Entrepreneurship Complete Notes PDF

Chapter 1 Importance of an Entrepreneur Importance of an Entrepreneur Since innovations are keys for success of business, an entrepreneur is important for any organization irrespective of its size. Existing organizations face challenges from Growing organizations as well as from the various entre...

Chapter 1 Importance of an Entrepreneur Importance of an Entrepreneur Since innovations are keys for success of business, an entrepreneur is important for any organization irrespective of its size. Existing organizations face challenges from Growing organizations as well as from the various entrepreneurs (new organizations). This forces to change the mind set of big companies for the sake of sustainability. Therefore, big organizations are focusing on entrepreneur and innovations. Entrepreneurship offers the following advantages: 1. Recognition: Lack of resources and the risk involved in the entrepreneurship keeps many brilliant entrepreneurial minds to choose jobs/services over startups. Entrepreneurship programmes run by big organizations recognize and make the use of their skills to the fullest. It’s an affair of mutual benefit and common interest. II. Enforces Equity: Equity theory is based on an idea that the employees feel motivated if an organization uses fair methods to recognize and reward their efforts. This not only makes them content but also motivates them to give their fullest to the organization. Entrepreneurship not only recognizes entrepreneurial candidates but also rewards them monetarily and non-monetarily. III. Organizational Benefits: The organization gets to make use of entrepreneurial spirit in the development of new products, programmes and strategies in order to make profit and speed up growth. The best example of entrepreneur in India in Agriculture happened to be in ITC. The idea of e- choupal, an ITC division germinated when Sivakumar a manager in themI TC Group’s agribusiness unit, approached ITC’s chairman, with a request of Rs 50 lakh to test an idea. He wanted to procure farm produce from soya farmers in Madhyan Pradesh, thereby eliminating middlemen. Today, e-Choupal, reaches out to over 4mmillion farmers growing a range of crops in over 40,000 villages across 10 states. Entrepreneurs can be classified as Employee Entrepreneur, the Creator Entrepreneur, Doers Entrepreneurs and Implementer Entrepreneurs  Concept of entrepreneur, Entrepreneurship, Functions of entrepreneur 2.1 INTRODUCTION Entrepreneur plays a vital role in the economic development of a nation. Economic development refers to the income levels and its stability. This chiefly depends on its entrepreneurs. An Entrepreneur is a kind of individual who aims at achieving his goals and who possesses knowledge, skills, inventiveness, drive and spirit of innovation. An entrepreneur always finds opportunities and transforms opportunities into achievement and gains economic benefits. Entrepreneurship involves process of manufacture, innovation in production, usage of new materials, and market etc. An entrepreneur does have that mental attitude to foresee risk and uncertainty with a view to achieve a specific motive. 2.2. CONCEPT OF ENTREPRENEUR The word “Entrepreneur” is derived from the French verb ‘entrepredre’ which means ‘to undertake’. It means Between Takers. Entrepreneur is another name of Risk Taker. An entrepreneur is an individual who takes moderate risks and brings innovation. Entrepreneur is a person who organizes/ manages the risks in his/her enterprise. “Entrepreneur is an individual who takes risks and starts something new” During the early 16th century the Frenchmen who organized and led military expeditions were referred to as ‘Entrepreneurs’. During the early 18th century French economist Richard Cantillon used the term entrepreneur for business. Since that time the word entrepreneur means one who takes the risk of initiating a new organization or introducing a new thought, product or service to society. 2.3 DEFINITION An entrepreneur is an individual who takes moderate risks and brings innovation. An entrepreneur is a person who has possession of a new enterprise, venture or idea and assumes significant accountability for the inherent risks and the outcome. An entrepreneur is “one who undertakes an enterprise, especially a contractor, acting as an intermediary between capital and labour.” According to J.B. Say, “An Entrepreneur is the economic agent who unites all means of production; land of one, the labour of another and the capital of yet another and thus produces a product. By selling the product in the market he pays rent of land, wages to labour, interest on capital and what remains is his profit”. Thus, an entrepreneur can be considered as a person who possesses the initiative skill and drives to set up a business or enterprise on his own and ultimately achieves his desired goals. He brings social change. He looks for opportunities, and finds his own way mainly for economic gains. An entrepreneur is generally a highly calculative individual who always undertakes risks in order to achieve his goals. According to Joseph Schumepeter, “An entrepreneur in an advanced economy is an individual who introduces something new in the economy, a method of production not yet tested by experience in the branch of manufacture concerned, a product with which consumers are not yet familiar, a new source of raw material or of new market and the like”. According to Cantillon “An entrepreneur is the agent who buys factors of production at certain prices in order to combine them into a product with a view to selling it at uncertain prices in future”. To conclude, an entrepreneur is the person who undertakes risk, combines various factors of production, exploits the supposed opportunities, and creates wealth and employment. 2.4 CONCEPT OF ENTREPRENEURSHIP The term ‘entrepreneurship’ is associated with the term ’Entrepreneur’. Though, they apparently look same, conceptually they are different. Entrepreneurship is the process of finding opportunities in the market place, planning for the resources required to convert these opportunities into success and to achieve long term gains. It involves creating capital by exploiting resources in new ways to initiate and operate an enterprise. Entrepreneurship can be defined by describing what entrepreneurs do. For example: “Entrepreneurs use individual inventiveness, and take on calculated risk to create new business ventures by raising capital to apply inventive new ideas that resolve problems, meet challenges, or satisfy the needs of a clearly distinct market.” But the entrepreneurship is not limited to business and profit: “Entrepreneurship involves bringing about change to achieve some benefit. This benefit may be financial but it also involves the satisfaction of knowing you have changed something for the better.” “Entrepreneurship is essentially the act of creation requiring the ability to recognize an opportunity, shape a goal, and take advantage of a situation. Entrepreneurs plan, persuade, raise resources, and give birth to new ventures.” According to Cole “Entrepreneurship is the purposeful activity of an individual or a group of associated individuals undertaken to initiate, maintain and aggrandize profit by production or distribution of economic goods and services”. According to Higgins “Entrepreneurship is meant the function of foreseeing investment and production opportunities, organizing an enterprise to undertake a new production process, raising capital, hiring labour, arranging the supply of raw materials, finding site, introducing a new technique, discovering new resources or raw materials and selecting top managers for day to day operations of the enterprise”. The above definitions highlight risk factors, innovative ideas and resource organizing aspects and an individual or group of people who achieve goal through production or services. To conclude ,entrepreneurship is a set of activities performed by an entrepreneur. 2.5 FUNCTIONS OF ENTREPRENEURS An entrepreneur always seeks opportunity. He also manages and coordinates production and services. He has to start with a small scale enterprise. He not only finds the business opportunities but also utilizes the other resources like 5 Ms-man, money, machine, materials and methods. However, the main functions of the entrepreneurs are as under: 1. Idea generation: This is the most essential function of the entrepreneur. Idea generation is possible through the vision, insight, observation, experience, education, training and exposure of the entrepreneur. It specifically implies proper selection of product and identification of project. Ideas can be generated through surrounding environment and market survey. It is the chief function of the entrepreneurs to generate as many ideas as possible so as to select the best business opportunities for a commercially-viable business venture. 2. Determination of objectives: Another function of the entrepreneur is to determine and lay down the objectives of the business. Entrepreneur should be quite clear regarding the following things: (i) The nature of business (ii) The type of business This indicates whether the enterprise belongs to the category of a manufacturing concern or a service-oriented unit or a trading business. Thus, the entrepreneurs can attempt to venture in accordance with the objectives determined by him. 3. Raising of funds: Fund raising is the most essential function of an entrepreneur. All the actions of a business depend upon the financial support and its apposite management. It is the sole accountability of the entrepreneur to raise funds from both, internal and external agencies. In this regard, he should be aware of the different sources of funds and the official procedure to raise funds. He should be well aware of different government sponsored schemes such as PMRY, SGSY, REGP, etc. 4. Procurement of raw materials: Another important function of the entrepreneur is to procure raw materials. Entrepreneur has to find out the cheap and regular sources of supply of raw materials, which will enable to reduce the cost of production. 5. Procurement of machinery: The next function of the entrepreneurs is to procure the machineries and equipments for establishing the new venture. While procuring the machineries, he should specify the following details: (a) The details of technology (b) Capacity of the Installed machines € Details of the manufacturers and suppliers (d) After-sales service € Warranty period of the machineries and instruments All these details are to be minutely observed by the entrepreneurs. 6. Market research: Another important function of the entrepreneur is market research and analysis of product. Market research involves the systematic data collection regarding the product which the entrepreneur wants to manufacture. It has to be done indefatigably in order to know the details of the product, i.e. the demand for the product, the supply of the product, the cost of the product, the customers, etc. while initiating an enterprise. 7. Determination of form of enterprise: Entrepreneur has to consider the nature of the product, level of investment, nature of activities, types of product, quality of product, quality of human resources, etc. to decide the form of enterprise. The principal forms of ownership organizations are sole proprietorship, joint venture, Joint Stock Company and cooperative society. Determination of ownership right is crucial on the part of the entrepreneur to obtain legal title to resources. 