UNIT-II- MICRO, SMALL AND MEDIUM ENTERPRISES (MSMES)

Unit II

MSME stands for Micro, Small, and Medium Enterprise that was introduced

by the Government of India in agreement with the Micro, Small & Medium

Enterprises Development (MSMED) Act, 2006. MSME is initiated and managed

under the Ministry of MSME (MoMSME) are entities engaged in the production,

manufacturing, processing or preservation of goods and commodities.

MSME sector is considered the backbone of the Indian economy that has

contributed substantially to the socio-economic development of the nation. It

generates employment opportunities and works in the development of backward

and rural areas.

The Micro- Small and Medium Enterprises (MSMEs) are small sized entities,

defined in terms of their size of investment. They are contributing significantly

to output, employment export etc. in the economy. They perform a critical role

in the economy by providing employment to a large number of unskilled and semi-

skilled people, contributing to exports, raising manufacturing sector production and

extending support to bigger industries by supplying raw material, basic goods,

finished parts and components, etc.

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MSME Classification

The distinction between the manufacturing and services enterprises has been

removed by making the investment amount and annual turnover similar for

enterprises engaged in both sectors.

MSME – Merged Criteria: Investment and Annual Turnover

Sector/Enterprise Medium
Micro-Enterprise Small Enterprise
Type Enterprise

Investment less
Investment less Investment is less
than Rs. 10
Manufacturing & than Rs. 1 crore than Rs. 50 crore
crore
Services Sector, Both Turnover less than Turnover up to
Turnover up to
Rs. 5 crore Rs. 250 crore
Rs. 50 crore

Importance of MSME
1) Labour-oriented:- Small business provides immense opportunities in the rural

and semi-urban areas. The weight of the unemployment faced by the Indian

economy is lifted by these small businesses. It is one of the most important

roles of them. Like any other economy having a large labour force, the Indian

government also encourage the operations of small businesses to utilise the

labour by drafting policies and establishing low loan interest rates.

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2) Human resource:- After agriculture, small businesses are the second largest

employment provider in the Indian economy. In comparison to big

corporations, small businesses generate the most number of employment

opportunities per unit of capital invested. Therefore, they are the second

largest generators of employment in human resource.

3) Utilisation of local resources:- The awareness of needs and demands of the

local community make the small businesses emerge in rural and semi-urban

areas. Small business is community-based and generally focused on fewer

areas. This gives the opportunity to the businesses to utilise the local

resources like raw material, local talent, labour and demographic

opportunities. The utilisation and the mobilisation of the local resources help

elevate the economic condition of that particular area.

4) Flexible and Adaptable:- New business opportunity is captured at right time.

The strength to adapt and grow in the face of upcoming changes gives an

edge to the small businesses. Also, being the manufacturer and distributor,

small businesses develop a sense of personal touch with the area of business

and their customers. Limited in size and finance, there is little or no

government intervention.

5) Promotes Development & Growth:- Development of the region plays an

important role in contributing to the country's development. The

establishment of small businesses in any region or area helps to uplift the

lifestyle, earning of the people residing. Businesses bring in more exposure

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to foreign markets, production scale and the overall evolution of state as

well as workers.

6) Increased Tax Revenue: The industries need to pay the required amount of

tax to government bodies, which is in turn used for the development of

rural regions and to fulfill the demands of cities. When businesses operate,

they do look for profits. And when more profits come in, more taxes are

devoted to the government of the country. The taxes therefore generated

are contributed to upliftment services such as healthcare, education, defense

field and many more.

Challenges Faced by the MSME

1) Finance:- The inadequacy of funds to funnel in the operations of a small

business prove to be a major hindrance to the development of the small

business. Small businesses lack the creditworthiness needed in the capital

market. Small businesses have a poor creditworthiness. The banks and

industrial investors need a collateral security, due to most of the small

businesses being operated in the rural and semi-urban area, these businesses

lack the collateral security to get finance for their business.

