Module II

Small Scale Enterprise

A small scale enterprise, or more simply, a small business, is one marked by a limited number of employees and a
limited flow of finances and materials. Clearly, Google, General Motors and Wal-Mart are not companies that anyone
would mistakenly label a small enterprise. By the same token, it’s just as obvious that a one-person home business, or
a mom-and-pop corner candy store are the epitome of a small business. But where does the boundary lie?

What is a reasonable definition of small business? What number of employees or what level of activity is sufficient to
distinguish a large scale company from a small-scale business? There is no single cutoff to distinguish small from
medium or large businesses. Different government agencies and private organizations rely on different sets of criteria
when talking about a small enterprise.

Small businesses surround us. They are on every other street and in every corner. Every second thing someone buys comes
from a small business. In India where unemployment is a serious issue, small business gains a special position in the industrial
structure because of their ability to utilise labour and create employment. Let us learn about meaning, nature and types of
small business.

Meaning of Small Business

(Source: Quora)

Small businesses are either services or retail operations like grocery stores, medical stores, tradespeople, bakeries and
small manufacturing units. Small businesses are independently owned organisations that require less capital and less
workforce and less or no machinery. These businesses are ideally suited to operate on a small scale to serve a local
community and to provide profits to the company owners.

Indian government defines small businesses on the basis of the business’s ability to invest in the plant and machinery.
According to the definition provided by the government website for business, business.gov.in, a small scale business
is a business set up in which the financial commitment towards infrastructure such as building & equipment, whether
made as an owner or on rental or purchase basis, does not surpass Rs. 1 crore.

Characteristics of Small Business Enterprises:

Some of the salient characteristics of small business enterprises are stated below:

(i) Limited Investment:

In a small business enterprise, capital is supplied by an individual or a small group of individuals. As per a census of
small scale units in India, mostly small business enterprises are run as sole- proprietorship and partnership.
(ii) Personal Character/Owner-Management:

A small business is identified with its owners; who themselves act as managers. Managers as such have maximum
motivation to work; as they themselves happen to be the owners also, at the same time.

(iii) Labour-Intensive:

Small business enterprises are mostly labour-intensive. The machinery and equipment used are not very sophisticated
and are operated manually.

(iv) Unorganised Labour:

Small business enterprises employ less number of workers as compared with big business enterprises. Workers of
these units do not form labour unions and remain unprotected.

(v) Local Area of Operations:

The area of operations of small units is generally local as they have less capital and less marketing facilities at their
disposal. There is a local touch between employer and employees; and between employer and customers though
products of some small scale enterprises are exported to many countries of the world.

Problems Faced by Small Business Enterprises:

Small business enterprises in India face many problems, which come in the way of their growth and prosperity.

These problems could be put into two categories:

(I) Financial problem – the central problem

(II) Other problems

Let us have a brief account of the problems of the small sector, comprised in both these categories.

(I) Financial Problem – The Central Problem:

Small scale industries usually do not have sufficient funds to meet their fixed capital and working capital
requirements.

Institutional lenders are generally reluctant to advance money to small industries since:

1. They are not in a position to offer the guarantee required by financial institutions and

2. Their capacity to repay the loan is little.

In fact, inadequate finances are the central problem faced by small-scale enterprises. It is the mother of all other
problems of the small scale business sector. For example, problems like outdated technology, lack of professional
management, problem of advertising etc. all arise for small scale enterprises; because they do not command requisite
funds for meeting these purposes.

Many small scale enterprises, as a matter of fact, in the past have closed down due to financial crisis.
(II) Other Problems:

Other problems, of course, of a serious nature faced by small business enterprises are as follows:

(i) Faulty Planning:

Faulty planning is a major problem of the small business. No proper viability studies-technical or economic-are carried
out by the small firms; before they are sponsored. Small firms cannot afford the preparation of a project report for
which a large unit can pay fat fee to a consultant.

(ii) Shortage of Raw-Material and Other Infrastructural Facilities:

Small business industries suffer from accurate shortage of basic raw materials. In most of the cases, when raw
materials are in short supply, large scale business enterprises grab the entire supply, because of their stronger
bargaining position. Small scale enterprises also face lack of other infrastructural facilities like water and power
connections. Shortage of power leads to under utilisation of plant capacity.

