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EDM Notes

Definitions of Entrepreneur and Entrepreneurship

Entrepreneur is the co-ordinator and organizer of resources to design a business


enterprise.

- J.B. Say

Entrepreneur is an individual who undertakes the formation of an organisation for


commercial purposes by recognizing the potential demand for goods and services and
thereby acts as an economic agent and transforms demand and supply.

-Adam Smith

Entrepreneurs are innovators who use the process of shattering the status quo of the
existing products and services to set new products, new services. He describes
entrepreneurs as innovators.

-Joseph Shumpeter

Entrepreneurship is the attempt to create value through recognition of business


opportunity, the management of risk taking appropriate to the opportunity and
through the communicative and management skills to mobilize human, financial and
material resources necessary to bring a project to fruition.

-John Kaso and Howard Stavenson

Entrepreneur is one who is involved in gathering and using resources to make use of
opportunities to produce results.
-Peter Drucker
Entrepreneurship is a systematic innovation which consists of the purposeful and
organized search for changes and in a systematic analysis of the opportunities such
changes might offer for economic and social innovation.
-Peter Drucker
To sum up, the term entrepreneur has been defined in various ways-a risk taker, a resource
assembler, an organisation to builder, an innovator, and so on. Truly speaking, an entrepreneur is
all combined into one. He introduces new ideas, carries on new activities, co-ordinates the
factors of production and decides how the business should be run. He has vision, originally of
thought and ability to take calculate risks.
What is an Enterprise

An entrepreneur is a person who starts an enterprise. The process of creation is called


entrepreneurship. The entrepreneur is the actor and entrepreneurship is the act. The
outcome of the actor and the act is called the enterprise. An enterprise is a business
orgnanisation that is formed and which provides goods and services, creates jobs,
contributes to national income, exports and overall economic development.

Difference between Entrepreneur and Entrepreneurship

The term entrepreneur is used to describe the people who establish and manager their own
business. The process involved is called entrepreneurship. Entrepreneurship is an abstraction
whereas entrepreneurs are living people.

Entrepreneurship is the outcome of complex socio-economic, psychological and other factors.


Entrepreneur is the key individual central to entrepreneurship who makes things happen.
Entrepreneur is the actor, entrepreneurship is the act. Entrepreneurship is the most effective way
to bridging the gap between scientific innovations and the market place by creating new
enterprises. An entrepreneur is the catalyst who brings about the change.

TYPES OF ENTREPRENEURS
Clarence Danhof, on the basis of his study of American Agriculture, Classified entrepreneurs in
the manner that at the initial stage of economic development entrepreneurs have less initiative
and drive and as economic development proceeds they become more innovating and enthusiastic.
Basing on this, he classified entrepreneurs into four categories:

(a) Innovating Entrepreneurs: An innovating entrepreneur is one who introduces new goods,
inaugurates new method of production, discovers new market and reorganizes the enterprise. It is
important to note that such entrepreneurs can work only when a certain level of development is
already achieved, and people look forward to change and improvement. Generally, they are
typical of developed countries.

(b) Imitative Entrepreneurs: These are characterized by readiness to adopt successful


innovations inaugurated by successful innovating entrepreneurs. They lap up innovations
originate by innovating entrepreneurs. Imitative entrepreneurs do not innovate the changes
themselves, they only imitate techniques and technology innovated by others. Such types of
entrepreneurs are particularly suitable for the underdeveloped regions for bringing a mushroom
drive of imitation of new combinations of factors of production already available in development
regions.

(c) Fabian Entrepreneurs: Fabian entrepreneurs are characterized by very great caution and
skepticism in experimenting and change in their enterprise. They imitate only when it becomes
perfectly clear that failure to do so would result in a loss of the relative position in the
enterprises. They are lazy and shy and lack the will to adopt to new methods of production.

(d) Drone Entrepreneurs: Drone entrepreneurs are characterized by a refusal to adopt


opportunities to make changes in production formulate even at the cost of severely reduced
returns relative to other like producers. Such entrepreneurs may even suffer losses but they are
not ready to make changes in their existing production methods. They struggle to exist, not to
grow. Thus, they are laggards as they continue to operate in their traditional way and resist
changes.
NATURE OF ENTREPRENEURSHIP

(a) Economic Activity: Entrepreneurship involves the creation and operation of an enterprise.
Therefore, it is essentially an economic activity concerned with of value or wealth.

(b) Creative Response to Environment: Entrepreneurship involves innovation or introduction


of something new. It is a creative response to the environment. An entrepreneur recognizes the
need for change and initiates it. He does things in new and better ways.

(c) Purposeful Activity: Entrepreneurship is the purposeful activity of an individual or a group


of individuals who seek to earn profits through the production and distribution of economic
goods and services.

(d) Dynamic Process: Entrepreneurs thrive on the changing environment which brings new
opportunities for business. Flexibility is the hallmark of a successful entrepreneur.

(e) Risk Element: Entrepreneurs make decisions in the face of uncertainty. Therefore, risk is
an inherent and inseparable element of entrepreneurship. Until the new venture idea becomes
popular amongst the customers, it runs a family high degree of risk of incurring losses.

(f) Creator or Organisation: An entrepreneur assembles and Co-ordinates other factors of


production, i.e., land, labour and capital. Managerial skills and leadership are other very
important facets of entrepreneurship.

