Unit Iii
- 1. Small Scale Industries Definition Characteristics Importance Advantages of running an SSI A few definitions.. • Small scale undertakings - Engaged in manufacturing, processing or preservation of goods; investment in plant and machinery up to Rs. 1 crore • Tiny enterprises - Investment in plant and machinery up to Rs. 25 Lakh • Small scale service/business enterprise - Investment in fixed assets up to Rs.25 Lakh (excluding plant and machinery) • Women enterprises- Small scale units with financial holding of minimum 51% by one or more women entrepreneurs • Artisans, village and cottage industries – Artisans and small industrial activities in villages/towns with population of max. 50,000; utilising locally available natural resources; individual credit requirement up to Rs.50,000/- Characteristics of a SSI • Small capital investment • Generates employment, generally around 10 employees • Located in rural and semi urban areas • Generally a sole proprietorship business • Funding from the entrepreneur’s personal funds • Exploitation of human resources (Women and child labour) • Organising and management skills are often neglected • Financial discipline is weak • Encourages entrepreneurial growth • Balanced regional development is ensured
- 2. Importance of SSI • Labour intensive • Ensure an equal distribution of income and wealth • Act as a link to large scale • Act as a training ground for entrepreneurs • Mobilize resources and services • Give rise to capital formation • Has a huge export potential • Are extremely innovative and productive Advantages of running a SSI • Most do not need high level of technology and are labour intensive and hence do not need huge start up or working capital • SSI projects can be undertaken in a short time frame • Use of abundant local natural resources is possible • Small scale enterprises can be linked to large businesses which help in their growth and progress • Able to generate local and permanent employment • Have a short gestation period PROCEDURES FOR SMALL SCALE INDUSTRIAL LICENSING License According to economics license means:- A government-issued permission to engage in an activity or to operate a business. Criteria For SSI in India Industry employing less than 100 workers. Having fixed assets of less than Rs 10 lakhs need not obtain any license. (Subject to the condition that the unit is not owned, controlled or subsidiary of any other industrial undertaking) Small scale units have to conform to the rules and regulations prescribed by state or local authority under the Factories Act.
- 3. The Industries (Development and Regulation) Act, 1951 Section ١٠ refers to the requirement of registration of existing industrial units. Section ١١ refers to the requirement of licensing of new industrial undertakings. Section ١١A deals with licences for the production of new articles. Section ١٣ refers, inter alia to the requirement of licensing for effecting substantial expansion. LIST OF ITEMS RESERVED FOR THE SMALL SECTOR
- 4. EXEMPTION FROM INDUSTRIAL LICENSING Licensing is exempted for industrial undertakings (including MRTP/FERA companies)other than those in the small scale/ancillary sector, if i) The proposed article(s) of manufacture is not included in Annex I, II or is not reserved for small scale/ancillary sector. ii) The proposed project is not located within 25 kms. from the periphery of the standard urban area limits of a city having a population of more than 1 mln. according to the 1991Census (list enclosed). This condition, however, will not apply to electronics, computer software, printing industry and other non-polluting industries that may be notified from time to time. Those units who have received SIA or DTDG registrations for manufacture of the reserved items. SUBSTANTIAL EXPANSION Substantial expansion of existing units will also be exempt from licensing provided the item of manufacture is not covered by Annex I, Annex II or reserved for the small scale/ancillary sector.