(iii) Lack of Latest Technology:

Most of the small firms use old or outdated techniques of production. They cannot afford new machines and
equipment based on latest technology; mainly because of financial crunch. As such, the cost of production of small
firms is higher and the quality of production is rather inferior.

(iv) Marketing Problems:

Small firms face severe problems in the sphere of marketing of their products.

Some major marketing problems of the small business are:

1. Lack of funds and facilities for advertising

2. Competition from the big business counterparts on grounds of higher cost and inferior quality (characteristic of
small business).

3. Unwillingness of distribution channels to deal in products of small manufacturing units.

4. Lack of providing after sales services, on the part of the small firms.

5. Problem of recoveries or collection, in case goods is sold on credit etc.

(v) Lack of Professional Management and Trained Personnel:

Small business enterprises have owner based management i.e. owners themselves act as managers. They cannot afford
the services of professionalized expert managers; because they cannot pay the required handsome remuneration to
them. Alongside professional managers, small business cannot employ qualified and trained manpower, again due to
financial crunch.

In fact, professional managers and other trained personnel get attracted towards multinational corporations and other
big industrial and commercial companies; which can afford to provide high salaries and attractive perks to these
people.

Establishing small scale enterprise opportunities scanning

Identification of Business Opportunity: Idea Generation and Opportunity!

In general sense, the term opportunity implies a good chance or a favourable situation to do something offered by
circumstances. In the same vein, business opportunity means a good or favourable change available to run a specific
business in a given environment at a given point of time.

The term ‘opportunity’ also covers a product or project. Hence, the identification of an opportunity or a product or
project is identical and, therefore, all these three terms are used as synonyms. The Government of India’s “Look East
Policy” through North East is an example of ‘opportunity’ to do business in items like tea, handicrafts, herbals,
turmeric, etc.

Opportunity identification and selection are like comer stones of business enterprise. Better the former, better is the
latter. In a sense, identification and selection of a suitable business opportunity serves as the trite saying ‘well begun is
half done.’ But, it is like better said than done. Why? Because if we ask any intending entrepreneur what project or
product he/she will select and start as an enterprise, the obvious answer he/she would give is one that having a good
market and is profitable. But the question is how without knowing the product could one know its market?

Whose market will one find out without actually having the product? Whose profitability will one find out without
actually selling the product? There are other problems, besides. While trying to identify the suitable product or project,
the intending entrepreneur passes through certain processes.

The processes at times create a situation, or say, dilemma resembling ‘Hen or Egg’ controversy. That is, at one point,
the intending entrepreneur may find one product or project as an opportunity and may enchant and like it, but at the
other moment may dislike and turn down it and may think for and find other product or project as an opportunity for
him/her. This process of dilemma goes on for some intending entrepreneurs rendering them into the problem of what
product or project to start. Then, how to overcome this problem of product identification and selection?

One way to overcome this dilemmatic situation is to know how the existing entrepreneurs identified the opportunity
and set up their enterprises. An investigation into the historical experiences of Indian small enterprises in this regard
reveals some interesting factors.

To mention the important ones, the entrepreneurs selected their products or projects based on:

a. Their own or partners’ past experience in that business line;

b. The Government’s promotional schemes and facilities offered to run some specific business enterprises;

c. The high profitability of products;

d. Which indicate increasing demand for them in the market?

e. The availability of inputs like raw materials, labour, etc. at cheaper rates;

f. The expansion or diversification plans of their own or any other ongoing business known to them;

g. The products reserved for small-scale units or certain locations.

Now, having gained some idea on how the existing entrepreneurs selected products/projects, the intending
entrepreneur can find a way out of the tangle of which opportunity/product/project to select to finally pursue as one’s
business enterprise.

One of the ways employed by most of the intending entrepreneurs to select a suitable product/project is to firstly
generate ideas about a few products/ projects. Accordingly, what follows next is a discussion idea generation about
products.
Idea Generation:

Sources of Ideas:

In a sense, opportunity identification and selection are akin to, what is termed in marketing terminology, ‘new product
development.’ Thus, product or opportunity identification and selection process starts with the generation of ideas, or
say, ideas about some opportunities or products are generated in the first instance.

