ENTREPRENEURIALSHIP

DEVELOPMENT
Prof. J M Ovasdi

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 Evolution of the concept
• Entrepreneur – a French word for an organizer
of musical or other entertainments
• It was also used for military expeditions and
civil engineering aspects
• In the 18th century the term was used in
economic aspects also
• Richard Cantillon, an Irishman, living in
France, introduced the term ‘entrepreneur’ as
his unique risk-bearing function in economics.

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 Entrepreneur as a Risk-Bearer
• Richard Cantillon defined entrepreneur as a agent
who buys factorof productions at certain prices in
order to combine them into a product with a view
to selling it at uncertain prices in future.
• Uncertainty – a risk which cannot be insured
against and is incalculable
• A risk can be reduced through the insurance
principle, where the distribution of outcome in a
group of instances is known
• Uncertainty is the risk which cannot be calculated

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 Entrepreneur as an Innovator
• Organizer – coordination of the factors of
production, organization & supervision
• Innovator -- new product, new technology
new market, new source of raw material, new
process
• Inventor & innovator – inventor is one who
discovers new methods and new materials.
Innovator utilizes inventions and discoveries in
order to make new combination of products,
services
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 Characteristics of an entrepreneur
• Risk-bearer
• Hard work
• Desire for high achievement
• Highly optimistic
• Independence
• Foresight
• Good organizer
• Good judge of persons
• Innovative
• Leadership
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 Difference between an entrepreneur and
a manager
Points Entrepreneur Manager
Motive To start a venture for personal Provide her services to an
gratification entrepreneur
Status Owner of the enterprise A servant of entrepreneur

Risk- Assumes all risks & uncertainty of the No risk except punishment
business for non-performance
bearing
Rewards Though uncertain gets all the profit Fixed salary and bonus for
exceptional services
Innovation Change-agent, strategist Executes the plans of the
entrepreneur

Qualifications Professional qualifications and Professional qualifications

experience not necessary. necessary. Experience
preferred
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 Functions of an entrepreneur
• Idea scanning and ideation
• Determination of the business objectives
• Product analysis and market research
• Determination of form of ownership/organization
• Promotional formalities for business set up
• Raising necessary funds
• Procuring machines and material
• Recruitment of workers
• Undertaking the business operations….
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 Types of entrepreneurs
• Innovating- new products/services, new markets
• Imitative -- duplicating
• Fabian – least risk taker, follower of successful people
• Drone – lack of adaptation to environmental changes
• Solo operators – self with a few employees
• Active partners – joint venture with active participation
• Inventors – research & innovation
• Challengers – Karsan Bhai, Gulshan Kumar
• Buyers – who take over companies
• Life-timers – family business extensions
• Intrapreneurs (from within)– managers starting
independent business ventures

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Difference between entrepreneur and
intrapreneur
Difference Entrepreneur Intrapreneur
Dependency Independent in his Dependent on the
operations entrepreneur – the
owner
Raising of funds Raises funds himself Funds are not raised
by her
Risk Bears the complete risk Bears partial risk
Operation Operates from outside She operates from
– not an employee within the
organization

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 Entrepreneurship
• What an entrepreneur does is entrepreneurship
• It is an attempt to create value through
recognition of business opportunity, the
management of risk-taking appropriate to the
opportunity, and through the communicative and
management skills to mobilize human, financial
and material resources necessary to bring a
project to fruition
• It is the purposeful activity of an individual or a
group of associated individuals, undertaken to
initiate, maintain or increase profit by production
or distribution

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 Entrepreneur & Entrepreneurship
Entrepreneur Entrepreneur ship
•Person •Process
•Organizer •Organization
•Innovator •Innovation
•Risk-bearer •Risk-bearing
•Motivator •Motivation
•Creator •Creation
•Visualizer •Vision
•Leader •Leadership
•imitator •imitation
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 GROWTH OF
ENTREPRENEURSHIP IN INDIA
Prof. J M Ovasdi

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 Pre-independence
• Till about 1750, that is, prior to the Industrial
Revolution India & China had over 40 % share
of the world trade. Industrial revolution of
Europe and North America killed the
entrepreneurship of the rest of the world
• Indian textile, carpets, gems, spices were
traded world-over
• Indian entrepreneurs catered to all the needs
of the common man and the nobility
• The surplus was exported by traders

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 British Rule & IR
• Indian entrepreneurship suffered because of the
decline of the Royal patronage
• East-India company rule – they purchased raw
material from India and after making cloth in
England imported to India and other colonies
• The British rulers did not allow industries to be
set up in India for fear of competition with British
industries
• Daily need goods for the common man continued
to be manufactured by the local artisans

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 Other Factors
• Imposition of heavy duties on the import of
the Indian goods in England
• Mass-manufactured low priced goods killed
Indian craftsmanship
• Indian Railways were built to help British trade
• The Indian nobility who were the patrons of
Indian crafts became crazy about foreign
goods
• Indian craftsmen failed to adapt to the
changing tastes and needs of the people.

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 Attempts at Revival of
Entrepreneurship
• Parsi community became the pioneers of entrepreneurship
in India
• They set up a number of factories in and around Bombay to
meet the needs of the British companies – ship building,
steel making, gunpowder in the second half of 19th century.
• Ranchodlal Chotalal set up a modern textile factory in
Ahmedabad in 1861. Parsis set up a number of textile mills
in Bombay
• In 1915 there were 96 textile mills – 41 of Parsis, 23 by
Hindus and 10 by Muslim entrepreneurs
• First major steel mill by set up by Jamshedji Tata in 1911.
• The dominant trading communities of Jains and Marwaries
entered the scene after first World War.

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 After the first World War
• Managing Agencies --In 1936 Dwarkanath Tagore
set up the first joint-stock company – Carr,
Tagore & Co. for managing the steam tugs/boats
• After the First WW and more so during the II WW
the British government encouraged the Indian
entrepreneurs to set up factories to fill up the
gap in production by British companies
• At this stage the traditional trading communities
of India emerged as the big entrepreneurs –
Birlas, Modi, Bajaj, Mafatlal, Kirloskar, Chettiars…

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 After Independence
• After getting political independence, the
Government of India focused on economic
growth
• Government took a number of initiatives to put
economy on the fast track
• Five Year Plans were designed and implemented
for all round development in urban & rural
sectors, big and small business
• Infrastructure like electric power, roads, railways,
telephones etc needed immediate attention

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 Development of SME
• From third Five Year Plan (1962-67) special
emphasis was accorded to develop small-scale
industries
• Various incentives & concessions were given
in the form of capital, technical know-how,
markets, and land to potential entrepreneurs
• Special concessions were granted for setting
up small industrial units in ‘backward’ areas to
remove the regional imbalances in
development

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 Institutional Support to SMEs
• To facilitate the new entrepreneurs several
institutions were set up like
• Directorate of Industries
• Financial Corporations
• Small-scale Industries Corporations
• Small Industries Service Institutes
As a result of these initiatives the number of
small-scale industries increased from 121,619
in 1966 to 190,727 in 1970 – an increase of
17,000 units in four years

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 Comments on the Trade and
Industrial Policies from 1947 - 1991
• Since exports were much lower than the demand of
imports emphasis was laid on encouraging import-
substitution to save foreign exchange to develop
entrepreneurship and technical skills of the workers
• Heavy industries were set up as Public Sector
Undertakings (PSU)
• Technology was imported for setting up big and small
industries
• Automatically SMEs emerged to feed the heavy
industries
• However the quota-permit industrial policy was a
mistake.

