Chapter 9
MSME and Business Entrepreneurship
IntroductIon
Micro, Small and Medium Enterprises (MSME) contribute significantly
to the development process and acts as a vital link in the
industrialisation in terms of production, employment and exports for
economic prosperity by widening entrepreneurial base and use of
local raw materials and indigenous skills. MSME dominate the
industrial scenario in the country with sizeable proportion of labour
force and tremendous export potential.
In India, the MSME consists of both ‘traditional’ and ‘modern’ small
industries. This sector has eight subgroups. They are handlooms,
handicrafts, coir, sericulture, khadi and village industries, small scale
industries and power looms.
Micro, Small and Medium Enterprises
It is important to know how size is defined in our country, with
reference to MSME establishments. Several parameters can be used
to measure the size of business units. These include the number of
persons employed in business, capital invested in business, turnover
of business, etc.
The definition used by the Government of India to describe MSME is
based on the investment in plant and machinery and turnover. This
measure seeks to keep in view the socio-economic environment in
India where capital is scarce and labour is abundant.
It was necessary to address the concerns of such enterprises as micro,
small and medium and provide them with a single legal framework.
The MSMED Act, 2006 came into force w.e.f., October, 2006. The
Micro, Small and Medium Enterprises Development (MSMED) Act,
2006 addressed these issues relating to its definition, credit,
marketing and technology up gradation. Medium scale enterprises
and service-related enterprises also come under the purview of this
Act.
Village Industries
Village industry has been defined as any industry located in a rural area
which produces any goods, renders any service with or without the use
of power and in which the fixed capital investment per head or artisan
or worker is specified by the central government, from time to time.
Cottage Industries
Cottage industries are also known as rural industries or traditional
industries. They are not defined by capital investment criteria as in
the case of other small-scale industries.
Features of Cottage Industries
These are organised by individuals, with private resources;
- They normally use family labour and locally available talent;
- The equipment used is simple; capital investment is small;
- They produce simple products, normally in their own premises;
- Production of goods happens using indigenous technology.
Role of MSME
(i) The contribution of these industries to the balanced regional
development of our country is noteworthy. Small industries
in India account for 95 per cent of the industrial units in the
country.
(ii) MSME are the second largest employers of human resources,
after agriculture. They generate more number of
employment opportunities per unit of capital invested
compared to large industries.
(iii) MSME in our country supply an enormous variety of products
which include mass consumption goods, readymade
garments, hosiery goods, stationery items, soaps and
detergents, domestic utensils, leather, plastic and rubber
goods, processed foods and vegetables, wood and steel
furniture, paints, varnishes, safety matches, etc.
(iv) MSME which produce simple p r o d u c t s u s i n g s i m p l e
technologies and depend on locally available resources both
material and labour can be set up anywhere in the country.
(v) MSME provide ample opportunity for entrepreneurship.
(vi) MSME also enjoy the advantage of low cost of production.
Problems Associated With MSME
1. Finance: One of the severe problems faced by MSME is that of
non-availability of adequate finance to carry out its operations.
Generally, these businesses begin with a small capital base.
Many of the units in the small sector lack the credit worthiness
required to raise as capital from the capital markets.
2.Raw materials: Another major problem of MSME is the
procurement of raw materials. Their bargaining power is relatively
low due to the small quantity of purchases made by them.
3. Managerial skills: These businesses are generally promoted and
operated by a single person, who may not possess all the
managerial skills required to run the business. Many of the small
business entrepreneurs possess sound technical knowledge but
are less successful in marketing the output.
4. Marketing: Marketing is one of the most important activities as
it generates revenue. Effective marketing of goods requires a
thorough understanding of the customer’s needs and
requirements.
5. Quality: Many MSMEs do not adhere to desired standards of
quality. Instead, they concentrate on cutting the cost and
keeping the prices low.
6. Capacity utilisation: Due to lack of marketing skills or lack of
demand, many firms have to operate below full capacity due to
which their operating costs tend to increase. Gradually this
leads to sickness and closure of the business.
7. Global competition: Apart from the problems stated above
MSME are not without fears, especially in the present context of
globalisation.
Government Assistance to Small Industries and small Business units
A. INSTITUTIONAL SUPPORT
1) NABARD: National Bank for Agriculture and Rural Development
(NABARD) was setup in 1982 to promote integrated rural
development.
2) National Small Industries Corporation (NSIC): This was set up in
1955 with a view to promote, aid and foster the growth of small
business units in the country.
3) SIDBI: Small Industries Development Bank of India.