(g) Gap Filling Function: It is the job an entrepreneur to fill the gaps between needs and goods
and services. He has to complete the inputs and provides the knowledge about the production
process.
(h) Optimum Use of Resources: An entrepreneur optimizes the use of resources by arriving at
the most productive combination that will provide the society the needed goods and services.

NEED OF ENTREPRENEURSHIP

(a) Entrepreneurship as Career Option: An educated person has broadly two career option.
One is called wage or salary employment, wherein people are employed in government service,
public and private sectors and get fixed wage or salary. The other career option is entrepreneurial
employment under which people set up their new ventures. Wage employment does not generate
resources and is organized which in the existing wealth. Wage employment is self-saturating.
Once availed, it blocks the employment opportunity to others for another 10 years. On the other
hand, the latter contributes towards national wealth and has a unique characteristic of self-
generation. This starts a chain of activities that create unending employment opportunities.
Entrepreneurship promotes small saving amongst middle class individuals for investment into
new ventures. It also provides an outlet that creates an urge among individuals to attain
excellence in product design and related innovation. Thus, entrepreneurship provides a lasting
solution to the acute problem of unemployment.

Wage Employment Entrepreneurial Employment


Nature Self Satuating Self Generating
Scope Limited Unlimited
Orientation Routine Types Creative
Status Quo Innovative
Problem Avoiding Problem Solving
Dependent Independent Decisions
Contribution Consumers National Wealth Generates National Wealth
Earning Fixed (Subsistence) Growing (Generating Surplus)
In the context of employment generation, the three terms, i.e., Income Generation, Self-
Employment andEntrepreneurship are often used interchangeably. Entrepreneurship
refers to identification of innovative ideas, setting up of a new enterprise. Whereas, self-
employment refers to full time involvement in ones own occupation. One may or may not
be bearing the risk, mobilizing inputs, organizing production and marketing the product
or service. Income generating activities, on the other hand, are part time, casual and
practised with a view of raising additional income. All entrepreneurs are self-employed
and income generating persons. But all self-employed and income generating persons
may not be entrepreneurs.

(b) National Income: National Income consists of goods and services produced in the country
and imported. The goods and services produced are for consumption within the country as well
as to meet the demand of exports. The domestic demand increases with ever increasing
population and improving standard of living. The export demand also increases to meet the needs
of growing import due to various reasons. An increasing number of entrepreneurs are required to
meet this increasing demand for goods and services. Thus, entrepreneurship increases the
national income.

(c) Employment Generation: Growing unemployment, particularly educated unemployment


is an acute problem of the nation. The available employment opportunities can cater to only 5 to
10 per cent of the unemployed. If a hundred persons become entrepreneurs they not only create a
hundred jobs for themselves but also provide employment to many more. As the time passes
these enterprises growth providing direct and indirect employment to many more. Thus,
entrepreneurship is the best way to fight the evil of unemployment.
(d) Balanced Regional Development: The growth of industry and business leads to a large
number of public benefits like road transport, health, education, entertainment etc. When the
industries are concentrated in selected cities, the development gets limited to these cities. Till late
sixties, 50 per cent of industrial enterprises were located in only six cities of India. A rapid
development of entrepreneurship ensures a balanced regional development. When the new
entrepreneurs grow at a faster pace, in view of the increasing competition in and around the
cities, they are forced to set up their enterprises in the smaller towns away from big cities. This
helps in the development of the backward regions.

If a region does not throw up a sufficient number of entrepreneurs, the needs of the local
population for the goods and services remain unsatisfied. The entrepreneurs from other places
step in and set up enterprises to fulfil the pent up demand of the local people. These alien
entrepreneurs do not invest the major part of the profits in the areas in which the unit is located.
Usually, the profit is invested at a place, from where the entrepreneurs come from. Such
entrepreneurs invest their profits in constructing their houses etc., at the place of their origin.
Thus, the backward areas do not get full benefits of business or industrial profits. This drainage
of wealth results in further deterioration of the area. The practice of siphoning the profits earned
through entrepreneurial activities based on local resources by alien entrepreneurs has been
compared with the blood sucking process practised by leeches, and termed as leech effect by
Dr. M.M.P. Akhori.
(e) Dispersal of Economic Power: The world affairs have been dominated by power. There
have always been two types of power, i.e., muscle power and economic power. In the modern
age, the muscle power has lost its relevance and the world is ruled by the economic power.
Economic power is the natural outcome of industrial and business activity. Industrial
development normally can lead to concentration of economic power in few hands. This
concentration of power in few hands has its own evils in the form of monopolies. Developing a
large number of entrepreneurs helps in dispersing the economic power amongst the population.
This in turn causes hindrance to the growth of monopolies, which exist partly because of lack of
sufficient number of entrepreneurs. Setting up of a large number of enterprises for the goods
helps in weakening the harmful effects of monopoly.

When a society produces a small number of entrepreneurs, the enterprises due to lack of
competition grow into a few big business houses. This results in concentration of wealth in a few
families. This can have serious social and national implication. When the number of enterprises
is large national wealth is shared by a large number of entrepreneurs, thus, dispersing wealth.
This dispersal of wealth promotes the real socialism and makes the economy healthy.