2) Raw material:- For the production purposes, the businesses need raw

materials. To get some output, they need to give some input. The quality

of the raw material completely depends upon the quality of input. But due

to a tight budget, these businesses are unable to get a good quality raw

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material for their production. Bargaining power is non-existent because of

the small quantity of purchase. Another issue linked here is the shortage of

storage facility, because of the shortage of storage facility the production

needs to be quick and the sale good. This puts a heavy strain on these small

businesses to sell their stock as quickly as possible.

3) Managerial skills:- The operations of small businesses are carried out by a

limited number of employees. This means that a single person usually

manages the operations. The pressure on this manger is immense to satisfy

the demands of production. Also, the manager might lack managerial skills

required to operate a unit.

4) Skilled labour:- Due to a shortage of funds, small businesses are unable to

hire the proper candidate for the job. Also, they are not in a position to

give high wages to the employees. This results in the drop in productivity

per employee and rate of labour are high. This proves to be a major

obstruction in the operations of productions.

5) Marketing:- Marketing is one of the most important links to sell whatever

the business plan to or has produced. Without marketing these businesses

will not be able to achieve their goal of sales they planned. Direct marketing

is not possible due to the lack of necessary infrastructure. The shortage of

finance does not let the business hire a good middleman. These middlemen

exploit these businesses by paying low prices and delaying payments.

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6) Technology Remains a Major Prevention: Most businesses in India fail to

collect the advantages of the advanced technology developments in their

sector due to the requirement of awareness and knowledge. Thus, MSMEs

need to be informed of the technological advancements that are vital for

their business growth. It is essential for scientific research bodies to remain

involved with the local MSME clusters and take notice of their technology-

related issues. But, there have been united efforts to provide solutions to

MSMEs in such matters as the Government is working towards the launch

of an e-commerce portal known as “Bharat Craft” that will act as a direct

interface between buyers & sellers.

Forms of Business Organizations

Sole Proprietorship
Sole proprietorship means a business owned, financed and controlled by a single

person who is recipient of all profit and bearer of all risks.

It is suitable in areas of personalized service like beauty parlour, hair cutting

saloons & small scale activities like retail shops.

Features

1. Single ownership: It is wholly owned by one individual.

2. Control: Sole proprietor has full power of decision making.

3. No separate legal entity: Legally there is no difference between business&

businessmen.

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4. Unlimited liability: The liability of owner is unlimited. In case the assets of

business are not sufficient to meet its debts, the personal property of

owner can be used for paying debts

5. No legal formalities: Not required to start, manage and dissolve such business

organization.

6. Sole risk bearer and profit recipient: He bears the complete risk and there

is no body to share profit/loss with him.

Merits

1. Easy to start and close: It can be easily started and closed without any

legal formalities.

2. Quick decision making: As sole trader is not required to consult or inform

anybody about his decisions.

3. Sense of accomplishment: There is a sense of personal satisfaction.

4. Unlimited liability: The liability of owner is unlimited. In case the assets of

business are not sufficient to meet its debts, the personal property of

owner can be used for paying debts.

5. No legal formalities: are required to start, manage and dissolve such business

organization.

6. Sole risk bearer and profit recipient: He bears the complete risk and there

is no body to share profit/loss with him.

LIMITATIONS

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1. Limited financial resources: Funds are limited to the owner’s personal savings

and his borrowing capacity.

2. Limited Managerial ability: Sole trader can’t be good in all aspects of

business and he can’t afford to employ experts also.

3. Unlimited liability: Ofcourse, sole trader compels him to avoid risky and bold

business decisions.

4. Uncertain life: Death, insolvency, lunacy or illness of a proprietor affects

the business and can lead to its closure.

5. Limited scope for expansion:- Due to limited capital and managerial skills, it

cannot expand to a large scale.

JOINT HINDU FAMILY BUSINESS

It is owned by the members of undivided joint Hindu family and managed by the

eldest member of the family known as KARTA. It is governed by the provisions of

Hindu law. The basis of membership is birth in a particular family.

FEATURES

1. Formation – For a joint Hindu family business there should be at least two

members in the family and some ancestral property to be inherited by them.

