Chapter-One
Entrepreneurship
Meaning of Entrepreneurship
Entrepreneurship is the practice of starting new organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship related to co-ordination, innovation and performance of the entrepreneur. The functions performed by the entrepreneurs are known as entrepreneurship. It is a system of creating new business, exploring ideas and bearing risk.
Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high-profile" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs.
There is no consensus among the economists regarding the term entrepreneurship. Some like to say it is an art of creating new business, some other say it is an act of risk-taking and some argues that this is an art of thrill-seeking.
Here are some definitions helpful to make clear vision toward entrepreneurship.
According to A. H. Cochran "Entrepreneurship is the purposeful activity of an individual or group of individuals undertaken to initiate, maintain or aggrandize/increase profit by production or distribution of economic goods and services.
As opined by John Kao and Howard Stevenson "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/completion".
In conclusion, entrepreneurship means the process adopted by the entrepreneur for the operation of the business.
History and Evolution of Entrepreneurship
The word entrepreneur had originated from French word 'Entreprendre', which denotes undertakers. In the 14th century, the term 'Entreprendre' referred to the tax contractors. This means the person who had taken licenses with the government for tax collection in their areas and who paid the definite amount to the government. In the 17th century, the term started to use even in the civil engineering activities such as construction and erecting of forts. Only since the beginning of the 18th century, the term 'entrepreneurship' had started, used in the economic essays.
In the 18th and 19th century the term was commonly used in economic essays. The earlier French, British and Austrian economists use to write articles by depicting articles the entrepreneurs as a 'change agents' of the progressive economies. In the first half of 19th century, economists used to mention only three factors of production land, labor and capital. Some economists since that time do not regard organization or entrepreneurship as an independent factor of production.
Some economist understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter and the Austrian School of economics. In Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces "creative destruction" across markets and industries, simultaneously creating new products and business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Despite Schumpeter's early 20th-century contributions, the traditional microeconomic theory of economics has had little room for entrepreneurs in its theoretical frameworks (instead assuming that resources would find each other through a price system).[1]
For Frank H. Knight (1967) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture.
Still another view of entrepreneurship is that it is the process of discovering, evaluating, and exploiting opportunities, which go on to reify themselves in the form of new business ventures. In this model an entrepreneur could be defined as "someone who acts with ambition beyond that supportable by the resources currently under his control, in relentless pursuit of opportunity" (a definition common to entrepreneurship professors Howard Stevenson and Jeffry Timmons). Pinchot (1985) coined the term Intrapreneurship to describe entrepreneurial-like activities inside organizations and government. The concept is commonly referred to as Corporate Entrepreneurship.
In the present, entrepreneurship is taken as one of the four economic factors and entrepreneur is a special type of factor of production. It is special factor of production because he combines and organizes other factor of production. The land, labor and capital are at least hirable, at least in principle, whereas entrepreneurship is not.
Meaning and Definition of Entrepreneurs
Person who responds to the independent business careers with the risk, incubate (keep-warm) new idea; start enterprises based on those ideas and provide added-value to society on their independent are known as entrepreneurs. In the past, the word entrepreneur enjoyed a purer, more precise meaning. It described only to those as an entrepreneur who had created their own business enterprise. Broader definition of entrepreneur includes all active members, second generation members of family owned firms, owner-manager who buys out the founders existing firms and those who explode and give the dynamic leadership for the economic system by taking risks and being innovative.
Entrepreneur in the opinion of F. B. Haley is a risk-taker whereas F. H. Knight opined entrepreneur as the one who bears uncertainty (uncertainty means the uninsurable and non-calculable risk).
We define entrepreneurs as men and women who create/launch their own venture from the raw material of their own ideas and hard work or it can be said that they start their ventures from the scratch. They contribute it to lead toward the successful businesses with their instinct (sense) of timing, their hard work and idea producing ability. Pure entrepreneurs quicken the development of the economy. Profit is not merely/only the motivation of the pure entrepreneurs but also the 'desire' to found a private dynasty/empire, the will to conquer in a competitive battle, and the joy of creating.
Meaning of Entrepreneur
The heritage/tradition dictionary defines an entrepreneur as "a person who organizes, operates and assumes the risk for a business venture".
Very best think to be an entrepreneur is to think about what someone likes to do – think about a hobby that you can turn into a business since here only the think important is to give it a time, dedication and nurturing/development it will demand.
• Copying the old business or doing the same what you are already doing is not the entrepreneurial trait. Nowadays, growth is more a factor of changing what you're, doing of being sensitive to your market altering/shifting your course in response.
Below is the table showing the relationship between entrepreneur and entrepreneurship helps to make the more clear vision:
Relationship between Entrepreneur and Entrepreneurship
ENTREPRENEUR ENTREPRENEURSHIP
1 Person Process
2 Organizer Organization
3 Innovator Innovation
4 Risk-Taker Risk-taking
5 Motivator Motivation
6 Creator Creation
7 Visionary Visualization
8 Leader Leadership
9 Imitator Imitation
10 Decision-Maker Decision-Making
MEANING OF INTRAPRENEUR (CORPORATE ENTREPRENEURSHIP)
The corporate entrepreneurship is known as Intrapreneurhsip and who perform such task is known as Intrapreneur. Intrapreneurhip describes the innovation that occurs inside the established companies through efforts of creative employees.
Most of the large and far-sighted companies provides opportunities to their managers for innovation and encourage them to undertake entrepreneurship activity. The managers of the firm like others may be innovative. However, while creating something new by the staff-remaining within his work area he should not take personal stake to make that commercially successful. He/she does not have any risk, profit or loss. Therefore, the managers who make innovation by remaining within any firm are known as Intrapreneurs.
The large and established companies have adequate resources to spend on research and developments. These firms create new products and new techniques. In order to commercialize, they have also marketing strength. Many firms encourage the managers to undertake such bold tasks. The firm receives great return from the success of it. The managers might have to face even the risk of losing the job from such works. But their reward is limited to bonus and promotion. Hence, Intrapreneurship occurs as the situation of having both risk and reward. Top management commitment to the Intrapreneurship is must.
stick
Corporate Intrapreneurhip occurs only if the employees have an opportunity to work freely, if generosity/kindness is shown toward them, if new unit is established to expand the activity of the firm and if they are allowed to create new ideas from the resource of the firm.
Some reasons that entrepreneurship differs to entrapreneurship are as follows;
Like entrepreneurs, Intrapreneurs takes personnel risk to make new ideas and innovation happen. However unlike entrepreneurship, where the time and capital of the entrepreneur is placed at risk, intrapreneurship will often take the large organizations into new products and markets, away from their established core businesses. This may risk the company's capital, credibility and market share and in so doing, the intrapreneur's position within the company. Therefore intrapreneur is an employee of a large organization who has the entrepreneurial qualities of drive, creativity, vision and ambition, but who prefers, if possible, to remain within the security of an established company.
Corporate Intrapreneur stimulate or develop new products, including autonomous business units establishied within the corporation to develop a new product and/or market with the resources of corporation. Take moderate risk that is the risk of losing job if in case the innovation is failure.
Differences between Entrepreneur and Intrapreneur
Basis Entrepreneur Intrapreneur
Independency Is dependent Depends on entrepreneur or owner
Raise necessary fund Does himself Does not raise
Risk Takes full risk Only risk of losing job
Reward Receives in the form of profit which is uncertain Receives as salary, which is certain
Operation Operates the firm from outside Operates the firm from inside
Objective Excellency and profit maximization Maximization of salary and facilities
Meaning of Salaried
Employees
Confusion may arise between the terms an Entrepreneur and a Manager. People may use these two terms in the same sense but in reality these two terms denote different meaning.
Entrepreneur, visualize the idea and give it a shape, takes all the risk associated to the business but salaried employees are those who receives fix salary and benefits from the business in terms of their time devotion. They provide service to the business established by others, selected from different tests, do not create new ventures but work in those ventures as a servant, conscious about their status in the organization.
Salaried employees translated the ideas and innovation into practice, they execute plans, need knowledge of the theory and practice of management to do all this. They bear no risk in the business except bearing some given responsibilities.
Generally, in traditional small business firms, the entrepreneurs themselves found to be working as a manager due to the low burden of work, from the viewpoint of economy in cost and not diluting/thin control etc. Despite this, entrepreneur and manager should be looked separately. Although a single person works both as an entrepreneur and as a manager, receives salary as a manager and profit as an entrepreneur.
According to Edwin Mansfield "A firm managers are agents who work for the firm's owners', who are the principal/main."
The main difference between the Entrepreneurs and the Salaried Employees are as below:
Description Entrepreneur Salaried Employees
Motive Initiate business for self satisfaction Provide service in the business established by others
Objective Maximize profit
Status Owner of the business Servant of employees in the business
Risk-taking Takes all risks and uncertainties Risk of losing job
Reward Receives profit, which is uncertain Receives
Innovation Innovator Uses innovation into practice
Qualifications Need to have high achievement tendency, foresightedness and capacity of risk-taking Need the knowledge of the theory and practice
Comparative Advantages and Disadvantages of Salaried Employees
S.No. Advantage Disadvantage
1 Entrepreneurs select qualified ones for their business among the pool of candidates Source force favoritism in Nepalese organizations is common. This offense the possibility of selection of right candidate at the right time and right place.
2. Employees working in the fix salary and benefits had had limited desires, secure working life is their want; they do not demand the share on the profit. It is the organization will either to provide bonus or not. They execute plans and procedures, follow the guidelines but there are always lacking of devotion, investment of effort in creation and lacking of ability to drive. This is the reason not all the responsibility of an enterprise could leave to them.
3. Financial liability of an enterprise is limited because employee would only paid fixed salary and benefits. Due to the advanced fixed terms and conditions in employment contract, enterprises have pay them even in the loss or in the profit (BE) situation.
4. Hire and fire of the employees is also easier Involvement of labor unions and political affairs is the problem to make the decisions regarding hiring and firing.
5. It is easier to motivate employees by applying different employee incentive plans and maintaining them continuously. Desire and wants do not remain constant. It emerges one after another and there is no ending. It starts with the physiological need and leads towards safety and security needs, social needs, esteem and status needs and self-actualization needs. Thus identifying and linking the upward motivational factor is vast for the business.
Positive and Negative Aspects of Entrepreneurship
Positive Aspects
1. Opportunity to change destiny
Entrepreneurs are the owner of the business; they invest their money, time and idea in the business. In turn to this, business provides the opportunity to achieve the thing considered important personally they receive the reward of the business by knowing that they themselves are the driving force of their business.
2. Opportunity to reach to the full potential
Self-business provides the challenging environment, demands creativity and determination. To meet the challenge, to fulfill the creativity and to take the business into success an entrepreneur use his full potential, their business becomes the instrument of self-expression and self-actualization.
3. Opportunity to reap (cut and gather) unlimited profits
Most of the entrepreneurs emphasize their interest in excellence for its own sake, rather than for rewards of money, prestige and power. Money is not the main drive force for the most of the entrepreneurs. Enough evidences are found of the business flourishing from rags to riches due to creativity and shrewdness/wisdom of the prompters.
4. Promotes Capital Formation/Organizing
Entrepreneurs and the entrepreneurship, promotes capital from the idle savings of the people. Capital is regarded a prerequisite/requirement of economic development, entrepreneurship. Nowadays capital formation should include the physical goods such as machine, equipment and plants including non-physical goods like high level of education, health, scientific tradition and research.
5. Promotion of employment opportunities
Entrepreneurs initiate the business and business needs HR to perform its function which results to an employment, this lead to an increase in income and standard of living of people.
6. Balanced regional development
Active and energetic entrepreneurs always search for the opportunity, which other do not see or so not care even if see. He assembles manpower, materials and capital to transform the opportunity seen by them, they establish business in the different parts of the country. This help on the balanced development in turn helps in removing regional economic disparity/inequality, reducing rural-urban migration and rising of living standard of the people of backward regions.
7. Industrialization
Industrialization is the result of entrepreneurship. Industrialization is possible where entrepreneurship has flourished. It helps to move the people overly/excessively dependent on agriculture to the non-agricultural sector; it also helps in removing the problem of unemployment. This increases the ability of the people of the country to consume a variety of quality goods in the reasonable price.
8. Promotes Foreign Trade
Foreign Trade is regarded as the 'engine' of development. Entrepreneurs promote foreign trade by initiating new products. This help in earning foreign exchange. This help in disequilibria in balance of payment. Likewise, there is the entry of foreign technology in the country.
Negative Aspects
1. Uncertainty of Income
Entrepreneurs initiate the business with the heavy investment, but the same business does not provide guarantee of earning adequate money to the entrepreneur to remain alive. In the initial phase the business faces many difficulties and financial obligations, it is very challenging to the entrepreneur to overcome from this situation. The owner of the business receives only residual/remaining after payments made to all.
2. Risk of Losing Investment
There is no guarantee that once the business is initiate, it will succeed. Such unsuccessful entrepreneurs will have to lose their saving which they had invested in the business, it increases the personal burden, and they are affected psychological. And it may happen them that they cannot come out of a failure because the loss which, they have much more than financial loss. Since before putting personal saving and health on risk, it is necessary to take into account carefully the risk reward trade off.
3. Long hours and hard work
In order to lift the business, entrepreneurs either new or old considerably invest their time and energy. They have their countless hours investment to the business to perform the different business activities from selling, cleaning, raising money.
ENTREPRENEURSHIP QUALIFICATIONS
1. Confidence in their ability to succeed
Understanding the situation reality is one of the entrepreneurial traits. They are optimistic in their ability to succeed. Entrepreneurs do not stop their ventures if they fail once because they are confident; and have to power to foresee the future.
2. Calculative Risk takers
Entrepreneurs rarely play gamble, they establish ventures only if they see the possibility to succeed and if their findings of the research concludes so. They do not invest their savings on the area where they lack knowledge and experience. In view of some persons, good entrepreneurs are risk avoiders instead of being risk takers because they remove all factors that they may prevent them from going to the market.
3. High Level of Energy
Normal persons couldn't able to succeed in the entrepreneurial ventures because it demands long hours of work, hard labor, high energy and effort. The successful entrepreneurs work hard to result the venture successful. Their morale is like this- "The Harder you fall, the harder you bounce."
4. Future Orientation
Entrepreneurs who visualize the idea of venture have well defined sense of searching opportunities. They always look forward; they are less interested in what was done yesterday and what will be done tomorrow.
5. Skill at organizing
An entrepreneur assembles/bring together the men and works which enable them to convert their vision into reality. The effective combining of men and works enable them to convert their vision into reality and to earn profit. That is the reason the entrepreneurs are called good organizers.
6. High degree of Commitment
The entrepreneurs fully surrender their body, mind and money into the business. The commitment facilitates them to defeat the errors and confusion that hurt the business.
7. Tolerance for ambiguity
The entrepreneurs are more tolerant for the obscure situation that changes every second, on which environment they have to operate. This ability to handle the uncertainty is crucial, because the business promoters make decisions continuously on the basis of new and at times the conflicting information collected from unknown source.
Meaning of Small Business
In the general conception, a business is small when it has independent management (usually the owners are the mangers), owner supplied the capital or small group of investors, operated in a geographically restricted area (local area of operation), is small compared to the biggest firms in the industry, and has fewer than 100 employees.
The criterion used to measure the size of businesses varies within the organizations. Some criterion is applicable to all industrial areas, while others are relevant only to certain type of business. Differentiating the industries according to the given criterion is very difficult because some industries are capital-intensive whose typical size is very large e.g. steel manufacturing company, even if they are small but in the other hand some service-businesses such as beauty shops, they typical firm is quite small.
Small businesses make unique contributions to the economy. They provide employment for millions of employees and play a special role in generating large share of new jobs needed for a growing labor force. They are responsible for introducing many innovations and originating such scientific breakthroughs. Small firms act as dynamic economic competitors to help our economy maintain a healthy state. The fact that small firms perform some business functions, such as distribution and supply- more expertly than large firms, enable them to aid large firms in many ways. However, it does not mean that small business cannot produce goods and services; they also produce goods and services efficiently as evidenced by different studies.
Finally, we can say that small business is the independent business, which is own and managed by a single or fewer persons, is an extension/annex of the owner's needs, objectives and personality. Small business focus on running a business over a long period-of-time, it remains small for a long period. In the context of Nepal, small business contains fixed assets up to 30 million, which includes specified movable and immovable assets.
Small business has played an important role since the history. Some important example of this is the banker's loan on interest on 4000 years ago. Further Small business flourished in almost all ancient cultures. The Arabs, Babylonians, Egyptians, Jews, Greeks, Romans excelled/do extremely well at it. But in some cases their products and services, however, were frequently careless/shoddy. The result was that small business became objects of scorn/laughter.
Small Business Predominates
Manufacturing
Any business may be considered manufacturing enterprise if it is engaged primarily in receiving materials in form and after working on them, distributing them in an altered form. This would include processors of farm products, local craftsman or artisans, bottling plants and similar enterprise.
Many mass produced goods such as motor vehicles, planes, refrigerators, radios and so on have from a few hundred to several thousand component parts, indicating that on the average each large concern buys materials and parts from small firms in hundred of different of kinds of business.
Some of the small manufacturing are printing shops, bakeries, bottling plants , processed dairy products.
Merchandising
Merchandisers are middlemen in the channel of the distribution who actually sell products to the final consumers/retailers, or who buy goods for resale from wholesalers.
Though the number of independent, small scale wholesalers is increasing, this increase is not keeping pace with the growth in population. Opportunities for the small businessmen in this field are not as great as they once, owed principally to the absorption/combination of the wholesaling function by franchising organizations manufacturer's representatives, and large-scale integrated retailers like chain stores, department stores, and mail order houses.
Service Establishments
Service businesses literally offer hundreds of different kinds of services to consumers, to governmental agencies and non-profit organizations and to other businesses.
A service can be defined as an intangible economic good, nonreversible or non returnable whose value does not depend primarily upon some material article that may or may not accompany the rendering of the service.
Some examples of small business
• Hotels, Motels, Tourists courts and camps;
• Personal services-Laundries, dry cleaning plants, barber beauty shops, shoe repair shops.
• Business services-Such as advertising agencies, public accounting firms, credit bureaus and collection agencies, management counseling firms, equipment rental, sign painting shops etc.
Small business describes using several criterions such as
• Number of workers
• Sales volume
• Total assets
• Area of operation, use of power
• Use of material
• Market share
• Volume of deposits
• Insurance in force
Industry/Trade/Commerce; Buy and Sell
Occupation/Professional; Job, Career, Work
If the things satisfy the need of the customer then they are called the products. Products can be of following types;
• Goods- Clothing, books, shoes, computer, food
• Services-Banking, Insurance, Finance, Advertising, Training, Repairing
• Ideas-Consumerism, human rights, environmental protection, property rights to women- Knowledge based
• Events-Games, exhibitions ,convention/meeting
• Information-Research, Internet, Websites, E-commerce, newspapers
• Properties-Rights of ownership
Small business surround and engaged in production and marketing of the products to make profit through customer satisfaction.
In the general conceptions, a business is small when it has
• Independent management/usually the owners are also the managers
• Owner supplied the capital
• Local area of operations
• A small group of investors
• Operate in a geographically restricted area
• Is small compared to the biggest firms in the industry
• Number of workers
• Sales volume
• Total assets
• Number of investors
Features of Small Business in Developed and in Developing Countries
A developed country enjoys a relatively high standard of living through high, strong and advanced technology. They benefit from the diversified economy. Most countries with a high per capita (Gross Domestic Product) considered as developed country. The Per Capita Income of those countries is above as US $ 20000.
Developing countries are those countries which have low-income level with comparison to developed countries. They have per capita income below US $ 5000. Industries in the developing economy use labor-oriented-low-tech business.
Some Similar Features of Small Business
1. Independent Management
Small business in all economy has independent management because small business is own and managed by very few persons. Investment made from the family connections of the owner. Therefore, there is no outside control.
2. Decision Making
The owner of the business takes management decisions. Authority for the decision-making is centralized.
3. Local Operations
Use local resources; hire local people, mainly the local area of operation, relatively small share of its market, generally enter to the market niche.
4. Impact in the Industry
Small business has the low impact in the industry; it is weak in economic power. Large business play lead role in the industry but they are also independent to small business.
5. Customer Relation
It has good close relations with the customers. Concentration is toward development of new unique products for market niches.
6. Area of operation
Except for its marketing function, the firm's operations are geographically localized. Typically, it operates in only one city or community or enters to the market niche.
7. Investors
One individual or small group supplies financing in the business. Only in the rare case would the business have more that 15-20 investors.
Some Dissimilar Features of Small Business in Both Economies
Condition of the market, as well the market management makes some differences in the small business activities in developed and in developing countries.
1. Definition differences
Definition of small business used in both economies differs significantly. Developed countries generally use number of employees as the indicator of small size as well developing countries use fixed assets or capital assets as the indicator of size. Some economies use mixed indicator.
2. Activities
Developing countries economies dominate in the retailing and wholesaling sector. Low-tech-labor-oriented business is dominant. Same as developed countries provide better services in the non-manufacturing sector. They use high-tech-capital oriented businesses.
3. Facilities
Technological advancement, excessive availability of material resources, capital and the assistance for management, skilled manpower and insightful/sensitive customers in the developed countries smooth the progress of small businesses. Developed countries provide better and more facilities to their small businesses. In contrast to this capital infrastructure facility, institutional support is very poor in the developing countries. Bureaucratic/technical hurdle/obstacle and regulations requiring lots of paperwork constrain their operations.
Small Business in Nepalese Economy
Industrialization in Nepal had started very late; it has started only after the establishment of council of industry in 1936. In Nepal, there were numerous traditional entrepreneurs such as potter, blacksmith, and goldsmith, painter weaver etc. In addition, the planned effort in industrialization has made after launching economic planning in the country.