8. Recruitment of manpower: Entrepreneur has to perform the following activities while undertaking this function: (a) Estimating manpower need of the organization (b) Forming selection procedure € Devising scheme of reimbursement (d) Forming the rules of training and development 9. Implementation of the project: Entrepreneur has to work on the implementation of the project. The acknowledged project is to be implemented in a time-bound manner. All the activities from the initial stage to the final stage are to be accomplished by him in accordance with the implementation schedule to manage cost and time, as well as to manage competition. Thus, implementation of the project is an important function of the entrepreneur. To conclude with, all these functions of the entrepreneur can precisely be put into the following categories: (1) Innovation (ii) Risk bearing (iii) Organization (iv) Management Characteristics of Entrepreneur 1. Facilitating Character An entrepreneur must build a team, keep it motivated, and provide an environment for individual growth and career development 2. Self-Confidence Entrepreneurs must have belief in themselves and the ability to achieve their oils. 3. Work with Vision and Mission An entrepreneur must be committed to the project with a time horizon of fives to seven years. No ninety day wonders are allowed. 4. High Degree of Endurance Success of an entrepreneur demands the ability to work long hours for sustain period of time 5. Trouble Shooting Nature An entrepreneur must have an intense desire to complete task or solve a problem. Creativity is an essential ingredient 6. Initiative and Enterprising Personality An entrepreneur must have initiative, accepting personal responsibility for a make good use of resources, ones, and above all 7. Goal Setter An entrepreneur must be able to set challenging but realistic goals. 8. Calculated Risk-Taking Ability An entrepreneur must be a moderate risk-taker and learn from any failures. Distinguish Between The Terms Entrepreneur And Entrepreneurship: Though both the terms entrepreneurs and entrepreneurship are almost similar the possess several differentiating terms with them. The differences between the entrepreneurs and entrepreneurship are as follows: Entrepreneur Entrepreneurship Entrepreneurship is the practice of starting new An entrepreneur one who undertakes organizations, particularly new businesses and operates a new enterprise and generally assumes some accountability for the inherent in responses to identified opportunities. risks. Entrepreneur is often synonymous with Entrepreneurship ranges in scale from solo founder. projects to major undertakings creating many job opportunities. The person who starts and operates a business The process in which an entrepreneur starts enterprise is an entrepreneur. and operates his business enterprise is  entrepreneurship. The entrepreneur is a coordinator as he Entrepreneurship is the coordination coordinates all the three elements of production maintained by an entrepreneur. i.e. land, labor and capital. The person who innovates something new is an The innovation of something new or the entrepreneur. process of innovation is entrepreneurship. He who leads an enterprise towards its vision The way in which an entrepreneur leads his thorough leadership, motivation is an Manpower motivates them for the achievement entrepreneur. of the firms goal is entrepreneurship. He who bears risk of the firm for The risk bearing practice that is the sake of making a reasonable done by an entrepreneur is Roles of an Entrepreneur: Entrepreneurs fulfill the following three dominant roles: Economic Change Social Change Technological Change These are referred to as behavioral roles. All entrepreneurs have these common characteristics and decide to become an entrepreneur due to the factors or circumstances in their lives which made them think the way they do. To do their work effectively and operate a successful business, these entrepreneurs should perform certain roles. These roles are the same as the basic managerial roles. Entrepreneurs initiate and sustain the process of economic development in the following ways: 1. Capital Formation: Entrepreneurs mobilize the idle savings of the public through the issues of industrial securities. Investment of public savings in industry results in productive utilization of national resources. Rate of capital formationmincreases which is essential for rapid economic growth. Thus, an entrepreneur is the creator of wealth. 2. Improvement in Per Capita Income: Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources like land, labor and capital into national income and wealth in the form of goods and services. They help to increase net national product and per capita income in the country, which are important yardsticks for measuring economic growth. 3. Generation of Employment: Entrepreneurs generate employment both directly and indirectly. Directly, self-employment as an entrepreneur offers the best way for independent and honorable life. Indirectly, by setting up large and small scale business units they offer jobs to millions. Thus, entrepreneurship helps to reduce the unemployment problem in the country. 4. Balanced Regional Development: Entrepreneurs in the public and private sectors help to remove regional disparities in economic development. They set up industries in backward areas to avail various concessions and subsidies offered by the central and state governments. Public sector steel plants and private sector industries by Modis, Tatas, Birlas and others have put the hitherto unknown places on the international map. 5. Improvement in Living Standards: Entrepreneurs set up industries which remove scarcity of essential commodities and introduce new products. Production of goods on mass scale and manufacture of handicrafts, etc., in the small scale sector help to improve the standards of life of a common man. These offer goods at lower costs and increase variety in consumption. 6. Economic Independence: Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture indigenous substitutes of hitherto imported products thereby reducing dependence on foreign countries. Businessmen also export goods and services on a large scale and thereby earn the scarce foreign exchange for the country. Such import substitution and export promotion help to ensure the economic independence of the country without which political independence has little meaning. 7. Backward and Forward Linkages: An entrepreneur initiates change which has a chain reaction. Setting up of an enterprise has several backward and forward linkages. For example- the establishment of a steel plant generates several ancillary units and expands the demand for iron ore, coal, etc. These are backward linkages. By increasing the supply of steel, the plant facilitates the growth of machine building, tube making, utensil manufacturing and such other units. Entrepreneurs create an atmosphere of enthusiasm and convey a sense of purpose. They give an organization its momentum. Entrepreneurial behavior is critical to the long term vitality of every economy. The practice of entrepreneurship is as important to established firms as it is to new ones. SOCIAL RESPONSIBILITY AND BUSINESS ETHICS Introduction and meaning of social responsibility Business depends on the society for the needed inputs like men, material and labour. They also depend on the society for selling their products. Thus, business depends on the society for existence, sustenance and encouragement. Hence, business being so much depended on society has definite responsibility towards the society. A businessman should keep his social obligation in mind before contemplating any action. Social responsibility is understood as the obligation of decision – makers to take actions which protect and improve the welfare of society as a whole along with their own interests. Every decision a businessman takes and every action he contemplates like decision on expansion, opening a new branch, closure of a branch or appointment of new employees, will have an effect on the society in one way or the other. Hence, he has to keep the society in mind before making any decision. Definition of social responsibility According to Koontz and O’Donnell “social responsibility is the personal obligation of every one, as he acts in his own interest, to assure that the rights and legitimate interests of all others are not infringed” In the words of Adolph Berle “social responsibility is the business’s responsiveness to public consensus, i.e., the obligation of the business to meet those demands and aspirations of the society about which there is public consensus”. H.E. Bownen defines as “social responsibility is the obligation to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of objectives and values of our society.” Evolution of social responsibility “A Healthy Business and a Sick Society are hardly compatible”. The social responsibility has evolved over a period of time. In the Eighteenth century, businesses were small and few. Even then the businessmen made contributions to schools, institutions and to poor. During the nineteenth century, businesses charitable contributions increased as great fortunes were made in business. During the latter part of the 19th century and 20th vigorous industrial growth had many negative social impacts. Due to new rigid governmental rules and regulations many businessmen started manipulating the accounts. By 1920’s, government brought about rules that large scale organizations have to compulsorily contribute towards the welfare of the society or donate to governmental funds which will be exempted from tax. Gradually, many new rich business families started setting up trusts or contribute towards schools, colleges, hospitals, orphanages, art galleries, museums etc. During the freedom movement period, business contributed to many of the social and cultural causes associated with the movement. Many of Indian leading businessmen-GD Birla, Jamnalal Bajaj, Lala Shri Ram, Ambalal Sarabhai and others came under the influence of Mahatma Gandhi and contributed liberally to his programmes for the removal of untouchability, rural reconstruction, etc. They have started many scientific and technical research and art academies. For eg-Tata Institute of Fundamental Research, the Birla Institutes of Technology at Pilani and Ranchi, the Calico Textile Museum in Ahmedabad, etc. Now-a-days, big businessmen or companies are also contributing towards the welfare of the society. They are providing bus stop’s shades, sign boards, directions to various places, road-side warnings (such as drive slowly, don’t drink and drive, overtake from the right, etc). Many companies are opening schools, colleges, hospitals and public toilets. SOCIAL RESPONSIBILITY Entrepreneurial development is the key to achieve all-round economic development through acceleration of industrial and entrepreneurial activities. Entrepreneurship, therefore, will flourish in an atmosphere which is favorable for enterprise building—politically, economically and socially. In the context of new economic scenario where liberalization, privatization and globalization are glorified, the responsibilities of business have undergone radical changes. Ethical discipline plays a great role in the changing environmental conditions. Entrepreneurs have to follow the ethical norms of the business in the society. As such, social responsibility implies responsibility of the entrepreneur towards smooth operation of the society by efficient utilization of national resources for greater interest of the people. To remain in business on a sustainable basis, an entrepreneur has to exercise his responsibilities to the society in the following ways: 1. Responsibility of the entrepreneur towards conservation of national resources: The first and foremost social responsibility of an entrepreneur is to efficiently conserve and utilize national resources for the public good. 2. Responsibility towards owners/shareholders: An entrepreneur is responsible to safeguard the capital invested by the shareholders and the owners of the enterprise. He should ensure that they get adequate dividend from their investment. 