2. Membership by birth – There are two systems which govern membership

Dayabhaga System- It prevails in west Bengal and allows both male and female

member to co-parcencers.

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Mitakshara System- It prevails all over India except West Bengal and allows

only male members to be coparceners.

3. Liability – Liability of Karta is unlimited but of all other members is limited

to the extent of their share in property

4. Continuity – The business is not affected by death or incapacity of Karta in

such cases the next senior male member becomes the Karta.

5. Minor members – A minor can also become full fledged member of Family

business.

MERITS

1. Effective control- The Karta can promptly take decisions as he has the

absolute decision making power.

2. Continued business existence- The death, Lunacy of Karta will not affect

the business as next eldest member will then take up the position.

3. Limited liability – The liability of all members except Karta is limited. It

gives them a relief.

4. Secrecy – Complete secrecy regarding business decisions can be maintained by

Karta.

5. Loyalty and Co-operation: It helps in securing better co-operation and

greater loyalty from all the members who run the business.

LIMITATION

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1. Limited capital: There is shortage of capital as it is limited to the ancestral

property.

2. Unlimited liability of karta – It makes him less enterprising.

3. Dominance of karta – Karta manages the business and sometimes he ignores

the valuable advice of other members. This may cause conflict among the

members and may lead to break down of the family limit.

4. Hasty decisions: As karta is overburdened with work, he may take hasty and

unbalanced decisions.

5. Limited managerial skills of karta also pose a serious problem. The Joint

Hindu family business is on decline because of the diminishing no. of joint

Hindu families in the country.

PARTNERSHIP

Meaning: Partnership is a voluntary association of two or more persons who agree

to carry on some business jointly and share its profits and losses.

FEATURES

1. Two or more persons: There must be at least two persons to form a

partnership. The maximum no. of persons is 10 in banking business and 20

in non-banking business.

2. Agreement: It is an outcome of an agreement among partners which may

be oral or in writing.

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3. Lawful business- It can be formed only for the purpose of carrying on some

lawful business.

4. Decision making & control – Every partner has a right to participate in

management & decision making of the organisations.

5. Unlimited liability – Partners have unlimited liability.

6. Mutual Agency – Every partner is an implied agent of the other partners

and of the firm. Every partner is liable for acts performed by other partners

on behalf of the firm.

7. Lack of continuity – Firms existence is affected by the death, Lunacy and

insolvency of any of its partner. It suffers from lack of continuity.

MERITS

1. Ease of formation & closure – It can be easily formed. Only an agreement

among the partners is required.

2. Larger financial resources – There are more funds as capital is contributed

by no. of partners.

3. Balanced Decisions – As decisions are taken jointly by partners after

consulting each other.

4. Sharing of Risks – In it, risk get distributed among partners which reduces

anxiety, burden and stress on individual partner.

5. Secrecy – Secrecy can be easily maintained about business affairs as they are

not required to publish their accounts or to file any report to the govt.

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LIMITATIONS

1. Limited resources – There is a restriction on the number of partners and

hence capital contributed by them is also limited.

2. Unlimited liability- The liability of partners is unlimited and they are liable

individually as well as jointly. It may prove to be a big drawback for those

partners who have greater personal wealth. They will have to repay the

entire debt in case the other partners are unable to do so.

3. Lack of continuity – Partnership comes to an end with the death,

retirement, insolvency or lunacy of any of its partner.

4. Lack of public confidence – Partnership firms are not required to publish

their reports and accounts. Thus they lack public confidence.

Co-operative Society

A co-operative society is a voluntary association of persons of moderate means

who unite together to protect & promote their common economic interests.

FEATURES

1. Voluntary association: Every one having a common interest is free to join a

co-operative society and can also leave the society after giving proper notice.

2. Legal status: Its registration is compulsory and it gives it a separate legal

identity.

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3. Limited liability: The liability of the member is limited to the extent of their

capital contribution in the society.

5. Democratic control: Management & Control lies with the managing committee

elected by the members by giving vote. Every member has one vote

irrespective of the number of shares held by him.

6. Service motive: The main aim is to serve its members and not to maximize

the profit.