Although the history of the industrialization has started very late but since then the growth of it’s a continuous process and small firms unquestionably contribute our economic welfare. They produce ample/significant portion of the total goods and services. Small business role in the economy is not less then that of big business. Albeit/although the giant corporations and "mass production" firms, loom/became visible important in terms of total productivity, it is small that actually constitutes the backbone of the worlds economy. As a result, we can strongly say that the Nepalese small businesses play the role like stamina of the nations.
Small business do not have the need of massive sum to initiate the business, fixed assets not exceeding than 30 million are measured as small business.
Small business in Nepalese economy play pervasive role and more than 90% manufacturing establishments are small business. Employment creation by that business is about 60% because the businesses are labor intensive.
Strengths and Weaknesses of Small Business
Strengths/power/force/strong point of Small Business
• Small business remains so because it functions to perform that is impossible for the large houses. Similarly, it operated in the limited market, in the very few market niches, serving as supplier to local household consumers or to other firms.
• Some firms are small by choice seeking to retain strong personal control. Some are small because they are specialists in a greatly limited field. Small repair shops, cyber cafes, barber shops and beauty parlor, as well the ice-cream vendor is the perfect example of this.
• Small firms have flexibility as well adaptability in production, marketing and in providing services. The small firms generally have a closely-knit organization that operates on an informal basis and generally, has excellent communications. This allows small company to react to changes and problems arising in any area and take corrective action immediately.
• Greater motivation as used as a next factor because the top executive is often the owner or a major stockholder. He usually works harder, longer and with more personal involvement than do executives of larger corporation. This leads to the greater motivation to the employees, which possibly contributes to small business strength.
• Small business can more expertly show the strength than that of the big business houses. Those are as follows:
For new ventures, because the large establishments require proof before much capital is invested, efficient machinery and a body of technology must be developed before a large volume of output is feasible.
• Where both raw material and finished products are perishable, such as cut flowers and most diary products.
• Where demand is strictly local such as custom tailoring and the sale of residential real estate.
• In the area of customer convenience such as neighborhood grocery stores and drug stores.
• Where the manual labor and personal attention to details by the owner-manager are of dominant importance. Such as repair services, personal services, beauty and barber shops.
Weaknesses
Importance of Small Business
Small businesses are the backbone of the nations. Small firms unquestionably contribute to their nation's economic welfare. They produce a substantial portion of the total goods and services. Thus, small business role in the economy is not less then that of big business. Small business in general explore the unutilized resources, introduce innovation, stimulate competition, aid big business, provide new jobs, help on equal distribution of wealth and produce goods and services efficiently.
1. Providing New Jobs
New jobs, comes from the birth of new firms and their subsequent expansion. Some new firms gradually grow and expand themselves therefore; they are no longer remains small. While they do grow, they add initial jobs and create employment. Small business generally use labor-intensive technology and such labor-intensive technology easily create off-farm and non-farm employment in the countryside.
2. Utilization of local resources
Small-scale business utilizes local resources like capital (such as family saving skills in traditional crafts) this can be harness (bind/tie together) to produce handicrafts or basic goods or material resources (like wood into furniture).
3. Balanced economic growth
Small scale industries tend to develop in various regions of the country, they use local resources, employ local people, contribute to reduce concentration of industries in urban areas, help to move people from agriculture to non-agriculture. This promotes balanced economic growth.
4. The dependence of Big Business on Small Business/aiding big business
Small business is complementary to large business. They have backward and toward/ forward with large business.
Backward linkage means supply of inputs for an example; semi-finished goods to be large-business, those semi-finished goods are the final products of the small businesses. Forward linkage means distribution of products and services. Some large manufacturers of inexpensive consumer products find it desirable to won wholesale and retail outlets. Successful small business operation and retail divisions are the helping hands to them.
5. Provide services to large business products
Small business provides services to customers of big business. For example, they wholesale the foods of large manufacturers, they service automobiles, repair appliances, advertise the products etc.
6. Stimulate (make something more active) economic competition
Monopoly in the market overprices the products, impede/stop the technological development, discourage the new comers in the industry, centralized the income and power in urban areas. Small business helps building a strong middle class by promoting a group of entrepreneurs discouraging the concentration of economic power in the hands of a few persons. This is possible by generating employment in the local level, by using the local resources, by promoting the export or by the help of substituting import.
7. Development of entrepreneurship
Many large business of today are small business of yesterdays, therefore small business is the means of entrepreneurship development. Small business serves as a training ground for entrepreneurial ability and managerial talent. It is also taken as the nursery of entrepreneurial ability and managerial talent. Small business enables risk-taking and motivating individuals to finds arenas for their talent to new types of business activities and innovations.
8. Capital Formation
Small business encourages people in capital formation. Saving is the means of capital formation. Small business can be operated with low capital. People can generated required capital to operate small business by the means of saving therefore, small business encourage people into capital formation.
9. Innovation
Small business people tend to be mavericks/individualist, and it is often said that the entrepreneurs who extend the frontiers of knowledge. Many researchers and their work on small businesses shows that significant innovations are as likely to come from small business or from individuals from big businesses. Small business gives birth to more than twice as many significant innovations per employee as big business
General believe on the innovation is the prospect of generous financial rewards but small businesses as we earlier said are the leader in innovation are able to lead because of the small businesses creative drive and the need for peer recognition as an overachiever.
10. Close relation with customers
Small business can maintain close relations with their customers they can easily identify the changing need of customer. They can make formal as well informal relations with their customers. They can provide personal services when necessary and demanded by the job. They can better satisfy their customers as compared to large business. Relationship marketing is possible in small business.
Chapter Two
Starting of Small Business
Sources of Idea Generation for Small Business
Prosperous time attract many entrants into small business ownership which misinterpret the easy going as a harbinger/indication of success. Business opportunities may be uncovered in a variety of ways where an expanding market justifies the establishments of additional businesses.
Before an enterprise launched with reasonable prospects for success, a genuine business opportunity must be discovered and its possibilities should be appraised. Emotional decisions in this edge to become one's own boss may result negative sometime. Many businesses fail because they lack inadequate educational preparation, justification for their existence, laboratory experiments, product analysis, market surveys, and pilot survey test lead/efficiency, error, deviation surveys.
Most common situation where an expanding market justifies the establishment of additional businesses of the same type, another situation creating a favorable opportunity for a new business of an existing kind where the market is not being adequately served. A third type of business opportunity arises from the introduction of a new product or service, which meets the need of the market. Since, there are may sources of Idea Generation for Small business:
1. Work Experience
A basis for new-venture ideas to many entrepreneurs is their work experience. From the knowledge of their present or recent jobs, they see possibilities in modifying an existing product, improving a service, or duplicating a business concept in a different location.
2. Invention of the New Product
The entrepreneur may invent a product or acquire an invention from the original inventor. New development in the environment, new idea, and new forces, facts, impression, image pictures and many types of ideas are built, all of a sudden any idea can be seized and can be uses immediately.
3. Hobbies
Sometimes hobbies grow beyond their stature/height as hobbies to become businesses for example someone's artwork leads him into a successful business venture.
4. Accidental Discovery
As a source of new venture ideas, accidental discovery reveal something and for that we call chance and the sense of making desirable discoveries by accident. Any person may stumble/hesitate across a useful idea in the ordinary course of day-to-day day living.
5. Deliberate Search
Deliberate search is a purposeful exploration to find a new venture idea. A new business may emerge from the prospective entrepreneur's deliberate search. There are two approaches to this search.
a. Inside-Out Approach
Here entrepreneurs first find their own capabilities and then look at the new products or services they are capable of producing.
b. Outside-In Approach
They first look for needs in the marketplace and then relate those needs to their own existing or potential capabilities. The outside-in thinking market first has apparently produced more successful ventures, especially in the field of consumer goods and services.
Outside Creativity
• Outside consultants and experts can provide promising new ideas.
• Competitor's activities provide ideas for small business.
• Foreign countries and their ideas can be the sources of ideas.
• Suggestions from friends and family and well-wishers.
• Net-surfing/ visiting different sites regularly.
• Television, Journal, Newspapers
• Visit to trade fairs and exhibitions and attending education and training courses provides new ideas.
Internal Creativity
Is the way to discover new ways of doing work from self-thinking?
• Unexpected ideas explore in mind
• Prior work experience
• Novel and unique or improved ideas to solve problems.
• Hobby-interests of the owner
Situation Survey
• Political-Legal Changes- Policies and legal provisions of government, elimination of controls of licenses. Tax concessions, Subsidies and other incentives.
• Technological Changes-Invention-Innovations, System-Processes-Methods-Equipment provide new ideas.
• Economic Changes- Change need and preferences, changing taste on food is the example.
• Socio-Cultural Changes- Changing life styles
History and Evolution of Franchising Opportunities
Early Franchising
The word franchise comes from the French word Franchir which means to "free" it meant to be "free from slavery". It has a several other meaning but in the business world franchise is simply an agreement between seller and buyer which permits the franchisee (buyer) to buy the product or service of the franchisor (seller).
The first big burst in franchising came right after World War II. A tremendous back log/excess of demand had been built up for peacetime goods and services, and the postwar expansion of many companies (particularly the new ones) was restricted businesses by the lack of capital. This help to work mutually with mutual benefits, and the franchise system began to boom.
Franchising started since the early 1800s. But modern franchising was started when General Motors began franchising dealerships in 1898. Rapid growth of franchising started since the 1920s and 1930s where independent wholesalers of groceries, hardware, automobile accessories, and other products adopted the franchising concept and began to build vast networks of voluntary chains.
And in the 1950s one most popular example of modern franchise, Mc Donald a fast-food business started franchising. Since the 1950s, franchising has grown so rapidly that it has made inroads into virtually/almost in every industry.
In the history of its developments, product franchise dominated the franchising but laterally business franchises are growing rapidly, they dominate the growth of business franchise. Overall franchises have increased four fold in the last two decades from Europe to Asia to Africa. It is the big opportunity to all the would-be entrepreneurs because of its receptive/friendly markets and vast opportunities to export their way of doing business.
Meaning of Franchising
An important step in the small business start-up process is deciding whether to go or not into a business at all. Each year thousand of potential entrepreneurs face this difficult decision. Many new entrepreneurs choose franchising as an attractive business alternative due of the hurdle in new start-ups and fraudulent in buying a business. Franchising offers genuine business opportunities to many prospective entrepreneurs. The franchising concept is an attractive option for operating a small business because franchising itself is a creative form of business which helps thousands of entrepreneurs realizes their business ownership dreams.
The term franchising is defined in many ways. Here a board definition is used to encompass its wide scope. Franchising is a marketing system that revolves around a two-party legal agreement whereby one party is granted the privilege to conduct a business as an individual owner but is required to operate according to certain methods and terms specified by the other party. The legal agreement is known as the franchise contract and the privileges it contains are called the franchise. The party provides the privilege is the franchisor and the party receiving the privileges is called the franchisee.
In the other word, a franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group wishing to use that identification in the business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells the goods and services supplied by the franchisor or that meet the franchisors quality standards.
In essence, franchisees buy a ready-made business and lies in the appeal of franchising, since franchisees avoid having to build a business step by step; as most entrepreneurs start from scratch.
Franchising is based on the mutual trust between the franchisors and franchisee. The franchisors provide the business expertise (marketing plans, management guidance, financing guidance, financing assistance, site selection and training). On the other hand franchisee brings to the franchise into operation, the entrepreneurial spirit and drive necessary to make the franchise a success.
One of the most important features of this contract is the provisions relating to termination, transfer and renewal of the franchise. In many examples franchisor terminate agreement without informing the franchisee. However this is the right of the franchisor to have legal protection in the event that a franchisee fails to obtain a satisfactory level or to maintain the quality standards. Similarly the right of franchisee to renew the contract after the business has been built up to a successful operating level and the right of selling of a business to a third party should be clearly stipulated/predetermined.
Since, Franchising today is used to distribute almost any conceivable/possible/believable product or service. Its growth has been primarily dependent upon two factors: the desire and the need of business to establish many outlets with minimum capital, and the desire of individuals to be independent businessmen.
Some factors that should be considered before entering to the franchise contract are:
• Fees that are involved
• Territorial limits of the franchise
• Training provisions
• Restrictions upon the purchase of materials
• Control of operations and performance standards
• Prohibition against the sale of competing lines'
• Price requirements
• Record-keeping requirements
• Necessary Hours and days of operation
• Advertising provisions
• Grants of franchise
• Termination, Transfer and Renewal Provisions
Options for Starting a Business
Above table shows the different options for starting a business
1. Buy an Existing Business
Many find the idea of running a small business appealing and attractive. But when they go into it they lose their motivation after dealing with investors, business plans, and legal issues associated with new start-ups.
For those disheartened by such risky undertakings, buying a existing business is often a simpler and safer alternative. The main reason to buy an existing business is the drastic reduction in the start-ups costs of time, money and energy.
Buying a business enjoys the immediate cash flow, inventory and receivables. Pre-existing goodwill and easier financing opportunities because of the early relation further be benefited if the business has the positive track records.
But the biggest block to buying a small business outright/complete is the initial purchasing cost because business concept, customer base brands and other fundamental work has already been done; the financial cost of acquiring an existing business is usually greater than starting one from nothing.
Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase but later turn out to be non-collectible. Good research is the key to avoiding these problems.
Before buying a going concern a buyer should take in account these factors:
• Owner running a business wants to sale the business has many sides
• Due to the old age, illness, loss from years, migration of the current owner, and desire to start new business.
• Due to the problems to run a business, problem with landlord, suppliers or legal restrictions.
2. Inherit/Receive a Family Business
Existing Businesses is inherited by the children's or by the immediate members from the family for the inheriting of the business, business must be a going concern and the family involvement management ownership and in control is essential. There are two facets of ownership transfer, (I) if the parents and relatives running a business dies or (II)If they enable to continue or an owner want to launch the children, inheriting may be planned, which is also called succession.
Inheriting is a way to enter to the business, there is no need of written plan, market surveys, location identifications, competitor and their position, hiring of employees and competitor and their position, hiring of employees and acquiring of physical facilities and its layout whatever is. Neither there is a requirement of assets and liabilities analysis and valuation, analysis of financial performance, identification of personnel remaining and leaving when a business is bought because it’s a family business where ownership transfers just after the owners death or when the owner is not capable of handling project anymore.
Inheriting replaces the old and establish new owner but in some instant this may happen with planning. If the owner’s motive is to bring his child into a business he can launch a new product or add a new product line, new market segment or find a market niche to serve or he could expand the department in the organization
Planned inheriting exist when an ongoing owner/parent want to launch their children in the business. Planned inheriting is also called succession planning. In this type, parent try to eliminate all the problems associated to the business, identify skill, knowledge, experiences and desire of their children to enter to the business and develop a business plan than only launch their child to the business.
Unplanned Inheriting occurs when an existing owner is unable, don’t want to continue, dies or because of old age, illness any other inability.
Pros of Inheriting a Business (Advantages)
Risk is eliminated or the business is on the positive track record. New owner enjoys the established and smooth relationship with stakeholders (suppliers, customers, creditors, banking institutions, competitors, employees, society, and government).
Because of the family business and ongoing concern it saves time cost and energy that requires on buying and starting a business. Suitable location, effective human resources, sound taxation system is on the place, are the additional advantage of the inheriting.
Cons of Inheriting a Business (Advantages)
When an unplanned inheriting exist, inheritor may lack interest to enter to the business, or sometime it is only parents will to bring their children to the business but the children may attracted towards other opportunities.
May the interest between the family members overlap, more than required person may want to enter to the business which created legal problems?
3. Starting a New Business Venture
Many small businesses are successfully started “from scratch”. The most effective way is to approach a new small business venture is to create an unique product or service; one that is not being offered today but if it were would be in great demand. The next-best way is to adopt something that is currently on the market or extend the offering into an area where it is not presently available. The first approach is often referred to as new-new, the second as new-old approach.
New-New approach; New concept, New idea, New location, New physical facilities, Newly established relationships with financial institutions, suppliers customers, government and society and new market niche, new competition and competition.
New-Old approach; most small businesses do not start with a totally unique idea. They either improve a product or offer a service in an area where it is not currently available. This kind of enterprise should try to offer a product or service that is difficult to copy.
Starting a new venture demands a thorough market analysis. Market analysis should justify market demand. Is market demand for a particular product sufficient or not. Fact gathering help to justify the reason.
Types of Franchising
Commonly there are three types of Franchising and they are:
1. The product/trade franchising (Distributorships)
Here a franchisor owns the right to the name or trademark of the products. Franchisee here is a distributor of the products. Franchisee receives products, sells them through retail business. Some internationally known brands are the strong examples of this.
2. Business format franchising
A boarder and ongoing relationship between the two parties exists in this type of franchising. Business format provide a full range of services, including site selection, training, product and service supply, marketing plans, and even assistance in obtaining financing. The examples of this type of franchising are the Mc. Donald, Pizza Hut and the Archies card shop.
3. Service Franchise
This type of franchise contract a franchisee receives a license to use the established name to sell particular services. Some of the examples of this type of franchise are beauty saloons, accounting and law firms. Like Price Water-American Accountants firms and DHL are some popular names in the service franchise
4. Piggyback (take credit) Franchise
Two or more franchised businesses that share space to offer a more comprehensive product or service to customers.
5. Area Franchises
Franchisees that have the right to run franchise at only one site.
6. Single-unit Franchise
Franchisees that have the right to run franchise at only one site
7. Multi-unit Franchises
Franchisees that have rights to open several franchise units at once.
8. Sub franchises
Franchised outlets sold by area franchisees to other businesspeople in their areas
Selecting a Franchise
In a real sense, franchisees do not start business from scratch. When they buy a franchise, they generally receive a ready-made business. Then all they need to do is follow the franchisor's instructions on how best to do business.
Some instructions of selecting a franchise are:
• What product or service to sell
• How to sell it
• How to control costs
• What reports to prepare
• How long to stay open each day
Before buying a franchise, entrepreneurs first attempt is to make sure the decision to become a franchisee is sound; it’s a first step and also called self analysis stage. The second step is to choose a product or service and searching of franchise candidates. The third step is the review of checklist of questions (hire consultants, lawyer, and experts to develop the checklist of questions) and finally compare franchises and pick best one.
Future Franchise Boom
Beauty parlors,
Equipment-renting outlets,
Book-keeping and tax services
Variety stores
Drugstores
Brake and Muffler repair shops
Dry cleaning services
Employment agencies
Car-Rental Services
Pizza
Fast-Food outlets
Employment Agencies
Franchising Relationships
Commonly there are three types of relationship exist between the Franchisor and Franchisee and they are;
Relative Advantages and Disadvantages of Franchising
Advantages of Franchising
A franchise does not launch a new business in the strict sense of the word. He is really opening a new 'outlet' of a well-established organization with a record of acceptance and success. Franchising offers distinct advantages to the prospective owner of a small business. Acquiring a franchise eliminates most of the risks that bankrupt so many small businessmen during their first few years of operation. With a quality franchise the prospect is set up in a going business, one with successful, nationally advertised or identifiable product or service this is the reason a franchise is attractive for many would be entrepreneurs.
Here are some points that indicate the merits of buying a franchise to the Franchisee.
Advantages
In this sense, a franchisor the real owner of the business also enjoys the multiple revenue sources, expansion of the business globally, heavy discounts due to the bulk purchasing.
1. Managerial guidance and formal training on start-up and beyond
Franchisee usually receives thorough training in a proven business technique; assistance and or patronage in locating, constructing, equipping and financing his enterprise; the purchasing advantages of combined buying power and expertise in merchandising/trade in/product/good and management practices and control.
2. Financial Assistance
The costs of starting a new business are often high and the prospective entrepreneur's sources of capital quite limited. The entrepreneurs standing as prospective borrower is weakest at this point. Franchisor assists franchisee to help on provision of financing, in dealing with financial institutions and with government.
3. Marketing Assistance
The entrepreneur who enters a franchising agreement acquires the right to use the franchisor's nationally/internationally advertised trademark or brand name. This serves to identify the local enterprise with the widely recognized product or service. In addition, the franchisor maintains the value of its name by continued advertising and promotion. The standard operating manuals and procedures they supply have permitted other entrepreneurs to operate successfully.
Disadvantages
A few limitations to franchising keep it from being a business solution. Franchisor also suffers in many aspects like loosing the control-because franchisees are not employees, sharing the profits and maintaining the quality.
Some other limitations to the franchisee are as follows.
1. Cost of Franchise
Fees of various types must be paid the franchisor. Generally, the higher fees will be charged by the more successful and well-known franchisors, this includes the initial lump sum payment plus royalties (% on sales) plus the other fees including different fees of assistance.
2. Restrictions on Growth
A basic principle of the business is the business growth, in the existing sales territory but many franchise contracts restrict the franchisee to a defined sales territory, thereby eliminating this form of growth.
3. Loss of Absolute Independence
Franchisors regulation of business operations may be helpful in assuring success, it may be unpleasant to an entrepreneur who cherishes independence. Franchisee lacks individual identity, site selection, advertising and hours of operation.
4. Unfulfilled Promises
Evaluating Franchising Opportunities
The prospective franchisee must locate the right opportunity, investigate a franchise offer for a possible fund, and examine the franchise contract carefully. Venture magazines, Trade publications, advertisements in newspapers, word of mouth are the some sources of information that is readily available to anyone to gain the idea about the franchisors. In following up these advertisements, the prospective franchisee needs to beware of advertising claims that are misleading or that promise more than is warranted/acceptable. The task of locating the most suitable opportunities has become difficult because sources of franchise are not always obvious.
Information concerning franchise opportunities may also be obtained from the franchisors themselves. They are usually very helpful in explaining the necessary steps to opening a franchise business.
Ordinarily the opportunities evaluating process is a two-way effort. The franchisor wishes to investigate the franchisee, and the franchisee obviously wishes to evaluate the franchisor and the type of opportunity offered. One should be skeptical of a franchisor who is hurried or who pressures a franchisee to sign at once without allowing for proper investigation.
