Small Business Management (SBMT) Solved Question Papers
2017(May)
COMMERCE (General)
Course: 604 (Small Business Management)
Time: 3 hours
The figures in the margin indicate full marks for the questions
(New Course)
Full Marks: 80
Pass Marks: 24
1. (a) Write ‘True’ or ‘False’: 1x4=4
a) Small-scale industries are suited for creation of employment. True
b) Small-scale industries are capital-intensive. False
c) Management and control of small-scale firm is in the hand of owner. True
d) Good branding serves as a silent promoter. True
(b) Fill up the blanks with appropriate words: 1x4=4
a) Production is meant for ____ of goods. [Marketing/consumption]
b) Innovation is important in modern time because of ____. [Tremendous growth of service sector/stiff competition]
c) The first step for product planning is ____. [Idea formulation/commercialization]
d) The Micro, Small and Medium Enterprises Act were passed in the year ____. [2006/1986]
2. Write short notes on (any four): 4x4=16
a) Advantages of small-scale enterprises: Small Scale Industries in India enjoy a distinct position in view of their contribution to the socio-economic development of the country. The following points highlight their contribution.
(i) Small industries in India account for 95 per cent of the industrial units in the country. They contribute almost 40 per cent of the gross industrial value added and 45 per cent of the total exports (direct and indirect exports) from India.
(ii) Small industries 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. They are, therefore, considered to be more labour intensive and less capital intensive. This is a boon for a labour surplus country like India.
(iii) Small industries 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. Among the sophisticated items manufactured are electric and electronic goods like televisions, calculators, electro-medical equipment, electronic teaching aids like overhead projectors, air conditioning equipment, drugs and pharmaceuticals, agricultural tools and equipment and several other engineering products. A special mention should be made of handlooms, handicrafts and other products from traditional village industries in view of their export value.
(iv) The contribution of small industries to the balanced regional development of our country is noteworthy. Small industries which produce simple products using simple technologies and depend on locally available resources both material and labour can be set up anywhere in the country. Since they can be widely spread without any locational constraints, the benefits of industrialisation can be reaped by every region. They, thus, contribute significantly to the balanced development of the country.
b) Quality control technology for small business: Quality Control in a manufacturing enterprise means the systematic control of those variables which affect the excellence of the ultimate product. The variables in general are man, machines, materials and manufacturing conditions. Each of these variables is not always uniformly available in the nature. There are differences in them for variety of reasons. For example, due to caprices of nature, materials may differ in their composition and physical characteristics. Similarly, men vary in their degree of skill and proficiency. All machines are not of equal quality as they are made by men by use of materials which vary in several counts. Further, manufacturing conditions such as temperature, humidity, building, vibrations, composition of coolers, dust and dirt in the air are all subject to great variations. The practice of Quality control ensures proper regulation of all these variables so that they do not cause any distortion in excellence of the finished product.
Quality control techniques are widely used in manufacturing industries for rapid development of the industrial economy. Many improvements are made in the quality of products without any additional capital investment. Several countries of the world have recovered their economies and established firm foreign markets by improving the quality of their products. Among other thing, quality control provides considerable savings at various stages of production. For this purpose, standardization plays a fundamental role in the assessment, specification and measurement of quality of a product. With the help of standardization, it is possible to lay down the basic procedures for ensuring quality control. Thus, standardization and quality control go hand in hand.
c) Types of working capital: The capital required for a small business is of two types. These are fixed capital and working capital. Fixed capital is required for the purchase of fixed assets like building, land, machinery, furniture etc. Fixed capital is invested for long period, therefore it is known as long-term capital. Similarly, the capital, which is needed for investing in current assets, is called working capital. The capital which is needed for the regular operation of small business is called working capital. Working capital is also called circulating capital or revolving capital or short-term capital. In the words of John. J Harpton “Working capital may be defined as all the shot term assets used in daily operation”.
Types/Classification of Working Capital
Some portion of working capital is fixed natured and some portion fluctuates for some time. In the view point working capital classified in to 2 classes,
a) Fixed or permanent working capital
b) Variable or temporary working capital
Fixed or permanent working capital: The fund, which is required to produce a certain amount of goods or services at a certain period of time, is called Fixed working capital. The minimum amount of cash money, A/R, which are kept to operate the small business is called Fixed working capital.