3. Responsibility towards customers: An entrepreneur has to satisfy his customers by the following two ways: (i) Providing quality products to the customers (ii) Charging reasonable and affordable price for the product 5. Responsibility towards employees: Social responsibility of an entrepreneur is to provide adequate measures to make the employees contented in all respects so as to encourage them to contribute their best. The responsibility of an entrepreneur towards the employees may include the following: (a) Providing at least minimum wages to the employees (b) Providing conducive working environment for good work culture € Provision of social security measures (d) Granting weekly holidays € Settling employees grievances (f) Giving opportunity to employees participation and management 6. Responsibility towards creditor/banker: One of the most important social responsibilities of an entrepreneur is responsibility towards creditors and bankers who provide financial assistance. This responsibility includes the following: (a) Regular repayment of principal and interest (b) Effective utilization of funds € Adhering to the repayment schedule without any default. (d) Restricting diversion of loans to the uses other than the specific purpose for which it has been advanced 7. Responsibility towards community: An entrepreneur should have the concern for the community where the enterprise is located. The following are the responsibilities of the entrepreneur towards the community: (a) Generation of employment opportunities for local youth (b) Prevention of environmental pollution € Restricting the problem of congestion housing and crime in the community where the enterprise is located (d) Creating awareness about population pressure and the family welfare measures € Reducing the deleterious effects of industrial products on human health and environmental balance (f) Reduction of illiteracy among the people, both for men and women. 8. Responsibility towards government: India is considered the largest democracy in the world. Its policies aim at public welfare. In the country, the responsibility of the entrepreneur towards the government includes the following: (a) To pay taxes, duties in time and discourage tax evasion (b) To comply with the government rules, procedures and legal requirements € To support the socio-economic development policies of the government (d) To work in close association with the government for social welfare. 9. Responsibility to uphold general values and philosophy of the country: In Indian context, this includes: (a) Respect towards ideologies of the society like democracy, freedom and tolerance (b) Fair play in marketing and establishing enterprises € Due respect towards secularism (d) Emancipation of weaker sections of the society € Empowerment of women in the society (f) Highlighting technological dynamism The following are the arguments cited against social responsibility: The concept of social responsibility is vague. It is difficult to distinguish it from economic responsibility. Entrepreneurs and business managers are familiar with economic aspects of the activities. They are not social scientists and, therefore, lack social skills.  It would be unjust to overburden the businessmen since they have several economic responsibilities like payment of tax, payment of tariff, etc. A social responsibility approach may not always be viable and hence be suicidal in the long run. Business enterprises have hardly any social power. No responsibility can be accepted without the necessary power. Private entrepreneurs are essentially responsible only to their shareholders. Social responsibility influences the decision-making process and would involve additional cost. It would entail certain division of resources meant for economic activities. BUSINESS ETHICS: MEANING “Earning of profit cannot be the objective of a business any more than eating is the objective of living”. A truly successful business can be built up only if the objective of service to community is constantly kept in view. Then, profit will come automatically. Therefore, business ethics are of much importance to business. Business ethics refers to the moral principles which are considered right by the society, and so; should govern and guide the activities of a business. They are the moral principles and rules of conduct which should guide the activities of a business. Business ethics are derived from social values. They lay down the norms of behavior for the business. In short, business ethics is the study of good and evil, right and wrong, and just and unjust actions of businessmen. APPLICATION OF ETHICS TO BUSINESS In the past, it was assumed in most companies that ethics was a matter of individual conscience. Today, many companies are using managerial techniques that are designed to encourage ethical behaviors. Every organization should have a culture that it exercises, so that, it can influence the employees to follow the same. Employees pick up subtle hints and clues that tell them what behavior is approved and what is forbidden. Therefore, a company culture is a blend of ideas, customer traditional practices, company values and shared meanings that help define normal behavior for everyone who works in a company. Nearly 95% of fortune 500 companies have code of conduct which they follow. 78 The council for Fair Business Practices (CFBP) established in 1966, by leading private sector industrialists in western India, have given certain ethics applicable to business. They are (1) To Charge only fair and reasonable price and take every possible step to ensure that the prices to be charged to the consumer are brought to his notice. (2) To take every possible step to ensure that the agents or dealers do not charge prices higher than fixed. (3) In times of scarcity, not to withhold or suppress stocks of goods with a view to hoarding or profiteering. (4) Not to produce or trade in spurious goods of standards lower than specified. (5) Not to adulterate goods supplied. (6) Not to publish misleading advertisements. (7) To invoice goods exported or imported at their correct prices. (8) To maintain accuracy in weights and measures of goods offered for sale. (9) Not to deal knowingly in smuggled goods. (10) Providing after-sales service where necessary or possible. (11) Honoring the fundamental rights of the consumers like, Right of safety, Right to choose, Right to information and Right to be Heard. (12) Discharging social responsibilities and the responsibility to protect the environment and nature’s infrastructure. (13) Ensuring that the product warranty is offered in simple, unambiguous and concise language, highlights the rights of consumer under it. The CFBP has instituted a set of prizes and awards called ‘Jamnalal Bajaj Uchit Vyavahar Puraskar’ to promote exemplary application of the above norms. The Federation of Indian Chambers of Commerce and Industry has recently issued a declaration of ‘Norms of Business Ethics’, which is almost identical to that of CFBP. The Punjab, Haryana and Delhi Chamber of commerce has also lately formulated a ‘Code of Ethics’ applicable to business. The code says – (1) Business must maintain the highest standards of behaviour for the benefit of industry, employees, customers, shareholders and the society. (2) Goods and services must conform to the commitment promised to customers. Business must be realistic and truthful in stating claims. (3) Customers must be given best possible service and treated with respect and fairness. (4) Business must understand and respect the needs, concerns and welfare of the community and society. It should use knowledge and experience for upgrading the quality of life. All business endeavours must combine the qualities of private excellence for public good. (5) The best way of promoting high standard of business practices is through self regulation. Therefore, it is mandatory for all business firms to follows Business Ethics, which will result in its own welfare. 1.1.1 Introduction The present day business is associated with vast and fascinating problems. It encompasses the use of latest scientific knowledge and technical know-how, different challenges and difficulties encountered in converting raw materials into saleable products and problems confronted in raising and spending money for the success of business units. Chapter 2 Lesson 1. ASSESSING OVERALL BUSINESS ENVIRONMENT IN INDIAN ECONOMY Module 1. Entrepreneurial environment Lesson 1 ASSESSING OVERALL BUSINESS ENVIRONMENT IN INDIAN ECONOMY 1.1 Introduction In layman’s language business means buying and selling of goods. It is referred to as an organized effort of enterprise to supply consumer with goods and services for a profit. This simple understanding is limited for assessing the role of environment in today’s global business activity. To gain better understanding, modern business may be defined as complex field of industry and commerce which involves activities related to both production and distribution. These activities on one hand satisfy society’s needs and desires and on the other hand bring profits to business firms. 1.1.1 Nature of modern business The significant characteristics of modern business are: large size, oligopolistic nature, diversification, global presence, technology orientation, and government regulation. a) Large size of business: Modern business is large in size. Private sector companies of India are not as large as some of the companies of developed nations in terms of sales and assets but are quite large by the standards of developing countries and compare favourably even with a large number of middle size companies of western world. The notable private sector  large business organizations include Reliance, Tata, Larsen & Toubro, Bharati Airtel, Adani, etc. b) Oligopolistic nature: Oligopoly is characterized by small number of firms seeking a homogenous or a differentiated product. c) Diversification: In order to grow and expand, today business houses adopt the policy of diversification. The Tata is a big business organization of India. It has a diversified portfolio consisting of different automobiles, iron and steel, insurance, telecommunication etc. Reliance group also has a diversified portfolio of oil, telecom, textiles etc. d) Global presence: In the wake of liberalization and reduction of trade restrictions, business organization also expands by doing the business overseas. The Indian companies like Reliance, Ranbaxy, Sundaram, Bajaj Auto, Tata etc also export their products to different nations of the world. e) Technology orientation: To satisfy ever changing needs of large number of consumers, modern business organizations adopt new technology to introduce new products in the market. They spend considerable amount of their budget to research oriented activities directed to adopt new technologies. f) Government regulations: with liberalization there is also reduction in government controls. But government control over business organizations is also necessary to correct market failures represented in the form of monopoly and pollution. Moreover government attempts to create stable market conditions by monetary and fiscal regulations. 1.1.2 Business environment It refers to all external factors which have direct or indirect influence on functioning of business. It is divided in to two broad categories- external and internal environments. External environment is futher categorized as macro and micro environment. Fig. 1.1 Macro and micro environment At present Indian economy is characterized as developing economy. Indian economy is an agricultural economy. More than 50% population is dependent on agriculture. 