4) The National Commission for Enterprises in the Unorganized Sector
(NCEUS): The NCEUS was constituted in September, 2004
5) Rural and Women Entrepreneurship Development (RWED
6) World Association for Small and Medium Enterprises (WASME
7) Scheme of Fund for Regeneration of Traditional Industries (SFURTI):
B. Incentives
1) Land: Every state offers developed plots for setting up of industries.
The terms and conditions may vary. Some states don’t charge rent in
the initial years, while some allow payment in instalments.
2) Power: Power is supplied at a concessional rate of 50 per cent,
while some states exempt such units from payment in the initial years.
3) Water: Water is supplied on a no-profit, no-loss basis or with 50 per
cent concession or exemption from water charges for a period of 5
years.
4) Sales Tax: In all union territories, industries are exempted from
sales tax, while some states extend exemption for 5 years period.
5) Raw materials: Units located in backward areas get preferential
treatment in the matter of allotment of scarce raw materials like
cement, iron and steel etc.
6) Finance: Subsidy of 10-15 per cent is given for building capital
assets. Loans are also offered at concessional rates.
7) Industrial estates: Some states encourage setting up of industrial
estates in backward areas.
8) Tax holiday: Exemption from paying taxes for 5 or 10 years is given
to industries established in backward, hilly and tribal areas.
MSME and Entrepreneurship Development
Entrepreneurship
Entrepreneurship is the process of setting up one’s own business as
distinct from pursuing any other economic activity, be it employment
or practising some profession.
The person who set-up his business is called an entrepreneur. The
output of the process, that is, the business unit is called an enterprise.
The following are the characteristics of entrepreneurship:
(i)Systematic Activity: Entrepreneurship is not a mysterious gift or
charm and something that happens by chance! It is a systematic, step-
by-step and purposeful activity. It has certain temperamental, skill and
other knowledge and competency requirements that can be acquired,
learnt and developed, both by formal educational and vocational
training as well as by observation and work experience. Such an
understanding of the process of entrepreneurship is crucial for
dispelling the myth that entrepreneurs are born rather than made.
(ii) Lawful and Purposeful Activity: The object of entrepreneurship is
lawful business. It is important to take note of this as one may try to
legitimise unlawful actions as entrepreneurship on the grounds that
just as entrepreneurship entails risk, so does illicit businesses. Purpose
of entrepreneurship is creation of value for personal profit and social
gain.
(iii) Innovation: From the point of view of the firm, innovation may be
cost saving or revenue-enhancing. If it does both it is more than
welcome. Even if it does none, it is still welcome as innovation must
become a habit! Entrepreneurship is creative in the sense that it
involves creation of value. By combining the various factors of
production, entrepreneurs produce goods and services that meet the
needs and wants of the society.
(iv) Organisation of Production: Production, implying creation of form,
place, time personal utility, requires the combined utilisation of diverse
factors of production, land, labour, capital and technology.
(v) Risk-taking: It is generally believed that entrepreneurs take high
risks. Yes, individuals opting for a career in entrepreneurship take a
bigger risk that involved in a career in employment or practice of a
profession as there is no “assured” payoff.
Startup India Scheme
The Startup India Scheme is a flagship initiative of the Government of
India with an objective to carve a strong ecosystem for nurturing
innovation and startups in the country.
Meaning of Startup:
1.An entity incorporated or registered in India.
2.Not older than five years.
3.Annual turnover does not exceed Rs. 25 crores in any preceding
year.
4.Working towards innovation, development or commercialization of
products/service/ processes driven by technology or IPRs and patent.
Intellectual Property Rights (IPR)
Intellectual Property, one can apply to the authority concerned under
the Government of India for protection. Legal rights conferred on
such products are called ‘Intellectual Property Rights’ (IPR). Hence
Intellectual property (IP) refers to products of human mind, hence,
just like other types of property, the owners of IP can rent, give or sell
it to other people.
Specifically, Intellectual property (IP) refers to the creations of the
human mind, like inventions, literary and artistic works, symbols,
names, images and designs used in business.
Why is IPR Important for Entrepreneurs?
It encourages creation of new, path-breaking inventions, such as
cancer cure medicines. It incentivises inventors, authors, creators,
etc., for their work. It allows the work created by a person to be
distributed and communicated to the public only with his/her
permission. Therefore, it helps in the prevention of loss of income. It
helps authors, creators, developers and owners to get recognition for
their works.
Types of IPs
1.Copyright
•Copyright is the right to “not copy”. It is offered when an original
idea is expressed by the creator or author.
