an entrepreneur?
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(iii) Is there any change in his entrepreneurial outlook, role and skill?
(iv) How should he behave like an entrepreneur?
(v) What kind of entrepreneurial behaviours does the trainee lack?
(vi) Does he posses the knowledge of technology, resources and other related
entrepreneurial knowledge?
(vii) Is he skillful in choosing the right project, mobilizing the right resources at the
right time?
Content of Training Programme : The main training inputs are as follows:
(i) Technical Knowledge : Once the entrepreneur selects a particular enterprise
the technical aspects of the trade is essential. He needs to also know the
economic aspects of the technology including costs and benefits.
(ii) Achievement Motivation Training : In order to develop human resources,
development of achievement motive is essential. The purpose of AMT is to
develop the need to achieve, risk taking, initiative and other such behavioural
traits. A motivational development programme creates self awareness and self
confidence among the participants and enables them to think positively and
realistically.
(iii) Market Survey : The participants should be given opportunity to actually
conduct market surveys for their chosen project.
(iv) Managerial Skill : Once a participant is able to start the enterprise he requires
managerial skills. Managerial skills are particularly essential for a small scale
enterprise who cannot afford to employ specialists in different areas of
management. The aim should be to enable the participant to look at an
enterprise in its totality and to develop overall managerial understanding.
(v) Project Preparation : A lot of time needs to be devoted to the actual preparation
of project. Their active involvement in this task would provide them necessary
understanding and also ensure their personal commitment.
(C) Post Training or Follow-Up Phase : This phase involves assessment to judge how
far the objectives of the programme have been achieved. Monitoring and follow up
reveals drawbacks in the earlier phases and suggests guidelines for framing the future
policy. In this phase infrastructural support, counseling and assistance in establishing
new enterprise and in developing the existing units can also be reviewed. Some
common activities in the monitoring and follow up process are as follows:
(1) Preparing and maintaining a separate file for each trainee.
(2) A history card indicating the bio-date of each entrepreneur and the work done by him.
(3) Keeping in touch with every entrepreneur through letters.
(4) Passing the desired information to the entrepreneur will in time.
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(5) Visiting every entrepreneur periodically.
(6) Follow up meeting and a follow up register to ensure the success of the
entrepreneurial development programme.
Q. Explain the Entrepreneurial Development Programme in India.
Ans. Institutions Conducting EDPs in India : Some of the major institutions for EDPs in
India are as follows:
(1) Entrepreneurial Development Institute of India : The entrepreneurship
development institute of India is an apex entrepreneurship institute promoted by
industrial development bank of India, Industrial credit and Investment Corporation of
India, Industrial Finance Corporation of India and state bank of India. The institute
enjoys acute support of government of Gujarat. The institute has been operating for
the past more than 15 years now. The institute undertakes entrepreneurship
development programmes to serve the following development objectives:
(i) Accelerated industrial development.
(ii) Industrial development of rural and less-developed areas.
(iii) Improving performance of small industries.
(iv) Diversifying sources of entrepreneurship.
(v) Enlarging the small and small medium enterprise sector.
(2) National Institute for entrepreneurship and small Business Development
(NIESBUD) : The National Institute for entrepreneurship and small Business
Development is an apex body established by the ministry of Industry, government of
India for Coordinating and overseeing the activities of various institutions/agencies
engaged in entrepreneurial development in small industry and small business. The
main objective of the institute are explained as follows:
(i) To provide vital information support to trainers, promoters and entrepreneurs.
(ii) To identify train and assist potential entrepreneurs for setting up
entrepreneur/self employment ventures in small industries.
(iii) To help and affiliate institution/Organization in carrying out training and other
entrepreneurship development related activities with greater success.
(iv) To evolve standardized materials and processes of selection, training support to
potential entrepreneur.
(3) Xavier Institute of Social Services, Ranchi : Xavier Institute of Social Services,
Ranchi has been training rural entrepreneurs since 1974. Xavier Institute provides the
training and assists the trainees in drafting project proposals and obtaining the
required finance. It offers a six months programme to tribal with minimum literacy and
numeracy skills. The programme consists of:
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(i) Identification and selection of candidates.
(ii) Motivation Training.
(iii) Managerial Training.
(iv) Placement and training for practical skills.
(v) Market survey and preparation of project report.
(vi) Financial assistance.
(vii) Follow up and Counseling.
(4) Madhya Pradesh Consultancy Organization Ltd. : This is a technical management
consultancy Organization. It was promoted by all-India financial institutions and state
Corporations. It undertakes assignments for project planning, detailed engineering,
market surveys, management surveys and entrepreneurship development
programmes. The programme consists of the following stages:
(i) Identification of industrial opportunities in the target area.
(ii) Advertising and promoting the programmes to attract applicants.
(iii) Selection of the participants.
(iv) Training, using lectures and practical instruction in the identified project.
(v) Follow up with industrial development and financial institutions.
(5) Calcutta "Y" Self Employment Centre : This Centre was organized as registered
society by a number of prominent industrialists, businessman, bankers, professionals
and social workers. It was setup in response to rapidly increasing unemployment and
social unrest in Calcutta during the early 1970s. It began as a vocational programme to
provide self employment for educated youths. It has developed innovative
approaches to help people set up their own business. The main programme are
explained as follows:
(i) Training in producing enterprise.
(ii) Assistance in drawing up a business plan.
(iii) Assistance in securing bank loans.
(iv) Arranging initial business contacts for their service and production.
(6) Technical Consultancy Organizations (TCOs) : Access to high quality consultancy
services improves the operational efficiency of entrepreneurs. All India financial
institutions have set up TCOs to provide industrial consultancy and training to
entrepreneurs. These organizations provide a comprehensive package of services.
Q. Write a short note on Target Group.
Ans. In an entrepreneurial development programmes, the target group refers to the group
of the persons for whom the programmes is design and undertaken. Every target group has
its own needs and constraints. Therefore, the programmes designed for one group might be
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inappropriate for others groups. Before the programmes is designed and started the target
group to be trained must be clearly defined. An executive development programmes may be
organized for any one of the following target groups:-
1. Technical and other qualified Persons : This group consists of those persons who
have pursued technical and allied courses of study. For instance degree/ diploma
holders in science, engineering and technology are in important group in India. The
training programmes for such people may be design to enable and assist them in
setting up their own manufacturing units. The industries selected for this purpose may
be directly related with their qualifications and experience.
2. Ex- Serviceman : Persons who have retired from the army, navy and air force
constitute an important group for entrepreneurial training. These persons have
acquired many useful skills and experience during their service period. They tend to
be highly disciplined, hardworking, engineering and innovative. Therefore they can
become successful entrepreneurs after proper entrepreneurial training.
3. Business Executives : Some business executives want to start their own
independent enterprise after getting sufficient business experience. Some of them
have certain innovative ideas which they are not able to try in their existing firms due to
lack of sufficient authority. Some among them are not satisfied with their present
economic and social status. After entrepreneurial training senior business executives
can become successful entrepreneurs.
4. Women Entrepreneurs : Women are entering the business especially traditional
food processing industries like spices, agarbati, papad etc. Several Governments and
non- governments organizations organizing entrepreneurial training programmes for
women.
5. S.C and S. T Entrepreneurs : Government of India is committed to be upliftment of
scheduled castes (S.C) and Scheduled Tribes (S.T). Therefore specified percentage
of jobs has been reserved for these castes. But all persons from these groups cannot
be offered employment. Government agencies give preference to S.C and S.T
entrepreneurs in providing finance and other necessary facilities.
6. Special agencies and Schemes : The government of India has been established
specialized agencies for training entrepreneurs. Special schemes have also been
launched to train, develop and assist entrepreneurs.
Q. Explain the Government Policy towards Small-Scale Industries (SSI's).
Ans. Government Policy : An Effort to Strengthen the Small-Scale Industries in India
The government of India for the first time tabled the new small enterprise policy in titled
'Policy Measures for Promoting and Strengthening and Supplementing Small, Tiny and
Village Enterprise, in Parliament on August 6, 1991. The main thrust of the new small
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enterprise policy was to impart more vitality and growth impetus to the sector to enable it to
contribute its mite fully to the economy, particularly in terms of growth of output, employment
and exports. The sector had been substantially licensed and concerted efforts were made to
regulate and debureaucratize the sector with a view to remove all fetters on its growth
potential on the one hand and reposing greater faith in small and new enterprises on the
other.
The salient features of the price policy were :
1. Increasing in the investment limit in plant and machinery of tiny enterprises from Rs. 2
Lakhs to Rs. 5 Lakhs, irrespective of the location of the enterprise.
2. Inclusion of industry related service and business enterprises, irrespective of their
location as small-scale industries.
3. To introduce a limited partnership act. This would limit the financial liability of the new
enterprises to the capital invested.
4. Introduction of a scheme of integrated infrastructural development for small-scale
industries.
5. Introduction of factoring services to help solve the problems of delayed payments of
small-scale sector.
6. Market promotion of small-scale industries products through co-operative/public
sector institutions, other specialized professional/marketing agencies and the
consortium approach.
7. To set up a Technology Development Cell in the small industries development
organization.
8. To accord priority to small and tiny sector ion the allocation of indigenous raw
materials.
9. Setting up of an Export Development Center in the small industries development
organization.
10. To widen the scope of the National Equity Fund (NEF) to enlarge the single window
scheme and also to associate commercial banks with provision of composite loans.
The new policy was founded on a proper understanding of the fundamental problems
of the small-scale sector and the measures proposed by it have integrated the various
handicaps that face this sector.
Taxation Benefits : Boon for the Growth of SSI
(1) Need for tax benefits : Small-scale industries are characterized by their limited and
scarce resources/capital. These make them sensitive. In fact, small business in such a
sensitive field where Murphy's Law (if anything can go wrong, it will) seems to operate
without fail. The first thousand days seems to be as critical in small business as in
administration. The former needs support and the latter indoctrination for survival. In
the beginning, small industries have to incur more expenses, but the returns are either
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nil or nominal. If this becomes uncontrollable, the unit may fall sick and needs
rehabilitation before it is actually anticipated. Therefore, they need to be provided
support and assistance to tide over the crucial initial stages to enable them to survive.
Hence, the government needs to come forward with various benefits to offer to small-
scale industries in the country. One way to support the development of small-scale
industries by the government is to provide them tax benefits. The government either
exempts them from tax or provides concession in tax liability. This helps small
industries accumulate capital, on the one hand, and plough back profits in business,
on the other. The various tax benefits available to small-scale industries are now
enumerated and discussed one by one.
(2) Tax Holidays : Under section 80J of the Income Tax Act, 1961, new industrial
undertakings, including small-scale industries, are exempted from the payment of
income-tax of their profits subject to a maximum of 6% per annum of their capital
employed. This exemption in tax is allowed for the period of five years from the
commencement of production. A small-scale industry has to satisfy the following two
conditions to avail of this tax exemption facility;