1.2 Characteristic Features of Indian Economy India has a mixed economy wherein both private and public enterprises prevail. Indian constitution allows private ownership of means of production. Thus private sector also exists with public sector. At the time of independence, due to huge resource requirement and long gestation period to realize profit, several sectors of the economy were developed under public sector mode by government. Although market mechanism in India is still not completely free from government control, it holds a predominant position in Indian economy. After liberalization in 1991, there is much higher growth in private sector compared to public sector. 1. Low per capita income: In 2009 India’s per capita income was Rs 37490 per annum. India’s per capita income is very low compared to developed nations of the world. 2. Unequal distribution of income and poverty: The inequality in income is gauged from unequal expenditure on house hold items. Wide spread poverty is also prevalent in India. Thus such a situation of poverty even after six decades of independence is detrimental to the appropriate growth of business. People below poverty line can not create large demands for industrial goods. 3. Agricultural based economy: India is referred to as agricultural country. At the time of independence around 70% of people were dependent on agriculture for their livelihood. This figure has not changed a lot. Only there is marginal decline in this number. In 2006-07, agriculture and allied activities contributed 18.5 percent of gross domestic product. This figure is still higher compared to many third world countries like Argentina, Brazil, Mexico etc. wherein contribution of agriculture is around 10% of GDP. Due to less productivity of agriculture sector compared to industrial sector, the people who are dependent upon it have less purchasing power. 4. Higher population: India is second largest populated country after China. This puts tremendous pressure on the existing natural resources. 5. Unemployment: Coupled with higher population growth rate, large scale unemployment and underemployment also characterizes the Indian economy. 6. Scarcity of capital: In India, saving and investment rates have risen at a low rate which can realize only a moderate growth rate. Due to this, there is scarcity of capital which does not allow business to grow at fast rate. It acts as hindrance to implement latest technologies. 7. Technological backwardness: Success of any business in today’s globalized competitive world depends on adoption of latest technology. Modern latest technology is certainly scale neutral, but it is not resource neutral. This acts as a hindering factor for large number of small and marginal farmers to adopt latest agricultural technology. 8. Limited Entrepreneur potential: An entrepreneur takes risks and ventures in to new business. This results in growth of economy. Unfortunately in India there are limited persons possessing entrepreneurial skills. 1.3 Assessing Overall Business Environment India is a key player in the world economy. The Indian economy is much diversified. The diversity ranges from agriculture to latest modern technology. The contribution of agricultural activity to the GDP is less while it employs higher workforce. Still today it provides around 65 to 70 percent of direct and indirect workforce. This situation places burden on Indian economy. At the same time India has the comparative advantage with regards to higher proportion of people with technical skills and English language proficiency skill. This factor is conducive for entrepreneurs. Indian economy has changed from controlled public sector to more liberalized system allowing both national and international players. Market has also changed from seller’s market with limited competition to buyer’s market with increased competition. These changes in competitive scenario also give rise to numerous entrepreneur opportunities. Indian Economy has changed from quantitative restrictions and tariffs to quota free and open economy and from a restricted financial market to a liberalized financial market. All these major changes characterize the dynamic nature of Indian economy. The Indian economy has achieved a growth rate of about seven percent in recent years. In recent years, service sector contribution has increased as compared to other sectors. Indian economy is considered as a developing economy based on its characteristic features. The salient features of Indian economy can be specified as predominance of agriculture, rapid, population growth, low per capita income, unemployment, capital scare economy. Some of the problems of Indian economy are: inadequate employment opportunities, economic inequality, poverty, poor infrastructure, fiscal deficit and higher proportion of non performing assets. OVERVIEW OF INDIAN SOCIAL, POLITICAL AND ECONOMIC SYSTEMS AND THEIR IMPLICATION FOR DECISION MAKING BY INDIVIDUAL ENTREPRENEURS, PART-I 2.1 Introduction Indian leaders, notably the first Prime Minister Dr. Jawaharlal Nehru, who implemented the concept of five year plans, believed that high economic growth and more income amongst the poor population are the prime goals before the newly independent nation. To achieve these goals, government was assigned important role and since 1951, number of five year plans have played major role in economic development of the country. Although there was considerable growth in 1950s, but it was a less than many other Asian countries. From 1951-79, the Indian economy grew at an average rate of 3.1 percent a year at constant prices. In the same period, growth in industrial sector was about 4.5 percent a year and for agriculture sector, it was 3.0 percent. Many political leaders associated with Independence movement were favoring socialistic pattern of development. They were in favor of government intervention in the economy. They propagated ownership by state for key industries. Indian economic systems: India has a mixed economic system. Indian economy comprises of traditional village farming, modern agriculture, handicrafts, modern industries and new emerging social sector. Since 1991, government has adopted liberalization policy. Restrictions on foreign trade and investment have reduced. The economic growth rate is around and above 6% in the liberalized era since 1991. This has resulted in reduction in poverty by about 10 percent. India possesses large number of educated youth, which has helped in economic progress; and the country and India emerged as an important destination for business process outsourcing services. In layman’s terminology, environment means the natural forces like air, water etc. For a business organization environment means all the internal and external forces affecting the organization. Management of business organizations should visualize and foresee the impact of environmental forces. In a strict economic sense, environment refers to all external forces which have profound influence on the functioning of business. Environmental factors are beyond the control of individual business organization. All business organizations function within the broad framework of the external environment which either provides opportunity or act as a threat to the business organization. The external environment is a mix of complex dynamic forces uncontrollable by the business organization but can also be influenced or affected by the organization. The external environmental forces decide the choice of a strategy. The marketing decisions are also influenced by external environment forces. Successful business organizations continuously monitor external environment and likewise adopt appropriate strategy so as to meet the customer’s need in a most effective way. Looking from the system’s viewpoint, all business organizations operate in an open system. It takes resources from the external environment, carries out conversion process and gives output in the form of goods or services to external environment. 2.2 Type of Environment A) Macro environmental factors 1. Economic Environment A close relationship exists between business and its economic factors which include business cycles, inflation, unemployment interest rates, income level of saving and investments, fiscal, monetary and balance of payment situations and overall growth activity. The economic factors affect consumer purchasing power and spending pattern. Economic environmental factors decide the growth prospects of business houses. During recession, the demand of goods and services decreases leading to slowdown of business. The economic policies framed by the government may either act as opportunity or threat for a business. 2. Technological environment Technology is the most dynamic force. Technology implies systematic application of scientific or organized knowledge to practical tasks. Technological development occurs at a very fast pace. Business organizations have to keep pace with the fast changing technology by adopting latest technology in their production process. Technology has a profound impact on life styles, consumption pattern and economy. The rate of change in technology also acts as opportunity or threat for existing business organizations. Technological development leads to establishment of new industries at the same time. 3. Political Legal Environment This refers to influence exerted by all the three constitutional wings namely legislature, executive and judiciary on business. Government frames legal rules and regulations for smooth functioning of business organizations Subsidies, tariffs, import quotas and deregulation of industries are some of the regulating forces imposed by government for business organizations. The political environment includes role played by government and other non government organizations (NGOs) influencing the business activities. The legislature, executive and judiciary either singly or in combination shapes, direct, develops or controls the activities of business organizations. In recent times there is growth of many NGOs which exert influence on business organizations and compel them to adopt right practices in the larger interest of all sections of society. The legal environment becomes more complicated as business organizations expand globally and face government structures quite different from those within their host country. A stable and dynamic political environment is very essential for business growth. 4. Demographic Environment Demography is the study of human population with respect to size, density, location, age, sex, race, occupation and other statistics. Demographic trends such as worldwide explosive population growth, a changing age – education and esthetic mix of population, changes in the household pattern, geographical shifts in population etc act as opportunity or threat to business organizations. 5. Socio Cultural Environment These are most difficult uncontrollable factors to predict. It is necessary for business organizations to understand and appreciate the socio cultural values of society in which they conduct their operations. The cultural environment is composed of society’s basic values, perceptions, preferences and behaviors, cultural values & beliefs is a mix of concepts like quality, achievement, youthfulness, efficiency, practicality, freedom, self actualization, individualism, patriotism, religious beliefs, morality, courage, ownership of responsibility, materialism etc. Each country has a specific and unique socio-cultural environment. Business organizations have to comply with this unique socio cultural environment. 