The ideas about opportunities or products that the entrepreneur can consider for selecting the most promising one to be
pursued by him/her as an enterprise, can be generated or discovered from various sources- both internal and external.

These may include:

(i) Knowledge of potential customer needs,

(ii) Watching emerging trends in demands for certain products,

(iii) Scope for producing substitute product,

(iv) Going through certain professional magazines catering to specific interests like electronics, computers, etc.,

(v) Success stories of known entrepreneurs or friends or relatives,

(vi) Making visits to trade fairs and exhibitions displaying new products and services,

(vii) Meeting with the Government agencies,

(viii) Ideas given by the knowledgeable persons,

(ix) Knowledge about the Government policy, concessions and incentives, list of items reserved for exclusive
manufacture in small-scale sector,

(x) A new product introduced by the competitor, and

(xi) One’s market insights through observation.

In nutshell, a prospective entrepreneur can get ideas for establishing his/ her enterprise from various sources. These
may include consumers, existing products and services presently on offer, distribution channels, the government
officials, and research and development.

A brief mention about each of these follows in turn:

Consumers:

No business enterprise can be thought of without consumers. Consumers demand for products and services to satisfy
their wants. Also, consumers’ wants in terms of preferences, tastes and liking keep on changing. Hence, an
entrepreneur needs to know what the consumers actually want so that he/she can offer the product or service
accordingly. Consumers’ wants can be known through their feedback about the products and services they have been
using and would want to use in future.

Existing Products and Services:

One way to have an enterprise idea may be to monitor the existing products and services already available in the
market and make a competitive analysis of them to identify their shortcomings and then, based on it, decide what and
how a better product and service can be offered to the consumers. Many enterprises are established mainly to offer
better products and services over the existing ones.

Distribution Channels:

Distribution channels called, market intermediaries, also serves as a very effective source for new ideas for
entrepreneurs. The reason is that they ultimately deal with the ultimate consumers and, hence, better know the
consumers’ wants.

As such, the channel members such as wholesalers and retailers can provide ideas for new product development and
modification in the existing product. For example, an entrepreneur came to know from a salesman in a departmental
store that the reason his hosiery was not selling was its dark shade while most of the young customers want hosiery
with light shade. The entrepreneur paid heed to this feedback and accordingly changed the shade of his hosiery to light
shade. Entrepreneur found his hosiery enjoying increasing demand just within a month.

Government:

At times, the Government can also be a source of new product ideas in various ways. For example, government from
time to time issues regulations on product production and consumption. Many a times, these regulations become
excellent sources for new ideas for enterprise formation.

For example, government’s regulations on ban on polythene bags have given new idea to manufacture jute bags for
marketing convenience of the sellers and buyers. A prospective entrepreneur can also get enterprise idea from the
publications of patents available for license or sale.

Besides, there are some governmental agencies that assist entrepreneurs in obtaining specific product information.
Such information can also become basis for enterprise formation.

Research and Development:

The last but no means the least source of new ideas is research and development (R&D) activity. R&D can be carried
out in-house or outside the organization. R&D activity suggests what and how a new or modified product can be
produced to meet the customers’ requirements.

Available evidences indicate that many new product development, or say, new enterprise establishments have been the
outcome of R&D activity. For example, one research scientist in a Fortune 500 company developed a new plastic resin
that became the basis of a new product, a plastic molded modular cup pallet. Most of the product diversifications have
stemmed from the organization’s R&D activity.

Methods of Generating Ideas:

As seen above, there could be variety of sources available to generate ideas for enterprise formation. But, even after
generating ideas to convert these into enterprise is still a problem for the prospective entrepreneur. The reason is not
difficult to seek.

This involves a process including first generating the ideas and then scrutinizing of the ideas generated to come up
with an idea to serve as the basis for a new enterprise formation. The entrepreneur can use several methods to generate
new ideas. However, the most commonly used methods of generating ideas are: focus groups, brainstorming, and
problem inventory analysis.

These are discussed as follows:

Focus Groups:

A group called ‘focus group’ consisting of 6-12 members belonging to various socio-economic backgrounds are
formed to focus on some particular matter like new product idea. The focus group is facilitated by a moderator to have
an open in-depth discussion. The mode of the discussion of the group can be in either a directive or a non-directive
manner.

