Chapter 3 Small Scale Industry and Business Solutions

Maharashtra State Board 11th Organisation of Commerce and Management Solutions Chapter 3 Small Scale Industry and Business

1. (A) Select the Correct option and rewrite the sentence

1. (B) Match the pairs

Answer:

1. (C) Give one word/phrase/term

1. (D) State True or False

1. (E) Find the odd one

1. (F) Complete the sentences

1. (G) Select the correct option

(Small Manufacturing Sector, Micro Manufacturing Sector, Micro Services Sector, Medium Manufacturing Sector, Small Services Sector)

Answer:

1. (H) Answer in one sentences

1. (I) Correct the underlined word and rewrite the following sentences.

1. (J) Arrange in proper order.

(a) Selection of a place
(b) Selection of a product
(c) Business proposal
(d) Selection of technology
Answer:
(a) Selection of a product
(b) Selection of a place
(c) Selection of technology
(d) Business proposal

2. Explain the following terms/concepts.

3. Study the following case/situation and express your opinion.

1. Mr. Ram wants to start Small Scale business of manufacturing parts of bicycle or machinery.

If Ram decides to start partnership firm than he will have to find a person who is ready to invest in his partnership firm as well as he has knowledge about manufacturing parts of bicycle. They can raise capital by investing their savings, borrowing through financial institutions and friends. They can also take help from various government schemes and institutions set-up to help SSI.

If Ram decides to start corporation i.e. Pvt. Ltd. Company than he can raise capital by issuing equity shares privately. He has to sell the shares to his friends and relatives. He can also study of various government schemes and raise capital through those schemes. Ram can also borrow money from bank, financial institutes, etc. He can also accept deposits from public in the further stage of his business.

To sale goods in market, advertising and publicity is required. To make your brand image in market, advertising with quality of goods is required. Branded goods are easily sold in the market. Marketing can be done through many ways like TV, Radio, Bill Boards, Internet, Websites, Salesman, etc.
Thus, marketing is a necessary step of running a business.

4. Answer in brief.

1. Job Opportunities : SSI is second largest industry which creates huge employment opportunities, because it can be operated with minimum amount of capital. SSI can be run with basic and potential skills. This is a boost for a labour surplus country like India.

2. Regional Balance : In India, all regions are not developed due to lack of industrialization. SSI can be setup with minimum amount of capital. Small industries manufactures product using simple technologies, local available resources, material and labour. Thus, they contribute significantly to the balanced development of the country.

3. Maximum use of Natural Resources : Small scale industries are labour intensive. They utilize available natural resources and raw materials from local areas. Such use of local natural resources minimizes the cost of production which result into reasonable price of goods.

4. Reduces Migration : Small Scale industries can create a large number of employment in rural area. SSI is also a best example of self-employment. Therefore, migration of people from rural to urban can be reduced or minimized.

1. Large Employment: Small Scale Industries has huge potential to create employment opportunities. They are labour intensive and use more labour than other factors of production. Their gestation period is also low and can provide employment opportunities to large number of people.

2. Less Capital Requirement : SSI requires less capital as compared to large scale industries. SSI can be started by small entrepreneurs with limited capital resources.

3. Contribution to Export : Nearly 40% of the industrial exports are contributed by SSI. Product such as hosiery, knitwear, gems and jewellery, handicraft, coir products, woolen garments, processed food, chemical and allied products and a large number of engineering goods contribute substantially to India’s exports. Products produced by SSI are used in the manufacturing of products by large scale industries which are exported. It contributes directly and indirectly to exports and helps to earn valuable foreign exchange.

4. Opportunities for Entrepreneurship : Small Scale Industries provide opportunities for entrepreneurs with limited capital as it requires less capital and lower investment in technology and machines as compared to large scale enterprises. Therefore, small entrepreneurs can start small scale industries easily.

1. Inadequate Finance : SSI generally begins with a small amount of capital. Many of the units in the small sector raise funds from capital market. These units frequently suffer from lack of adequate working capital.

2. Problem of Raw Material : Another major problem of Small Scale Industries is inadequate supply of raw materials. Due to that SSI have to compromise on the quantity and quality of raw material, or pay more, price for good quality of raw material.

3. Labour Problem : Small industries generally appoint unskilled and semi skilled worker on daily wages, This creates the problem of low labour productivity, higher absenteeism and poor job commitment. The wages are low due to financial limitations. This leads to labour dissatisfaction and increase the problem of labour turnover. Improper shifts and lack of job security makes employment in small industries unattractive and the talented work force does not opt for such job.

4. Marketing Problem : Marketing is a weaker part of small industries. SSI have to depend excessively on middlemen who at times exploit them by paying low prices and delayed payments. Further, direct marketing may not be feasible for small business firms as they lack the necessary infrastructure.

