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    Meaning and Definition of Entrepreneur:

    The term entrepreneur is derived from the French word entreprendre which means, toundertake i.e. the person who under take the risk of new enterprise.

    In early 16th

    century, the Frenchmen, who organized and led military expeditions, werereferred to as entrepreneurs.

    Definition:

    According to Richard Cantillon, An entrepreneur is a person who buys factorservices at certain prices with a view to selling its product at uncertain price.

    According to Mark Casson, Entrepreneur is a person who specialized in takingjudgmental decision about the coordination of scarce resources.

    Essential features of entrepreneur:

    An entrepreneur shall have the following features and qualities to be considered a good or greatentrepreneur.

    ORGANIZATION

    URGE

    SKILL

    VISION

    GROWTH

    MANAGEMENT

    INNOVATION

    RISK

    ENTERPRISE

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    1. Brain to plan

    A wise entrepreneur is an advanced thinker.

    He knows how to predict the future. With his prediction, he creates a plan.

    He organized his objectives and set his procedures to achieve those objectives.

    2. Hands to do the plan

    An active entrepreneur executes his plan.

    He performs his procedures to attain and realize his objectives.

    He handles well his people and put them in the right places.

    3. Mouth to communicate and convince

    A good entrepreneur has wisdom to communicate.

    He says what is just and honest.

    He knows how to convince people.

    He does it by keeping his promises.

    4. Eyes to see to it

    A prudent entrepreneur sees things twice.

    He is discreet and avoids biased and harsh decisions that will hurt other people.

    He also monitors and checks his business activity to ensure that they are running the wayhe wants it to be.

    5. Ears to spy

    An extensive entrepreneur observes and studies his competitors.

    But he doesnt analyze them to hurt and defy them.

    He analyzes them to come up with greater products and services that will serve hiscustomers better.

    He also studies his competitors to promote more quality and customers satisfactioninside the market competition.

    He encourages his competitors to produce greater quality products and services toeventually make the consumers the winners in the market competition.

    6. Nose to smell danger

    A vigilant entrepreneur oversees his business surroundings.

    He searches and detects possible risks and dangers.

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    And when he detects one, he comes-up with a preventive solution if the danger has notyet occurred and a corrective solution if the danger has already occurred.

    7. Skin to protect

    A caring entrepreneur protects his business, his employees and his consumers. He defends his business, his name and his integrity.

    He also preserves the wellness of his employees.

    And finally he totally cares for the satisfaction of his costumers.

    8. Heart to love and create good relationship

    A loving entrepreneur practices patience, shows humility, rejoices in the truth, avoids evilacts, maintains hope and uplifts faith.

    He also keeps real good relationships with his employees, co-owners, investors, creditors,debtors and customers.

    9. Feet to stand

    A strong entrepreneur stands firmly in the midst of trouble.

    And when he falls down, he always manages to get back on his feet.

    Simply, he is not a quitter.

    10. Spirit to live

    A faithful entrepreneur believes in what he does.

    He lives in what he believes. He exists more than he lives

    Characteristics of Entrepreneur:

    Entrepreneur is a key player in economic progress. He is the person who introduces new things

    in the economy. He is considered as the business leader and not as simple owner of capital. He

    is a person with telescopic faculty, drive and talent who perceives business opportunities and

    promptly seizes them for exploitation. However, to be successful, an entrepreneur should have

    the following characteristic.

    1. Need to achieve:

    Entrepreneurs have got strong desire to achieve higher goals. Their inner self motivates

    their behavior towards high achievement.

    2. Independence:

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    Entrepreneurs start on their own because they dislike to work for others. They prefer to

    be their own boss and want to be responsible for their own decisions.

    3. Risk-Bearing:

    Entrepreneurs are the persons who take decisions under uncertainty and thus they are

    willing to take risk, but they never gamble with the results.

    4. Locus of control:

    Entrepreneurs believe in their own ability to control the consequences of their endeavor

    by influencing their socio-economic environment rather than leave everything to luck.

    They strongly believe that they can govern and shape their own destiny.

    5. Determination:

    Entrepreneur has got the quality of sticking to job he decides to undertake. They work

    sincerely until the whole project is successfully implemented.

    6. Positive self-concept:

    Entrepreneurs are always positive in their action. Being an achiever, he directs his

    fanatics and dreams towards achievement of worthwhile goals and sets extraordinary

    standard of excellence in what he is doing. This is based upon his awareness of SWOT

    analysis.

    7. Flexibility:

    Most of the successful entrepreneurs measure the pros and cons of a decision and tend to

    change if the situation demands. They never feel reluctant to revise their decisions.

    8. Sense of Efficacy:

    Entrepreneurs are always oriented towards action for accomplishment of their goals.