Variable working capital: When extra working capital is required then a addition to fixed working capital due to seasonal causes or increased production or sales, this working capital is variable working capital. So, the working capital which fluctuates with keeping the relation between production & Sales is variable working capital.
d) Channels of distribution: One of the important problems of marketing is the distribution of goods & services to the right place, person & the right time. Manufacturers often find it difficult to decide about the effective distribution system. The channel of distributions refers to the group of intermediaries, which perform the distribution functions. A channel of distribution is an organised net-work or a system of agencies and institutions which, in combination, perform all the activities required to link producers with users and users with producers to accomplish the marketing task.
According to Philip Kotler, “The distribution is the set of all firms & individuals that assist in the transferring the little of goods & services as they move from producers to customers.”
According to Richard Buskirk, “Channel of distribution is that system of financial organization by which a producer sends his products to the hands of consumers.”
According to Cundiff and Still, “Channels of distribution are those marketing nets through which the producer flow the products toward the market.”
e) Sales Promotion: Sales promotion refers to short term use of incentives or other promotional activities that stimulate the customer to buy the product. Sales promotion techniques are very useful because they bring short and immediate effect on sale.
Merits of sales promotion:
a) Attention values: The incentives offered in sales promotion attract attention of the people.
b) Useful in new product launch: The sales promotion techniques are very helpful in introducing the new product as it induces people to try new products.
c) Synergy in total promotion efforts: Sales promotion activities supplement advertising and personal selling efforts of the company.
d) Aid to other promotion tools: Sales promotion technique make other promotion techniques more effective. Salesmen find it easy to sell products on which incentives are available.
Demerits of sales promotion:
a) Reflect crisis: If a firm is offering sales promotion techniques again and again it indicates that there is no demand of product which can create crisis situation.
b) Spoil product image: Use of sales promotion tool may affect the image of product as buyer feel that product is of low quality that is why firm is offering incentives.
f) E-commerce and small business: E - commerce is an electronic system of dealing in all-commercial activities and business transactions through Internet. E-commerce can take place within or among three groups of economic factors namely business, government and individuals. E – Commerce simply refers to a firm’s interactions with its customers and its supplier over the internet. E-Commerce is very much suitable for small business enterprises because it offers many opportunities to the small business organisations:
a) Opportunity to small producers: E-commerce enables small producers to select the best suppliers regardless of their geographical location. The producers can acquire quality raw materials and latest production technology from new suppliers.
b) Opportunity to wholesaler / distributes: Wholesaler by taking the advantage of e-commerce can work more closely with their suppliers and they can be more responsive to the needs and expectations of their retailers and customers
c) Opportunity to retailer: A retailer can save his existence by linking his business with the on – line Distribution. There fore the retailers who have the capacity to link their business with the online, E-commerce is a good opportunity.
3. (a) Define small-scale industry? Discuss the relationship between small-scale and large-scale unit. 3+8=11
Ans: Small scale industry: A small scale industrial undertaking is defined as one in which the investment in fixed assets of plant and machinery does not exceed rupees one crore. However, to cater to the needs of small industries whose thrust is on export promotion and modernisation, investment ceiling in plant and machinery is rupees five crores. Some of the features of small scale industry are listed below:
(i) These industries employ less number of persons and capital.
(ii) Most of the work is done by manpower, small machines and tools.
(iii) Raw materials used are less and the production is consequently less.
(iv) They are scattered in rural and urban areas and are in the private sector, e.g., cycle, T.V., radio.