Steps in analyzing opportunity are:
1. Analyzing oneself (self-analysis)
Before buying a franchise make sure that the decision to become a franchisee is sound by identifying and defining own skills and desires.
2. Type of opportunity
Analyze the on-going start-up assistance, business plan, training and advertisement.
3. Operation of the franchisor
For how many years has the franchisor been in the business, does the franchisor have the good reputation, financial stability of the franchisor, debts of the franchisor, capital need for the expansion?
4. Profit potential of franchise
Certified figures of franchisor indicating exact net profit, future earnings, competition and risk should be examined carefully.
5. Cost of the franchise
Start-up cost as initial payment.
Royalties to be paid i.e. percentage of sales
Advertising fees and other assistance fees to be paid to the franchisor.
6. Professional help
Expert’s evaluation and analysis
Help in choosing the best alternative among
7. Need of the buyer
Population in the territory
• Increase
• Remain/ Static
• Decrease over some years
Demand of the product or service beLess
=Equal
8. Environmental study
SWOT analysis
Specific Location Problems for Small Wholesale Business
Small Business Failure
Problems of Small Business
Although researchers have established no "official list" or uniformly/regularly recognized group of difficulties for small business, they have detected a number of recurring problem areas.
Lack of managerial Skills and Depth
Management team is lacking in the small businesses. Top-level decisions, together with all the lesser tasks of management that assistants cannot accomplish, become the owner-managers sole responsibility. Unfortunately this requires a diversity of talents-and no individual has superior ability in all areas of management.
• Small business fails to prepare records of financial statements
• They are insensitive to the need fro change in policies and practices
• They often are severely/strictly limited in terms of both education and in experience.
Personal Lack and Misuse of Time
The owner manager of a small business frequently bears the management burden alone. He even assists the worker on different occasion. He assist on packing a rush order or in delivering merchandise/products to a valued customer who insists on immediate service. This means that the manager does not have the opportunity to operate solely at the executive level.
Lack of Financing
Long term capital is a particular need of many small firms. It is obtained by personal investment or by long-term borrowing or by borrowing from relatives or friends, as an alternative. This may present problems because borrowing requires to be paid back over a period of time which is more difficult for small firms.
Difficulty in Obtaining Qualified Personnel
Many small business managers identify personnel as a major problem area. They lack attractive incentives to the employees this limits the small owners to secure well trained employees in the organizations.
Weaknesses in Marketing
Channels of distribution, product differentiation, marketing strategy, identification of competition and the market segments as well advertising are some areas where the business show the expertise but small business lack the knowledge and guess at the right answer.
Failure Symptoms
Failure means a situation where available capital is insufficient to pay all the obligations of a business. No matter how large or how small initial capital, have been, incompetent management has not only exhausted/tired it but incur/earn debt beyond ability to pay. To the entrepreneur the most obvious/clear reason the lack of capital, regardless of how inefficiently he has managed what capital he had.
Here are some symptoms that direct the business toward failure.
1. Deterioration of working capital position
Working capital deteriorates because of the lack of proper study and management. The facts that deteriorate the working capital position are as follows:
• Excessive payment on dividends without the proper study
• Unusual losses like flood, theft etc reduce working capital
• Receivable turns as bad debt and excessive credit sales
• High interest payment in principal
• Excess payments to long term loan in comparison to share annual profit.
• Loan provided to officers, employees, subsidiaries turns to frozen loans later.
2. Declining profit
Continuous decline of profit is the symptoms of the business failure. Causes of declined profits are
• Declined sales that reduce the sales revenue.
• Increased cost of raw material
• Increased cost of labor.
• High tax charged by the government
3. Declining Sales
Sales of the company declines over the period for some reasons
• Inadequate market research to measure sales potential or customer groups
• Poorly planned advertising and promotional activities
• Outdated products and products packaging
4. Too busy chief executive
Too busy CEO is unable to pay full attention to a particular business. Generally in the small medium sized business owner is the chief. Owner who is engaged in more than one organization lacks enough time and attention. This lead business toward failure.
5. Larger short term borrowing than long term
Generally short term borrowing are for one year. Principal as well interest amount of the short term borrowing amount should be less than long term to save the business failure.
6. Increasing debt
Considered adequate ratio to pay current liabilities is 2:1, i.e. current assets should be two times greater than current liabilities. But, the ratio fluctuates than this show the condition of the business in toward failure.
Human Resource Management
Human Resources are the people working in different hierarchy of the organization. HR are regarded as the vital force of the organization because they are the force who plan, organize, collect, co-ordinate, control the other resources of the organization. From the effective utilization of HR, organization lead toward productivity improvement cost effectiveness and efficiency. And HRM is about managing people of the organization, it is a developed form of personnel management.
Acquisition, Development, Utilization and Maintenance are the different functions of HRM. Here the first function acquisition ensures entry of right number of employees at the right place and at the right time. Development function ensures proper competencies of employees to handle jobs, utilization is employing people productively and maintenance function ensures retention of competent employees in the organization.
HRM focus is toward people and is a continuous process (not one time activity). HRM activities are affected by the changes in the environment.
Goal harmony between individual and organization is possible with the help of HRM function. HRM aims to achieve individual, societal, organizational and functional goals. Maintain the structure by assigning duties and responsibilities to the employees. Manage the change by promoting readiness to change, improves the quality of work life etc. In a process with continuous commitment not a one time activity and a dynamic function affected by the environmental changes.
Since, HRM is concerned with development of human skill, knowledge and ability to perform the organization task effectively and efficiently.
Role of Human Resource Managers in Small Business
Most small businesses do not have the different department to smoothen the Human Resources issues because as we know the many small firms in their, initial, focus only toward production and marketing. Even though small businesses do not have separate HR department but smallness creates an unique situation in the management of human resources.
HR manager plays different roles to perform the assigned tasks in a productive way. The HR manager has specialized skill and knowledge which help to perform managerial as well as operative functions in the organization. HR manager plan, organize, lead and control HR of organization. In addition to this they recruit, select, train and place HR in the organization. Some of other role performed by HR managers are as follows;
1. Policy initiation
It helps in framing the organization policies and procedures so that the problems of recurring nature can be countered.
2. Advisory role
HR manager play an advisory role to confront various day to day operation problems.
3. Linking role
It co-ordinates between management and workers, good working relation in organization enhance the organizational productively.
4. Representative role
HR managers speaks plans and policies of the organization because they have better understanding on organization issues.
5. Decision making role
HR managers play an decisive role in labor related issues. They also formulate the policies and programs of HRM.
6. Mediator role
Conflict can be resulted by the difference between expectation and achievement. It can be between the employees, superior and subordinate and even between management and employees.
7. Leadership role
HR managers performs leadership role by providing leadership and guidance to the employees.
8. Welfare role
HR managers performs welfare role by concerning with provision of canteen hospital and other welfare service for employees.
9. Research Role
HR manager undertakes various research works in relation with absenteeism, turnover, grievance etc. They provide valuable comment and suitable measures for the improvement.
Use of Personnel Manager and Important personal functions
Personnel Management in Modern Technology is related to human resource management. HRM reflect the increased significance associated with the management of people in an organization.
HR manager in the organization is related to the management of people within an organization.
• HR managers main focus is to satisfy the human needs of the people at work.
• Personnel manager make their best contribution for the achievement of organizational and individual goals and objectives.
• HR manager integrates all the aspects of acquisition, development, motivation, and maintenance.
• They handles unexpected disturbances maintain, discipline, handles grievances negotiate labor relations.
• They co-ordinate, communicated and disseminated HRM matters to different department in a user friendly way.
Personnel manager remain at the center of the management in any organization because HR are considered as the important aspects among other assets.
But small and medium sized business owned and run by some or very few persons or from the family members, regard HR managers use and function as a low priority. Generally in this type of business owner, manager themselves handles the issues of HR this is the reason their HR capabilities remain questionable.
Human Relations Approach in Small Business
The purpose of the business is to satisfy the wants of people. Every business institution is seeking to satisfy human wants and needs. Wants and needs are satisfied effectively, economically and therefore profitably only these businesses are successful and remain in existence. If any one of them is deficient the business is soon cease/stop as an economic institution.
Business operation, management and personnel recruitment are equally involved in human considerations. The ability to direct to lead and even to inspire others is a human attribute as well the ability to accept and execute assignments of responsibility from others. The ability to gain and maintain confidence as reflected in securing financial backing, credit extensions, and loyal employees is a personal characteristics of vital importance in business.
Human resource is the resource that helps to achieve all factors mentioned above. Therefore satisfaction compensation, company picnics and fringe benefits do not guarantee harmony in employer-employee as well employee-employee relationships. These elements of a personal program are only a part of the total fabric of interpersonal relationships.
Here human relations approach tries to understand human attitudes and group dynamics and emphasize on employee satisfaction. Focuses on employee and regard them important compared to job as well puts employees first.
Further this approach advocates that the employees should be treated with dignity/self-respect, work should be made meaningful, group work improves efficiency, participative management is important for co-ordination, non-financial rewards such as recognition and appreciation are important for the productivity.
But the drawback of this approach is that it ignores financial reward as well undermines the job which is equally important to the business and to the employee.
Some factors for good human relations are:
• Effective Communication
The key to healthy interpersonal relationships lies in effective communication. Communication is a two-way process, it enable employees to understand orders and instructions as well the reasons of such orders and instructions.
This further tells employees where they stand, how the business is doing, what plans are for the future.
• Personal contact between employees and entrepreneur
Small firms employ few numbers of employees. Here personal contact between owner-manager within a relatively short period of time is possible. If the relation between them is good, employee develops a strong feeling of personal loyalty to the employer.
• Informal personnel relationships
Most small firms do not have the written personnel policies and formalized procedures that are found in large companies. It is the mangers ability to devise solutions to fit particular personnel problems. Individual considerations may be taken into account and problem that does not fit a rule book may be solved in the most appropriate manner.
• Quality of Work Life and Participation
It refers to the efficient relationship between employees and the total working environment of the organization. Autonomy, recognition, belongingness, progress and development and external rewards are the elements of Quality Work Life, which help to promote good HR.
• Participation
Participation in decision making, promotes good relationship between employer-employee. It provides a feeling of belongingness, responsibility and acceptance.
Chapter 3
Locating the Enterprise
Importance of Location in Small Business
Every business, small or large, requires a good location. A properly located enterprise of any type will be more profitable and have a greater chance for business survival.
Location may be defined as selection of suitable site, place or location where the factory or plant or facilities to be installed or where plant will start functioning.
Choice of location has different importance for different businesses. It is much more vital to some businesses than to others. To some businesses well chosen location reduces operating costs, get closer to its customers, or gain other advantages and for some other business, who have the heavy flow of customers, a shrewdly selected site that produces maximum sales will increase throughout the life of the business. But fro the same business site with light location reduces sales. For the painting contractor site decision is of relatively minor importance.
For most small businesses, selecting a location is a decision made only when the business is first established or purchased. Occasionally, however, a business considers relocation to reduce operating costs, get closer to its customers, or gain other advantages. Also, as a business expands, it sometimes, becomes desirable to begin additional operations at other locations. Once the business is established, it is costly and often impractical, if not impossible, to 'pull up stake/risk' and move. Very few businesses can safely ignore the factor of location, but it is much more vital in some lines.
Finding the most convenient place where the business should be located to service as well product organizations is challenging job. Companies are all concerned with the selection of sites that will best enable them to meet their long term as well short term goals.
Different businesses, has the different importance of location, for the service organizations location decision is very crucial as that for the manufacturing organizations. Development of a location strategy depends upon the type of a firm being considered. Retail and professional service organization typically have a focus of maximizing revenue, industrial location analysis decision focus on minimizing costs and warehouse location on the other hand, may be determined by a combination of cost and speed of delivery.
Final decision is made by taking into consideration of more detailed requirements. Once a decision is taken for the location, than the organization starts its operation for a long time with the prospects and problems related to raw material, supplies, labor market, environment etc that the site would present.
Factors Affecting Location Sustainability/continue
It is possible that more than one location seems satisfactory. On the other hand, many undesirable locations appear satisfactory on the surface. Only careful investigation will reveal the good and bad features of any particular location.
Big businesses have professionals whose analysis and advice are invaluable in evaluating prospective locations. In contrast, small business entrepreneur must personally do the major part of the investigational work. The factors that affect the location sustainability are as follows;
1. Personal preference
A prospective entrepreneur considers the home community for locating the business because it provide them an opportunity of warm weather or a desired religious or social atmosphere as well the businesspersons can more easily establish credit, probably has a better idea of customers tastes and peculiarities/habit, relative and friends are the customers and also help to advertise the product. Thus, personal preference greatly affects the decision of location.
1. Environmental condition
Environmental condition can hinder/hold back or promote the business success. Climate, competition, laws, and citizens attitudes etc are all part of the business environment. These are the factor which affect the decision of the location and demand prior investigation to make a location choice.
2. Resource Availability/Infrastructural facility
Land, water supply, labor supply, waste disposal, power supply, transportation, material supply, industrial districts and financial institutions are the particular critical considerations for the business. Business location decision largely depends on the availability and unavailability of the aforementioned resources.
3. Customer Accessibility
Retail outlets and service firms are typical examples of businesses that must be located conveniently to customers. Perishable products demand the location close to consumers.
4. Extent/scope of Local Competition
Most small businesses are more concerned about the nature and the amount of local competition. The quality of the competition also affects the desirability of a location. If existing businesses are not aggressive and the condition is out of cut-throat than there should be the room for the newcomer otherwise entering to the business could be the reason for business death.
5. Government policies and local laws, regulation and taxes
Government provides various incentives, subsidies and concessions as well the rules and regulations. Remote areas entrepreneurs and some industries receive those facilities in terms of tax holidays, factory shed at low cost and cheap loans but the same is not available for the urban entrepreneurs. Further local taxes, employment to local people, waste, noise, and pollution management are the hindrances for the business which comes under the government regulations and they directly influence the location decision.
6. Environmental Factors
Factors that pollute the environment like sewage, noise and air require managing or the government charges the taxes for it. It is cheaper to bear the costs incurred in those if the business is located in specific sites. Or some locations are restricted to establish for particular type of business that influence the location decision.
Choice of Location
Location Factors for Different Businesses
Small wholesalers, retailers, service firms and manufacturers face the same sequence of location choices as to region, city and actual site. For each of these types of businesses, however, certain factors are more significant than others. Thus, process of site selection varies because each venture is unique but before selecting a site, the entrepreneur first must go through marketing research( Siropolis 227)
I. Special Location Factors for Retail Business
II. Special Location Factors for Wholesale Business
III. Special Location Factors for Service Business
I. Special Location Factors for Retail Business
Retail business sells their goods to its ultimate/final consumers, it require the location where it should be customer accessible. Customers are the people with habit, patterns and buying needs that are often associated with other activities
1. Types of goods sold
There are different types of goods sold by the retail stores and they are Convenience goods, Shopping Goods and Specialty Goods.
Types of goods sold
Fig.: Different Types of goods available
There are more than one site available to sell the particular goods and they are
2. Type of Site
City Centre, Shopping Centre, Freestanding Stores, Small Town Stores,
Type of Sites
Fig: Sites Available for Retail Outlets
City Centre is the central shopping locations which incur expensive rental costs, high flow of customers and parking facility. Shopping Centre Houses many retail stores, are carefully planned with parking facilities, facility of restaurants and amusement parks. Branded goods are sold through Freestanding Stores; they have good parking facilities and found in many locations.
3. Purchasing Power
Purchasing power of the consumers is the next factor that determines the business location for small retail outlets. Generally small business location is attracted in those areas where purchasing power of the consumers is high.
4. Population, size and growth
Population and its size as well the growth potential for business highly influence the location decision. If the size of population is relatively high and possibility of population increasing is also greater that location attracts the small business owner.
5. Capacity to pay rent
Small business looks the area where the rental costs do not make them a burden. It is because of their low capacity to pay high rent. Rental cost is the important consideration for them.
6. Competition
Small retail stores do not fear from competition because they do well if they located near the competition.
II. Specific Location Factors for Wholesale Business
Perhaps the most significant geographical consideration for the small wholesaler and the industrial distributor is the selection of a city.
1. Identification of City
The wholesaler of consumer goods is particularly interested in the volume of retail sales. Certain cities serve as wholesaling centers; the wholesaler's market includes not only the central city but also the surrounding towns. The smaller wholesaler must discover which city is the wholesaling center and measure the intensity of local competition in considering any given city.
2. Transportation
The warehouses should be near the center of the trading area to be served, while remaining accessible to highways, railways and air cargo stations. Locations outside the district, still requires accessible to railways and highways and having suitable loading and unloading facilities, will often mean lower rent, more space, lower operating expenses and faster deliveries, and possible newer and more attractive quarters and parking facilities.
3. Rent
Identification of the location cost is the next consideration for the wholesaling trade. City centers usually cost high rent but outside district locations often mean lower rent. It is essential to know the different facilities like space, lower operating expenses and faster deliveries and more attractive quarters and parking facilities for the business and their critical advantage.
4. Relation with customers
Relation between retailers to wholesalers exist for number of years, retailers do not want to break the existing relation with the wholesalers. Thus, making the relation with the customers is the next problem for the new comer in the wholesaling trade.
III. Specific Location Factors for Service Business
The location problem of most small service firm is much like that of small retailers. A convenient location is imperative/very important, except in the case of those firms that can build reputations for such high-quality or unique service that customers will seek them out.
1. Customer Accessible
Service businesses require the customer accessible location as the retail stores does. Some service businesses locate them conveniently to the customers like beauty shops, restaurants, banks.
2. Space requirements
Some service business requires big spaces like car-repairs, driving institute etc. The location needs high to pay rent if they housed in the city centers. Accordingly small businesses require identifying their need of the location.
3. Target Customers and the location
Beauty shop, shoe repair, TV repairs require residential areas to locate them. Travel Agencies demand the place where the customers flow is high. Professional people could locate their business in the low rent area or at their own residence.
Physical Facilities and their Minimum Requirement
Physical Facilities
Business that is small or big, that is retail or wholesale and that is manufacturing or service business requires physical facilities. Physical facilities of a business make organization function easier and possible to do things. Physical facilities of a business are many;
a) Land and Building
Land is that place where other physical facility like building is arranged. Land could either be purchased or leased. Land requires high investment if it is purchased since it could be leased to save the outflow. Building decision differs from the nature and the flow of customer; building could either be constructed or leased.
b) Furniture and fixtures:
Furniture's and Fixtures are the Table, Chairs, Bed, bath Sink, Basin, display rack, storage rack, mirrors seats etc arranged into office. Furniture and fixtures require the proper utilization and maintenance.
c) Machinery and Equipment
Machineries are the producing tools for special and general purpose.
For the Special purpose- Bitumen Compressor, Sewing Machine
General purpose-Computers
Requirement of physical facilities are different for different business. Thus detail survey and engineering is must before acquiring any physical facilities to save the unnecessary outflow of cash.
Requirement of Physical Facilities
Factory
Adequate provisions for the economical installation of necessary piping, ventilating equipment, foundations for heavy machines and similar requirements will vary according to the nature of the business. Plantation and compounding are further are the added advantage of the business. Although little has been written about the small factory, many companies have constructed decentralized branch plants throughout the country. Most of these would be considered small businesses if they were independently owned and operated.
Service Requirement
Service businesses are so diverse in nature that building requirements vary greatly. Certain consulting and other personal services may require nothing more than facilities for a telephone, desk, and chair and filing equipment. Personal services like beauty shops require an attractive, comfortable, interior arrangement and provisions for adequate electric power and plumbing, as well rest rooms for patrons and display space for the promotions of merchandise and services for sale.
Some other service businesses with special plant requirement are automobile, truck and tractor repair shops and storage places, and sheet metal and heavy machine shops. In general a single story building without basement is preferable for such establishments.
Retail Requirement
The appearance and interior of buildings probably applies to retailing to a greater extent then to other kinds of business. A retail store should be attractive and inviting to customer. Color of walls, background and fixtures should be selected; windows and entrance should be designed, lighting should be used as a silent salesman to take greatest advantage. Although the general trend is toward the all-glass front, this is not suitable in all cases. Paint, furniture, food, and all-glass wearing-apparel/clothing stores may use this type of front to advantage, but jewelry stores and other dealing in small items may find the traditional window more desirable. Valuable help may be secured from trade associations and from equipment manufacturers and store-front engineering firms. Air conditioning has become a virtual necessity in retail stores located in warm climates and has increased worker efficiency in many plants.
Layout of Physical Facilities
Layout deals with the arrangement of machines, fixtures and other equipment, according to a plan. So layout may be defined as physical arrangement of facilities. This arrangement includes the spaces needed for materials, movement, storage, indirect laborers and other supporting activities or sources as well as operating equipment and personnel.
The best layout is one which makes the most effective use of space for particular business. Layout starts with an analysis of the activity involved in operating the business the objective sought and the facilities for achieving them.
Layout for any kind of business-merchandising or service involves the arrangement of equipment, machines, and other elements to secure maximum efficiency in use.
The relatives importance of meeting the needs of customers, workers and management varies according to the type of business, but most considered in planning the layout.
A bad layout results in excessive handling of materials and movements of material, HR and equipment result in increase in cost without necessarily improving the values added to the product.
Agencies that Assist in Choosing Location are;
Remaining
1. Government agencies
Government establishes various institutions for promotion of industry sector as a whole and for small and cottage industries. Those government agencies provide assistance in choosing location.
2. Special/Specialized Agencies
Specialized agencies are the agencies, establishes to provide some of special training, suggestion, consultancy and make available superior technology raw material, design and test facility for particular industry. They are also the government establish agencies.