7. Bound by govt.’s rules: They have to be tide by the rules and regulations

framed by govt. for them.

8. Distribution of surplus: The profit is distributed on the basis of volume of

business transacted by a member and not on the basis of capital contribution

of members.

MERITS

1. Excise of formation: It can be started with minimum of 10 members.

Registration is also easy as it requires very few legal formations.

2. Limited Liability: The liability of members is limited to the extent of their

capital contribution.

3. Stable existence: Due to registration it is a separate legal entity and is not

affected by the death, luxury or insolvency of any of its member.

9. Economy in operations: Due to elimination of middlemen and voluntary services

provided by its members.

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10.Government Support: Govt. provides support by giving loans at lower interest

rates, subsidies & by charging less taxes.

11. Social utility: It promotes personal liberty, social justice and mutual

cooperation. They help to prevent concentration of economic power in few

hands.

LIMITATIONS

1. Shortage of capital – It suffers from shortage of capital as it is usually formed

by people with limited means.

2. Inefficient management – Co-operative society is managed by elected members

who may not be competent and experienced. Moreover, it can’t afford to

employ expert and experienced people at high salaries.

3. Lack of motivation – Members are not inclined to put their best efforts as

there is no direct link between efforts and reward.

12. Lack of Secrecy – Its affairs are openly discussed in its meeting which makes it

difficult to maintain secrecy.

13. Excessive govt. control – it suffers from excessive rules and regulations of the

govt. It has to get its accounts audited by the auditor and has to submit a

copy of its accounts to registrar.

14. Conflict among members – The members are from different sections of society

with different viewpoints. Sometimes when some members become rigid, the

result is conflict.

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JOINT STOCK COMPANY

Meaning – Joint stock company is a voluntary association of persons for profit,

having a capital divided into transferable shares, the ownership of which is the

condition of membership.

FEATURES

1. Incorporated association – The company must be incorporated or registered

tender the companies Act 1956. Without registration no company can come

into existence.

2. Separate Legal Existence – It is created by law and it is a distinct legal entity

independent of its members. It can own property, enter into contracts, can

file suits in its own name.

3. Perpetual Existence – Death, insolvency and insanity or change of members as

no effect on the life of a company. It can come to an end only through the

prescribed legal procedure.

4. Limited Liability – The liability of every member is limited to the nominal

value of the shares bought by him or to the amt. guaranteed by him.

Transferability of shares – Shares of public Co. are easily transferable. But

there are certain restrictions on transfer of share of private Co. Common

Seal- It is the official signature of the company and it is affixed on all

important documents of company.

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5. Separation of ownership and control – Management of company is in the hands

of elected representatives of shareholders known individually as director and

collectively as board of directors.

MERITS

1) Limited Liability – Limited liability of shareholder reduces the degree of risk

borne by him.

2) Transfer of Interest – Easy transferability of shares increases the

attractiveness of shares for investment.

3) Perpetual Existence – Existence of a company is not affected by the death,

insanity, Insolvency of member or change of membership. Company can be

liquidated only as per the provisions of companies Act.

4) Scope for expansion – A company can collect huge amount of capital from

unlimited no. of members who are ready to invest because of limited liability,

easy transferability and chances of high return.

5) Professional management – A company can afford to employ highly qualified

experts in different areas of business management.

LIMITATIONS

1) Legal formalities – The procedure of formation of Co. is very long, time

consuming, expensive and requires lot of legal formalities to be fulfilled.

2) Lack of secrecy – It is very difficult to maintain secrecy in case of public

company, as company is required to publish and file its annual accounts and

reports.

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3) Lack of Motivation – Divorce between ownership and control and absence of

a direct link between efforts and reward lead to lack of personal interest

and incentive.

4) Delay in decision making – Red papism and bureaucracy do not permit quick

decisions and prompt actions. There is little scope for personal initiative.

5) Oligarchic management – Co. is said to be democratically managed but

actually managed by few people i.e. board of directors. Sometimes they take

decisions keeping in mind their personal interests and benefit, ignoring the

interests of shareholders and Co.