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 Role of Entrepreneurs in Economic
Development
• Economic development means a process of upward change
whereby the real per capita income of a country increases
over a long period of time.
• What causes economic development
• The classical economists like Adam Smith, and David
Ricardo the rate of capital formation was the most
important factor of economic development – save more
and invest in production of goods & services
• It depends on the personal interest & initiative of an
individual where to invest & earn profit & create wealth
• Ricardo identified 3 factors of production – machinery,
capital & labour. They had no though for entrepreneurship.

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 Role of Entrepreneurship…
• The emergence of USA, Japan, and Russia as
great economic powers in the 20th century was
due to the spirit of entrepreneurship of small
innovator investors who were the drivers of great
economic development
• Most of the big businesses, world over had
started as small enterprises
• In India, Gulshan Kumar revolutionized the audio-
cassette business with T-series, and Karsanbhai
defeated the multinational HUL in detergent
business by introducing Nirma
• Infosys was launched by six co-workers who sold
the ornaments of their wives to raise Rs. 1 Lakh.
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 Role of Entrepreneurship…
• There are certain barriers for entrepreneurs in
underdeveloped regions
• Paucity of funds
• Lack of skilled labor
• Non-existence of minimum social and economic
overheads
• Lack of infrastructural amenities – electricity,
roads and other means of communication
• In India, largest number of entrepreneurs have
been imitators rather than innovators – great
scope for duplicate/unbranded goods produced
by jugad methodology.

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 Role of Entrepreneurship…
• Entrepreneurship promotes capital formation by
mobilizing the idle saving of the public
• Provides immediate large-scale employment
• Promotes balanced regional development
• Helps reduce the concentration of economic power
• Stimulates the equitable distribution of wealth, income
and even political power in the interest of the country
• Encourages effective resource mobilization of capital &
skill which might otherwise remain unutilized and idle
• It includes backward & forward linkages which
stimulate the process of economic development
• It promotes country’s export trade (40% in India)
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 Reasons for Growth of Entrepreneurship
• The Global Entrepreneurship Monitor report in 2007
observed high incidence of entrepreneurship
throughout the world, particularly in China, India,
Thailand.
• Industry structure – post-capitalist society. Shift from
capital intensive to knowledge intensive industry
inspired by IT revolution. Ideas and not infrastructure
are important
• Deregulation and Privatization – China in 1980s,
Russia, Eastern Europe and India in 1990s
• Growth of Services Sector- largest number of
opportunities in this sector for entrepreneurs and jobs

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 Reasons for Growth of Entrepreneurship
• Government Incentives & Subsidies
• Entrepreneurial Education (EDP) – universities
and technical institutes
• Rajiv Gandhi Udyami Mitra Yojana (RGUMY)
• Increasing flow of Information
• Easier Access to Resources
• Return on Innovation – IPR is a major boost to
entrepreneurs willing to take risk
• High regards for Self-employment – formerly
government jobs were the first priority
• Acceptance of Ex- Entrepreneurs in jobs even
after their failed ventures.
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 Doing Business in India -- Some Issues
• John Galbraith, a noted economist who served
as the Ambassador of the US in India, had
called India ‘the chaos that works’.
• Starting a business in India is not an easy
task. Funds may be available but there are
lot of hurdles to be crossed before the
business starts functioning.
• India is not considered to be business-friendly
• Major issues involved are the following…

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Doing Business in India -- Some Issues
• Bureaucracy – bureau is a French word meaning
‘office’ and the Greek suffix kratos, means
‘power’ or ‘rule. So, bureaucracy refers to the
‘rule of the office’.
• Bureaucracy in India is very ‘rule-minded’. There
are too many rules to be complied with for
starting a business. Too many clearances to be
obtained. Businessmen frequently use bribe and
other methods to get the government clearances
• Corruption is a way of life, not only in
bureaucracy and politics but in many other fields.

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 Doing Business in India -- Some Issues
• Tribe of Middle-men – acting as consultants they help
and also cheat the businessmen for getting licenses
and loans.
• Grey market and Counterfeit Goods – grey market is
the flow of goods through unauthorized channels
(smuggling) to evade taxes. It creates problems for the
manufacturers and the customers. Counterfeit goods
are a substandard copy of the original. Also known as
piracy. Pirated/counterfeit music and film CDs/DVDs
are more in demand than the original products.
• Social Capital – personal relationship – pehchan
connection, with the powerful people is more
important than the quality of the product.

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Doing Business in India -- Some Issues
• The ‘Doing Business’ report is published
annually by the World Bank. About 178
countries are ranked and India’s rank if 120
(2008 report).
• For enforcing contracts India’s position is 177.
the courts take too much time in deciding
business related disputes
• Even for closing a business it is very difficult
• That is the reason for insufficient FDI in India.
China gets 10 times more FDI than India.

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 Why Start a Business
• Dream come true
• Thrill of being your own boss
• Self esteem – from job seeker to job giver
• No restraints on your innovative ideas
• Money is the most common reason for starting a
business
• Exponential growth possible as against a time-
bound career
• Creating a successful business is an insurance
cover and training opportunity for the next
generation
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 Disadvantages
• You are alone
• You are the risk-bearer
• You can’t blame others for bad decisions
• All losses are yours
• Work may not be satisfying
• Long hours at the establishment unlike
employees
• Lack of success will affect self-esteem
• Difficult to exit from a failed business
• An employee may get a new jobs in a couple of
months but starting a new business may take
years.
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 Entrepreneurial Characteristics & Skills
• Most common characteristics of
entrepreneurs across the world
1.Commitment and determination
2.leadership
3.Opportunity obsession
4.Tolerance of risk, ambiguity, and uncertainty
5.Creativity, self-reliance and ability to adapt
6.Motivation to excel and the skill to motivate
subordinates to excel.
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 Demographic and Cultural Backgrounds
1. Offspring of self-employed parents
2. Being fired from more than one job
3. Being an immigrant or a child of immigrants
4. Previous employment in a firm with more
than 100 people
5. Being the eldest child in the family
6. Being a college graduate
7. Being a widow, single parent without
economic support
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 Entrepreneurial Skills
1. Curiosity, Craziness, and Creativity
2. Real-time strategy and decision making
3. Comfort with change and chaos
4. Teamwork
5. Good judge of people
6. Tolerance of imperfections
7. Extremely efficient negotiator
8. Good mastery of the basics of finance,
accountancy, marketing, and communication
skills

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 Entrepreneurial Skills…
9. Comfortable with life style changes
10.Willing to break/bend/stretch laws
11. Patience to start from the scratch
12. Prepared to make enemies
13. Comfortable with confrontations
14. Dealing with failure
15. Willingness to learn

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 Types of Entrepreneurs
Classification based on the Timing of Venture Creation
• Early Starters – with little or no full-time work experience.
Normally the entrepreneur is from a business family. An
extreme case of an early starter is Suhas Gopinath who
listed his company Globals Inc, in the USA because Indian
laws do not permit a minor to run a company.
• Experienced – few years experience in family business or as
employee for some years – Narayan Murthy and five
colleagues launched Infosys at the age of 35 years with
practically no resources
• Mature – Ex-CEOs, senior mangers taking VRS and starting
their ventures Jagdish Khatter of MUL started his own
venture, Ashok Soota and Subroto Bagchi quit Wipro to
start Mindtreee, and B V R Subbu, the ex- CEO of Hyundai
India, started his own venture by buying the Daewoo plant
in India.
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 Types of Entrepreneurs…
• Based on Socio-cultural Variables
• First-generation Entrepreneurs – Dhirubhai
Ambani and Narayan Murthy
• Entrepreneurs from Business Families – few
socio-ethnic family groups have dominated
the business scene in India – Parsee, Gujarati,
Sindhi, Chettiyar. Tatas,Birlas, Wadias,
Murugappas, and Singhanias are from these
groups. Road-transport business is dominated
by Punjabis, particularly Sikhs.
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 Jagadish Khattar
• Ex IAS and the CMD of Maruti Udyog Limited
has launched his new venture Carnation, a
network of multi-car sales and after sale
service outlets. Carnation plans to pumps a
whopping Rs1000 Cr for developing it’s
business model.
• Carnation planning to focus on sales, service,
lease and finance multi-branded cars. Also
they are planning to sell value added products
and accessories like batteries, tyres etc.

