WHAT IS TREND ANALYSIS?

Trend analysis is employed when it is required to analyze the trend of data shown in a series of financial statements of several successive years. The trend obtained by such an analysis is expressed as percentages. Trend percentage analysis moves in one direction either upward or downward progression or regression. This method involves the calculation of percentage relationship that each statement bears to the same item in the base year. The base year may be any one of the periods involved in the analysis but the earliest period is mostly taken as the base year. The trend percentage statement is an “analytical device for condensing the absolute rupee data” by comparative statements.

Merits of Trend Analysis:

• Trend percentages indicate the increase or decrease in an accounted item along with the magnitude of change in percentage, which is more effective than the absolute data.
• The trend percentages facilitate an efficient comparative study of the financial performance of a business enterprise over a period of time.

Demerits of Trend Analysis:

• Any one trend by itself is not very analytical and informative.
• If interpretation has to be done on percentages and ratios in isolation and not along with the absolute data from which the percentages have been derived, the inferences tend to be absurd and baseless.
• Comparability of trend percentages is unfavorably affected when the accounts have not been drawn on a consistent basis year after year and when the price level is not constant.
• During inflationary periods the data over a period of time becomes incomparable unless the absolute rupeee data is adjusted.
• There is always the danger of selecting the base year which may not be representative, normal and typical.
• Though the trend percentages provide significant information, undue importance and emphasis should not be laid down on the percentages when there is a small number in the base year. In such cases even a slight variation will be magnified by the percentage change.

Uses of Trend Analysis

• It indicates the increase or decrease in an accounted item along with the magnitude of change in percentage, which is more effective than absolute data.
• The trend percentage facilitates an effective comparative study of the financial performance of a business enterprise over a period of time

WHAT IS PREFERENCE SHARE CAPITAL?

Preference capital represents a hybrid form of financing – it takes some characteristics of equity and some attributes of debentures.

It resembles equity in the following ways:

1. (i)      Preference dividend is payable only out of distributed profits
2. (ii)  Preference dividend is not an obligatory payment (the payment of preference dividend is entirely within the discretion of the directors)

Preference capital is similar to debentures in several ways:

(i)          The dividend rate of preference capital is usually fixed

(ii)        The claim of preference shareholders is prior to the claim of equity shareholders

(iii)      Preference shareholders do not normally enjoy the right to vote

ADVANTAGE AND DISADVANTAGE OF PREFERENCE CAPITAL

Preference Capital has the following Advantages:

1) There is no legal obligation to pay preference dividend. A company does not face bankruptcy or legal action if it skips preference dividend.

2) There is no redemption liability in the case of perpetual preference shares. Even in the case of redeemable preference shares, financial distress may not be much because:

(i)                 Periodic sinking fund payments are not required

(ii)               Redemption can be delayed without significant penalties

3) Preference capital is generally regarded as part of net worth. Hence, it enhances the creditworthiness of the firm.

4) Preference shares do not, under normal circumstances, carry voting right. Hence, there is no dilution of control.

Preference Capital, however suffers from some serious shortcomings:

1) Compared to debt capital, it is an expensive source of financing because the dividend paid to preference shareholders is not, unlike debt interest, a tax-deductible expense.

2) Though there is no legal obligation to pay preference dividends, skipping them can adversely affect the image of the firm in the capital market.

3) Compared to equity shareholders, preference shareholders have a prior claim on the assets and earnings of the firm.

WHAT IS OPERATING CYCLE FOR WORKING CAPITAL?

The operating cycle is the length of time between the company’s outlay on raw materials, wages and other expenditures and the inflow of cash from the sale of the goods. In a manufacturing business, operating cycle is the average time that raw materials remain in stock less the period of credit taken from suppliers, plus the time taken for producing the goods, plus the time goods remain in finished inventory, plus the time taken by customers to pay for the goods.

Operating cycle concept is important for management of cash and management of working capital because the longer the operating cycle the more financial resources the company needs. Therefore, the management has to remain cautious that the operating cycle should not become too long. The stages of operating cycle could be depicted through the figure given:

The above figure would reveal that operating cycle is the time that elapses between the cash outlay and the cash realization by the sale of finished goods and realization of sundry debtors. Thus cash used in productive activity, often some times comes back from the operating cycle of the activity. The length of operating cycle of an enterprise is the sum of these four individual stages i.e. components of time.

WHAT IS WEIGHTED AVERAGE COST OF CAPITAL?

