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.

SWOT ANALYSIS

The business environment keeps changing. Government policies and regulations, economic conditions, social conditions, technological factors, competitive situation etc. Undergo changes. The environmental changes may open up new opportunities or pose new threats.

Constant monitoring of the environment is therefore, necessary to identify the emerging opportunities and threats. In order to understand to what extent a firm will be able to exploit the opportunities and fight the threats, it is necessary to evaluate the strengths and weaknesses of the firm. Thus, an analysis of the strengths and weaknesses of the firm and the opportunities and threats in the environment that is the ‘SWOT’ analysis is essential for framing the business strategies.

S- Strengths.

W- Weaknesses.

O- Opportunities.

T- Threats.

STRENGTHS AND WEAKNESSES:

Strengths and weakness analysis is a real test for management. The strength and weaknesses would decide whether a company should continue in a business, take up new lines of business, as well as the strategy to be employed in doing so.

For e.g. in case of some products, small scale units have definite advantage over large- scale units in costs. If a large scale unit were not able to compete with the small- scale units, in such a case, it would be wise on the part of the large unit to give up the business of such products.

The strengths and weakness analysis is done by functional audit of different areas like marketing, finance, design/ engineering, operations etc. The audit is to be done on the basis of the quantity and quality of skills and the infrastructures support 3 available facilities in terms of physical facilities, resource available, speed and flexibility in arranging them.

OPPORTUNITIES AND THREATS:

Monitoring of the environmental changes is necessary to reshape the company’s business and products, if needed, to ensure survival and growth. Certain changes in the environment may bring about new opportunities for some companies while they pose new threats for some others. For e.g. the new industrial policy of India has brought about enormous new business opportunities but at the same time it poses new threats or challenges to many existing firms because of the increase in competition. The existing firms should therefore, frame strategies to effectively fight the increasing competition.

The primary reason of the environmental analysis is to identify the threats as well as the opportunities developing in the business environment. The search for opportunities may start on account of increased aspiration for performance of the organization. While the analysis of threat is to examine the development in the environment that may affect the current strategies ineffective and irrelevant and thus, affect the survival of the organization. The threats or opportunities for any business developed because the needs of the customer keep on changing. For e.g. a customer who was happy with the product now wants another because of change in his needs. In view of the above, many companies have to reframe their objectives and strategies in order to survive in the changing business environment.

FRANCHISING

In a sense, franchising is very much similar to branching. Franchising is a system for selectively distributing goods or services through outlets owned by the retailer or dealer. Basically, a franchise is a patent or trademark license, entitling the holder to market particular products or services under a brand name or trademark according the different terms and conditions.

According to David D. Settz “A franchisee is a form of business ownership created by contract whereby a company grants a buyer the rights to engage in selling or distributing its product or services under a prescribed business format in exchange for royalties or shares or profits. The buyer is called the “franchisee” and the company that sells rights to its business concept is called the “franchiser”.

David H. Holt has defined franchising as a ‘business system created by a contract between a parent company, called the franchiser and the acquiring business owner, called the franchisee, giving the acquiring owner the right to sell goods or services, to use certain products, names, or branded, or to manufacture certain brands”. Now, franchising can simply be defined as a form of contractual arrangement in which a retailer (Franchisee) enters into an agreement with a producer (Franchiser) to sell the producers goods or services for a specified fee or commission.

Franchising arrangements are broadly classified into three types:

1. Product Franchising
2. Manufacturing Franchising
3. Business- Format Franchising

PRODUCT FRANCHISING:

This is the earliest type of franchising. Under this dealers were given the right to distribute goods for a manufacturer. For this right, the dealer pays a fee for the right to sell the trademarked goods of the producer. The Singer Corporation used product franchising perhaps for the first time during the 1800s to distribute its sewing machines. This practice subsequently became popular in the petroleum and automobile machines also.

MANUFACTURING FRANCHISING:

Under this agreement, the franchiser (manufacturer) gives the dealer (bottler) the exclusive right to produce and distribute the product in a particular area. This type of franchising is commonly used in the soft- drink industry.

BUSINESS- FORMAT FRANCHISING:

This is recent type of franchising and is the most popular one at present. This is the type that most people today mean when they use the term franchising. In the United States, this form accounts for nearly three- fourth of all franchised outlets. Business- format wide range of services to the franchisee, including marketing, advertising, strategic planning, training, production of operations manuals and standards and quality – control guidance. The International Franchise Association (IFA) of America has defined format franchising as follows:

“A franchise operation is a contractual relationship between the franchiser and franchisee in which the franchiser offers or is obligated to maintain a continuing interest in the business of the franchisee in such areas as know how and training, wherein the franchisee operates under a common trade name, format and or procedure owned or controlled by the franchiser and in which the franchisee has or will make a substantial capital investment in his business from his own resources”.