- 5. Manufacture of New Article Existing units will be permitted to manufacture any new article without additional investment if the article is not otherwise subjected to compulsory licensing This facility would be available notwithstanding any location conditions. FILING OF MEMORANDA In respect of new projects for manufacture of articles not covered by compulsory licensing or their substantial expansions the only requirement would be that the industrial undertaking shall file a memorandum in prescribed form to the Secretariat for Industrial Approvals (SIA) in the Ministry of Industry. Such a memorandum will also have to be filed by those industrial undertakings to be engaged in non-scheduled industries i.e. those not covered under the I(D&R) Act. The memorandum will be accompanied by a crossed demand draft of Rs. 1000/- in favor of the Pay and Accounts Officer, Department of Industrial Development, Ministry of Industry, Nirman Bhavan, New Delhi - 110011. The receipt of the memorandum will be acknowledged by the SIA and a reference number will be given. Industrial undertakings should quote this reference number in all future correspondence, if any, with the SIA PROBLEMS IN SMALL SCALE INDUSTRIES Classification of the problems The internal problems. The external problems. Internal problems A) Planning: a) Technical feasibility:- - Lack of technical know-how. - Locational disadvantage. - Outdated production process. b) Economic Viability:- - High cost of inputs. - Uneconomic size of the projects. - Underestimation of financial requirements. - Over estimation of demand. B)Implementation.
- 6. C) Production. a) Production Management: - Poor quality control. - Poor capacity utilization. - Poor inventory management. - Inadequate maintenance. - High wastage. b) Labour management:- - Inefficient handling of labour problems. - Excessive manpower. - Lack of trained and skilled labour. c) Marketing management:- - Dependence on a single or small group of customers. - Defective pricing policy. - Lack of market research. d) Financial management:- - Liberal dividend policy. - Inadequate working capital. e) Administrative management:- - Over centralization. - Lack of professionalism. - Lack of feed-back to management. - Incompetent management. External problems A) Infrastructural bottlenecks:- - Irregular supply of raw materials. - Transport bottlenecks. B) Financial bottlenecks:- C) Government controls and policies:- - Government price controls. - Change in government policies. D) Market constraints:- - Market saturation. - Technological advances rendering one’s product obsolete. E) Extraneous factors:- - Natural calamities. - Political situation. - War. - Strikes. - Multiplicity of labour unions.
- 7. Feasibility Study Definition • Activities / efforts / analysis to measure the cost and benefit of a business project in order to define the efficiency and effectiveness of the project's method and tools is know as feasibility study • The results determine whether the solution should be implemented. This activity takes place during the project initiation phase and is made before significant expenses are engaged. Types of Feasibility Studies: Market and Real Estate Feasibility Technology and System Feasibility Resource Feasibility Cultural Feasibility Legal Feasibility Schedule Feasibility Economic Feasibility • At this stage the client’s business needs are analyzed, information about project participants is collected, and the requirements for the system are gathered and analyzed. • The client’s expectations for system implementation are studied and the proposed solution is offered. During the Feasibility Study stage, the project’s goals, parameters and restraints are agreed upon with the client including: Project budget and rules for its adjustment; Project time frame; Conceptual problem solution. The following tasks are performed at this stage: The project feasibility is estimated and the project scope is defined Risks and benefits are identified Project structure is elaborated Project is roughly planned Next project stage is planned precisely Cost of the next phase is evaluated precisely and cost of the other phases — approximately Functionality development priorities are defined System creation risks are estimated.
- 8. At the end of this phase the following documents are available: Feasibility Report — description of the proposed solution and list of high-level functional requirements Project Structure — description of the project organization Project Plan — project schedule Risks List — list of potential project risks and possibilities of their elimination. Some norms of Feasibility study: The Feasibility Report must be agreed upon and signed by the client. Signing this document means that the client and the project team have a common understanding of the project goals and tasks and have reached agreement on the process for project implementation. Average duration of this phase is about 10% of the total project duration. Steps of Business Feasibility Study Determining - general questions to answer - specific questions to answer Constructing a framework to answer those questions Determining the data needed Implementing the Business Feasibility Study Framework of Feasibility Study. General description of the business 1. Legal aspects (to be in line with the law and regulation) 2. Social aspects (to be in line with the social environment) 3. Management aspects (capability of the owner and top managers and general methods of managing the business project) 4. Technical aspects (timing, location, capacity, tools, production methods, technology, input, employees, etc.)