Relationship between large and small business enterprises
Large business enterprises are treated as competitors of small business enterprises. But the small scale industries can have the following types of relationship with large industries:
a) Partners: The 1990’s saw a general increase in business partnership between small and large companies. Alliances between large companies are still more prevalent and more large firms continue to prefer to simply swallow up smaller Enterprise. Large business enterprises join hands with small business enterprises for their specific venture.
b) Product Distributor: Many small manufacturers in India rely on major large scale enterprises ( regional, national or International) to sell their goods.
c) Customer: Many small businesses, whether in world in retail, wholesale, manufacturing or service follow large business enterprises as their significant or primary customers.
d) Competitive: Small scale industry can out compete with large industry in certain circumstances and in selected products only.
e) Initiative: Small units can also take initiative to produce the particular product attracted by the high profits of large units.
f) Servicing: Small industries do also install servicing and repairing shops for the products of large units. Many small firms have been assigned the job of repair and maintenance of products manufactured by large units.
g) Jobbing: In some cases, large enterprises provide materials and components to small units. The small units process these materials and components into finished parts or sub-assemblies.
Or
(b) Explain the different types of micro and small enterprises and their characteristics. 4+7=11
Ans: Various types of Small Business
The definition used by the Government of India to describe small industries is based on the investment in plant and machinery. This measure seeks to keep in view the socio-economic environment in India where capital is scarce and labour is abundant. One more important point to note is that a definition exists only for small and tiny units but not for large and medium units. Medium and large sized enterprises are not defined. Anything that does not fall under the definition of small can be large or medium. Taking capital invested as the basis the small business units in India can fall under any of the following categories:
(i) Small scale industry: A small scale industrial undertaking is defined as one in which the investment in fixed assets of plant and machinery does not exceed rupees one crore. However, to cater to the needs of small industries whose thrust is on export promotion and modernisation, investment ceiling in plant and machinery is rupees five crores.
(ii) Ancillary small industrial unit: The small scale industry can enjoy the status of an ancillary small industry if it supplies not less than 50 per cent of its production to another industry, referred to as the parent unit. The ancillary small industry can manufacture parts, components, subassemblies, tools or intermediate products for the parent unit. Apart from catering to the needs of the parent unit, it can do business on its own. Ancillary units have the advantage of assured demand from parent units. Normally, the parent unit assists the ancillary unit by giving technical guidance as well as financial help.
(iii) Export oriented units: The small scale industry can enjoy the status of an export oriented unit if it exports more than 50 per cent of its production. It can avail the incentives like export subsidies and other concessions offered by the government for exporting units.
(iv) Small scale industries owned and managed by women entrepreneurs: An enterprise promoted by women entrepreneurs is a small scale industrial unit in which she/they individually or jointly have share capital of not less than 51 per cent. Such units can avail the special concessions offered by the government, like low interest rates on loans, etc.
(v) Tiny industrial units: A tiny unit is defined as an industrial or business enterprise whose investment in plant and machinery is not more than Rs. 25 lakhs.
(vi) Small scale service and business (Industry related) enterprises: A small scale service and business enterprise is one whose investment in fixed assets of plant and machinery excluding land and building does not exceed Rs. 10 lakhs.
(vii) Micro business enterprises: Within the tiny and small business sector, micro enterprises are those whose investment in plant and machinery does not exceed rupees one lakh.
(viii) 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 does not exceed Rs. 50,000 or such other sum as may be specified by the central government, from time to time.
(ix) Cottage industries: These 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. However, cottage industries are characterised by certain features like the following:
Ø these are organised by individuals, with private resources;
Ø normally use family labour and locally available talent;
Ø the equipment used is simple;
Ø capital investment is small;
Ø produce simple products, normally in their own premises;
Ø production of goods using indigenous technology.
4. (a) What do you understand by plant location? Discuss the different factors to be taken into consideration while selecting the location of an industrial unit. 4+7=11
Ans: Plant location and factors affecting plant location
A good location of a production or service facility will give cost advantage to production or services and may also reduce the raw material and distribution costs. The location aspect is particularly advantageous to small business enterprises and service units. Location adds to competitive advantages and improved profits. Usually location question arises when:
(1) a new plant or service facility is planned
(2) there is addition to the existing business or added capacities in the other regions
(3) existing facilities are to be relocated or modified to remove drawback
(4) to get advantage of better infrastructure or incentives from the government sources.