Objectives of Small Business
Small businesses started with low investment and with very few persons have multiple objectives. And some of the goals/objectives of small business are
1. Profit
2. Survival
3. Growth
4. Leadership
5. Efficiency
6. Social Responsibility
7. Corporate Citizenship
8. Service
1. Profit
Profit is an excess of income over expenditure and this is primary goal of businesses. Of course, money is not the main drive force for most of the entrepreneurs. But decision on initiating company by entrepreneurs mostly depends upon the profit they earn by their businesses. It is undoubtedly said the person who use their knowledge in producing valuable goods and services in solving problems are rewarded profusely/in large amounts from rags to riches.
2. Growth
Business should grow over a period of time in terms of sales, market share, product diversification and profits. Stagnant/inactive business tends to die in long run.
3. Survival
Business should stay alive to flourish, grow and develop well. Many businesses in Nepal are pursuing survival goal in the hope of better days in coming years.
4. Leadership
Business should strive for market leadership through continuous technological innovation and quality improvements.
5. Efficiency
Business should aim for higher productivity through reduced cost of operations. In small business all skills and capacity of men are challenging. The only constraint for success is the things that cannot be overcome by entrepreneur's creativity and determination.
6. Social Responsibility
Business should safeguard the interest of its stakeholders including employees, customers and the society. It should use power for the good of society and remain part of society.
7. Corporate Citizenship
Business should comply/do as the request with the laws of the land and develop good government, business relation for corporate citizenship.
Social Responsibility of Small Business
The circle of care and concern that a business has for a well-being of society is called the social responsibility of business. Stakeholders like customers, society, government, shareholders and employees are the part of business. They demand commitment from business of safeguarding and ensuring their interest.
Social responsibility is not only the matter of concern of the stakeholders but also the concern of business owners. Many independent entrepreneurs speak about their satisfaction in serving the community. But this is not applicable to all the entrepreneurs, some fail to sense or refuse to recognize any obligation beyond minimum necessary to produce a profit.
Recognition of a social responsibility does not change a profit seeking business into a charitable organization. Earning a profit is absolutely essential. Without profits, the firm is on no position to recognize the social responsibilities toward anyone.
Some essential responsibility of the small businesses is as follows;
1. Economic Responsibility (be profitable)
A business is an economic entity, its primary responsibility is to produce socially accepted product and sell them at a reasonable price and make desirable profit to satisfy employees and the owners need.
2. Legal Responsibility
Business must comply with the laws of land and especially those dealing with the perfection of the interest of consumer, labor, government and society. It should be honest on paying taxes. Trade practices should not encourage corruption and restraint of trade.
3. Ethical Responsibility (do what is right just and fair):
Business organization lay down code of conduct related to social responsibility and employees are said to follow such code of conduct.
4. Philanthropic/Sincerity Responsibility (Safeguard interest of community)
This takes the form of business contributions of charity or worthy social causes such as education, health, culture arts etc. It can also take the form of events sponsorship.
Areas of Social Responsibility
1. Consumers
2. Employees
3. Community
4. Government
1. Responsibility toward Consumers
Small business must satisfy consumer needs like;
• Product promotion:
Consumers have the right to know the truth about product.
Small business should be honest about the claims that they make about products.
• Product safety:
Customers should be warned about products safety
The cause, injury, accidents and about the children safety
The product should be advertised like not for children below 3 years
• Product Quality
Quality product at reasonable price
Business should ensure product quality
Guarantee, Warranty and service offers should be honored/ privilege/advantage
• Consumers Interest
Complaints against different affairs are registered
Small business should avoid restrictive trade practices
2. Responsibilities toward employees
• Work Environment
Small business should provide rewarding and effective work environment
• Occupational safety and health
o Hazardous working conditions should be eliminated
o Employees training should provided in safety
• Quality of Work life
o Fair and adequate wages and salary
o Participation in decision-making
o Greater responsibility in jobs
o Flexible working hours
o Social welfare
3. Responsibilities toward community
• Environmental Quality
o Prevention of pollution
o Recyclable and reusable packaging
o Natural resource should be properly used
• Employment Creation
o Equal employment opportunity to disadvantaged and females.
• Community needs
o Sponsorships for arts culture, education, charities etc.
4. Responsibilities toward government
• Legal compliance
o Small business must meet the laws of land dealing with the protection of the interest of consumer, labor and society.
o They should be honest in paying taxes
• Political impartiality; Small business should be imparted
• National problem solving; Government should support government policies for solving problem of employment.
Time Management in small business
Time management is the management which enables the organization to get more done in less time. Effective time management in the small businesses is very essential to achieve maximum return with quality. It also helps the organization to survive long and to grow as well securing the good portion of profit.
Many small businesses lacks the effective time management, they spent their time on meeting customers, listening to employee complaints and solving problems, seeing outsiders interested in getting contributions for charity, and the like. The reason of this is because the small firm faces the problem of management with the assistance of only a few staff, all of this means that the manager's energies and activities are diffused in small businesses in the unnecessary and priority less functions
Many small business managers work long hours for their business but a frequent and unfortunate result of overwork is the inefficient performance caused by the mismanagement of time of those tasks for which the managers are responsible. Better management of time involves proper planning of time use, identifying time stealers and using time management techniques to improve time use.
Some essential factors for the time management are clear understanding of objectives of individual and the organization, awareness about their working styles and work habits, personal traits and knowledge of time stealers. Different factors mentioned above should be understood first and that should be involved in managing the time.
Decision Making Functions and Its Relevancy
To a great extent, the successes or failures that a person experiences in life depend on the decision he or she makes. A new decision is, in general, made when either an individual or an organization feels dissatisfied with the existing states of situation and also has few alternatives to improve
A decision is the choice out of several options made by the decision maker to achieve some objective in a given situation. Business decisions are those which are conducted in a given environment. But in any decision it is to be assumed that a decision maker is a rational person who would decide with due regard to the rationality in the decision making.
The decision making process either in big business houses or in small is a complex process in the process of management. Complexity is the result of many factors, such as the interrelationships among the experts or decision makers, personal values of the decision maker, a job of responsibility, a question of feasibility, the codes of morals and ethics and a probable impact on a business.
The personal values of the decision maker play a prominent/major role in decision making. A decision otherwise being very sound on the business principle and economic rationality may be rejected on the basis of personal values which are defeated/overwhelmed/overcome if such a decision is implemented.
The culture of the organization, the discipline used and individual commitment to the goals will decide the process and success of the decision. Whatever may be the situation, if one analyses the factors underlying the decision making process, it would be observed that there are common characteristics in each of them and there is a definite method of arriving at a decision.
All decision solve a problem, but over a period of time they need the updates according to the changes in the environment because decision made once may not work for a long.
Decision making based upon the decision theories, quantitative tools, statistical tools; accounting tools, data and the information available as well as three types of decision making environment: certainty, uncertainty and in risk as well as the use of information system. More than taking the help of the decision theories decision making process requires creativity, imagination and a deep understanding of human behavior.
Significance/Importance/Relevant of Decision Making
Organization in course of producing goods and services take many decisions, top managers take strategic decisions, middle managers take tactical and lower managers take operational decisions. In other word different functions of organizations like planning, organizing, staffing, directing, controlling, leading and motivating demand decisions.
Decision making solves the problem by understanding things with good reason and study other than of guesswork and hunches/intuition/without good reasoning to achieve organizational objectives. Further it is important in all managerial functions, and to evaluate performance.
Decision making helps to defeat/overcome the organizations not only when he has the complete knowledge of consequence/result/effect of every course of action in the certainty but also in the uncertainty when the decision maker does not even know the probabilities of the various outcomes or states of nature.
Thus decision making help to run the organizations slickly/smoothly, help to survive in the organizational environment, help to produce quality goods and services with reasonable price by providing the strategic decisions to the management.
Major Quantitative Tools to Aid Decision Making
Quantitative tools for decision making are several such as mathematical, statistical, accounting and computer oriented.
Here are some Quantitative tools for decision making which are used most frequently;
1. Operation Research (OR)
Operation Research deals with the efficient allocation of scarce resources of the organization. It helps to allocate the scarce resources in most profitable way;
OR techniques commonly used are;
a) Queuing Models
Queuing models study of waiting lines or queues, it is one of most widely used management science techniques. A queue, thus involves arriving customers who want to be serviced at the facility which provide the service they want to have.
Queuing model provides the management with information necessary to relevant decisions for the purpose. It's object is to achieve a good balance between waiting cost and service cost and the optimum solution is arrived at a point where the sum of the waiting cost and service cost is minimum.
b) Game Theory
Game theory predicts how rational are the people and their behavior is in the competitive situation. Game theory use computer programs to measure outcomes.
c) Inventory Model
Inventory refers to store of goods and stock. It is any stored that is used to satisfy a current or future need for smooth operations of the firm.
Inventory Model analyses the need of inventory for various departments and selects carrying cost and ordering cost, stock-out costs. Just-in-time model is getting popular day by day.
d) Transportation Model
Transportation model determines the various costs associated with the carrying cost of inventory, most effective way to carry to goods.
Further it deals with the distribution and supply function and identify the most appropriate way to manage them.
2. Pay-off Matrix
Pay off matrix is a statistical technique. In the first step of pay-off matrix, it identifies the different alternatives; those alternatives are calculated with the probability (where probability is the degree of likelihood that a particular event will occur)
Product (A) Sales *Pj = EV (Expected Value)
Product (B) Sales * Pj = EV (Expected Value)
Decision Makers compare the expected value for different alternative. Generally,
alternative with highest expected values.
3. Decision Tree
The decision tree analysis involves construction of a diagram showing all the possible courses of action states of nature and the probabilities associated with the states of nature. The 'decision diagram' looks very much like a drawing of a tree therefore called 'decision-tree'
Through the help of decision tree each alternative payoff is calculated. Payoff can be positive or negative.
4. Simulation
Simulation is one of most widely used management science tools. To simulate is to try to duplicate or imitate the features, appearance and characteristics of a real system. In short simulation is a technique of testing a model which resembles a real life situation.
Computers are used to imitate the real situation and identify what will happen to an operation over a time if certain variables are changed.
5. Accounting tools
a. Break Even analysis
b. Ratio analysis
c. Budgetary control
d. Standard costing
Organizational Structures
Organizational structure group activities and resources of the organization. Organizing and the structure both are the important function of small business.
In term of relationships, small business structure can be of two types;
(a) Formal Organization Structure
Formal organization structure is created by the owner-manager. Formal organization maintains division of work among employees, clearly defined superior-subordinate relationships. Members of formal organization structure are guided by organization policies and plans, norms and values, codes of conducts.
Some common examples of formal organization structures are;
1) Simple Structure
Fig.; Simple Organization Structure
Owner is the manager in this type of structure. Owner makes all the major decisions but the work specialization is little. It has few work rules and limited formalization.
Small business designs this type of structure in their initial years and the businesses who offer a single product line in a single geographic market design this type of organization structure.
Relative Importance of Simple Structure
Owner/Manager here is able to make direct control because of the few departments and few employees within the departments. This structure is effective up to certain size. Communication is direct between employees-owner, it is effective and easier. This type of structure is suitable for restaurants and repair businesses.
2) Functional Structure (Function Based Structure)
Fig. : Functional Structure
Work of organization is split as marketing, accounting, production, personnel etc. Corporate staff needs to be expertise in their field. Chief is the manager, he controls, supervise, and provide guidance. Information flow is top-bottom and vice- versa. Communication within the departments could not be expected.
Each work needs specialist and experts in its field. Chief Executive Officer has limited staff (departments). Departments also have few assistants. This type of structure is suitable in government agencies and manufacturing and selling organization in their initial phase.
Generally small businesses use this structure where works need expertise, where co-ordination is very low and has a narrow product range.
Relative Importance
Each Department managers are experts in their field. Direction, control and supervision are facilitated because of the expert and their use in different departments. Moreover this, the career progression and advancement opportunities is easier.
3) Multi-Divisional Structure or Multi-Regional Structure
Fig.: Multi-Divisional Structure
This structure is used if the organization is operating more than one product line.
Fig.: Multi-Regional Structure
This structure is used if the organization is operating in more than one region with different products.
Multi divisional structure is compose of operating divisions, each business unit represents separate business or profit center in which the top corporate officer delegates responsibilities for day to day operation.
Such strategic divisions are divided on the base of product services, geographical areas or processes of the enterprise. Multi-Divisions are formed because it is impractical to bring all the functions of different product/region in a single body.
Relative Importance
Due to the use of this structure organization could able to measure each product. Sales, Sales Revenues generated by the business unit and the profit of the individual products. Focus toward client need is easier, Decision making in this structure is faster. People work more for product goal than that of corporate goal this reduce conflicts between departments. High specialization is possible to concentrate on the products.
4) Customer-Based Structure
Fig.: Customer-Based Structure
These types of small business focus on needs of customer and design the structure. This help to build strong public image and help to adopt environmental changes. But requires duplication for same efforts conflicts may arise between divisional tasks and overall organizational priorities.
Relative Importance
5) Process-Based Structure
Relative Importance
(b) Informal Organization Structure
Informal organization structure is not created by owner-manager. This type of structure emerges with due to the interactions of people at work place, proximity, personal interactions, sentiments and social activities. This type of structure takes place where the employees with similar attitudes, interest, beliefs, work related needs are attracted to one another.
This type of structure has no written policies, rules, plans, procedures. Check and balance for employees is done through customs, conventions. Informal organizations structure provides series of belongingness and security, this help to improve productivity and job satisfaction, it reduces the need of close supervision but the disadvantages of this structure are resistance to change.
Factors for Effective Organizing of Small Business
Several time tested guidelines are used to promote effective organization and managers are particularly applicable.
1) Span of Control
The optimum span of control is the number of sub-ordinates who can effectively supervised by a given manager. Although some authorities stated that six to eight people are that entire one individual can supervise effectively, the proper span of control actually is a variable depending upon a number of factors. Among these are the nature of the work and the superior's knowledge, energy, personality and abilities.
The span of control is greater in the case of personnel performing routine assignments than in case of technical professional or administrative personnel. As a very small firm grows and adds employees the span of control is expanded.
2) Departmentation
Departmentation refers to the state of grouping activities into positions through identification of similarity of work. Obviously similar works provides practical guidelines to the organization to group the activities.
As a small firm grows, other pattern of departmentation becomes possible. Like, if the business has more than one location, a geographic pattern may be used.
3) Delegation of Authority
Delegation of authority exists when the work load became too heavy. A superior will grant authority to sub-ordinates on the basis of competence, the right to act or to decide. Delegation of authority enables the superior to perform better and turns toward more important tasks, failure to delegate may be the weakest point in small business organization. Delegation of authority is important for the satisfactory operation of a small firm and is an absolute prerequisite for growth of the independent entrepreneur.
4) Human Factors and Organization Design
Some members of an organization have personal interests which can affects organizing decision. This arise conflicts between organizational ideas and human consideration. Suppose some otherwise desirable employees have certain limitations which prevent the assignment of responsibility that they should theoretically bear. The entrepreneur need to examine each organization change to be sure it enhances the overall organization effectiveness and not merely the welfare of one individual.
5) Equality (State of being equal) in Authority and Responsibility
Authority delegated must be equal to the responsibility assigned. Employees should be autonomies to make the decisions regarding their responsibility but decision must be made within their authority.
Hence substantial differences in authority and responsibility would contribute to poor morale. That is the reason employees must be trusted for what they suppose to do within the authority.
6) Flexibility
Flexibility in terms of organizing state the ability of organization to adopt to changes that may happen in their environment. Organization need to update the changes in terms of product, quality, competition, employees, technology and different other environmental factors.
Organization structure should be designed in that way that it will able to adapt the environmental changes.
7) Balance
Organizing must meet the equality in resource mobilization, authority delegation, departmentation and span of control.
8) Communication
Organization must meet the criterion of communication i.e. two way communication from top to bottom and from bottom to top.
Chapter Eleven
Financial Management in Small Business
Estimating Capital Requirement
Business big or small requires capital, capital is the life blood of the every business. Capital is essential to pay salaries, to purchase land and building, to layout the business, to pay the fees for the lawyers, consultants, to maintain petty cash, overhead expenses etc.
Many entrepreneurs believe that financial analysis is best left to the accountant. Although it is, indeed the accountants' job to design accounting system and prepare financial statements, it is not accountants' job to analyze and interpret the numbers in the statements. This is the entrepreneurs' responsibility.
For a business, the cost of financial requirements is estimated but for operating business such cost can be determined from financial statements or experts valuation. New and ongoing ventures require financial analysis to update the financial requirement, to maintain the business transactions, cash flow etc.
There are different conditions for different businesses, for a new business, the cost of financial requirements is estimated but for the operating business such cost can be determined from financial statements or experts' valuation.
Commonly financial requirement of the firms are separated in four categories;
1. Fixed Assets Requirement
2. Current Assets Requirement
3. Business Promotion Cost Requirement
4. Personal Living Expenses Requirement
1. Fixed Assets Requirement
Fixed Assets are the long term assets with permanent nature. They are not converted into cash within one year. They are immovable in nature.
• Cost to Purchase, Leased or Rented -Land and Building
• Cost to Purchase- Machinery, Equipments, Tools and Computer, these assets are generally purchased, either of leasing or taking in rent.
• Cost to Purchase, Leased- Vehicles
• Furniture and fixtures
• Cost to acquire intellectual property like patent, trademark and copyright
• Others
2. Current Assets Requirement
Current Assets are required to produce the product as well to pay the bills and maintain the day to day cash need of the firm. They are short terms assets. They are converted into cash within one year.
• Cash: Salaries, Overheads, Raw Material, Petty Cash
• Inventory: Raw Material, Merchandise
• Supplies: Pay bills, Insurance, Rent
3. Business Promotion Cost Requirement
Business Promotion Cost Requirement is the fees paid for lawyers, accountants and consultants by the organization. Organization hires experts for short term or for certain period and pay for that time.
4. Personal Living Expenses Requirement s
If owner of the business is fully dependant upon the business or he/she has no other sources of income for the livelihood than in this case personal living expenses requirement need to be estimated.
Finally total financial requirement for the business are determined by adding up the different requirements. Mathematical equation fro this is as follows;
Total financial requirement = +Fixed Assets Requirement
+ Current Assets Requirement
+ Business Promotion Cost Requirement
+ Personal Living Expenses Requirements
Chapter Twelve
Product is an important element and one component of marketing mix. A product satisfies customers. A product for small business can be Goods, Services, Ideas, Events, Experiences, Properties and Information.
Product Line Decision
A product line is the aggregation of that product which is closely related to each other. They perform similar function and are sold to the same consumer groups, are also marketed through some distribution channel and fall within given prices ranges. Biscuits, Noodles and Mc Donald are the example of product lines.
Product line decision is the analysis of total sales and profit contributed by each item in the line. Product line decision is very vital to know either to add or delete some products from the line. To facilitate the product decision, product map showing Sales, TC (FC+VC) require to produce an item, market share associate with each item and profit is necessary to develop and finally through the help of product map adding, deleting, featuring and modernizing the products of existing line is possible.
Products are added when organization wish to increase market share, products (items) are deleted when organization wish to make more profit, modernization help to cope up with changing technology, competition and featuring help to attract different customer.
1. Product Line Length
Product line length includes total number item in a product line. Product line length is modifies by adding or deleting product items. Some organization add product in current product to gain market share where as some delete existing item from existing to increase profitability.
Product Line decision is about;
I. Line Expansion
New items are added in two ways
• Line Stretching
• Line Filling
Line Stretching
Line stretching is Trading-Up and Trading-Down.
Trading-Up
Stretching-Up The condition where the organization add a higher price item in the line to develop image and increase sales is trading-up, this is also called stretching-up.
Trading-Down
Stretching-Down The condition where the organization add a lower price item in the existing product line to block competitor or to cater to price sensitive customer, this is called trading-down or the stretching-down
Line Filling
This is just different than that of line stretching. Here more items are added within the current price ranges. Organization aims to make more profit or to cater competition by adding more items in the line.
II. Product Line Contraction
This is the dropping of items from existing line. Obsolete or money losing items are normally deleted from the line. Organization lack of capacity to produce the products of existing line, high production cost requirement may necessitate a drop in items.
2. Product Line Modernization
To cope up with competencies, to satisfy customer need to meet to the global changes organization continuously modernize their products. Modernization refers to the improving image of the products by adapting the changes of the environment. For an example improving the packaging, by improving the quality, by improving the flavor.
3. Line Featuring
It features one or two low-priced or high-priced items to attract a specific group of customers. Low priced item attract price sensitive customer and high priced item help to develop prestige to the product line.
Factors for Price Decisions
Elements of Personal Selling
Advertising and Sales Promotion
Marketing Research Techniques and activities
Concept
'Research' refers to a critical, careful, exhaustive investigation or inquiry, examination or experimentation specially through search for new facts in any branch of knowledge.
Marketing research is that which help business owners and entrepreneurs to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions' monitor marketing performance and improve understanding of marketing as a process.
Businesses big or small require a thorough investigation to produce a product to identify customer, to acquire location and physical facilities, to fix price, to cater to competition, to retain customer, to bear social responsibility, to play lead role in the industry and to make profit because marketing research enable business owner to understand the different aspects of environment.
Studies indicate that small businesses are less likely than large businesses to use marketing research in their decision making. Reason cited include monetary and time expenses, skepticism about potential benefits of marketing research and the owner/managers self perceived inability to carry-out the study. Some small businesses avoid marketing research activities because they misunderstand research. They believe that marketing research in conducted when organization is making profit, or when they have much money to invest on and when they have experts to do it.
Marketing Research Techniques
Motivation Research In Marketing
One of the limitations that exist in marketing is it avoids study of customer nature. Some questions like why, How, When consumer, consume goods and services remain unanswered. That is the reason motivation research takes place.
Motivation Research study about the factors that influence consumers to buy the products of the organization. It identifies the taste, peculiarities, price, preferences, and sensitivity of the consumer. But the research focus toward ultimate customer of the business because the ultimate customer, drive the market, they are vital for the business.
Motivation research finds the facts about the consumer and facilitate decision-making about the changes that should be made toward advertising, sales promotion etc.