Women Entrepreneurs

Women Entrepreneurs means the women or a group of women who initiate,

organize and operate a business enterprise.

A woman entrepreneur is therefore a confident, creative and innovative

woman desiring economic independence individually and simultaneously creating

employment opportunities for others

Definitions: “An enterprise owned and controlled by woman having a minimum

financial interest of 51% of the capital and giving at least 51% employment

generated to women” -By Government of India

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“Women who innovate initiate or adopt business actively are called women

entrepreneurs.” -J.Schumpeter

“Women entrepreneurship is based on women participation in equity and

employment of a business enterprise.”

-Ruhani J. Alice

Indian women are changing and they are fast emerging as potential

entrepreneurs. Role modeling of women in non-traditional business sectors to break

through traditional views on men’s and women’s sectors.

Women companies are fast-growing economies in almost all countries. The

latent entrepreneurial potential of women have changed little by little by the

growing awareness of the role and status of economic society. Skills, knowledge

and adaptability of the economy led to a major reason for women in business.

Women are coming forth to the business arena with ideas to start small

and medium enterprises. They are willing to be inspired by role models- the

experience of other women in the business arena.

Features:

1. They should be educated and skillful.

2. Must have professional education to become better entrepreneur.

3. She should be capable enough to do innovations and be able to bear risks

and uncertainties.

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4. Able to make utilisation of various schemes, and aids given by government.

5. She should be capable enough to face male competitors and should possess

guts to moveahead.

6. She should be capable enough to make autonomous investment.

7. She must possess some ethics and egoism and should be egotist as well.

Problems of Women Entrepreneurs

Basic problem of a woman entrepreneur is that she is a woman. Women

entrepreneurs face two sets of problems specific to women entrepreneurs. These

are summarized as follows.

● Shortage of Finance: Women and small entrepreneurs always suffer from

inadequate fixed and working capital. Owing to lack of confidence in women’s

ability, male members in the family do not like to risk their capital in ventures

run by women. Banks have also taken negative attitude while lending to women

entrepreneurs. Thus women entrepreneurs rely often on personal saving and

loans from family and friends.

● Shortage of Raw Material: Women entrepreneurs find it difficult to procure

material and other necessary inputs. The prices of many raw materials are quite

high.

● Inadequate Marketing Facilities: Most of the women entrepreneurs depend on

intermediaries for marketing their products. It is very difficult for the women

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entrepreneurs to explore the market and to make their product popular. For

women, market is a ‘chakravyuh’.

● Keen Competition: Women entrepreneurs face tough competition from male

entrepreneurs and also from organized industries. They cannot afford to spend

large sums of advertisement.

● High Cost of Production: High prices of material, low productivity. Under

utilisation of capacity etc. account for high cost of production. The government

assistance and subsidies would not be sufficient for the survival.

● Family Responsibilities: Management of family may be more complicated than

the management of the business. Hence she cannot put her full involvement in

the business .Occupational backgrounds of the family and education level of

husband has a direct impact on the development of women entrepreneurship.

● Low Mobility: One of the biggest handicaps for women entrepreneur is her

inability to travel from one place to another for business purposes. A single

women asking for room is looked upon with suspicion. Sometimes licensing

authorities, labour officials and sales tax officials may harass them.

● Lack of Education: About 60% of women are still illiterate in India. There exists

a belief that investing in woman’s education is a liability, not an asset. Lack of

knowledge and experience creates further problems in the setting up and

operation of business.

● Low Capacity to Bear Risks: Women lead a protected life dominated by the

family members. She is not economically independent. She may not have

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confidence to bear the risk alone. If she cannot bear risks, she can never be an

entrepreneur.

● Social Attitudes: Women do not get equal treatment in a male-dominated

society. Wherever she goes, she faces discrimination. The male ego stands in the

way of success of women entrepreneurs. Thus, the rigid social attitudes prevent

a woman from becoming a successful entrepreneur.

● Low Need for Achievement: Generally, a woman will not have strong need for

achievement. Every women suffers from the painful feeling that she is forced

to depend on others in her life. Her preconceived notions about her role in life

inhibit achievement and independence.