Location of organization plant or service facilities is a permanent fixture and has considerable expenditure. The selection has to be done considering all relevant aspects. If there is any mistake or wrong choice of location, all the expenditure in the form of site development, factory construction, installation of machinery and other infrastructure development will go waste. The location selection has three main issues:
(i) Selection of the region: It is imperative to produce near the raw material base or customer to meet set competition, trade agreement and transport costs.
(ii) Selection of locality: The choices are the rural place, the urban place or suburban area near the metro. The selection usually boils down to developed industrial area or having government sponsored advantages.
(iii) Selection of site: Advantages of low labour cost, low land cost, infrastructure or transport facilities chosen. After the selection of location of manufacturing or services, the next important activity is facilities layout. The arrangement of various departments, machines in the building and plant services is to be done in order to get the maximum efficiency by the optimum usage of resources. The type of production equipment and product characteristics are to be considered while evolving a good factory layout. A factory layout means location of different departments, like foundry, forging, machine shop, tool room, administration, maintenance shop whereas a plant layout means the location sequence or arrangement of machines and equipments in a department.
Factors affecting plant location
Selection of proper location is very important for the success of any business. Plant location is considered as the function of determining where the plant should be located for maximum operating economy and effectiveness. Manufacturing and service companies make location decisions based on many criteria. Following are the factors that should be considered for location of an industry or service unit:
(1) Primary Factors :
a) Nearness to customers
b) Near raw materials
c) Supply of capital
d) Logistic facilities and infrastructure
e) Skilled labour availability
f) Power supply
g) Business climate
(2) Secondary Factors :
a) Host community and political factors
b) Natural factors
c) Historical factors
d) Initial start and living conditions
e) Personal factors
f) Government policies
g) Environmental considerations
h) International factors
Primary Factors:
(a) Nearness to Customers: Nearness to customer helps a plant to incorporate customer needs into the products being made in the unit. Finished goods to customers can reach faster and in less cost. There is less chance of breakage or damage during transportation.
(b) Nearness to raw materials: Cost of raw material input is a large cost in case of manufactured goods. The time & cost of transporting raw material is less if the plant is located near the source of raw material. For example, thermal power plants are located near to the coal mines.
(c ) Supply of capital: Short term and long term funds are required for any manufacturing or service industry. A company decides to locate its plant in such a location where fund movement is hassle free.
(d) Logistic facilities and Infrastructure: Adequate roads, rail, phone, postal and transportation facilities are to be considered while deciding on the location of plant and service facilities.
(e ) Skilled labour Supply: Regular supply of skilled labour is one of the major factors to be considered while deciding on the plant or service location. Example: Software companies are located in Bangalore, Hyderabad and New Delhi.
(f) Power Supply: This is a very critical factor to be analyzed. Uninterrupted power supply with proper voltage is one of the prerequisites of plant location decision.
(g) Business Climate: Companies must find a positive business climate or environment in the area, state or a country to set-up manufacturing or service facility there.
Secondary Factors:
(a) Host community and political factors: The community near the industry proposed location should be willing to welcome the new industry. Local people should feel that there will be improvement in their quality of life due to the new industry.
(b) Natural Factor: Land, water, climate condition, sources of material attract and help some industries Example: Tea industry, cotton industry, coffee industry, coconut oil industry etc.
(c) Historical factors: Capitals of old kingdoms of yesteryears, large religious places sometimes attract companies to set up their plants.
(d) Initial start and living conditions: Some industries were started earlier in certain places during the British era in its early stages. The industries since then have developed making good living conditions. The related industries start getting located in the place. e.g: Jamshedpur, Kirloskarwadi.
(e) Personal factors: The history of the entrepreneuring company or family or personal considerations play a key role in location decision.
(f) Government policies: Government play their own role in the location decision of new industries. The Government of India and the state governments have made special efforts in making industries grow and made manufacturing and service units all over India with a view to have a balanced developmental spread all over the country and the region.
(g) Environmental considerations: Environmental issues for certain industries for a particular location are to be checked before deciding on location.
(h) International factors: For companies deciding to go overseas for locating a unit for manufacturing or service must consider behavioral aspects, cultural differences, technology, government policies etc.