Entrepreneurship
Meaning of Entrepreneurship
Entrepreneurship is the practice of starting new organizations, particularly new businesses generally in response to identified opportunities. Entrepreneurship related to co-ordination, innovation and performance of the entrepreneur. The functions performed by the entrepreneurs are known as entrepreneurship. It is a system of creating new business, exploring ideas and bearing risk.
Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high-profile" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs.
There is no consensus among the economists regarding the term entrepreneurship. Some like to say it is an art of creating new business, some other say it is an act of risk-taking and some argues that this is an art of thrill-seeking.
Here are some definitions helpful to make clear vision toward entrepreneurship.
According to A. H. Cochran "Entrepreneurship is the purposeful activity of an individual or group of individuals undertaken to initiate, maintain or aggrandize/increase profit by production or distribution of economic goods and services.
As opined by John Kao and Howard Stevenson "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/completion".
In conclusion, entrepreneurship means the process adopted by the entrepreneur for the operation of the business.
History and Evolution of Entrepreneurship
The word entrepreneur had originated from French word 'Entreprendre', which denotes undertakers. In the 14th century, the term 'Entreprendre' referred to the tax contractors. This means the person who had taken licenses with the government for tax collection in their areas and who paid the definite amount to the government. In the 17th century, the term started to use even in the civil engineering activities such as construction and erecting of forts. Only since the beginning of the 18th century, the term 'entrepreneurship' had started, used in the economic essays.
In the 18th and 19th century the term was commonly used in economic essays. The earlier French, British and Austrian economists use to write articles by depicting articles the entrepreneurs as a 'change agents' of the progressive economies. In the first half of 19th century, economists used to mention only three factors of production land, labor and capital. Some economists since that time do not regard organization or entrepreneurship as an independent factor of production.
Some economist understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter and the Austrian School of economics. In Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship forces "creative destruction" across markets and industries, simultaneously creating new products and business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. Despite Schumpeter's early 20th-century contributions, the traditional microeconomic theory of economics has had little room for entrepreneurs in its theoretical frameworks (instead assuming that resources would find each other through a price system).[1]
For Frank H. Knight (1967) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture.
Still another view of entrepreneurship is that it is the process of discovering, evaluating, and exploiting opportunities, which go on to reify themselves in the form of new business ventures. In this model an entrepreneur could be defined as "someone who acts with ambition beyond that supportable by the resources currently under his control, in relentless pursuit of opportunity" (a definition common to entrepreneurship professors Howard Stevenson and Jeffry Timmons). Pinchot (1985) coined the term Intrapreneurship to describe entrepreneurial-like activities inside organizations and government. The concept is commonly referred to as Corporate Entrepreneurship.
In the present, entrepreneurship is taken as one of the four economic factors and entrepreneur is a special type of factor of production. It is special factor of production because he combines and organizes other factor of production. The land, labor and capital are at least hirable, at least in principle, whereas entrepreneurship is not.
Meaning and Definition of Entrepreneurs
Person who responds to the independent business careers with the risk, incubate (keep-warm) new idea; start enterprises based on those ideas and provide added-value to society on their independent are known as entrepreneurs. In the past, the word entrepreneur enjoyed a purer, more precise meaning. It described only to those as an entrepreneur who had created their own business enterprise. Broader definition of entrepreneur includes all active members, second generation members of family owned firms, owner-manager who buys out the founders existing firms and those who explode and give the dynamic leadership for the economic system by taking risks and being innovative.
Entrepreneur in the opinion of F. B. Haley is a risk-taker whereas F. H. Knight opined entrepreneur as the one who bears uncertainty (uncertainty means the uninsurable and non-calculable risk).
We define entrepreneurs as men and women who create/launch their own venture from the raw material of their own ideas and hard work or it can be said that they start their ventures from the scratch. They contribute it to lead toward the successful businesses with their instinct (sense) of timing, their hard work and idea producing ability. Pure entrepreneurs quicken the development of the economy. Profit is not merely/only the motivation of the pure entrepreneurs but also the 'desire' to found a private dynasty/empire, the will to conquer in a competitive battle, and the joy of creating.
Meaning of Entrepreneur
The heritage/tradition dictionary defines an entrepreneur as "a person who organizes, operates and assumes the risk for a business venture".
Very best think to be an entrepreneur is to think about what someone likes to do – think about a hobby that you can turn into a business since here only the think important is to give it a time, dedication and nurturing/development it will demand.
• Copying the old business or doing the same what you are already doing is not the entrepreneurial trait. Nowadays, growth is more a factor of changing what you're, doing of being sensitive to your market altering/shifting your course in response.
Below is the table showing the relationship between entrepreneur and entrepreneurship helps to make the more clear vision:
Relationship between Entrepreneur and Entrepreneurship
ENTREPRENEUR ENTREPRENEURSHIP
1 Person Process
2 Organizer Organization
3 Innovator Innovation
4 Risk-Taker Risk-taking
5 Motivator Motivation
6 Creator Creation
7 Visionary Visualization
8 Leader Leadership
9 Imitator Imitation
10 Decision-Maker Decision-Making
MEANING OF INTRAPRENEUR (CORPORATE ENTREPRENEURSHIP)
The corporate entrepreneurship is known as Intrapreneurhsip and who perform such task is known as Intrapreneur. Intrapreneurhip describes the innovation that occurs inside the established companies through efforts of creative employees.
Most of the large and far-sighted companies provides opportunities to their managers for innovation and encourage them to undertake entrepreneurship activity. The managers of the firm like others may be innovative. However, while creating something new by the staff-remaining within his work area he should not take personal stake to make that commercially successful. He/she does not have any risk, profit or loss. Therefore, the managers who make innovation by remaining within any firm are known as Intrapreneurs.
The large and established companies have adequate resources to spend on research and developments. These firms create new products and new techniques. In order to commercialize, they have also marketing strength. Many firms encourage the managers to undertake such bold tasks. The firm receives great return from the success of it. The managers might have to face even the risk of losing the job from such works. But their reward is limited to bonus and promotion. Hence, Intrapreneurship occurs as the situation of having both risk and reward. Top management commitment to the Intrapreneurship is must.
stick
Corporate Intrapreneurhip occurs only if the employees have an opportunity to work freely, if generosity/kindness is shown toward them, if new unit is established to expand the activity of the firm and if they are allowed to create new ideas from the resource of the firm.
Some reasons that entrepreneurship differs to entrapreneurship are as follows;
Like entrepreneurs, Intrapreneurs takes personnel risk to make new ideas and innovation happen. However unlike entrepreneurship, where the time and capital of the entrepreneur is placed at risk, intrapreneurship will often take the large organizations into new products and markets, away from their established core businesses. This may risk the company's capital, credibility and market share and in so doing, the intrapreneur's position within the company. Therefore intrapreneur is an employee of a large organization who has the entrepreneurial qualities of drive, creativity, vision and ambition, but who prefers, if possible, to remain within the security of an established company.
Corporate Intrapreneur stimulate or develop new products, including autonomous business units establishied within the corporation to develop a new product and/or market with the resources of corporation. Take moderate risk that is the risk of losing job if in case the innovation is failure.
Differences between Entrepreneur and Intrapreneur
Basis Entrepreneur Intrapreneur
Independency Is dependent Depends on entrepreneur or owner
Raise necessary fund Does himself Does not raise
Risk Takes full risk Only risk of losing job
Reward Receives in the form of profit which is uncertain Receives as salary, which is certain
Operation Operates the firm from outside Operates the firm from inside
Objective Excellency and profit maximization Maximization of salary and facilities
Meaning of Salaried
Employees
Confusion may arise between the terms an Entrepreneur and a Manager. People may use these two terms in the same sense but in reality these two terms denote different meaning.
Entrepreneur, visualize the idea and give it a shape, takes all the risk associated to the business but salaried employees are those who receives fix salary and benefits from the business in terms of their time devotion. They provide service to the business established by others, selected from different tests, do not create new ventures but work in those ventures as a servant, conscious about their status in the organization.
Salaried employees translated the ideas and innovation into practice, they execute plans, need knowledge of the theory and practice of management to do all this. They bear no risk in the business except bearing some given responsibilities.
Generally, in traditional small business firms, the entrepreneurs themselves found to be working as a manager due to the low burden of work, from the viewpoint of economy in cost and not diluting/thin control etc. Despite this, entrepreneur and manager should be looked separately. Although a single person works both as an entrepreneur and as a manager, receives salary as a manager and profit as an entrepreneur.
According to Edwin Mansfield "A firm managers are agents who work for the firm's owners', who are the principal/main."
The main difference between the Entrepreneurs and the Salaried Employees are as below:
Description Entrepreneur Salaried Employees
Motive Initiate business for self satisfaction Provide service in the business established by others
Objective Maximize profit
Status Owner of the business Servant of employees in the business
Risk-taking Takes all risks and uncertainties Risk of losing job
Reward Receives profit, which is uncertain Receives
Innovation Innovator Uses innovation into practice
Qualifications Need to have high achievement tendency, foresightedness and capacity of risk-taking Need the knowledge of the theory and practice
Comparative Advantages and Disadvantages of Salaried Employees
S.No. Advantage Disadvantage
1 Entrepreneurs select qualified ones for their business among the pool of candidates Source force favoritism in Nepalese organizations is common. This offense the possibility of selection of right candidate at the right time and right place.
2. Employees working in the fix salary and benefits had had limited desires, secure working life is their want; they do not demand the share on the profit. It is the organization will either to provide bonus or not. They execute plans and procedures, follow the guidelines but there are always lacking of devotion, investment of effort in creation and lacking of ability to drive. This is the reason not all the responsibility of an enterprise could leave to them.
3. Financial liability of an enterprise is limited because employee would only paid fixed salary and benefits. Due to the advanced fixed terms and conditions in employment contract, enterprises have pay them even in the loss or in the profit (BE) situation.
4. Hire and fire of the employees is also easier Involvement of labor unions and political affairs is the problem to make the decisions regarding hiring and firing.
5. It is easier to motivate employees by applying different employee incentive plans and maintaining them continuously. Desire and wants do not remain constant. It emerges one after another and there is no ending. It starts with the physiological need and leads towards safety and security needs, social needs, esteem and status needs and self-actualization needs. Thus identifying and linking the upward motivational factor is vast for the business.
Positive and Negative Aspects of Entrepreneurship
Positive Aspects
1. Opportunity to change destiny
Entrepreneurs are the owner of the business; they invest their money, time and idea in the business. In turn to this, business provides the opportunity to achieve the thing considered important personally they receive the reward of the business by knowing that they themselves are the driving force of their business.
2. Opportunity to reach to the full potential
Self-business provides the challenging environment, demands creativity and determination. To meet the challenge, to fulfill the creativity and to take the business into success an entrepreneur use his full potential, their business becomes the instrument of self-expression and self-actualization.
3. Opportunity to reap (cut and gather) unlimited profits
Most of the entrepreneurs emphasize their interest in excellence for its own sake, rather than for rewards of money, prestige and power. Money is not the main drive force for the most of the entrepreneurs. Enough evidences are found of the business flourishing from rags to riches due to creativity and shrewdness/wisdom of the prompters.
4. Promotes Capital Formation/Organizing
Entrepreneurs and the entrepreneurship, promotes capital from the idle savings of the people. Capital is regarded a prerequisite/requirement of economic development, entrepreneurship. Nowadays capital formation should include the physical goods such as machine, equipment and plants including non-physical goods like high level of education, health, scientific tradition and research.
5. Promotion of employment opportunities
Entrepreneurs initiate the business and business needs HR to perform its function which results to an employment, this lead to an increase in income and standard of living of people.
6. Balanced regional development
Active and energetic entrepreneurs always search for the opportunity, which other do not see or so not care even if see. He assembles manpower, materials and capital to transform the opportunity seen by them, they establish business in the different parts of the country. This help on the balanced development in turn helps in removing regional economic disparity/inequality, reducing rural-urban migration and rising of living standard of the people of backward regions.
7. Industrialization
Industrialization is the result of entrepreneurship. Industrialization is possible where entrepreneurship has flourished. It helps to move the people overly/excessively dependent on agriculture to the non-agricultural sector; it also helps in removing the problem of unemployment. This increases the ability of the people of the country to consume a variety of quality goods in the reasonable price.
8. Promotes Foreign Trade
Foreign Trade is regarded as the 'engine' of development. Entrepreneurs promote foreign trade by initiating new products. This help in earning foreign exchange. This help in disequilibria in balance of payment. Likewise, there is the entry of foreign technology in the country.
Negative Aspects
1. Uncertainty of Income
Entrepreneurs initiate the business with the heavy investment, but the same business does not provide guarantee of earning adequate money to the entrepreneur to remain alive. In the initial phase the business faces many difficulties and financial obligations, it is very challenging to the entrepreneur to overcome from this situation. The owner of the business receives only residual/remaining after payments made to all.
2. Risk of Losing Investment
There is no guarantee that once the business is initiate, it will succeed. Such unsuccessful entrepreneurs will have to lose their saving which they had invested in the business, it increases the personal burden, and they are affected psychological. And it may happen them that they cannot come out of a failure because the loss which, they have much more than financial loss. Since before putting personal saving and health on risk, it is necessary to take into account carefully the risk reward trade off.
3. Long hours and hard work
In order to lift the business, entrepreneurs either new or old considerably invest their time and energy. They have their countless hours investment to the business to perform the different business activities from selling, cleaning, raising money.
ENTREPRENEURSHIP QUALIFICATIONS
1. Confidence in their ability to succeed
Understanding the situation reality is one of the entrepreneurial traits. They are optimistic in their ability to succeed. Entrepreneurs do not stop their ventures if they fail once because they are confident; and have to power to foresee the future.
2. Calculative Risk takers
Entrepreneurs rarely play gamble, they establish ventures only if they see the possibility to succeed and if their findings of the research concludes so. They do not invest their savings on the area where they lack knowledge and experience. In view of some persons, good entrepreneurs are risk avoiders instead of being risk takers because they remove all factors that they may prevent them from going to the market.
3. High Level of Energy
Normal persons couldn't able to succeed in the entrepreneurial ventures because it demands long hours of work, hard labor, high energy and effort. The successful entrepreneurs work hard to result the venture successful. Their morale is like this- "The Harder you fall, the harder you bounce."
4. Future Orientation
Entrepreneurs who visualize the idea of venture have well defined sense of searching opportunities. They always look forward; they are less interested in what was done yesterday and what will be done tomorrow.
5. Skill at organizing
An entrepreneur assembles/bring together the men and works which enable them to convert their vision into reality. The effective combining of men and works enable them to convert their vision into reality and to earn profit. That is the reason the entrepreneurs are called good organizers.
6. High degree of Commitment
The entrepreneurs fully surrender their body, mind and money into the business. The commitment facilitates them to defeat the errors and confusion that hurt the business.
7. Tolerance for ambiguity
The entrepreneurs are more tolerant for the obscure situation that changes every second, on which environment they have to operate. This ability to handle the uncertainty is crucial, because the business promoters make decisions continuously on the basis of new and at times the conflicting information collected from unknown source.
Meaning of Small Business
In the general conception, a business is small when it has independent management (usually the owners are the mangers), owner supplied the capital or small group of investors, operated in a geographically restricted area (local area of operation), is small compared to the biggest firms in the industry, and has fewer than 100 employees.
The criterion used to measure the size of businesses varies within the organizations. Some criterion is applicable to all industrial areas, while others are relevant only to certain type of business. Differentiating the industries according to the given criterion is very difficult because some industries are capital-intensive whose typical size is very large e.g. steel manufacturing company, even if they are small but in the other hand some service-businesses such as beauty shops, they typical firm is quite small.
Small businesses make unique contributions to the economy. They provide employment for millions of employees and play a special role in generating large share of new jobs needed for a growing labor force. They are responsible for introducing many innovations and originating such scientific breakthroughs. Small firms act as dynamic economic competitors to help our economy maintain a healthy state. The fact that small firms perform some business functions, such as distribution and supply- more expertly than large firms, enable them to aid large firms in many ways. However, it does not mean that small business cannot produce goods and services; they also produce goods and services efficiently as evidenced by different studies.
Finally, we can say that small business is the independent business, which is own and managed by a single or fewer persons, is an extension/annex of the owner's needs, objectives and personality. Small business focus on running a business over a long period-of-time, it remains small for a long period. In the context of Nepal, small business contains fixed assets up to 30 million, which includes specified movable and immovable assets.
Small business has played an important role since the history. Some important example of this is the banker's loan on interest on 4000 years ago. Further Small business flourished in almost all ancient cultures. The Arabs, Babylonians, Egyptians, Jews, Greeks, Romans excelled/do extremely well at it. But in some cases their products and services, however, were frequently careless/shoddy. The result was that small business became objects of scorn/laughter.
Small Business Predominates
Manufacturing
Any business may be considered manufacturing enterprise if it is engaged primarily in receiving materials in form and after working on them, distributing them in an altered form. This would include processors of farm products, local craftsman or artisans, bottling plants and similar enterprise.
Many mass produced goods such as motor vehicles, planes, refrigerators, radios and so on have from a few hundred to several thousand component parts, indicating that on the average each large concern buys materials and parts from small firms in hundred of different of kinds of business.
Some of the small manufacturing are printing shops, bakeries, bottling plants , processed dairy products.
Merchandising
Merchandisers are middlemen in the channel of the distribution who actually sell products to the final consumers/retailers, or who buy goods for resale from wholesalers.
Though the number of independent, small scale wholesalers is increasing, this increase is not keeping pace with the growth in population. Opportunities for the small businessmen in this field are not as great as they once, owed principally to the absorption/combination of the wholesaling function by franchising organizations manufacturer's representatives, and large-scale integrated retailers like chain stores, department stores, and mail order houses.
Service Establishments
Service businesses literally offer hundreds of different kinds of services to consumers, to governmental agencies and non-profit organizations and to other businesses.
A service can be defined as an intangible economic good, nonreversible or non returnable whose value does not depend primarily upon some material article that may or may not accompany the rendering of the service.
Some examples of small business
• Hotels, Motels, Tourists courts and camps;
• Personal services-Laundries, dry cleaning plants, barber beauty shops, shoe repair shops.
• Business services-Such as advertising agencies, public accounting firms, credit bureaus and collection agencies, management counseling firms, equipment rental, sign painting shops etc.
Small business describes using several criterions such as
• Number of workers
• Sales volume
• Total assets
• Area of operation, use of power
• Use of material
• Market share
• Volume of deposits
• Insurance in force
Industry/Trade/Commerce; Buy and Sell
Occupation/Professional; Job, Career, Work
If the things satisfy the need of the customer then they are called the products. Products can be of following types;
• Goods- Clothing, books, shoes, computer, food
• Services-Banking, Insurance, Finance, Advertising, Training, Repairing
• Ideas-Consumerism, human rights, environmental protection, property rights to women- Knowledge based
• Events-Games, exhibitions ,convention/meeting
• Information-Research, Internet, Websites, E-commerce, newspapers
• Properties-Rights of ownership
Small business surround and engaged in production and marketing of the products to make profit through customer satisfaction.
In the general conceptions, a business is small when it has
• Independent management/usually the owners are also the managers
• Owner supplied the capital
• Local area of operations
• A small group of investors
• Operate in a geographically restricted area
• Is small compared to the biggest firms in the industry
• Number of workers
• Sales volume
• Total assets
• Number of investors
Features of Small Business in Developed and in Developing Countries
A developed country enjoys a relatively high standard of living through high, strong and advanced technology. They benefit from the diversified economy. Most countries with a high per capita (Gross Domestic Product) considered as developed country. The Per Capita Income of those countries is above as US $ 20000.
Developing countries are those countries which have low-income level with comparison to developed countries. They have per capita income below US $ 5000. Industries in the developing economy use labor-oriented-low-tech business.
Some Similar Features of Small Business
1. Independent Management
Small business in all economy has independent management because small business is own and managed by very few persons. Investment made from the family connections of the owner. Therefore, there is no outside control.
2. Decision Making
The owner of the business takes management decisions. Authority for the decision-making is centralized.
3. Local Operations
Use local resources; hire local people, mainly the local area of operation, relatively small share of its market, generally enter to the market niche.
4. Impact in the Industry
Small business has the low impact in the industry; it is weak in economic power. Large business play lead role in the industry but they are also independent to small business.
5. Customer Relation
It has good close relations with the customers. Concentration is toward development of new unique products for market niches.
6. Area of operation
Except for its marketing function, the firm's operations are geographically localized. Typically, it operates in only one city or community or enters to the market niche.
7. Investors
One individual or small group supplies financing in the business. Only in the rare case would the business have more that 15-20 investors.
Some Dissimilar Features of Small Business in Both Economies
Condition of the market, as well the market management makes some differences in the small business activities in developed and in developing countries.
1. Definition differences
Definition of small business used in both economies differs significantly. Developed countries generally use number of employees as the indicator of small size as well developing countries use fixed assets or capital assets as the indicator of size. Some economies use mixed indicator.
2. Activities
Developing countries economies dominate in the retailing and wholesaling sector. Low-tech-labor-oriented business is dominant. Same as developed countries provide better services in the non-manufacturing sector. They use high-tech-capital oriented businesses.
3. Facilities
Technological advancement, excessive availability of material resources, capital and the assistance for management, skilled manpower and insightful/sensitive customers in the developed countries smooth the progress of small businesses. Developed countries provide better and more facilities to their small businesses. In contrast to this capital infrastructure facility, institutional support is very poor in the developing countries. Bureaucratic/technical hurdle/obstacle and regulations requiring lots of paperwork constrain their operations.
Small Business in Nepalese Economy
Industrialization in Nepal had started very late; it has started only after the establishment of council of industry in 1936. In Nepal, there were numerous traditional entrepreneurs such as potter, blacksmith, and goldsmith, painter weaver etc. In addition, the planned effort in industrialization has made after launching economic planning in the country.