ENTREPRENEURSHIP VS. MANAGEMENT

Quite often an entrepreneur and a manager are considered similar because of some overlapping
in their roles. In a small firm, the owner himself acts as the manager. But there are some
important differences between a entrepreneur and a manager which are discussed below:

(a) Venture Creation: An entrepreneur often sets up a new venture while a manager only runs an
existing venture.

(b) Innovation: An entrepreneur introduces new ideas to increase profits and is, therefore, an
innovator. On the other hand, a manager runs the business on established lines and often
maintains the status quo. An entrepreneur is a change agent whereas a manager is the product
of change. Entrepreneurship involves combining to initiate changes in production whereas
management involves combining to produce.
(c) Risk Bearing: An entrepreneur assumes risk of economic uncertainties involved in the enterprise.
A paid manager, on the other hand undertakes no risk.

(d) Status: An entrepreneur is his own boss and enjoys an independent status. In contrast, a manager is
an employee and dependent on the owner.

(e) Reward: For bearing risk, an entrepreneur earns profits which may fluctuate widely from one time
period to another. But the reward of a manager is the salary which is relatively fixed and regular.

(f) Continuity: Management refers to the ongoing coordination of the production process whereas
entrepreneurship is a discontinuous phenomenon appearing to initiate change in the production
process and then disappears until it reappears to initiate another change.

Overlapping Roles of Entrepreneur and Manager

Joseph Schumpeter made a distinction between entrepreneur and manager. According to him, a
manager is one who deals with day-to-day affairs of a going concern. But an entrepreneur
attempts to change the factor combinations and thus increases productivity and profits. An
entrepreneur launches a new enterprise whereas a manager operates an existing enterprise. The
roles of entrepreneur and manager may, however, overlap in many situations. Entrepreneurs who
start enterprises must use managerial skills to implement their innovative ideas successfully.
Similarly, managers must use entrepreneurial skills in order to manager change and innovation to
effectively deal with uncertain external environment of business.

Entrepreneur vs. Manager

Basis Entrepreneur Manager


1. Venture An entrepreneurs sets up a new A manager only runs an existing
creation venture and runs it. unit.
2. Innovation Entrepreneurship is another name of A manager is an employee of the
innovation. He works to find new business organisation. He cannot
methods, products, etc. operate independently.
3. Risk-taking An entrepreneur starts and runs his A manger takes less risk at
venture independently. He is self- compared to an entrepreneur. He is
employed and is his own basis. less tolerant to uncertainty. He does
not share business risks.
4. Status An entrepreneur takes calculated A manager need not be an innovator.
risk. He may even jeopardize his He deals with the day-to-day affairs
own financial security. He is of a going concern.
responsible for failure and financial
loss.
5. Reward An entrepreneur is motivated by A manager is motivated by rewards
profits. He may even suffer a loss. or incentives. His salary cannot be
negative.
6. Change An entrepreneur is responsive to A manager may not very receptive to
external environments and is always change, unless he is enterprising.
prepared to change.

ROLE OF FUNCTIONS OF ENTREPRENEURSHIP

Role of Entrepreneurship In Economic Development

The entrepreneur is the key to the creation of new enterprises that energise the economy and
rejuvenate the established enterprises that make up the economic structure. Entrepreneurs initiate
and sustain the process of economic development in the following ways:

i. Capital formation: Entrepreneurs mobilize the idle savings of the public through the issues of
industrial securities. Investment of public savings in industry results in productive utilization of
national resources. Rate of capital formation increases which is essential for rapid economic
growth. Thus, an entrepreneur is the creater of wealth.
ii. Improvement in per capita income: Entrepreneurs locate and exploit opportunities. They
convert the latest and idle resources like land, labour and capital into national income and wealth
in the form of goods and services. They help to increase. Net National Product and per capita
income in the country, which are important yardsticks for measuring economic growth.

iii. Generation of employment: Entrepreneurs generate employment both directly and indirectly.
Directly, self-employment as an entrepreneur offers the best way for independent and honourable
life. Indirect, by setting up large and small scale business units they offer jobs to millions. Thus,
entrepreneurship helps to reduce the unemployment problem in the country.

iv. Balanced regional development: Entrepreneurs in the public and private sectors help to remove
regional disparities in economic development. They set up industries in backward areas to avail
of the various concessions and subsidies offered by the Central and State Governments. Public
sector steel plants, and private sector industries by Modis, Tatas, Birlas and other have put the
hitherto unknown places on the international map.

v. Improvement in living standards: Entrepreneurs set up industries which remove scarcity of


essential commodities and introduce new products. Production of good on mass scale and
manufacture of handicrafts, etc., in the small scale sector help to improve the standard of life of a
common man. These offer goods at lower costs and increase variety in consumption.

vi. Economic independence: Entrepreneurship is essential for national self-reliance. Industrialists


help to manufacture indigenous substitutes of hitherto imported products thereby reducing
dependence on foreign countries. Businessmen also export goods and services on a large scale
and thereby earn the scarce foreign exchange for the country. Such import sub-situation and
export promotion help to ensure the economic independence of the country without which
political independence has little meaning.
vii. Backward and forward linkages: An entrepreneur initiates change which has a chain reaction.
Setting up of an enterprise has several backward and forward linkages. For example, the
establishment of a steel plant generates several ancillary units and expands the demand for iron
ore, coal, etc. these are backward linkages. By increasing the supply of steel, the plant facilitates
the growth of machine building, tube making, untensil manufacturing and such other units.