(i) The unit should not have been formed by the splitting or reconstitution of an
existing unit.
(ii) The unit should employ ten or more workers in a manufacturing process with
power, or at least twenty workers without power.
(3) Depreciation : Under section 32 of the Income Tax Act, 1961, a small-scale industry is
entitled to a deduction on depreciation on block of assets at the prescribed rate. In the
case of the small-scale industry, deduction from the actual cost of plant and machinery
is allowed subject to a maximum of rupees 20 Lakhs. The amount of depreciation is
calculated by the diminishing balance method. In case of an asset acquired before the
accounting period, depreciation is calculated on its written down value. For plant and
machinery that are used in manufacturing in double or triple shift, an additional
allowance called 'Extra Shift Allowance' is available. A small-scale industry should
satisfy the following conditions before it becomes eligible for deduction in
depreciation:
(i) The asset must be owned by the assessee.
(ii) The asset must actually be used for the purpose of the assessee's business of
profession.
(iii) Depreciation allowance or deduction is allowed only on fixed assets, i.e.,
building, machinery, plant and furniture.
(iv) All the prescribed particulars must be furnished to the income-tax officer as
required under section 34(1) of the Income-Tax Act, 1961.
(4) Rehabilitation Allowance : A rehabilitation allowance is granted to small-scale
industries under section 33-B of the Income-Tax Act, 1961. The allowance is give to
those small businesses that had to suffer on account of the following reasons:
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(i) Flood, Cyclone, earthquake or other natural upheavals.
(ii) Riot or civil disturbance Accident fire or explosion
(iii) Action by an enemy or action taken in combating an enemy.
The rehabilitation allowance should be used for the business purposes within three
years of the unit's re-establishment reconstruction of revival. The rehabilitation
allowance is allowed to the unit equivalent of 60% of the amount of the deduction
allowable to the unit.
(5) Investment Allowance : The investment allowance was introduced way back in 1976
to replace the initial depreciation allowance. The investment allowance under the
section 31A of the Income-tax Act, 1961, is allowed at the rate of 25% of the cost of
acquisition of new plant or machinery installed. Although the investment allowance
has been made available for the article or things except certain items of low priority,
yet, as per the 11th schedule to the Income Tax Act 1961, a special dispensation has
been provided for the plant and machinery installed in small-scale industries. In
comparison with other industries are at an advantage in claiming a deduction of
investment allowance.
A small-scale industry can avail of investment allowance provided it has put to use
machinery or plant either in the year of installation or in the immediate following year,
falling which the benefit will be forfeited.
(6) Expenditure on Scientific Research : Under the section 35 of the Income Tax Act
1961, the following deductions in respect of expenditure on scientific research are
allowed:
(i) Any revenue expenditure incurred on scientific research related to the business
of the assessee in the previous year.
(ii) Any sum that it pays to a scientific research association or a university, college,
institutions or to a public company which has as its object, the undertaking of
scientific research.
(iii) Any capital expenditure incurred on scientific research related to the business of
the assessee subject to the provision of section 35(2) of the Income Tax Act,
1961.
(7) Greater Attention on TQM in Small Enterprise : It is easy to start small enterprises
but difficult to make them survive. It is more so in the context of ever increasing
competition in business brought about by liberalization, globalization and privatization
of the Indian economy. The small businesses generally lose out on this platform. Only
those enterprises can survive that possess enough strength to face the stiff and
complex competition. Further, small enterprises find it more difficult to face
competencies, etc, and become weaker. The question then arises-how to develop
competitive strength among small enterprises to meet competition effectively? The
answer to this question is 'quality'.
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In aggregate, TQM can help strengthening of small enterprises in the following
manner:
(i) By increasing efficiency in processes.
(ii) By providing more time for innovation and creativity.
(iii) Boosting the morale of employees
(iv) Improving the quality of products and services
(v) Enhancing customer satisfaction
(vi) Snatching higher market share
(vii) Generating higher productivity
(viii) Achieving higher profits, etc.
A quality certification scheme was launched in 1994 to improve the quality standards
of SSI products which are to be assisted by awareness programmes and financial
support to acquired ISO 9000 or similar international quality standards.
Q. Write a note on Entrepreneurial Input.
Ans. Entrepreneurial Input :
entrepreneurship are as follows:
Various entrepreneurial inputs influencing the
(A) Economic Inputs : Economic environment exercises the most direct and immediate
influence on entrepreneurship. The economic factors that affect the growth of
entrepreneurship are the following:
(1) Capital : Capital is one of the most important perquisites to establish an enterprise.
Availability of capital facilitates for the entrepreneur to bring together the land of one,
machine of another and raw material of yet another to combine them to produce
goods. Capital is therefore, regarded as lubricant to the process of production. Our
accumulated experience suggests that with an increase in capital investment, capital-
output ratio also tends to increase. This results in increase in profit which ultimately
goes to capital formation. This suggests that as capital supply increases,
entrepreneurship also increases.
(2) Labour : The quality rather quantity of labour is another factor which influences the
emergence of entrepreneurship. Most less developed countries are labour rich
nations owing to a dense and even increasing population. But entrepreneurship is
encouraged if there is a mobile and flexible labour force. And, the potential
advantages of low-cost labour are regulated by the deleterious effects of labour
immobility. The considerations of economic and emotional security inhibit labour
mobility. Entrepreneurs, therefore often find difficulty to secure sufficient labour.
(3) Raw Material : The necessity of raw materials hardly needs any emphasis for
establishing any industrial activity and its influence in the emergence of
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entrepreneurship. In the absence of raw materials, neither any enterprise can be
established nor can an entrepreneur be emerged. Of course, in some cases,
technological innovation can compensate for raw material inadequacies.
(4) Market : The fact remains that the potential of the market constitute the major
determinant of probable rewards from entrepreneurial function. Frankly speaking, if
the proof of pudding lies in eating, the proof of all function lies in consumption, i.e.
marketing. The size and composition of market both influence entrepreneurship in
their own ways. Practically, monopoly in a particular product in a market becomes
more influential for entrepreneurship than a competitive market.
(5) Infrastructure : Expansion of entrepreneurship presupposes properly developed
communication and transportation facilities. It not only helps to enlarge the market, but
expend the horizons of business too. Take for instance, the establishment of post and
telegraph system and construction of roads and highway in India.
(B) Social Inputs : Social factors can go a long way in encouraging entrepreneurship. In
fact it was the highly helpful society that made the industrial revolution a glorious
success in Europe. The main components of social environment are as follows:
(1) Caste Factor : There are certain cultural practices and values in every society which
influence the actions of individuals. These practices and value have evolved over
hundred of years. For example, consider the caste system (the varna system) among
the Hindus in India. It has divided the population on the basis of caste into four
divisions:
The Brahmana (Priest)
The Kshatriya (Warrior)
The Vaishya (Trade)
The Shudra (Artisan)
It has also defined limits to the social mobility of individuals. By 'social mobility' we
mean the freedom to move from one caste to another. The caste system does not
permit an individual who is born a Shudra to move to a higher caste.
(2) Family Background : This facto includes size of family, type of family and economic
status of family. In a study by Hadimani, it has been revealed that Zamindar family
helped to gain access to political power and exhibit higher level of entrepreneurship.
Backgroud of a family in manufacturing provided a source of industrial
entrepreneurship. Occupational and social status of the family influenced mobility.
(3) Education : Education enables one to understand the outside world and equips him
with the basic knowledge and skills to deal with day-to-day problems. In any society,
the system of education has a significant role to play in inculcating entrepreneurial
values.
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(4) Attitude of the Society : A related aspect to these is the attitude of the society towards
entrepreneurship. Certain societies encourage innovations and novelties, and thus
approve entrepreneurs' actions and rewards like profits. Certain others do not tolerate
changes and in such circumstances, entrepreneurship cannot take root and grow.
Similarly, some societies have an inherent dislike for any money-making activity.
(5) Cultural Values : Motives impel men to action. Entrepreneurial growth requires
proper motives like profit-making, acquisition of prestige and attainment of social
status. Ambitious and talented men would take risks and innovate if these motives are
strong. The strength of these motives depends upon the culture of the society. If the
culture is economically or monetarily oriented, entrepreneurship would be applauded
and praised, wealth accumulation as a way of life would be appreciated.
(C) Psychological Inputs : Many entrepreneurial theorists have propounded theories of
entrepreneurship that concentrate especially upon psychological factors. These are
as follows:
(1) Need Achievement : The most important psychological theories of entrepreneurship
were put forward in the early 1960s by David McClelland. According to McClelland
'need achievement' is social motive to excel that tends to characterize successful
entrepreneurs, especially when reinforced by cultural factors. He found that certain
kinds of people, especially those who became entrepreneurs, had this characteristic.
Moreover, some societies tend to reproduce a larger percentage of people with high
'need achievement' than other societies. McClelland attributed this to sociological
factors. Differences among societies and individuals accounted for 'need
achievement' being greater in some societies and less in certain others.
(2) Withdrawal of Status Respect : There are several other researchers who have tried
to understand the psychological roots of entrepreneurship. One such individual is
Everett Hagen who stresses the psychological consequences of social change.
Hagen says, at some point many social groups experience a radical loss of status.
Hagen attributed the withdrawal of status respect of a group to the genesis of
entrepreneurship. He postulates that four types of events can produce status
withdrawal:
(a) The group may be displaced by force;
(b) It may have its valued symbols denigrated;
(c) It may drift into a situation of status inconsistency; and
(d) It may not be accepted the expected status on migration in a new society.
He further postulates that withdrawal of status respect would give rise to four possible
reactions and create four difference personality types:
(a) Retreatist : He who continues to work in a society but remains different to his
work and position;
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(b) Ritualist : He who adopts a kind of defensive behavior and acts in the way
accepted and approved in his society but no hopes of improving his position;
(c) Reformist : He is a person who foments a rebellion and attempts to establish a
new society; and
(d) Innovator : He is a creative individual and is likely to be an entrepreneur.
(3) Motives : Other psychological theories of entrepreneurship stress the motives or
goals of the entrepreneurs. Cole is the opinion that besides wealth, entrepreneurs
seek power, prestige, security and service to society. Stepanek points particularly to
non-monetary aspects such as independence, person's self-esteem, power and
regard of the society.
On the same subject, Evans distinguishes motive by three kinds of entrepreneurs.
(a) Managing entrepreneurs whose chief motive is security.
(b) Innovating entrepreneurs, who are interested only in excitement.
(c) Controlling entrepreneurs, who above all otter motives want power and
authority.
(4) Others : Thomas Begley and David P. Boyd studied in details the psychological roots
of entrepreneurship in the mid 1980s. They came to the conclusion that
entrepreneurial attitudes based on psychological consideration have five dimensions:
(i) First came 'need-achievements' as described by McClelland.
(ii) The second dimension is that Begley and Boyd call 'locus of control' This means
that the entrepreneur follows the ideas that he can control his own life and is not
influenced by factors like luck, fate and so on.
(iii) The third dimension is the willingness to take risks.
(iv) Tolerance is the next dimension of this study.
(v) Finally, here is what psychologists call 'Type A' behavior. This is nothing but "a
chronic, incessant struggle to achieve more and more ion less and less of time"
Entrepreneurs are characterizing by the presence of 'Type A' behavior in all their
endeavors.
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UNIT III