The term cost of capital means the overall composite cost of capital defined as “weighted average of the cost of each specific type of fund. The use of weighted average and not the simple average is warranted by the fact that proportions of various sources of funds in the capital structure of a firm are different.

Therefore the overall cost of capital should take into account the weighted average. The weighted cost of capital based on historical weights takes into account a long-term view.

The term cost of capital, as the acceptance criterion or investment proposals, is used in the sense of the combined cot of all sources of financing. This is mainly because focus is on the valuation of the firm as a whole. It is related to the firm’s objective of wealth maximization.

Thus, the weighted average cost of funds of a company is based on the mix of equity and loan capital and their respective costs. A distinction is usually drawn between the average cost of all funds in an existing balance sheet and the marginal cost of raising new funds.

CASH FLOW VS FUNDS FLOW

CASH FLOW - A Cash Flow Statement is a statement which shows inflows and outflows of cash and cash equivalents of an enterprise during a particular period. It provides information about cash flows, associated with the period’s operations and also about the entity’s investing and financing activities during the period.

FUND FLOW – Fund Flow Statement also referred to as the statement of “Source and Application of Funds” provides insight into the movement of funds and helps to understand the changes in the structure of assets, liabilities and equity capital.,

A fund flow statement is different from cash flow statement in the following ways –

• Funds flow statement is based on the concept of working capital while cash flow statement is based on cash which is only one of the element of working capital. Thus cash flow statement provides the details of funds movements.
• Funds flow statement tallies the funds generated from various sources with various uses to which they are put. Cash flow statement records inflows or outflows of cash, the difference of total inflows and outflows is the net increase or decrease in cash and cash equivalents.
• Funds Flow statement does not contain any opening and closing balance whereas in cash flow statement opening as well as closing balances of cash and cash equivalents are given.
• Funds Flow statement is more relevant in estimating the firm’s ability to meet its long-term liabilities, however, cash flow statement is more relevant in estimating the firms short-term phenomena affecting the liquidity of the business.
• The Cash Flow statement considers only the actual movement of cash whereas the funds flow statement considers the movement of funds on accrual basis.
• In cash flow statement cash from the operations are calculated after adjusting the increases and decreases in current assets and liabilities. In funds flow statement such changes in current items are adjusted in the changes of working capital.
• Cash flow statement is generally used as a tool of financial analysis which is utilized by the management for short- term financial analysis and cash planning purposes, whereas funds flow statement is useful in planning intermediate and long-term financing.

FUND FLOW STATEMENT

Fund flow statement also referred to as statement of “source and application of funds” provides insight into the movement of funds and helps to understand the changes in the structure of assets, liabilities and equity capital. The information required for the preparation of funds flow statement is drawn from the basic financial statements such as the Balance Sheet and Profit and loss account. “Funds Flow Statement” can be prepared on total resource basis, working capital basis and cash basis. The most commonly accepted form of fund flow is the one prepared on working capital basis.

What are the Advantages of Fund Flow Statements?

Advantages of fund flow are as follows:

• management of various companies are able to review their cash budget with the aid of fund flow statements
• Helps in the evaluation of alternative finance and investments plan
• Investors are able to measure as to how the company has utilized the funds supplied by them and its financial strengths with the aid of funds statements.
• It serves as an effective tool to the management of economic analysis
• It explains the relationship between the changes in the working capital and net profits.
• Help in the planning process of a company
• It is an effective tool in the allocation of resources
• Helps provide explicit answers to the questions regarding liquid and solvency position of the company, distribution of dividend and whether the working capital is effectively used or not.
• Helps the management of companies to forecast in advance the requirements of additional capital and plan its capital issue accordingly.
• Helps in determining how the profits of a company have been invested: whether invested in fixed assets or in inventories or ploughed back.

RATIO ANALYSIS

Ratio analysis is the method or process by which the relationship of items or groups of items in the financial statements are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measures or guides concerning the financial health and profitability of the business enterprise. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of the analyst but the group of ratios he would prefer depends on the purpose and the objectives of the analysis.

Accounting ratios are effective tools of analysis. They are indicators of managerial and overall operational efficiency. Ratios, when properly used are capable of providing useful information. Ratio analysis is defined as the systematic use of ratios to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined the term ratio refers to the numerical or quantitative relationship between items/ variables. This relationship can be expressed as:

1)      Fraction

2)      Percentages

3)      Proportion of numbers

These alternative methods of expressing items which are related to each other are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that computing the ratio does not add any information in the figures of profit or sales. What the ratios do is that they reveal the relationship in a more meaningful way so as to enable us to draw conclusions from them.

