Answer the following.
1) Explain the challenges before small business.
Small scale business is playing very important role in the development of developing countries. They faced the following challenges/difficulties:
1. Problems of Marketing: Small business organizations depend excessively on middlemen who many times exploit them by paying the low price and delayed payment. Further direct marketing may not be possible for them as they lack the necessary infrastructure. Major marketing problem is lack of advertising, nonbreeding of products, poor quality, transportation problem, local difficulties, competition, etc.
2. Infrastructural Problem: Problems of infrastructure faced by small business are power cuts, improper transport facility, a problem like traffic congestions, bottlenecks, strikes, rise in freight charges, inadequate space, bad repair of premises, unsuitable location, high rent, etc. These problems definitely affect the smooth working of small business.
3. Credit and Finance: Lack of finance is the major problem faced by small business. Artisans or Craftsmen running cottage industry take credits from Mahajan’s or traders who charge a 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.
4. Delayed Payment: They face the problem of delayed payment by large firms and Government departments.
5. 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 the unit has an imbalance in the financial structure; Sickness is generally seen in small business industries like cotton, jute, sugar, textile, etc. Internal causes of sickness are lack of skilled labour, faulty planning, the problem of recovery, etc. External causes of sickness are a shortage of capital, inadequate loans, shortage of raw material, etc. However, rehabilitation of sick unit is a costly affair.
6. Personal Problems: Personal problems like spending long hours to work and less time with family and the rewards have not been favourable.
7. Shortage of Raw Material: Shortage of raw material often takes 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 a lower rate. Thus, small business owners are subject to double exploitation.
8. 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 an increase in the cost of production, whereas productivity is low. Small units often do not care about the changing tastes and fashions of customers.
9. 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 an increase in the cost and wastage of resources.
10. Labour Problem: It includes highly demanding employees, absenteeism, lack of skilled workers and transportation of workers, strikes, high wage rates, inefficiency, etc.
2) Write down the benefits of small business.
Small scale business plays a very important role in the economic development of the country.
The following are the benefits or advantages of small business.
1. Cost Savings: Small scale business used a micro-production method which results in a quality product at the low cost of production. The production cost of a small business is much less compared to large scale industries due to the low cost of operation.
2. 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.
3. Limited Capital: As small business is labour intensive they requires very small amount of capital for plant and equipment.
4. 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 the good in a very short period of time and can increase the scale of production.
5. Labour Intensive: Small business units useless machines and more labours. Absorption of local labour helps to solve the problem of absolute poverty and control inequality of income.
6. Opportunities to Rural Youth: New generation youth has smart creativity. With available technology and raw materials, rural youth can start their own business unit. The small business unit plays a very important role in developing countries.
7. Upliftment of Economy: Majority of small scale business used the 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 the market which results in high income.
8. Decentralised Economy: Small scale business prevents the concentration of economic power in a few hands. Income is divided equally among a large number of people.
9. Export Earning: Small business contributes a remarkable to the country’s export. 40% of India’s exports are contributed by small business like textiles, handicraft, handloom, embroidery, etc.
10. Regional Balance: There is a wide gap between urban and rural India. Small scale business helps to reduce the gap between developed and underdeveloped or developing areas.
3) Explain the process of establishment of Small Scale industries.
In today’s world, youth are more attracted to business opportunities rather than employment.
To start a small scale industry following stages to be followed.
1. The idea to Setup a Business: This is a first step to start a small scale industry. The prospective entrepreneur with his own capacity decides the sized and type of business like a sole proprietorship, partnership or corporation.
2. 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.
3. Choice of Product: Entrepreneurs has to decide his sector of production i.e. Manufacturing or Service sector. After doing a market survey and understanding the advantages and disadvantages one should decide the line of product or services.
4. Location for Business: Entrepreneur has to select a location to start a business. It plays a very important role in the success of the business while selecting location many factors are to be taken into consideration like availability of labour, raw materials, power supply, transportation, etc.
5. Technology Selection: An entrepreneur has to select available and suitable technology for his business. He should select technology he 1s familiar to use.
6. 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 the economy, finance, marketing and profitability.
7. Capital Requirement: The entrepreneur has to plan for the capital requirement and sources available for Capital. It can be self-finance, a loan from relatives or banks.
8.Incorporation/Registration: It is compulsory for every small scale industry to register with the respective Government Authorities. A printed application form is available with District Industries Centre (DIC). The entrepreneur has to duly fill the information with his signature in the form and submit to DIC.
9. Implementation of Resources: After registration of business entrepreneur has to start with the production process.
(a) Financial Resources: The entrepreneur has to collect finance and make necessary arrangement for capital.
(b) Factor Set up: The entrepreneurs have to allocate space for various operations, purchase of machinery and tools and installation of it.
(c) Electric power and water supply: The entrepreneur has to calculate the total electric power requirement in KW (Kilowatt) and get a connection from the authority and supply for water connection.
(d) Appointment of staff: Small scale industries are labour, intensive. One has to appoint unskilled and semi-skilled staff as per the requirement to start production.
10. Manufacturing and Selling of Product: After assembling all financial and physical resources goods are manufactured and send to market for sale. Advertising and publicity play a very important role in marketing and selling of product.
11. Customer’s Feedback: Customer satisfaction is very important in business. Regular feedback from customers is helping to make qualitative changes in the product.
4) Explain the importance of small business.
Following are the importance of Small Business.
1. Supply of Raw Materials to Large Industries: Finished goods of Small Scale Industries is the raw material for large scale industries. E.g., headlights supplied to automobile industries. Small Scale Industries supply raw materials to large scale industries and they get easy market available to their product.
2. 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 a reduced regional imbalance between urban and rural areas.
3. Opportunities to Young Generation: Young generations by using their creative skills make the product unique in the market. Small scale business gives an opportunity to youngster to show their creativity and abilities to prove themselves
4. Large Employment: India is the 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 manpower to solve the employment problem.
5. The utilisation of Domestic Resources: Small farmers can start their own unit of the small industry by using locally available raw materials. He can get self employment and involve his family members too.
5) It is clear that the absence of capital and raw material is the main reason for the short term
sickness. Explain it.
Industrial sickness means the industry which has financial losses over a period of time. Short term sickness is a temporary phenomenon.
Followings are the main capital and raw material reasons for short term sickness:
1. Non-availability of Finance from Banks: Nationalised and Co-operative banks are not ready to finance SSI as there is less possibility of recovery of loans. Banks demand securities against loans, which is difficult to arrange for the small businessman.
2. Loans from Moneylenders: As bank finance is difficult to raise, small businessman borrow capital from money lenders who charged a very high rate of interest.
3. Shortage of Working Capital: Majority of small scale industries are depending on the local source of raw material which is seasonal. They have to buy a large quantity of raw materials to be used throughout the years which needs large finance.
4. 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:
1. A local source of raw material: Majority of small scale industries are depending on local supply of raw materials. Local suppliers of raw materials make artificial scarcity for the supply of raw materials which make an increase in product cost for the businessman.
2. Seasonal supply of raw materials: Small scale industries are using a local supply of raw materials. The supply of raw material is seasonal. They don’t have a huge capital to stock a large quantity of raw materials due to this they have to stop production of goods after the season ends and face the problem of short term sickness.
3. Shortage of raw material: There may be a short supply of raw materials due to natural calamities, transport strike, etc. affect the running of small scale industries.
4. Poor quality of raw material: There is no grading or standardizing of raw materials supply to scale industry. This affect product quality and quantity.