Q. Explain that key to entrepreneurial behaviour is entreprenurial motivation.
Ans. Psychology can be distinguished from other behavioral sciencesby its emphasis on
the behavior of the individual person. Behavior, in turn is influenced by the way in which the
external world is represented in the mind, and by the individual's exercise of choice.following
are the points which explains that how entrepreneurial motivation influences entrepreneurial
behavior.
1. NEED FOR ACHIEVEMENT
David McCelland has developed an Achievement Motivation Theory in the early
1960.According to this theory an individuals need for achievement refers to the need for
personal accomplishment .It is the drive to excel , to strive for success and to achieve in
relation to a set of standards. People with high achievement motive like to take calculated
risk and want to win. They like to take personal responsibility for solving problems and want
to know how well they are doing . High achievers are not motivated by money . Such people
strive for personal achievement rather than the rewards of success. They want to do
something better and more more efficiently than it has done before . This drive is the
achievement need (n-ach) .From the researches into the area of achievement need
McCelland found that high achievers differtiate themselves from others by their desire to do
things better. They seek situations where they can attain personal responsibility for finding
solutions to problems , where they can receive rapid feedback on their performance so they
can set moderately challenging goals . High achievers are not gamblers, they dislike
succeeding by chance. They prefer the challenge of working at a problem and accepting the
personal responsibility for success or failure, rather than leaving the outcome to chance or
the actions of others.
The following psychological factors contribute entrepreneurial motivation:-
1. Need for achievement through self study, goal setting and interpersonal support
2. Keen interest in situations involving moderate risk.
3. Desire for taking personal responsibility.
4. Concrete measures of task performance.
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5. Anticipation of future possibilities.
6. Energetic or novel instrumental activity.
7. Organisational skill
2. LOCUS OF CONTROL
Closely related to the concept of a high need for achievement is the belief in an internal
locus of control. Individuals who are reluctant in believing in their ability to control the
environment though their actions, would also be expected to be reluctant to assume the
risks that starting a business entails
Rotter (1966, as cited in Chell, Haworth and Brearley, 1991) developed the notion of
control of reinforcement reinforcement /reinforcement/ (-in-forsment) in behavioral
science, the presentation of a stimulus following a response that increases the frequency of
subsequent responses, whether positive to desirable events, or as part of a wider social
learning theory of personality. Rotter believed that the need for achievement is related to the
belief of internal locus of control. People with an internal locus of control are those
individuals who also believe themselves to be in control of their destiny (Chell, and
colleagues, 1991). In contrast, people with an external locus of control sense that fate, in the
form of chance events outside their control, or powerful people, has a dominating influence
over their lives (Chell and Colleagues, 1991). Rotter hypothesized that individuals with
internal beliefs would more likely strive for achievement than would individuals with external
beliefs.
3. RISK TAKING
Risk bearing is a prime factor in the entrepreneurial character and function. In
particular, Hull and colleagues (1980) found that the personality characteristics most
important in identifying entrepreneurial types of individuals are (1) functional task
preference and (2) personality constructs of creativity, risk and flexibility.
Researchers such as Palmer (1971, as cited in Kent and Sexton, 1982) and Likes
(1974, as cited in Shabbir and Gregorio, 1996) speculate that in becoming an entrepreneur,
an individual risks financial well-being, career opportunities, family relatives and psychic
well being. The level of uncertainty involved in an entrepreneurial venture indicates that
individuals drawn to such lines of business will possess a certain level of risk taking
propensity.
4. VALUES
Any consideration of personality characteristics of the entrepreneur must entail
restriction of inheritance to a limited class of descendants for at least several generations.
The object of entail is to preserve large estates in land from the disintegration that is caused
by equal inheritance by all the heirs and by the ordinary an examination of their value
systems. Value orientation- the principles of right and wrong that are accepted by an
individual or a social group; "the Puritan ethic"; "a person with old-fashioned values" ethic,
moral principle, value-system
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One of the major studies of personal values of entrepreneurs was done by Hornaday
and Aboud (1971, as cited by Sexton and Smilor, 1982). The researchers found that
entrepreneurs scored significantly higher than the general population reflecting the need for
achievement,
Thus it is concluded that values may be effective in distinguishing successful
entrepreneurs from the general population.
5. PROBLEM SOLVING STYLE AND INNOVATIVENESS
Gartner (1989) refers to innovation as the central value of the entrepreneurial
behavior, since it is successfully taking an idea or invention to market. Innovation and
problem solving capabilities are expected to be the core of the entrepreneurial capability of
an entrepreneur. But the level of innovation is dependent upon the entrepreneur's formal
education and managerial experience. Their study of 184 firms in the Midwest showed a
correlation between a higher level of managerial experience and more years of education
with a higher level of innovation
Q. Discuss that n- achievement theory of motivation is the key to management
success.
Ans. Introduction : David McCelland has developed an Achievement Motivation Theory
in the early 1960.According to this theory an individuals need for achievement refers to the
need for personal accomplishment .It is the drive to excel , to strive for success and to
achieve in relation to a set of standards. People with high achievement motive like to take
calculated risk and want to win. They like to take personal responsibility for solving problems
and want to know how well they are doing .
High achievers are not motivated by money . Such people strive for personal
achievement rather than the rewards of success. They want to do something better and
more more efficiently than it has done before . This drive is the achievement need (n-ach).
From the researches into the area of achievement need McCelland found that high
achievers differtiate themselves from others by their desire to do things better. They seek
situations where they can attain personal responsibility for finding solutions to problems ,
where they can receive rapid feedback on their performance so they can set moderately
challenging goals .
High achievers are not gamblers, they dislike succeeding by chance. They prefer the
challenge of working at a problem and accepting the personal responsibility for success or
failure, rather than leaving the outcome to chance or the actions of others.
The following psychological factors contribute entrepreneurial motivation :
1. Need for achievement through self study, goal setting and interpersonal support
2. Keen interest in situations involving moderate risk.
3. Desire for taking personal responsibility.
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4. Concrete measures of task performance.
5. Anticipation of future possibilities.
6. Energetic or novel instrumental activity.
7. Organisational skill
The researchers have criticized McClelland's achievement motivation theory of
entrepreneurs over the last three decadOes. Most notably, Brockhaus (1982, as cited in
Sexton and Smilor, 1986) questioned the predictive power. The predictive power of a
scientific theory refers to its ability to generate testable predictions. Theories with strong
predictive power are highly valued, because the predictions can often encourage the
falsification of the theory. of the theory. The author has pointed out that McClelland's
empirical research did not directly connect need for achievement with the decision to own
and manage a business.
Other criticisms of McClelland's achievement motivation theory on entrepreneurs look
at the attempt to relate economic development to the prevalence of achievement imagery
(Chell, Haworth and Brearley, 1991). The cultural basis of the achievement is motive .In
some cultures, failure is seen as a positive learning experience, while in others it has a
certain negative stigma
There is however some empirical support for the idea that entrepreneurs have a
higher motive to achieve compared to non-entrepreneurs. Begley (1995) and Hornaday and
Aboud (1971) consistently found that the achievement motivation exists as a stable
characteristic and is more prevalent among entrepreneurs when compared to others.
Q. Explain the concept of entrepreneurial success in rural area in detail.
Ans. The traditional approach to rural development was 'top-down' meaning that central
development authorities designed programmes which brought in infrastructure, human
capital and investment from outside the rural community. While the investment in
infrastructure and extension services was clearly beneficial in attracting basic commercial
activities and increasing the quality of life in rural areas, it did not necessarily provide a long
term growing economic base. Many rural areas were not beneficiaries of such schemes,
since many projects were too expensive to implement in all rural areas.
The new approach which emerged over the past decade is the development 'from
below'. It stressed the importance of community development based on local
entrepreneurial initiatives, with the explicit goal to ensure balanced technological
development of rural areas which would offer adequate employment opportunities and a
quality of life comparable to urban areas. This approach assumes that the development of
rural areas is based on stimulating local entrepreneurial talent and subsequent growth of
indigenous companies. Specifically, to accelerate economic development in a rural area, it
is necessary to increase the supply of entrepreneurs that is to build up the critical mass of
first generation entrepreneurs who will take risks and accept the uncertainties of new
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venture creation and who will by their example stimulate an autonomous entrepreneurial
process thereby ensuring continuous rural development. To support such development, the
community must develop links among key institutions, a vibrant entrepreneurial spirit and a
commitment and dedication to risk taking and risk sharing. following are the requirements of
entrepreneurial success in rural area:
Public-private institutions partnership
One of the principal challenges of economic development of rural areas is the
development of a socio-economic environment that would be attractive to people.
To meet this challenge, all available and hidden development potential of the local
community must be mobilised. This in turn requires an environment favourable to
entrepreneurship which a community basically can create in two ways. First, the community
should utilise all the available incentives provided by the government to stimulate the
development of economically depressed areas. These incentives usually include
favourable investment conditions, low interest rates, tax concessions, guarantees, export
subsidies, employment provisions, subsidies on public utility charges and the like.
Second, the community should create and foster the development of institutions and a
variety of partnerships to support local development. As experience shows, personal and
organizational networks are very effective in achieving broad and fast growing regional
economic development.
Today we are witnessing many examples of institutional developments that are
fostering businesses and community collaborative efforts-while nurturing positive
government/academic/business relationships in promoting economic growth. Such
institutions and their collaborative efforts should play a significant role in rural
communities/regions where the development strategy of the rural community places
entrepreneurship in the centre of economic development. Among the most important are:
institutions of education and training; inter-firm institutions and financial institutions.
Institutions of Education
The role of institutions of education in rural development is of crucial importance. They
help to create a capable labour force and to maintain a skilled work force in the community. In
rural areas they can act as agents of change, such as:
redesigning curricula to teach students high level skills and those skills that would help
to up-grade businesses;
developing technical training programmes to provide people with basic skills for jobs
required by local businesses;
developing and implementing programmes to improve the competitiveness of local
firms and their ability to expand into new markets; and
developing links with other higher educational institutions, especially with universities
outside the rural region in order to bring into the region technical expertise available
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outside the region and which could be beneficial to the existing businesses in the
region, to new community enterprises, or to stimulate new entrepreneurship in the
community.
Inter-firm Institutions

