support to entrepreneurs

8/6/2019 Support to Entrepreneurs

1/25

SICKNESS IN BUSINESS

A unit which incurs cash losses for one year and likely to continue to incur losses for thecurrent year as well as the following year is

generally called as a sick unit.In 1989 Reserve Bank of India defined Sick SSI

as follows.A SSI unit should be considered as sick,if

it has, at the end of any accounting year,accumulated losses equal to or exceeding50% of its peak net worth in the immediatelypreceding 5 accounting years.


2/25

SICKNESS IN BUSINESS

Path to Industrial Sickness

Healthy Unit1.Cash Profit +

2.Net WorkingCapital +

3.Net Worth +

Tending

towardsSickness

1.Cash Profit -

2.Net WorkingCapital +

3.Net Worth +

Incipient of Sickness

2 or More

Sick

All


3/25

SIGNALS OF SICKNESS

1. Decline in capacity utilization2. Shortages of Working capital3. Inventories in excessive quantities4. Non-submission of data to banks and financial

institutions.5. Irregularity in maintaining bank accounts6. Frequent breakdowns in plants and equipments7. Decline in the quality of product/service

8. Delay in payment of statutory dues like Providentfund, Sales tax, Insurance etc.9. Decline in technical efficiency10. Frequent turnover of personnel in the industry.


4/25

SYMPTOMS OF SICKNESS

1. Persisting shortage of cash2. Deteriorating financial ratios3. Widespread use of creative accounting4. Continuous tumble of prices of the shares5. Frequent request to banks/financial institutions for

loans6. Delay and default in the payment of statutory dues7. Delay in the audit of annual accounts

8. Morale degradation of employees and desparationamong top and middle management level.


5/25

CAUSES OF SICKNESSExternal causes :1. Changes in the industrial policies of the Government from

time to time.2. Inadequate necessary inputs like raw materials,

power,transport and skilled labour.3. Lack of demand for the product.4. Recessionary trends in the economy.5. Frequent industrial strikes and labour unrest.6. Shortage of financial resources especially working capital.

7. Natural calamities like drought, floods etc.Internal Causes :

1. Problem in functional areas like finance,production,marketing and personnel.

2. Poor implementation, poor management, shortage of

working capital, operational and labour problems.


6/25

CONSEQUENCES OF SICKNESS

1.Huge financial losses to the Banks and the financialInstitution : Non payment of dues of industrial loans.

2.Loss to Employment Opportunities :Closure of business causes unemployment problems.

3.Emergence of Industrial unrest :Closure of companies leads to industrial strikes by tradeunions.

4.Adverse Effect on prospective Investors and Entrepreneurs :Due to sickness share price of the unit tumbles which in turnwill adversely affect the stock market.

5.Wastages of Scarce resources : Resources gets locked up insick industries leading to wastage of resources.

6.Loss of revenue to the Government: Govt. raises substantialrevenue only from taxes. Hence sick units causes major revenue loss to the govt.


7/25

CORRECTIVE MEASURES

1. Industrial sickness is a gradual process over a period of 5-7 years. Hence for identifying sickness at an early stageappropriate yardsticks needs to be evolved and developed .

2. In view of limited resources at the disposal Govt. can follow

the policy and close a large numb what cannot be curedshould be ended er of sick units .Which can be cured maybe allowed to merge with healthy units.

3. The three interests , Management seeking freedom toclose the sick unit , Bankers Whatever can be salvaged

should be salvaged, Employees Seeking Job & benefitslike Provident fund should be integrated and the sick unitcan be salvaged in the best interest of all three.

4. Sick SSIs fall within the purview of Board for Industrial & Financial Reconstruction (BIFR) & hence it is better to open

a separate division to deal the problems of Sick SSIs.


8/25

CORRECTIVE MEASURES5. Rehabilitation programs should provide packages like

sanction of additional loans, loans for new machineries,enhancement of working capital. They also should givetraining in managerial efficiency, marketability of productsetc.

6. After taking decision to rehabilitate a sick unit, the programshould be finalised quickly and implemented speedily .Piece-meal implementation geoparadizes the efforts torehabilitate the unit.

7. To prevent sickness, in the incipient stage banks shouldperiodically review the account of SSIs and provideinformation to BIFR to facilitate them to take appropriateaction.