•It is a right conferred upon the creators of literary, artistic, musical,
sound recording and cinematographic film.
•The copyright is an exclusive right of the creator to prohibit the
unauthorised use of the content which includes reproducing and
distributing copies of the subject matter.
•The unique feature of copyright is that, the protection of work arises
automatically as soon as the work comes into existence.
•The registration of the content is not mandatory but is essential to
exercise exclusive rights in case of an infringement.
Literary Pamphlets, Brochures, Novels, Books, Poems, Song Lyrics,
work Computer Programme
Artistic Drawings, Paintings, Sculpture, Architectural Drawings,
work Technical Drawings, Maps, Logos
Dramatic Including Dance or Mime, Screenplay, Musical Work,
work Sound Recording, Cinetographic films
2.Trademark
•A trademark is any word, name, or symbol (or their combination)
that lets us identify the goods made by an individual, company,
organization, etc.
•Trademarks also let us differentiate the goods of one company from
another. The registration of trademark is not mandatory under the
Trademark Act 1999, but registration of trademark helps establish
exclusive rights over the mark.
•Trademark may be categorised as Conventional and Non-
Conventional trademark—
(i) Conventional Trademark: Words, colour combination, label, logo,
packaging, shape of goods, etc.
(ii) Non-Conventional Trademark: Under this category those marks
are considered which were not considered distinctive previously but
started getting recognition with the passage of time, i.e., sound mark,
dynamic mark, etc.
3.Geographical Indication
•A Geographical Indication (GI) is primarily an indication which
identifies agricultural, natural or manufactured products (handicrafts,
industrial goods and food stuffs) originating from a definite
geographical territory, where a given quality, reputation or other
characteristic are essentially attributable to its geographical origin.
•Goods protected and registered as GI are categorised into
agricultural products, natural, handicrafts, manufactured goods and
food stuffs. Naga Mircha, Mizo Chilli, Shaphee Lanphee, Moirangphee
and Chakhesang Shawl, Bastar Dhokra, Warli Paintings, Darjeeling
Tea, Kangra Painting, Nagpur Orange, Banaras Brocades and Sarees,
and Kashmir Pashmina are some of the examples of GIs.
•In some cases, there is a difference between “place of origin” and
“geographical indications” which suggests to consumers, that the
product will have a particular quality or characteristic, that they may
value.
4.Patent
•A patent is a type of IPR which protects the scientific inventions
(products and or process) which shows technical advancement over
the already known products.
•A ‘patent’ is an exclusive right granted by the Government which
provides the exclusive ‘right to exclude’ all others and prevent them
from making, using, offering for sale, selling or importing the
invention.
•The purpose of patent is to encourage innovation in the scientific
field. A patent grants exclusive rights to the inventor for a period of
20 years, during which anybody else who wishes to use the patented
subject-matter needs to seek permission from the patentee, by
paying certain costs for the commercial use of such an invention.
5.Design
A ‘design’ includes shape, pattern, and arrangement of lines or colour
combination that is applied to any article. It is a protection given to
aesthetic appearance or eye-catching features. The term of
protection of a design is valid for 10 years, which can be renewed for
further 5 years after expiration of this term, during which a registered
design can only be used after getting a license from its owner and
once the validity period is over, the design is in public domain.
6.Plant Variety
Plant Variety is essentially grouping plants into categories based on
their botanical characteristics. It is a type of variety which is bred and
developed by farmers. This helps in conserving, improving and making
available plant genetic resources. For example, hybrid versions of
potatoes. Such protection promotes investment in R&D, recognizes
Indian farmers as cultivators, conservers and breeders as well as
facilitates high quality seeds and planting material. This leads to the
growth of the seed industry.
7. Semiconductor Integrated Circuits Layout Design
• A semiconductor is an integral part of every computer chip.
• Any product that contains transistors and other circuitry elements
used and formed on a semiconductor material, as an insulating
material, or inside the semiconductor material.
• Its design is to perform an electronic circuitry function.
IP and BUSINESS
• Whether a business is establishing its presence in the marketplace
or is already wellentrenched, protecting and managing its intellectual
property is critical in taking the business ahead.
• Any business has to continuously innovate and think ahead;
otherwise it will simply stagnate and wither away.
• It is equally essential to respect others' IP, not only on ethical
grounds, but also legal.
• The Start-up India initiative seeks to capture the entrepreneurial
streak in Indians, and create a nation of job-creators, not job-seekers.
• Intellectual property rights can be critical in aiding new ventures
monetize their ideas and establish competitiveness in the market by
extending the protective umbrella offered by IPRs.