6. Natural Environment Business as an economic system that is established by man but it is impacted upon by natural forces. Business activities also influence the nature in positive and negative ways. The ecosystem refers to natural system and its resources that are required as inputs by business organizations or that are affected by business activities. In recent years the concepts & preserving the natural environment or green marketing have emerged. The natural resources are of renewable and non renewable type. It is necessary for business organizations to make efficient use of natural resources for the benefit of mankind. Overview of INDIAN SOCIAL, POLITICAL AND ECONOMIC SYSTEMS AND THEIR IMPLICATION FOR DECISION MAKING BY INDIVIDUAL ENTREPRENEURS, PART-2 3.1 Introduction India is a secular country. Religion is one of the cultural variables. In India all the religions are given equal status. Religion shapes the values and beliefs of a person have an influence on entrepreneurial behaviour in general and the type of business as well as women’s participation in business in particular. There are contradictory research findings with respect to influence of religion on entrepreneurial activity. There is lack of in depth research on the relation between religion and economic and social entrepreneurship. In India it can be seen that great entrepreneurs have emerged from all different religions professed over here. Socio-cultural environment encompasses all the variables which are not included in economic or political environment. Economic environment mainly include market variable in which people act as buyers or sellers and the main aim is production. In political environment people relate with one another as citizens and the main aim is to make executive decision and rule. The socio cultural environment include whole range of behaviors and relationships in which people engage in their private and personal lives including the characteristic of the population, age, sex, race, class values and attitudes, lifestyle and relationships. 3.1.1 Cultural factors Culture is a phenomena exhibited by groups and this can mean society as a whole (national culture), groups within society (sub culture) or even groups of societies and nations (trans national culture) e.g. many times the word "Indian culture " is used. This implies that there are certain values and way of life that Indian societies might be sharing. India is said to have diverse culture. India is referred to as multiracial country where different communities coexist defined by their race, ethnicity or faith. While analyzing the socio cultural environment of business, it is to be remembered that society and culture are not homogenous, but are diverse and dynamic. Socio cultural environment and business exhibits two way impacts on each other. Business practices influence culture and culture in turn influence the business practices. Employer performs several roles while performing their business duties. Their actions are influenced by their cultural background (e.g. Tata group). 3.1.2 Social factors The social sector is looked as one of the most important sector in the developing economies of the world. It includes many programmes and policies of the government aimed at improving the living standards of the people of that country by better availability of public services. The social environment covers following aspects: · Poverty and its alleviation programs · Labor and employment · Women and children development · Education · Health · Population and family welfare · Empowerment of disadvantageous groups · Public committees in rural and urban areas World Bank defines poverty in terms of hunger, lack of shelter, inability to access to medical help and education. Although India is considered as rising economy but still large number of people live below poverty line. This gives opportunities to entrepreneurs and specifically those associated with NGO to carry out their work, so as to improve the living standards of people and reduce poverty. It is necessary to provide work opportunities to people so, as to help them earn income to meet the material need and help them progress with a sense of dignity and purpose in life. Efficient labour markets help to reduce poverty and contribute to economic growth and development. The establishment of enterprise by entrepreneurs thus facilitates employment generation. With respect to participation of women in the workforce, it can be seen that there is quantitative increase in women’s economic participation in recent past in number of enterprises. There is also growth of women entrepreneurs in India. Large number of children is engaged in child labour. Many of them work in hazardous conditions (mines, chemicals). A well established enterprise does not lead to child exploitation in the form of child labour. Education and health are most important social environment variables and it is government’s responsibility to ensure these adequate facilities to the people. In liberalized era in the recent past it is observed that government has withdrawn their responsibility from this sector. Private participation has increased in both the sectors. Today large number of private schools, self financed colleges and private hospitals can be seen throughout the country. For the social factors like population and family welfare, empowerment of the socially disadvantaged group and public amenities in rural and urban areas, should be improved. Rural environment shows the influence exhibited by factors which are ‘beyond the enterprises gate’ such as attitude of people to work, attitude to wealth, family, marriage, religion, education, ethics etc. In limited sense, culture is thought to be exhibited by activities like music, festivals, drama, dance etc. But in broad sense, culture is a complex whole which includes knowledge, beliefs, art, moral laws, customs and other skills and habits learned by a person as a member of society. Culture is not based upon biology or inherited but is acquired by learning and experiences. Culture is not specific to any individual but person as a group member or as a member of organization/society share the culture. Culture passes from one generation to another. From the enterprises point of view, culture is understood from three different levels. At the top is the national culture which is dominated and exist within the geographic boundaries of a nation. India being a very large country, there is existence of this dominant culture. Within the national culture lies the business culture. This shows the way of conducting everyday business transactions. In Indian enterprises the business culture is exhibited by activities such as priority given to age and seniority, respect of women, use of traditional dress, celebrating traditional festivals etc. Organizational and occupational culture develops within the national and business cultures. Organizational culture refers to philosophies, ideologies, values, assumptions, beliefs, expectations, attitudes and norms which keep the organization as close knit structure and are shared by all the employees of the organization. Employees pursuing a similar profession may exhibit common culture referred to as occupational culture e.g. culture exhibited by university faculty members, non teaching staff of universities, craft people, doctors etc. Following Table 3.1 illustrates the characteristics of Indian socio cultural environment. Table 3.1 Major Socio cultural variables of Indian Culture Socio cultural variable Characteristics Administrative Existence of impersonal bureaucratic social relations, mistrust of fellow workers, highly centralized administration, more emphasis on hierarchical status in decision making, Bureaucratic delay, less amount of delegation, dissatisfied employees Attitude towards work and goals General and deep seated apathy, separation of work from its results, performance of tasks without any dedication, pride or interest Discipline and order Lack of discipline at all levels, Lack of trust on authority, Poor superior subordinate relationships Group Harmony Assumption of inequality of  human beings, self centered behavior, suspecting fellow employees, lack of cooperation and teamwork Education Mostly indifferent and highly ambiva 3.2 Micro Environmental Factors It is possible for the business organization to exert some influence on these micro environmental forces as compared to macro environmental forces. This includes factors such as organization market, market intermediaries, suppliers of raw material, employees etc. The market consists of customers whose taste and preferences changes with time. Business enterprises have to continuously closely monitor the demands of their customs in target market. It is possible to control or modify preferences of customers through promotional techniques by business organizations. Business organizations sell their products with the help of market intermediaries. It includes wholesalers, distributors, retailers and all other middleman. It is possible to control the activities of marketing intermediaries by providing appropriate commissions, training, other financial support etc. Suppliers are individuals and organizations that provide necessary resources for manufacturing goods or providing services. They are critical to an organization’s marketing success and an important link in its value delivery system. 3.2.1 Why know business environment? The success of any enterprise depends upon managerial decisions. Manager’s decisions are affected by environmental factors. It is therefore necessary that managers understand and evaluate the impact of environmental factors on their decisions. Sometimes rigid government laws may give rise to restrictive business environment hindering the growth of business. The present and future viability of business is impacted by the environment. For example with change in consumer preferences and advancement in technology, the mobile manufacturing company cannot survive by manufacturing only black and white screen mobile having only limited features. The cost of capital and cost of borrowing is also influenced by government’s fiscal and monetary policy. The increased awareness about environment protection among general population force business enterprises to adopt suitable non hazardous / non polluting measures in their establishment. The environment also offers the new growth opportunities. For example the privatization policy of government of India has opened up many sectors for business organizations such as telecom, food and dairy etc. The environmental study helps the business enterprises in development of broad strategies and long term policies for the enterprise. It helps in development of action plans to keep pace with technological improvements. It helps to foresee the impact of socio economic changes at both national & international level on the enterprises stability. It also helps in analyzing the competitors move and then formulate counter strategies. A country’s cultural and social back ground and the prevailing political system have influence on the entrepreneurial activities. According to Gibb, enterprise culture is a set of attitudes, values and beliefs operating within a particular community or environment that lead to enterprising behavior and aspiration towards self employment. Research studies have indicated that cultural attitudes influence the entrepreneurial activities. The cultural difference across the nations is also responsible for economic and entrepreneurial development of the nation. Cultural environment which respects and values entrepreneurship is more conducive to entrepreneurship. Chapter 3 GLOBALIZATION AND THE EMERGING BUSINESS / ENTREPRENEURIAL ENVIRONMENT 4.1 Introduction The international monetary fund defines globalization as “the growing economic interdependence of countries worldwide through increasing volume and a variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and wide spread diffusion of technology”. 