This is part of a course on Entrepreneurial Management that I taught at the Bangalore University last spring. This particular deck is on Starting a small scale industry

1. Management
03 – Starting a small industry
Suhas Dutta

2. Syllabus coverage
• Small Scale Industries
oTiny Industries, Ancillary Industries and Cottage Industries
oDefinition, Meaning
• Product Range
• Capital Investment
• Ownership Patterns
• Importance and Role played by SSI in the development of the
Indian Economy
• Problems faced by SSI’s and the steps taken to solve the
problems
• Policies Governing SSI’s
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3. Small scale industries
• The definition
oVaries from country to country
oBut usually dependent on size of employment it generates and the
investment that is required
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Type of Industry Capital Investment required
Small scale industry Not exceeding 100 lacs
Tiny industry < 25 lacs
Ancillary industry Not exceeding 100 lacs
100% Export Oriented Unit As permitted by Govt. of India
Mega project 100 crores and above
Year Capital Investment in
plants and machinery
(lacs)
1950 5 (fixed assets)
1960 5
1966 75
1975 10
1980 20
1985 35
1991 60
1997 100

4. Small scale industries
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SMALL TINY
ANCILLARY
• Industries producing components in
support of other industries
COTTAGE
• Employs traditional labour intensive
methods to produce traditional
products, largely in village households

5. Product range
• Food preserve products
• Industrial products
• Service products
• Recreation products
Small scale
industries
• Tools
• Jigs
• Moulds
• Spare parts etc.
Ancillary
industries
• Conventional products
• Agro-based products
• Forest based products
• Chemical based products
Khadi and
village industries
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6. Ownership patterns
Depends on:
• Nature of business
• Size of business
• Capital required
• Ownership rights
• Anticipated profits
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Types of
ownership
Sole Proprietorship
Partnership
Joint stock company
Co-operative

7. Sole proprietorship
• G S Gerstenberg defines it as “that form of business organization which is
started and run by one person who bears profit and losses of it”
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Features
• Sole ownership
• No separate entity
• No legal formalities
• Limited capital
• Unlimited liability
• All profits to proprietor
• Ownership and
management are different
Pros Cons
Easy and simple to form Limited financial resources
Personal touch with customers Limited managerial ability
Smooth management Unlimited liability
Quick and prompt decisions Lack of continuity
Secrecy Limited size
Social advantages
Tax advantages
Easy dissolution
Incentive to work

8. Partnership
• Sec 4, of Indian partnership act, 1932 – “the relation between persons who
have agreed to share the profits of business carried on by all or any of them
acting for all”
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Features
• Two or more persons
• Sharing of profits and losses
• Unlimited liability
• Voluntary agreement
• Mutual agency
• Existence of lawful business
• No separate legal entity
Pros Cons
Easy formation Unlimited liability
Flexibility Limited resources
Pooling of resources and skills Limited life
Division of risks Divided authority
More capital Danger of personal disagreements
Tax advantages
Encouragement of mutual trust

9. Joint stock company
• Could be private or public companies per sections 3(i)(iii) and 3(i)(iv) of the
companies act 1956
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Features
• Artificial person created by
law
• Perpetual succession
• Common seal
• Limited liability
• Large membership
• Voluntary association
• Transferability of shares
• Separation of ownership
from management
Pros Cons
Limited liability Lack of secrecy
Perpetual succession Legal restrictions
Representative management Heavy taxation
Expansion potential Legalities of formation
Transferability of shares Management mischiefs
Diffusion of risk Lack of personal interest

10. Public vs private companies
Area Public companies Private companies
Formation • At least 7 members
• Formation is difficult
• Min 3 directors
• No restriction on number of members
• At least 2 members
• Formation is simpler
• Min 2 directors
• Maximum 50 members
Prospectus • Required with registrar of companies
Documents • Members have to sign memorandum • Same
• Articles of association not required if
table A of companies act adopted
• Required
Shares • Cannot be allotted till maximum
subscription is reached
• Can issue only equity and preference
shares
• Same, but with option of
disproportionate voting rights
• Invitation to public for shares,
debentures or deposits
• No public invitation
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And similarly modalities across transfer of shares, directors, statutory meetings

11. Co-operative society
• Per section 4, Indian co-operative act 1912, “society which has its
objectives, the promotion of economic interests of its members in
accordance with co-operative principles”
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Features
• One man one vote
• Voluntary organization
• Democratic management
• Service motive
• Governance control
• Distribution of surplus
Pros Cons
Social service Corruption
State assistance Lack of mutual trust
Democratic management Lack of interest
Perpetual existence Lack of secrecy
Tax benefits Lack of managerial expertise

12. Small scale industries and the society
• Generate of employment
• Promote of balanced regional development, and increase of national
incomes
• Reduce concentration of economic progress (equitable distribution of
national wealth)
• Promote capital formation
• Develop villages, brings backward areas into mainstream
• Increase level of standard of living
• Scope for widening of markets
• Compliments agricultural activities, accelerates industrial growth
• Encourages indigenous entrepreneurship
• Labour intensive and more suitable for developing countries
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Please look up the
data around SSIs
provided in your
books

13. Problems faced by SSIs
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RAW MATERIALS
• Scarcity
• Poor quality
• High cost
FINANCE
• Scarcity
• Weak credit
MARKETING
OTHERS
• Tech obsolescence
• Knowledge deficit
(marketing,
channels,
managerial and
technical skills)
• Infrastructure
UNDER
UTILIZATIONOF
CAPACITY
POLITICAL
CLIMATE

14. Policies governing the small scale industries sector
• Various policies and resolutions by the government over years to
nurture and protect SSIs around areas of:
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Small scale industries Tiny industries
Policy Infrastructural Policy
Fiscal Credit Credit
Streamlining rules &
regulations
Entrepreneurship
development
Infrastructure
Technology & quality
improvement
Facilitating prompt
payment
Technology
Promoting rural units Rehabilitation of sick units Marketing
Marketing Improving database
Please read up
details on policy
initiatives in the
course book

15. SSI policy statement
Tiny industries Village industries
Financial support measures
• Credit / access to finance
• Access to capital market
• Delayed payments issue
Handlooms sectors
Infrastructural facilities
• Facilitate in backward areas
• Promote stronger links between primary and
secondary sectors
Handicrafts sector
• Raw material
• Market development
• Training
• Push exportsMarketing and exports
• Marketing as an issue
• Market promotions
Modernization and technological upgradation Other village industries
Promotion of entrepreneurship
• Especially for women entrepreneurs
Simplification of rules and procedures
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Please read up on Karnataka
state’s policies,
developments etc in these
sectors

16. Further readings / viewings
• http://business.gov.in/manage_business/small_scale_industries.
php
• http://www.iitk.ac.in/siic/html/policy/policy.htm
• http://www.slideshare.net/guestf9788dc7/policy-support-to-
small-scale-industries
• http://www.slideshare.net/jennna/small-scale-industries-
14624041?related=1
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