Or
(b) Discuss the various schemes initiated by the Government to encourage technology upgradation in small-scale enterprises in India. 11
Ans: Technology for small business enterprises and its role
Technology plays a crucial role for survival of any industrial unit. Technology is always time tested. It changes over time with advancement of civilization. Technological obsolescence fails to adapt to the market change and as such is a great hindrance to progress and development. In fact, the status of technology of a country is considerably determined by the level of development of the economy. Developed economies use highly developed and sophisticated technologies as against the use of poor and out dated technologies by less the less developed economies. As a matter of fact, development itself is the outcome of the status of technology in use; which in turn depends upon various factors.
In a country like India, where close to 95 per cent of all the business enterprises is Micro and Small Enterprises, use of appropriate technology is great challenge. The 4th MSME Census data available shows that out of the total Micro and Small Enterprises, only 67.10 per cent is manufacturing enterprises and only 67.07 per cent use electricity in their operations. It is still pathetic to find that the average size of investment in plant and machinery is significantly how in micro (Rs. 1.94 lakh) and small (Rs. 71.59 lakh) enterprises. This is even lower when compared to the respective service sector limits (Rs. 10 lakh and Rs. 2 crore) under the MSMED Act, 2006
It is observed that prior to globalization of Indian economy, except for a small segment of modern small industry, which made use of state of art technology; the sector was saddled with obsolete technology. This indeed appeared as a serious challenge for India to withstand the onslaught of global competition. With no access to the latest developments in the fields of knowledge and skill, productivity in this sector continued to be low.
However, the post liberalization era in the Indian economy has enhanced the opportunities and challenges for the small industries sector. On late, with Government interventions, the Indian small business entrepreneurs are gradually getting adapted to the needs of the time and pace. Today, with their dynamism, flexibility and innovative drive they are increasingly focusing on improved production methods, penetrative marketing strategies and management capabilities to sustain and strengthen their operations. They are thus poised for global partnership and to absorb latest technologies in diverse industrial fields.
Technical Know-How and its Importance in Small Enterprises: The knowledge and skill required to do something correctly is called technical know-how. It is the term used to denote practical knowledge on how to accomplish something. In fact, it refers to a person who knows the craft of doing something, not usually known by others.
Business enterprises, more particularly manufacturing concerns require certain specific type of knowledge for their operation. The traditional manufacturing processes are more confined to the culture of the people for long time and as such are spontaneously absorbed by the people who are traditionally accustomed to them. But when it comes to modern manufacturing process, it calls for something new to be acquired by the generation. Therefore, modern industrialization requires certain special skill for operation of manufacturing process. These are the special type of technologies operated through power driven machines and not only produce better quality products but are also cost effective. Such modern technologies continue to change for better with new inventions. As the new technologies come up, products become more efficient to satisfy consumers’ needs at more and more cheaper price. Such changes in technologies require special technical know-how for their operation. This is developed through training and apprenticeship.
In is imperative that in competitive and constantly changing marketing conditions, the production of quality good at minimu7m cost depends solely on the availability of technical know-how from time to time. Modernization for higher productivity also depends on technical know-how, which is essential for healthy growth of small manufacturing enterprises. In fact, acquiring appropriate technology and the required technical know=how to match the technology is a great challenge for the Small Manufacturing Enterprises sector in India. Technical know-how, however, depends on industrial research. Particularly in the small manufacturing enterprises sector, availability of technical know-how not only ensures stability in marketing and profits, but is also essential for very survival of a unit.
Researches are essential for ensuring cheaper production. For this purpose, product research and research on equipment and process of small manufacturing enterprises are most essential.
a) Profit Research: It relates to designing a product in addition to giving colour, assigning brand, etc. to it. Product research helps management by giving various ideas about a product and also helps to stabilize and expand sales. It also evolves the necessary technical know-how for a product.
b) Equipment and process Research: It is the study of industrial process, methods, tools and equipments and handling devices to produce a product on commercial basis at minimum cost. The development of new methods and mechanisms for increasing the safety process are fertile fields for this type of research.