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 Suhas Gopinath
• Born in Bengaluru (1986), Suhas launched a web site
called CoolHindustan.com at the age of 14, and
incorporated his company in the USA, since Indian
Laws do not permit minors to register a company,
making him the world's youngest CEO at that time.
• Gopinath taught himself how to build websites and
sold portals to bricks-and-mortar firms in the US.
• Achievements
• He has received awards from his home state,
European Parliament and he has advised World Bank
for the development of computer skills in Africa for
generating employability in poor countries.

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 Micro, Small & Medium Industries
• Ministry of Agro and Rural Industries (Krishi
Evam Gramin Udyog Mantralaya) and Ministry
of Small Scale Industries (Laghu Udyog
Mantralaya) have been merged into a single
Ministry, namely, “MINISTRY OF MICRO,
SMALL AND MEDIUM ENTERPRISES
(SUKSHMA LAGHU AUR MADHYAM UDYAM
MANTRALAYA)”   since May 2007

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 Micro, Small & Medium Enterprises - The
Engine of inclusive growth & development
• Worldwide, the micro small and medium
enterprises (MSMEs) have been accepted as
the engine of economic growth and for
promoting equitable development.
• The major advantage of the sector is its
employment potential at low capital cost.
• The labour intensity of the MSME sector is
much higher than that of the large
enterprises.

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 Engines of Economic Development
• The MSMEs constitute over 90% of total
enterprises in most of the economies and are
credited with generating the highest rates of
employment growth and account for a major
share of industrial production and exports. In
India too, the MSMEs play a pivotal role in the
overall industrial economy of the country. In
recent years the MSME sector has consistently
registered higher growth rate compared to the
overall industrial sector. With its agility and
dynamism, the sector has shown admirable
innovativeness and adaptability to survive the
recent economic downturn and recession.

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 MSME Importance
• The MSMEs constitute over 90% of total enterprises in
most of the economies and are credited with
generating the highest rates of employment growth
and account for a major share of industrial production
and exports.
• In India too, the MSMEs play a pivotal role in the
overall industrial economy of the country.
• In recent years the MSME sector has consistently
registered higher growth rate compared to the overall
industrial sector.
• With its agility and dynamism, the sector has shown
admirable innovativeness and adaptability to survive
the recent economic downturn and recession.

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 Importance of MSME…
• As per available statistics (4th Census of MSME
Sector), this sector employs an estimated 59.7
million (about 6 crore) persons spread over
26.1 million (2.6 crore) enterprises.
• It is estimated that in terms of value, MSME
sector accounts for about 45% of the
manufacturing output and around 40% of the
total export of the country. 

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 Definitions of MSMEs
Production
• A micro enterprise, where the investment in
plant and machinery does not exceed Rs 25 lakh
• A small enterprise, where the investment in
plant and machinery is more than twenty five
lakh rupees but does not exceed Rs. five crore or
• A medium enterprise, where the investment in
plant and machinery is more than five crore
rupees but does not exceed ten crore rupees

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 Definitions of MSMEs…
Services
• In the case of the enterprises engaged in
providing or rendering of services, as –
• A micro enterprise, where the investment in
equipment does not exceed ten lakh rupees;
• A small enterprise, where the investment in
equipment is more than ten lakh rupees but does
not exceed two crore rupees; or
• A medium enterprise, where the investment in
equipment is more than two crore rupees but
does not exceed five crore rupees
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 Clarification regarding investment limits

• For the removal of doubt, it is hereby clarified

that in calculating the investment in plant and
machinery, the cost of pollution control,
research and development, industrial safety
devices and such other items as may be
specified, by notification, shall be excluded.

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 RAJIV GANDHI UDYAMI MITRA YOJANA
• (A Scheme of “Promotion and Handholding of Micro
and Small Enterprises”)
• The objective of Rajiv Gandhi Udyami Mitra Yojana
(RGUMY) is to provide handholding support and
assistance to the potential first generation
entrepreneurs, who have already successfully
completed EDP/SDP/ESDP or vocational training from
ITIs, through the selected lead agencies i.e. 'Udyami
Mitras', in the establishment and management of the
new enterprise, in dealing with various procedural and
legal hurdles and in completion of various formalities
required for setting up and running of the enterprise.

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 Background
• World over, micro and small enterprises (MSEs)
are recognized as an important/constituent of
the national economies, contributing significantly
to employment expansion and poverty
alleviation. Recognizing the importance of micro
and small enterprises, which constitute an
important segment of Indian economy in terms
of their contribution to country’s industrial
production, exports, employment and creation of
entrepreneurial base, the Central and State
Governments have been implementing several
schemes and programmes for promotion and
development of these enterprises.

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• The small scale industries in India, including
the tiny or micro industries and
service/business entities, collectively referred
as micro and small enterprises (MSEs), have a
long history of promoting inclusive, spatially
widespread and employment-oriented
economic growth. In terms of employment
generation, this segment is next only to
agriculture.
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 EDP- Entrepreneur Development Program
• Entrepreneurship development and training is one of the key
elements for development and promotion of micro and small
enterprises, particularly, the first generation entrepreneurs.
• Entrepreneurship Development Programmes (EDPs) of
various durations are being organized on regular basis by a
number of organizations e.g. national and state level
Entrepreneurship Development Institutes (EDIs), Micro, Small
and Medium Enterprises Development Institutes (MSMEDIs)
[earlier known as Small Industries Service Institutes (SISIs)],
national and state level Industrial Development Corporations,
Banks and other training institutions/agencies in private and
public sector etc., to create new entrepreneurs by cultivating
their latent qualities of entrepreneurship and enlightening
them on various aspects necessary for setting up micro and
small enterprises.

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EDP- Entrepreneur Development Program
• Besides, various Industrial Training Institutes
(ITIs), other private training institutions are
also organizing vocational training (VT)
programmes, skill development programmes
(SDPs) and entrepreneurship-cum-skill
development programmes (ESDPs).
• However, there are still wide spread variations
in the success rate, in terms of actual setting
up and successful running of enterprises, by
the EDP/SDP/ESDP trained entrepreneurs.
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EDP- Entrepreneur Development Program
• It has been observed that entrepreneurs particularly
new entrepreneurs, generally face difficulties in
availing full benefits under available schemes of the
Governments / financial institutions, completing and
complying with various formalities and legal
requirements under various laws/regulations.
• In selection of appropriate technology, tie-up with
buyers and sellers etc. In order to bridge the gap
between the aspirations of the potential
entrepreneurs and the ground realties, there is a need
to support and nurture the potential first generation as
well as existing entrepreneurs by giving them
handholding support, particularly during the initial
stages of setting up and managing their enterprises.

