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.

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.