4.2 Features of Globalization 1. Expansion possibilities of business throughout the world. 2. Differences between domestic and foreign markets are erased. 3. Buying and selling product and service from / to any nation of the world. 4. Establishment of production and distribution facilities based upon feasibility and economic considerations at optimum location anywhere in the world instead of considering national considerations. 5. Product planning and development are dependent on market conditions of the whole world. 6. Optimizing raw material sourcing from entire world. 7. Global orientations in strategies, organizational structure, culture and managerial expertise. 8. Viewing entire globe as a single market. 4.2.1 Factors influencing globalization Many factors are responsible for favoring globalization. Notableamong which notable ones are: 1. Dismantling of barriers to international economic transactions. 2. Over capacity and over production. 3. Technological developments. 4. Emerging forms of industrial organizations. 5. Political factors 6. The intellectual revolution 4.3 Globalization Strategy for Enterprise To establish global presence with minimum risk and maximum returns, the entrepreneur must address following questions: a) Which product line or product lines should be used for launching into global Markets? b) Which markets should be chosen for entry? c) Which optimal mode should be used for market entry? d) How rapidly should the enterprise expand globally? As globalization has many risks associated with it, it is advisable to select only most profitable product/ product lines instead of introducing the entire product range.The choice of the market is decided by market potential. The extent of entry barriers and intensity of competition decides the market entry strategy. Lower entry barriers and less intensity of competition in a market are conducive to a firms entry in the market. The mode of market entry is dependent upon two factors. (a) Enterprise’s policy of export versus local production. (b) Extent of ownership control over locally performed activities. Local production is more favorable when the local market is larger than the minimum efficient scale of production so that local production translates itself into scale economies while holding down tariff and transportation costs. With regard to extent of ownership control, the possibilities vary from zero percent ownership mode like licensing or franchising to partial ownership mode like joint venture or affiliates.More global presence by the enterprise does not provide competitive advantage. Transforming global presence into global competitive advantage necessitate the enterprise to exploit the value creation opportunities generated by global presence and to meet related challenges. Global competitive advantage can be realized by the enterprise by adopting to local market differences, exploiting economies of global scale, tapping the optimal locations etc. 4.4 Indian Government Measures Towards Globalization 1. Scrapping the restrictive laws such as foreign exchange and regulation act (FERA) 1973. The foreign exchange management act (FEMA) has been passed by removing the classes which restricted the entry of multinational companies (MNCs) 2. Allowing Indian companies to collaborate with foreign companies in the form of foreign joint ventures (FJVs) and there by many Indian companies have started their FJVs.  3. Reduction of import tariff to 15 percent on the advice of world bank. 4. Replacing import license with tariffs. 5. Reducing and removing some import duties. 6. Removing export subsidies. 7. Replacing license of export with duties. 8. Imposing low, flat tax on the export income. 9. Changing the policy related to export oriented units and export processing zones. 10. Liberalizing the inflow of foreign direct investments. 11. Providing incentives to MNCs & NRIs for investing in India. 12. Encouraging foreign institutional investors (FIIs) to invest in India. 13. Allowing Indian mutual funds to invest in foreign equity. 14. Allowing rupee to determine its own exchange rate in the international market without an official intervention. 15. Full Convertibility of rupee in the current account. 4.4.1 Areas of Concern in Indian Economy with respect to globalization 1. The technology gaps of several years. The difficulty in securing technology transfers from the developed countries. 2. Lack of Infrastructure 3. Difficult to implement true privatization policies in the light of political interventions. 4. Indian products and services are rated inferior in terms of price, quality, delivery schedules, etc. 5. High cost economy 6. The market access in the developed countries is very difficult as they are protected by tariff and non tariff barriers. 7. Unstable political economy of India. The coalition governments are not suitable for rapid progress. 8. Limited share in world export. 4.5 Globalization and India For India, a good balance of payment position and the earning of foreign exchange are major reasons for globalization. Indian consumer’s preference has changed due to impact’s of mass communication tools. Thus Indian Industries have also globalized their operations so as to satisfy consumer’s preferences. Due to liberalization policies initiated by India since 1991, many multinational companies have started their operations in India. The Indian industries and new enterprises face stiff competition from multinational companies. This has resulted in improvement in their performance and ultimately benefiting the consumers. Globalization helps domestic companies to acquire and update their technology, be cost effective and ward of future competitive threat.  Lesson 5 GLOBALIZATION AND THE EMERGING BUSINESS / ENTREPRENEURIAL ENVIRONMENT PART-II 5.1 Introduction All kinds of enterprises are affected by external environmental factors. These factors are broadly categorized into political, economic social technological legal, and cultural. All these external environmental forces are generally met under the control of individual enterprise and are generally referred to as macro environmental factors. Uncertainty is associated with them. Despite the heavy cost of failure, private entrepreneurs take risks in the hope of earning high profit. 5.1.1 Importance entrepreneurial environment Macro environmental factors are responsible for the growth of entrepreneurship. In globalized world, all kinds of business are considered as a social and economic organization which is influenced by political, economic and social forces. An enterprise operates in a specific frame work created by political environment, industrial and licensing policy, foreign exchange regulation, banking policy, technological development etc. Therefore it is necessary that any business plan formulated by an entrepreneur & it must be based upon above environmental factors. A. Economic factors 1. Capital: This is perhaps the basic and most important requirement for establishing any enterprises. It is required for purchasing land, different type of machines and raw materials. Research studies have indicated that with an increase in capital investment, capital output ratio tend to increase. This increases profit which then further goes to capital formation. Thus, lack of capital and higher interest rate on borrowed capital hinders entrepreneurship activity in the country. One of the reasons for progress of rich western countries is availability of capital to entrepreneurs. 2. Labour: Quality of labour is more important than quantity for proper development of entrepreneurship. Since, they have to deliver quality products for the successful growth, quality of labour is very crucial. 3. Raw materials: Since raw material is one of the important components of production, without which production cannot be accomplished. Entrepreneurs need to ascertain continuous availability of requisite quantity and quality of different types of raw materials for survival of the enterprise. 4. Market: The size and the composition of market both influence the entrepreneurship in their own ways. Whether or not the market is expanding and the rate at which it is expanding are the most significant characteristics of the market for entrepreneurship development. B. Government actions Government plays an important role in the development of entrepreneurs. Government can support entrepreneurs through its clearly expressed industrial policy, by creating basic facilities, utilities and services through providing incentives and subsidies. A supportive conducive role by government reduces risk of entrepreneurs. 5.2Globalization and India Even after a long period after independence, India is not able to transform its economy into a modern industrial democracy even though it enjoys political democracy. This is evident from the large gap between have and have-nots. After liberalization probably this gap is increasing. In order to pursue economic policies as dictated by WTO/World bank and other financial institutions, India has been reducing space for state intervention and allow market forces to govern the market. On one hand this leads to increase in entrepreneurial opportunities but on the other hand have damaging effects on economically weaker sections of society. Thus although it is not possible to stop the process of globalization but whatever policy reforms are undertaken must be according to the socio economic conditions of our country and should be such which serve the interest of general masses. 5.2.1 Sector specific impact of globalization in India: The effects of globalization on India can be studied by analyzing some specific sectors of the Indian economy. 1. Telecom sector: The impact of globalization is directly visible in this sector. This sector was totally under the public domain. It is now privatized and slowly and gradually foreign investment upto 72 percent is now allowed. The positive effects are realized by the consumers in terms of easy availability of large number of service providers at cheaper rates. 2. Insurance sector: This sector used to be one of the most regulated sector. But now it is open for private players also. Insurance regulatory development authority has been established by the government to regulate the sector. 3. Banking and financial sector: India has adopted gradual liberalization approach for this sector. The reforms in the form of deregulation, liberalization of interest rates, pro market policies etc are introduced at a slow pace. With each successive budget announcements, India move towards full capital account convertibility. These measures along with strengthening of prudential norms and market discipline and the adoption of international benchmarks to suit specific needs of India helped to make the financial sector of India competitive, viable and resilient. All these moves are helpful for entrepreneurs to obtain necessary financial support. 4. Retail sector: Indian retail industry cannot be new considered in a nascent stage. Due to globalization large supermarkets are visible even in small towns and also throughout the country. Opening up of retail sector has provided opportunities to many entrepreneurs. Although it is seen as a threat to small street corner groceries but at the same time it can also act as growth engine which can help in filling the resource and technology gaps in the retail segment. 