ADVANTAGES OF RATIO ANALYSIS

• Ratios simplify and summarize numerous accounting data in a systematic manner so that the simplified data can be used effectively for analytical studies.
• Ratios avoid distortions that may result the study of absolute data or figures
• Ratios analyze the financial health, operating efficiency and future prospects by inter-relating the various financial data found in the financial statement.
• Ratios are invaluable guides to management. They assist the management to discharge their functions of planning, forecasting, etc. efficiently.
• Ratios study the past and relate the findings to the present. Thus useful inferences are drawn which are used to project the future.
• Ratios are increasingly used in trend analysis.
• Ratios being measures of efficiency can be used to control efficiency and profitability of a business entity.
• Ratio analysis makes inter-firm comparisons possible. i.e. evaluation of interdepartmental performances.
• Ratios are yard stick increasingly used by bankers and financial institutions in evaluating the credit standing of their borrowers and customers.

LIMITATIONS OF RATIO ANALYSIS:

An investor should caution that ratio analysis has its own limitations. Ratios should be used with extreme care and judgment as they suffer from certain serious drawbacks. Some of them are listed below:

1. Rations can sometimes be misleading if an analyst does not know the reliability and soundness of the figures from which they are computed and the financial position of the business at other times of the year. A business enterprise for example may have an acceptable current ratio of 3:1 but a larger part of accounts receivables comprising a great portion of the current assets may be uncollectible and of no value. When these are deducted the ratio might be 2:1

2. It is difficult to decide on the proper basis for comparison. Ratios of companies have meaning only when they are compared with some standards. Normally, it is suggested that ratios should be compared with industry averages. In India, for example, no systematic and comprehensive industry ratios are complied.

3. The comparison is rendered difficult because of differences in situations of 2 companies are never the same. Similarly the factors influencing the performance of a company in one year may change in another year. Thus, the comparison of the ratios of two companies becomes difficult and meaningless when they are operation in different situations.

4. Changes in the price level make the interpretations of the ratios Invalid. The interpretation and comparison of ratios are also rendered invalid by the changing value of money. The accounting figures presented in the financial statements are expressed in monetary unit which is assumed to remain constant. In fact, prices change over years and as a result. Assets acquired at different dates will be expressed at different values in the balance sheet. This makes comparison meaningless.

For e.g. two firms may be similar in every respect except the age of the plant and machinery. If one firm purchased its plant and machinery at a time when prices were very low and the other purchased when prices were high, the equal rates of return on investment of the two firms cannot be interpreted to mean that the firms are equally profitable. The return of the first firm is overstated because its plant and machinery have a low book value.

5. The differences in the definitions of items, accounting, policies in the balance sheet and the income statement make the interpretation of ratios difficult. In practice difference exists as to the meanings and accounting policies with reference to stock valuation, depreciation, operation profit, current assets etc. Should intangible assets be excluded to calculate the rate of return on investment? If intangible assets have to be included, how will they be valued? Similarly, profit means different things to different people.

6. Ratios are not reliable in some cases as they many be influenced by window / dressing in the balance sheet.

7. The ratios calculated at a point of time are less informative and defective as they suffer from short-term changes. The trend analysis is static to an extent. The balance sheet prepared at different points of time is static in nature. They do not reveal the changes which have taken place between dates of two balance sheets. The statements of changes in financial position reveal this information, bur these statements are not available to outside analysts.

8. The ratios are generally calculated from past financial statements and thus are no indicator of future. The basis to calculate ratios are historical financial statements. The financial analyst is more interested in what happens in future.

While the ratios indicate what happened in the past Art outside analyst has to rely on the past ratios which may not necessarily reflect the firm’s financial position and performance in future.

INNOVATION

Innovation builds creativity when something new, tangible and value creating is developed from the ideas, innovation can be focused on the theme of being better-incremental improvements-as well as the theme of being radically different. The former will often form the world of the entrepreneur, who us attempting to make his or her organization d stronger than his rivals .The later is often ,but certainly not always, reserved for the true entrepreneur, who is more concerned with doing something genuinely new and different rather than improving on ideas that have gone before.