5. (a) Discuss the nature of various financial requirements in a small-scale enterprises. 11
Ans: Financial Requirement of Small business enterprises
Finance is the lifeblood of small business concern, because it is interlinked with all activities performed by the small business concern. In a human body, if blood circulation is not proper, body function will stop. Similarly, if the finance not being properly arranged, the small business system will stop. Arrangement of the required finance to each department of small business concern is highly a complex one and it needs careful decision. Quantum of finance may be depending upon the nature and situation of the small business concern. But, the requirement of the finance may be broadly classified into two parts:
Long-term Financial Requirements or Fixed Capital Requirement: Financial requirement of the small business differs from firm to firm and the nature of the requirements on the basis of terms or period of financial requirement, it may be long term and short-term financial requirements. Long-term financial requirement means the finance needed to acquire land and building for small business concern, purchase of plant and machinery and other fixed expenditure. Long term financial requirement is also called as fixed capital requirements. Fixed capital is the capital, which is used to purchase the fixed assets of the firms such as land and building, furniture and fittings, plant and machinery, etc. Hence, it is also called a capital expenditure.
Short-term Financial Requirements or Working Capital Requirement: Apart from the capital expenditure of the firms, the firms should need certain expenditure like procurement of raw materials, payment of wages, day-to-day expenditures, etc. This kind of expenditure is to meet with the help of short-term financial requirements which will meet the operational expenditure of the firms. Short-term financial requirements are popularly known as working capital.
Or
(b) What is fixed capital? Discuss the various sources of fixed capital. 3+8=11
Meaning and definition of Fixed Capital
Fixed capital is the capital, which is needed for meeting the permanent or long-term purpose of the small business concern. Fixed capital is required mainly for the purpose of meeting capital expenditure of the small business concern and it is used over a long period. It is the amount invested in various fixed or permanent assets, which are necessary for a small business concern.
According to the definition of Hoagland, “Fixed capital is comparatively easily defined to include land, building, machinery and other assets having a relatively permanent existence”.
Characteristics of Fixed Capital
● Fixed capital is used to acquire the fixed assets of the small business concern.
● Fixed capital meets the capital expenditure of the small business concern.
● Fixed capital normally consists of long period.
● Fixed capital expenditure is of nonrecurring nature.
● Fixed capital can be raised only with the help of long-term sources of finance.
Sources of Fixed Capital
Various sources of fixed capital are listed below
(i) Equity Shares: Equity shareholders are the owners of the company and their contribution constitute the main source of finance. The promoters are the first to contribute towards share capital of the company and the remaining mount of funds are raised through sale of shares to general public. Equity shareholders are the risk bearers of the company and are going to absorb all stress and strains of the business.
Financial structure of the company is strengthened by equity capital. Equity shareholders have limited liability and they enjoy voting rights. They can increase their stake in the firm or can keep full control over the company through issue of right and bonus shares. Equity capital is permanent capital of the firm and their is no liability for repayment and even dividend payment to the equity shareholders is not obligatory.
(ii) Preference Shares: These shareholders enjoy preference w.r.t. dividend and return of capital. Those investors who opt for limited but steady return on their investment prefer preference shares. Preference share capital possesses certain features of both equity and debt capital. Preference shareholders receive dividend like equity shareholders. Similarly it is like debt capital since the rate of dividend is predetermined.
Preference shares are not a permanent liability on the firm as dividend is payable only when there are profits. A company can introduce flexibility in its capital structure by issuing redeemable preference shares which can be redeemed when the company has sufficient profits. These are not very popular in India and can be made more popular by issuing cumulative convertible preference shares.
(iii) Debentures: Debenture provides the firm with another option of raising term loans from the public. Debentures are normally secured and yield a fixed percentage of interest. Thus they are less risky and give regular return to debenture holders. With the issue of debentures shareholders can retain control and earn more return on their investment.
Debenture capital add more financial burden on the firm during hard times and increase risk of insolvency of the firm. Many companies in India in recent years have issued convertible or partly convertible debentures with the discretion to convert them into equity shares of the company.
(iv) Term Loans: These are the loans obtained from banks and financial institutions and constitute the most important source of finance. Term loans are normally repayable within a period of ten years or more and carry a fixed rate of interest. Lending institutes insist on margin money from promoters and are ready to defer repayment till gestation period is over. Term loans are raised for meeting fixed and working capital needs. Term loans provide – the advantage of trading on equity and at the same time allow owners to have control over the business.