ADVANTAGES

Franchising agreement is a symbolic one for the franchiser and the franchisee. Following are the advantages that franchising provides to the franchisee.

1)   Franchising makes the task of getting started easier because the franchisee gets a business format already market tested and found to work. Hence buying a franchise is so far safer than trying to start a new business.

2)    It reduces chances for failure. Here significant to mention is that less than 10 percent of all franchise fails. In dramatic contrast with this is the fact that two out of every five entrepreneurs who start on their own fail within three years and eight out of every ten fail within ten years.

3)   A well established franchise brings with it the very important advantage of recognition. Many new businesses experience lean months or years after start up. Obviously, the longer the period the business must experience it, the greater the chances of failure. With the well tested franchise, this period of agency may reduce to only weeks or perhaps just days.

4)    Franchising may increase the franchisee’s purchasing power also. Because, being part of a large and that too recognized organization means paying less for a variety of things such as supplies equipment, inventory, services, insurance and so on. It also can mean getting better service from suppliers because of the importance of the organization (franchise) of you is part franchisee).

5)     One gets the benefit of the franchiser’s research and development in improving the product.

6)     The franchisee has the protected or privileged rights to franchise within a given area.

7)   The prospects of obtaining loan facilities from the bank are also improved.

8)  The banking of a known trading name (franchiser) becomes quite helpful while negotiating for good sites with setting agents or building owners.

DISADVANTAGES

Franchising is not an unmixed blessing. There are some disadvantages as well associated with a franchise arrangement. The main ones are listed as follows:

1)    Unlike entrepreneurs who start their own business, the franchisees find no room or scope for enjoying their creativity. They have to work as per the given format. One classic example of regimentation in franchising can be found in the Mc Donald’s restaurant organization. A Mc Donald’s franchise is given very little operational latitude, indeed the operations manual attends to such minor details as when to boil the bearings on the potato slicer. The purpose of these restrictions is not to frustrate the franchises, but to ensure that each outlet is run in a uniform correct manner.

2)   A number of restrictions are also imposed upon the franchisees. Restrictions may relate to remain confined to product line or a particular geographical location only.

3)     Franchisees usually do not have the right to sell their business to the highest bidder or to leave it to a member of their family without approval from the franchiser.

4)    Though the franchisee can build up goodwill for his or her business by his or her efforts goodwill still remains the property of the franchiser.

5)  The franchisee may become subject to fail with the failure of the franchiser, another disadvantage facing franchisees is that franchisers generally reserve the option to buy back an outlet upon termination of the contract. Many franchisees become vulnerable to this option. As such, they operate under the constant fear of non- renewal of the franchise agreements.

Then do these disadvantages mean that franchising is no longer desirable way to go small business? Certainly not franchising is a proven and complete business concept. In fact, what do they really mean is that the security that some people associate with franchising is an illusion? Hard work, realistic expectations, and very careful investigation are required if becoming a franchisee is to be a successful, satisfying experience. This underlines the need for evaluation of a franchising agreement.

MEANING OF SUB- CONTRACTING

Sub- contracting system is a mutually beneficial commercial relationship between the two companies. This is known as ancillarisation in India and more generally as sub- contracting. Sub- contracting can be defined as follows:

A sub- contracting relationship exists when a company (called the subcontractee) places on order with another company (called the sub- contractee0 for the production of parts, components, sub- assemblies or assemblies to be incorporated into a product sold by the contractor. Such orders may include the processing, transformation or finishing of materials or parts by the subcontractor at the request of the contractor.

In practice, large scale industries do not produce all goods on their own instead they rely on small scale enterprises called sub- contractors for a great deal of production. When the work assigned to small enterprises involves manufacturing works, it is called Industrial Sub- contracting. In other cases, it is known as commercial sub- contracting. It is not unusual for sub- contractors to work for more than one contractor.

ADVANTAGES AND DISADVANTAGES OF SUBCONTRACTING

ADVANTAGES

1. It increases production in the fastest way without making much effort.
2. The contractor can produce products without investing in plant and machinery.
3. Sub- contracting is particularly suitable to manufacture goods temporarily.
4. It enables the contractor to make use of technical and managerial abilities of the sub-contractors.
5. Despite leading to dependence, sub- contracting ensures existence of sub- contractors by providing them business.
6. Last but no means the least; sub- contracting makes the core firms more flexible in their production.