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 Objectives of Rajiv Gandhi Udyami Mitra
Yojana (RGUMY)
1. To provide handholding support and assistance to the
potential first generation entrepreneurs, who have
already successfully completed or undergoing
Entrepreneurship Development Training Programme
(EDP) / Skill Development Training Programme (SDP)/
Entrepreneurship cum Skill Development Training
Programme (ESDP) /Vocation Training Programmes (VT),
through the selected lead agencies i.e. 'Udyami Mitras', in
the establishment and management of the new
enterprise, in dealing with various procedural and legal
hurdles and in completion of various formalities required
for setting up and running of the enterprise.

 
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 Objectives…
2. To provide information, support, guidance
and assistance to first generation
entrepreneurs as well as other existing
entrepreneurs through an ‘Udyami Helpline’
(a Call Centre for MSMEs), to guide them
regarding various promotional schemes of the
Government, procedural formalities required
for setting up and running of the enterprise
and help them in accessing Bank credit etc.
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 Udyami Mitras
• Eligibility
•  Under RGUMY, financial assistance would be provided to
the selected lead agencies i.e. Udyami Mitras for rendering
assistance and handholding support to the potential first
generation entrepreneurs. Following agencies/
organizations can be appointed as the lead agency i.e.
Udyami Mitra:
i. Existing national level Entrepreneurship Development
Institutions (EDIs).  
ii. Micro, Small and Medium Enterprises Development
Institutes (MSMEDIs)/ Branch MSMEDIs.
iii. Central/ State Government public sector enterprises (PSEs)
involved in promotion and development of MSEs e.g.
National Small Industries Corporation (NSIC) and State
Industrial Development Corporations etc.  

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 Udyami Mitras
iv. Selected State level EDIs and Entrepreneurship
Development Centers (EDCs) in public or private
sectors;  
v. Khadi and Village Industries Commission (KVIC).  
vi. Special Purpose Vehicles (SPVs) set up for cluster
development involved in entrepreneurship
development;
vii. Capable associations of MSEs/SSIs;
viii. Other organizations/training institutions/NGOs
etc. involved in entrepreneurship development/
skill development.

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 Role and Responsibilities of Udyami Mitras
• The selected lead agencies i.e. Udyami Mitras
would be expected to render assistance and
handholding support for following services:
• Networking, coordinating and follow up with
various Government departments/ agencies/
organizations and regulatory agencies on the one
hand and with support agencies like
Banks/financial institutions, District Industries
Centers (DICs), technology providers,
infrastructure providers on the other hand, to
help the first generation entrepreneurs in setting
up their enterprise.
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 Role and Responsibilities of Udyami Mitras …
• Udyami Mitras are expected to help the first
generation entrepreneurs in:
• a) Identification of suitable
project/product/enterprise and preparation of
bankable project report for the same
• b) Creation of the proprietorship firm/
partnership firm/ Company/ Society/ Self Help
Group (SHG) etc;
• c) Filing of Memorandum (as prescribed under
MSMED Act 2006);

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 Role and Responsibilities of Udyami Mitras …
d) Accessing bank loans, admissible capital subsidy/
assistance under various schemes of the
Central /State Government and other
agencies/organizations/financial institutions/
Banks etc. by networking with respective
agencies
e) Assistance and support in establishment of work
shed/office;
f) Sanction of Power load/connection;
g) Selection of appropriate technology and
installation of plant and machinery/office
equipment etc;

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 Role and Responsibilities of Udyami Mitras …
• h) obtaining various registrations/ licenses/
clearances / No Objection Certificates (NOCs) etc.
from the concerned regulatory agencies/
Government departments/ local bodies/ Municipal
authorities etc.;
• i) Allotment of Income Tax Permanent Account
Number (PAN) and Service Tax/ Sales Tax/ VAT
registration etc;
• j) Sanction of working capital loan from the banks;
• k) Arranging tie up with raw material suppliers;

j m ovasdi 63
 Role and Responsibilities of Udyami Mitras
l) Preparation and implementation of marketing
strategy for the product/ service and market
development; and
m) Establishing linkage with a mentor for providing
guidance in future
n) Creation of web page and email identity;
(ii) Once the enterprise has been successfully set
up, the Udyami Mitras would also monitor and
follow up on the functioning of the enterprise for
a further period of minimum 6 months and
provide help in overcoming various managerial,
financial and operational problems.
j m ovasdi 64
Setting up a Micro, Small and Medium
Enterprise
•     The main steps involve in setting up a Micro, Small & Medium
Enterprise are as below :-
• (a)  Project Selection
(b)  Technology and Machinery
(c)  Arranging Finance
(d)  Unit Development
(e)  Filing of Entrepreneurs’ Memorandum
(f)  Approvals
(g)  Clearances
(h)  Quality Certification

j m ovasdi 65
 Women Entrepreneurs
• Traditionally, Indian women had their position
restricted to the house-hold and lack of
education and opportunities – Abla nari
• Social stigma for working women.
• Limited career opportunities –school teachers,
nurses, clerks, receptionists etc.
• Empowerment of women through higher
education, SHG, and institutional financial
help have created room for women
entrepreneurs.

j m ovasdi 66
 Setting up a new unit is a big
challenge.
• The overriding reason for anyone to think of
establishing a MSME unit can be summarised in one
word - OPPORTUNITY.
• If one can see an opportunity to provide a product or
service in a manner to generate sufficient surplus, then
one way is to start up a MSME unit. This is all the more
true if one believes in the maxim, "Small is Beautiful"
• Opportunities emerge out of ideas that one comes
across by thinking about lives of friends and
neighbours. This can generate ideas about products
and services that can make things easier, and improve
quality of life of people.

j m ovasdi 67
 Women Entrepreneurs
• The GoI has defined women entrepreneurs based
on women participation in equity and
employment of a business enterprise
• Enterprise owned and controlled by women
having a minimum financial interest of 51 % of
the capital and giving at least 51 % employment
generated in the enterprise to women
• Women Entrepreneurs are those who think of a
business enterprise, initiate it, organize, combine
the factors of production, operate the enterprise
and undertake risks and handle economic
uncertainty involved in running a business
enterprise.

j m ovasdi 68
 Functions of Women Entrepreneurs
• Frederick Harbison – five functions
1. Exploration of the prospects of starting a new
business enterprise
2. Undertaking risks of economic outcome
uncertainty
3. Introduction of innovations or imitation of
innovations
4. Coordination, administration and control
5. Supervision & leadership
Internal assessment test– profile of at least two
women entrepreneurs
j m ovasdi 69
 Growth of Women Entrepreneurs
• In India Women Entrepreneurs is a new phenomenon
• Traditionally women entry into business is traced to an
extension of their kitchen activities
• 3 Ps – Pickle, Powder and Pappad
• Push factor – that compel women to take up their own
business to tide over their economic difficulties and
responsibilities
• Pull factors – imply factors which encourage women to
start an occupation or venture with an urge to do
something, independently.
• With women professional education 3 Ps have become
3 Es Engineering, electronics, and energy. More Es
--education, entertainment, event management…

j m ovasdi 70
 Women Entrepreneurs…
Examples
• Solar cookers in Gujarat
• Small foundaries in Maharashtra
• TV capacitors in Orissa
• Famous Indian Women Entrepreneurs
• Sumati Morarji– Shipping Corporation
• Yamutai Kirloskar – Mahila Udyog
• Neena Malhotra –Exports
• Shahnaz Huaasain – Beauty Clinics and Personal
care products
• Kiran Mazumdar Shaw – Bio-Technology

j m ovasdi 71
 Dr. Kiran Mazumdar Shaw
• Entrepreneur Dr. Kiran Mazumdar-Shaw, Chairman &
Managing Director of Biocon Ltd., who became India's
richest woman in 2004 (an estimated Rs.2,100 crore
-US$480 million), was educated at the Bishop Cotton
Girls School and Mount Carmel College in Bangalore.
She founded Biocon India with a capital of Rs.10,000 in
her garage in 1978 - the initial operation was to extract
an enzyme from papaya. Her application for loans
were turned down by banks then - on three counts -
biotechnology was then a new word, the company
lacked assets, and (most importantly) women
entrepreneurs were still a rarity. Today, her company
is the biggest biopharmaceutical firm in the country.

