How to Set-Up an Enterprise

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Making a Product Choice

Make a careful analysis of the product or service you are choosing, sometimes in short run, there is a shortage of a particular commodity in the market, you may even come to know you will get almost two weeks in advance to supply fresh stock. Does that mean you can jump into that business. First thing in such a condition is to analyse the situation. Keep in mind that shortages may occur due to a number of reasons and a good entrepreneur always examine the pros and cons before setting up a business. It may tempt you to think that perhaps you have found a good businesses idea. But do not be easily influenced by these temporary shortages. Carefully analyse the future demand-supply position of the product, say for the next 3 to 5 years. Only when you are certain that the shortage will remain there for considerable period of time and you would be able to generate enough profits in the very first or second year of operation and that you can produce quality item within an acceptable pricing, then only you should venture into such a business.

There are many organizations which are in possession of information on business opportunities, you can contact these organisations to get an idea about product.

  • District Industry Centres
  • Technical Consultancy Organizations
  • Centres for Entrepreneurship Development
  • Small Industry Service Institutes
  • Lead Bank
  • Industrial Extensions Bureaus (These exist in several states) They are known by such names as iNDEXTb, Udyog Mitra, Udyog Sahayk and so on).
  • National Industrial Development Corporation, New Delhi
  • Khadi and Village Industries Commission, New Delhi
  • Commissioner of Cottage Industries
  • Entrepreneurship Development Institute of India, Ahmedabad
  • National Institute of Entrepreneurship and Small Business Development, New Delhi
  • National Institute of Small Industry Extension and Training, Hyderabad
  • Small Industries Development Bank of India, Lucknow.

This information could be in the form of:

  • Project profiles
  • Feasibility studies
  • Industry studies
  • Area development studies.

Industry-Specific Agencies

For a given industry, there are in organizations which undertake monitoring, research, market - development, export promotion or such other work.

Agencies For Fruit And Vegetable Processing Industry

  • Confederation of Indian Food Trade and Industry, New Delhi
  • Agricultural and Processed Food Products Export Development Authority (APEDA), New Delhi
  • Indian Institute of Packaging, Bombay
  • Central Food and Technological Research Institute, Mysore
  • Indian Institute of Horticultural Research, Bangalore
  • Post-harvest Technology Centre, IIT, Kharagpur
  • National Horticultural Board, New Delhi

You need to get in touch with such organizations. You might get valuable information on your product and opportunities that exist.

In a project conceptualisation stage while making a product choice following factors related to the product needs to be considered:

  • CEasy availability of raw-material
  • CProcess Technology
  • CEasy accessibility in the market
  • CIncentive and support from Government
  • CProduct Line - Depth, Width
  • CMarket information
  • CPackaging
  • CBranding
  • CWarranties
  • CAfter Sales Service

Another point to keep in mind while deciding about products is to avoid the Products, which are likely to have a number of players in the market. Some such products in the recent past have been, plastic footwear, audio cassettes, disposable gloves and bulk drugs. In case the entrepreneur is looking for a product which has export potential, s(he) should consider the following additional questions :

  • What should be the contents of export-product portfolio ?
  • What are the special requirements for packaging if one has to export the products ?
  • What product adaptations are needed to be made for exporting a product to a specific country? Does it meet the product's quality specification of the country concerned?

The development of export-product portfolio can be done by considering 4 parameters viz.

  • External demand conditions
  • Internal supply capability
  • Complexity of Marketing Tasks
  • Amount of investment required to penetrate the market

Analysis can be conducted using this four dimensional model. The choice should be a product which scores a high rating on first two parameters and low rating on last two parameters.

EXIM (Export Import Bank of India) Bank has also developed an excellent model to conduct the export-product portfolio analysis based on three parameters viz.

  • Supply Capability in product group
  • Domestic environment
  • Export market attractiveness

This analysis gives rise to product groups with high potential or low potential. Some high potential areas are:

  • Leather Garments
  • Yarns and Thread
  • Apparel - Woven and Knitted
  • B & W TV Sets
  • Costume Jewellery

With regard to special packaging requirements one has to be careful about laws of the country one is exporting to. Product adaptations for country's specific needs look into things like whether voltage supply is 220 V or 110 V for electric appliances and for automobiles whether left-hand drive or right-hand drive is appropriate.