8. SSIs are generally a one man shows. Therefore imparting of necessary knowledge to entrepreneurs in various functionalareas through EDPs should be given at most importance .


9/25

Govt.Policy for SSIsGovt. of India since independence has taken severalmeasures towards industrialization through her Industrialpolicy Resolutions (IPRs) .These resolutions were announced in1948,1956,1977,1980,1990 and 1991.The Govt.s objectives and intentions towards industriesincluding SSIs are announced through only IPRs.Generally the IPRs include The investment ceilings of different scale of units like

Large, Medium and Small scale industries.- Schemes to promote industrialization in country- Technology upgradation programmes for industries- Training of women and youth through EDPs.- Changes in Financial assistances from time to time.


10/25

BUSINESS GROWTHObjectives of Growth :

Business environment keeps changingwith social ,economic and political environmentfrom time to time.

Hence the business enterprise should bestrong enough to cope up with the changes andchallenges before it. This paves way for theneed for the growth of business enterprises.


11/25

Motivating factors for business growth :

1. Growth implies strength and stamina . Growth enables abusiness enterprise to face adversities ,challenges,competitions, hardships etc. Thus growth ensures the survivalof business even in adverse and hard times.

2. In business growth turn over and output are symptomsbusiness growth.

3. Need for appropriate technology also changes in businessenvironment. Since the big size of business facilitates the useof technology, business enterprises feel need for growth.

4. A big business enjoys more benefits in several matters thansmall one. Big business enterprises can interact better withfunding agencies and hence it motivates a small enterprise togrow big.

5. Entrepreneurs desire to do something specific in business andlust for social and economic recognition motivates one andleads to growth in business.


12/25

STAGES OF GROWTHStart Up Stage Birth or Emergence of an Enterprisewith limited scale of production. Profits may not be earnedat this stage.

Growth Stage In this stage the enterprise is knownand accepted by the market. Production & sales increases ,lcreates demand for product, Profits increase.Competitorsenter in to market.

Expansion Stage Enterprise expands business byopening branches and introducing new product lines.Reapsbest benefits from available oppurtunities.

Maturity Stage Due to keen competition salesincreases but at a decreasing rate. Profits starts to decline.

Decline Stage Business finds it difficult to survive dueto new products or change of customer behaviour.Sales dropabruptly.Starts incurring losses.Closes business.


13/25

STAGES OF GROWTH

Growth

Startup Growth Expansion Maturity Decline

Time


14/25

TYPES OF GROWTH STRATEGIES

Internal Growth Strategy Growing on ownwithout joining hands with other enterprises.

a)Expansion

b)DiversificationExternal Growth Strategy - Growing by joininghands with other enterprises

a)Expansion

b)Diversificationc)Joint Ventured)Merger e)Sub-Contracting


15/25

EXPANSIONEnlargement of business in the same line of activity.It is

a natural growth of business taking place in course of timewith out joining hands with other enterprise. Common formsare Expansion through Market penetration: Enterprise increases

sales of its existing product by enlarging existingmarket.Market penetration means making deeper in roads inthe existing market. Example: Exchanging old bike for newmodel bike.Expansion through Market development: It means exploringnew markets for the existing product. Enterprise makes

searches for new customers. Example: New samplecosmetic products given free for customers to lure them.Expansion through Product development/Modification:Developing or modifying existing product to meet therequirements of the customers. Example: Selling edible oil inplastic containers, sachets in different quantities toincrease sales.


16/25

EXPANSIONAdvantages :1. It is natural and gradual2. Grows without making major changes in org.structure3. Effective utilisation of existing resources.

4. Gradual growth becomes easily manageable.5. Expansion results in economies of large scale operations.

Disadvantages :1. Gradual growth is time consuming.2. Expansion in the same line of product makes the enterprise

unable to take advantage of new business opportunities.3. Use of modern technology is limited due to limited resources

and weakens the competitive strength of the enterprise.


17/25

DIVERSIFICATIONIt overcomes the limitations of expansion.

A business can not grow beyond a certainpoint by expansion only.

Hence an approach to growth by addingnew products to the existing product lkine iscalled diversification .

Example :Bajaj is originally a Scooter manufacturer

diversified its product in to Bikes, Fans,Electrical appliances, Mutual funds etc.