(v) Retained Earnings: Retained earnings are the reserve accumulated over years. This amount can be re-invested in the enterprise for upgradation and expansion. The cost of employment of this capital is practically nil and at the same time no liability worth the name is created.
(vi) Capital Subsidy: In order to tempt entrepreneurs towards backward areas the Central Government provides capital subsidy. Similarly certain state governments too grant development loans to entrepreneurs for setting up industries in exclusively notified areas in their states.
6. (a) Define marketing. Discuss the various marketing problems faced by the small-scale enterprises. 3+8=11
Ans: Marketing is an ancient art & is everywhere. Formally or informally, people & organizations engage in a vast numbers of activities that could be called marketing. Good marketing has become an increasingly vital ingredient for business success. It is embedded in everything we do- from the clothes we wear, to the web sites we click on, to the ads we see. Marketing deals with identifying & meeting human & social needs or it can be defined as “meeting needs profitably”.
The American Marketing Association has defined marketing as “an organizational function & a set of processes for creating, communicating & delivering value to the customers & for managing customer’s relations in ways that benefit the organization & the stake holders.”
Peter Drucker says it this way that,” the aim of marketing is to know & understand the customer so well that the product or service fits him & sells itself. All that should be needed is to make the product or the service available.”
Marketing Problems faced by Small Scale Industries
Small scale units are exposed to numerous problems. Major problems faced by these units are concerning raw-material, labour, financial and marketing. Problem of marketing is more complicated in case of small scale industries. These units are in no position to face the competition from large players and at the same time are not in a position to assess the prevailing market scenario or changes which are taking place with respect to tastes, liking, disliking, competition, technology etc. moreover these units do not possess the requisite expertise to adjust their operations according to the changed situation. Some of the important marketing problems faced by the small scale units are given below:
1) Problem of standardization: Small scale units face problems with respect to fixing the standards and sticking. This results in the poor quality of their products and it adversely effects their image or goodwill in the market.
2) Competition from large scale units: Small scale units are ill equipped to face competition from large scale units with respect to quantity, quality and cost. In the modern competitive world there is survival of the fittest, even the existence of small scale units is endangered.
3) High cost of advertisement: A final problem facing small-scale marketing efforts is the cost of advertising. Running a full-page Sunday newspaper ad or Super Bowl TV commercial is no financial hardship for certain large businesses. However, such costs are obviously prohibitive for small-scale businesses. Thus, many will circumvent this dilemma through forming co-ops to split advertising costs or using local advertising and word-of-mouth.
4) Poor bargaining power: Small scale units because of their limited resources and lower scale of operations are in a week position while negotiating with the suppliers of raw-material, finances (or) marketing agencies. They are always at the receiving end and as such are not in a position to safeguard their interests.
5) Poor sale promotion: Small scale units have limited financial resources and hence cannot afford to spend more on sale promotion. These units are not having any standard brand name under which they can sell their products. Various channel members too exploit them because of the lack of goodwill of their products in the market.
6) Transportation cost: Another marketing problem facing the small-scale business is transportation. A large-scale business can buy an item in bulk, which saves money. A small-scale business may not have the money or demand to order such quantity, which raises item cost. This creates a marketing issue: How can a small company sell the same item as its competition at a higher price and remain competitive? That is why many small-scale industries focus upon selling a higher-quality item than its mass-marketed competition.
Or
(b) Explain the advantages and limitations of advertising. 6+5=11
Ans: Advertising: It is the most commonly used tool of promotion. It is an impersonal form of communication, which is paid by the marketers (sponsors) to promote goods or services. Common mediums are newspaper, magazine, television & radio. Advertisements play a very important role in offering innumerable benefits to the manufacturers, customers and to the society in general. Following are the benefits of Advertisements:
1. Advertisements attracts new buyers and maintains existing customers and to the society in general.
2. Advertisements inform the consumers about the quality and uses of the product.
3. Advertising also acts as an information service and educates the consumer. It enables him to know exactly what he wants and where to get it.