Tiny Business

Tiny enterprises currently defined as those having investment in plant and machinery up to Rs. 25 lakhs constitute about 95% of the small scale sector. Government has taken various steps for the promotion of the tiny enterprises. These steps include earmarking of 60% of credit flowing to SSI sector under priority sector lending programme of banks for tiny units (40% for tiny units having investment in plant and machinery up to Rs.5 lakhs and 20% share to units having investment in plant and machinery between Rs. 5 lakhs to Rs. 25 lakhs).

Tiny enterprises have been made eligible for same rate of excise exemption as available to registered units since 1994-95. Excise exemption limit for SSI's including tiny units has been enhanced from Rs. 30 lakhs to Rs. 50 lakhs. This will give inducement to the tiny units for increasing their production.

Government has decided to adopt additional measures for the promotion of Tiny Enterprises by earmarking facilities for Tiny Units under the Integrated Infrastructural Development (IID) Scheme. The NSIC would earmark 40% of the assistance to the tiny units under various schemes viz., supply of machinery on hire purchase, marketing support, technology assistance, training facilities etc. In order to ensure flow of credit to tiny units, a consistent and higher flow of credit to tiny units, the SIDBI will endeavor that up to 60% of its refinance flows to tiny sector.

Products for Small Scale Unit

In India products have been Reserved for exclusive manufacture in the SSI Sector for promoting this sector. Currently the investment limit for items to be manufactured in SSI is 1 crore. At present 812 items are reserved for manufacture in this sector. This Policy got a legal backing when the I (D&R) Act was amended in March, 1984 empowering the Government to reserve items under this Act. This Act also provided for the Constitution of an Advisory Committee headed by Secretary (SSI & ARI).

Criteria For Reservation

The overwhelming consideration for reservation of an item is its suitability and feasibility for being made in the small scale sector without compromising quality aspects.

Review Of Reservation List

After the introduction of economic reforms with emphasis on liberalisation, de-licensing and de-regulation, a need was felt by the Government to review the reservation policy. Accordingly, a Committee was constituted under the Chairmanship of Shri T.S Vijayaraghavan, former Additional Secretary in the Ministry of Commerce who has recommended to the Government for de-reservation of 91 items out of 821 items presently reserved in this sector.

Another committee known as Expert Committee under the Chairmanship of Shri Abid Hussain was also constituted to review the policies in the changed economic scenario for SSIs sector who had recommended for total abolition of the reservation for SSIs.

Advisory Committee on Reservation constituted under the I (D & R) Act in its meeting held on 19th February 1997 recommended to the Government that the complete de-reservation at this stage is not desirable and de-reservation should be done in a phased manner.

Violation And Punishment

As per policy no medium/large including multi-national companies are allowed to manufacture reserved items except under 50% export obligation. Those who had been manufacturing reserved items prior to the date of reservation can continue to do so after obtaining a Carry-On Business (COB) Licence from the Government.

Any violation of the policy of reservation is punishable under Section 24 of I (D&R) Act. Appropriate action on the cases of violations of the Policy of Reservation is taken up suitably by the concerned Administrative Ministry/Department.

812 products reserved for exclusive production in the small scale sector.

The reserved items fall under the following broad categories:-

  • Food and allied industries;
  • Textile products including hosiery;
  • Wood and wood products;
  • Paper products;
  • Leather and leather products including footwear;
  • Rubber products;
  • Plastic products;
  • Chemical and chemical products;
  • Glass and ceramics;
  • Mechanical engineering;
  • Electrical machines, appliances etc.;
  • Electronic equipments and components;
  • Transport equipment, auto-parts, bicycle parts and
  • Miscellaneous (sports goods, stationery items etc.)