DISADVANTAGES

However, sub-contracting is not an unmixed blessing. It has some disadvantages also. These are:

1. It does not ensure the regular and uninterrupted supply of goods to the core firms, i.e. contractors that adversely affect the functioning of the core firms.
2. Goods produced under sub- contracting system are often qualitatively inferior.
3. Sub- contracting also delimits the expansion and the diversification of the core firms.
4. Delays in payments, a common feature by the contractor to the subcontractor’s endanger the very survival of the latter.

ROLE PLAYED BY FINANCIAL INSTITUTIONS AND COMMERCIAL BANKS.

Role played by financial institutions and commercial banks in providing financial assistance to small scale entrepreneurs.

The small scale industrial sector raises term credit and working, capital required by it from commercial banks, co- operative banks, regional rural banks and state- financial corporations. The banking system provided mainly working capital and the State Financial Corporations mainly provides investment capital.

Financial assistance in kind is available to the small- scale industrial sector from the National Small Industries Corporation (NSIC) at the national level, the State Small Industries Development Corporations (SSIDCs) at the state level which supply machinery on hire- purchase basis. The Industrial Development Bank of India (IDBI), the National Bank for Agriculture and Rural Development (NABARD) and the Industrial Reconstruction Bank of India (IRBI) provides refinance facilities to banks and financial corporations for financing the small scale industrial sector.

The credit provided by banks to the small scale industrial sector is treated as credit to the ‘priority sector’. The commercial banks are required to lend 40% of their total loans to the ‘priority sector’, of which 15% to 16% are required to be in the form of direct agricultural advances and the rest can be to small scale industry, small business, small transport, operators etc.

State Financial Corporations provide financial assistance up to Rs. 60 Lakhs to private/ public limited companies and up to Rs. 30 Lakhs to proprietors and partnership firms. Rates of interest charged vary according to the size of the loan and category of entrepreneurs like SC/ ST, women entrepreneurs, exservicemen, physically handicapped persons etc. Composite loans up to Rs. 50,000 are provided form meeting both term- loan and working capital so that, the small scale entrepreneurs does not have to go to other institutions.

Locus of control is an attribute indicating the sense of control that a person has over life. One of the concerns the people have when considering forming a new venture is, whether they will be able to sustain the drive and energy required not only to overcome the inertia in forming something new but also to manage the new enterprise and make it grow.

WHAT IS AN ANCILLARY UNIT?

An industrial unit which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub- assemblies, tooling or intermediaries, or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 5o percent of its production or services, as the case may be, to one or more other industrial takings and whose investment in fixed assets in plant and machinery whether held on ownership terms or on lease or on hire purchase, does not exceed Rs 75 lacs.

DEVELOPMENT OF ANCILLARY INDUSTRY IN INDIA

The programme of ancillarisation includes motivation of public and private sector units to offload production of components, parts, sub- assemblies, tools, intermediates, services etc to ancillary units. The programme of ancillary development has specific advantages for both for large as well as small industries and also for the total economy of the country. The large scale units have the advantages in the form of savings in investments, inventories, employment of labour, etc. and getting the items of the desired specifications, while the small scale units have the advantage of getting assured market for their products, availability of technical assistance and improved technology from the parent units. This programme also helps in overall economy of the country.

The strategy for ancillary development was originally outlined with the objective of:

1. Development of employment opportunities coupled with growth of entrepreneurship in different fields and different parts of the country.
2. Increase in productivity of the small scale units.
3. Growth of a low cost economy through reduction in costs brought by appropriate technology followed by ancillary units.
4. Development of a single or multi discipline expertise in different fields to bring about economies of scale.

FACTORS AFFECTING ANCILLARISATION

Recently there has been a growing trend towards ancillarisation due to the series of rapid developments that have been taken place in the industrial structure in the country.

• The size of operations of industrial units has increased enormously; with the result that they are compelled to sub- contract some of the items of production to ancillaries.
• It was more convenient for large scale manufactures to get the ancillary units to produce certain items for them. With the growing complexity of management, the large scale manufacturer can now concentrate on the problems of organization, marketing etc, rather than concentrating on availability of raw materials etc.
• Large scale manufacturers can economize on transport costs, storage space, etc, by contracting rather than by producing the same components themselves.
• It is economic to have some items manufactured by ancillary units because the cost of these items is higher when they are fabricated by large scale manufacturers.
• By outsourcing, large scale manufacturer is able to insulate him against fluctuations in the prices of raw materials over a period of time by entering into contracts for the supply of these items.