FUNCTIONS OF AN ENTREPRENEUR

There has been a great deal of confusion and contradiction in literature on entrepreneurial
functions. Classical economists considered the entrepreneur as the owner of the business
enterprise to which he supplied capital. No distinction was made between the entrepreneur and
the capitalist and as a result profits and interest were lumped together. But in the modern
corporation ownership is separated from control. Ownership of business lies with shareholders
who bear risks but do not exercise control. Control lies with a small group of insiders known as
Board of Directors. This group bears little risk and receives a large remuneration even when no
dividend in paid to the shareholders, i.e., the nominal owners. Thus, the classical theory of
enterprise fails in a large public company. A new theory of firm is required which should take
into account the income of an entrepreneur when he is not the owner of business.

Peter Kilby identified thirteen functions of an entrepreneur, which included some of the
managerial functions also.

These functions are as follows:

Perceiving market opportunities


Gaining command over scarce resources
Purchasing inputs
Marketing of the products and responding to competition
Dealing with the public bureaucracy (concessions, licences and taxes)
Managing human relations within the firm
Managing customer and supplier relations
Managing finance
Managing production (control by written records,, supervision, coordinating input flows with
orders, maintenance)
Acquiring and overseeing assembly of the factory
Industrial engineering (minimizing inputs with a given production process)
Upgrading process and product quality, and
Introducing new production techniques and products.

Kilby suggested that these functions may vary according to the size, type and setting of an
enterprise and could be augmented through training and education.

Classification of the functions of an entrepreneur into three broad categories:

(i) Innovation;
(ii) Risk-bearing; and
(iii) Organisation and management

(a) Innovation: According to Schumpeter, an entrepreneur is basically an innovator who


introduces new combinations of means of production. Entrepreneurship is a creative
activity and the entrepreneur introduces something new in any branch of economic
activity. The carrying out of a new combination implies employment of productive means
in a changed form. It is not necessary that new combination is carried out by people who
control the product or commercial process. A new combination can be carried out by
employing both unused and used means of production. As an innovator, entrepreneur
forsees the potentially profitable opportunity and tries to exploit it. He is a problem solver
and gets satisfaction by attacking problems.
Innovation is also different from invention: Invention implies the discovery of new
ideas, new articles and new methods. On the other hand, innovation refers to the
application of inventions and discovery to make new combinations and thereby produce
satisfaction and profits. Inventions may facilitate innovations but an invention in itself is
of little benefit to mankind unless it is marketable. The innovator provides this missing
link. An invention becomes an innovation only when it is embodied in a product or
service that can be successfully sold in the market.

Some people believe that innovations are carried out by big firms. The truth is that most
of the innovations are the handiwork of small firms. Large firms may have strong
organisation structures and management skills but they lack flexibility. Due to their
intrinsic flexibility small firms can react rapidly to new demands and easily exploit new
ideas. A large firm working under the constraints of size and competition tends to perfect
existing lines of production in order to increase profits. On the other hand, a small firm
tries to exploit the gaps in the production system. Unlike the giant, it is not obliged to
engage in expensive conversion and can launch itself on new, narrow or risky markets.

(b) Risk Taking: Risk taking or uncertainty bearing implies assuming the responsibility for
loss that may occur due to unforeseen contingencies of the future. An entrepreneur
provides or invests capital in order to establish and run the enterprise. He guarantees
interest to lenders, wages to employees, rent to the landlord. After making payment to
these persons little or nothing may be left for him. Economists like Cantillon, J.B. Say
and others stressed risk-taking as the specific function of the entrepreneur. An
entrepreneur reduces uncertainty in his plan of investment, diversification of production
and expansion of the enterprise.
Business is a game of skill wherein risk and rewards both are great. Ability of the highest
order is required for success in entrepreneurship. An entrepreneur is an especially
talented and motivated person who undertakes the risks of business. He visualizes
opportunities for introducing new ideas and handles economic uncertainty. He is an
enterprising individual willing to assume the risks involved in innovations, new ventures
and expansion of an existing venture.

(c) Organisation Building: Alfred Marshall recognized organisationa and management of


the enterprise as the main function of an entrepreneur. It implies bringing together the
various factors of production. The purpose is to allocate the productive resources in order
to minimize losses and reduce costs in production. An entrepreneur takes business
decisions. In the initial stage of the establishment of an enterprise the entrepreneur may
take all decisions by himself. But as the enterprise grows and the work of decision
making becomes more complex, the entrepreneur delegates authority to subordinate
executives. However, the central function of the entrepreneur remains the same. He alone
determines what lines of business to expand into and how much capital to employ. He
determines the expansion and contraction of the size of the total business and its various
branches. Being at the helm of affairs, the entrepreneur is the final judge in the conduct of
his business.

An entrepreneur formulates business plans and ensures their execution. He coordinates


the agents of production, organizes and sets up the enterprise and supervises its
operations. He thus takes the final responsibility for the business. He makes the final
choice concerning the business and shapes the long-term policies of the enterprise. He is
a decision-maker and derives satisfaction by attacking problems.