Innovation is about seeing the creative new idea through to completion, to final application but, of course, this will not necessarily be a business. It is the entrepreneur who builds a business around the idea and innovation. Both can e difficult roads and require courage and perseverance as well as creativity and imagination. These are attributes that the entrepreneur brings and his or her role in innovation is crucial.

There are the basic approaches with innovation, which are not mutually exclusive, and we have seen illustrated in the stories in part two. First, it is possible to have a problem and to be seeking solution, or at least a resolution.

Edwin Land invented Polaroid camera because his young daughter could not understand why she had to wait for the pictures to be printed when he took her photograph. Second, we might have an idea in effect a solution and be searching for a problem to which it can be applied 3Ms. Post- it notes happened when a 3m employee created a glue with only loose sticking properties, and a college applied it to a need he had for making page in a manuscript. Third, we might identify a need and design something that fits.

James Dyson’s dual cyclone cleaner came about because of his frustration with his existing machine, which was providing inadequate for cleaning up the dirt and dust he generated when he converted an old property. Generating opportunities form ideas requires us to attribute meaning to the ideas. Ideas from in our minds and at this stage they mean something to us, personally. Typically, they became a real opportunity when we expose the ideas and share them with other people, who may well have different perceptions, attribute different meanings and see something we miss initially. This process of exploration is fundamental for determining where the opportunities for building new values are. In other words, innovation comes from the way we use our ideas.

Crucially the person with the initial idea may not be the person who realizes where the real opportunity lies. An inventor is not always an opportunity spotter and often not a natural project champion. Picasso claimed that great people steal ideas and create opportunities where others cannot see the potential. Creativity is the talent of the inventor and innovation is the talent of the project champion who turns ideas into reality. Entrepreneurs do both these things but they do more. They do not just complete the successful application of an idea; they build something of value in the process.

The Sony walkman provides an excellent illustration of what happens. The idea came to Sony co- founder Akio Morita when he was questioning why he was finding it difficult to listen to music when he was in public places or walking round a golf course. The idea became an innovative new product and a valuable opportunity when Morita shared his idea with other colleagues in Sony, and existing technologies and competencies were used to develop the compact personal radio with adequate playing time from its batteries and individual headphones.

The project was championed, resourced and implemented. Personal cassette and CD players have systematically joined the original radio. It was simply a great idea that rejuvenated Sony at the time it was conceived; and it has brought value and affected the lives of millions of people around the world. This endeavors to pull the stand together. Creativity (the idea) is the starting point whether it is associated with invention or opportunity spotting. This creativity is turned to a practical reality (a product, for example) through innovation. Entrepreneurship then sets that innovation in the context of an enterprise (the actual business), which is something of recognized value.

To be exploited fully and effectively, creativity and innovation need to be supported by certain talents and aspects of temperament. We also need a base of knowledge, which we use to help generate and develop our new ideas. In part of this is developed through our experiences but it also needs to be supplemented further by certain key skills. In very simple terms, talent and temperament combined with knowledge helps us find out and discover new possibilities. Key skills can enhance the discovery process, whilst other skills help us design and craft new opportunities from the ideas.

CREATIVITY

Creativity implies conceptualizing, visualizing or bringing into being something that does not yet exist. It is about curiosity and observation. In the history of science, there are interesting examples of creativity occurring at the same time with no contact between the individuals involved. Newtonand Leibritz created the mathematics of calculus in the seventeenth century quite independently of each other, despite their allegations of plagiarism. Creativity seems to come “out of the blue” triggered by a problem to be solved or an idea to be expressed. Its roots and origins are mysterious and unknown but its existence cannot be denied. This meta- physical aspect has meant that science has shied away from the topic though it is now becoming a subject of serious study among cognitive scientists and experimental psychologists.

Entrepreneurs are familiar with ideas that suddenly come to mind and are not too concerned with their origins. This is the starting point of the entrepreneurial process. We see creativity as a talent, an innate ability, though we recognize that it can be developed and that there are techniques that promote creativity and problem solving. Creativity is also a function of how people feel. Some are more creative under pressure whilst others need complete relaxation. Some use divergent thinking in their creativity whilst others prefer convergent thinking.