- 9. 5. Market aspects (market structure, competitors, market target, market share, advertisement, projected sales) 6. Financial aspects (funding, fund allocation, projected balance sheet + income statement + cash flow, Net Present Value, IRR, BCR, etc) 7 General Conclusion Feasibility report Feasibility Report is “studying a situation and a plan to do something about it, and then determines whether the plan is "feasible" or it is practical. It answers the question of whether a plan should be implemented by stating "yes", "no", and sometimes "maybe". Not only recommendation, it should also provide the data and the reasoning behind that recommendation
- 10. Feasibility factors LOCATION • An industrial feasibility study refers to the appropriate location selection ,that is where the project should be located, because the site may significantly influence the cost of production and distribution ,distribution efficiency ,the operating environment ,etc Factors Factory Design • Factory design refers to plan for a particular type of building , arrangement of machinery and equipment, provision of service facilities, lighting , heating , ventilation etc in the building. • It influences the operational costs of the enterprise. Factory layout • It is a floor plan for determining and arranging the desired machinery and equipment of a plant. • Factors like nature of product, volume of production, material handling ,type of equipment, factory building , system of manufacture, service facilities, etc ., should be taken into consideration while choosing a layout.
- 11. Importance • Factory design and layout should be flexible so that it may be adapted easily to technological change, modernization , diversification and expansion with minimum cost and time. Optimum size • The size and the scale of operations of the unit determines its efficiency and profitability • This is determined by the laws of returns to achieve equi-marginal returns from all resources or factors of production. • It indicates a rational allocation of resources and a combination of inputs to secure maximum outputs under existing economic conditions and maximum profit due to the lowest average cost. Measure of size
- 12. DOCUMENTATION & REGISTRATION WHAT IS DOCUMENTATION Something transposed from a thought to a document; the written account of an idea. It is usually paper books or computer readable files (such as HTML pages) that describe the structure and components, or on the other hand, operation, of a system/product. Subfield of Documentation include: Scientific documentation Technical documentation Legal documentation Administrative documentation Historical documentation IMPORTANCE OF DOCUMENTATION Documentation will Reduce liability, Mitigate risk from lawsuits and unforeseen events, Resolve disputes, Outline the details of wealth distribution Clearly define the specific roles of the partners, employees, advisors, Board of Directors and other company stakeholders; Raise capital; and Define the business objectives and execution strategy. Clearly define the specific roles of the partners, employees, advisors, Board of Directors and other company stakeholders
- 13. A good but far from comprehensive documentation list... Standard Operating Procedures A document that outlines the relevant corporate policies, decision making procedures, business processes, accountability controls, etc. Incorporation Documents The incorporation documents should also serve to limit liability by serving as a shield to protect the personal assets of investors, managers, etc. Shareholder's Agreement A shareholder's agreement will help facilitate a smooth transition for the remaining partners to enable the business to continue as an ongoing concern. Intellectual Property Rights Protection Agreements Trademarks, copyrights and patents fall into this category. These agreements are intended to provide legal safeguards to protect the competitive advantage that is gained by the ideas and proprietary information, processes, products, logos, etc. of the company. Insurance Agreements Insurance is intended to mitigate the risk of unforeseen, unfortunate and potentially catastrophic events that could substantially cripple or kill the business. Insurance is also used protect the employees of the business and their beneficiaries from possible temporary or permanent life-altering and/or financially paralyzing events, such as catastrophic injury or disability, substantial property damage or destruction, death, serious health concerns, etc. Licensing Agreements Licensing agreements that are required to operate the business from local, state, federal and international regulatory authorities. A lack of compliance by not obtaining the appropriate licenses can spell disaster and potentially shut down a business and/or cause substantial liability to be incurred by the partners.
- 14. Employment Agreements Defines the working relationship between employee and employer. In addition, through a non-compete clause, they will typically provide protection for a number of years to the company from the threat of employee departure by preventing direct competition by the (former) employee. Confidentiality Agreements Prevent parties from sharing information with outside parties that could have potentially damaging competitive, financial and/or business implications (e.g., violation of the confidentiality in a merger transaction). Written Contracts All business arrangements and agreements between parties should be documented. Though verbal agreements are enforceable, a written agreement limits the potential for misunderstanding and can provide protection in litigious situations.