5. Agriculture sector: India is still regarded as agricultural country. Due to globalization, advantages in terms of technology transfer, improved productivity and newer markets etc. can be gained by Indian farmers. But if the Indian farming conditions and socio economic status of large number of Indian farmers is taken into consideration then it has been seen that due to globalization, Indian farmers have also faced many problems as against provision of providing subsidy to farmers in developed countries, monopoly of many biotechnological companies, threat to biodiversity and ecological stability due to biotechnology, pumping etc. These are some of the sector specific examples to highlight the impact of globalization on Indian economy. In general globalized world leads to influx of new technology and income in economic opportunities and also leads to more entry of international companies in many sectors. But at the same time it can also lead to increase in unemployment, economic and social inequalities etc.  Lesson 6 CONCEPT OF ENTREPRENEURSHIP AND MANAGERIAL CHARACTERISTICS 6.1 Introduction The word entrepreneur is drawn from the French language meaning to designate an organizer of musical or other entertainment. Oxford dictionary also defines entrepreneur as the “director or a manager of a public musical institution.” In early 16th century, the term was applied to persons involved in military operations. In the 17th century, the term was broadened to include civil engineering activities. In 18th century, the term was used to refer to economic aspects. This highlights that the concept of entrepreneurship was originated two centuries ago. Since then the term is used in various ways. 6.2 History The term entrepreneurship can be traced back to as early as the Middle Ages, when the entrepreneur was simply someone who carried out tasks, such as buildings and construction projects by applying all the resources at his disposal. However, it was during the16th century when business was used as a common term, and the entrepreneur came into focus as a person who is responsible for undertaking a business venture. In the 18th century, early economists, for instance one known as Richard Cantillon, added that an entrepreneur bears risk as part of his work definition. It was during the 17 th and 18 th century Industrial Revolution, that business itself was becoming part of the new lifestyle, especially in Europe, where most of this development was taking place. The early economists, such as John Baptiste, John Stuart Mill, and Alfred Marshall all included entrepreneurship into the economic spectrum of the time by defining the various skills and features of an entrepreneur. These definitions vary from an entrepreneur being responsible for employing resources in high productivity areas to earn profits, to risk bearing, and finally to an entrepreneur being responsible for organization and control. However, the most substantial research into entrepreneurial theory was achieved in the 20th century, under the aegis of Joseph Schumpeter, who claims that the entrepreneur has a creative destruction innovation by replacing destroying an existing economy by a better, advance one. Where some of the entrepreneurships emerged as a result of innovation based on new products, others were merely an expansion of existing businesses in markets that now showed areas of growth. For instance, railroads and shipping, cargo, transport; factors that became intertwined with growth in commerce during the late 18 th century and early 19th century. The 20th century saw the evolution of entrepreneurial history developing its most recent form and most of this research was done at the Center for Entrepreneurial History at Harvard. It was here that the theorist Arthur H. Cole defined an entrepreneur as an organization builder. In recent times, the concept of entrepreneurship has evolved from being a single individual to account for that of an entire organization or a corporation. In some of these modern theories, entrepreneurs also include the top tier of executives who are running a corporation. Along with entrepreneurial theory, it is observed that the growing importance of theories regarding entrepreneurship emerged side by side with historical events which integrated the entrepreneur as an essential part of a modern, capitalist society. 6.3 Definitions of Entrepreneur  1. Modern dictionary defines entrepreneur as “One who reorganizes and manages only enterprise especially involving high risk.” 2. According to economist entrepreneur introduces changes, innovations and new orders and combines resources, raw material, labour and other assets thereby increasing their value. 3. According to psychologist, Entrepreneur is driven by some forces which create a desire to obtain or attain something. 4. According to sociologist, Entrepreneur is a person who’s actions would determine his social status and who contribute to the development of society. 5. Management defines Entrepreneur as a person who has a vision and generates the action plan to achieve it. 6.4 Concept of Entrepreneurship  Fig. 6.1 Concept of entrepreneurship Entrepreneurship is a process undertaken by an entrepreneur to propagate and foster his business interest. Innovation and creativity result into establishment of enterprise. Entrepreneurship involves a particular type of mindset which takes calculated risk with confidence so as to achieve predetermined business objective. Thus we see that the term Entrepreneur is used in various ways. These views can be group in to three categories: Risk bearer, organizer and innovator. 1. Entrepreneur as a risk bearer Rechard Cantillion (1755) was the first person to describe entrepreneur as risk bearers. He stressed on function of entrepreneur and not his personality. Frank knight year 1921 describe entrepreneur as an economic functionary who undertakes such responsibility of uncertainty which by it’s vary nature can not be insured, nor capitalized nor salaried too. 2. Entrepreneur as an organizer : Jean –Baptistc (1800) says entrepreneur as a person who combine the land of one, labour of another and the capital of yet another. By using all these recourses an entrepreneur produces a product and sales in the market. He pays interest on capital, rent on land and wages to labour. Then what ever saved is the profit. Thus the explanation of entrepreneur combines the functions of coordination, organization and supervision. 3. Entrepreneur is an innovator Joseph. A. Schumpeter (1934) identified five different kinds of innovations or ways to act as an entrepreneur a. The introduction of new product in the market b. The introduction of new method of production c. Venturing into a new market. d. Using a new different variety of raw materials. e. Adopting a new organization firm/ structure. 6.5 Characteristics of Entrepreneurs Following are some of the characteristics (traits) identified by researchers based upon analyzing life of successful entrepreneurs. 1. Hard work: Entrepreneurs should be willing to work hard to achieve success for their enterprise. 2. Desire for high achievement: Entrepreneurs should be achievement oriented. They do hard work to achieve their goals/ targets for the organization. 3. Optimism: Entrepreneur faces many hard ships and difficulties. A successful entrepreneur tackles all kinds of such situations and is optimistic about bright future. 4. Independence: Entrepreneurs like to work independently. They do not like to be followers or guided by someone else. 5. Foresight: They can approximately visualize the future based upon analysis of existing environmental conditions. Based upon such a foresight they take appropriate decisions in the present context so as to make their enterprise successful. 6. Organizing power: Entrepreneurs have limited resources when they start their enterprises. They procure different resources from others and then organize them appropriately so as to make a profitable product. 7. Innovative: Customer demand/tastes go on changing. In order to satisfy diverse customer needs, entrepreneurs must be innovative. 8. Communication skills: In order to carry out business activities, the entrepreneur has to interact with many stakeholders’ viz., suppliers, employees, customers etc. In order to succeed entrepreneur should have excellent communication skills. 9. Technical knowledge: An entrepreneur can start business of diverse nature. Whatever business they start, in order to succeed it is necessary that entrepreneurs have a somewhat basic knowledge about that business. 10. Risk taking ability: Future is uncertain and risk is associated with it. Entrepreneurs take a calculated risk. Several social scientists have considered risk taking as the most important basic trait required by entrepreneurs. 11. Mental ability: It consists of intelligence and creative thinking. An entrepreneur must be reasonably intelligent and should have thinking ability. Entrepreneur individually faces many business problems. He must be able to analyze them and deal with them. 12. Human relations ability: Important personality traits required by entrepreneurs are emotional stability, personal relations, consideration and tactfulness. An entrepreneur should maintain good relations with all stakeholders so as to achieve growth in their business.  Lesson 7 MANAGING AN ENTERPRISE 7.1 Introduction Entrepreneurs start an enterprise and manage it effectively so as to make it a successful enterprise. In general managing an enterprise consists of following different stages/ phases. 7.2 Identify an Opportunity This is a crucial step both for a new enterprise as well as for existing organization. Identification of opportunity at appropriate time provides competitive advantage over competitors. It helps to increase profit margins. Identification of opportunity and evaluation is a difficult task. Majority of good business opportunities do not immediately emerge just by chance. They are found out due to alertness of entrepreneur or by adopting procedures specifically to generate ideas viz research and development, analyzing competitors, from supply chain members or using idea generating techniques. The assessment of opportunity can be evaluated by finding answers to following questions. 1) Which market need will be satisfied by the offering? 2) Which social conditions underlie this market need? 3) Which market research data can be associated with this market need? 4) Whether any patents might be available to fulfill this need? 5) What is the national and international structure of competition for the concerned need? 7.3 Evaluating and Establishing Vision After identifying the opportunities, an entrepreneur lays down a vision to convert these opportunities into a realizable product. Each opportunity is carefully screened and evaluated so as to assess whether the specific product or service when conceptualized from a particular idea has profitable returns in comparison to resources required. The evaluation criteria looks at length of opportunity, its real and perceived value, its risk and return, its match with personal skills and goals of entrepreneur, its uniqueness or differential advantage in its competitive environment. 7.4 Persuade Others No individual can work in isolation. Thus, entrepreneurs also need help and advice from many other people. Success of a business depends upon getting the right people involved. 7.5 Gather Resources After successfully communicating the vision and persuading others, the stage of starting the project is reached. Here first of all resources of different kind are gathered. In general resources required for an enterprise can be classified in to four categories. 7.5.1 Financial One of the most important considerations for any new enterprise is its financial structure. It can be a sole enterprise, partnership, private company, public company, co-operative firms. After selecting any suitable structure the next questions of finding some sources of finance which include own capital, informal investors (family and friends), public flotation, and government. etc. 7.5.2 Operating resources This consists of physical items like office building, land and machinery, various raw materials etc. 7.5.3 Human resources This covers labours, skilled operators and professional managers. 