● Lack of Training: A women entrepreneur from middle class starts her first

entrepreneurial venture in her late thirties or early forties due to her

commitments towards children. Her biggest problem is the lack of sufficient

business training.

● Lack of Information: Women entrepreneurs sometimes are not aware of

technological developments and other information on subsidies and concessions

available to them. They may not know how to get loans, industrial estates,

raw materials, etc.

Rural Entrepreneurship

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Rural entrepreneurship is a term that relates to the establishment of new business

units and industries in rural areas. It involves carrying out entrepreneurship

activities in the rural economy which results in the overall development of the

nation. Rural entrepreneurship has its root lying in non-urban areas and has a lot

of potential for undertaking numerous endeavors in business, industry, agriculture,

etc. Generally, industries and business enterprises in rural areas are involved in

agriculture and its allied activities. These activities support the livelihood of the

majority of the population living in rural areas.

Rural entrepreneurship helps countries in achieving the equitable advancement and

development of all areas. It serves as a key tool for overcoming all gaps in between

urban and non-urban areas whether in terms of infrastructure, job opportunities,

health, education etc. The similar growth and development opportunities are

provided to the people of village as one available to peoples of cities.

Need for Rural Entrepreneurship

The reasons for rural entrepreneurship can be well-understood from points discussed

below: –

1. High potential of creating employment- Rural entrepreneurship brings in

large number of employment opportunities for people living in rural areas.

Industries in rural parts are mostly labor-intensive where many people are

engaged in distinct activities both directly and indirectly. Rise in

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unemployment is one of the basic and most highlighted problem of every

nation in today’s era. Rural entrepreneurship can be very effective in tackling

this problem in positive way by bringing in more job opportunities for

people.

2. Brings down income disparity- Rural industries possess a high potential of

generating large amount of income for rural population. When people living

in non-urban areas get equal opportunity for earning income as similar to

one living in urban areas, the disparities in income earned gets reduced.

Establishment of new business setup and industries result in giving better

job opportunities with adequate salaries and wages.

3. Proper utilization of resources- The rural entrepreneurship helps in effective

utilization of resources available in remote areas. The resources are present

in sufficient quantity among rural areas which may remain lie idle if rural

entrepreneurship does not exist. When industries will run via rural

entrepreneurship programme, then the use of all these resources will enhance

productivity thereby favoring nation in some way. In addition to this, labor

available in villages also get some work in these types of entrepreneurships.

4. Reduce migration of villagers- Migration of people from rural areas to urban

areas is one of the critical issues being faced by every nation in today’s

time. People migrate to cities in search of job opportunities, better life and

various other infrastructural facilities which are missing in rural areas. Rural

urbanization works on removing this gap in terms of development among

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urban and non-urban areas. It helps in creating similar growth and

development opportunities for peoples of villages as are available in urban

areas. When people have access to job opportunities in their native areas,

they would like to remain at their home instead of migrating to some other

places.

5. Earns foreign exchange- Rural market serve as an important source of earning

foreign revenue for nation. The products which are manufactured in rural

areas are in high demand and exported to several countries all over the

world. These products comprise of handicrafts, artifact, handlooms and

various other agricultural products. All transactions are settled in

international currencies which leads to increase the foreign currency reserve

of country.

6. Enhance traditional culture- Rural entrepreneurship not only protects but

also promote the art, creativity and culture of particular region on wider

scale. It is seen that people from rural areas have great talent in terms of

culture and tradition. Also, all sort of historic artistic activities were

originated from rural areas only. Rural entrepreneurship paves the way for

promotion of these activities, thereby enabling villagers to create wonderful

handicraft items and earn their bread and butter via selling them.

7. Foster economic development- The economic development of remote areas

across the nation is increased to great extent by rural entrepreneurship. It

focuses on achieving equitable growth and development in both urban and

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rural areas. More capital is brought into the rural market by establishing

new ventures and industries. All this also results in eliminating the

differentiation among areas as slums, town, cities etc.