Entrepreneurship And Environment


Entrepreneurship does not emerge and grow spontaneously. Rather it is dependent upon several
economic, social, political and psychological factors. These environmental factors may have both
positive and negative influences on the growth of entrepreneurship. Positive influences imply
facilitating and conducive conditions whereas negative influences refer to factors inhibiting the
emergence of entrepreneurship. Various environmental factors influencing the emergence of
entrepreneurship are given below:

(a) Economic Conditions: Economic environment exercises perhaps the most direct and immediate
influence on entrepreneurship. Capital, labour, raw materials and markets are the main economic
factors.

Capital: Capital is one of the most important prerequisites to establish an enterprise. Availability
of capital facilitates the entrepreneur to bring together the labour of one, machine of another and
raw material of yet another to combine them to produce goods. Capital is, therefore, regarded as
a lubricant to the process of production. As capital supply increases, entrepreneurship also
increases.

Labour: The quality and quantity of labour is another factor which influences the emergence of
entrepreneurship. It is noticed that cheap labour is often less mobile or even immobile. And, the
potential advantages of low-cost labour are negated by the deleterious effect of labour
immobility. The disadvantages of high-cost labour can be modified by introduction of labour-
saving innovations as was done in the USA. Thus, it appears that labour problems can be solved
more easily than capital can be created.

Raw Materials: The necessity of raw materials hardly needs any emphasis for establishing any
industrial activity and, therefore, its influence in the emergence of entrepreneurship. In the
absence of raw materials, neither any enterprise can be established nor an entrepreneur can
emerge.
Market: The fact remains that the potential of the market constitutes the major determinant of
probable rewards from entrepreneurial function. Frankly speaking, if the proof of pudding lies in
eating, the proof of all production lies in consumption/marketing. The size and composition of
market both influence entrepreneurship.

(b) Social Factors: Social environment in a country exercises a significant impact on the emergence
of entrepreneurship. The main components of social environment are as follows:

Legitimacy of Entrepreneurship: The social status of those playing entrepreneurial role has been
considered one of the most important contents of entrepreneurial legitimacy. To increase the
legitimacy of entrepreneurship, some scholars have proposed the need for a change in traditional
values, which are assumed to be opposed to entrepreneurship.

Entrepreneurship will be more likely to emerge in settings in which legitimacy is high.

Social Mobility: Social mobility involves the degree of mobility, both social and geographical, a
high degree of mobility is conducive to entrepreneurship.

Security: Several scholars have advocated entrepreneurial security as an important facilitator of


entrepreneurial behavior.

Security is a significant factor for entrepreneurship development. This is reasonable too because
if individuals are fearful of losing their economic assets or of being subjected to various negative
sanctions, they will not be inclined to increase their insecurity by behaving entrepreneurially.

(c) Psychological Factors: Many entrepreneurial theorists have propounded theories of


entrepreneurship that concentrate specifically upon psychological factors.

Entrepreneurial class develop because it provides them psychological satisfaction.


(d) Governmental Influence: The government by its actions or its failure to act does influence both
the economic and non-economic conditions for entrepreneurship. Any interested government in
economic development can help, through its clearly expressed Industrial policy, promote
entrepreneurship in one way or other. By creating basic facilities, utilities and services and by
providing incentives and concessions, the government can provide the prospective entrepreneurs
a facilitative socio-economic setting. Such conducive setting minimizes the risks which the
entrepreneurs are to encounter. Thus, the supportive actions of the government appear as the
most conducive to the entrepreneurial growth. This is true of the Indian entrepreneurship also.

Table: Factors Influencing Entrepreneurship

Facilitating Factors Barriers


1. Technical knowledge 1. Lack of technical skills
2. Entrepreneurial training 2. Lack of market knowledge
3. Market contacts 3. Lack of seed capital
4. Family business 4. Lack of business knowledge
5. Availability of capital 5. Social stigma
6. Successful rolemodels 6. Time pressures and distractions
7. Local manpower 7. Legal and bureaucratical constraints
8. Capable advisors and supporters 8. Patent inhibitions
9. Supplier assistance 9. Political instability
10. Governmental and institutional support 10. Non cooperative attitude of banks and
other institutions

Small Business As A Seedbed of Entrepreneurship


Small enterprises have low investment and simple technology. They use local resources and cater
largely to local demands through personal the same person may perform various roles
simultaneously as an owner, a capitalist, an organizer, a manager, a labourer and what not. We
know that a person who organizes, manages and takes risks involved in running a business or
enterprise is commonly called an entrepreneur. This means there are as many entrepreneurs as
are small enterprises. Thus, small-scale enterprise precede entrepreneurs and vice-versa. The
Government of India has given small enterprises an important place in the framework of Indian
economic planning for ideological as well as economic reasons. As a result, small sector has
achieved an impressive growth in the number of units, for example, over the period.

In common sense, increasing number of small enterprises means increasing number of persons
assuming the entrepreneurial career. In other sense increase in the number of persons assuming
entrepreneurial career has exactly become sine quo non with increase in the number of small
scale enterprises. In pursuant of the Government of Indias new small enterprise policy titled
policy measures for promoting and strengthening small, tiny and village enterprises tabled in the
Parliament on 6thAugust 1991 and later passed, the small sector is sure to develop and expand in
coming years also. It infers to inter alia more chances for enterprising persons to assume the
entrepreneurial career in future. Thus, small scale enterprises serve as seedbed for the emergence
of entrepreneurship in the country. To conclude, more the small enterprise development, more
will be opportunities for the entrepreneurial career and vice versa. The Indian Punjab is a clearest
example of how opportunities for entrepreneurial carrier commensurate with the increasing
number of small enterprises in the State.

