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What do You Mean by Small Enterprises?

Small enterprises or small scale industries (SSI) refer to those small entrepreneurs who are engaged in production, manufacturing or service at a micro-scale.

The first official definition of small enterprises or SSI (small scale industries) in India was coined, in 1950, “In terms of the size of gross investment in fixed assets (plant and machinery, building and land) as well as on the strength of the workforce concerned.”

In the later part of the fifties, there was a change in defining an SSI. The Micro, Small and Medium Enterprises Development Act 2006, have provided the definitional framework. Under the Act, enterprises have been categorized broadly into those engaged in manufacturing and services.

Manufacturing Enterprises: The investment limits of various categories of manufacturing enterprises are as follows:

• Micro Enterprises: Investment up to Rs.25 lakh
  
• Small Enterprises: Investment above Rs. 25 lakh and up to Rs. 5 crore
  
• Medium Enterprises: Investment above Rs. 5 crores and up to Rs. 10

Service Enterprises: The investment limits of various categories of service enterprises are as follows:

• Micro Enterprises: Investment up to Rs.10 lakh
  
• Small enterprises: Investment above Rs. 10 lakh and up to Rs. 2 crore
  
• Medium Enterprises: Investment above Rs. 2 crores and up to Rs. 5 crore

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Characteristics of Small Enterprises

Followings are the characteristics of small enterprises which are given below:

1. One Person Show
2. Managed in Personalized Fashion
3. Gestation Period
4. Scope of Operation
5. Availability of Resources
6. Labour Intensified
7. Balanced Regional Development
8. Adaptable to Changes

One Person Show

A small scale unit is generally a one-person show. Even in the small units which are run by a partnership firm or company, the activities are mainly carried out by one of the partners or directors. In practice, the others do not play a very active role. The other directors or promoters mainly assist in providing funds.

Managed in Personalized Fashion

In the case of small-scale industries, the owner himself/ herself is a manager also. Thus, these units are managed in a personalized fashion. The owner has first-hand participation in all matters of business decision making.

Gestation Period

Compared to large units, a small-scale industrial unit has a lesser gestation period, i.e. the period after which the return on investment starts.

Scope of Operation

The scope of operation of small industrial undertakings is generally localized catering to the local and regional demands.

Availability of Resources

Small units use indigenous resources and, therefore, can be located anywhere subject to the availability of these resources like raw materials, labour etc.

Labour Intensified

Small industries are fairly labour intensive with comparatively smaller capital investments than the larger units.

Balanced Regional Development

Small units are dispersed to rural areas. They use local resources. Thus, the growth of small-scale industries in rural areas promotes more balanced regional development, on the one hand, and prevents the influx of job seekers from rural areas to cities and urban areas.

Adaptable to Changes

Last but not the least, compared to large scale units, small-scale units are more susceptible to change. They are highly reactive to changes in the environment and receptive to socio-economic conditions. They are more flexible to adapt to changes like the introduction of new products, new methods of production, new materials and new markets, new forms of organization etc.

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Objectives and Scope of Small Enterprises

In this part we are going to discuss the objectives and scope of small enterprises which are given below:

Objectives of small scale industries

The various objectives of small scale industries are, in fact, implied in one way or other, in its rationale itself, just discussed in the preceding sections. Nonetheless, an attempt has been made in this section to list the main objectives of developing small enterprises in India in a more orderly manner. These are:

• To generate immediate and large scale employment opportunities with relatively low investment.
  
• To eradicate the unemployment problem from the country.
  
• To encourage the dispersal of industries all over the country covering small towns, villages and economically backward areas.
  
• To bring backward areas too into the mainstream of national development.
  
• To promote balanced regional development in the whole country.
  
• To ensure a more equitable distribution of national income.
  
• To encourage the effective mobilization of the country’s untapped resources. 8. To improve the standard of living of people in the country.

Scope of Small Scale Industries

The scope of small-scale industries are:

• Manufacturing activities
  
• Servicing/repairing activities
  
• Retailing activities
  
• Financial activities
  
• Whole-sale business
  
• Construction activities and,
  
• Infrastructural activities like transportation, communication and other public utilities.

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Role of Small Enterprises in Economic Development

In order to understand the role of small enterprises in economic development, we need to consider different aspects of economic development. Which are given below:

1. Increase in the number of functional enterprises
2. Increase in job creation
3. Increase in Production
4. Increase in sales and profit with a reduction in cost
5. Increase in volume and value of export

Increase in the number of functional enterprises

A mere increase in the number of enterprises will not satisfy the purpose. The units need to be functional and financially viable.

Increase in job creation

The enterprises should be able to create jobs and then only the small scale sector would be able to address the unemployment problem.

Increase in Production

More and more production implies a volume of activities including the purchase of raw materials, processing etc. All these help in keeping the economy vibrant.