All these facts underscore the point that the development of ancillaries and their growing popularity have been well supported by economic and management considerations.

Sales Promotion Strategies

The kind of promotional mix employed determines the promotional strategy. Generally speaking a particular combination, type or amount of sales promotion, personal selling, publicity and advertising are brought into the promotional mix, which becomes the promotional strategy in the course of implementation. The marketing strategy as much guides the determination of the promotional strategy, which may be divided into sale promotion strategy, personal selling strategy, publicity strategy and advertising strategy. The strategies, sustaining promotional strategy, developmental promotional strategy or promotional appropriation.

(i). Push and Pull Strategies

The push and pull promotional strategies may be used to enhance sales. The push strategy concentrates on middlemen or retailers who push the sale of the product to the final consumers. This strategy covers cooperative advertising, attractive terms of sale, coupons and discount facilities. The pull strategy is directed toward the final buyers. It persuades the buyers to go to the sellers to buy. Sales promotion, particularly customer promotion, is an important form of the pull strategy. Customer promotion, may call for the offer of samples, money-refund offers, prices-off, premiums and so on.

The push strategy asks the sellers or retailers to attract the layers.

Trade promotion is thus the main form of the push strategy. Trade promotions refers to buying allowances, free goods, co-operative advertising, push money, sales contests and so on. The marketing manager has to adopt both these strategies to promote sales.

v Features of pull strategy

Pull strategies depend upon mass communication. Products are literally pulled by buyers through the channels on the basis of mass promotional efforts. In a pull strategy, the product is pulled through the channel by creating end- user demand. Customers force retail shops to stock those mass- promoted products. In turn, retailers demand the highly advertised product from wholesalers. The firms having well- known brands can exercise control over channels through pull promotion strategies. Personal salesmanship plays a secondary role in pull promotion. Marketer rely on intensive distribution. Dealer margins are also lower in pull promotion.

v Features of push strategy

Industrial marketing strategies are mostly the push type strategies relying primarily on personal selling. Also in the sale of medical products and in life insurance, marketers have to employ a lot of salesmen to call on physicians and prospects for life insurance. In push type promotion, personal selling expenses are considerable and dealer margin is also higher. In this, after – sale service is also important and marketers rely on selective distribution. Push strategy can be successfully used when:

1. We have a high quality product with unique selling points.

2. Where we have a high priced product.

3. We can offer adequate incentives (financial) to middlemen and their salesmen.

v Push – Pull strategy

Most consumer goods manufacturers generally employ a push- pull (combination) strategy to sell their products. The ratio of pull to push may differ according to the requirements of market situation. Salesmen are used to push the goods through the marketing channel, while advertising and sales promotion will support personal selling to accelerate sales. Thus, all tools of promotion work together.

(ii). Sustaining Promotional Strategy : The main aim of this strategy is to stablise the market share. Sales promotion becomes necessary to sustain a market share. At a laggard stage, the markets may shrink. Unless appropriate steps are taken, the marketer may find that the market may be slipping away for, to his product. But this strategy can be adopted only after employing the penetrating strategy. That is, the market share should not decline after a higher level of sale has been attained. The sustaining promotional strategy stabilies the market share. Sales force promotion by way of bonus and other incentives many contain the market from slipping away. Steps are taken to prevent the sales force from going across to the competitors. Brand loyalty of customers is fostered and reinforced.

(iii) Developmental Promotional Strategy: The introduction of new products may require expansion of the market. Innovators need to have a developmental strategy. New products or brands are popularized by offering trade discounts, cash rebates, premiums, money refunds, and so on. The new consumers are given effective after- sales service. Consumer franchise building is done with development strategy. The promotional mix for a brand not yet popular may require emphasis on both personal selling and sales promotion.

(iv) Promotional Appropriation : Promotional objectives determine promotional appropriation. The forms of promotion, the costs of each component of promotion, the activities to be performed and appropriation on personal selling, sales promotion, advertising and publicity are determined under this strategic approach. The marketing manager has to arrive at the optimum promotional mix of the given objectives. And this requires proper planning and programme evaluation. Product attributes, brand differentiation, purchase frequency, the nature of the market, the size of market and its location, the nature of prospective buyers, their purchase frequency, distribution and price strategies are evaluated before the formulation of an appropriate sales promotion strategy.