Small enterprises serve as the seedbed of entrepreneurship due to their following peculiar
features:
(i) Small units create more self-employment opportunities with comparatively less capital investment.
(ii) Small scale industries are usually based on local resources.
(iii) These industries can be located any where.
(iv) These units give quick return and have a shorter gestation period.
(v) These units cause relatively less environmental pollution and disruption.
(vi) The firms are viewed favourably because these lead to equitable distribution of income and wealth.
(vii) These units facilitate industrial dispersal and avoid problems of unplanned urbanization.
(viii) Small firms require simple technology and low managerial skills.
(ix) These units help in better utilization of local resources and skills which might otherwise remain
unutilized.
(x) These units help to maintain and retain traditional skills and handicrafts.
(xi) Small units assist large and medium industries by acting as ancillaries.

Important attributes and the required skills of an Entrepreneur are

1. Personal characteristics :Optimism, Vision ,Initiative, Desire for Control, Drive and
Persistence:

2. Interpersonal skills: Leadership and Motivation, Communication Skills, Listening,


Personal Relations, Negotiation

3. Critical and creative thinking skills: Creative Thinking, Problem Solving, Recognizing
Opportunities

4. Practical skills. Goal Setting, Planning and Organizing, Decision Making

Entrepreneur based on the type of business and technology

1. Business entrepreneur
2. Trading Entrepreneur
3. Industrial Entrepreneur
4. Corporate Entrepreneur
5. Agricultural Entrepreneur
6. Technical entrepreneur
What is the Importance and role of MSMEs in Indian Economy

MSME stands for micro, small and medium enterprises, and these are the backbone of any
developing economy. ... To avail the benefits under the MSMED Act from Central or State
Government and the Banking Sector, MSME Registration is required.
The Small Industries Development Organization (MSME Development Organization
(formerly known as SIDO)), headed by the Additional Secretary & Development
commissioner (Micro, Small and Medium Enterprises), is one of the apex bodies of the
Government of India, Ministry of Micro, Small and Medium Enterprises, to assist the
Government in formulation of policies and programmes, projects schemes, etc., for the
promotion and development of Micro, Small and Medium Enterprises in the country and also
coordinating and monitoring the implementation of these policies and programmes, etc.
Promotion and development of Micro, Small and Medium Enterprises is primarily the
responsibility of the States and Union Territories (UTs) and the role of the Central
Government (including the MSME Development Organization (formerly known as SIDO))
in this field is to aid and assist the States/UTs in this endeavour. MSME Development
Organization (formerly known as SIDO) functions through a network of MSME -
Development Institute (Formerly Known as Small Industries Service Institute)s (MSME -
Development Institute (Formerly Known as Small Industries Service Institute)s), Branch
MSME - Development Institute (Formerly Known as Small Industries Service Institute)s,
Regional Testing Centres (RTCs), Field Testing Stations (FTSs) and autonomous bodies. It
renders services such as: A] Advising the Government in policy formulation for the
promotion and development of Micro, Small and Medium Enterprises and small scale service
and business entities (collectively referred to as small enterprises) and for their graduation to
medium enterprises. B] Providing techno-economic and managerial consultancy, common
facilities and extension services to small enterprises. C] Providing facilities for technology up
gradation, modernization, quality improvement and infrastructure of/for small enterprises. D]
Developing human resources through training and skill up gradation of small entrepreneurs
as well as its own man power. E] Providing economic information services to the
Government and small enterprises. F] Maintaining liaison with other Central Ministries,
Planning commission, State Governments and other organizations concerned with
development of small enterprises. Over the years, MSME Development Organization
(formerly known as SIDO) has served a useful purpose as a catalyst of growth of small
enterprises through its countrywide and varied network of specialized field organizations. A
list of field organizations under MSME Development Organization (formerly known as
SIDO) is given in Annexure I & II. Micro, Small and Medium Enterprises Board ::
1. To facilitate coordination and inter-institutional linkages among various Ministries, State
Governments, Banks, Financial Institutions, Micro, Small and Medium Enterprises
Associations, etc., the Micro, Small and Medium Enterprises Board has been constituted as
the apex advisory body to advise the Government on all issues pertaining to the small scale
sector.

2. The Minister in-charge of the Ministry of Micro, Small and Medium Enterprises,
Government of India is the Chairman of the Board. The Board comprises Industry Ministers
of State Governments, Secretaries of various Departments of Government of India, the
heads/senior representatives of financial institutions, public sector undertakings, industry
associations and eminent experts in the field and meets periodically. MSME - Development
Institute (Formerly Known as Small Industries Service Institute)s (MSME - Development
Institute (Formerly Known as Small Industries Service Institute

There are 30 MSME - Development Institute (Formerly Known as Small Industries Service
Institute)s and 28 Branch MSME - Development Institute (Formerly Known as Small
Industries Service Institute)s set up in State Capitals and other industrial cities all over the
country. The main activities of these institutions are as follows:

assistance/consultancy to prospective entrepreneurs.

assistance/consultancy rendered to existing units.