Efforts to support and enhance existing businesses within a community and to
promote new enterprises in a community can be most successfully earned out through
different inter-firm institutions. Among different inter-firm institutions, business incubators,
industrials parks, different non-profit seeking organizations facilitating networking and
business support centres are one of the most successful ones promoting the growth of new
and existing enterprises. These institutions can significantly contribute to rural development
because of the following:
Business Incubators

Business incubators are a facility designed to assist the development of new
enterprises (Smilor, R.W., 1987). They help entrepreneurs by providing them with services
which support and compliment their own talents and abilities.
Their support system usually includes secretarial, administrative and business
expertise and facilities which are available to entrepreneurs below or at market rates. The
entrepreneurs receive not only help regarding the management of their enterprises but also
other services such as provision of financial assistance and training. They organize
conferences, business luncheons and different types of activities for the purpose of
networking. They create a good business climate inside the incubator and ensure a constant
inflow of moral and financial support. As such, they thus seek to give form and substance,
structure and credibility to emerging ventures.
The business incubator presents a rather unique approach to economic development.
Unique in the sense that it is an independent enterprise whose business is the process of
'incubating' enterprises. The business incubator has emerged as a solution to the high
failure rates among new firms. Many new firms fail, not because they are not innovative
enough but because in their early stage they have difficulty in competing. Therefore, the
basic concept of the incubator is to nurture entrepreneurial activities so as to provide start-
ups with the necessary services and support until they mature and are ready to enter
successfully into the competitive business environment.
The business incubator industry was one of the fastest growing industries in the late
eighties in the U.S.A. Nearly every regional development programme includes the
development of the incubator network, especially in those regions which had experienced
economic decline and severe job losses due to the closing down of industries. Initially,
practically all incubators in the U.S.A. were publicly supported by communities or states and
public funds covered practically all investment and start-up costs.
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Incubators in a rural area can be designed for a number of purposes to:
Encourage skilled and professional people who have left the community to come back
to the region to start new companies;
Attract to the area, laid-off skilled labour from nearby town;
Promote specific types of businesses;
Nurture a pool of potential growth enterprises through equity investments;
Meet particular local employment needs;
Help develop flexible manufacturing networks of co-operatives and other
manufacturing businesses;
Develop and produce a particular product that none of the firms could manufacture
alone;
Foster greater access to capital for start-up firms;
Intensify training programmes to build the vocational skills of its members;
Provide job opportunities for high-tech graduates; and
Develop ways by which technical engineering and management expertise from
outside the enterprise can help start-ups to develop, diversify product lines and
markets and expand.
Business incubators are usually established by private initiative with the financial
assistance from the federal, state and local governments and private sector contributions.
Industrial Parks
As an unemployment-reducing effort and/or for revitilizing the community economic
base, communities could establish industrial parks by purchasing marginal agricultural
property at the market price and converting it to industrial purposes in order to accelerate
entrepreneurial restructuring of rural communities. Communities could increase the
attractiveness of industrial parks to potential entrepreneurs by delivering conventional
common infrastructural services, by customisable layouts that could be rearranged over
time to meet user needs in a flexible way and by the final price which should be much lower
than the price of equivalent buildings in other, especially urban, areas.
Networking among firms in the industrial park is a common outcome. The firms in the
industrial park benefit in several ways through networking. The benefits could be grouped
into those resulting from reducing the problems of isolation in the process of starting-up,
those resulting from economies of scale as overhead functions among firms in the network
are shared and those due to the aggregation of production of small firms with the same or
compatible production and due to large scale purchases of equipment and raw material.
Institutions Facilitating Networking
These are non-profit seeking associations, registered or non-registered which
facilitate networking between small firms located in the same region2. They usually perform
the following tasks:
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Promote co-operation between small firms in the network, thus promoting their
competitive efficiency;
Provide different services in the areas of finance, marketing, research and
development;and
Provide common services of daily matters in production and administration in order to
reduce transaction costs.
Networking among small firms permits aggregation of production, large scale
purchases, enables specialised firms jointly to manufacture finished products, facilitates
shifts from product to product and market to market and leads to important economies of
scale as overhead functions are shared (Hatch, 1989, p.6).
Business Support Centres
Business support centres can be established to meet the needs of start-ups, emerging
or established businesses. They provide different types of services according to the needs
of the three different clients (Small Business Administration, p. 19):
Assistance to start-ups: business planning and finance.
Assistance to emerging and established businesses: management skills in the areas
of finance, sales, marketing and administration.
Assistance to business partnership: sub-contracting of local firms with larger
enterprises outside the community; attracting spin-offs from fast growing firms or firms
who are rationalising, production by spinning off auxiliary production units; identifying
franchising opportunities to the potential local entrepreneurs.
Business support centres can be part of the local government or semi private
institutions or for non-profit private organizations. They can also be established at the
community colleges or at the university to help small business owners learn necessary
business skills at low cost.
Financial Institutions
Communities should support the development of a strong venture capital base and
risk capital networks specialising in funding new entrepreneurial activities. Seed financing
could be an important bottleneck for new enterprise creation. For this reason, special
attention must be given to the creation of institutions that provide seed financing and start-
ups targeted venture capital and are engaged in equity financing. If it would be difficult for
such institutions to be attractive to a rural community, the community leadership must
encourage existing institutions to link new start-ups or potential entrepreneurs with such
institutions outside the community. They should also be responsible for screening all
financial schemes existing in the country for the development of new enterprises and for the
growth of existing ones. Potential entrepreneurs must have access to information such as:
which are the state financial agencies, banks that provide guarantees, issue tax free bonds,
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direct loans to smaller enterprises or to Consortia of enterprises? What type and how many
economic development funds are available? Who provides favourable investment financing
for the equipment and working capital? Which development corporations finance new and
expanding businesses'? What state funds are available for small and medium sized
enterprise development, etc.'?
Public-Private Partnership
The impact of institutions discussed earlier on rural economic development will
increase if the individual efforts of those institutions are combined into a co-ordinated action.
Therefore, the task of community leadership is to encourage close co-operation among
different institutions supporting rural development, both public and private, in order to
develop programmes that would address the key barriers to community development:
human and financial capital drain, inefficient use of natural and productive resources,
inability to meet the local business needs, inability to create effective community
infrastructure, inability to encourage new enterprise formation, inability to increase local
economic opportunities, etc.
The key to the evolution of economic development based on a partnership approach is
the leadership that could come either from the local government or from already existing
successful private companies, local development private or public agencies, community
civic organizations, educational institutions and the like. What is crucial is the development
of personal and organizational networks which combine otherwise individual efforts into a
comprehensive approach to regional development of rural areas. Therefore, it is important
to identify or to establish the principal community civic agency, the lead organization
responsible for designing and carrying out the development strategy based upon
identification of an area's major problems (lack of job opportunities, substandard housing,
deteriorated social infrastructure, etc.). This organization should act as a planning and
brokering organization, bringing together public and private initiative to attain common
community goals. It should support the creation of new agencies if ongoing implementation
of a development strategy so requires. Personnel should also include representatives of the
major enterprises in the region, universities and research and development institutions. It
should focus on broad community concerns and co-ordination of separate efforts in the
region.
Conclusions
Economic development in general requires more than just a proper macro economic
environment. In addition it demands institutional framework conducive to economic
development, practical mechanisms for risk taking and risk sharing in the early and most
uncertain stages of entrepreneurial ventures and an organizational system conducive to
growing new and existing businesses. It takes cross-institutional networking. The role of
public policy is therefore to continually find ways to implement critical success factors of
economic development. Economic development of rural areas cannot be an exception in
this respect.
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Q. How an entrepreneurial system can be established?
Ans. An entrepreneur perceives an opportunities for marketing a product or services. Then
he establishes a business unit on the basis of his/her perception. Finally he manages his
enterprise expanding, growing or diversifying over a period of time. In order to establish an
entrepreneurial system an entrepreneur needs to take the following steps:-
1. Search for Bbusiness Ideas : The first step of entrepreneurial system is search for
business ideas. The idea may originate from various sources e.g. success story of a
friend or relative, demand for certain products, visits to trade fairs and exhibitions,
study of project profiles and industrial potential surveys, meetings with government
agencies etc. The idea may relate to the starting of a new business or to takeover of an
existing enterprise, the idea should be sound and workable, so that it may be
exploited.
2. Sources of Ideas : A business idea may be discovered from the following sources:-
(i) Observing Markets : Careful observation of markets can reveal a business
idea. Market surveys can also reveal the demand and supply position for various
products. It is necessary to estimate future demand and to take into account
anticipated changes in fashions, income levels, technology etc. competition and
price trends can also be found through market surveys. From the data collected
through market observation, one can identify the products industries which are
in demand and which require increase in supply. A promoter can then find out the
most profitable line of business.
(ii) Prospective Consumers : Consumers knows best what he wants and the
habits/tastes which are going to be popular in near future. Contacts with
prospective consumers can also reveal the features that should be built into a
product/service. These days good business firms generally conduct a survey
among prospective consumers before choosing the product to be
manufactured.
(iii) Development in other Nations : People in underdeveloped countries
generally follow the fashion trends of developed countries for example video,
washing machines, micro ovens etc. which are now the In things in India were
being used in the united states and Europe. Therefore, an entrepreneur can
discover good business idea by keeping in touch with developments in
advanced nations.
3. Study of Projects Profiles : Various government and private agencies publish
periodic profiles of various projects and industries. These profiles describe in detail the
technical, financial and market requirement and prevailing position a careful scrutiny
of such project profiles is very helpful in choosing the line of business.
(i) Government Organizations : Several government organizations now-a-days
assist entrepreneurs in discovering and evaluating business ideas.
Development banks, state industrial development/investment corporations,
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technical consultancy organizations, export promotion council etc. provide
advice and assistance in technical, financial, marketing and other areas of
business. Government also identifies the priority sectors for investment through
five year plans, industrial policy resolution guidelines for industry.
(ii) Trade Fairs and Exhibition : National and international trade fairs are a very
good source of business ideas. A visit to these fairs provides information about
new products/machines. Trade fairs and exhibitions provide opportunities for
assessing the market trends in terms of demand potential and type of products
required. It also assessing the attitude of the competitors in a particular product
or marketing area.
4. Process the Ideas : Once business ideas are discovered, screening and testing of
these ideas is done. The following considerations are significantly in the evaluation
and testing of business ideas.
5. Technical Feasibility : It refers to the possibility of producing the product. Technical
feasibility of an idea is judged in terms of availability of necessary technology,
machinery and equipment, labour skills and saw materials. The advice and assistance
of technical experts may be necessary to judge the technical feasibility of various
business ideas.
6. Commercial Viability : A cost benefit analysis is required to ascertain the profitability
if the ideas. An elaborate study of market conditions and prevailing situation is made to
assess the viability and prospectus of the proposed projects. A number of calculations
have to made about the likely demand, expected sales volume, selling price, cost of
production, break even point etc.
After preliminary evaluation of the idea, the promising idea is subjected to a thorough
analysis from all angles. Full investigation is carried out in the technical feasibility and
economic viability of the proposed project. Financial and managerial feasibility of the
idea are tested. At this stage a lot of information is required. Consultations with experts
in various areas of the industry may be necessary to carry out the detailed analysis.
After the evaluation of a business idea is completed, the finding are presented in the
form of a report known as feasibility report or project report. This report helps in the
final selection of project. It is also useful for procuring licenses, finance etc from
governmental agencies.
7. Idea Selection : The feasibility report is analyzed to finally choose the most promising
idea. Generally the following considerations influence the selection of idea for a
product or service:-
(i) Products whose imports are banned or restricted by the government.
(ii) Products which can be exported exceeds easily and profitability.
(iii) Products whose demand exceeds their supply so that there exists ready
demand.
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(iv) Products which showed high profitability.
(v) Products for which incentives and subsidies are available.
(vi) Products favoured by the countrys industrial/licensing policy.
(vii) Products based on the expansion or diversification plans of existing firms of the
family/friends/relatives.
After considering the various factors a entrepreneur should analysis and compare
pros and cons. A selection matrix may be prepared for this purpose. The matrix
indicates the type of diverse data that needs to be collected for each project. It also
throws light on how each item can hold out some encouraging and some discouraging
factors. The entrepreneurial selection needs to take all these factors into account.
8. Input Requirement : Once the promoter is convinced of the feasibility and profitability
of the project he assembles the necessary resources to launch the enterprise. He has
to choose partners/collaborates, collect the required finances and acquire land and
buildings, plant and machinery, furniture and fixtures, patents, employees etc.
Decisions have to be made about the size, location, layout etc. of the enterprise. The
form of ownership organization has to be selected. The main inputs required for
launching an enterprise are as follows:-
(i) Information and Intelligence : In the turbulent business environment,
information and intelligence have become the key input in entrepreneurial
success. An entrepreneur requires relevant data on the following aspects:-
Size and nature of demand for the product/service.
Volume and source of supply.
Price cost volume relationship.
Sources of raw material.
Nature and degree of competition.
(ii) Number and type of personnel required and their sources.
(iii) Amount and sources of funds required for the enterprise.
9. Personnel : People are the most valuable asset of an enterprise and this asset does
not depreciate. An entrepreneur has to make the following decisions concerning the
personnel.
Number of personnel required for management, technical and other positions in
the enterprise.
Qualifications and experience required in the personnel to perform the jobs
effectively.
Sources of recruitment form which the needed staff will be procured.
Procedure and methods of selecting the best candidates.
System and criteria for evaluating the performance of employees.
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Policies and methods for remunerating the personnel.
Facilities to be provided by the safety, health, welfare of the staff.
10 Establish the Enterprise : This is the last step of entrepreneurial system. It is very
important step. In this phase the entrepreneur integrate their resources and establish
the enterprise.
Q. Write a short note on innovation related to entrepreneur
Ans. Gartner (1989) refers to innovation as the central value of the entrepreneurial
behavior, since it is successfully taking an idea or invention to market.
Innovation and problem solving capabilities are expected to be the core of the
entrepreneurial capability of an entrepreneur the vast majority of entrepreneurs studied
were characterized by sensation-thinking problem solving styles. Such individuals were
shown to be short-term oriented dealing with immediate problems. Entrepreneurs are faced
with a number of challenges as they try to implement new ideas "Iinnovation is one of the
central characteristics of entrepreneurial endeavor. Looking at history, entrepreneurial
activity is most active during periods of upheaval: economic, social, or political . This is
usually when traditional systems and ways of doing business are no longer affective. Those
who survive the changes will be the businesses that act entrepreneurially
Entereneurs are not uniformly innovative. The level of innovation is dependent upon
the entrepreneur's formal education and managerial experience. Their study of 184 firms in
the Midwest showed a correlation between a higher level of managerial experience and
more years of education with a higher level of innovation.
Features of Innovation
Innovations are the harbingers of change.
Innovations can take place at the spark of light or can take a generation of
experiments.
Innovations can be both revolutionary as well as an extension to the existing products.
Innovations provide a USP to a business.
Innovations are action oriented i.e active and searching new ideas.
Innovations help in making the product, service or process simple and
understandable.
innovations help in making the product, service or process customer based.
Innovation is all about trying, testing and revising.
Thus innovation refers to a process of creation of a product that can solve existing
problems or tap opportunities.
Sources of Innovation :
Present and potential customer
Existing companies
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Raw material provider
Distributors and retailers
Research and development
Existing employees
Q. How entrepreneurial support system can be established.?
Ans. Introduction : It is very difficult and complicated to create a system for
entrepreneurs. While public officials and service providers understand the differences
between, say, a Small Business Center and a Small Business Technology Development
Center and the services they offer, entrepreneurs do not. Nor should we expect
entrepreneurs to understand these differences. Thus, when an entrepreneur seeks
assistance and is referred to "some other office," her typical response is intense frustration.
These problems emerge because most service providers focus - correctly - on market
niches. Small business development centers (SBDCs) focus on growth businesses, the
cooperative extension service focuses on agriculture, and micro loan programs provide
more general support to new entrepreneurs. While there are efficiencies that arise from this
specialized approach, the system's specialization often gets lost in translation to the
entrepreneur. Most entrepreneurs simply want help. They do not care which agency or
program provides it.
These challenges of fragmentation are not new to economic development
professionals. The traditional solution has been to create a "one-stop shop," where a whole
host of services for small business can be accessed in one place. These one-stop shops can
exist in physical space Creating a one-stop shop should be viewed as a first step, not the end
of the process. Such sites offer user-friendly access to information, but they still require
significant knowledge from the aspiring entrepreneur or business owner. Can the business
owner find the right services and support that will "fix" his current problems? Research
shows that many entrepreneurs cannot leap this hurdle. In many cases, they face difficulties
simply identifying their own business challenges. For example, they may recognize that
business is slowing, but may not know whether the slowdown is caused by marketing,
financial or operational challenges. A more sophisticated diagnosis of the issues is needed.
Then, a quality menu of support options can be developed.
From One-Stop Shop to no Wrong Door
This type of sophisticated business diagnosis system does not really exist today for
most entrepreneurs. High-growth technology businesses can receive such support from
venture investors and others, but most entrepreneurs make do with one-size-fits-all
programs for training, financing, and the like. In practice, this means that business owners
often receive the services that are available instead of the services that are needed. For
example, a potential high-growth business may be referred to a loan program even though it
really needs some form of equity financing.
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A reformed systems approach is needed. At the outset, the system should offer an
entry-level package of services that entrepreneurs receive no matter where they enter the
system. The system would be defined by the concept of "no wrong door." Every part of a
region's small business support network should provide an initial assessment of the
entrepreneur's skills and needs and identification of the best place for the entrepreneur to
receive services to address those needs. This new system would move the burden of
understanding how best to access support services from the entrepreneur to the system
itself. Upon completion of this initial diagnosis, more specialized services can be delivered.
In addition to improving services for the entrepreneur, this system also offers benefits
to service providers. A systems approach allows service providers to "segment" their
market. They can truly specialize in serving certain types of entrepreneurs, and feel assured
that other providers are effectively serving other market segments. Their productivity and
efficiency will improve as they can focus personnel and resources on their own market
niche. Service providers can now focus on "quality" instead of "quantity" of services.
What does an entrepreneur support system look like?
Many regions claim that they have a small business support system in place, but, in
most cases, these "systems" are simply a loose federation of non-profits and other support
providers. A true system links all relevant service providers, operates according to common
procedures, and offers a customized and comprehensive set of public and private services
for local entrepreneurs. Several characteristics are essential:
Common intake procedures: All local service providers are trained to perform a brief
intake and diagnosis of an entrepreneur's issues and service needs. Thus, when an
entrepreneur calls a service provider, she is not given an immediate referral. Instead, her
basic information is obtained and entered into the system. At that point, she will be referred
to the appropriate local service provider. For example, if her firm is looking for export
opportunities, she will be referred to a local expert in that process.
Clear referral systems: Referrals are the cornerstone of the system. The process must
be clear to both entrepreneurs and service providers. This requires that service providers
explicitly state their specific areas of expertise. They can no longer simply serve all
entrepreneurs; they must focus on a specific set of issues or types of businesses. For
example, a non-profit might identify its niche as "training entrepreneurs to work with
institutional venture capitalists." Effective referrals also mean that providers must
understand the system and each organization's role within it.
Clear guidelines for entrepreneurs: As noted above, the system must be
understandable to entrepreneurs. They must understand the purpose of the initial
diagnostic process and why they have been referred to a certain service provider. Finally,
the type and level of support to be provided must be clearly understood.
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Regular collaboration: The system will work if the partners effectively collaborate with
one another. They must meet on a regular basis, and regularly review how the system is
serving local businesses. In addition, service providers must create a single "brand" for the
system so that entrepreneurs are supported by the "system" and not by a single service
provider.."
Program Offerings
Every region must develop its own set of program offerings targeted to the needs of
local entrepreneurs. some of the key program offerings to be found in comprehensive
entrepreneur development systems:
Entrepreneurship education - including the introduction of entrepreneurship concepts
in K-12 and more advanced adult education and training in community colleges, colleges
and universities.
Access to Capital - sources of capital to match the financing needs of entrepreneurs at
various stages of development, from seed capital to loans to equity.
Access to Networks - opportunities for entrepreneurs to connect with peers and mentors
and to form strategic alliances to benefit their businesses.
Entrepreneurial Culture - a culture that recognizes, embraces and celebrates
entrepreneurs, creating a place where entrepreneurs choose to live, work and play.
The Benefits
Creating an effective entrepreneur support system can generate huge benefits for
local business owners and aspiring entrepreneurs. It can also stimulate a transformation for
economic developers. By promoting real collaboration, it improves productivity and program
effectiveness while also generating improved outcomes in terms of jobs, new businesses
and overall quality of life.
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UNIT IV