    Being confident of their abilities, they find themselves as problem solvers rather than

    problem avoiders.

    Qualities and Skills of an Entrepreneur:

    What skills are needed to be an entrepreneur? There are many skills that entrepreneurs develop

    over time, but there are a few skills that every entrepreneur must have before opening their doors

    for business. A successful entrepreneur has start with these skills.

    1. Self-Motivation:

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    People who start their own businesses have typically worked in a larger

    organization and have enjoyed that mount of control and autonomy that self-

    employment gives them, when they see the direct rewards for their labor, they are

    motivated to setup their own business.

    Money is also a big motivator.

    Many top entrepreneurs have had unhappy experiences in childhood, and are

    motivated by something negative.

    They want to go on and prove that they can succeed, and are driven by control

    and power.

    And while those negative experiences may drive many to set up their own

    businesses in the first place, motivation grows with the enterprise; those who run

    small businesses generally do so because their work is also their passion.

    2. Self-Confidence:

    o Every entrepreneur needs to be confident in themselves their product and their

    business.

    o Ones needs to know that his product can truly help people and the price is

    charged are fair to him and his clients.

    3. Ethics and Morals:

    o Ethics and morals are the foundation of every good entrepreneur.

    o Early on one must decide what he and his business will stand for and what lines

    he will refuse to cross.

    o Many entrepreneurs close their doors because the dollar outshines their morals.

    o If one stray too far from his morals he will give himself and his business a bad

    name.

    o No one wants to do business with someone who will not stand up for his own

    morals

    4. Time Management:

    One should schedule his day and stick to that schedule.

    This cannot be emphasized enough.

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    New entrepreneurs need to realize that every minute is valuable.

    When first starting out, most likely one will not have enough work to fill an

    eight hour day.

    This does not mean that he has time to take a three hour lunch with friends.

    He should utilize this time to learn more skills related to his business, find ways to

    advertise and contact potential clients.

    5. Sales:

    No matter how much you do not like the idea of it, every business has to work

    with sales.

    Each industry and business has a unique way of handling its sales.

    As an entrepreneur, it is his job to figure out what type of sales he will prefer and

    what type is best for his services or products.

    If he had ever worked in retail sales or advertising he already has an edge on most

    other hopeful business people.

    All entrepreneurs will benefit from sales seminars, books and motivational

    programs.

    6. Financial Knowhow:

    When in business, knowledge of finance is a must.

    Knowing how to balance a check-book and keep track of numbered invoices is all

    most small businesses need to start out.

    The most important aspect of small business finance is scheduling time

    specifically for the finance management.

    Granted it helps to have an accounting degree or extensive quick book knowledge

    but these skills are not mandatory.

    Functions of Entrepreneurs:

    Functions of Entrepreneur

    Primary

    FunctionEntrepreneurs

    Function

    Functions

    Important for

    Developing

    Countries

    Other Functions

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    1. Planning 1.Idea generation Diversification

    Of production

    2. Organization 2.Determination of objectives 1.Mgt of share resource 2.Expansion

    Of the enterprise

    3. Decision-making 3.Raising of funds 2.Dealing with public 3.Maintaining

    Bureaucracy cordial employer

    4. Management 4.Procurement of raw materials 3.Acquiring and and employee

    Assembly of the factory 4. Tackling labor

    5. Innovation 5.Procurement of Machinery 4.Engineering problem

    6. Risk bearing 6.Market research 5.New product 5. Coordination with

    7. Uncertainty bearing7.Determination of form outside agencies

    of enterprise 6.Parallel opportunities

    8. Recruitment of manpower 7.Marketing

    9. Implementation of the project 8.Management

    9. Customer relation

    10. Public bureaucracy]

    Primary Function:

    Entrepreneur performs various functions from the stage of starting and enterprise to its success

    level. These functions are in sequential manner and are as follows.

    1. Planning:

    Planning is the first step in the direction of setting-up of an enterprise.

    Entrepreneur prepare blueprint of proposed project in a formal systematic format.

    It is submitted to the authorities concerned for obtaining the legal sanction for the

    venture.

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    Planning process involves the following steps.

    Scanning of the best suitable idea.

    Selection of product line

    Determination of type of business organization

    Estimation of the capital needed

    Selection of capital resources.

    Selection of location

    Studying the government rules, regulation, and policies.

    Selecting the way fulfill the government formalities.

    Study of availability of labor force.

    Study of market and market strategy to be adopted.

    2. Organization:

    An entrepreneur coordinates, assembles, and supervises land, labor and capital

    during the promotion stage and at the performance stage, for optimum utilization

    of the resources.

    Efficient expansion and growth of the enterprise largely depends on the efficiency

    of the organizational network employed and monitored by the entrepreneur.