j m ovasdi 72
 Ekta Kapoor
• Ekta Kapoor, creative head of Balajji Telefilms,
is the daughter of actor Jeetendra, and sister
of actor Tushar Kapoor. She has been
synonymous with the rage of soap operas on
Indian TV, after her most famous venture
'Kyunki Saas Bhi Kabhi Bahu Thi', which
started airing on STAR Plus in 2000. Ekta
dominates Indian television with shows in
multichannels. At the 6th Indian Telly Awards
2006, she bagged the Hall of Fame award for
her contributions to Indian TV.

j m ovasdi 73
 Sunita Narain
• Sunita Narain, an environmentalist and political
activist as well as a major proponent of the
Green concept of sustainable development, was
awarded the Padma Shri by the Government of
India in 2005.
• Narain, who has been with the India-based
Centre for Science and Environment since 1982,
is currently the director of the Centre, and the
director of the Society for Environmental
Communications, and publisher of the fortnightly
magazine, 'Down to Earth'.

j m ovasdi 74
 Major constraints faced by Indian Women Entrepreneurs
a) Lack of confidence – In general, women lack
confidence in their strength and competence. The
family members and the society are reluctant to
stand beside their entrepreneurial growth. To a
certain extent, this situation is changing among
Indian women and yet to face a tremendous change
to increase the rate of growth in entrepreneurship.
b) Socio-cultural barriers – Women’s family and
personal obligations are sometimes a great barrier
for succeeding in business career. Only few women
are able to manage both home and business
efficiently, devoting enough time to perform all their
responsibilities in priority.

j m ovasdi 75
 Constraints…
c) Market-oriented risks – Stiff competition in the market and
lack of mobility of women make the dependence of women
entrepreneurs on middleman indispensable. Many business
women find it difficult to capture the market and make their
products popular. They are not fully aware of the changing
market conditions and hence can effectively utilize the
services of media and internet.
d) Motivational factors – Self motivation can be realized
through a mind set for a successful business, attitude to
take up risk and behavior towards the business society by
shouldering the social responsibilities. Other factors are
family support, Government policies, financial assistance
from public and private institutions and also the
environment suitable for women to establish business units.

j m ovasdi 76
 Constraints…
e) Knowledge in Business Administration – Women must
be educated and trained constantly to acquire the
skills and knowledge in all the functional areas of
business management. This can facilitate women to
excel in decision making process and develop a good
business network.
f) Awareness about the financial assistance – Various
institutions in the financial sector extend their
maximum support in the form of incentives, loans,
schemes etc. Even then every woman entrepreneur
may not be aware of all the assistance provided by the
institutions. So the sincere efforts taken towards
women entrepreneurs may not reach the
entrepreneurs in rural and backward areas.

j m ovasdi 77
 Overcoming Constraints
g) Exposure to the training programs - Training programs
and workshops for every type of entrepreneur is
available through the social and welfare associations,
based on duration, skill and the purpose of the training
program. Such programs are really useful to new, rural
and young entrepreneurs who want to set up a small
and medium scale unit on their own.
h) Identifying the available resources – Women are
hesitant to find out the access to cater their needs in
the financial and marketing areas. In spite of the
mushrooming growth of associations, institutions, and
the schemes from the government side, women are
not enterprising and dynamic to optimize the
resources in the form of reserves, assets mankind or
business volunteers.

j m ovasdi 78
 Over coming Constraints
• Highly educated, technically sound and
professionally qualified women should be
encouraged for managing their own business,
rather than dependent on wage employment
outlets.
• The unexplored talents of young women can
be identified, trained and used for various
types of industries to increase the productivity
in the industrial sector.
• A desirable environment is necessary for
every woman to inculcate entrepreneurial
values and involve greatly in business dealings
j m ovasdi 79
 Emerging Business Opportunities for Women
• Eco-friendly technology
• Bio-technology
• IT enabled enterprises
• Event Management
• Tourism Industry
• Telecommunication
• Plastic materials

j m ovasdi 80
 Emerging Business Opportunities for
Women
• Vermiculture
• Mineral water
• Sericulture
• Floriculture
• Herbal & health care
• Food, fruits & vegetable processing

j m ovasdi 81
 Women Empowerment for Sustainable
Development
• Empowering women entrepreneurs is
essential for achieving the goals of sustainable
development and the bottlenecks hindering
their growth must be eradicated to entitle full
participation in the business.
• Apart from training programs, Newsletters,
mentoring, trade fairs and exhibitions also can
be a source for entrepreneurial development.

j m ovasdi 82
 Empowerment for Sustainable
Development
• As a result, the desired outcomes of the business
are quickly achieved and more of remunerative
business opportunities are found.
• Henceforth, promoting entrepreneurship among
women is certainly a short-cut to rapid economic
growth and development.
• Let us try to eliminate all forms of gender
discrimination and thus allow ‘women’ to be an
entrepreneur at par with men.

j m ovasdi 83
Project Identification and
Selection
J M OVASDI

j m ovasdi 84
 Ideation & Project
• An entrepreneur chooses an idea, an opportunity
to start her enterprise
• Business Environment scanning is done to make
the choice like
• What are the unfulfilled needs of the customers
• How to fulfill their needs
• What are your strengths and weaknesses
• Are you confident of the support of your family,
friends and any other support agency.
• Based on these factors select a project.
j m ovasdi 85
 What is a Project
• The very foundation of an enterprise is a project
• It is a distinct mission to achieve and a clear
termination point
• It is a set of activities involved in using resources
to gain benefits. Every project has three basic
attributes
1. A course of action – definite plan
2. Specific objective – what do you what to achieve
3. Definite time perspective
Procedure – project identification and project
selection.
j m ovasdi 86
 Identification & Selection
• Idea Generation is done through internal &
external sources
1. Knowledge of potential customers
2. Watching emerging trends
3. Scope for good copying of existing products
4. Study magazines , journals
5. Success stories of known entrepreneurs, friends
etc.
6. Visiting fairs and exhibitions
7. Meeting government agencies, Udhyami Mitras
8. Knowledge about government policy,
concessions and incentives etc.
j m ovasdi 87
 Selection
• After collecting data and information about
various opportunities we have to make a short
list of choices according to our strengths &
weaknesses
• We have to list the requirement of financial
investment and other resources
• Some projects may be very beneficial but require
resources that are not easy to get.
• There may be technical problems
• Considering all the opportunities, and constraints
the final selection is made.
• Then a project report is made. It is the most
important step if we have to apply for a loan.
j m ovasdi 88
 Contents of a Project Report
• A good project report should have the following
contents
1. General Information – bio-data of the single or
multiple promoters; their specific capabilities and
professional, technical qualifications, experience
etc
i) Industry profile in which the project will fall
ii) Organizational structure of the enterprise
iii)Product details – product utility, product range,
product design, advantages to be offered by the
product over its substitutes