Problems of Rural Entrepreneurship

There are lots of challenges and hardships which are faced while rolling out

entrepreneurship programmes in rural areas. They are as listed below: –

1. Lack of funds- Absence of adequate amount of funds is one of the major

issues faced by rural entrepreneurs. Finance is termed as backbone of every

business and no business can perform if there is no availability of funds.

Entrepreneurs in rural areas face great hardships in securing external funds

due to the absence of credit in market as well as tangible security.

2. Poor infrastructure facilities- Entrepreneurs in rural areas suffered a lot due

to the poor infrastructure facilities. They are unable to attain better growth

rate in absence of basic infrastructure such as transport, communication and

power supply which all are very bad when compared with cities facilities. All

these are much needed things in order to run a business in smoothly

manner.

3. Competition- Rural entrepreneurs faces a tough competition in market from

large scale organizations and urban enterprises. They lack in terms of

products quality, effective branding and proper standardization. All these

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factors make rural entrepreneurs inefficient in competing with these large-

scale organizations.

4. Unavailability of skilled labor- Absence of skilled labor in remote areas is

another critical issue faced by rural entrepreneurs. It is difficult to find

skilled personnel in non-urban areas as most of them are willing to work in

urban areas where they get high salaries and access to better amenities.

5. Poor quality of products- Rural entrepreneurs lack in better standard tool

and equipments for regulating the product quality. This results in production

of inferior quality of products. Customers are more quality sensitive in

today’s era and may boycott the brand which is not focusing on quality

control.

6. Exploitation by middlemen- Rural entrepreneurs largely get exploited by

middlemen. In order to perform the marketing of products, rural

entrepreneurs are heavily dependent upon middlemen who charges a huge

profit. Absence of storage facilities and adequate transport services are

another marketing issues faced in remote areas.

7. Legal formalities- A rural entrepreneur need to fulfill several legal formalities

prior to establishing a business unit. These formalities include attaining a

business license, pollution certificate and various other forms of clearance.

The entrepreneur may find difficulty in completely all these tasks due to

the low-level of education.

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Types of Rural Entrepreneurship

Various types of rural entrepreneurship are as listed below: –

1. Agro based enterprises- Agro based enterprises are one which are engaged in

processing and selling of agricultural products. These products include fruit

juice, sugar, wheat, rice, dairy products, jaggery, oil from oil seeds and many

more.

2. Mineral based industries- Mineral based industries uses minerals ores as

primary raw material for producing their range of products. Iron and steel

industry, cement industry, aluminum industry, wall coating powders etc. are

included in mineral based industries.

3. Handicrafts- Handicrafts are artistic items which are made from glass, jute,

bamboo, soil, wood etc. In addition to this, antiques, traditional decoration

items and toys are also covered here.

4. Textile industry- Textile industries include all those industries which are

involved in spinning, weaving, tie and dye, and coloring and bleaching of

textile.

5. Engineering services- Engineering services comprise of tool and equipments

that are used in pumps, tractors, pipes and fittings, repairs, etc.

6. Forest-based industries- Forest based industries are involved in bamboo

products, honey making, beedi industry, supply of wood and wood products,

etc.

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Family Business

Meaning:

Family business has been as common in the Indian economy like elsewhere in

the world, it is perceived in a common sense. Various terms like ‘family-owned,’

family controlled,’ ‘family managed,’ ‘business houses,’ and ‘industrial houses’ are

used to refer to family business.

Thus, the term family business conjures up different meanings to different

people. While some view it as traditional business, others consider it as community

business, and still others mean it as home-based business.

“Family business is a firm which has been closely identified with at least two

generations of a family and when this link has had a mutual influence on company

policy and on the interests and objectives of the family.” — R. G. Donnelley

“Family businesses are those where policy and decision are subject to significant

influence by one or more family units. This influence is exercised through ownership

and sometime through the participation of family members in management. It is

the interaction between two sets of organizations, family and business, that

establishes the basic character of the family business and defines its uniqueness.”

— P. Davis

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Some researchers argue that a broad definition of a family business should

incorporate some degree of control over strategic decisions by the family and the

intention to leave the business in the family.