One thing that seems common to all forms of creativity is joy. Einstein comments that the idea that the gravitational field has only a relative existence was the happiest thought of my life. His creative genius had come up with the idea of relativity and it made him happy. There is an intense personal satisfaction in having come up with something new and novel. This is one reason why entrepreneurs see their activities as fun. There is the joy of creativity all around them. For the entrepreneur, creativity is both the starting point and the reason for continued success. It is the secret formula by which he or she overcomes obstacles and outsmarts the competition. Arguably every one of us has the ability to be creative but do we all use and exploit this ability? Many of us simply do not act creatively much of the time. Possibly we are not motivated and encouraged perhaps we do not believe in ourselves and the contribution and difference we could make. There is certainly a skills and technique element to creativity- in a business context, for example, we can be taught creative thinking and behaviour in the context of decision making but this is clearly only part of the explanation. The issue of making is also a critical element.

Many people have the ability to play a musical instrument. They have a skill and possibly natural talent and they can be taught more skills and techniques whilst they are willing to persevere and practice. Furthermore, some people who play music naturally appreciate the meaning the composer was trying to convey when the work was written. Others have to be taught this interpretation. Some people simply see things that others cannot until they are given a detailed explanation. The same implies to opportunity spotting. People who miss the valuable opportunities that others see first often have access to the same information but it means something different to them.

Discovery consists of looking at the same thing as everyone else and thinking something different. In just the same way many young people can dribble, head and pass a football, and their skills can be improved with coaching. But when they watch a football match or play in one are they able to see the whole game? Can they spot goal scoring opportunities and positions and get there ahead of a defender? Most people who watch team sports such as football simply follow the movement of the ball exactly as the television camera tends to do. They ignore or miss the emerging patterns as the other player’s move of the ball in search of good positions. This partially explains why we do not all seem to see the same game evolve, even though we are present at the same match.

ENTREPRENEURSHIP AS A CATALYST FOR MEETING GLOBAL CHANGES AND CHALLENGES

The relationship between entrepreneurship and economic growth development has already been analyzed. The later is the result of entrepreneurship. Every process of economic growth/ development is the outcome of changes that occur in various spheres. Infact one cannot imagine either of them without a change. Change is therefore the essence of growth and development. Entrepreneurs are some times called carriers or agents of change. It is in this context that entrepreneurs are known as catalysts of change. In the capacity of catalyst an entrepreneur reaches for opportunities and areas- where changes can be expected and are necessary. An innovative entrepreneur is instrumental in bringing about a change. He introduces new ideas, new techniques, new combinations, discovers new sources of supplies etc. An imitating entrepreneur on the other hand uses the changes launched by others.

Changes and entrepreneurship go together. Drucker says, “Entrepreneurs see changes as the norm and all healthy. Usually they do not bring about the changes themselves. But the entrepreneur always searches for change, responds to it and exploits it as an opportunity”. Entrepreneurs have to play an important role- the role of catalysts in the new international scenario that is going to open the economy to new areas and prospects.

Entrepreneurs are supposed to visualize and utilize the opportunities that are going to occur. The world trade is going to open doors to new challenges. New and changed approaches will have to be adopted for meeting these challenges successfully. As a catalyst an entrepreneur will have to:-

• Foresee prospect changes in the global economic and social environment. He will also have to be instrumental in bringing about changes.
• Absorb new inventions and innovations in the technological sphere as technology plays an important role in the world of trade and commerce.
• Initiate new activities in both business and non- business spheres. In the capacity of an innovative entrepreneur. He has to introduce new combination of resources, come up with bright ideas to utilize underutilized resources, to put them to multiple uses and apply them to new and unknown activities.
• Bring about an attitudinal change in the minds of the people and the society in general. A conservative and religious society or a society that is bound by customs and traditions cannot take full advantage of entrepreneurial opportunities. An entrepreneur may have to strive to convert the society into a dynamic, rational and a progressive one. He may have to influence the government into bringing about economic reforms of various types for exploiting global opportunities.
• Exploit change and use it not only for his and for the benefit of his organization but also for the benefit of his economy.

Entrepreneurs play a crucial role in the development of an economy. They play the role of catalysts of change and are capable of converting an underdeveloped economy into a developing one and a developing economy into a developed one.

Global changes and challenges may be compared to a knife. A knife when used properly brings benefits or serves as a tool for work. The same knife can cut and harm if used wrongly. Entrepreneurs have to convert global changes and challenges into opportunities, exploit them effectively and intelligently so that the economy emerges a winner, a beneficiary of globalization and not as its victim.