5. Justify the following statements.

6. Attempt the following.

MSMED has classified Small Scale Industries into Manufacturing sector and Services sector, and further into three categories of business i.e. Micro business, Small business and Medium business.
Subsequently over a period of time, a new definition was introduced by MSMED Act, 2006 (Micro Small and Medium Enterprises Development) is as follows
(A) Manufacturing Enterprises:

(B) Service Enterprises:

(ii) Balanced Development between Rural and Urban Areas : With the help of locally available raw materials and labour, more and more Small Scale Business can be started in rural areas. This helps to reduced regional imbalance between urban and rural areas.

(iii) Opportunities to Young Generation : Young generations by using their creative skills make product unique in the market. Small scale business gives an opportunity to youngster to show their creativity and abilities to prove themselves and achieve success in development.

(iv) Large Employment : India is second largest populated country after China, which faced problem of unskilled and semi skilled labour. Small Scale Industries operate with more labour and less capital, which can accommodate more man power to solve employment problem.

(v) Utilisation of Domestic Resources : Small farmers can start their own unit of small industry by using locally available raw materials. He can get self employment and involve his family members too.

(ii) Storage of Raw material: Small Scale Industries are agro based. Raw material is available seasonally. To stock goods they required huge finance. Due to lack of finance, they run industry only in seasons.

(iii) Lack of Skilled Labour : Only unskilled and semi skilled labourer are available. Small Scale Industries cannot afford labour cost of skilled labourer which affect quality and quantity of production and profitability.

(iv) Outdated technology : Due to insufficient capital, production methods used by SSI are old, which results in poor quality and quantity of output.

(v) Weaker Marketing Skill : In todays world marketing plays an important role. Rural area is facing marketing problem due to lack of facilities and knowledge and they are exploited by middlemen too.

(ii) Problems of Infrastructure: Problems of infrastructure faced by small business are power cuts, improper transport facility, problem like congestions, bottlenecks, strikes, rise in freight charges, inadequate space, bad repair of premises, unsuitable location, high rent, etc. These problems definitely affects smooth working of small business.

(iii) Underutilization of Capacity : Small Scale Industries cannot utilize optimum resources and capacity due to lack of marketing skills, lack of demand, etc. This lead to increase the cost of product and wastage of resources.

(iv) Lack of Capital: Nationalised and Co-operative banks are not ready to provide finance without securities. Owners of Small Scale Industries don’t have any option other than borrowings funds from landlords and money lenders where they have to pay very high rate of interest.

(v) Problem of Skilled Labourers : Mostly unskilled and semi skilled labourers are available to Small Scale Industries as they cannot afford the wages to highly skilled labourer. This affect quality and quantity of output which result in less price for sales.

7. Answer the following

(ii) Infrastructural Problem : Problems of infrastructure faced by small business are power cuts, improper transport facility, problem like traffic congestions, bottlenecks, strikes, rise in freight charges, inadequate space, bad repair of premises, unsuitable location, high rent, etc. These problems definitely affects smooth working of small business.

(iii) Credit and Finance : Lack of finance is the major problem faced by small business. Artisans or Craftsmen running cottage industry take credits from mahajans or traders who charge large amount of interest from them. For small scale industries, institutional source of finance (e.g. banks) is also available, but the funds allocated to this sector are inadequate.

(iv) Delayed Payment: They face problem of delayed payment by large firms and Government departments.

(v) Sickness Problem: According to RBI a sick unit is that which has incurred a cash loss for one year, is likely to continue it for current year as well as following years and unit has an imbalance in financial structure. Sickness is generally seen in small business industries like cotton, jute, sugar, textile, etc. Internal causes of sickness are lack of skill labour, faulty planning, problem of recovery, etc. External causes of sickness are shortage of capital, inadequate loans, shortage of raw material, etc. However, rehabilitation of sick unit is a costly affair.

(vi) Personal Problems : Personal problems like spending long hours to work and less time with family and the rewards have not been favourable.

(vii) Shortage of Raw Material : Shortage of raw material often take place due to reasons like natural calamities, transport problem, industrial strikes, poor quality of raw material, exploitation done by traders, etc. Traders or agents who supply raw material often exploit the owner by charging higher prices. They also insist on buying finished products at lower rate. Thus, small business owners are subject to double exploitation.

(viii) Outdated Technology : Use of low-grade technical know-how and skills have resulted in low productivity in small business industries. Many units in small business make use of primitive methods of production, this leads to increase in cost of production, whereas productivity is low. Small units often do not care about the changing tastes and fashions of customers.

(ix) Underutilization of Capacity : Small business units cannot utilize optimum resources and capacity due to lack of marketing skills, lack of demand, they work below full capacity, etc. This lead to increase the cost and wastage of resources.

(x) Labour Problem : It includes highly demanding employees, absenteeism, lack of skilled workers and transportation of workers, strikes, high wage rates, inefficiency, etc.