Preparation of State Industrial Profiles.

Preparation/updation of District Industrial Potential Surveys.

Project profiles Entrepreneurship development programmers.

Motivational campaigns Production index

Management development programmes Energy conservation

Pollution control Quality control & up gradation


Export promotion Ancillary development

Common facility workshop/lab.

Preparation of directory of specific industry

Intensive technical assistance Coordination with District Industries Centers.

Linkage with State Govt

Role Of MSME In success Of Make In India

The process of liberalisation and market reforms has created wide-ranging opportunities of the
development of small scale industries. Changing world scenario has thrown up new challenges
to the very existence of the sector. In order to focus on the issues facing the sector, the
Ministry of Small Scale Industries & Agro and rural Industries was created on the 14th
October 1999 for overseeing the formulation and implementation of the policies and
programmes for the development of the small scale industries through support agencies and
specialised services.

The Ministry of Small Scale Industries designs and implements the polices through its field
organisations for promotion and growth of small and tiny enterprises. The Ministry also
coordinates with other Ministers/Departments on behalf of the Small Scale Industries ( SSI )
sector.

Benefits of an MSME Registration


Benefits from Banks: All banks and other financial institutions recognise MSMEs and have
created special schemes for them. This usually includes priority sector lending, which means that
the likelihood of your business being sanctioned a loan is high, and lower bank interest rates.
There may also be preferential treatment in case of delay in repayment.

Tax Benefits: Depending on your business, you may enjoy an excise exemption scheme as well
as exemption from certain direct taxes in the initial years of your business.

Benefits from State Governments: Most states offer those whove registered under the
MSMED Act subsidies on power, taxes and entry to state-run industrial estates. In particular,
there is a sales tax exemption in most states and purchase preference on goods produced.

Benefits from Central Government: The central government, from time to time, announces
schemes to benefit MSMEs, such as the credit guarantee scheme:

Credit Guarantee Scheme (CGTMSE)


One of the major struggles that the small scale industries face is credit and input of income from
various sources to support them.

The Credit Guarantee scheme, introduced to support MSME, comes with modifications to make
it more beneficial for small traders:
The salient features of the scheme include:
1. Enhancing the optimal eligibility loan from Rs. 25 lakh to Rs. 50 lakh.
2. Reducing the one-time guarantee for loans availed of by the MSME in North-Eastern region of
India from 1.5% to 0.75%.
3. Increasing the extent of guarantee cover from 75% to 80% for:
4. Women operated Medium and small scale enterprises
5. Micro enterprises, for loans upto 5 lakhs
6. Loans obtained in North Eastern region of the country
7. Reducing the one-time guarantee fee for all loans availed in North Eastern India from 1.5% to
0.75%.
Make in India

Manufacturing currently contributes just over 15% to the national GDP. The aim of this
campaign is to grow this to a 25% contribution as seen with other developing nations of
Asia. In the process, the government expects to generate jobs, attract much foreign direct
investment, and transform India into a manufacturing hub preferred around the globe.

The logo for the Make In India campaign is a an elegant lion, inspired by the Ashoka
Chakra and designed to represent India's success in all spheres.The campaign was
dedicated by the Prime Minister to the eminent patriot, philosopher and political
personality, Pandit Deen Dayal Upadhyaya who had been born on the same date in 1916.

PROGRAM

The Make in India initiative was launched by Prime Minister in September 2014 as part of a
wider set of nation-building initiatives. Devised to transform India into a global design and
manufacturing hub, Make in India was a timely response to a critical situation: by 2013, the
much-hyped emerging markets bubble had burst, and Indias growth rate had fallen to its lowest
level in a decade. The promise of the BRICS Nations (Brazil, Russia, India, China and South
Africa) had faded, and India was tagged as one of the so-called Fragile Five. Global investors
debated whether the worlds largest democracy was a risk or an opportunity. Indias 1.2 billion
citizens questioned whether India was too big to succeed or too big to fail. India was on the brink
of severe economic failure.
PROCESS

Make in India was launched by Prime Minister against the backdrop of this crisis, and quickly
became a rallying cry for Indias innumerable stakeholders and partners. It was a powerful,
galvanising call to action to Indias citizens and business leaders, and an invitation to potential
partners and investors around the world. But, Make in India is much more than an inspiring
slogan. It represents a comprehensive and unprecedented overhaul of out-dated processes and
policies. Most importantly, it represents a complete change of the Governments mindset a
shift from issuing authority to business partner, in keeping with Prime Minister's tenet of
Minimum Government, Maximum Governance.

PLAN

To start a movement, you need a strategy that inspires, empowers and enables in equal measure.
Make in India needed a different kind of campaign: instead of the typical statistics-laden
newspaper advertisements, this exercise required messaging that was informative, well-packaged
and most importantly, credible. It had to (a) inspire confidence in Indias capabilities amongst
potential partners abroad, the Indian business community and citizens at large; (b) provide a
framework for a vast amount of technical information on 25 industry sectors; and (c) reach out to
a vast local and global audience via social media and constantly keep them updated about
opportunities, reforms, etc.