CHANGING ROLE OF ENTREPRENEURSHIP IN THE ERA OF LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION

Challenges of liberalization, privatization and globalization call upon the entrepreneurship to play a more creative and dynamic role than ever before. Entrepreneurship can now set the goal of making India a developed country. They need not just aspire but make it a mission take it up and accomplish it. Ignited mind of entrepreneurs can be powerful resources, which can help India, becoming a big economic power in the years to come. It is indeed characteristic of entrepreneurs to have foresight, a vision and skill to see an opportunity and exploit it.

Globalization, which means integration with the world economy, brings the influence of external sources into our society. Experts have pointed out that these are economic of trade or market forces and the have a beneficial influence in developing our core competencies in area which have a competitive advantage. As already discussed we have a good scope for developing our services. Entrepreneurs have to exploit this opportunity and with their sense of efficiency help the service sector to start, grow and develop perfectly. Direct linkages of technology to the nation’s strategic strengths are becoming clear since the last decade. Entrepreneurs have to realize that technology is the core strength of our nation and therefore help it get on the path of technological development.

By core strength and competency it is meant that in certain areas we have inherent strength and therefore show better result in a shorter period of time. Indian human resource based is one of the greatest core competencies. Indiais known for  A-1 class entrepreneurs. The Indian entrepreneurial history is rich with examples or entrepreneurs who have contributed towards India’s economic activity even during the colonial rule and in the face of all opposition. Indians not only have a greater learning capability but also competitive entrepreneurial spirit. It is this spirit that is to be released to meet the challenges of 21st century.

India has the core strength of its natural resources. It is abundant supplies of most of them; it has a vast coast line, which stores resource and energy supply. The can become our future strength if entrepreneurs, exploit them and put them to productive use. Entrepreneur’s role is even called upon to explore undersea resources.

Services in Indiahave a vast scope of development in India. Entrepreneurs are called upon to study and identify India’s strong base and to initiate activities in those specific areas, there are technologies that dramatically change India’s social and economic conditions. Indiacan excel and usher in a new era in agriculture. India can emerge as a global power in terms of agricultural produce and agro- based industries.

Entrepreneurs have the p [potential to explore the spirit of adventure, the capability to initiate, organize and undertake risks and the ability to face challenges. It is the role of an entrepreneur that is called upon in this new era the role of innovating and imitating entrepreneurs. The slogan of the entrepreneurs in the new international scenario, in the words of Subrahmanya Bharathi can be

“We will take many mines,

And take out gold and many other things,

And go eight directions to sell these,

And bring home many things!”

Changing role of entrepreneurs may be summed up as follows:

In the era of liberalization, privatization and globalization, an entrepreneur will have to

• Explore and exploit opportunities for trade in the world economy
• Discover, utilize, and develop the core strength of the economy.
• Conduct R&D activities to meet the global standards
• Improve the quality of technology and quality of manufacture to be able to complete well with foreign competition.
• Reduction of cost of production to make the product/service available at a competitive price.
• Undertake advertising, sales promotion, marketing, packaging effectively for capturing foreign markets.
• Develop new products, new areas of production for widening the countries trade.
• Search new markets and capture more and more markets.
• Expanding the geographical base of the marketing.
• Increase production to accelerate economic growth rate
• Come up with innovative ideas to solve financial, economic and other problems of the countries.
• Play the role of imitating entrepreneurs i.e. study the latest changes in the advanced countries- and use them gainfully.
• Utilize the underutilized/ unutilized capacity so that full benefits can be enjoyed e.g. Hydropower capacities are still unutilized.

SCOPE FOR ENTREPRENEURSHIP IN SMALL BUSINESS SECTOR

Small- scale business provides good scope for the growth of entrepreneurial activities .An entrepreneur has good opportunity and vast scope in selling service rather than manufacturing a product. The entrepreneur can achieve better results if the size of the business is small. It is for this reason that small firms have higher productivity, greater efficiency and low labour turnover.

The scope for entrepreneurial activities in small business sector can broadly be classified into:

1. Industrial sector
2. Agricultural and allied industrial sector
3. Service sector

INDUSTRIAL SECTOR

Small scale industries occupy an important place in the industrial sector. They have contributed over 40% in the gross industrial production in 1998.

Small- scale industries: The basic objectives underlying the development of small- scale are the increase in the supply of manufactured goods, promotion of capital information the development of indigenous entrepreneurial talents and skills and the creation of broader employment opportunities. This sector provides a wider scope for the potential entrepreneur to develop his or her own industry. There is a good scope and enormous potential to use technology based products in the small- scale sector. An entrepreneur can exploit a profitable venture in any of the industries reserved for exclusive department under the small- scale sector. There are as many at 384 items for exclusive purchase from the small- scale industries.