j m ovasdi 89
 Contents of a Project Report
Project Description –
• i) Site
• Physical infrastructure
• Availability of raw material, skilled labor,
utilities like power, water
• ii) pollution control requirements – sewage
system, sewage treatment plant requirements
• Iii) Communication system – facilities available
and required
• Transport facilities – existing, expected

j m ovasdi 90
 Contents of a Project Report
• Production process – period of conversion of
raw material into finished goods
• Machines & equipment – complete list, cost
& sources of supply
• Capacity of the plant and the number of shifts
proposed
• Technology selected
• R & D – proposed research & development
activities proposed to be undertaken in future

j m ovasdi 91
 Contents of Project Report…
• Market potential
1.Demand & supply position – how the gap
between the two will be filled up
2.Expected price of the production per unit
• Marketing Strategy – arrangements for selling
the products
• After-sales Service – state the execution
procedure
• Transportation – what facilities are available
or will be required

j m ovasdi 92
 Contents of Project Report…
• Capital Costs and Sources of Finance –
estimates of capital items like land &
buildings, plant, machinery, installation costs,
preliminary expenses, margin for working
capital
• The present probable sources of finance
should be included in the project report
• Sources should indicate the owner’s funds
together with funds raised to be raised from
financial institutions and banks.
j m ovasdi 93
 Project Appraisal
• Every industrial project involves risk
• Project appraisal is a process to reduce the risk
• Ex-ante analysis for proposed project
• Post-ante analysis is for the executed project
• Project appraisal is a cost & benefit analysis of different
aspects of the project to adjudge its viability
• Economic, financial, technical, market, managerial and
social aspects are analyzed
• Project appraisal is done by financial institutions to
assess its credit worthiness before extending finance to
a project. They also get it evaluated by other agencies
• Sometimes the scope and contents of the project are
modified after the appraisal & evaluation

j m ovasdi 94
 Methods of Project Appraisal
1. Economic analysis – requirement of raw material,
level of utilization, anticipated sales, expenses and
probable profits
2. Financial analysis –most important exercise – fixed &
working capital
3. Market analysis – no profit if goods are not sold.
Methods used are ‘management economics’,
‘demand forecasting’ though survey, sales
experience, opinion poll, vicarious method – selling
the goods through dealers on test basis. Life Cycle
Segmentation analysis – introduction, growth,
maturity, saturation, decline
4. Technical feasibility
5. Managerial competence

j m ovasdi 95
Financing of Enterprise

J M Ovasdi

j m ovasdi 96
 Need for Financial Planning
• Production is the outcome of five factors
1.Land
2.Labour
3.Capital
4.Entrepreneurship
5.Organization
These are mutually dependent on each other.
Availability of these factors in right proportion
is needed for success.
j m ovasdi 97
 Need for Financial Planning
• Finance is the lubricant to the process of
production.
• It is the life blood of enterprise.
• Whoever has the gold makes the rule.
• Make an assessment
1.How much money is needed
2.Where will it come from
3.When does the money need to be available in
two forms – fixed and working capital, short-
term, long term (over five years)
j m ovasdi 98
 Entrepreneurial Finance
• Entrepreneurs raise funds to start their business
though various sources like –internal & external
Internal sources
• Self-generated funds that can be spared from the
business, plus savings, property, investments,
rents. Priority to internal resources
External sources
• Help from family and friends
• Loans from banks /non-banking financial
institutions (NBFC)
• Loans from State Financial Corporations

j m ovasdi 99
 Entrepreneurial Finance
• RBI has identified lending to MSMEs as one of the
priority sector advances
• MSMEs may get loans up to Rs 25 lakhs without
collateral
• RBI has fixed time limits for dealing with a loan
application from MSMEs
• The lender organization studies the business plan
of the applicant and get it reviewed by experts.
• Series of meetings are held between the lender
and the borrower before loans are granted.

j m ovasdi 100
Government Initiatives for
Promoting MSMEs
J M OVASDI

j m ovasdi 101
 MSMI MINISTRY
• Ministry of Micro, Small and Medium Scale
Industries is primarily responsible for
promotion and development of SMEs in India,
and has evolved several policies, institutional
and support measures, spread all over the
country, in order to enable them to meet their
changing needs.
• Small Industries Development Bank of India
(SIDBI) has developed various financing
schemes.

j m ovasdi 102
 MSMI MINISTRY
• Ministry of Science and Technology (DST,
DBT, DSIR) has evolved several measures and
programs for technological assistance and
development and transfer of technologies for
SMEs.
• Some of the economic ministries such as
Ministry of Textiles, Department of Food
Processing and Department of Handicrafts etc.
have also recently announced initiatives for
technical assistance in various firms

j m ovasdi 103
 New initiatives to promote MSMEs
• Some of the measures and new initiatives to promote SMEs
include:
• SME development fund
• A specialized stock exchange for SMEs
• Encouragement for patenting and ISO Certification
• SME venture capital fund
• National Commission for Small Industries (informal sectors)
• SME development bill
• Credit Rating Agency
• Promoting special venture capital companies and risk
financing companies for SMEs
• Improve the working of credit guarantee and export
promotion institutions

j m ovasdi 104
 New initiatives
• Progressively reduce protection measures and simplify
implementation policies and control mechanisms
• SME Development Centres at SIDBI and IIFT
• Considering liberalizing FDI in SMEs and encouraging
their linkages with TNCs and large companies
• Promoting industrial growth centres/clusters,
EOUs(export oriented units), district industry centres,
business incubators and business parks
• Market assistance and export promotion
• National Small Industries Corporation
• Small Industries Development Organization
• Limited Liability Partnership Bill 2006

j m ovasdi 105
 Technology Support Initiatives
• Proto-typing and product development centres
• Design, engineering and development centres
• Small industries and services institutes
• Tool rooms
• Specialized development centres with
international assistance in areas such as
electronics, toys, handicrafts, etc.
• Technology business incubators
• Software technology parks
• S&T Entrepreneurship Development Board
• Techno-preneur Promotion Program

j m ovasdi 106
 Technology Support Initiatives…
• Consultancy Development Program
• Tax incentives, fiscal incentives, custom duty
exemptions, grants & other financing
mechanisms
• In-house R&D recognition scheme for industry
• National Innovation Foundation
• Technology Development Board
• Technology, Information and Forecasting
Assessment Council (TIFAC)
• Innovation centres, entrepreneurship
development institutes
j m ovasdi 107
 Technology Support Initiatives…
• National Institutions for specific industries such
as fashion design, packaging, glass and ceramics
etc.
• Small Industries Information and Resource Centre
Networks (SENET)
• S&T Parks
• Technical Consultancy Organizations (TCOs)
• Technology Up gradation Fund
• The Asia and Pacific Centre for Transfer of
Technology

j m ovasdi 108
 National Manufacturing Competitiveness
Council (NMCC)
• NMCC has also recognized in its national strategy for
manufacturing announced in March 2006, the need for
ensuring the competitiveness of small scale sector as it
would help in overall growth of manufacturing sector
as also the national economy. The strategy report has
identified the following important impediments,
among others:
• Access to timely and adequate credit
• Technological obsolescence (old technology)
• Infrastructural bottlenecks (power, communication…)
• Lack of R&D linkages – no tie up
• Marketing constraints, disabling rules and regulations
j m ovasdi 109
 National Strategy for Manufacturing
• The National Strategy for Manufacturing has
recognized the need for a focused project on advance
technology products and has recommended the
constitution of a special group to study the potential
for manufacture and export of such products. It has
also recommended the establishment of technology
parks around institutions of higher technological
learning on the lines of those existing in USA. Another
important recommendation relates to setting up a
“Global Technology Acquisition Fund” to enable
Indian industry to acquire very high technology
intensive companies abroad. (National Manufacturing
Competitiveness Council, 2006)

j m ovasdi 110
 National Strategy for Manufacturing
• The strategy suggests a cluster approach for
improving the manufacturing competence.
• New and innovative approach to cluster
development should be adopted.
• Further, small scale sector should be encouraged
as breeding ground of innovation and technology
development where it becomes the technology
sources for large companies.
• Towards this, government must incentivise
technology development in SMEs to enhance
their competitiveness.