4. Advertising stimulates production and reduces the cost per unit. This reduction in the cost is generally passed on to the consumer.
5. Advertising also makes it possible to sell direct to the consumer by Mail Order Business.
6. Advertising helps in creating goodwill, brand image and brand loyalty.
7. Advertisements help the retailers in selling the advertised products.
8. It is also helpful in getting better employees and executives.
Objections to Advertising:
Several objections have been raised against advertising and some people criticize advertising as a social waste. The main point of criticism is as follows:
a) Creates Monopoly in the market
b) Higher the prices of product
c) Misleading the consumers
d) Wasteful consumption by the consumers
e) Wastage of national resources
a) Creates Monopoly in the Market: Advertisement leads to promotion and cover mass level of customers at a time. Sometimes it will create a monopoly in the market with the help of advertisement. Large firms can bear the advertisement expenditure but not the small firms, due to that it can eliminate the small firms from the market and creates its monopoly authority in the market. But the monopoly is only for a temporary basis as there is availability of competition in the market.
b) Higher the Prices of Product: Investment of money in advertisement leads to increase in the price of goods and services for which consumer has to face high prices and pay for it. There is positive relationship between advertisement cost and its product. Hence, more the advertisement cost- more the product cost. Whereas, decrease in advertisement expenditure leads to fall in price of product cost.
c) Misleading the consumers: Now days, advertisement misleads the consumers on false representation regarding their goods. Consumer attracts to those goods which are not necessary for them. Producers misguide the consumers by giving bogus testimonials and false representation regarding particular commodity. Thus, advertisement misleads the consumer and sale goods to them.
d) Wasteful Consumption by the Consumers: Advertisement attracts the consumers for wasteful products which are not necessary for consumers. Due to advertisement businessmen takes undue advantage from them. They sale unhealthy and artificial goods to them and exploits consumer emotions. Now days the society has become the society of chocolate, Burger, pizza and cola’s instead of juice, fruits and vegetables just because of advertising.
e) Wastage of National Resources: There will be wastage of national resources, valuable stationary, time and energy used by the people or is ignored by them. Here, Valuable resources that can be used to create new industries are wasted in the production of needless varieties and designs. Vance Packard, in his book “The Waste Makers”, gives several interesting examples on national resources.
7. (a) Define industrial sickness and reference to small-scale industry. Enumerate signals and symptoms of industrial sickness. 2+10=12
Or
(b) Explain the concept of capacity utilization with the help of installed capacity and idle capacity. 12
(Old Course)
Full Marks: 80
Pass Marks: 32
1. Write True or False: 1x8=8
a) Small-scale units use local resources.
b) Directorate of Industries is the State level apex body for promotion of small-scale industries.
c) Small-scale industries spend heavy amount in advertising.
d) Small enterprises are privately owned and operated business.
e) SIDO is the apex body in the country for promotion of small-scale industries.
f) Production is meant for consumption of goods.
g) Reason behind existence of idle capacity in small-scale enterprise is abundance of working capital.
h) Small-scale industries are not suited for creation of employment.
2. Write short notes on (any four): 4x4=16
a) Market assessment.
b) Qualities of salesman.
c) Production planning.
d) Quality control.
e) Production design.
f) Plant layout.
3. (a) Discuss the characteristics of small business enterprises and examine its role in Indian context. 5+6=11
Or
(b) Discuss the features of the Micro, Small and Medium Enterprises Act, 2006. 11
4. (a) Explain the role of small enterprises in the development of a nation. 11
Or
(b) Discuss the determinants of working capital in small business enterprises. 11
5. (a) Write a note on the sources of working capital for small-scale industries. 11
Or
(b) What is technology? Discuss the various schemes, initiated by the Government to encourage technology upgradation in small-scale enterprise in India. 4+7=11
6. (a) Critically examine the marketing problems faced by the small-scale enterprises in North-East India. 11
Or
(b) Examine the impact of pricing decision in small business enterprises. 11
7. (a) Define industrial sickness with reference to small-scale industry. Enumerate signals and symptoms of industrial sickness. 3+9=12
Or
(b) Enumerate the factors leading to idle capacity. 12
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