Small- scale industries play an important role in increasing the national income, in meeting the shortage of consumer’s goods, in promoting balanced regional development, in reducing inequalities in the distribution of income and wealth and in relieving the economic pressure on land and over crowding in urban areas. Outdated technology, shortage of finance, shortage of raw material and inadequate marketing facilities are some of the problems faced by small entrepreneurs.

AGRICULTURAL AND ALLIED INDUSTRIAL SECTOR

There is a vast cope for entrepreneurial activities in the agricultural sector. By establishing a link between agriculture and allied industries, the rural entrepreneur can exploit opportunities in areas of farming, agricultural processing and marketing. The government has given priority to IRDP programme and ensured adequate flow of credit to small and marginal farmers through re-financing facilities and by establishing national bank for agriculture and small development.

Trade: Trading takes place in wholesaling and retailing. It may be in domestic or overseas market. The retailer entrepreneur makes the goods available at the time and places the consumer wants them. He may decide to start single line store, specialty shop, departmental store etc. trade in overseas market is in wholesale. The business environment directly influences the growth of entrepreneurship in a particular line of trade. The trade policy of India has been directed to promote export. Hence incentives and facilities have been provided to the entrepreneurs to motivate them to develop export.

SERVICE SECTOR

The service sector has gained importance for the entrepreneurs because of its rapid expansion. Service sector includes all kinds of business and provides opportunities to the entrepreneurs in business such as hotels, tourist services, personal services such as dry cleaning, beauty shops, photographic studies, auto repair, electric repair shops, wielding repair etc.

Transport: They provide time and place utilities in urban and rural areas to both men and material. The different modes or transport are of immense importance in the areas, which are not served by roads and railways. There is a scope for entrepreneur to design prototypes of new carts with the application of indigenous technology so that they may have better mobility and greater carrying capacity. The primary need in the rural area is an efficient system of road transport.

The rural economy has a good opportunity for an entrepreneur to develop some business. They can exploit possibilities for a venture in some shops or services. Entrepreneurship flourishes in small business sector for they have enormous opportunities in manufacturing and non- manufacturing activities The government is keen in encouraging the competitive strength of the small scale producers and it has taken a number of measures such as:-

• The establishment of a network of industrial estates through ought the country where work sheds equipped with the necessary facilities made available to prospective entrepreneurs on subsidized rental basis.
• The reservation of a number of products for the exclusive production to small sector
• The introduction of ancillarization programme under which large and small industries are to be linked in a harmonious productive relationship
• The supply of machines on hire purchase basis to the small entrepreneurs on easy terms of payment
• Technical counseling to small units so as to improve their efficiency and viability
• These are golden opportunities for the prospective entrepreneurs to self employed independent businessman. The future is very bright.

ENVIRONMENTAL ANALYSIS

This integrated approach which is the key to the development of backward areas implies a very careful environment analysis or research study of the target groups of beneficiaries, their activities and differential needs and the practical modes of operation by which their activities can be linked with the covering enterprise. Unless these studies are made meticulously, the entire planning will only give unproductive results. Most of the development schemes fail to benefit the target clientele because elaborate linkages are not identified and built up. An imaginative study should

1. Identify the beneficiaries or target groups.
2. Analyze the environment for immediate feasible enterprises in an integrated manner.
3. Delineate the linkages and institutional arrangements.
4. Recommend appropriate organizational structures to provide necessary promotional support.

Unfortunately, in most of the studies on backward areas, there is a tendency to make generalizations and ignore the specific details of feasible projects. As a result, immediate perception of concrete opportunities by interested entrepreneurs is left in confusion. Sometime! “Area studies” make a general statement of demand and resources and recommend certain enterprises, which are not immediately feasible due to important reasons unaccounted for in such studies. It is also not seriously contemplated whether the recommended enterprises are feasible within the capabilities and investment capacity of the target- group.

In short, most of the studies fail to disconcern the real issues of growth in the target area and fail to identify the concrete and specific needs of these endowments like resource skill etc. to flourish. Enunciation of general objectives, generic beneficiaries tend to blur the distinct contours of one homogeneous group from the other. Also, the extension of certain standard facilities or services does not serve their actual needs. All this possibly happens because in such basic studies we fail to identify clearly the target groups and their specific problems, and make theoretical studies on resources and demand in an impersonal manner, as a result of which even the schemes devised on the basis of such studies tend to become too impersonal and rigid.