Q. Explain the various steps of setting an enterprise Discuss.
Ans. Introduction : An entrepreneur perceives an opportunities for marketing a product or
services. Then he establishes a business unit on the basis of his/her perception. Finally he
manages his enterprise expanding, growing or diversifying over a period of time. In order to
establish an entrepreneurial system an entrepreneur needs to take the following steps:-
1. SEARCH FOR BUSINESS IDEAS :
The first step of entrepreneurial system is search for business ideas. The idea may
originate from various sources e.g. success story of a friend or relative, demand for certain
products, visits to trade fairs and exhibitions, study of project profiles and industrial potential
surveys, meetings with government agencies etc. The idea may relate to the starting of a
new business or to takeover of an existing enterprise, the idea should be sound and
workable, so that it may be exploited.
2. SOURCES OF IDEAS :
A business idea may be discovered from the following sources :
(i) Observing Markets :
Careful observation of markets can reveal a business idea. Market surveys can also
reveal the demand and supply position for various products. It is necessary to estimate
future demand and to take into account anticipated changes in fashions, income levels,
technology etc. competition and price trends can also be found through market surveys.
From the data collected through market observation, one can identify the products
industries which are in demand and which require increase in supply. A promoter can then
find out the most profitable line of business.
(ii) Prospective Consumers :
Consumers knows best what he wants and the habits/tastes which are going to be
popular in near future. Contacts with prospective consumers can also reveal the features
that should be built into a product/service. These days good business firms generally
conduct a survey among prospective consumers before choosing the product to be
manufactured.
214