The comment from other members is supplied with an objective to stimulate group discussion and conceptualize and
develop new product idea to meet the market requirement. While focusing on particular matter, the focus group not
only generates new ideas, but screens the ideas also to come up with the most excellent idea to be pursued as a
venture.

Brainstorming:

Brainstorming technique was originally adopted by Alex Osborn in 1938 in an American Company for encouraging
creative thinking in groups of six to eight people. According to Osborn, brainstorming means using the brain to storm
the issue/problem. Brainstorming ultimately boils down to generate a number of ideas to be considered for the dealing
with the issue/problem.

However, brainstorming exercise to be effective needs to follow a modus operandi involving four basic
guidelines:

1. Generate as many ideas as possible.

2. Be creative, freewheeling, and imaginative.

3. Build upon piggyback, extend, or combine earlier ideas.

4. Withhold criticism of others’ ideas.

There are two principles that underlie brainstorming. One is differed judgment, by which all ideas are encouraged
without criticism and evaluation. The second principle is that quantity breeds quality. The brainstorming session to be
effective needs to work like a fun, free from any type of compulsions and pressures.

Each member needs to have willingness and capacity to listen to others’ thoughts, to use these thoughts as a stimulus
to spark new ideas of their own, and then feel free to express them. As such, efforts are made to keep the
brainstorming session free from any sort of dominance and obstruction derailing and inhibiting discussion to proceed
in a desired manner to serve its purpose. A normal brainstorming session lasts for from ten minutes to one hour and
does not require much preparation.

Here is an example of brainstorming used to generate ideas to make the organizations presence noticed.

A national level institute of the Government of India took its faculty to a resort in Himachal Pradesh for a
brainstorming session for two days to generate ideas on what it can do to be known, noticed and recognized at the
national and international arena.

The seven major ideas generated were to:

(i) Open courses like PGDM for the general public,

(ii) Introduce new courses to meet the emerging market requirements,

(iii) Introduce research activity in terms of research projects and fellow programme,
(iv) Sign Memorandum of Understanding (MOUs) with reputed national and international academic institutions,

(v) Start courses in collaboration with the Government and industry,

(vi) Nominate especially young faculty members to join the Faculty Development Programmes conducted by the
Indian Institute of Management, Ahmedabad (IIMA), and

(vii) Publish the Institute’s research journal.

Problem Inventory Analysis:

Problem Inventory analysis though seems similar to focus group method, yet it is somewhat different from the latter in
the sense that it not only generates the ideas, but also identifies the problems the product faces. The procedure involves
two steps: One, providing consumers a list of specific problems in a general product category.

Two identifying and discussing the products in the category that, suffer from the specific problems. This method is
found relatively more effective for the reason that it is easier to relate known products to a set of suggested problems
and then arrive at a new product idea.

However, experiences available suggest that problem inventory analysis method should better be used for generating
and identifying new ideas for screening and evaluation. The results derived from product inventory analysis need to be
carefully screened and evaluated as they may not actually reflect a genuine business opportunity.

For example, General Foods’ introduction of a compact cereal box in response to the problem that the available boxes
did not fit well on the shelf was not successful, as the problem of package size had little effect on actual purchasing
behaviour. Therefore, to ensure the better if not the best results, problem inventory analysis should be used primarily
to generate product ideas for evaluation.

All of above sources and methods may give a few ideas about the possible projects to be examined as the final project
or product.

Following are some illustrative sources of generation of business ideas:

a. Realizing that especially service class people find it inconvenient to take milk pot with them to office that they need
to buy milk while coming back from the office in the evening, to provide milk in sachets or tetra packs could be a new
business idea.

b. Having faced difficulty in finding out accommodation and transport facility while on visits to a new/tourist place
may give one an idea to start a travel agency providing complete package of facilities to the visitors to a new / tourist
place.

c. Knowing that many people have hobby or even develop passion for gardening may give rise to an idea of setting up
one’s own nursery.

d. Seeing that most of the people coming from outside to a particular place buy its unique items as souvenir like tea
from Assam, the Model of Taj from Agra, etc. may give idea to produce the local item as souvenir.

e. Recognizing the increasing application of computers in offices as well as business organizations, irrespective of its
size, may give an idea to set-up a computer-training centre.