j m ovasdi 111
National Strategy for Manufacturing…
• A National Manufacturing Competitiveness Program
(NMCP) is being developed which includes objectives
to support SMEs.
• A Design Clinic approach is suggested to bring Indian
manufacturing sector and design expertise on to a
common platform and to provide expert advice and
cost effective solution, resulting in continuous
improvement and value addition for existing products.
• Emphasis is also laid down to enable SMEs to be
competitive through quality management standards
and quality technology tools. These are only some of
the strategies among those suggested in the Report.

j m ovasdi 112
 NMCC Funds
• NMCC seems to have prepared Rs. 1,000 crore
National Manufacturing Competitiveness
Program for small and medium enterprises jointly
with Ministry of Small Scale Industries.
• This aims to benefit over 10,000 firms in more
than 500 SME Clusters. The thrust of the plan is
towards technology infusion.
• The areas for support include “lean”
manufacturing, ICT, technology and quality up
gradation, increasing number of tool rooms,
encouraging patents and so on.

j m ovasdi 113
 NMCC Funds
• National Knowledge Commission has also
identified SMEs as a thrust sector for education,
skills up-gradation, training and ICT
encouragement.
• Various studies have shown that ICT and
technology levels are higher in internationalized
SMEs in sectors such as food processing, auto
components, ICT, leather, to engineering,
garments etc. compared to non-exporting or
domestic SMEs.( Agarwal 2005, 1b)
j m ovasdi 114
 Private Sector Initiatives
• There are a few national level associations and several
state level associations for promotion of SMEs.
• Federation of Small and Medium Enterprises (FISME),
Confederation of Indian Industry(CII), PHD Chamber of
Commerce, Federation of Indian Chamber of Commerce
and Industry (FICCI), and World Assembly of Small and
Medium Enterprises (WASME), etc. have evolved various
program towards technological capability building and
enhancing competitiveness of SMEs.
• Public-Private Partnership (PPP) Projects are also being
recently evolved for sustainable support to SMEs in
some areas such as food processing and handicrafts.
• However, the expertise and capabilities to provide
effective technology related services are generally
limited.

j m ovasdi 115
 Academic and R&D Organizations
• Some of the engineering and technical institutions such as
IITs, National Institutes of Technology and CSIR Research
Laboratories, are also providing R&D and technology
related support facilities and services to the SMEs including
training and skill development programs.
• However, access to these facilities are generally not easy,
and often lack the business needs of entrepreneurs. There
are very limited start-up enterprises based on technologies
or intellectual property from academic and R&D
institutions.
• Ministry of Small Industries and Development
Commissioner, have a wide network of technical, design,
training, pro-type development, testing etc., facilities all
over the country spread up to district levels. But, these
facilities need to be modernized and tuned to emerging
needs.

j m ovasdi 116
 Foreign Tie Ups and FDI
• Internationalization of SMEs usually refers to the SMEs
engaged in international businesses, have developed
cooperation, partnerships, linkages and networks with
foreign companies and institutions.
• Imports and exports tend to enhance the efficiencies,
capabilities, competitiveness and vision of SMEs.
• FDI is considered to be an important channel for
internationalization, besides catalyzing technology flows
and investments.
• Most countries are aiming at attracting larger FDI which
poses challenges and provide opportunities to SMEs.
• The domestic policies therefore need to be finely tuned to
take full advantage of FDI and international aid/support
measures or loans. However, the SMEs need to be growth
oriented and forward looking, with innovative capacities,
for internationalization.
j m ovasdi 117
 SME Global Survey
• A survey of over 8000 SMEs in Europe in 2003
revealed that internationalization spurs growth
and competitiveness (http://ec.europa.eu).
• The foreign supply relationships are the most
common forms of internationalization while
exporting is the next and some establish foreign
subsidies and branches. Access to know-how is a
frequent motive for going abroad.
• The study has revealed that smaller countries
with small domestic markets are more
internationalized. Further the study point to
three elements as crucial for developing holistic
measures with regard to internationalization.

j m ovasdi 118
 Problems – Current Issues
• SMEs’ managers often have limited time and management
skills. A policy measure should consider providing some
practical tasks to support the manager, especially in the
case of SMEs with low international experience.
• Studies indicate that SMEs often need specific, targeted
support. Such ‘customized’ support comprises, for instance,
assistance in identifying an appropriate foreign business
partner for a joint venture or collaboration.
• Moreover, recent studies indicate that SMEs’ awareness of
support measures is low due to the measures’ traditional
focus on export activities. The studies suggest that policy
measures, in order to be effective, need to focus on the
experience of the entrepreneur and on developing his/her
qualifications in a broad sense.

j m ovasdi 119
 Problems – Current Issues…
• Internationalization is more than just exporting.
Policy measures, whether general or company-
specific, need to encompass all the different
approaches to internationalization and the support
to include a wide range of international activities.
• Foreign partnerships, foreign investments and
cross boarder clustering represent new viable ways
to strengthen the international business strategies
of SMEs. Such diverse international activities may
integrate different business functions (i.e. R&D,
production and marketing) and thus involve
elements across the entire value chain.

j m ovasdi 120
 Problems – Current Issues…
• Most developing countries have adopted or are
adopting a liberalized FDI regime in various sectors of
development, though the degree of liberalization may
vary.
• In case of SMEs, several countries have opened up to
100% FDI while in some it is restricted, say up to 24%
in India, in general. Limited studies are available
(UNCTAD 1998) related to FDI flows to SMEs, specially
in developing countries.
• A study of technology financing through FDI, for SMEs
in India and other select countries, (Agarwal, 2005)
was carried out in 2004-05 at IIFT, based on the FDI
approvals of the government.
j m ovasdi 121
 Problems – Current Issues…
• This study indicated that FDI approvals for
SMEs accounted for about 6.0% of total
approvals while the amounts were about 2%
of the total amount approval.
• One can infer that FDI approvals were mainly
perhaps intended to internationalize markets
and technologies rather than investments.
The extent of amounts and the number of
approvals vary from sector to sector.

