What are steps in setting up a small unit in India?
Ans: The potential entrepreneur would become an entrepreneur only when he owns an enterprise. The business enterprise to be set up can be a manufacturing venture, a trading firm or a service establishment. The manufacturing venture includes the steps required for setting up a trading firm or a service establishment also. The steps in setting up a small unit are as follows:
1. Decision to be Self-employed:
This is the most crucial decision a person has to take shunning wage employment and opting for self-employment or entrepreneurship. He should know the advantages and risks of entrepreneurship.
2. Analysing strengths, weaknesses:
The potential entrepreneur has to analyse his strength, weaknesses, while deciding to go for entrepreneur career. This analysis enables him to know what type and size of business would be the most suitable. The strengths and weaknesses will vary from person to person.
3. Availability of own money:
No business can be created, with zero capital. The ‘Own Money’ concept means the funds available with an .entrepreneur from his own source or family or friends. The size of the unit depends on the availability of ‘Own Money’ in short-term and long-term.
4. Scanning of business environment:
It is always essential on the part of an entrepreneur to study and understand the prevailing business environment in which they operate particularly the industrial policy, economic policy, licensing policy, legal environment, technological environment and above all the markets. In order to ensure success of his enterprise, the entrepreneur should scan the business opportunities and threats in the environment. He should study the administrative frame work, procedures, policies, rules and regulations and other formalities implemented by the government.
The person should undergo training for developing skills for entrepreneurship and developing technical, conceptual and managerial skills. Before going to start the enterprise, the potential entrepreneur must assess his own deficiencies, which he can compensate through training. He can attend the Entrepreneurial Development Programmes (EDP) conducted by institutes like DIC, SISI, TC0s, SBI etc. This institutes are providing tailor-made Entrepreneurship Development Programmes (EDP) and skill upgradation training programmes for the benefit of the new entrepreneur, existing entrepreneurs and for the employees of the small scale industries.
6. Product Selection:
The next step and the most important step is to decide what business to venture into, the product or range of products that shall be selected for manufacture and in what quantity. The level of activity will help in determining the size of business and thus form of ownership. One could generate as many project ideas as one can through environment scanning and short list a tew of them. Closely examine with the help of opportunity analysis each one of them and zero in on to a the final product or products.
7. Market Survey:
It is always convenient to manufacture an item but difficult to sell. So it is prudent or rational on the part of the entrepreneur to survey the market thoroughly before embarking upon production and ensure that the product chosen is in sufficient demand and is preferably in the growth phase of a product life cycle.
Market survey means systematic collection of data by the entrepreneur about the product for manufacture, demand-supply lag, extent of competition, frequency of demand, pattern and design of demand, its potential share in the market, pricing, distribution policy etc. The principle is to produce what actually people demand. The entrepreneur can contact for this the concerned authorities.
8. Selection of form of ownership/organisation:
A firm can be constituted as proprietorship, partnership, limited company (public or private) or co-operative society. This will depend upon the type, purpose and size of entrepreneur’s business. One may also decide on the form of ownership, on the basis of resources in hand or from the point of view of investment.
The next step will be to decide the location where the unit is to be established. Will it be hired or owned? The size of plot, covered and open area and the exact site will have to be decided.
Decision about the location of unit is very important. Location determines the success or failure of the enterprise. Location is selected after considering such factors such as nearness to market, sources of material and labour, modern infrastructural facilities etc.
To manufacture any item, technology is used. Information on all available technologies should be collected by the entrepreneur and the most suitable one should be identified. This will also be useful to determine the type of machinery and equipment to be installed. Many institutions of government like DIC, TCO etc. research laboratories, R & D. divisions of big industries and certain consultancy agencies provide the manufacturing know-how.
11. Machinery and equipment:
Having chosen the technology, the machinery and equipment required for manufacturing, the chosen products have to be decided, suppliers have to be identified and their costs have to be estimated. One may have to plan well in advance for machinery and equipment especially if it has to be procured from outside the town, state or country.
12. Preparation of Project Report (Business Plan):
After deciding the form of ownership, location, technology for manufacturing, machinery and equipment, the entrepreneur should be ready to prepare his project report or the feasibility study. The economic viability and the technical feasibility of the product selected have to be established through a project report. A project report that may now be prepared will be helpful in formulating the production, marketing, financial and management plans. It will also be useful in obtaining finance, shed, power connection, water connection, raw material quotas, etc. The entrepreneur has to consider the guidelines given by the Planning Commission in preparing the project report. The project report should indicate the vision of the promoter and short term and long term aspects of the project implementation.
13. Project appraisal:
Project appraisal means the assessment of a project. It is a technique for ex-ante analysis of a scheme or project while preparing to set up an enterprise, the entrepreneur has to carefully appraise the project from the stand point of economic, financial, technical, market, social and managerial aspects to arrive at the most socially-feasible enterprise. To avail the finance from the banks and financial institutions, a comprehensive appraisal of projects carrying techno-economic feasibility aspects should be undertaken by the entrepreneur.
