topic 1 notes-entrepreneurship

7/30/2019 Topic 1 Notes-Entrepreneurship

1/6

TOPIC 2: SMALL BUSINESS

Introduction

This topic introduces the learner to the concept of Small Business.

Objectives

After going through this topic you should be able to:

Define a Small Scale Industry, Ancillary Industry, Tiny Unit, Small

Scale Service And Business Enterprises [SSSBEs], Women Enterprise andExport Oriented Unit.

Differentiate Between The Traditional and Modern Small Scale Sector

Explain the Nature and Characteristics of SSIs

Examine the Role of Small Business in National Economy

Describe how Small Industries act as Seedbed of Entrepreneurship

Your Learning Activity:

Core Task

Read the topic notes introducing the concept of Small Business and participate in thediscussion in the topic discussion forum.

Assessment

The discussion will be graded.

Discussion

1. List the advantages that a Small Business has over a Large Business

2. In your view is it important to develop ancillary units? Give reasons.

3. Differentiate between a Modern SSI and a Traditional SSI.

4. Define a SSSBE and give some examples of such enterprises.

5. Write a short note on Small Business as seedbed of entrepreneurship.


2/6

TOPIC 2 NOTES

SMALL BUSINESS

You have learnt about the close linkage between entrepreneurship and economicdevelopment in topic1. The Small Scale Sector is the natural habitat of

entrepreneurs. Most entrepreneurs start small and then nurture their units intolarge industries. The SSI Sector provides an opportunity for them to sharpen up

their skills and talents, to experiment, to innovate and transform their ideas into

goods and services needed by the society.

Over the last six decades the Small Scale Industry sector has emerged as a highlyvibrant and dynamic sector. It has acquired a prominent place in the socio-

economic development of the country. Mostly this sector exhibited positive

growth trends even during periods when other sectors of the economy

experienced either negative or nominal growth.

Today this sector accounts for 95 percent of the industrial units, provides nearly

80 percent of manufacturing employment and contributes around 35 percent ofexports. It produces thousands of items and provides employment to quite anumber of people. It is a well-recognized fact that a vibrant small-scale sector

holds the key to economic prosperity in an economy like Kenya.

CONCEPT AND DEFINITIONS

In most parts of the world the nomenclature used is Small and MediumEnterprises (SMEs) and the criteria for defining include the number of employees

and the turnover. The Small Scale Industry evokes different meanings for

different agencies and the financial institutions. For example for the purpose of

Excise and Sales Tax Exemption, the turnover alone is the determiningcriterion. However in broader terms, currently, an SSI is defined in terms of

investment ceilings on the original value of installed plant and machinery.

WOMEN ENTERPRISES

A Women Entrepreneur's Enterprise is termed as an SSI unit/industry-relatedservice or business enterprise, managed by one or more women entrepreneurs in

proprietary concerns, or in which she/they individually or jointly have a share

capital of not less than 51 percent as partners/shareholders/directors of a

private limited company/members of a cooperative society.

NATURE AND CHARACTERISTICS OF A SMALL BUSINESSSmall-scale industries have certain unique features which distinguish it from theLarge-scale sector. Some of the salient characteristics of small-scale

businesses are given below.

1. Personal Character: In most small businesses the owners themselves aremanagers and so they can operate independently.

2. Flexibility: Since most small businesses are a one-man show they do not

have to go through a hierarchy to get permissions to make changes. Small

business can respond quickly to environmental trends. Quickness and

alertness are some of the characteristics that allow small entrepreneurs to

understand market conditions and rapidly respond to changes.


3/6

3. Labour Intensive: Small businesses have tremendous capacity foremployment generation through their labour intensive techniques. Small

businesses actually create more jobs than big businesses. This feature of asmall-scale unit is of great significance in a country like Kenya where the

number of unemployed people is phenomenal.

4. Local Area of Operation: Small businesses are largely local in operation;however the market for its products may be local, regional or eveninternational.

5. Short Gestation Period: The capital investment in the small sector isgenerally low and the time taken for production to commence is also less. As

a result of short gestation period the units give quick returns and consequentlythe pace of economic development quickens.

PROBLEMS OF SMALL BUSINESSES

While the small entrepreneurs can set up a unit even with less capital, enjoy quickreturns and have the flexibility to handle the vagaries of the market, they have to

face many problems like the following:

1. Paucity of Finance: The small entrepreneurs possess a weak financialstructure and find it extremely difficult to obtain credit because of lack of

collateral security. This acts as a big handicap, especially in the initial stages,

in most of their operations like their ability to hire the best workers or to

purchase the latest machinery and equipment or to acquire sophisticatedtechnology.

2. Poor availability of power and other infrastructure: Though infra-structural bottlenecks are problems for big businesses too, yet they can

overcome these problems to some extent because of their financial strength

e.g. generating their own power, or even influencing the government inframing its policies sometimes. The small entrepreneur on the other hand has

to battle with them.