(iii) Development in other Nations :
People in underdeveloped countries generally follow the fashion trends of developed
countries for example video, washing machines, micro ovens etc. which are now the "In
things" in India were being used in the united states and Europe. Therefore, an entrepreneur
can discover good business idea by keeping in touch with developments in advanced
nations.
3. STUDY OF PROJECTS PROFILES :
Various government and private agencies publish periodic profiles of various projects and
industries. These profiles describe in detail the technical, financial and market requirement
and prevailing position a careful scrutiny of such project profiles is very helpful in choosing
the line of business.
(i) Government Organizations :
Several government organizations now-a-days assist entrepreneurs in discovering and
evaluating business ideas. Development banks, state industrial development/investment
corporations, technical consultancy organizations, export promotion council etc. provide
advice and assistance in technical, financial, marketing and other areas of business.
Government also identifies the priority sectors for investment through five year plans,
industrial policy resolution guidelines for industry.
(ii) Trade Fairs and Exhibition :
National and international trade fairs are a very good source of business ideas. A visit to
these fairs provides information about new products/machines. Trade fairs and exhibitions
provide opportunities for assessing the market trends in terms of demand potential and type
of products required. It also assessing the attitude of the competitors in a particular product
or marketing area.
4. PROCESS THE IDEAS :
Once business ideas are discovered, screening and testing of these ideas is done. The
following considerations are significantly in the evaluation and testing of business ideas.
5. TECHNICAL FEASIBILITY :
It refers to the possibility of producing the product. Technical feasibility of an idea is judged in
terms of availability of necessary technology, machinery and equipment, labour skills and
saw materials. The advice and assistance of technical experts may be necessary to judge
the technical feasibility of various business ideas.
6. COMMERCIAL VIABILITY :
A cost benefit analysis is required to ascertain the profitability if the ideas. An elaborate study
of market conditions and prevailing situation is made to assess the viability and prospectus
of the proposed projects. A number of calculations have to made about the likely demand,
expected sales volume, selling price, cost of production, break even point etc.
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After preliminary evaluation of the idea, the promising idea is subjected to a thorough
analysis from all angles. Full investigation is carried out in the technical feasibility and
economic viability of the proposed project. Financial and managerial feasibility of the idea
are tested. At this stage a lot of information is required. Consultations with experts in various
areas of the industry may be necessary to carry out the detailed analysis.
After the evaluation of a business idea is completed, the finding are presented in the form of
a report known as "feasibility report" or project report. This report helps in the final selection
of project. It is also useful for procuring licenses, finance etc from governmental agencies.
7. IDEA SELECTION :
The feasibility report is analyzed to finally choose the most promising idea. Generally the
following considerations influence the selection of idea for a product or service:-
(i) Products whose imports are banned or restricted by the government.
(ii) Products which can be exported exceeds easily and profitability.
(iii) Products whose demand exceeds their supply so that there exists ready demand.
(iv) Products which showed high profitability.
(v) Products for which incentives and subsidies are available.
(vi) Products favoured by the country's industrial/licensing policy.
(vii) Products based on the expansion or diversification plans of existing firms of the
family/friends/relatives.
After considering the various factors a entrepreneur should analysis and compare pros and
cons. A selection matrix may be prepared for this purpose. The matrix indicates the type of
diverse data that needs to be collected for each project. It also throws light on how each item
can hold out some encouraging and some discouraging factors. The entrepreneurial
selection needs to take all these factors into account.
8. INPUT REQUIREMENT :
Once the promoter is convinced of the feasibility and profitability of the project he assembles
the necessary resources to launch the enterprise. He has to choose partners/collaborates,
collect the required finances and acquire land and buildings, plant and machinery, furniture
and fixtures, patents, employees etc. Decisions have to be made about the size, location,
layout etc. of the enterprise. The form of ownership organization has to be selected. The
main inputs required for launching an enterprise are as follows:-
(i) Information and Intelligence :
In the turbulent business environment, information and intelligence have become the key
input in entrepreneurial success. An entrepreneur requires relevant data on the following
aspects:-
Size and nature of demand for the product/service.
Volume and source of supply.
Price cost volume relationship.
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Sources of raw material.
Nature and degree of competition.
Number and type of personnel required and their sources.
Amount and sources of funds required for the enterprise.
9. PERSONNEL :
People are the most valuable asset of an enterprise and this asset does not depreciate. An
entrepreneur has to make the following decisions concerning the personnel.
Number of personnel required for management, technical and other positions in the
enterprise.
Qualifications and experience required in the personnel to perform the jobs effectively.
Sources of recruitment form which the needed staff will be procured.
System and criteria for evaluating the performance of employees.
Policies and methods for remunerating the personnel.
Facilities to be provided by the safety, health, welfare of the staff.
10. ESTABLISH THE ENTERPRISE :
This is the last step of entrepreneurial system. It is very important step. In this phase the
entrepreneur integrate their resources and establish the enterprise.
Q. Explain the Sources and function of the finance.
Ans. Introduction : After formulating & evaluating the project, the next step is to draw out a
financial plan to meet project costs. The financial plan should deal with two important
aspects-:
Determinatin of the total amount of capital required for taping up the project.
Deciding about the composition of capital or financing mix.
The basic purpose of a well through out financial planis to suggest an appropriate
capital structure with right quantum of capital which will minimize the cost of funds obtained
from different sources and minimises the value of the firm. Hence it is part of financial
analysis to study the various sources of finance available to the project and suggest an
appropriate capital structure with adequate amount of capital.
Sources of Long Term & Short Term Finance :
(a) Long Term Sources:-
1. Equity Shares : The equirty shares are the main source of finance, & it is contributed
by the owners of the companies. Equity capital provides the strength to the financial
structure of the company. In the case of a new company the prmoters must contribute
to equity shares first then the balance of shares is issued to the public. Limited liability
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& voting rights are the two important features that confor special privilaged on equity
shareholders to restrict their liabilities and at the same time keep full control over the
company. However the cost of equity will be very high for their expectations will be high
as they provide risk capital to the ventures. Equity capital represents permanent
capital & there is no liability for repayment. No fixed obligation as to dividend or interest
is created.
2. Preference Shares : Preference shares confor on prefrence shareholders two rights
viz. to receive the preference dividend & get back capital on priorty basis. Investors,
who like to earn a lmited but steady return on their capital, prefer prefrence shares
investment. A company can issue different types of prefrence shares as redeemable
preference shares, cumulative preference shares, participating preference etc. These
kinds confor special rights on preference shareholders as regards the repayment of
capital, payment of dividends and payment of surplus at the time of liquidation.
3. Debentures : Debentures are very commnly used creditorship securities. Different
types of debentures are issued to mobilise the debt capital from the public. They are
secured and carry fixed percetage of interest. Registeredb debentures, redeemable
debentures, convertible debentures, mortgage or secured debentures, oOrdinary
debentures etc. are a few types of debentures. From investers point of view
debentures are less risky & contribute a regular income. Debentures with fixed rate of
interest enable the company to take advantage of financial leverage or trading on
equity. The shareholders can retain control and earnmore income on their investment.
The cost of debts is very klow because the interest on debentures is a tax- deductible
expense.
4. Term Loans : Terms loans are presently the most important source of finance. Loans
obtained from banks and financial institutions are generally secured loans.They carry
a fixed rate of interest & are payable in nstallments. Term loans are generally
repayable within a period of 10-25 years. Term loans are employed to finance the
aquasition of fixed assets & workng capital margin. Term loans provide the benefit of
trading on equity. The owner retain control of the enterprise. These loans can be rapid
whenever not required. As a result the financial structure remains flexible. Term loans
are comparatively less costly source of finance.
5. Retained Earning : Reserves & surplus build over the past are called retained
earnings. These earning can be reinterested in business for moderenisation &
expansion. From the ownership as well as cost of capital point of view, it is as a source,
similar to equity share capital. However it should be noted that over a period of time,
the retained earnings get developed into working capital. The cost of retained earning
earning is very cheap compared to cost of equity. It is thebest to take up risky butvery
proftable projects.
6. Deferred Credits : Sometimes the suppliers of machinery provide deferred credit
facility under which payment for the machinery may be made over a period of time.
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The interest rate & period of payment very rather widely. Normally the supplier offering
deferred credit facility ask for bank guarantee from the buyer.
7. Capitaal Subsidy & Develoment Loans : Central govt. provides capital subsidy to
industries set up in notifid bvackward area. Many state govt. or state development
agencies also provide development loans/ sales tax oans & state capital subsidies.
They provide this faclity for backward areas which are exclusively notified in their
states.
8. Unsecured Loans & Deposits : Unsecured loans are normally provided by the
promoters to fill the gap between the promoters contribution required by financial
institution & equity capital subscribed by the promoters. They carry a lower rate of
interest & cannot be taken back without the prior permission of financial institutions.
(B) Sources of Short Term Finance :
1. Account Payable : They are created when the fir purchase raw material, supplies
goods for resale on credit terms on openaccount. They are interest free & securities
free. Accounts payable is a legally binding obligation of a firm. They also includes bills
payable.
2. Accurals : They are short term liabilities that arise when securities are received but
payment has not yet been made. Examples are wages & salaries payable, taxes
payable, expenses payable etc.
3. Commercial Paper : These consist of promisery notes with maturities of 3 to 270
days. Commercial paperis usually issued in higher denomination & can be used only
by large well known companies which enjoy a fairly high credit rating. Individuals,
insurance companies & other institutions also purchase commercial paper. This is a
very recently emerged source in India.
4. Cash Advance From Customers : A customer may pay for all or portion of future
purchase before receiving the goods. Ths form of unsecured financing provides funds
to purchase raw material & produce the final products.
5. Bank Credit : Bank credit is the major source of finance for working capital. Banks
offer both secured as well as unsecured loans to business firms such as cash credit,
overdraft, loans & advances & purchase & discounting of bills. They provide 100%
finance. They insist that the customers should bring a portion of finance from other
sources.
6. Private Loans : A short term unsecured loans may be obtained from a wealthy
shareholder, a mojor supplier, or other party interested in assisting the firm through a
short term difficulty.
7. Short term Loans From Financial Institution : LIC, GIC & UTI provide short term
loans to manufacturing companies with an excellent track record.They are
unsecuredloans & given for aperiod of one year. The rate of interest is around 18% p.a.
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8. Lease Finance : Lease financing has emerged as one of the important sources of
industrialfinance in recent times. Lease contract is a contract between leaser & leasee
whereby t5eh formeracquires the equipments/ goods/plants as required & specified
by the leasee & passes on the goods to the leasee for use for a specific pace. The
leasee in consideration promises to pay the lessor a specifid sum in a specified mode
on specific interval & at a specified place.
Q. Describe the fixed capital? Also discuss the factor that affecting fixed capital
requirements.
Ans. Introduction : Funds required to acquire fixed assets are termed as fixed capital. The
total amount of fixed capital is determined through project capital cost estimates. Any error in
the fixed capital estimation will have long-term adverse effect on the financial condition of
the enterprise and also its profitability. Wrong estimation of fixed capital may lead to over or
under-capitalization. A fixed capital requirement varies from business to business and is
influenced by a number of factors.
Factors affecting fixed capital requirements :
There are many factors which are affected fixed capital requirements, such as:-
(1) Nature of Business : The nature of business is one of the influencing factors. Public
utilities and capital intensive manufacturing concerns require large amount of fixed
capital. On the other hand concerns engaged in trading activities and in rendering
personal services need only small amount of fixed capital.
(2) Leasing Arrangement : If assets are obtained through leasing then fixed capital
requirement would be less.
(3) Size of Business : The fixed capital requirements of large units will be more units
producing single product may require lesser fixed capital than those producing more
number of products.
(4) Ancillary Units : If an enterprise can purchase some of the components from units the
its fixed capital needs would be less.
(5) Technology : If the production process requires modern technology or imported plant
and machinery then the fixed capital requirements would be more.
(6) Provision for Subcontracts : Instead of producing all the components which are
essential. For a product, the entrepreneur may think of allowing others to produce
such components and take up the assembling process alone such an attitude of the
entrepreneur will minimize the fixed capital requirements.
(7) International Conditions : Some of the concerns may carry on business on the
international scale such concerns are very much interested in expansion plans if the
international conditions are conductive for sale promotion. Such expansion plans
demand for more fixed capital requirements. On the contrary an international crisis
may lead some companies to postpone their expansion plans.
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Raw Material

(8) Trends in the Economy : While assessing the fixed capital requirements, a study of
long run trends in the economy must is anticipated to be bright, it gives green signal to
the entrepreneur to carry out all sorts of expansion programmed of the firm. In that
case a large amount of funds has to be kept so as to invest in fixed assets.
Q. Explain the factors which affecting working capital requirements?

Ans. Introduction : Working capital is the amount of capital that is required by an
enterprise to carry out its day to day operations. In other words it is defined as all the short
term assets used in daily operations. They consist of primarily cash, marketable securities,
accounts receivables and inventory. There are mainly two type of working capital.
(1) Gross Working Capital : Gross working capital may be defined as the total
investment in current assets which can convert into cash with in the accounting year.
(2) Net Working Capital : Net working capital may be defined as the difference between
current assets and current liabilities.
Components of Working Capital:-
The components of working capital are:-
Inventories
Accounts receivable
Cash and bank balance
Advances paid for expenses and suppliers.