Once ideas have being generated following the above process, the next step comes is identification of above generated
ideas as opportunities.
Opportunity/Product Identification:

After going through above process, one might have been able to generate some ideas that can be considered to be
pursued as ones business enterprise.

Imagine that someone have generated the five ideas as opportunities as a result of above analysis:

1. Nut and bolt manufacturing (industry)

2. Lakhani Shoes (industry)

3. Photocopying unit (service-based industry)

4. Electro-type writer servicing (service-based industry).

4. Polythene bags for textile industry (ancillary industry)

An entrepreneur cannot start all above five types of enterprises due to small in size in terms of capital, capability, and
other resources. Hence, he/she needs to finally select one idea which he/she thinks the most suitable to be pursued as
an enterprise. How does the entrepreneur select the most suitable project out of the alternatives available? This is done
through a selection process discussed subsequently.

Having gone through idea generation, also expressed as ‘opportunity scanning’ and opportunity identification, we can
distinguish between an idea and opportunity. We are giving below the two situations that will help you understand and
draw the line of difference between an ‘idea’ and an ‘opportunity’.

Market assessment for small scale enterprise

For a small-business owner, market analysis refers to the process of obtaining information about customers, competitors and
the industry in which the company operates. Market analysis is conducted to help entrepreneurs decide whether the market is
large enough to justify taking the risk of starting the business. Established companies conduct market analysis on an ongoing
basis to shape the development of strategies to grow the company.

Identifying a Market Need

Companies succeed by supplying products and services that meet the current most-pressing needs and wants of
customers. A business owner must constantly monitor the market to identify when these needs change and adapt his
product or service offering to be a better fit with these changed needs. A business owner can gather information about
customer needs through conducting customer surveys and asking prospective customers what features of products or
services are most important to them. The market need could arise from a problem that customers seek to solve or a
personal or professional goal they seek to achieve. Consumers’ goal of saving money on energy bills, for example, has
given rise to a host of solutions including more energy-efficient appliances and retrofitting homes so heating and
cooling systems operate more efficiently.

Defining a Market Opportunity

A market need becomes an opportunity for the business owner if he can create and sell a superior solution for the
need. The company must have the capability to deliver its products and services at the high level of quality the
customer expects. The business owner must make a realistic assessment of what his company excels at in order to
determine whether he can effectively compete in the market. Another way to define market opportunity is to identify
where competitors are falling short of customer expectations and determine how your company can do better. Look at
the major competitors in your market and analyze their strengths and weaknesses in relation to yours. An unmet need
in the marketplace becomes your company’s opportunity

Estimating Market Size

Accurately estimating the current size and projected growth of the market for the company’s products and services is
critical, because there must be enough customers to support the sales level required for the company to become and
remain profitable. Industry trade organizations publish data on the current size and projected growth rates for their
industries. The National Restaurant Association, for example, publishes forecasts of restaurant revenue growth and
analysis of industry trends. For consumer products and services, an effective way to analyze market size is to obtain
information on demographic characteristics -- the populations of consumers in your area broken down by categories
such as age and income level. The U.S. Census Bureau publishes demographic data on local communities.

Choosing Target Markets

Target markets are the groups most ready to buy your products or services -- the customer groups that have the most
urgent need to purchase what you are offering. Narrowing the large overall market down to target markets is
necessary, because target markets have different motivations for making purchases. Consumers’ lifestyles, beliefs,
values and attitudes shape their buying habits -- the kinds of products and services they are most interested in
purchasing. These purchase behaviors are referred to as psychographic characteristics. The Bureau of Labor Statistics
publishes a Consumer Expenditure Survey that analyzes the buying habits of American consumers. Understanding
consumers’ motivations helps the business owner tailor his marketing message to resonate with each target group --
his message convinces them that his company is providing exactly what they are looking for.

Why do I need to do market assessment?

Market assessment is a detailed and objective evaluation of the potential of a new product, new business idea or new
investment.

It is a comprehensive analysis of environment forces, market trends, entry barriers, competition, risks, opportunities
and the company’s resources and constraints. Whether you are thinking of venturing into a new market or launching a
new product, conducting a marketing assessment is the crucial first step in determining if there is a need or a potential
customer base for your product.

A well executed market assessment will enable your company to decide where to use limited resources and to go after
markets and opportunities that will provide the best returns on investments.

