Small and Medium-sized Enterprises Week 1-2 Small and Medium-sized Enterprises By Aaftab Ullah

Small business or Cottage Industry The cottage industry or small scale industry may be defined to be an enterprise or series of operations carried out only by a workman skilled in the craft on his own responsibility, the finished products of which he markets himself. He works in his own home with his own tools and materials and provides his own labor. These workers are mostly hand labors and having personal skills with little or no aid from modern technology and machinery they work in accordance with the traditional technique.

1: No mechanical power and no hired labor 1: No mechanical power and no hired labor. 2: No mechanical power and hired labor fewer than 10 persons. 3: No mechanical power but hired labor of over 10 persons. 4: Mechanical power under 10 bhp but no hired labor. 5:3 and 4 are treated here as small industries. 6: Mechanical power under 10bhp and hired labor 7: Mechanical power over 10bhp and hired labor. Here 6 and 5 were considered as the medium size industries

In USA the small industry was defined as “a business qualifies a small if does not dominates its industry and less than 100 employees” In the United Kingdom small firms were defined in 1969 as “entities having less than 200 employees. It should be run by its owner and should have a relatively small share of its market”. In France, Less than 10 employees (very small enterprise) 10 to 40 employees (small enterprises) 50 to 500 employees (medium enterprises). Over 500 employees (large enterprises)  

Small and Medium Enterprise a business with an investment in productive assets ( not including land and building) ranging between 2 to 40 million and employing between 10 to 99 workers.

Definition: SMALL: Between 10 to 35 employees and productive assets ranging 2 to 20 million, MEDIUM: between 36 to 99 employees and productive assets range of 20 to 40 million.

Entrepreneur The word Entrepreneur (ahn’tra pra nur) is French and, literally translated, means “between-taker” or go-between.” “A person who creates a new business, by seeing an opportunity, assuming the risk for achieving profit and growth”. An organizer who combines various factors of production to produce a viable project.

Kinds of Entrepreneurs Young entrepreneurs Women entrepreneurs Minority entrepreneurs Immigrant entrepreneurs Part time entrepreneurs Home-based entrepreneurs Family business Solopreneurs Corporate dropouts Social entrepreneurs Retiring entrepreneurs Sub-kinds Opportunity Entrepreneur Necessity entrepreneur

Features of an entrepreneur Desire for responsibility Prefer moderate risk Desire for immediate feedback High level of energy Future oriented Confidence in their ability to succeed Organizing skills

Definition of Entrepreneurship Entrepreneurship is process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risk, and receiving the resulting rewards of monetary and personal satisfaction and independence. Entrepreneurship is process of creating something new and assuming the risks and rewards.

Benefits of entrepreneurship To create your own destiny To earn more profits To contribute to society and be recognize for your efforts To enjoy and have fun

Drawbacks of entrepreneurship Uncertainty of income Risk of loosing your entire investment Long hours and hard work Low quality of life until the business gets established High level of stress-mental burden Entire responsibility Discouragement

The entrepreneurial decision process Due to the following reasons a person can become an entrepreneur: When a person is graduated When a person is retired When a person is fired When a person likes to start a business Previous business experience When it is desirable and possible to become an entrepreneur.

The entrepreneurial decision process(Cont…) Starting a new venture is both desirable and possible. Desirable The perception that starting a new company is desirable results from an individual’s culture, sub-culture, family, teachers and peers. 2. Possible Formal education and previous business experience give a potential entrepreneur the skills needed to form and manage a new enterprise. Having a strong marketing knowledge will help you to start a new venture and then arrange the finance.

Types of start up Life style start up That business which is owned by an entrepreneur, his family or a small group of partners, having less amount of revenue, small number of employees and having very slow rate of growth. This type of firm may grow after several years to 30 or 40 employees. The savings per annum may range to 2 million. Examples, the businesses owned by family members one after another. single store retail, restaurants, lawyers etc.

Types of start up 2. Foundation companies A type of company formed under research and development that usually does not go public. This firm can grow in five to fifteen years from 40 to 400 employees, 10 to 20 million growth of profit.