In sum and substance, a family business can simply be defined as a business one

that includes two or more members of a family with financial control of the

company. In other words, a family business is one actively owned and/or managed

by more than one member of the same family.

Characteristics:

The definitions of family business given above indicate the following characteristics

of family business:

a. A group of people belonging to one or more families run one business

enterprise.

b. Position in family business is influenced by the relationship the family

members enjoy among themselves.

c. Family exercises control over business in the form of ownership or in

the form of management of the firm where family members are

employed on key positions.

d. Family exercises the influence on the firm’s policy direction in the

mutual interest of family and business.

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e. The succession of family business goes to the next generation.

f. Every caste enjoys a dominant culture which gets duly reflected in

their family businesses also.

First Generation Entrepreneur

A first generation entrepreneur did not grow up in a family of entrepreneurs.

Most commonly, their close friends, mentors or role models are not business

owners. They do not interact with anyone regularly for whom successful

entrepreneurship is the norm. They may have interacted with aspiring

entrepreneurs who never dedicated themselves to a business idea or who did not

succeed and went back to a day job.

First generation entrepreneurs are those who have started their business

through their innovative ideas and skillsets. Typically, they do not have any

entrepreneurial background. They are innovative, possess quick decision-making

abilities, have leadership traits, and carry an intuitive capacity to take appropriate

risks.

First-Generation Entrepreneur Needs To Know:

1. Once you take a leap there’s no looking back:- Many businessmen focus on the

exit strategy. Remember it’s a one way traffic. There’s no going back. Once you

decide that you want to do a business you have to keep going. There might be

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times you think that you made a wrong decision, but always know that this is

part and parcel of the businessman’s life to think so. You are not alone. You have

to survive your worst days.

2. Manage your finances well:- Money is always short and it will never be enough.

But you have to pay the bills. Focus on your monthly finances. See to it to have

adequate cash for the next month to pay all your expenses for that month. If

you have excess cash, don’t keep it idle. Invest it till you need it. You have to

keep investing your surpluses. These investments will help you get through the

bad periods.

3. Be debt free:- As far as possible don’t take any debt capital. Don’t take loans

to run your business unless there is no other option. Use your cash flows to run

your business. Key is to increase your monthly cash flows. If this happens you

won’t need any debt. Expansion plans also should be debt free. Remember

borrowers make their bankers rich and not the other way round.

4. No fast expansion:- Many successful businesses failed because they expanded too

quickly. Don’t make that mistake. You have to build a solid business before you

can expand. Your current business might be on a small scale but the key is not

to make it large scale as fast as possible but to sustain it over a long period. The

longer you are in business the more invincible you will become. That is when you

expand.

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5. Avoid Fund Raising from Venture Capitalists:- Nowadays every startup is looking

for an investor to fund their businesses. This sounds cool but is definitely not.

You lose control of your business when you take on an investor. Then it is all

about managing the investor’s expectations and keeping them happy. If you have

a good business idea, try to grow it on your own. If you want funds you can raise

them from your family & friends. Give them a small stake in your company. They

will be happy & you will be in control. It might take longer to scale your business

but at least it would be yours. When you have built a solid business, you can

think of raising funds through the capital markets to fund your expansion plans.

6. Profitability:- Businesses survive on profits. One of the mistakes entrepreneurs

make is they focus on profits from day one. In the initial years focus on the

revenue. Try to increase your sales and keep your costs low.

7. Marketing:- People do business with people they know. If people don’t know you,

how will they buy from you. Marketing your business on the right platforms will

give you a brand presence. Not every post on your facebook page needs to get

you a lead. People should keep seeing your business name. They should know that

you exist & what are your offerings. They will come to you eventually. And

ultimately your customers will get you more customers if they are happy with

your service. Nothing beats a good reference. And good references are always

shared.

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Business is like a jungle. Here only the fittest survive. You have to be strong &

smart here. The best business education is not in the business schools but in

observing and learning about things happening around you. A person has to be a

good observer to do a good business. He needs to learn new things every day to

stay ahead in the game.

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