7.5.4 Creating new venture/ developing business plan The next step is organizing all these resources effectively and creating / establishing a new venture. 7.6 Business Plan A business plan is prepared by entrepreneur. It is a written document which describes all the necessary internal and external elements involved in starting a new enterprise. It is integration of major functional plans of the enterprise i.e. marketing, finance, production, human resources etc. It addresses short term and long term decision making for initial years of operation. Business plan is required by potential investors, suppliers, and even consumers. The business plan is used by different persons such as investors, suppliers, customers etc. Each of them will read and interpret the plan from their own perspective. Thus while preparing the business plan; the entrepreneur must address all the issues affecting all different stakeholders. 7.6.1 Reasons for failure of business plan 1. Unreasonable goal setting by entrepreneur 2. Non measurable goals  3. Lack of full commitment from the entrepreneur 4. lack of experience on the part of entrepreneur in planned business 5. Entrepreneur lacks sense of potential threats or weaknesses 6. Lack of establishment of customer needs for the proposed product or service 7.6.2 Manage the enterprise It is necessary to examine and solve operational problems of the growing enterprise. This calls for implementing management style and structure as well as determining key variables of success. A control system needs to be established so as to identify the problems and resolve it quickly. 7.6.3 Change / Adapt with time As business environment change, entrepreneur needs to adopt new policies/ strategies so as to succeed and remain competitive. Both the central and state governments frame rules and regulations for the operation of a business. The rules framed by other local bodies like municipal corporations are also binding on business. A large number of laws have been enacted for ensuring fair trade practices and fair competition, protecting the interests of consumers, employees, protecting improvement and collect tax from the business enterprises. The rules are not common for all the enterprises. They are enterprise specific. Thus it is the responsibility of the management of concerned enterprise that they enforce all the legal rules framed by the government for their enterprise. Thus entrepreneurs are required to remain watchful and keep themselves informed of latest standing orders that serve to control, regulate and guide their business activity. In this regard the aspects of form & ownership, industrial license, registration of project scheme, protection of environment, construction of factory shed, trade license, employee welfare, consumer rights etc are some of the important aspects to be considered by entrepreneur. 7.7 Type of Ownership This is one of the basic procedural needs. There are different types of ownership models ranging from sole proprietorship, different kinds of partnership, joint stock company, co-operatives etc. 7.7.1 Sole proprietorship In a sole proprietorship, individual is the sole owner of a business and there is no other form of business organization, such as a corporation, used as a vehicle to carry on the business. All benefits from the operation of the business accrue to the sole proprietor. At the same time, all obligations associated with the business are also the personal responsibility of the sole proprietor. Thus, all income or losses of the business are attributable to, and taxed at the rate applicable to, and all assets of the business are owned by, the sole proprietor. Some of the advantages of operating as a sole proprietorship are: relatively low start-up costs, the ability to offset losses from the business against other sources of income, less formalities and filing requirements, and control over the direction of the business. The principal disadvantage of operating a business as a sole proprietorship is the unlimited personal liability of the proprietor (which can generally only be limited by contract or insurance). This means that all of the personal assets of the proprietor are at risk, whether or not they are used in, or related to, the operation of the business. Other disadvantages of operating a business as a sole proprietorship include: lack of status and credibility in the eyes of potential business partners; difficulty in attracting investment; limited ability to use a share of ownership in the business as a retention and incentive tool for employees; ineligibility for many government loan and grant programs (which are available only to corporations); and ineligibility for employment insurance benefits in the event of a failure of the business. 7.7.2 Patrnership The term "partnership" has changed over the years, as business people have come to add new features to the old business form. These new partnership types are intended to help mitigate the liability issues with partnerships. The three most used partnership types are: General partnership, limited partnership, limited liability partnership. 7.7.2.1 General partnership A general partnership is a partnership with only general partners. Each general partner takes part in the management of the business, and also takes responsibility for the liabilities of the business. If one partner is sued, all partners are held liable. General partnerships are the least desirable for this reason. 7.7.2.2 Limited partnership A limited partnership includes both general partners and limited partners. A limited Partner does not participate in the day-to-day management of the partnership and his/her liability is limited. In many cases, the limited partners are merely investors who do not wish to participate in the partnership other than to provide an investment and to receive a share of the profits. 7.7.2.3 Limited Liability partnerships A limited liability partnership (LLP) is different from a limited partnership or a general partnership, but is closer to a Limited Liability company (LLC). In the LLP, all partners have limited liability. An LLP combines characteristics of partnerships and corporations. As in a corporation, all partners in an LLP have limited liability, from errors, omissions, negligence, incompetence, or malpractice committed by other partners or by employees. Of course, any partners involved in wrongful or negligent acts are still personally liable, but other partners are protected from liability for those acts. 7.7.3 Joint stock company A company form of business organisation is known as a Joint Stock Company which is a voluntary association of persons who usually contribute capital to carry on a particular type of business. The business is thus established by law and can be dissolved only by law. Those who contribute capital become members of the company. Joint Stock Company has a legal existence separate from its members. This implies that even if its members die, the company remains in existence. Joint stock company generally requires huge capital investment, which is contributed by its members. The total capital of a joint stock company is called share capital and it is divided into a number of units called shares. Thus, every member has some shares in the business depending upon the amount of capital contributed by him. Hence, members are also called shareholders. A joint stock company form of business organisation is found to be suitable where the volume of business is large and huge financial resources are needed and for businesses which involve heavy risks. Members of a joint stock company have limited liability, thus it is possible to raise capital from the public with ease. Again, for business activities which require public support and confidence, joint stock form is preferred as it has a separate legal status. Certain types of businesses, like production of pharmaceuticals, machine manufacturing, information technology, iron and steel, aluminum, fertilisers, cement, etc., are generally organised in the form of joint stock company. 7.7.4 Cooperatives Cooperative models serve a useful role of awakening consciousness and showing that there is an alternative way to organize economic activity. However, successful models are few and far between in an environment hostile to cooperatives. For cooperatives to develop on any scale, changes are needed in society's values, political support, and the economic system. 7.7.4.1 Principles of cooperative enterprise Cooperatives are firms that are controlled and owned by their members, who are the workers. cooperatives find affinity with the following principles: 1. Membership is open and voluntary. 2. There is democratic control at all levels of the enterprise, on the basis of one member, one vote. 3. Interest paid on share capital is limited. 4. Some part of cooperatives' surpluses is devoted to member’s education. 5. Cooperatives cooperate among themselves. 7.8 Factors to be Considered While Choosing a Particular Type of Ownership Nature of business, minimum output to achieve economies of production, minimum turnover to make business commercially viable, requirement of specialized and skilled personnel, requirement of capital, return on investment, extent of financial support in the form of loan available from external sources, liability of equity, Ease of formation – registration and associated financial burden, tax benefits and concessions, grants and subsidies from government, and control over management.  Lesson 8 MOTIVATION AND ENTREPRENEURSHIP DEVELOPMENT 8.1 Introduction Motive refers to drive and motivation means drive to achieve a goal. Motivation refers to the way in which urges, drives, desires, aspirations, and strivings or needs direct, control or explain the behaviour of human beings. Motivation is related with human behaviour. Motivation is a complex phenomenon. In general motivation is a psychological phenomenon as it is related to those factors operating within the individual employee which compel him to act or not to act in a certain way. These phenomena have been a subject of research by many people. 8.2 Characteristics of Motivation 1. Motivation is internal feeling of a person. 2. Motivation is a continuous process. 3. Motivation varies with person and time. 4. Motivation may be positive or negative. What motivates an entrepreneur to undertake risk and start new enterprise? Is it financial scarcity or financial abundance which motivates an individual to start an enterprise? Is it the family, social status or satisfaction from present life that motivates an entrepreneur to start a new enterprise? The answer to such questions lies in the study of motivation. Motivational factors involve the inner urge within an individual. Due to such an urge an individual is motivated to do something new, unique and perform better than others. :Research studies associated with finding an answer to the most important question as “To what makes an entrepreneur?” reveals the following important points. 1. Entrepreneurship is associated with personality. 2. Personality development is closely associated with early childhood experiences. 3. Economic deprivation also acts as a motivating factor. 4. Family environment plays an important role. In a family where security and non risk bearing situations are given importance, there are less chances of developing entrepreneurs, whereas family environments which foster venturing in to uncertain risky environment, tend to develop entrepreneurs. 5. Entrepreneurial characteristics are results