Sometimes, the scheme become so flexible on account of a standardized petrified approach that in some most genuine cases demanding a certain departure from the fixed framework, the scheme is incapable of giving requisite help. It is therefore, absolutely necessary that any action plan for a backward area must first identify the target- group, identify the specific services they need for monitoring their enterprises and devise an appropriate structural support for comprehensive coverage of their needs.

ENTREPRENEURIAL ENVIRONMENT

Entrepreneurship environment refers to the various facets within which enterprises- big, medium and small and others have to operate. The environment therefore, influences the enterprise. By and large, an environment created by political, social, economic, national, legal forces etc influences entrepreneurship.

INTERNAL ENVIRONMENT (Micro Environment)

A) PRODUCT:

The business has to produce a product that people want to buy. They have to decide which ‘market segment’ they are aiming at – age, income, geographical location etc. They then have to differentiate their product so that it is slightly different from what is on offer at present so that people can be persuaded to ‘give them a try’. In other words product is a bundle of satisfaction that a costumer buys. It represent solution to a customer’s problem .It is in this context that marketing definition of a product is more than just what the manufacturer understand it.

B) PRICE:

To a manufacturer, price represent quantity of money received by the firm or seller .To customer, it represent sacrifice and hence his perception of the value of product. The price must be high enough to cover costs and make a profit but low enough to attract customers. There are a number of possible pricing strategies.

The most commonly used are:

• PENETRATION PRICING – charging a low price, possibly not quite covering costs, to gain a position in the market. This is quite popular with new businesses trying to get a ‘toehold’.
• CREAMING – the opposite to penetration pricing, this involves charging a deliberately high price to persuade people that the product is of high quality. Luxury car makers often use this strategy
• COST PLUS PRICING – this is the most common form of pricing. Costs are totaled and a margin is added on for profit to make the total price.

C) PLACE:

The business must have a location that it can afford, and that is convenient and suitable for customers and any supplier.

D) PROMOTION:

Promotion means moving from one end to another. Promotion means all those tools that a marketer uses to take his product from the factory to the customer and hence involves advertising, sales promotion, personal selling, public relations publicity and merchandising. Customers have to be made aware of the product. The two main considerations are target market and cost. A new business will not be able to afford to advertise on national television, for instance and would not wish to because its market will be local to start with. Leaflets, billboards, advertisements in local newspapers, Yellow Pages and ‘word of mouth’ would be more appropriate.

EXTERNAL ENVIRONMENT (Macro Environment)

External Environment:

Also known as Macro Environment, are the “uncontrollable factors” which a company must monitor and respond to. They consist of economic, political, technological, social-cultural and legal.

Economic Environment:

It consists of factors that affect consumer purchasing power and spending patterns. Markets require purchasing power as well as people. Economic conditions, economic policies and economic systems are the important external factors that constitute the economic environment of a business. For example, the economic conditions of a country, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets etc. are among very important determinants of business strategies.

Technological Environment:

Technology is the most dramatic force shaping people’s lives. Factors such as technological development, stages of development, change and rate of change in technology and research and development affect marketing strategies. Also the cost of technology acquisition, impact of technology on human beings and the environmental effects of technology affect marketing decisions.

Political environment:

Political environment is composed of laws, government agencies and pressure groups that influence and limit various organizations and individuals in a society. The main political trends are:

(a)    Substantial amount of legislation regulating business.

(b)   Growth of public interest groups and

(c)    Changing government agency enforcement.

Socio-cultural environment:

The basic beliefs, values and norms shape the society and its people. Even when people of different cultures use the same basic product, the mode of consumption, condition of use, purpose of use or the perception of the product attributes may vary so much so that the product attributes, method of promoting the product may have to be varied to suit the characteristics of different markets. Even the value and beliefs associated with colour vary significantly between different cultures.

Legal environment:

Government all over the world are an important aspects of their economy and even in the so called free economy, viz.US, government intervention in industry is a reality. The extent of intervention varies .while in US this is relatively low; in developing countries this is quite high. India ,for example ,has had a history of a controlled economy with the government deciding the rules of the game ,be it the extent of foreign private investment ,or goods to be exported or imported or even whether a unit can be allowed to produce a product Regulation in advertising ,like ban on advertising a specific product like cigarettes, pan masala, liquor and distribution of goods as in the case of kerosene and earlier in case of food product too, is the reality of Indian scenario.