Although the history of the industrialization has started very late but since then the growth of it’s a continuous process and small firms unquestionably contribute our economic welfare. They produce ample/significant portion of the total goods and services. Small business role in the economy is not less then that of big business. Albeit/although the giant corporations and "mass production" firms, loom/became visible important in terms of total productivity, it is small that actually constitutes the backbone of the worlds economy. As a result, we can strongly say that the Nepalese small businesses play the role like stamina of the nations.
Small business do not have the need of massive sum to initiate the business, fixed assets not exceeding than 30 million are measured as small business.
Small business in Nepalese economy play pervasive role and more than 90% manufacturing establishments are small business. Employment creation by that business is about 60% because the businesses are labor intensive.
Strengths and Weaknesses of Small Business
Strengths/power/force/strong point of Small Business
• Small business remains so because it functions to perform that is impossible for the large houses. Similarly, it operated in the limited market, in the very few market niches, serving as supplier to local household consumers or to other firms.
• Some firms are small by choice seeking to retain strong personal control. Some are small because they are specialists in a greatly limited field. Small repair shops, cyber cafes, barber shops and beauty parlor, as well the ice-cream vendor is the perfect example of this.
• Small firms have flexibility as well adaptability in production, marketing and in providing services. The small firms generally have a closely-knit organization that operates on an informal basis and generally, has excellent communications. This allows small company to react to changes and problems arising in any area and take corrective action immediately.
• Greater motivation as used as a next factor because the top executive is often the owner or a major stockholder. He usually works harder, longer and with more personal involvement than do executives of larger corporation. This leads to the greater motivation to the employees, which possibly contributes to small business strength.
• Small business can more expertly show the strength than that of the big business houses. Those are as follows:
For new ventures, because the large establishments require proof before much capital is invested, efficient machinery and a body of technology must be developed before a large volume of output is feasible.
• Where both raw material and finished products are perishable, such as cut flowers and most diary products.
• Where demand is strictly local such as custom tailoring and the sale of residential real estate.
• In the area of customer convenience such as neighborhood grocery stores and drug stores.
• Where the manual labor and personal attention to details by the owner-manager are of dominant importance. Such as repair services, personal services, beauty and barber shops.
Weaknesses
Importance of Small Business
Small businesses are the backbone of the nations. Small firms unquestionably contribute to their nation's economic welfare. They produce a substantial portion of the total goods and services. Thus, small business role in the economy is not less then that of big business. Small business in general explore the unutilized resources, introduce innovation, stimulate competition, aid big business, provide new jobs, help on equal distribution of wealth and produce goods and services efficiently.
1. Providing New Jobs
New jobs, comes from the birth of new firms and their subsequent expansion. Some new firms gradually grow and expand themselves therefore; they are no longer remains small. While they do grow, they add initial jobs and create employment. Small business generally use labor-intensive technology and such labor-intensive technology easily create off-farm and non-farm employment in the countryside.
2. Utilization of local resources
Small-scale business utilizes local resources like capital (such as family saving skills in traditional crafts) this can be harness (bind/tie together) to produce handicrafts or basic goods or material resources (like wood into furniture).
3. Balanced economic growth
Small scale industries tend to develop in various regions of the country, they use local resources, employ local people, contribute to reduce concentration of industries in urban areas, help to move people from agriculture to non-agriculture. This promotes balanced economic growth.
4. The dependence of Big Business on Small Business/aiding big business
Small business is complementary to large business. They have backward and toward/ forward with large business.
Backward linkage means supply of inputs for an example; semi-finished goods to be large-business, those semi-finished goods are the final products of the small businesses. Forward linkage means distribution of products and services. Some large manufacturers of inexpensive consumer products find it desirable to won wholesale and retail outlets. Successful small business operation and retail divisions are the helping hands to them.
5. Provide services to large business products
Small business provides services to customers of big business. For example, they wholesale the foods of large manufacturers, they service automobiles, repair appliances, advertise the products etc.
6. Stimulate (make something more active) economic competition
Monopoly in the market overprices the products, impede/stop the technological development, discourage the new comers in the industry, centralized the income and power in urban areas. Small business helps building a strong middle class by promoting a group of entrepreneurs discouraging the concentration of economic power in the hands of a few persons. This is possible by generating employment in the local level, by using the local resources, by promoting the export or by the help of substituting import.
7. Development of entrepreneurship
Many large business of today are small business of yesterdays, therefore small business is the means of entrepreneurship development. Small business serves as a training ground for entrepreneurial ability and managerial talent. It is also taken as the nursery of entrepreneurial ability and managerial talent. Small business enables risk-taking and motivating individuals to finds arenas for their talent to new types of business activities and innovations.
8. Capital Formation
Small business encourages people in capital formation. Saving is the means of capital formation. Small business can be operated with low capital. People can generated required capital to operate small business by the means of saving therefore, small business encourage people into capital formation.
9. Innovation
Small business people tend to be mavericks/individualist, and it is often said that the entrepreneurs who extend the frontiers of knowledge. Many researchers and their work on small businesses shows that significant innovations are as likely to come from small business or from individuals from big businesses. Small business gives birth to more than twice as many significant innovations per employee as big business
General believe on the innovation is the prospect of generous financial rewards but small businesses as we earlier said are the leader in innovation are able to lead because of the small businesses creative drive and the need for peer recognition as an overachiever.
10. Close relation with customers
Small business can maintain close relations with their customers they can easily identify the changing need of customer. They can make formal as well informal relations with their customers. They can provide personal services when necessary and demanded by the job. They can better satisfy their customers as compared to large business. Relationship marketing is possible in small business.
Chapter Two
Starting of Small Business
Sources of Idea Generation for Small Business
Prosperous time attract many entrants into small business ownership which misinterpret the easy going as a harbinger/indication of success. Business opportunities may be uncovered in a variety of ways where an expanding market justifies the establishments of additional businesses.
Before an enterprise launched with reasonable prospects for success, a genuine business opportunity must be discovered and its possibilities should be appraised. Emotional decisions in this edge to become one's own boss may result negative sometime. Many businesses fail because they lack inadequate educational preparation, justification for their existence, laboratory experiments, product analysis, market surveys, and pilot survey test lead/efficiency, error, deviation surveys.
Most common situation where an expanding market justifies the establishment of additional businesses of the same type, another situation creating a favorable opportunity for a new business of an existing kind where the market is not being adequately served. A third type of business opportunity arises from the introduction of a new product or service, which meets the need of the market. Since, there are may sources of Idea Generation for Small business:
1. Work Experience
A basis for new-venture ideas to many entrepreneurs is their work experience. From the knowledge of their present or recent jobs, they see possibilities in modifying an existing product, improving a service, or duplicating a business concept in a different location.
2. Invention of the New Product
The entrepreneur may invent a product or acquire an invention from the original inventor. New development in the environment, new idea, and new forces, facts, impression, image pictures and many types of ideas are built, all of a sudden any idea can be seized and can be uses immediately.
3. Hobbies
Sometimes hobbies grow beyond their stature/height as hobbies to become businesses for example someone's artwork leads him into a successful business venture.
4. Accidental Discovery
As a source of new venture ideas, accidental discovery reveal something and for that we call chance and the sense of making desirable discoveries by accident. Any person may stumble/hesitate across a useful idea in the ordinary course of day-to-day day living.
5. Deliberate Search
Deliberate search is a purposeful exploration to find a new venture idea. A new business may emerge from the prospective entrepreneur's deliberate search. There are two approaches to this search.
a. Inside-Out Approach
Here entrepreneurs first find their own capabilities and then look at the new products or services they are capable of producing.
b. Outside-In Approach
They first look for needs in the marketplace and then relate those needs to their own existing or potential capabilities. The outside-in thinking market first has apparently produced more successful ventures, especially in the field of consumer goods and services.
Outside Creativity
• Outside consultants and experts can provide promising new ideas.
• Competitor's activities provide ideas for small business.
• Foreign countries and their ideas can be the sources of ideas.
• Suggestions from friends and family and well-wishers.
• Net-surfing/ visiting different sites regularly.
• Television, Journal, Newspapers
• Visit to trade fairs and exhibitions and attending education and training courses provides new ideas.
Internal Creativity
Is the way to discover new ways of doing work from self-thinking?
• Unexpected ideas explore in mind
• Prior work experience
• Novel and unique or improved ideas to solve problems.
• Hobby-interests of the owner
Situation Survey
• Political-Legal Changes- Policies and legal provisions of government, elimination of controls of licenses. Tax concessions, Subsidies and other incentives.
• Technological Changes-Invention-Innovations, System-Processes-Methods-Equipment provide new ideas.
• Economic Changes- Change need and preferences, changing taste on food is the example.
• Socio-Cultural Changes- Changing life styles
History and Evolution of Franchising Opportunities
Early Franchising
The word franchise comes from the French word Franchir which means to "free" it meant to be "free from slavery". It has a several other meaning but in the business world franchise is simply an agreement between seller and buyer which permits the franchisee (buyer) to buy the product or service of the franchisor (seller).
The first big burst in franchising came right after World War II. A tremendous back log/excess of demand had been built up for peacetime goods and services, and the postwar expansion of many companies (particularly the new ones) was restricted businesses by the lack of capital. This help to work mutually with mutual benefits, and the franchise system began to boom.
Franchising started since the early 1800s. But modern franchising was started when General Motors began franchising dealerships in 1898. Rapid growth of franchising started since the 1920s and 1930s where independent wholesalers of groceries, hardware, automobile accessories, and other products adopted the franchising concept and began to build vast networks of voluntary chains.
And in the 1950s one most popular example of modern franchise, Mc Donald a fast-food business started franchising. Since the 1950s, franchising has grown so rapidly that it has made inroads into virtually/almost in every industry.
In the history of its developments, product franchise dominated the franchising but laterally business franchises are growing rapidly, they dominate the growth of business franchise. Overall franchises have increased four fold in the last two decades from Europe to Asia to Africa. It is the big opportunity to all the would-be entrepreneurs because of its receptive/friendly markets and vast opportunities to export their way of doing business.
Meaning of Franchising
An important step in the small business start-up process is deciding whether to go or not into a business at all. Each year thousand of potential entrepreneurs face this difficult decision. Many new entrepreneurs choose franchising as an attractive business alternative due of the hurdle in new start-ups and fraudulent in buying a business. Franchising offers genuine business opportunities to many prospective entrepreneurs. The franchising concept is an attractive option for operating a small business because franchising itself is a creative form of business which helps thousands of entrepreneurs realizes their business ownership dreams.
The term franchising is defined in many ways. Here a board definition is used to encompass its wide scope. Franchising is a marketing system that revolves around a two-party legal agreement whereby one party is granted the privilege to conduct a business as an individual owner but is required to operate according to certain methods and terms specified by the other party. The legal agreement is known as the franchise contract and the privileges it contains are called the franchise. The party provides the privilege is the franchisor and the party receiving the privileges is called the franchisee.
In the other word, a franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group wishing to use that identification in the business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells the goods and services supplied by the franchisor or that meet the franchisors quality standards.
In essence, franchisees buy a ready-made business and lies in the appeal of franchising, since franchisees avoid having to build a business step by step; as most entrepreneurs start from scratch.
Franchising is based on the mutual trust between the franchisors and franchisee. The franchisors provide the business expertise (marketing plans, management guidance, financing guidance, financing assistance, site selection and training). On the other hand franchisee brings to the franchise into operation, the entrepreneurial spirit and drive necessary to make the franchise a success.
One of the most important features of this contract is the provisions relating to termination, transfer and renewal of the franchise. In many examples franchisor terminate agreement without informing the franchisee. However this is the right of the franchisor to have legal protection in the event that a franchisee fails to obtain a satisfactory level or to maintain the quality standards. Similarly the right of franchisee to renew the contract after the business has been built up to a successful operating level and the right of selling of a business to a third party should be clearly stipulated/predetermined.
Since, Franchising today is used to distribute almost any conceivable/possible/believable product or service. Its growth has been primarily dependent upon two factors: the desire and the need of business to establish many outlets with minimum capital, and the desire of individuals to be independent businessmen.
Some factors that should be considered before entering to the franchise contract are:
• Fees that are involved
• Territorial limits of the franchise
• Training provisions
• Restrictions upon the purchase of materials
• Control of operations and performance standards
• Prohibition against the sale of competing lines'
• Price requirements
• Record-keeping requirements
• Necessary Hours and days of operation
• Advertising provisions
• Grants of franchise
• Termination, Transfer and Renewal Provisions
Options for Starting a Business
Above table shows the different options for starting a business
1. Buy an Existing Business
Many find the idea of running a small business appealing and attractive. But when they go into it they lose their motivation after dealing with investors, business plans, and legal issues associated with new start-ups.
For those disheartened by such risky undertakings, buying a existing business is often a simpler and safer alternative. The main reason to buy an existing business is the drastic reduction in the start-ups costs of time, money and energy.
Buying a business enjoys the immediate cash flow, inventory and receivables. Pre-existing goodwill and easier financing opportunities because of the early relation further be benefited if the business has the positive track records.
But the biggest block to buying a small business outright/complete is the initial purchasing cost because business concept, customer base brands and other fundamental work has already been done; the financial cost of acquiring an existing business is usually greater than starting one from nothing.
Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase but later turn out to be non-collectible. Good research is the key to avoiding these problems.
Before buying a going concern a buyer should take in account these factors:
• Owner running a business wants to sale the business has many sides
• Due to the old age, illness, loss from years, migration of the current owner, and desire to start new business.
• Due to the problems to run a business, problem with landlord, suppliers or legal restrictions.
2. Inherit/Receive a Family Business
Existing Businesses is inherited by the children's or by the immediate members from the family for the inheriting of the business, business must be a going concern and the family involvement management ownership and in control is essential. There are two facets of ownership transfer, (I) if the parents and relatives running a business dies or (II)If they enable to continue or an owner want to launch the children, inheriting may be planned, which is also called succession.
Inheriting is a way to enter to the business, there is no need of written plan, market surveys, location identifications, competitor and their position, hiring of employees and competitor and their position, hiring of employees and acquiring of physical facilities and its layout whatever is. Neither there is a requirement of assets and liabilities analysis and valuation, analysis of financial performance, identification of personnel remaining and leaving when a business is bought because it’s a family business where ownership transfers just after the owners death or when the owner is not capable of handling project anymore.
Inheriting replaces the old and establish new owner but in some instant this may happen with planning. If the owner’s motive is to bring his child into a business he can launch a new product or add a new product line, new market segment or find a market niche to serve or he could expand the department in the organization
Planned inheriting exist when an ongoing owner/parent want to launch their children in the business. Planned inheriting is also called succession planning. In this type, parent try to eliminate all the problems associated to the business, identify skill, knowledge, experiences and desire of their children to enter to the business and develop a business plan than only launch their child to the business.
Unplanned Inheriting occurs when an existing owner is unable, don’t want to continue, dies or because of old age, illness any other inability.
Pros of Inheriting a Business (Advantages)
Risk is eliminated or the business is on the positive track record. New owner enjoys the established and smooth relationship with stakeholders (suppliers, customers, creditors, banking institutions, competitors, employees, society, and government).
Because of the family business and ongoing concern it saves time cost and energy that requires on buying and starting a business. Suitable location, effective human resources, sound taxation system is on the place, are the additional advantage of the inheriting.
Cons of Inheriting a Business (Advantages)
When an unplanned inheriting exist, inheritor may lack interest to enter to the business, or sometime it is only parents will to bring their children to the business but the children may attracted towards other opportunities.
May the interest between the family members overlap, more than required person may want to enter to the business which created legal problems?
3. Starting a New Business Venture
Many small businesses are successfully started “from scratch”. The most effective way is to approach a new small business venture is to create an unique product or service; one that is not being offered today but if it were would be in great demand. The next-best way is to adopt something that is currently on the market or extend the offering into an area where it is not presently available. The first approach is often referred to as new-new, the second as new-old approach.
New-New approach; New concept, New idea, New location, New physical facilities, Newly established relationships with financial institutions, suppliers customers, government and society and new market niche, new competition and competition.
New-Old approach; most small businesses do not start with a totally unique idea. They either improve a product or offer a service in an area where it is not currently available. This kind of enterprise should try to offer a product or service that is difficult to copy.
Starting a new venture demands a thorough market analysis. Market analysis should justify market demand. Is market demand for a particular product sufficient or not. Fact gathering help to justify the reason.
Types of Franchising
Commonly there are three types of Franchising and they are:
1. The product/trade franchising (Distributorships)
Here a franchisor owns the right to the name or trademark of the products. Franchisee here is a distributor of the products. Franchisee receives products, sells them through retail business. Some internationally known brands are the strong examples of this.
2. Business format franchising
A boarder and ongoing relationship between the two parties exists in this type of franchising. Business format provide a full range of services, including site selection, training, product and service supply, marketing plans, and even assistance in obtaining financing. The examples of this type of franchising are the Mc. Donald, Pizza Hut and the Archies card shop.
3. Service Franchise
This type of franchise contract a franchisee receives a license to use the established name to sell particular services. Some of the examples of this type of franchise are beauty saloons, accounting and law firms. Like Price Water-American Accountants firms and DHL are some popular names in the service franchise
4. Piggyback (take credit) Franchise
Two or more franchised businesses that share space to offer a more comprehensive product or service to customers.
5. Area Franchises
Franchisees that have the right to run franchise at only one site.
6. Single-unit Franchise
Franchisees that have the right to run franchise at only one site
7. Multi-unit Franchises
Franchisees that have rights to open several franchise units at once.
8. Sub franchises
Franchised outlets sold by area franchisees to other businesspeople in their areas
Selecting a Franchise
In a real sense, franchisees do not start business from scratch. When they buy a franchise, they generally receive a ready-made business. Then all they need to do is follow the franchisor's instructions on how best to do business.
Some instructions of selecting a franchise are:
• What product or service to sell
• How to sell it
• How to control costs
• What reports to prepare
• How long to stay open each day
Before buying a franchise, entrepreneurs first attempt is to make sure the decision to become a franchisee is sound; it’s a first step and also called self analysis stage. The second step is to choose a product or service and searching of franchise candidates. The third step is the review of checklist of questions (hire consultants, lawyer, and experts to develop the checklist of questions) and finally compare franchises and pick best one.
Future Franchise Boom
Beauty parlors,
Equipment-renting outlets,
Book-keeping and tax services
Variety stores
Drugstores
Brake and Muffler repair shops
Dry cleaning services
Employment agencies
Car-Rental Services
Pizza
Fast-Food outlets
Employment Agencies
Franchising Relationships
Commonly there are three types of relationship exist between the Franchisor and Franchisee and they are;
Relative Advantages and Disadvantages of Franchising
Advantages of Franchising
A franchise does not launch a new business in the strict sense of the word. He is really opening a new 'outlet' of a well-established organization with a record of acceptance and success. Franchising offers distinct advantages to the prospective owner of a small business. Acquiring a franchise eliminates most of the risks that bankrupt so many small businessmen during their first few years of operation. With a quality franchise the prospect is set up in a going business, one with successful, nationally advertised or identifiable product or service this is the reason a franchise is attractive for many would be entrepreneurs.
Here are some points that indicate the merits of buying a franchise to the Franchisee.
Advantages
In this sense, a franchisor the real owner of the business also enjoys the multiple revenue sources, expansion of the business globally, heavy discounts due to the bulk purchasing.
1. Managerial guidance and formal training on start-up and beyond
Franchisee usually receives thorough training in a proven business technique; assistance and or patronage in locating, constructing, equipping and financing his enterprise; the purchasing advantages of combined buying power and expertise in merchandising/trade in/product/good and management practices and control.
2. Financial Assistance
The costs of starting a new business are often high and the prospective entrepreneur's sources of capital quite limited. The entrepreneurs standing as prospective borrower is weakest at this point. Franchisor assists franchisee to help on provision of financing, in dealing with financial institutions and with government.
3. Marketing Assistance
The entrepreneur who enters a franchising agreement acquires the right to use the franchisor's nationally/internationally advertised trademark or brand name. This serves to identify the local enterprise with the widely recognized product or service. In addition, the franchisor maintains the value of its name by continued advertising and promotion. The standard operating manuals and procedures they supply have permitted other entrepreneurs to operate successfully.
Disadvantages
A few limitations to franchising keep it from being a business solution. Franchisor also suffers in many aspects like loosing the control-because franchisees are not employees, sharing the profits and maintaining the quality.
Some other limitations to the franchisee are as follows.
1. Cost of Franchise
Fees of various types must be paid the franchisor. Generally, the higher fees will be charged by the more successful and well-known franchisors, this includes the initial lump sum payment plus royalties (% on sales) plus the other fees including different fees of assistance.
2. Restrictions on Growth
A basic principle of the business is the business growth, in the existing sales territory but many franchise contracts restrict the franchisee to a defined sales territory, thereby eliminating this form of growth.
3. Loss of Absolute Independence
Franchisors regulation of business operations may be helpful in assuring success, it may be unpleasant to an entrepreneur who cherishes independence. Franchisee lacks individual identity, site selection, advertising and hours of operation.
4. Unfulfilled Promises
Evaluating Franchising Opportunities
The prospective franchisee must locate the right opportunity, investigate a franchise offer for a possible fund, and examine the franchise contract carefully. Venture magazines, Trade publications, advertisements in newspapers, word of mouth are the some sources of information that is readily available to anyone to gain the idea about the franchisors. In following up these advertisements, the prospective franchisee needs to beware of advertising claims that are misleading or that promise more than is warranted/acceptable. The task of locating the most suitable opportunities has become difficult because sources of franchise are not always obvious.
Information concerning franchise opportunities may also be obtained from the franchisors themselves. They are usually very helpful in explaining the necessary steps to opening a franchise business.
Ordinarily the opportunities evaluating process is a two-way effort. The franchisor wishes to investigate the franchisee, and the franchisee obviously wishes to evaluate the franchisor and the type of opportunity offered. One should be skeptical of a franchisor who is hurried or who pressures a franchisee to sign at once without allowing for proper investigation.