(ii) Adaptability : Small scale business can change themselves as per the market requirement. They can change product, line of product as per market changes, like fashions, new product, demand, etc.

(iii) Limited Capital : As small business is labour intensive they requires very small amount of capital for plant and equipments.

(iv) Low Gestation Period : To start a new business requires very short period as compared to large scale industries. Small scale business can start production of good in very short period of time and can increase the scale of production.

Labour Intensive : Small business units use less machines and more labours. Absorption of local labour helps to solve problem of absolute poverty and control inequality of income.

(vi) Opportunities to Rural Youth : New generation youth has smart creativity. With available technology and raw materials, rural youth can start their own business unit. Small business unit plays very important role in developing countries.

(vii) Upliftment of Economy : Majority of small scale business used traditional method of productions. Rural craftsman and artisans do have their own talents and skills which they have learnt from their forefathers. Such products are very much demanded in market which results in high income.

(viii) Decentralised Economy : Small scale business prevents concentration of economic power in the few hands. Income is divided equally among large number of people.

(ix) Export Earning : Small business contributes remarkable to country’s export. 40% of India’s exports are contributed by small business like textiles, handicraft, handloom, embroidery, etc.

(x) Regional Balance : There is wide gap between urban and rural India. Small scale business helps to reduce gap between developed and underdeveloped or developing areas.

(ii) Analysis of Business Surrounding : It is necessary to understand different business surrounding and policies before starting any business. They are competitors, legal, economical, industrial, technological, etc.

(iii) Choice of Product : Entrepreneurs has to decide his sector of production i.e. Manufacturing or Service sector. After doing market survey and understanding advantages and disadvantages one should decide line of product or services.

(iv) Location for Business : Entrepreneur has to select location to start business. It plays very important role in success of business while selecting location many factors are to be taken into consideration like availability of labour, raw materials, power supply, transportation, etc.

(v) Technology Selection : An entrepreneur has to select available and suitable technology for his business. He should select technology he is familiar to use.

(vi) Project Appraisal : It means the study and assessment of a project. One should study the project very carefully from the point of view regards to economy, finance, marketing and profitability.

(vii) Capital Requirement : The entrepreneur has to plan for capital requirement and sources available for capital. It can be self finance, loan from relatives or banks.

(viii) Incorporation / Registration : It is compulsory for every small scale industry to registered with the respective Government Authorities. A printed application form is available with District Industries Centre (DIC). Entrepreneur has to duly filled the information with his signature in the form and submit to DIC.

(ix) Implementation of Resources : After registration of business entrepreneur has to start with production process:

(x) Manufacturing and Selling of Product : After assembling all financial and physical resources goods are manufactured and send to market for sale. Advertising and publicity plays very important role in marketing and selling of product.

(xi) Customer’s Feedback : Customer satisfaction is very important in business. Regular feedback from customers is helping to make qualitative changes in product.

(ii) Balanced Development between Rural and Urban Areas : With the help of locally available raw materials and labour, more and more Small Scale Business can be started in rural areas. This helps to reduced regional imbalance between urban and rural areas.

(iii) Opportunities to Young Generation : Young generations by using their creative skills make product unique in the market. Small scale business gives an opportunity to youngster to show their creativity and abilities to prove themselves and achieve success in development.

(iv) Large Employment : India is second largest populated country after China, which faced problem of unskilled and semi skilled labour. Small Scale Industries operate with more labour and less capital, which can accommodate more man power to solve employment problem.

(v) Utilisation of Domestic Resources : Small farmers can start their own unit of small industry by using locally available raw materials. He can get self employment and involve his family members too.

(ii) Loans from Money lenders : As bank finance is difficult to raise, small businessman borrow capital from money lenders who charged very high rate of interest.

(iii) Shortage of Working Capital : Majority of small scale industries are depend on local source of raw material which is seasonal. They have to buy large quantity of raw materials to be used through out the years which needs large finance.

(iv) Unawareness of various Government Schemes : Due to lack of awareness among the owners of SSI about various Government Scheme for capital marketing, subsidies, etc. suffer capital problems.

Raw Material:
(i) Local source of raw material : Majority of small scale industries are depends on local supply of raw materials. Local suppliers of raw materials make artificial scarcity for supply of raw materials which make increase in product cost for the businessman.

(ii) Seasonal supply of raw materials : Small scale industries are using local supply of raw materials. The supply of raw material is seasonal. They don’t have huge capital to stock large quantity of raw materials due to this they have to stop production of goods after season ends and face problem of short term sickness.

(iii) Shortage of raw material : There may be short supply of raw materials due to natural calamities, transport strike, etc. affect the running of small scale industries.

(iv) Poor quality of raw material : There is no grading or standardizing of raw materials supply to small scale industry. This affect product quality and quantity.