3. Obsolete Technology: Most small businesses use old technologies becausethey cannot afford better. As a result the quality of their goods is inferior and

the cost of production is higher than in case of other big ventures. This has

acted as a serious handicap especially after opening up of the economy when

they have had to compete with imported goods.

4. Marketing Problems: The small entrepreneur cannot supply standardizedgoods of high quality and as a result cannot compete with products of large

companies or MNCs. They usually do not have a brand name or loyalty, asthere are hardly any funds for advertising or sales promotion. All theseincrease their marketing woes.


4/6

5. Poor Managerial and Organizational Skills: usually the entrepreneur has toperform a multitude of diverse functions invariably without having any

exposure to professional education or formal training. The large sector on the

other hand can hire the best qualified and trained people.

6. High Incidence of Sickness 7 out of 10 small businesses usually fall sick and

die within 3to5 years. Main causes for this are a wrong choice of product,poor managerial skills, lack of experience, poor quality of products because of

the use of old technologies, etc.

Apart from the above-mentioned problems the small entrepreneur has weakbargaining power to deal with suppliers and financial institutions, has to facebureaucratic red tapism and is unable to invest in Research & Development. After

the opening up of the economy the small sector has been finding it extremely

difficult to compete with the high quality goods available in the market.

ROLE OF SMALL BUSINESSES IN NATIONAL ECONOMY

Small business has played a very crucial role in transforming the Kenyaneconomy from a backward agrarian economy to its present stature. Its benefitsrange from creating job opportunities for millions of people, including many with

low levels of formal education. It has nurtured the inherent entrepreneurial spirit

in far flung corners of the nation resulting in the growth and development of allregions. It has been instrumental in raising the standard of living of the

multitudes. The small scale sector has contributed specifically in the following

areas:

1. Employment Generation: The SSI sector in Kenya is the second

largest manpower employer in the country next only to the agriculture sector.

K e n y a is characterized by abundant labour supply and is plagued byunemployment and underemployment. Under these circumstances the small-

scale sector is a benefit

2. Low Initial Capital Investment: Another feature of the Kenyan economy

and most of the developing economies is the scarcity of capital. The modernlarge- scale sector requires colossal investments whereas the small sector is

just the opposite. Not only is the employment capital ratio high for the SSI

but the output capital ratio is also high.

3. Balanced Regional Development: Dispersion of small business in all parts of

the country helps in removing regional imbalances by promotingdecentralized development of industries. It helps in industrialization of rural

and backward areas. It also helps to reduce problems of congestion, pollution,

housing, sanitation etc.


5/6

4. Equitable Distribution of Income: This is a natural corollary of the above.When entrepreneurial talent is tapped in different regions and areas the

income is also distributed instead of being concentrated in the hands of a few

individuals or business families.

5. Promotes Inter-Sectoral Linkages: SSI units are supplementary and

complementary to large and medium scale units as ancillary units. Many smallunits produce sub-parts, assemblies, components and accessories for the large-

scale sector especially in the electronic and automotive sectors.

6. Exports: The most significant contribution of the SSI has been in the field of

exports. There has been a significant increase in the exports from this sector

of both traditional and non-traditional goods including jewellery, garments,leather, hand tools, engineering goods, soft ware etc.

7. Development ofEntrepreneurship: Small business taps the latent potentialavailable locally. This way they facilitate the spirit of enterprise, which results

in overall growth, and development of all the regions and sectors of the nation.

SMALL BUSINESS AS SEEDBED OF ENTREPRENEURSHIP

Small business is the natural habitat of an entrepreneur. They are really found inGiant Industries. Small businesses provide goods as services as well as serve as a

nursery of entrepreneurial and managerial talent. Initially the capital investment in

small ventures is nominal and the technology used is low, so it becomes easy forfirst time entrepreneurs to set up a venture. In the beginning usually these

ventures are a "one man show" where the entrepreneur looks after the myriad

functions of production, marketing, finance, legal etc. The entrepreneur gets a

chance to increase his knowledge, skill and competence. He takes decisions

independently and it is in these circumstances that entrepreneurial talentblossoms.

In developing economies it is through a large number of such small enterprises

started by these imitator entrepreneurs that a chain reaction is set into motion,

which leads to cumulative progress. It is pertinent to note that nearly 70 percent ofthe total innovations in the world have come from the Small Scale Sector. Many

of the big businesses today for example, Siemens, Ford, Eastman Kodak, Lever

Brothers, Reliance, Nirma, Rasna were all started small and then nurtured intobig businesses.

Small business mobilizes small savings, taps the latent entrepreneurial talent

across regions and provides a platform for them to develop and fine-tune their


6/6

6

entrepreneurial spirit. In the process the entire country benefits in the form ofgoods and services and higher standard of living.

topic 1 notes-entrepreneurship

Documents