Steps in analyzing opportunity are:
1. Analyzing oneself (self-analysis)
Before buying a franchise make sure that the decision to become a franchisee is sound by identifying and defining own skills and desires.
2. Type of opportunity
Analyze the on-going start-up assistance, business plan, training and advertisement.
3. Operation of the franchisor
For how many years has the franchisor been in the business, does the franchisor have the good reputation, financial stability of the franchisor, debts of the franchisor, capital need for the expansion?
4. Profit potential of franchise
Certified figures of franchisor indicating exact net profit, future earnings, competition and risk should be examined carefully.
5. Cost of the franchise
Start-up cost as initial payment.
Royalties to be paid i.e. percentage of sales
Advertising fees and other assistance fees to be paid to the franchisor.
6. Professional help
Expert’s evaluation and analysis
Help in choosing the best alternative among
7. Need of the buyer
Population in the territory
• Increase
• Remain/ Static
• Decrease over some years
Demand of the product or service be
=Equal
8. Environmental study
SWOT analysis
Specific Location Problems for Small Wholesale Business
Small Business Failure
Problems of Small Business
Although researchers have established no "official list" or uniformly/regularly recognized group of difficulties for small business, they have detected a number of recurring problem areas.
Lack of managerial Skills and Depth
Management team is lacking in the small businesses. Top-level decisions, together with all the lesser tasks of management that assistants cannot accomplish, become the owner-managers sole responsibility. Unfortunately this requires a diversity of talents-and no individual has superior ability in all areas of management.
• Small business fails to prepare records of financial statements
• They are insensitive to the need fro change in policies and practices
• They often are severely/strictly limited in terms of both education and in experience.
Personal Lack and Misuse of Time
The owner manager of a small business frequently bears the management burden alone. He even assists the worker on different occasion. He assist on packing a rush order or in delivering merchandise/products to a valued customer who insists on immediate service. This means that the manager does not have the opportunity to operate solely at the executive level.
Lack of Financing
Long term capital is a particular need of many small firms. It is obtained by personal investment or by long-term borrowing or by borrowing from relatives or friends, as an alternative. This may present problems because borrowing requires to be paid back over a period of time which is more difficult for small firms.
Difficulty in Obtaining Qualified Personnel
Many small business managers identify personnel as a major problem area. They lack attractive incentives to the employees this limits the small owners to secure well trained employees in the organizations.
Weaknesses in Marketing
Channels of distribution, product differentiation, marketing strategy, identification of competition and the market segments as well advertising are some areas where the business show the expertise but small business lack the knowledge and guess at the right answer.
Failure Symptoms
Failure means a situation where available capital is insufficient to pay all the obligations of a business. No matter how large or how small initial capital, have been, incompetent management has not only exhausted/tired it but incur/earn debt beyond ability to pay. To the entrepreneur the most obvious/clear reason the lack of capital, regardless of how inefficiently he has managed what capital he had.
Here are some symptoms that direct the business toward failure.
1. Deterioration of working capital position
Working capital deteriorates because of the lack of proper study and management. The facts that deteriorate the working capital position are as follows:
• Excessive payment on dividends without the proper study
• Unusual losses like flood, theft etc reduce working capital
• Receivable turns as bad debt and excessive credit sales
• High interest payment in principal
• Excess payments to long term loan in comparison to share annual profit.
• Loan provided to officers, employees, subsidiaries turns to frozen loans later.
2. Declining profit
Continuous decline of profit is the symptoms of the business failure. Causes of declined profits are
• Declined sales that reduce the sales revenue.
• Increased cost of raw material
• Increased cost of labor.
• High tax charged by the government
3. Declining Sales
Sales of the company declines over the period for some reasons
• Inadequate market research to measure sales potential or customer groups
• Poorly planned advertising and promotional activities
• Outdated products and products packaging
4. Too busy chief executive
Too busy CEO is unable to pay full attention to a particular business. Generally in the small medium sized business owner is the chief. Owner who is engaged in more than one organization lacks enough time and attention. This lead business toward failure.
5. Larger short term borrowing than long term
Generally short term borrowing are for one year. Principal as well interest amount of the short term borrowing amount should be less than long term to save the business failure.
6. Increasing debt
Considered adequate ratio to pay current liabilities is 2:1, i.e. current assets should be two times greater than current liabilities. But, the ratio fluctuates than this show the condition of the business in toward failure.
Human Resource Management
Human Resources are the people working in different hierarchy of the organization. HR are regarded as the vital force of the organization because they are the force who plan, organize, collect, co-ordinate, control the other resources of the organization. From the effective utilization of HR, organization lead toward productivity improvement cost effectiveness and efficiency. And HRM is about managing people of the organization, it is a developed form of personnel management.
Acquisition, Development, Utilization and Maintenance are the different functions of HRM. Here the first function acquisition ensures entry of right number of employees at the right place and at the right time. Development function ensures proper competencies of employees to handle jobs, utilization is employing people productively and maintenance function ensures retention of competent employees in the organization.
HRM focus is toward people and is a continuous process (not one time activity). HRM activities are affected by the changes in the environment.
Goal harmony between individual and organization is possible with the help of HRM function. HRM aims to achieve individual, societal, organizational and functional goals. Maintain the structure by assigning duties and responsibilities to the employees. Manage the change by promoting readiness to change, improves the quality of work life etc. In a process with continuous commitment not a one time activity and a dynamic function affected by the environmental changes.
Since, HRM is concerned with development of human skill, knowledge and ability to perform the organization task effectively and efficiently.
Role of Human Resource Managers in Small Business
Most small businesses do not have the different department to smoothen the Human Resources issues because as we know the many small firms in their, initial, focus only toward production and marketing. Even though small businesses do not have separate HR department but smallness creates an unique situation in the management of human resources.
HR manager plays different roles to perform the assigned tasks in a productive way. The HR manager has specialized skill and knowledge which help to perform managerial as well as operative functions in the organization. HR manager plan, organize, lead and control HR of organization. In addition to this they recruit, select, train and place HR in the organization. Some of other role performed by HR managers are as follows;
1. Policy initiation
It helps in framing the organization policies and procedures so that the problems of recurring nature can be countered.
2. Advisory role
HR manager play an advisory role to confront various day to day operation problems.
3. Linking role
It co-ordinates between management and workers, good working relation in organization enhance the organizational productively.
4. Representative role
HR managers speaks plans and policies of the organization because they have better understanding on organization issues.
5. Decision making role
HR managers play an decisive role in labor related issues. They also formulate the policies and programs of HRM.
6. Mediator role
Conflict can be resulted by the difference between expectation and achievement. It can be between the employees, superior and subordinate and even between management and employees.
7. Leadership role
HR managers performs leadership role by providing leadership and guidance to the employees.
8. Welfare role
HR managers performs welfare role by concerning with provision of canteen hospital and other welfare service for employees.
9. Research Role
HR manager undertakes various research works in relation with absenteeism, turnover, grievance etc. They provide valuable comment and suitable measures for the improvement.
Use of Personnel Manager and Important personal functions
Personnel Management in Modern Technology is related to human resource management. HRM reflect the increased significance associated with the management of people in an organization.
HR manager in the organization is related to the management of people within an organization.
• HR managers main focus is to satisfy the human needs of the people at work.
• Personnel manager make their best contribution for the achievement of organizational and individual goals and objectives.
• HR manager integrates all the aspects of acquisition, development, motivation, and maintenance.
• They handles unexpected disturbances maintain, discipline, handles grievances negotiate labor relations.
• They co-ordinate, communicated and disseminated HRM matters to different department in a user friendly way.
Personnel manager remain at the center of the management in any organization because HR are considered as the important aspects among other assets.
But small and medium sized business owned and run by some or very few persons or from the family members, regard HR managers use and function as a low priority. Generally in this type of business owner, manager themselves handles the issues of HR this is the reason their HR capabilities remain questionable.
Human Relations Approach in Small Business
The purpose of the business is to satisfy the wants of people. Every business institution is seeking to satisfy human wants and needs. Wants and needs are satisfied effectively, economically and therefore profitably only these businesses are successful and remain in existence. If any one of them is deficient the business is soon cease/stop as an economic institution.
Business operation, management and personnel recruitment are equally involved in human considerations. The ability to direct to lead and even to inspire others is a human attribute as well the ability to accept and execute assignments of responsibility from others. The ability to gain and maintain confidence as reflected in securing financial backing, credit extensions, and loyal employees is a personal characteristics of vital importance in business.
Human resource is the resource that helps to achieve all factors mentioned above. Therefore satisfaction compensation, company picnics and fringe benefits do not guarantee harmony in employer-employee as well employee-employee relationships. These elements of a personal program are only a part of the total fabric of interpersonal relationships.
Here human relations approach tries to understand human attitudes and group dynamics and emphasize on employee satisfaction. Focuses on employee and regard them important compared to job as well puts employees first.
Further this approach advocates that the employees should be treated with dignity/self-respect, work should be made meaningful, group work improves efficiency, participative management is important for co-ordination, non-financial rewards such as recognition and appreciation are important for the productivity.
But the drawback of this approach is that it ignores financial reward as well undermines the job which is equally important to the business and to the employee.
Some factors for good human relations are:
• Effective Communication
The key to healthy interpersonal relationships lies in effective communication. Communication is a two-way process, it enable employees to understand orders and instructions as well the reasons of such orders and instructions.
This further tells employees where they stand, how the business is doing, what plans are for the future.
• Personal contact between employees and entrepreneur
Small firms employ few numbers of employees. Here personal contact between owner-manager within a relatively short period of time is possible. If the relation between them is good, employee develops a strong feeling of personal loyalty to the employer.
• Informal personnel relationships
Most small firms do not have the written personnel policies and formalized procedures that are found in large companies. It is the mangers ability to devise solutions to fit particular personnel problems. Individual considerations may be taken into account and problem that does not fit a rule book may be solved in the most appropriate manner.
• Quality of Work Life and Participation
It refers to the efficient relationship between employees and the total working environment of the organization. Autonomy, recognition, belongingness, progress and development and external rewards are the elements of Quality Work Life, which help to promote good HR.
• Participation
Participation in decision making, promotes good relationship between employer-employee. It provides a feeling of belongingness, responsibility and acceptance.
Chapter 3
Locating the Enterprise
Importance of Location in Small Business
Every business, small or large, requires a good location. A properly located enterprise of any type will be more profitable and have a greater chance for business survival.
Location may be defined as selection of suitable site, place or location where the factory or plant or facilities to be installed or where plant will start functioning.
Choice of location has different importance for different businesses. It is much more vital to some businesses than to others. To some businesses well chosen location reduces operating costs, get closer to its customers, or gain other advantages and for some other business, who have the heavy flow of customers, a shrewdly selected site that produces maximum sales will increase throughout the life of the business. But fro the same business site with light location reduces sales. For the painting contractor site decision is of relatively minor importance.
For most small businesses, selecting a location is a decision made only when the business is first established or purchased. Occasionally, however, a business considers relocation to reduce operating costs, get closer to its customers, or gain other advantages. Also, as a business expands, it sometimes, becomes desirable to begin additional operations at other locations. Once the business is established, it is costly and often impractical, if not impossible, to 'pull up stake/risk' and move. Very few businesses can safely ignore the factor of location, but it is much more vital in some lines.
Finding the most convenient place where the business should be located to service as well product organizations is challenging job. Companies are all concerned with the selection of sites that will best enable them to meet their long term as well short term goals.
Different businesses, has the different importance of location, for the service organizations location decision is very crucial as that for the manufacturing organizations. Development of a location strategy depends upon the type of a firm being considered. Retail and professional service organization typically have a focus of maximizing revenue, industrial location analysis decision focus on minimizing costs and warehouse location on the other hand, may be determined by a combination of cost and speed of delivery.
Final decision is made by taking into consideration of more detailed requirements. Once a decision is taken for the location, than the organization starts its operation for a long time with the prospects and problems related to raw material, supplies, labor market, environment etc that the site would present.
Factors Affecting Location Sustainability/continue
It is possible that more than one location seems satisfactory. On the other hand, many undesirable locations appear satisfactory on the surface. Only careful investigation will reveal the good and bad features of any particular location.
Big businesses have professionals whose analysis and advice are invaluable in evaluating prospective locations. In contrast, small business entrepreneur must personally do the major part of the investigational work. The factors that affect the location sustainability are as follows;
1. Personal preference
A prospective entrepreneur considers the home community for locating the business because it provide them an opportunity of warm weather or a desired religious or social atmosphere as well the businesspersons can more easily establish credit, probably has a better idea of customers tastes and peculiarities/habit, relative and friends are the customers and also help to advertise the product. Thus, personal preference greatly affects the decision of location.
1. Environmental condition
Environmental condition can hinder/hold back or promote the business success. Climate, competition, laws, and citizens attitudes etc are all part of the business environment. These are the factor which affect the decision of the location and demand prior investigation to make a location choice.
2. Resource Availability/Infrastructural facility
Land, water supply, labor supply, waste disposal, power supply, transportation, material supply, industrial districts and financial institutions are the particular critical considerations for the business. Business location decision largely depends on the availability and unavailability of the aforementioned resources.
3. Customer Accessibility
Retail outlets and service firms are typical examples of businesses that must be located conveniently to customers. Perishable products demand the location close to consumers.
4. Extent/scope of Local Competition
Most small businesses are more concerned about the nature and the amount of local competition. The quality of the competition also affects the desirability of a location. If existing businesses are not aggressive and the condition is out of cut-throat than there should be the room for the newcomer otherwise entering to the business could be the reason for business death.
5. Government policies and local laws, regulation and taxes
Government provides various incentives, subsidies and concessions as well the rules and regulations. Remote areas entrepreneurs and some industries receive those facilities in terms of tax holidays, factory shed at low cost and cheap loans but the same is not available for the urban entrepreneurs. Further local taxes, employment to local people, waste, noise, and pollution management are the hindrances for the business which comes under the government regulations and they directly influence the location decision.
6. Environmental Factors
Factors that pollute the environment like sewage, noise and air require managing or the government charges the taxes for it. It is cheaper to bear the costs incurred in those if the business is located in specific sites. Or some locations are restricted to establish for particular type of business that influence the location decision.
Choice of Location
Location Factors for Different Businesses
Small wholesalers, retailers, service firms and manufacturers face the same sequence of location choices as to region, city and actual site. For each of these types of businesses, however, certain factors are more significant than others. Thus, process of site selection varies because each venture is unique but before selecting a site, the entrepreneur first must go through marketing research( Siropolis 227)
I. Special Location Factors for Retail Business
II. Special Location Factors for Wholesale Business
III. Special Location Factors for Service Business
I. Special Location Factors for Retail Business
Retail business sells their goods to its ultimate/final consumers, it require the location where it should be customer accessible. Customers are the people with habit, patterns and buying needs that are often associated with other activities
1. Types of goods sold
There are different types of goods sold by the retail stores and they are Convenience goods, Shopping Goods and Specialty Goods.
Types of goods sold
Fig.: Different Types of goods available
There are more than one site available to sell the particular goods and they are
2. Type of Site
City Centre, Shopping Centre, Freestanding Stores, Small Town Stores,
Type of Sites
Fig: Sites Available for Retail Outlets
City Centre is the central shopping locations which incur expensive rental costs, high flow of customers and parking facility. Shopping Centre Houses many retail stores, are carefully planned with parking facilities, facility of restaurants and amusement parks. Branded goods are sold through Freestanding Stores; they have good parking facilities and found in many locations.
3. Purchasing Power
Purchasing power of the consumers is the next factor that determines the business location for small retail outlets. Generally small business location is attracted in those areas where purchasing power of the consumers is high.
4. Population, size and growth
Population and its size as well the growth potential for business highly influence the location decision. If the size of population is relatively high and possibility of population increasing is also greater that location attracts the small business owner.
5. Capacity to pay rent
Small business looks the area where the rental costs do not make them a burden. It is because of their low capacity to pay high rent. Rental cost is the important consideration for them.
6. Competition
Small retail stores do not fear from competition because they do well if they located near the competition.
II. Specific Location Factors for Wholesale Business
Perhaps the most significant geographical consideration for the small wholesaler and the industrial distributor is the selection of a city.
1. Identification of City
The wholesaler of consumer goods is particularly interested in the volume of retail sales. Certain cities serve as wholesaling centers; the wholesaler's market includes not only the central city but also the surrounding towns. The smaller wholesaler must discover which city is the wholesaling center and measure the intensity of local competition in considering any given city.
2. Transportation
The warehouses should be near the center of the trading area to be served, while remaining accessible to highways, railways and air cargo stations. Locations outside the district, still requires accessible to railways and highways and having suitable loading and unloading facilities, will often mean lower rent, more space, lower operating expenses and faster deliveries, and possible newer and more attractive quarters and parking facilities.
3. Rent
Identification of the location cost is the next consideration for the wholesaling trade. City centers usually cost high rent but outside district locations often mean lower rent. It is essential to know the different facilities like space, lower operating expenses and faster deliveries and more attractive quarters and parking facilities for the business and their critical advantage.
4. Relation with customers
Relation between retailers to wholesalers exist for number of years, retailers do not want to break the existing relation with the wholesalers. Thus, making the relation with the customers is the next problem for the new comer in the wholesaling trade.
III. Specific Location Factors for Service Business
The location problem of most small service firm is much like that of small retailers. A convenient location is imperative/very important, except in the case of those firms that can build reputations for such high-quality or unique service that customers will seek them out.
1. Customer Accessible
Service businesses require the customer accessible location as the retail stores does. Some service businesses locate them conveniently to the customers like beauty shops, restaurants, banks.
2. Space requirements
Some service business requires big spaces like car-repairs, driving institute etc. The location needs high to pay rent if they housed in the city centers. Accordingly small businesses require identifying their need of the location.
3. Target Customers and the location
Beauty shop, shoe repair, TV repairs require residential areas to locate them. Travel Agencies demand the place where the customers flow is high. Professional people could locate their business in the low rent area or at their own residence.
Physical Facilities and their Minimum Requirement
Physical Facilities
Business that is small or big, that is retail or wholesale and that is manufacturing or service business requires physical facilities. Physical facilities of a business make organization function easier and possible to do things. Physical facilities of a business are many;
a) Land and Building
Land is that place where other physical facility like building is arranged. Land could either be purchased or leased. Land requires high investment if it is purchased since it could be leased to save the outflow. Building decision differs from the nature and the flow of customer; building could either be constructed or leased.
b) Furniture and fixtures:
Furniture's and Fixtures are the Table, Chairs, Bed, bath Sink, Basin, display rack, storage rack, mirrors seats etc arranged into office. Furniture and fixtures require the proper utilization and maintenance.
c) Machinery and Equipment
Machineries are the producing tools for special and general purpose.
For the Special purpose- Bitumen Compressor, Sewing Machine
General purpose-Computers
Requirement of physical facilities are different for different business. Thus detail survey and engineering is must before acquiring any physical facilities to save the unnecessary outflow of cash.
Requirement of Physical Facilities
Factory
Adequate provisions for the economical installation of necessary piping, ventilating equipment, foundations for heavy machines and similar requirements will vary according to the nature of the business. Plantation and compounding are further are the added advantage of the business. Although little has been written about the small factory, many companies have constructed decentralized branch plants throughout the country. Most of these would be considered small businesses if they were independently owned and operated.
Service Requirement
Service businesses are so diverse in nature that building requirements vary greatly. Certain consulting and other personal services may require nothing more than facilities for a telephone, desk, and chair and filing equipment. Personal services like beauty shops require an attractive, comfortable, interior arrangement and provisions for adequate electric power and plumbing, as well rest rooms for patrons and display space for the promotions of merchandise and services for sale.
Some other service businesses with special plant requirement are automobile, truck and tractor repair shops and storage places, and sheet metal and heavy machine shops. In general a single story building without basement is preferable for such establishments.
Retail Requirement
The appearance and interior of buildings probably applies to retailing to a greater extent then to other kinds of business. A retail store should be attractive and inviting to customer. Color of walls, background and fixtures should be selected; windows and entrance should be designed, lighting should be used as a silent salesman to take greatest advantage. Although the general trend is toward the all-glass front, this is not suitable in all cases. Paint, furniture, food, and all-glass wearing-apparel/clothing stores may use this type of front to advantage, but jewelry stores and other dealing in small items may find the traditional window more desirable. Valuable help may be secured from trade associations and from equipment manufacturers and store-front engineering firms. Air conditioning has become a virtual necessity in retail stores located in warm climates and has increased worker efficiency in many plants.
Layout of Physical Facilities
Layout deals with the arrangement of machines, fixtures and other equipment, according to a plan. So layout may be defined as physical arrangement of facilities. This arrangement includes the spaces needed for materials, movement, storage, indirect laborers and other supporting activities or sources as well as operating equipment and personnel.
The best layout is one which makes the most effective use of space for particular business. Layout starts with an analysis of the activity involved in operating the business the objective sought and the facilities for achieving them.
Layout for any kind of business-merchandising or service involves the arrangement of equipment, machines, and other elements to secure maximum efficiency in use.
The relatives importance of meeting the needs of customers, workers and management varies according to the type of business, but most considered in planning the layout.
A bad layout results in excessive handling of materials and movements of material, HR and equipment result in increase in cost without necessarily improving the values added to the product.
Agencies that Assist in Choosing Location are;
Remaining
1. Government agencies
Government establishes various institutions for promotion of industry sector as a whole and for small and cottage industries. Those government agencies provide assistance in choosing location.
2. Special/Specialized Agencies
Specialized agencies are the agencies, establishes to provide some of special training, suggestion, consultancy and make available superior technology raw material, design and test facility for particular industry. They are also the government establish agencies.