The small units manufacturing items served for manufacture in small scale sector do not require any prior licence. This is a major relaxation where no licensing or restriction in production in small scale sector exists. The location restrictions have also been minimised. Similarly, Labour Act has been simplified in 1988 to assist the small establishments. The Act, namely "Labour Laws (Exemption from furnishing Returns and maintaining registers by certain Establishments), Act, 1988" covers labour related acts and thus provides:-

  • Establishments employing 10-19 persons require to maintain only 3 registers and to submit an annual core return only.
  • Establishments employing less than 10 persons to maintain only 1 register and submit only one annual core return.
  • Earlier inspections under the EPF Scheme were conducted six monthly in normal cases and quarterly in default cases. Now inspections in normal cases are being conducted on annual basis. However, in default cases establishments are liable for random inspections. Earlier in the ESI Scheme establishments were liable for inspections once in a year. Now after liberalisation small scale establishments employing up to 20 persons are inspected once in 2 years, whereas establishments employing more than 20 persons are inspected annually.
  • Steps are also being taken to have better self-discipline regarding enforcement of labour laws in the small scale sector.
  • Simplification and rationalisation of forms/returns to be submitted by the Establishments/Industries is under process.
  • Simplification of Labour legislation with a view to bringing them nearer to Labour Market and simplification of procedures with a view to minimising the adverse impact of excessive inspections and having joint inspection by the inspectors of the Ministry of Labour, is under process.

Ancillary Units

The programme of ancillarisation includes motivation of public and private sector units to offload production of components, parts, sub-assemblies, tools, intermediates, services etc., to ancillary units. The programme of ancillary development has specific advantages both for large as well as small industries and also for the total economy of the country. The large scale units have the advantages in the form of savings in investments, inventories, employment of labour, etc. and getting the items of the desired specifications, while the small scale units have the advantage of getting assured market for their products, availability of technical assistance and improved technology from the parent units. This programme also helps in overall economy of the country.

Small Industry Development Organisation (SIDO) is a nodal agency of the Central Government and Ancillary Division at Headquarters continued its function for the promotion of ancillarisation programme in the country. Constant liaison has been maintained with Administrative Ministries both at Central & State Levels, Department of Public enterprises, public/private sector undertakings and other industrial developmental agencies through various programmed such as Vendor Development Programmes, Buyer- Sellers Meet, Ancillary Exhibition, Seminars, Workshops, State Level Ancillary Advisory Meetings, Plant Level Committee Meetings and PSU's and visit to public/private sector undertakings for the promotion of small ancillary & sub-contracting units.

Sub-contracting exchanges are functioning as a part of major SISIs in the country at important cities for the promotion of fruitful and lasting contracts between large & medium undertakings and small scale ancillary units. The spare capacity for different facilities as available with the competent small scale units are registered with these SCXs. These SCXs also obtain such items from large units which are required by them and can be manufactured in the small scale sector. These SCXs organise contacts between Buyers & Sellers by way of organising Vendor Development Programmes, Buyers & Sellers Meet and Exhibition, etc.

In new Industrial Policy, stress has been given on the development of ancillary industry in the country by strengthening existing SCXs and setting up of new SCXs by industrial associations and other non-Governmental organisations. As a follow-up of new industrial policy, existing SCXs have been equipped with latest equipments like Plain Paper Copiers and Electronic Typewriters. Further efforts are being made to equip these SCXs with other facilities like FAX, Computer Terminals, etc. for effective and better utilisation of services. CXs established by industrial organisations will be eligible for registration as SSSBE and will be entitled to get benefits as available to tiny sector units.

A great difficulty was being experienced by most of the ancillary units in getting timely payments from their parent units. In order to provide help, in this regard, an Act has been passed under which interest is payable on the delayed payments by large undertakings.

For providing advisory assistance, State Level Ancillary Advisory committees have been set up in almost all the States to provide infrastructural facilities and to recommend measures for the promotion of ancillary industry in the State and to monitor the outcome of these efforts. SLAACs have members from SISIs, State Industries Departments, Industrial Associations, Large Undertakings, Industrial Development Agencies, Banks, Financial Institutions etc.

The requirement of the spares of Defence was being met mainly by imports from USSR, but due to political changes in that country these spares are not easily available and Ministry of Defence have come forward with an ambitious programme for the indigenisation of items required by them to be developed in the country. During the year greater stress has been given on the indigenisation of the items required by Defence.