j m ovasdi 122
 Discussions
 
• A quick analysis of various studies and data
indicates that SMEs are going through a transition
phase and are generally restructuring their
strategies and capabilities to remain competitive
and grow in the emerging world trade
environment.
• The government are also evolving policies,
strategies and modes of implementation to
encourage and support SMEs for their growth,
capacity building and international
competitiveness.
• The issues and strategies vary with the level of
development and priorities in national economies.
j m ovasdi 123
 Discussions
• Some of the countries such as Republic of Korea, Singapore
and Taiwan have been able to adopt and implement new
policies and measures to promote and support SMEs more
successfully than many other countries. Innovation,
technology, productivity and quality, though inter-related,
are assuming greater significance for competitiveness in
manufacturing and businesses.
• Foreign Direct Investments (FDI), networking and technical
tie ups are being encouraged to facilitate access to newer
technologies, strengthening technological and
management capabilities, and access to market
information. Creation of training and skill up gradation
facilities, ICT applications, and sharing of risks in financing
and development, are the thrust areas.

j m ovasdi 124
 Discussions
• In India, effective implementation of policies
and delivery of results to the satisfaction of
the SMEs, remain much below than desired,
though there are a large number of
institutional mechanisms and support
measures available and concerns shown by
the government.
• There is a need to critically review the existing
policies and mechanisms, to assess the
constraints and gaps in delivering the desired
outputs.
j m ovasdi 125
 Discussions…
• For example, there are overlapping agencies and
programmes for development of technologies
and technological assistance to the SMEs, but the
SMEs continue to be weak in R&D, technology
development, acquisition and induction of new
technologies, productivity and quality among
other factors.
• The technology support programmes are largely
implemented from Delhi or the capitals of the
states and the awareness about programmes and
fiscal incentives available is limited among SMEs.
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 Discussions….
• Proposals of NMCC are praiseworthy, but the
implementation mechanisms are not clear, and
also the focused targets likely to be achieved.
Hopefully these proposals will not be just an
addition to the existing set of support measures,
without effective monitoring and assessment
mechanisms for the intended results.
• What is needed perhaps is a strong innovation &
technology development policy with legal
instruments for implementation, clearly meeting
the needs of SMEs at different stages of their
development.

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 Discussions….
• National Knowledge Commission has been
generally active in evolving strategies for
education and skill up gradation, and
employment or entrepreneurship
opportunities in ICT and other areas.
• Digital divide has been an area of concern but
at the same time offers opportunities for
SMEs.
• National Small Industries Commission is
engaged in evolving policy instruments and
mechanisms to utilize and support SMEs.
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 Needs of MSMEs
• Access to Latest Technologies --Most SMEs, need
easier access to new or modern technologies abroad,
technology support facilities and easier access to
finance, including technology finance, besides
marketing information and incentives for training and
skills development.
• Differentiated policies and mechanisms are needed
for SMEs in different sectors, stages of their
development, nature of operations.
• For example, the technological needs of SMEs in
traditional sectors such as food processing, leather
textiles, toys etc. would be different than those in new
and advanced technological areas such as micro-
electricals, pharma, precision instruments and so on.

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 Needs of MSMEs
• Strategies --There is a need to have short term
and long term strategies for enhancing
competitiveness of SMEs in one broad based
strategy.
• The R&D expenditure and technological
capacities of most of the SMEs would continue to
be limited because of their inherent constraints
in the resources and vision.
• The support structures should recognize this fact.
• However, the SMEs have enormous potential for
innovations and incremental development,
which need to be nurtured for production of
new goods and services at competitive costs.
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 Innovations --IT & Auto Parts
• The IT and auto-component SMEs are
examples of the successes through
innovations.
• Such policies should lead to wider dispersal of
economic benefits, capacity building, and
utilization of resources, creating employment,
etc. across the society.
• Economic, education, trade, technology and
society need to be interdependent.

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 Innovations --IT & Auto Parts…
• The SMEs development project should
recognize the needs of internationalizing
companies or those who have the potential to
internationalize, differently than those of
domestic oriented companies or stagnating
companies.
• The analysis of FDI data for SMEs in India tend
to show that some SMEs are internationalizing
or willing to internationalize through various
types of collaborations through FDI route
since the amounts involved are small.

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 Globalization and SMEs
• In the context of WTO and other emerging
trade mechanisms including Regional Trade
Agreements(RTAs), Free Trade
Agreements(FTAs) and bilateral or special
economic cooperation agreements, the
technological preparedness of SMEs need to
be studied and support mechanisms evolved
to overcome the gaps or constraints being
faced or likely to be faced by them in the
international businesses.

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 Globalization and SMEs
• In view of the wide variations in definitions of
SMEs in various economies, the harmonization of
definition of SMEs in India, with those in
developed or advanced developing countries
would facilitate international assistance for
technology transfer, development and evolving
measures for enhancing competitiveness in
export markets. Preparedness of SMEs for WTO
is still another issue. Innovations and trade
agreements are likely to be the thrust areas in
near future.

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 IT, ITEs & BPO SMEs becoming Global…
• January 2008 Survey report of Dun &
Bradstreet
• The small and medium enterprises (SMEs) in the
Indian IT space are confident of achieving 65
percent growth in the next two years, surpassing
43 percent growth rate posted for the last two
years (2006-7)
• The study titled 'Emerging IT SMEs of India 2007',
provides insights into 244 IT companies involved
in providing software and hardware products and
services. All the companies profiled were in the
below-Rs 100 million-turnover bracket during the
previous fiscal year.
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 IT, ITEs & BPO SMEs becoming Global…
• The study notes that close to 53 percent
of companies faced moderate problems
in acquiring funding and 43 percent felt
the proposed withdrawal of tax sops for
the IT, ITEs (IT enabled call centres), BPO
industry by 2009, will be significant in
terms of deciding future industry growth.

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 IT, Ites & BPO SMEs…
• Of the 437 locations, from which these 244
companies operate, Bangalore and Mumbai
emerged as the top locations for operations. 18
percent and 17.6 percent of the profiled
companies were operating from these two cities,
respectively.
• The overseas presence of 28 percent of the
sample audience encapsulated the changing
trend in the SMEs' perspective, which are now
willing to cross borders to pursue growth.
Companies with Rs 10-50 million turnover
accounted for almost 50 percent of the profiled
companies.
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 IT, Ites & BPO SMEs…
• IT SMEs in India are growing at a rate of about
30 percent YoY. This indicates that there is
huge growth opportunity in the market and IT
adoption is rapid within the SME space.
• The government seems to be the biggest
adopter of technology and has been one of
the key drivers for the growth of IT SMEs in
India.

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 Success of SMEs in India
• It can be observed that by and large, SMEs in
India met the expectations of the Government
in this respect.
• SMEs developed in a manner, which made it
possible for them to achieve the following
objectives:
• High contribution to domestic production
• Significant export earnings
• Low investment requirements

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 Success of SMEs in India…
• Operational flexibility
• Location wise mobility
• Low intensive imports
• Capacities to develop appropriate indigenous
technology
• Import substitution
• Contribution towards defense production
• Technology – oriented industries
• Competitiveness in domestic and export
markets
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 Limitations of SMEs
• At the same time one has to understand the
limitations of SMEs, which are:
• Low Capital base
• Concentration of functions in one / two persons
• Inadequate exposure to international environment
• Inability to face impact of WTO regime
• Inadequate contribution towards R & D
• Lack of professionalism
• In spite of these limitations, the SMEs have made
significant contribution towards
• technological development and exports.
• SMEs have been established in almost all-major
sectors in the Indian industry such as:

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 Reach of SMEs
• Food Processing
• Agricultural Inputs
• Chemicals & Pharmaceuticals
• Engineering; Electricals; Electronics
• Electro-medical equipment
• Textiles and Garments
• Leather and leather goods
• Meat products
• Bio-engineering
• Sports goods
• Plastics products
• Computer Software, etc.

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