Objectives of Small Business
Small businesses started with low investment and with very few persons have multiple objectives. And some of the goals/objectives of small business are
1. Profit
2. Survival
3. Growth
4. Leadership
5. Efficiency
6. Social Responsibility
7. Corporate Citizenship
8. Service
1. Profit
Profit is an excess of income over expenditure and this is primary goal of businesses. Of course, money is not the main drive force for most of the entrepreneurs. But decision on initiating company by entrepreneurs mostly depends upon the profit they earn by their businesses. It is undoubtedly said the person who use their knowledge in producing valuable goods and services in solving problems are rewarded profusely/in large amounts from rags to riches.
2. Growth
Business should grow over a period of time in terms of sales, market share, product diversification and profits. Stagnant/inactive business tends to die in long run.
3. Survival
Business should stay alive to flourish, grow and develop well. Many businesses in Nepal are pursuing survival goal in the hope of better days in coming years.
4. Leadership
Business should strive for market leadership through continuous technological innovation and quality improvements.
5. Efficiency
Business should aim for higher productivity through reduced cost of operations. In small business all skills and capacity of men are challenging. The only constraint for success is the things that cannot be overcome by entrepreneur's creativity and determination.
6. Social Responsibility
Business should safeguard the interest of its stakeholders including employees, customers and the society. It should use power for the good of society and remain part of society.
7. Corporate Citizenship
Business should comply/do as the request with the laws of the land and develop good government, business relation for corporate citizenship.
Social Responsibility of Small Business
The circle of care and concern that a business has for a well-being of society is called the social responsibility of business. Stakeholders like customers, society, government, shareholders and employees are the part of business. They demand commitment from business of safeguarding and ensuring their interest.
Social responsibility is not only the matter of concern of the stakeholders but also the concern of business owners. Many independent entrepreneurs speak about their satisfaction in serving the community. But this is not applicable to all the entrepreneurs, some fail to sense or refuse to recognize any obligation beyond minimum necessary to produce a profit.
Recognition of a social responsibility does not change a profit seeking business into a charitable organization. Earning a profit is absolutely essential. Without profits, the firm is on no position to recognize the social responsibilities toward anyone.
Some essential responsibility of the small businesses is as follows;
1. Economic Responsibility (be profitable)
A business is an economic entity, its primary responsibility is to produce socially accepted product and sell them at a reasonable price and make desirable profit to satisfy employees and the owners need.
2. Legal Responsibility
Business must comply with the laws of land and especially those dealing with the perfection of the interest of consumer, labor, government and society. It should be honest on paying taxes. Trade practices should not encourage corruption and restraint of trade.
3. Ethical Responsibility (do what is right just and fair):
Business organization lay down code of conduct related to social responsibility and employees are said to follow such code of conduct.
4. Philanthropic/Sincerity Responsibility (Safeguard interest of community)
This takes the form of business contributions of charity or worthy social causes such as education, health, culture arts etc. It can also take the form of events sponsorship.
Areas of Social Responsibility
1. Consumers
2. Employees
3. Community
4. Government
1. Responsibility toward Consumers
Small business must satisfy consumer needs like;
• Product promotion:
Consumers have the right to know the truth about product.
Small business should be honest about the claims that they make about products.
• Product safety:
Customers should be warned about products safety
The cause, injury, accidents and about the children safety
The product should be advertised like not for children below 3 years
• Product Quality
Quality product at reasonable price
Business should ensure product quality
Guarantee, Warranty and service offers should be honored/ privilege/advantage
• Consumers Interest
Complaints against different affairs are registered
Small business should avoid restrictive trade practices
2. Responsibilities toward employees
• Work Environment
Small business should provide rewarding and effective work environment
• Occupational safety and health
o Hazardous working conditions should be eliminated
o Employees training should provided in safety
• Quality of Work life
o Fair and adequate wages and salary
o Participation in decision-making
o Greater responsibility in jobs
o Flexible working hours
o Social welfare
3. Responsibilities toward community
• Environmental Quality
o Prevention of pollution
o Recyclable and reusable packaging
o Natural resource should be properly used
• Employment Creation
o Equal employment opportunity to disadvantaged and females.
• Community needs
o Sponsorships for arts culture, education, charities etc.
4. Responsibilities toward government
• Legal compliance
o Small business must meet the laws of land dealing with the protection of the interest of consumer, labor and society.
o They should be honest in paying taxes
• Political impartiality; Small business should be imparted
• National problem solving; Government should support government policies for solving problem of employment.
Time Management in small business
Time management is the management which enables the organization to get more done in less time. Effective time management in the small businesses is very essential to achieve maximum return with quality. It also helps the organization to survive long and to grow as well securing the good portion of profit.
Many small businesses lacks the effective time management, they spent their time on meeting customers, listening to employee complaints and solving problems, seeing outsiders interested in getting contributions for charity, and the like. The reason of this is because the small firm faces the problem of management with the assistance of only a few staff, all of this means that the manager's energies and activities are diffused in small businesses in the unnecessary and priority less functions
Many small business managers work long hours for their business but a frequent and unfortunate result of overwork is the inefficient performance caused by the mismanagement of time of those tasks for which the managers are responsible. Better management of time involves proper planning of time use, identifying time stealers and using time management techniques to improve time use.
Some essential factors for the time management are clear understanding of objectives of individual and the organization, awareness about their working styles and work habits, personal traits and knowledge of time stealers. Different factors mentioned above should be understood first and that should be involved in managing the time.
Decision Making Functions and Its Relevancy
To a great extent, the successes or failures that a person experiences in life depend on the decision he or she makes. A new decision is, in general, made when either an individual or an organization feels dissatisfied with the existing states of situation and also has few alternatives to improve
A decision is the choice out of several options made by the decision maker to achieve some objective in a given situation. Business decisions are those which are conducted in a given environment. But in any decision it is to be assumed that a decision maker is a rational person who would decide with due regard to the rationality in the decision making.
The decision making process either in big business houses or in small is a complex process in the process of management. Complexity is the result of many factors, such as the interrelationships among the experts or decision makers, personal values of the decision maker, a job of responsibility, a question of feasibility, the codes of morals and ethics and a probable impact on a business.
The personal values of the decision maker play a prominent/major role in decision making. A decision otherwise being very sound on the business principle and economic rationality may be rejected on the basis of personal values which are defeated/overwhelmed/overcome if such a decision is implemented.
The culture of the organization, the discipline used and individual commitment to the goals will decide the process and success of the decision. Whatever may be the situation, if one analyses the factors underlying the decision making process, it would be observed that there are common characteristics in each of them and there is a definite method of arriving at a decision.
All decision solve a problem, but over a period of time they need the updates according to the changes in the environment because decision made once may not work for a long.
Decision making based upon the decision theories, quantitative tools, statistical tools; accounting tools, data and the information available as well as three types of decision making environment: certainty, uncertainty and in risk as well as the use of information system. More than taking the help of the decision theories decision making process requires creativity, imagination and a deep understanding of human behavior.
Significance/Importance/Relevant of Decision Making
Organization in course of producing goods and services take many decisions, top managers take strategic decisions, middle managers take tactical and lower managers take operational decisions. In other word different functions of organizations like planning, organizing, staffing, directing, controlling, leading and motivating demand decisions.
Decision making solves the problem by understanding things with good reason and study other than of guesswork and hunches/intuition/without good reasoning to achieve organizational objectives. Further it is important in all managerial functions, and to evaluate performance.
Decision making helps to defeat/overcome the organizations not only when he has the complete knowledge of consequence/result/effect of every course of action in the certainty but also in the uncertainty when the decision maker does not even know the probabilities of the various outcomes or states of nature.
Thus decision making help to run the organizations slickly/smoothly, help to survive in the organizational environment, help to produce quality goods and services with reasonable price by providing the strategic decisions to the management.
Major Quantitative Tools to Aid Decision Making
Quantitative tools for decision making are several such as mathematical, statistical, accounting and computer oriented.
Here are some Quantitative tools for decision making which are used most frequently;
1. Operation Research (OR)
Operation Research deals with the efficient allocation of scarce resources of the organization. It helps to allocate the scarce resources in most profitable way;
OR techniques commonly used are;
a) Queuing Models
Queuing models study of waiting lines or queues, it is one of most widely used management science techniques. A queue, thus involves arriving customers who want to be serviced at the facility which provide the service they want to have.
Queuing model provides the management with information necessary to relevant decisions for the purpose. It's object is to achieve a good balance between waiting cost and service cost and the optimum solution is arrived at a point where the sum of the waiting cost and service cost is minimum.
b) Game Theory
Game theory predicts how rational are the people and their behavior is in the competitive situation. Game theory use computer programs to measure outcomes.
c) Inventory Model
Inventory refers to store of goods and stock. It is any stored that is used to satisfy a current or future need for smooth operations of the firm.
Inventory Model analyses the need of inventory for various departments and selects carrying cost and ordering cost, stock-out costs. Just-in-time model is getting popular day by day.
d) Transportation Model
Transportation model determines the various costs associated with the carrying cost of inventory, most effective way to carry to goods.
Further it deals with the distribution and supply function and identify the most appropriate way to manage them.
2. Pay-off Matrix
Pay off matrix is a statistical technique. In the first step of pay-off matrix, it identifies the different alternatives; those alternatives are calculated with the probability (where probability is the degree of likelihood that a particular event will occur)
Product (A) Sales *Pj = EV (Expected Value)
Product (B) Sales * Pj = EV (Expected Value)
Decision Makers compare the expected value for different alternative. Generally,
alternative with highest expected values.
3. Decision Tree
The decision tree analysis involves construction of a diagram showing all the possible courses of action states of nature and the probabilities associated with the states of nature. The 'decision diagram' looks very much like a drawing of a tree therefore called 'decision-tree'
Through the help of decision tree each alternative payoff is calculated. Payoff can be positive or negative.
4. Simulation
Simulation is one of most widely used management science tools. To simulate is to try to duplicate or imitate the features, appearance and characteristics of a real system. In short simulation is a technique of testing a model which resembles a real life situation.
Computers are used to imitate the real situation and identify what will happen to an operation over a time if certain variables are changed.
5. Accounting tools
a. Break Even analysis
b. Ratio analysis
c. Budgetary control
d. Standard costing
Organizational Structures
Organizational structure group activities and resources of the organization. Organizing and the structure both are the important function of small business.
In term of relationships, small business structure can be of two types;
(a) Formal Organization Structure
Formal organization structure is created by the owner-manager. Formal organization maintains division of work among employees, clearly defined superior-subordinate relationships. Members of formal organization structure are guided by organization policies and plans, norms and values, codes of conducts.
Some common examples of formal organization structures are;
1) Simple Structure
Fig.; Simple Organization Structure
Owner is the manager in this type of structure. Owner makes all the major decisions but the work specialization is little. It has few work rules and limited formalization.
Small business designs this type of structure in their initial years and the businesses who offer a single product line in a single geographic market design this type of organization structure.
Relative Importance of Simple Structure
Owner/Manager here is able to make direct control because of the few departments and few employees within the departments. This structure is effective up to certain size. Communication is direct between employees-owner, it is effective and easier. This type of structure is suitable for restaurants and repair businesses.
2) Functional Structure (Function Based Structure)
Fig. : Functional Structure
Work of organization is split as marketing, accounting, production, personnel etc. Corporate staff needs to be expertise in their field. Chief is the manager, he controls, supervise, and provide guidance. Information flow is top-bottom and vice- versa. Communication within the departments could not be expected.
Each work needs specialist and experts in its field. Chief Executive Officer has limited staff (departments). Departments also have few assistants. This type of structure is suitable in government agencies and manufacturing and selling organization in their initial phase.
Generally small businesses use this structure where works need expertise, where co-ordination is very low and has a narrow product range.
Relative Importance
Each Department managers are experts in their field. Direction, control and supervision are facilitated because of the expert and their use in different departments. Moreover this, the career progression and advancement opportunities is easier.
3) Multi-Divisional Structure or Multi-Regional Structure
Fig.: Multi-Divisional Structure
This structure is used if the organization is operating more than one product line.
Fig.: Multi-Regional Structure
This structure is used if the organization is operating in more than one region with different products.
Multi divisional structure is compose of operating divisions, each business unit represents separate business or profit center in which the top corporate officer delegates responsibilities for day to day operation.
Such strategic divisions are divided on the base of product services, geographical areas or processes of the enterprise. Multi-Divisions are formed because it is impractical to bring all the functions of different product/region in a single body.
Relative Importance
Due to the use of this structure organization could able to measure each product. Sales, Sales Revenues generated by the business unit and the profit of the individual products. Focus toward client need is easier, Decision making in this structure is faster. People work more for product goal than that of corporate goal this reduce conflicts between departments. High specialization is possible to concentrate on the products.
4) Customer-Based Structure
Fig.: Customer-Based Structure
These types of small business focus on needs of customer and design the structure. This help to build strong public image and help to adopt environmental changes. But requires duplication for same efforts conflicts may arise between divisional tasks and overall organizational priorities.
Relative Importance
5) Process-Based Structure
Relative Importance
(b) Informal Organization Structure
Informal organization structure is not created by owner-manager. This type of structure emerges with due to the interactions of people at work place, proximity, personal interactions, sentiments and social activities. This type of structure takes place where the employees with similar attitudes, interest, beliefs, work related needs are attracted to one another.
This type of structure has no written policies, rules, plans, procedures. Check and balance for employees is done through customs, conventions. Informal organizations structure provides series of belongingness and security, this help to improve productivity and job satisfaction, it reduces the need of close supervision but the disadvantages of this structure are resistance to change.
Factors for Effective Organizing of Small Business
Several time tested guidelines are used to promote effective organization and managers are particularly applicable.
1) Span of Control
The optimum span of control is the number of sub-ordinates who can effectively supervised by a given manager. Although some authorities stated that six to eight people are that entire one individual can supervise effectively, the proper span of control actually is a variable depending upon a number of factors. Among these are the nature of the work and the superior's knowledge, energy, personality and abilities.
The span of control is greater in the case of personnel performing routine assignments than in case of technical professional or administrative personnel. As a very small firm grows and adds employees the span of control is expanded.
2) Departmentation
Departmentation refers to the state of grouping activities into positions through identification of similarity of work. Obviously similar works provides practical guidelines to the organization to group the activities.
As a small firm grows, other pattern of departmentation becomes possible. Like, if the business has more than one location, a geographic pattern may be used.
3) Delegation of Authority
Delegation of authority exists when the work load became too heavy. A superior will grant authority to sub-ordinates on the basis of competence, the right to act or to decide. Delegation of authority enables the superior to perform better and turns toward more important tasks, failure to delegate may be the weakest point in small business organization. Delegation of authority is important for the satisfactory operation of a small firm and is an absolute prerequisite for growth of the independent entrepreneur.
4) Human Factors and Organization Design
Some members of an organization have personal interests which can affects organizing decision. This arise conflicts between organizational ideas and human consideration. Suppose some otherwise desirable employees have certain limitations which prevent the assignment of responsibility that they should theoretically bear. The entrepreneur need to examine each organization change to be sure it enhances the overall organization effectiveness and not merely the welfare of one individual.
5) Equality (State of being equal) in Authority and Responsibility
Authority delegated must be equal to the responsibility assigned. Employees should be autonomies to make the decisions regarding their responsibility but decision must be made within their authority.
Hence substantial differences in authority and responsibility would contribute to poor morale. That is the reason employees must be trusted for what they suppose to do within the authority.
6) Flexibility
Flexibility in terms of organizing state the ability of organization to adopt to changes that may happen in their environment. Organization need to update the changes in terms of product, quality, competition, employees, technology and different other environmental factors.
Organization structure should be designed in that way that it will able to adapt the environmental changes.
7) Balance
Organizing must meet the equality in resource mobilization, authority delegation, departmentation and span of control.
8) Communication
Organization must meet the criterion of communication i.e. two way communication from top to bottom and from bottom to top.
Chapter Eleven
Financial Management in Small Business
Estimating Capital Requirement
Business big or small requires capital, capital is the life blood of the every business. Capital is essential to pay salaries, to purchase land and building, to layout the business, to pay the fees for the lawyers, consultants, to maintain petty cash, overhead expenses etc.
Many entrepreneurs believe that financial analysis is best left to the accountant. Although it is, indeed the accountants' job to design accounting system and prepare financial statements, it is not accountants' job to analyze and interpret the numbers in the statements. This is the entrepreneurs' responsibility.
For a business, the cost of financial requirements is estimated but for operating business such cost can be determined from financial statements or experts valuation. New and ongoing ventures require financial analysis to update the financial requirement, to maintain the business transactions, cash flow etc.
There are different conditions for different businesses, for a new business, the cost of financial requirements is estimated but for the operating business such cost can be determined from financial statements or experts' valuation.
Commonly financial requirement of the firms are separated in four categories;
1. Fixed Assets Requirement
2. Current Assets Requirement
3. Business Promotion Cost Requirement
4. Personal Living Expenses Requirement
1. Fixed Assets Requirement
Fixed Assets are the long term assets with permanent nature. They are not converted into cash within one year. They are immovable in nature.
• Cost to Purchase, Leased or Rented -Land and Building
• Cost to Purchase- Machinery, Equipments, Tools and Computer, these assets are generally purchased, either of leasing or taking in rent.
• Cost to Purchase, Leased- Vehicles
• Furniture and fixtures
• Cost to acquire intellectual property like patent, trademark and copyright
• Others
2. Current Assets Requirement
Current Assets are required to produce the product as well to pay the bills and maintain the day to day cash need of the firm. They are short terms assets. They are converted into cash within one year.
• Cash: Salaries, Overheads, Raw Material, Petty Cash
• Inventory: Raw Material, Merchandise
• Supplies: Pay bills, Insurance, Rent
3. Business Promotion Cost Requirement
Business Promotion Cost Requirement is the fees paid for lawyers, accountants and consultants by the organization. Organization hires experts for short term or for certain period and pay for that time.
4. Personal Living Expenses Requirement s
If owner of the business is fully dependant upon the business or he/she has no other sources of income for the livelihood than in this case personal living expenses requirement need to be estimated.
Finally total financial requirement for the business are determined by adding up the different requirements. Mathematical equation fro this is as follows;
Total financial requirement = +Fixed Assets Requirement
+ Current Assets Requirement
+ Business Promotion Cost Requirement
+ Personal Living Expenses Requirements
Chapter Twelve
Product is an important element and one component of marketing mix. A product satisfies customers. A product for small business can be Goods, Services, Ideas, Events, Experiences, Properties and Information.
Product Line Decision
A product line is the aggregation of that product which is closely related to each other. They perform similar function and are sold to the same consumer groups, are also marketed through some distribution channel and fall within given prices ranges. Biscuits, Noodles and Mc Donald are the example of product lines.
Product line decision is the analysis of total sales and profit contributed by each item in the line. Product line decision is very vital to know either to add or delete some products from the line. To facilitate the product decision, product map showing Sales, TC (FC+VC) require to produce an item, market share associate with each item and profit is necessary to develop and finally through the help of product map adding, deleting, featuring and modernizing the products of existing line is possible.
Products are added when organization wish to increase market share, products (items) are deleted when organization wish to make more profit, modernization help to cope up with changing technology, competition and featuring help to attract different customer.
1. Product Line Length
Product line length includes total number item in a product line. Product line length is modifies by adding or deleting product items. Some organization add product in current product to gain market share where as some delete existing item from existing to increase profitability.
Product Line decision is about;
I. Line Expansion
New items are added in two ways
• Line Stretching
• Line Filling
Line Stretching
Line stretching is Trading-Up and Trading-Down.
Trading-Up
Stretching-Up The condition where the organization add a higher price item in the line to develop image and increase sales is trading-up, this is also called stretching-up.
Trading-Down
Stretching-Down The condition where the organization add a lower price item in the existing product line to block competitor or to cater to price sensitive customer, this is called trading-down or the stretching-down
Line Filling
This is just different than that of line stretching. Here more items are added within the current price ranges. Organization aims to make more profit or to cater competition by adding more items in the line.
II. Product Line Contraction
This is the dropping of items from existing line. Obsolete or money losing items are normally deleted from the line. Organization lack of capacity to produce the products of existing line, high production cost requirement may necessitate a drop in items.
2. Product Line Modernization
To cope up with competencies, to satisfy customer need to meet to the global changes organization continuously modernize their products. Modernization refers to the improving image of the products by adapting the changes of the environment. For an example improving the packaging, by improving the quality, by improving the flavor.
3. Line Featuring
It features one or two low-priced or high-priced items to attract a specific group of customers. Low priced item attract price sensitive customer and high priced item help to develop prestige to the product line.
Factors for Price Decisions
Elements of Personal Selling
Advertising and Sales Promotion
Marketing Research Techniques and activities
Concept
'Research' refers to a critical, careful, exhaustive investigation or inquiry, examination or experimentation specially through search for new facts in any branch of knowledge.
Marketing research is that which help business owners and entrepreneurs to identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions' monitor marketing performance and improve understanding of marketing as a process.
Businesses big or small require a thorough investigation to produce a product to identify customer, to acquire location and physical facilities, to fix price, to cater to competition, to retain customer, to bear social responsibility, to play lead role in the industry and to make profit because marketing research enable business owner to understand the different aspects of environment.
Studies indicate that small businesses are less likely than large businesses to use marketing research in their decision making. Reason cited include monetary and time expenses, skepticism about potential benefits of marketing research and the owner/managers self perceived inability to carry-out the study. Some small businesses avoid marketing research activities because they misunderstand research. They believe that marketing research in conducted when organization is making profit, or when they have much money to invest on and when they have experts to do it.
Marketing Research Techniques
Motivation Research In Marketing
One of the limitations that exist in marketing is it avoids study of customer nature. Some questions like why, How, When consumer, consume goods and services remain unanswered. That is the reason motivation research takes place.
Motivation Research study about the factors that influence consumers to buy the products of the organization. It identifies the taste, peculiarities, price, preferences, and sensitivity of the consumer. But the research focus toward ultimate customer of the business because the ultimate customer, drive the market, they are vital for the business.
Motivation research finds the facts about the consumer and facilitate decision-making about the changes that should be made toward advertising, sales promotion etc.