Increase in sales and profit with a reduction in cost

Profitability is always important. It implies profit yielding capacity. To that extent sales and cost considerations are very important. The enterprises need to be cost-effective. Then only, they would be able to make the desired contribution to economic development.

Increase in volume and value of export

The contribution of the small sector can be understood by the volume of export and the value realized in the country by selling abroad.

Other Points on Role of Small Enterprises in Economic Development

Any discussion on the role of small enterprises in the economic development of a country should take into account the following relevant parameters.

• The commonest definition of economic development could be an increase in the real per capita income of a person resulting in an improvement in the levels of living.
  
• The development of small-scale industries contributes to the increase in per capita income, i.e., economic development in various ways.
  
• It generates immediate employment opportunities with relatively low capital/ investment and promotes a more equitable distribution of national income.
  
• It makes effective mobilization of untapped capital and human skills and leads to the dispersal of manufacturing activities all over the country.
  
• It also leads to the growth of villages, small towns and regions economically lagging behind. This promotes balanced regional development.

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Problems of Small Scale Industries

Some of the problems of small scale industries are as follows:

1. The problem with Raw Materials
2. Problem of Finance
3. Problem of Marketing
4. The problem of Under-Utilization of Capacity

The problem with Raw Materials

A major problem that the small-scale industries have to contend with is the procurement of raw materials. The problems with raw materials may be in the areas of

• A scarcity
• Poor quality of raw materials
• A high cost

But, ever since the emergence of modern small-scale industries, manufacturing a lot of sophisticated items, the problem of raw materials has emerged as a serious problem in their production efforts.

The small units that use imported raw material face raw material problems with more severity mainly due to the difficulty in obtaining this raw material either on account of the foreign exchange crisis or for some other reasons.

Problem of Finance

An important problem faced by small-scale industries in the country is that of finance. The problem of finance in the small sector is mainly due to two reasons. Firstly, it is partly due to the scarcity of capital in the country as a whole. Secondly, it is partly due to the weak creditworthiness of small units in the country.

Due to their weak economic base, they find it difficult to take financial assistance from commercial banks and financial institutions. As such, they are bound to obtain credit from the money lenders at a very high rate of interest and such credits are, thus, exploitative in character.

Problem of Marketing

One of the main problems faced by the small-scale unit is in the field of marketing. The small units often do not possess a marketing organization and corresponding marketing programs. As a result, their products compare unfavourably with the quality of the products of the large-scale industries.

Unlike their big counterparts in the large sector, small scale enterprises find it difficult to create and sustain brands. Brand building requires huge investment in advertising and other modes of promotion.

The problem of Under-Utilization of Capacity

There are studies that clearly bring out the gross under-utilization of installed capacities in small-scale industries. All India Census of Small-Scale Industries indicated that in 1972, the percentages of the utilization of capacity was only 47 in mechanical engineering industries, 50% in electrical equipment, 58% in automobile ancillary industries, 55% in leather products and only 29% in plastic products.

We have not seen a marked improvement in the trend. On average, we can safely say that 40 to 50 per cent of capacity was not utilized in small-scale units.

Other Problems of Small Scale Industries

The small-scale industries have a number of other problems also. According to the Seventh Five Year Plan, these include the following:

• Technological obsolescence,
  
• Inadequate or irregular supply of raw materials,
  
• Lack of organized market channels,
  
• Imperfect knowledge of market conditions,
  
• Unorganized nature of operations,
  
• Inadequate availability of credit facility,
  
• The constraint of infrastructure facilities including power etc.
  
• Deficient managerial and technical skills.

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Relationship Between Small and Large Scale Units

We have here listed the important relationship between the small and the large industrial units that can be seen in various respects:

• Competition
• Supplementary
• Complementary
• Initiative
• Servicing

Competition

Small-scale industries cannot compete with large industries in certain circumstances and in selected products. Examples of such industries are the automobile and steel industries. In certain industries like bakeries food processing etc., small sector industries have certain advantages.

Supplementary

Small industries can fill in the gaps in case of excess demand. The large industries have got their fixed production capacity installed. In case of excess demand, the small industries can supplement their activities so as to meet the excess demand.

Complementary

Apart from the supplementary relationship, the small industry has been complementary to its large counterparts. In the real world, many small units produce mid products for large units.

Under complementary relationships, small units function under the tutelage of the large units and benefit from the advantage of a protected market for their products. Then, the development of such small units remains assured.

Initiative

Attracted by the high profits of large units, small units can also take the initiative to produce a particular product. If it succeeds then the small unit grows to a large one over a period of time. In the case of the detergent industry, a number of small players have become national level marketers. Brands like Nirma, and GhadiDtergent were small players initially.

Servicing

Small industries do also install servicing or repairing shops for the plants of large units. Such small servicing units can be seen proliferating in respect of large industries like refrigerators, television sets, radio, watches and clocks, cycles and motor vehicles.

Take the example of the Maruti Alto car. Although Maruti Udyog Ltd. produces the car, it is basically an assemblage of several parts, accessories etc.

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