Other activities

  • Vendor development programme
  • Indigenisation of defence items
  • State level Ancillary Advisory Committee meeting
  • Plant level Committee meetings
  • Registration with SCXs
  • Supplies to public sector undertakings
  • Standing Committee/Ancillary development

Small industries have tended to concentrate in the vicinity of large industries or in metropolises and big cities. The pull of the market, availability of physical and social infrastructural facilities and skilled labour have been major considerations. The setting up of large public sector / private sector undertakings in some places has encouraged growth of small scale industries in those areas (e.g. Bangalore, Rourkela, Ranchi, etc.), manufacturing ancillary products and providing auxiliary services. Over the years small units have exhibited significant growth in some new towns and cities. Government Suport Programmes, Entrepreneurship, Raw material availability, improved infrastructure, increasing demand and a lot of other factors have contributed to this phenomenon. A major aspect of "spatial concentration" of SSI is that clusters of certain product lines have come up. The clusters of some selected industries in some areas are indicated below.

Major Industry Clusters Of India

Product Group District/Region
Woollen & Cotton Hosiery Tirupur, Ludhiana, Calcutta, Delhi
Sports Goods Meerut, Jullundhur
Handtools Jullundhur, Nagaur
Glass and Ceramics Khurja, Farukkabad
Locks Aligarh
Scientific Instruments Ambala, Ajmer
Safety Matches ivakasi
Bicycles & Parts Ludhiana
Brass Parts Jamnagar
Diesel Engines and Parts Kolhapur, Agra, Rajkot, Coimbatore, Ghaziabad
Electronics Bombay, Pune, Bangalore, Delhi
Domestic Electrical Appliances Bombay, Delhi
Wall Clocks Morvi

Business Enterprises

Some people may like to go into businesses as quickly as possible without actually entering into manufacturing and start earning at the earliest. For such people, there are several easy-to-start methods are available. Some of them are as follows:

  • Become a franchisee
  • Start a Turn-key or Packaged Business
  • Join Multi-level Marketing Schemes
  • Buy an Existing Business

Before selecting a particular method each of these methods needs to be examined carefully as each of them have their own advantages as well as limitations.

Becoming a Franchisee

Franchisee is a person or a firm or a company that acquires a franchise, a commercial concession granted by the franchiser to exclusively sell their products or provide services in a specific area. Franchises can be found in in almost any type of business. Franchises often succeed because product is a known brand and has been launched in the market, involvement of the owner-manager and backing of the franchiser. Usually a Franchisees have to make an upfront payment to the franchisers and may be an annual royalty, too.

Turn-key or Packaged Businesses

Some firms offer to teach their prospective customers how to set-up a business using their equipments and ingredients. For example, Kodak not only sell its machines but also train the buyer how to operate the machine, produce different jobs and set-up their business. There is no royalty payment involved. However, one should evaluate these types of business opportunities with thorough diligence and not get carried away by the hype.

Multi-level Marketing Schemes or Network Marketing Method

In multi level marketing scheme the company appoints agents, these agents in turn recruit other agents and they in turn recruit their own agents and chain continues. In India in products such as soaps, cosmetics or jewellery are sold through multi level marketing schemes. Amway cleaning products, Modicare soaps, Oriflame cosmetics or Tupperware plastic products are good examples. This facilitates a rather low-cost market entry for an individual. Ironically, most of the profit is made in recruiting sub-agents rather than by selling the products.

Buying an Existing Business

Purchasing an existing business may save a considerable time and reduce risk, too. Some businesses are sold by the existing owners, some businesses command even a premium, too. A word of mouth is usually be the best source of information to pick a business for a good bargain. Moreover, if the unit is sick then turning around a sick business may be tall order. Before buying a business a person should check out the actual position of the business and problems he might face once he buys it. There are many methods to help examine the businesses up for sale and arrive at a reasonable purchase price. Thus, quick-start methods offer a simple route to entrepreneurship. But it does requires deep pockets and a good judgment.