Failure to conduct proper market assessment could result in wastage of resources, missed opportunities, poor returns
on investments and even substantial financial losses which could be detrimental to the future of your company

Selection of site in small scale enterprise

Factors affecting location of an industrial unit are: (I) Primary factors and (ii) Secondary factors:

Decision with regard to location of an industrial unit involves a careful study of many factors. Proper and right choice
of location is instrumental in future success of the business. The various factors are divided into two categories viz.,
‘primary factors’ and ‘secondary factors’.

These factors are explained as follows:

(1)Primary Factors:

(i) Availability of Raw Materials:

Raw material form major proportion of the finished product. Unrestricted and regular supply of raw material is very
necessary for carrying out unrestricted production. Nearness to the source of raw material is very economical for an
industrial unit. On account of this consideration many industries have been set up near the source of supply of raw
material.

Sugar factories in Uttar Pradesh, Textile units in Maharashtra and Gujarat, Cement factories in Madhya Pradesh and
Jute industry in West-Bengal. Nearness to raw material is important in case of heavy and bulky materials having lesser
value such as coal and other weight losing materials.

Raw materials can be divided into three:

(a) raw materials which are weight losing and cannot be preserved for a long time e.g., fruits for juice making (b) raw
materials which are bulky, heavy and weight losing in nature, like iron ore etc. (c) raw materials which are not heavy
and can be preserved for a longer period of time, e.g., raw cotton.

Industry using third type of raw material can be located anywhere. Alford Weber has given another type of raw
materials called ubiquitous like clay sand and water which are found everywhere and as such do not affect the location
of an industry.

Another important point to be kept in mind that only nearness of raw materials is not sufficient; it must also be easily
accessible. Adequate transportation facilities should be available for carrying the material from the source of supply. A
guiding principle should be followed in this regard i.e., “higher the proposition of the cost of raw materials to the total
cost, the greater is the possibility of choosing a site near the source of raw materials.”

(ii) Availability of labour:

Labour cost is one of the main constituents of the total cost of production. It influences the total cost of production.
Labour implies both the skilled and unskilled workers needed for different types of activities. The supply of un-skilled
labour does not create any serious problem because such labour is available everywhere. Skilled labour is available
only at specific centres.

Industries requiring highly skilled labour have to select such sites which ensure adequate and regular supply of
required labour. Availability of skilled and efficient labour is mainly responsible for the development of various
industries in a particular region e.g., cotton textile industry of Great Britain developed at Lancashire mainly on
account of availability efficient labour.

On account of mobility of labour, this factor does not materially affect the location of an industrial unit. The labour
can be attracted by providing various facilities and incentives like housing, canteen, rest rooms, incentive wage plans
etc.

In actual practice, if required skilled labour is not available in a particular region, the available labour can be trained in
the required skill or alternatively skilled and trained labour can be migrated from other regions to the plant. But both
these methods are time consuming and involve a lot of expenditure which ultimately increase the cost of production.

(iii) Availability of Power and Fuel:

Availability of cheap power and fuel supply sources is another decisive factor in selecting proper location of an
industrial unit. In the past, coal was the main sources of power supply for various types of heavy and large scale
industries like iron and steel, cement and aluminium etc., the industrial units which used to be located near coal
supplying centres.
But at present, there are several other sources of power, e.g. electricity, gas, oil and water power etc. On account of
these various alternative sources of power supply, coal, as a main source of power is getting lesser recognition. Rapid
development of hydro-electric power has provided wider choice for location of industrial units even at far flung and
remote areas. Modern industrialisation could not have been possible without the growth of hydroelectric generating
units.

(iv) Availability of Transport and Communication facilities:

Adequate and quick facilities of transport must be kept in mind for quick delivery of raw materials to the factory and
finished products to the market. Kimball and Kimball have rightly pointed out that “The ideal plant is one centrally
located and directly served by water, rail, trucking and air facilities”.

In certain type of industries transportation is the sole factor which is taken into consideration in deciding location of an
industrial unit. For example, a cement factory is always situated near the source of lime stone which is carried usually
with the help of trolleys to the factory.

Transportation is the life line of modern industry. The basic aim of selecting a particular mode of transportation should
be minimum transportation cost with maximum transportation service. An industry should be located in the areas
where there are already developed means of transportation.