18/25

DIVERSIFICATIONAdvantages :1. Minimizes risk involved in the business.2. Adds to the competitive strength in the business.3. More Effective utilization of existing resources.

4. Enables the enterprise to tide over business fluctuations andensures smooth running of the business.

Disadvantages :1. Involves business re-organisation which requires additional

resources hence it is a costly affair.

2. It becomes difficult to effectively manage and coordinatethe diverse business.


19/25

Types of DIVERSIFICATION1.Horizontal Diversification :

In this the same type of product in added to the existing ones.Example : Adding Bikes to its original products of Scootersmanufacturing by Bajaj .

2.Vertical Diversification: Complementary products/services are addedto the existing product/service line of the enterprise. The newproduct/service serve either as inputs or as a customer to the firmsown product. Example : A T.V.manufacturer producing Picture tubesneeded by it. Cloth mills setting retail shops to sell its fabrics. Sugar mills developing sugar cane farms to supply raw material to it.

3.Concentric Diversification: Entering into business related to itspresent one in terms of technology & marketing. Example: Nestle

originally a baby food manufacturer entered into related foodproducts like Tomato ketchup,Maggi Noodles .4.Conglamerate Diversification: It is just contrary tp concentric

diversification. Entering into business which is not related to itsexisting business neither in technology nor marketing. Example:Godrej manufacturing steel safes and shaving cream, Bajajmanufacturing Bikes and Bulbs, Electrical appliances.


20/25

JOINT VENTUREJoint venture is a temporary partnership between two or more

firms to undertake jointly to complete a specific venture. The partieswho enter into agreement are called co-ventures and this agreement isvalid till the completion of the work for which it was formed. The co-ventures participate equally and profits/losses are shared as per agreedratio between them.

Advantages:1. Reduces risk involved in business.2. Helps to increase competitive strength of the business.3. Makes use of advanced technology which is not available within the

firm.4. Reduces production/marketing costs and increases sales volumes.

Disadvantages:1.In case of misunderstanding between co-ventures the business isadversely affected.

2.Excessive legal restrictions limits joint ventures with foreign firms3.More equity participation by one or more co-ventures creats conflicts

between them.


21/25

MERGERMerger means combination of two or more enterprises intoone. Merger may take place in two ways.

1.Absorption : An enterprise may be acquired by a bigger enterprise. No new enterprise is formed (No new name is givento enterprise after merger)

2.Amalgamation: Two or more enterprises merge into one to forma new enterprise. (A new name is given to enterprise after merger)

Merger is classified into 4 types1) Horizontal merger

2) Vertical Merger 3) Concentric Merger 4) Conglomerate Merger

with same meanings like classification of diversifications.


22/25

MERGERAdvantages:

1. Increase in production & sales2. Better use of resources3. Enables sick enterprises to merge with healthy ones.

4. promotes diversification of product lineDisadvantages :

1. Large scale operation makes the co-ordination andcontrol ineffective & affects business performance

2. Merger leads to monopoly in business. Monopoly is not

welcome in the interest of the society.


23/25

SUB-CONTRACTINGAlso called as ancillarisation it is a mutually beneficial

commercial relationship between two companies. In pratice,large scale industries do not produce all goods ontheir own, instead they rely on small scale enterprises calledsub contractors for a great deal of production. Types are

1. Industrial sub-contracting Manufacturing works2. Commercial sub-contracting General works

Example :A sub-contracting relationship exists when a company

(contractor) places an order with other company (sub-

contractor) for the production of parts, assemblies, sub-assemblies to be incorporated into a product sold by thecontractor. Such orders may include processing,transformation or finishing of materials by the sub-contractor atthe request of the contractor.


24/25

SUB-CONTRACTINGAdvantages :

1. It increases production in the fastest way without making mucheffort.2. The contractor can produce parts without investing in plant andmachinery.3. Very suitable to manufacture goods temporarily.4. Enables contractors to make use of technical/managerial abilities of sub-contractors.5. Makes the core firms more flexible in their production.6. Sub-contracting provides large scale business opportunities.

Disadvantages :

1. Does not ensure uninterrupted supply of goods to the core firms.2. Goods produced by sub-contractors are normally with inferior quality.3. Sub-contracting delimits the expansion and diversification of thecore firms.4. Delays in payments by the core firms endangers the very survival of sub-contractors.


25/25

End of Unit 5

support to entrepreneurs

Documents