Thus a project which is selected should be technically feasible and economically viable and then only it will be bankable. For this the following appraisals can be performed at the preliminary level
(a) Economic appraisal
(b) Financial appraisal
(c) Technical appraisal
(d) Management appraisal
(e) Organisational appraisal
(f) Operational appraisal
(g) Market appraisal
Finance is the life-blood of the enterprise. Entrepreneur has to take certain steps and follow specified norms of the financial institutions and banks to obtain money or finance. A number of financial agencies provide capital assistance and venture capital for starting an enterprise. There are some agencies which provide financial assistance on concessional rates. Under PMRY and REGP schemes, financial assistance and subsidies are being provided to the persons who want to set up their own enterprise, which obviates the need for margin money.
15. Provisional Registration:
It is always worthwhile to get the unit registered with the government. The entrepreneur has to obtain the prescribed application form for provisional registration from DIC or Directorate of Industries. After having duly filled in the application form, he has to submit the application with all relevant documents in the local DIC or Directorate of Industries. This will enable the entrepreneur to avail various government facilities, assistance and incentives schemes including financial assistance from NSIC, SFCs, KVIC.
16. Technical know-how:
In some cases, technical know-how may be arranged for setting up enterprises. This can be arranged through TC0s, NSIC, SSIDC, DIC, private consultants, SISI, ED-institutes, foreign collaborators, India Investment Centre and Industry etc. Facilities are also available to SSI for making variety of technical know-how arrangements including turn-key jobs.
17. Power and Water Connection:
The sites where the enterprise will be located, should either have adequate power connections or this should be arranged. The entrepreneur can calculate the total power requirement and determine the nearest pole from which power will be given to the enterprise, as it can materially affect the installation cost. There are two categories of power, namely, the Low Tension (LT) and High Tension (HT). A consumer can avail LT only if the connected load is 75 HP and below. If the connected load is between 75 HP and 130 HP, the consumer has the option to avail either LT supply or HT supply. Most of the SSI units fall under the LT category.
HT power supply may mean additional investment in transformer and sub-station. Most states, need a No Objection Certificate from the concerned Pollution Control Authorities, before the power connection. Similarly, the water connection will have to be obtained or provision should be made for adequate water supply to the firm.
18. Installation of machinery:
Having completed the above formalities, the next step is to procure machinery and begin its installation as per the plant layout.
It is necessary to have adequate insurance for the fixed assets at this stage and later on for the current assets as well.
20. Recruitment of manpower:
Once machines are installed, the need for manpower arises to run them. So, the quantum and type of manpower (skilled, semi-skilled, unskilled, administrative etc.) is to be decided. The sources of getting desired labour are also important. This follows the recruitment, training and placement.
21. Procurement of raw materials:
Raw materials are the important ingredients for running an enterprise. The labour will require raw materials to work upon the installed machinery. These materials may be procured indigenously or may have to be imported by the entrepreneur. The entrepreneur has to identify the cheap and assured sources of supply of raw materials for running his own enterprise. Government agencies can assist in case the raw materials are scarce or imported.
The unit established should have an organisational set-up. To operate optimally, the organisation should employ its manpower, machinery and methods effectively. There should not be any wastage of manpower, machinery and materials. If items are exported, then the product and its packaging must be attractive. Production of the proposed item should be taken up in two stages : (i) Trial production (ii) Commercial Production. Trial production will help tackling problems confronted in production and test marketing of the product. This will reduce the chances of losses in the eventuality of mistakes in project conception. Commercial production should be commenced only after the successfully launching the product at the test marketing stage.
Marketing is the most important activity as far as the entrepreneurial development is concerned. Various aspects like how to reach the customer, distribution channels, commission structure, pricing, advertising, publicity etc. have to be decided by the entrepreneur. Like production, marketing should also be attempted cautiously, that is, in two stages namely: (i) Test stage (ii) Commercial marketing stage.
Test marketing is necessary to save the enterprise from going into disrepute in case the product launched is not well accepted by the customers. It will also assist the entrepreneur in carrying out modifications or additions in designs and features of the product. Having successfully test marketed the product, commercial marketing can be undertaken. The entrepreneur can contact the Small Industries Marketing Corporation.
24. Quality Assurance:
Before marketing, the product quality certification from BIS (Bureau of Indian Standard) / AGMARK / HALLMARK etc. should be obtained depending upon the product. If there is no quality standards specified for the products, the entrepreneur should evolve his own quality control parameters. After all, quality ensures long-term success.
25. Permanent Registration:
After the small scale unit goes into production and marketing, it becomes eligible to get permanent registration based on its provisional registration from DIC or Directorate of Industries.
26. Market Research:
Once the product or service is introduced in the market, there is strong need for continuous market research to assess needs and areas for modification, upgradation and growth. Market becomes the waterloo for most SSI entrepreneurs as they ignore this vital function. Initial success should not lure the entrepreneur into a sense of complacency.
Periodical monitoring and evaluation not only of markets but also production, quality and profitability helps in knowing where the firm stands in comparison to performance envisaged in the business plan. It also identifies direction of future growth.
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