Types of start up, Cont… 3. High-Potential Venture A venture has high growth potential and therefore receives great investor interest. The company may start out like a foundation company, but its growth is far more rapid. After five to ten years the company could employ around 500 employees. These firms are also called gazelles and are most important for the economic development of an area. Examples, Microsoft, Google, Etisalat, Dell Computers, Pepsi Co., Coca… (Microsoft April 4, 1975,employees 94000, $72.93billion) (Google- began March 1996, incorporated August 19,2004, employees 53861) (Dell-revenues 56.94billion-111300employees) Venture: An investment that is very risky but could yield great profits

Role of entrepreneur in the economic development 1. Creates Large-Scale Employment Opportunities People will get jobs if new businesses are formed. Job for the owner as well as for other people. 2. Promotes Balanced Regional Development When an area is less developed, if new businesses are started there, people will get jobs, products or services, means of transportations, electricity, gas etc. So areas of the country will develop equally. 3. Increasing Gross National Product and Per Capita Income GNP is the value of all finished goods and services produced during one year by the nationals of a country. PCI dividing national income by the population of a country.

Role of entrepreneur in the economic development 4. Wealth Creation and Distribution With the help of 4 things we create a product or service. Land, labor, capital and organization. Land-------------- Rent Labor------------- Wages Capital------------ Interest Organization/Entrepreneur------------Profit So, if a company earns revenue, for example, 1000. it is distributed among the four factors of production. E.g, Rent—100, wages—100, interest—100 and profit after other expenses—500.

Role of entrepreneur in the economic development Week 1-2 5.Reduces Concentration of Economic Power If new businesses are not started, few companies will manufacture products or provide services which will create monopoly. 6. Improvement in the Standard of Living People having jobs, having wages, purchasing power, fulfill their needs and wants……… improved living standards. 7. Creating innovation An entrepreneur is a person who always look for changes. apart from combining the factors of production, he also introduces new ideas.

Role of entrepreneur in the economic development Week 1-2 7. Promotes Country's Export Trade Manufacturing quality goods, can be sold out in the foreign market. 8. Promotes Capital Formation Capital formation means increase in the outputs of country. Or transfer of savigns from individuals or households to the business sector; directly through investments or indirectly through bank deposits which are loaned out to firms.

End of course of week 1-2

ENTREPRENEURIAL PROCESS The entrepreneurial process involves finding evaluating, and developing an opportunity. Phase 1: Identifying and Evaluating the Opportunity Most good business opportunities result from an entrepreneur being alert to possibilities. Some sources are often fruitful, including consumers and business associates. Channel members of the distribution system- retailers, wholesalers or manufacturer’s reps-are also helpful. Technically-oriented individuals often identify business opportunities when working on other projects. Example: Google began in March 1996 as a research project by Larry Page and Sergey Brin, Ph.D. students at Stanford working on the Stanford Digital Library Project (SDLP)

ENTREPRENEURIAL PROCESS Each opportunity must be carefully screened and evaluated. This is the most critical element of the entrepreneurial process. a. The evaluation process involves looking at b. The creation and length of the opportunity c. Its value d. Its risks and return. e. It’s fit with the skills and goals of the entrepreneur f. Its differential advantage in its competitive environment

ENTREPRENEURIAL PROCESS Phase 2: Develop a Business Plan A good business plan must be developed in order to exploit the opportunity defined. A good business plan is important in developing the opportunity and in determining the resources required, obtaining those resources and successfully managing the venture.

ENTREPRENEURIAL PROCESS Phase 3: determine the resources required An entrepreneur must identify the required resources for the new venture. He should identify first the urgent resources. Sources of finance should also be identified to make arrangements. Phase 4: Manage the Enterprise. The entrepreneur must employ these resources through implementation of the business plan. This involves implementing a management structure, as well as identifying a control system.

Entrepreneurial and traditional Management decision making 1. Strategic orientation Entrepreneurs go quick towards the opportunity. Management will think about, have meetings. The time may have passed. The opportunity may have availed by others. 2. Commitment to opportunity The entrepreneurs definitely start the new business. The management may be lazy.

3. Commitment to resources In traditional management all the funds are first pooled. But in entrepreneurship the funds are brought in stages. 4. Control of resources In entrepreneurship resources are normally rented and not owned. But in traditional management they are mostly owned. 5. Organizational structure Narrow in entrepreneurship and wide in traditional management Rent (not Own) Required Resources; Use only when