Faridabad in Haryana developed as an industrial town on account of availability of both rail and road transportation.
Phagwara serves another very good example of this type. Certain port towns like Calcutta, Bombay and Madras have
attained significant importance on account of availability of excellent water and rail transportation facilities.

In modern times different modes of transportation and their increased efficiency and flexibility have provided ample
choice to the industrialists in the matter of location. Besides transportation, communication services are also used to be
of immense importance in deciding the location of an industrial unit. A businessman needs regular information with
regard to changes in the price of raw materials and finished products and other valuable information. On account of
development of internet, mobile phones etc., this factor does not affect the location of plant now a days.

(v) Nearness to Market:

Market greatly affects the establishment of an industrial unit and is in fact, dominant factor in locating an industrial
unit in modern times. The production of goods is undertaken with the aim of selling them quickly which is possible
only on account of nearness to market.

Industries using pure raw material (which do not lose their weight when turned into finished products) may be situated
away from the source of such raw materials. For example, wool is primarily produced in Australia, but woollen
hosieries are found throughout the world.

On the other hand, market as a factor of location will not affect much the location of industries using heavy and weight
losing raw material. For example, iron and textile units are situated near the coal supplying centres.

Similarly sugar factories are located very near the sources of raw materials. Nearness to market is important in case of
industries producing consumer goods rather producers’ goods, this is because production of consumer goods require
constant adjustment of manufacturing programme on account of quick changes in the tastes, preferences and buying
habits of the consumers.

Markets may be national or regional. In case where the demand of the product is on regional basis, the factory is
usually situated near the major market for the product. For example, a publishing house publishing Punjabi books
cannot be located in Calcutta or Bombay. Its ideal location would be Jalandhar, which is a leading publishing centre in
Punjab.
(2) Secondary Factors:

Besides the above primary factors, there are some other factors which have bearing on the location of industries.

Following factors can be explained under this category:

(i) Nearness to adequate Banking and credit facilities:

For the efficient and smooth running of the business and for meeting working capital requirements, banking facilities
play an important role. Nearness to banks and other financial institutions is an important consideration now-a- days in
deciding location of an industrial unit.

This is because banking has become indispensable part of modern business. In case of rural and small scale industries,
banks and financial institutions play an important role and provide invaluable service in order to cater their financial
needs.

(ii) Facilities of Repairs:

In order to maintain uninterrupted production, facilities with regard to repairs of machinery, plant and other
components (in case of breakdown), must be kept in mind before setting a factory. A large scale concern can afford to
install its own repair workshops, whereas small concerns may rely on various repair shops working near the factory.

(iii) Fire fighting facilities:

In order to protect the factory against the risk of fire, adequate fire fighting facilities must be provided. Internal
arrangements pertaining to fire extinguishers, sand buckets and other firefighting equipment must be arranged. In case
there arises the necessity of calling fire brigades, proper preparations must be made for the same.

(iv) Soil, Climate and Topography of a place:

Soil and climatic conditions are very important for the establishment of various type of industries like tea, coffee,
rubber and tobacco. On account of this factor, jute industry developed in West- Bengal and tea industry in Assam.
Similarly topography (e.g., hilly or rocky surface) of a place also influences location of an industry.

Areas which are frequently subjected to earthquakes and other natural calamities may not attract many industries.
Climate of a place also considerably affects the efficiency of workers. Efficient workers are found in cool climatic
regions.

On the other hand workers from tropical regions are not generally so efficient. This also affects the establishment of an
industrial unit. Another important point in this regard is that means of transportation and communication are more in
plains rather than in hilly areas. That is why industries have developed largely in plains rather than in hilly areas.

(v) Govt, policies and regulations:

Industrial Development and Regulation Act of 1951 laid down clearly certain rules, regulations and formalities to be
complied before setting up an industrial unit. Prior permission and licence is necessary under the Act before the setting
up of a new industrial unit. Certain cash incentives and concessions are also given by Govt, in order to promote a
particular industry in a particular region.