The Department of Industrial Policy & Promotion (DIPP) worked with a group of highly
specialised agencies to build brand new infrastructure, including a dedicated help desk and a
mobile-first website that packed a wide array of information into a simple, sleek menu. Designed
primarily for mobile screens, the sites architecture ensured that exhaustive levels of detail are
neatly tucked away so as not to overwhelm the user. 25 sector brochures were also developed:
Contents included key facts and figures, policies and initiatives and sector-specific contact
details, all of which was made available in print and on site.
PARTNERSHIPS

The Make in India initiative has been built on layers of collaborative effort. DIPP initiated this
process by inviting participation from Union Ministers, Secretaries to the Government of India,
state governments, industry leaders, and various knowledge partners. Next, a National Workshop
on sector specific industries in December 2014 brought Secretaries to the Government of India
and industry leaders together to debate and formulate an action plan for the next three years,
aimed at raising the contribution of the manufacturing sector to 25% of the GDP by 2020. This
plan was presented to the Prime Minister, Union Ministers, industry associations and industry
leaders by the Secretaries to the Union Government and the Chief Secretary, Maharashtra on
behalf of state governments.

These exercises resulted in a road map for the single largest manufacturing initiative undertaken
by a nation in recent history. They also demonstrated the transformational power of public-
private partnership, and have become a hallmark of the Make in India initiative. This
collaborative model has also been successfully extended to include Indias global partners, as
evidenced by the recent in-depth interactions between India and the United States of America.

PROGRESS

In a short space of time, the obsolete and obstructive frameworks of the past have been
dismantled and replaced with a transparent and user-friendly system that is helping drive
investment, foster innovation, develop skills, protect Intellectual Property (IP) and build best-in-
class manufacturing infrastructure. The most striking indicator of progress is the unprecedented
opening up of key sectors including Railways, Defence, Insurance and Medical Devices to
dramatically higher levels of Foreign Direct Investment.

A workshop titled Make in India Sectorial perspective & initiatives was conducted on 29th
December, 2014 under which an action plan for 1 year and 3 years has been prepared to boost
investments in 25 sectors.

The ministry has engaged with the World Bank group to identify areas of improvement in line
with World Banks doing business methodology. A 2 day workshop and several follow up
meetings were held to formulate framework which could boost Indias ranking which is currently
130 in terms of Ease of doing business.
An Investor Facilitation Cell (IFC) dedicated for the Make in India campaign was formed in
September 2014 with an objective to assist investors in seeking regulatory approvals, hand-
holding services through the pre-investment phase, execution and after-care support.

The Indian embassies and consulates have also been communicated to disseminate information
on the potential for investment in the identified sectors. DIPP has set up a special management
team to facilitate and fast track investment proposals from Japan, the team known as Japan Plus
has been operationalized w.e.f October 2014. Similarly 'Korea Plus', launched in June 2016,
facilitates fast track investment proposals from South Korea and offers holistic support to Korean
companies wishing to enter the Indian market.

Sectors in focus

For the Make in India campaign, the government of India has identified 25 priority sectors that
shall be promoted adequately. These are the sectors where likelihood of FDI (foreign direct
investment) is the highest and investment shall be promoted by the government of India.On the
campaign launch, the Prime Minister Mr. Modi said that the development of these sectors would
ensure that the world shall readily come to Asia, particularly to India where the availability of
both democratic conditions and manufacturing superiority made it the best destinations,
especially when combined with the effective governance intended by his administration.

Automobiles Food Processing Renewable Energy

Automobile Components IT and BPM Roads and highways

Aviation Leather Space

Biotechnology Media and Entertainment Textiles and garments

Chemicals Mining Thermal Power

Construction Oil and Gas Tourism and Hospitality


Defence manufacturing Pharmaceuticals Wellness

Electrical Machinery Ports

Electronic Systems Railways

Benefits and disadvantages of Make in India

India is a country rich in natural resources. Labour is aplenty and skilled labour is easily
available given the high rates of unemployment among the educated class of the country. With
Asia developing as the outsourcing hub of the world, India is soon becoming the preferred
manufacturing destination of most investors across the globe. Mae in India is the Indian
government's effort to harness this demand and boost the Indian economy.

India ranks low on the "ease of doing business index". Labour laws in the country are still not
conducive to the Make in India campaign. This is one of the universally noted disadvantages of
manufacturing and investing in India.
Why Companies were not manufacturing in India

Make in India campaign is at loggerheads with the Make in China ideal that has gained
momentum over the past decade. China is a major rival to India when it comes to the
outsourcing, manufacturing, and services business. India's ailing infrastructure scenario and
defunct logistics facilities make it difficult for the country to achieve an elite status as a
manufacturing hub. The bureaucratic approach of former governments, lack of robust transport
networks, and widespread corruption makes it difficult for manufacturers to achieve timely and
adequate production. The Modi government has vowed to remove these hurdles and make the
nation an ideal destination for investors to set up industries.

The Make in India Website

Apart from the launch of a colourful brochure, which should find its way into the hands of
anyone intending to invest into India, the government of India also launched a website to
supplement the campaign. The Make In India website highlights each of the 25 target sectors
with statistics, reasons to invest, growth drivers, all policies relevant to investors and the
individual sectors, government support, and opportunities for investors apart from showcasing
the live projects that have been undertaken and FAQs. The website also links to the campaigns
Social Media feeds on Twitter, Facebook, Google Plus, and YouTube.

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