Cash

Debtors & B/R

Finished Goods Work-in-Progress
Operating Cycle :
Cash passes through various stages and finally gets converted into cash. In an industrial
unit, the operating cycle would manifest in various processes viz. purchase of raw material,
conversion of finished goods, and conversion of goods partly into cash through cash sales
and partly into accounts receivables through credit sales and finally conversion of debtors
into cash.
Determinants or factors affecting working capital requirements :
(1) Size of the firm : A Firm size either in assets or sales affect it need for working capital.
A small firm may have only limited resources for working capital Hence it may invest
more amounts in current assets. But large firms with many sources of funds may need
less working capital.
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(2) Nature of the Business : Nature of the business is also affecting the working capital
requirement. Public utilities and capital intensive manufacturing concerns require less
amount of working capital.
(3) Availabilities of Credit : A firm with readily available credit from banks can get alone
with less working capital than a firm without such credit.
(4) Sales Volume : This is the most important factor affecting the size and components of
working capital. A rise in turnover ratio will reduce the length of operating cycle and
therefore the need for working capital.
(5) Seasonal and Cyclical Factors : Most firms experience seasonal fluctuations in
demand for their products and services. These variations in sales affect the level of
working capital.
(6) Operating Cycle : Operating cycle affect the working capital requirement if the period
of operating cycle is long then the amount of working capital requirement would be
more depending upon the length of operating cycle the need of working capital will
vary from project to project and business to business.
(7) Shift in Technology : Technological developments will affect the working capital
needs of a firm very much. For example If a firm uses highly advanced plant &
machinery which process more raw material at a faster rate then the working capital
need for inventory purposes would be more.
(8) Polices of the Firm : Many of the firm polices affect the level of working capital. For
example a change in credit policy will affect the working capital requirements of firm.
(9) Activities of Firm : If a firm is to invest more in inventory or sell on relatively easy
credit term, its working capital needs would be more than of firms providing services or
making cash sales.
Q. What is the requirement of technical assistance for a business enterprise?
Ans. Production management is the process of converting the input into output through a
conversion process. The input are in the form of land, labour, raw material, machinery,
capital & information. Production/operation plan is the blue print to run the production
unit/operation activity of the business enterprise for optimum utilization of the soueces.
Production /oerational plan would lay down the detailed planning procedurs for the
strategies that would be utilize in runnng the operational/productionof the organi9zation.
Production & operational plan would be having dimension:-
Plant location
Plant layout
Capacity planning
Inventory Management
Quyality management Sysdtem
Budgeting the production plan
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(1) Plant location : The role of plant locationisvery important for the success of any
business enterprise, while choosing the business location, the following elements
should be taken into consaideration:-
Availability of raw material
Availab ility of power
Availability of labour
Proximity to the market
Climatic conditions
The cost of location
Tax holidays/ sibsidiary & loans availibility.
(2) Plant Layout : Plant layout is the pattern in which the space would be arranged in
order to utilize the machinery/ equipments & manpower optimally. Since it cannot be
changed easily, proper planning of the layout should be conducted.
The following variables should be kept in mind while planning the layout:-
Space is utilized properly.
There is proper light &&& ventiiilationnn in all the ares of the premises.
Smooth flow of operations can take place.
There is a flexibility to introduce changes in the future.
Supervision can be carriedout in all the dimensions with convenience.
There are provision for emergency exit.
There are provision for safe ty measures.
Cost of space, cost of pro duction dfelays, cost of movement of material from one place to
another place.
(3) Capacity Planning : Capacity planning is the productive capability ofa facility. The
operation manager hasto planthe capacity in such a manner that the production/
operation has some degree of flexibility of expansion or reduction, depending on the
market demand.
Capacity planning should be done keeping following things in mind:-
Flexibility of flexibility of production/operation
Cost of maintaining capacity
Organisation's vision & objectives
Assessment of existing capacity.
Capacity planning can be divided into three types based on time period of which planning is
done.
Short ter capacity planning
Medium term capacity planning
Long term capacity planning.
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Capacity planning from day to day , month to month up to a year is called short term capacity
planning. Medium term capacity planning is fromone year to five year . Long termcapacity
planning is planning operation above 5years. Major changes in capacity planning can be
introduced.
(4) Inventory Management : Inventory is managed for the smooth flow of work and for
making up the uncertainities in the availability of raw material & in the demand of final
goods. But keepinf inventory involves costs moreover it holds working capital & also
occupies space & therefore inventory needs to be planned. Inventory is managed at
three levels:-
a. Raw Material : The stock of raw material is kept tomeet the unforeseen hanges in the
market forces.
Goods in Process Inventory:-
Inventory is managed at each level of work in progress
a. Finished Goods Inventory : Inventory is also managed of the final goods.
But holding inventory involves cost & therefore inventory of only adequate amount
should be maintained at each level. There are two types fo inventories:-
b. Normal Inventory : The inventory ensuring availability of material at different
stages in normal condition is called normal inventory.
c. Buffer Inventory : The inventory ensuring availability of material at the time of
uncertainty is called buffer inventory.
5. Quality Management System : Quality comes first is the motto of highly
competitive & growth oriented companies. Quality is an important function of
production/ operation management. The importance of quality has improved today.
With the rising competition & wide variety of products/services the consumer have
become quality conscious. Quality is to be maintained at all the stages of production.
6. Budgeting the Production Plan : Budgeting the production plan is based on
following formula : Total production = sales in unit + desired ending inventory -
projected beginning inventory.
Once the production budget is prepared the other budgets like material purchase
budget, labor cost budget & factory maintenance budget can be prepared.
Q. Explain the concept of marketing assistance in detail.
Ans. Introduction : A marketing plan aims at panning the marketing Strategies for a
company its products or services. Marketing plan analyses the market opportunities through
market research, identifies profitable segment and Targets them through a compounded
marketing mix, strategy which involves Strategies for product price, place and promotion. All
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good marketing plans must evolve from and support the overall strategic plan of the
business. Marketing plan forms the backbone of any business enterprise A careful, well
crafted marketing plan is possible , if it is based on a through market research. Marketing
plan is critical element in ensuring the success of business venture A marketing plan aims to
plan the ma4rketing strategies for a company its products or services. Based on the market
survey it identifies the strengths , weakness, opportunities and threats of the market, identify
and segments the target market and then plans the strategies for marketing mix of the
proposed business enterprise.
MARKETING RESEARCH :
Marketing research is the process of collecting information of any facts relevant to
market. Market research is a systematic collection of information, its analysis and
interpretation to strategize. Some relevant business decision like whether one should enter
new markets , whether one should change premium prices, What kind of discount would be
more Attractive to the customer etc. The purpose of market research is not only to Assess
customers but also make decision in relation to the direction in which the business plan
should flow .The information collected from the market research is quite exhaustive and
hence strategic decision based on the market research can proper a business enterprise in
to a growth path.
Steps involved in conducting the market research are :
1. Formulation Objective
2. Research design
3. Data collection and Tabulation
4. Data analysis
5. Documentation
6. Decision Making
Segmentation : Any business venture has limited resources and hence it can not satisfy the
needs and wants of all the customer . It is for this reason that segments are drawn.
Segmentation is the process of dividing the market/customer into similar characteristics or
behavior. for example the population of a city can be divided into toddlers, kids, teenagers,
youth, Middle age, old age. There are number of variables in which markets can be
segmented:-
Demographic Segmentation : When the target market is divided on the basis of population
it is called demographic segmentation. This can be further divided in to segments; such as
age segment, income segment, gender segmentation, educational qualification etc.
Psychographic Segmentation : Segmentation that is based on lifestyle/personality of
individual is called psychographic segmentation.
Geographic Segmentation : When the segmentation is drawn on the basis of geographical
region it is called geographic segmentation. It can be northern, southern, western, eastern,
city or metro, urban or rural.
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Behavior Segmentation : When the segmentation is drawn on the basis of
behavior/attitude of consumer it is called behavioral segmentation. The behavior/attitude
vary on occasion, usage rate, benefits, loyalty status, buyers readiness & user status.
Market Targeting : Market targeting is the process of evaluating various segments and
identifying the number and type of segments that the business venture would target. The
process of market targeting including following steps:-
Market Evaluation : It is the process of evaluating/assessing all the segments. This
assessment is done on the following criteria:-
Assessment of the size of each segment.
Assessment of segment growth
Companies strengths and weakness to suffice the needs of the segments.
Potential opportunities and threats from the competitors, substitutes, buyers, suppliers,
government.
Target Market Selection : After the target market evaluation is complete the company has
to decide which segments and how many segments it would target. It would depend on
several factors like economies of scale, profitability, growth, size etc. There are five patterns
available for selecting the target market.
Single segment concentration : If a company decides to concentrates on a single
segment only. Like junior horlicks is targeted only for kids.
Selective Specialization : Selecting a number of segments that are attractive.
Product specialization : The product that the company makes can be sold to several
segments. For example-computer.
Market Specialization : When the organization satisfies many needs of a particular group
like big bazaar.
Full Market Leverage : When the business tries to satisfy all the customers with entire
product needs.
Market Positioning : Market positioning can be defined as the out of projecting the
company's product/service in such a way that if appears attractive to them. It is an image
making exercise which helps the company to portray to the targeted segment in such a way
that it appears attractive to the customers. The following variables should be assured for
positioning the product/services.
What image the company wants to project
The pricing strategy
The packaging of the product
Hoe competitors project themselves
The type of product
Product lifecycle
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Developing Marketing Mix Strategies :
Product Mix Strategies :
Product is anything that can be offered to a market to satisfy the needs or wants.
Products that are marketed include physical goods, services, experiences, events, places,
organizations, information and ideas. The entrepreneur has to take many decisions
regarding the product such as product mix, branding decision etc. In product mix the
entrepreneur needs to decide the length, width, depth and consistency of the product
desired. A brand decision is very important decision. A brand creates an identify of quality,
reliability and confidence for its customers. Brands have become the image building tool for
any product. Branding is the process of building, maintaining, protecting and enhancing
identify of the product.
Pricing Mix : Pricing is that element of marketing mix that produces revenue. The pricing
decisions are based on these factors such as competitors price, cost of product/services,
demand of the product, availability of raw material and overall marketing objective of the
company. Pricing strategy has been divided into following kinds:-
Markup pricing
Target return pricing
Perceived value pricing
Value pricing
Going rate pricing
Geographical pricing
Skimming pricing
Promotional Mix : Promotional mix is the process of educating consumers through various
forms of media about all or some of the following:-
Product utility
Product quality
Product price
Promotional mix helps in building brand image in the minds of end consumers. Infact, it
plays a major role in positioning the product in the market. The various types of promotional
strategies are:-
Advertising
Directing marketing
Sales promotion
Public relation
Distribution Mix : The fourth process of marketing i.e. place (distribution) is the process
through which the product is physically delivered to the customer. Most companies used
intermediaries/middlemen to deliver the goods to the final customers and these
intermediaries are called distribution channels. There are different types of distribution
channels such as retailers, wholesalers, distributors and franchises. All the marketing
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Manufacture

Retailer

Retailer

Manufacture

Retailer

intermediaries that participate in the final delivery of the product to the customers are called
channel levels. Let us the customers are called few channel levels.
Channel O : When no intermediaries exist as in direct marketing.

Customers

Channel 1 : When one marketing intermediary is involved in the final delivery of the product.

Manufacture Customers

Channel 2 : When two marketing intermediaries are involved in the final delivery of the
product.

Manufacture Distributor Customers

Channel 3 : When three marketing intermediaries are involved in the final delivery of the
product.

Wholesaler Distributor Customers
Q. Wrire a short note on Industrial sickness and its remedial measures.