A careful thought to all these rules, regulations and provisions of Act must be given before the establishment of an
industrial unit. In order to develop industries on sound lines, Govt, has declared certain areas as industrially backward
or special economic zones.
Certain concession and subsidies like cheap land, power and tax concession and subsidised raw materials etc., are
provided in order to develop that particular area. Such measures are undertaken by the Govt, in order to ensure
balanced and regional growth of industries in India.

(vi) Momentum of an early start:

This is another important factor affecting industrial location. A few industries start at a place and gradually other
similar type of industries start at that particular place. For example, at Manimajra (a small town near Chandigarh) a
few small automobile spare parts shops started about two decades back, but now a fully fledged automobile market has
developed in that area. Similarly, at Ludhiana a few hosiery units started in the beginning, now Ludhiana has become
a very big hosiery articles producing centre in India.

Carpet industry developed gradually at Mirjapur district of Uttar Pradesh. There are various reasons responsible for
such a concentration of industries in a particular region viz., (i) availability of required type of labour in a particular
region, (ii) facilities of repairs and maintenance on account of many repair shops and workshops operating in the
areas, (iii) Availability of transport, communication, banking and insurance facilities, (iv) Facilities of managerial
consultations and advice are also available.

(vii) Industrial atmosphere:

This factor refers to the thinking of the people with regard to a particular industry in a particular area. They involve
themselves completely in the intricacies and various operations of the machines and implements being used in the
industry.

There is a complete industrial atmosphere. Carpet industry at Bhadohi and Mirzapur serves a very good example of
this kind. Major population of these cities is engaged in carpet processing, carpet washing, carpet weaving and carpet
finishing.

Not only men, but women and children have also engaged themselves in this industry directly or indirectly. Similarly,
at Bombay film industry has developed. It is easier and cheaper to produce a film in Bombay than in any other part of
the country.

(viii) Personal factors:

Sometimes personal likes had dislikes also influence location of a particular industrial unit. Henry Ford started
manufacturing motor cars in Detroit because he belonged to that place. Certain merchants belonging to Ahmedabad
have made that place a leading textile centre of India. But such personal likes and dislikes cannot influence location of
an industrial unit in the long run.

(xi) Tastes and preferences of people:

Before establishing an industrial unit in a particular region, buying habits, tastes, likes and dislikes of people in that
area must be taken into consideration. Purchasing power of the people and composition of population in that region
should be carefully studied. These studies and surveys render valuable information which is greatly helpful in
establishing and industrial unit in particular region.

(x) Political and economic situation:

Political harmony and peace in a particular region encourage the establishment of industrial units. On the other hand,
disturbed political and economic set up discourages the growth of industries in the region.
On account of Naxalites movement in West Bengal, Industries started moving out of West Bengal. Similarly is the
case in certain other states where, on account of political disturbances, manufacturers have started thinking to settle
elsewhere and further industrial expansion has been greatly affected.

(xi) Possibilities of future expansion:

The area for location should be such as to provide all possible opportunities for future development and expansion of
the industrial unit without involving extra cost. Every industrial undertaking is established with the aim to expand in
future.

(xii) Existence of competitive industries:

Limited and healthy competition encourages the growth of industrial units in a particular region. On the other hand,
unhealthy competition retards the industrial growth in a region.

(xiii) Availability of research facilities:

The main aim of any industrial undertaking is to have maximum production with minimum cost. Constant research
and experimentation is undertaken to develop products and improved methods of production.

Large concerns can afford to have a separate research department to meet this end, but in case of small and medium
industrial units such facilities may be provided by specialised scientific and research institutions. Existence of such
specialised institutions must be kept in mind before starting an industrial unit.

Choice of technology in small scale enterprises

It can be easy to think of technology as a blanket solution to many of challenges facing your business. The thing about
technology, however, is that it comprises a wide variety of options and solutions and the key is finding the “right”
solution for your needs. In the last few years, there have been rapid advances in cloud services, artificial
intelligence, data management, IT services, and more that can make an impact on your business. But while some of the
solutions may appear to be a great fit, ultimately, they may not be the best option, depending on your specific needs.

It’s important to separate which tech will help in the growth of your business from those that will ultimately wind up
being just another toy in the tool box. You want to make choices that let you focus on your core business, not on the
technology that helps operate it.

For more details, please open the below mention link on web browser

https://shodhganga.inflibnet.ac.in/bitstream/10603/67563/10/10_chapter%206.pdf