Ans. Economic development of a country is directly related to the level of its industrial
growth. Expansion of industry leads to greater utilization of natural resources, production of
goods & services, creation of employment opportunities & improvement in the general
standard of living.An industrial unit is like a human body.A person become sick if any part if
body affected. Similarly, an industrial unit can become sick in a minor way when only one or
some aspect of its activity is affected like when its segment like production, finance,
marketing & personnel are affected, it gets into sickness.
Industrial sickness is a universally accepted term, root causes of which is directly or
indirectly related to finance. Govt. of India, RBI term lending financial institutions,
commercial banks are worried a lot about the rising trend of sickness prevailing in Indian
industries.
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Concept :
The sickness of a firm has been defined as the situation where the rate of return
realized on invested capital, taking risk involvement into consideration, is significantly &
continuously less than the prevailing rates on similar investment. In other words we can say
that it is situation where the revenues of a firm are insufficient to meet the costs & the
average rate of return on investment is less than the firm's cost of capital.
A sick unit is unhealthy unit to common men, a dividend postponing unit to investors, a
losing or discouraging unit to industrialists, a doubtful debtor & a weak borrower to creditors
& bankers, an industrial problem unit to the govt., a victim of technological changes to
technicrats, a bad employer to workers & great wastage of technical & human resources to
the country.
To ascertaining the symptoms of the disease of industrial sickness. (a) the rate of
return on investment & capital cash flow, (b) ability to meet soci- economic obligation, (c)
capacity to redeem its debts,(d) Profitability, (e) ability to face competition, (f) ability to
acquire share in the market. etc are taken into account.
Causes :
Factors causing industrial sickness can broadly be divided into two main categories:-
Internal cause
External cause
a. Internal causes are the factors which are within the control of the management of a
management of a unit.
b. The external are the factors which affect industrial group as a whole, and on these, the
industrial unit has no direct control.
Efforts have been made ti unearth various factors responsible for causing industrial
sickness in the country. Of the various factor the significany to quote are mis management or
inefficient management, non availability of quality raw material at right price & at right time,
power shortage, defective planningat initial stages, lack of marketing expertise, etc. Beside,
there are other factors which are equally responsible for industrial sickness. These may be
as wrong industrial location, improper estimation of capital cost, delays & cost escalation,
improper formation of inventory needs, marketing of finished goods at lower credit terms,
labour unrest, poor maintainance of plant & machinery, higher overhead expenses, demand
recession. Lack of research & development. Inadequate investment for modernization &
renovation& procedures delay in sanctioning loans by commercial banks & other
institutional agencies.
Revival Measures & Strategies :
Sickness in small scale industriesis not confirmed to a particular product, state or
region. It is, more or less, uniformally spread over all states & regions, & thus a national
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problem.Process of solution to this problem involves in two process:-
Identify th sickness in a unitas early as possible & to analyse & diagnosis its causes Nurse
the unit immediately with appropriate remedial measures with aview to turnaround the sick
unit to an economically viable one. Turnaround here means a substantial & sustained
positive change in the performance of the business entity.
Commercial banks & financial institution can detect the symptoms of sicknes through
periodical progress report including financial statement, stock statement & return under
periodical information system, plant visit, personnel discussion, report fron nominee
directors, etc. Guidelines have been issued by the RBI so that banks can analyse & interpret
the information received from assisted unit & test check their health.Similarly , the
establishment of management information system within the industrial unit will help its
management to detect the symptoms of the sickness & forward it to adopt remedial
measures.
A number of development institutions have been setup to support entrepreneurs.With
a view to prevent sickness particularly in SSI, Some of the institutions have been setup to
support entrepreneurs. Some of the institutions assisting entrepreneur include District
Industries Centres(DICs) and Industrial Estate, Small Industries Development
Organisation(SIDO) Small Scale Industries Service Institutes(SISI),Small Industry
Development Corporation(SIDCO),Entrepreneurial Guidance Bureau(EGB), National
Alliance of young Entrepreneurs(NAYE), National Productivity Council)and Venture capital
funds(VCF).In addition, all India financial institutions-IDBI,IFCI,ICICI-have promoted a
number of Technical Consultance Organisations(TCOs) to assist small entrepreneur in
different ways . Recently ,the Small Industries Development Bank of India(SIDBI) has been
setup to help small scale units.
To sum up ,the incidence of industrial sickness in general and in small industrial units,
in particular can be reduced if all the concerns(i.e,owner ,banker, labourers, ,management
financial institutions,government,etc.)make a concerted effort to study the causes of and
cures through their temporary sacrifices with a sense of dedication and belongingness.
Q. Describe the preparations of the project report?and what is essential for good
project report.
Ans. Introduction : A project report helps to understand the opportunities, problems And
weakness of the business. It guides the entrepreneur in actually starting up and running the
business venture.it help him to monitor whether the business is growing as was projected in
the business plan or note .It help in documenting the cost estimates of the business.it can be
used as a handy tool to persuade investors and financial institution to fund the project .it can
help in proper utilization of all the resources .it can keep the morale of employees owners
and investors up .it can finally lead to a sustainable development of the organization.
Essential of a Project Report :
1. The project report should be sequentially arranged.
2. The project report should be covering all the details about the proposed project.
230

3. The project report should not be very lengthy an subjective.
4 The projections should be appropriately be made from two ten years.
5. The project report should justify the financial needs and financial projection.
6. The project report should also justify market prospects and demands.
7. The project report should be attractive to the financial agencies and investors.
8. The project report should also have a high aesthetic value.
Format of a Project Report :
1. Cover Sheet : Cover sheet is like the cover pages of the book .it mentions the name of
the project ,address of the promoters.
2. TABLE OF CONTENTS : The table of contents is like the table of contents of content
of a book .it guides the person reviewing the project report to the desired section
quickly.a good methodology would be to divide the project report into section and
number or label the section like 1,2,3,or a,b,c;
3. EXECUTIVE SUMMARY : Executive summary is the first impression about the
business personal as the saying goes the first impression is the last impression a
careful presentation of information should be done to attract the more then two or three
pages .
4 THE BUSINESS : This will give details about the business concept. it will discuss the
objective of the business a brief history about the past performance of the company,
what would be the form of ownership. It would also label the address of the proposed
headquarters.
5. Funding Requirement : The investors & financial institutions are one of the key
bodies examining the project report & it is one of the primary objectives of preparing
the project report, a careful, well- planned funding requirement should be
documented. It is also necessary to project how these requirements would be fulfilled.
6. The Product of Services : A brief description of product/services is given in this sub
section. It includes the key features of product & the product range that would be
provided to the customers. It also gives details about the patents, trademarks
copyrights, franchises & licensing agreements.
7. The Plan : Now t he functional plans for marketing, finance, human resources &
operations are to be drawn.
a. Marketing Plan : Marketing ix strategies are to be drawn based on the market
research. The market research provide information regarding the taste, needs,
habbit of the customer market research is the backbone of success & failure of
any product in the market. Based on the information collected through market
research marketing mix strategies for product/ services, prices, promotion &
distribution are prepared. The budget for the marketing plan are drawn at the
end.
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b. Operational Plan : The operational plan would give information about plant
location & plant layout. When we choose a particular location so many factors
should be considered such as market suppliers, labour, transport facilities,
power supply, govt. etc. Plant layout is mentioned in the project report to
provide a pattern of mgt. of the organization & would indicate the exhaustive
planning for the business. Finally the budget for operational plan is drawn.
c. Organization Plan : The organization plan indicate the pattern of flow of
responsibilities & duties amongst people in the organization it provides details
about the boards of directors, it can also enlist the manpower plan that would be
required to put life into the company & it would be required to put life into the
company & it would also enlist the details about the laws that would be
goverened in managing the employees of the organization. In the end the
organization plan is also budgeted.
d. The financial planis drawn for two or five years for an existing company. A
summary of previous financial data is given whereas for a new organization the
following projection are drawn-
1. Projected sales
2. Projected income & expenditure statement.
3. Projected break even point
4. Projected profit & loss statement
5. Projected balance sheet
6. Projected cqash flows.
7. Projected fund flows.
8. Projected ratios.
8. Critical Risks : The investors are interested in knowing the tentative risks. To evaluate
the viability of the project & to measure the risks invo0lved in the business. This can
further give confidence to the investors as they can calculate the risks involved in the
business from their perspective as well.
9. Exit Strategy : The exit strategies would provide details about how the organization
would be dissolved,what would be the share of each stakeholder in case of winding up
of the organization. It further helps in measuring the risks involved in investing.
10. Appendix : The appendix can provide information about the curriculum vitae of the
owners, ownership agreement, certificate from pollution board, Memorandum of
understanding, article of association & all the supporting agreements/documents that
can help in marketing the project viability at large.
232

Past Year Question Papers

UNIT - I
JAN 2009
1. Entrepreneurs are made not born Comment and discuss the types and traits of
Entrepreneurs.
2. Difine Entrepreneur. Discuss the role and significance of Entrepreneurs in the
economic development of India.
UNIT - II
1. Explain the various Competing Theories of Entrepreneurship. What is the significance
of these theories?
2. Define the small scale Industry. Discuss the policy of government towards SSI
DURING POST LIBERALISATION period
UNIT - III
1. Define Innovation. Distinguish between innovation and entrepreneurship. How are
innovations important in new economy?
2. Write short notes on :
(a) Achievement motivation
(b) Entrepreneurial success in rural areas
UNIT - IV
1. What are the various sources of getting business ideas? How do entrepreneurs
process business ideas?
2. What are the main causes for industrial sicknes? Discuss the various methods to solve
the problem of industrial sickness in India.

UNIT - I
JULY 2008
1. Define Entrepreneur. What are the qualities and characteristics of an entrepreneur?
2. Explain the role and significance of entrepreneurs in the economic development of a
country like India.
UNIT - II
1. Discuss the evolution and objectives of Entrepreneurship Development Programmes
in India. How far these programmes are effective?
233

2. Explain the current policy of the Government towards Small Scale Industry (SSI).
What is the future of SSIs in India?
UNIT - III
1. What is Achievenment Motivation? How is it getting promoted?
2. Criticall examine the entrepreneurial growth in rural sector in India. What steps should
be taken for its growth in rural India?
UNIT - IV
1. What are the factors that determine fixed and working capital requirments of a
business? Discuss the major sources of financing these rquirements.
2. Write short notes on :
(a) Causes of industrial sickness
(b) Types of feasibility studies

UNIT - I
JAN 2008
1. Define Entrepreneurship. Discuss the role of entrepreneurship development in the
economic development of a country.
2. Entrepreneurs are made,not born. Comment, and explain the qualities of an
entrepreneur.
UNIT - II
1. What do you mean by EDPs? Explain the need for and objectives of EDPs in modern
organizations.
2. Critically examine government policy towards SSIs after post reform period.
UNIT- III
1. What is Achievement Motivation? How can achievement motivation be developed?
2. What is meant by Innovation? Discuss the relationship between innovation and
entrepreneurs.
UNIT - IV
1. How will you prepare the feasibility report of an industrial unit? What type of legal and
documentation formalities are required for this purpose?
2. Write notes on the following :
(a) Maketing assistance in business
(b) Method of assessing working capitalrequirements

UNIT - I
JAN 2007
1. Who is an Entrepreneur? Discuss the characteristics and qualities of a good
entrepreneur.
234

2. The primary objective of developing countries like India is to achieve rapid, balanced
and sustained rate of economic growth. In light of above statement explain the role
and importance of the Entrepreneurs.
UNIT - II
1. Discuss the role of government with regards to regulatory framework for encouraging
development of entrepreeurship.
2. Entrepreneurship development through training is a useful method for creating a
strong base for the country. Discuss.
UNIT - III
1. Describe the entrepreneurial success mode in the rural areas in the recent developing
era.
2. How an entrepreneurial systme is established in an economy? Suggest a model for
the same.
UNIT - IV
1. Choosing an idea is quite difficult and the entrepreneur has to weight objectively his
intrisic capabilities in finalizing an idea. Explain.
2. Discuss how entrepreneur can encourage personal service for customers and why it is
important to do so?

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