    3. Decision-making:

    Author H.Cole has described the entrepreneur as a decision-maker.

    As a decision maker he takes various decisions regarding following matters.

    Determination of the business objectives of the enterprise.

    Decision regarding procurement of machine, material, men, money, andmarket.

    Decision regarding requisition of efficient technology and new

    equipments.

    Decision regarding development of a market for the product.

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    Maintenance of good relations with public authorities and with society at

    large.

    4. Management:

    o

    The management with reference to entrepreneur stands for not only the workingfor the venture but also managing of the day-to-day problems.

    o It includes future expansion and policies in the long run.

    o Direction of men, machine, material, money, organizing of land, labor, and capital

    for the enterprise.

    5. Innovation:

    Innovation implies doing of new things or doing of things that are alreasy being

    done in a new way.

    Schumpeter considered economic development as a desired dynamic change

    brought by entrepreneur by instituting new combinations of production.

    According to him innovation may occur in any one of the following five forms.

    Launching of new product in the market.

    Introduction of new technology in the production,

    Creation of new market.

    Discovery of new and better source of raw material

    Restructuring the organization.

    6. Risk-bearing:

    An entrepreneur undertakes the responsibility for loss that may arise due to

    unforeseen contingencies in future.

    They guarantees interest to creditors, wages to labor, and rent to the landlord and

    risk can be insured.

    7. Uncertainty-Bearing:

    Risk which cannot be insured against and it is incalculable.

    Entrepreneur bears uncertainty.

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    It refers to the uncertain trends of market, trade credits, etc., which by its nature

    cannot be insured, neither capitalized nor salaried too.

    Entrepreneurs Function:

    1. Idea Generation:

    This is the most important function of the entrepreneur.

    Idea generation can be possible through the vision, insight, observation,

    experience, education, training and exposure of the entrepreneur.

    Idea generation precisely implies product selection and project identification.

    Ideas can be generated through environmental; scanning and market survey.

    It is the function of the entrepreneurs to generate as many ideas as he can for thepurpose of selecting the best business opportunities which can subsequently be

    taken-up by him as a commercially viable business venture.

    2. Determination of Objectives:

    The next function of the entrepreneur is to determine and lay-down the objectives

    of the business, which should be spelt-out on clear terms.

    In other entrepreneur should be very much about the following things:

    a. The nature of business and

    b. The type of business.

    3. Raising of Funds:

    Fund raising is the most important function of an entrepreneur.

    All the activities of a business depend upon finance and iits proper management.

    It is the responsibility of the entrepreneur to raise funds internally as well as externally.

    In this matter, they should be aware of the different government sponsored schemes suchas PMRY, SGSY, REGP, etc., by which they can get government assistance in the form

    of speed capital, fixed and working capital for his business.

    4. Procurement of Raw materials:

    Another important function of the entrepreneur is to procure raw materials.

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    Entrepreneur has to identify the cheap and regular sources of supply of raw

    materials, which will help him to reduce the cost of production and face the

    competition boldly.

    5. Procurement of Machinery:

    The next function of the entrepreneurs is to procure the machineries and

    equipments for establishment of the venture.

    While procuring the machineries, they should specify the following details.

    The details of technology

    Installed capacity of the machines.

    Names of the manufacturers and suppliers,

    Whether the machines are indigenously made or foreign made,

    After-sales service facilities, and

    Warranty period of the machineries.

    6. Market Research:

    The next important function of entrepreneur is market research and product

    analysis.

    Market research is the systematic collection of data regarding the product which

    the entrepreneur wants to manufacture.

    Entrepreneur has to undertake market research persistently in order to know the

    details of the intending product, i.e., the demand for the product, the supply of the

    product of the price of the product, the size of the customers,etc., while starting an

    enterprise.

    7. Determination of Form of Enterprise:

    The function of an entrepreneur in determining the form of enterprise is alsoimportant.

    Entrepreneur has to decide the form of enterprise based upon the nature of the

    product, volume of investment, nature of activities, types of product, quality of

    product, quality of HR, etc.

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    The chief forms of ownership organizations are sole proprietorship, partnership,

    joint stock Company, and cooperative society.

    Determination of ownership right is essential on the part of the entrepreneur to

    acquire legal title to assets.

    8. Recruitment of Manpower:

    Entrepreneur has to perform the following activities while undertakings these function:

    Estimating manpower need of the organization

    Laying-down of selection procedure.

    Devising scheme of compensation.

    Laying-down the rules of training and development.

    9. Implementation of the project;

    o Entrepreneur has to work on the implementation schedule or the action plan of the

    project.

    o The identified project is to be implemented in a time-bound manner.

    o All the activities from the conception stage to the commissioning stage are to be

    accomplished by him in accordance with the implementation schedule to avoid

    cost and time over-run, as well as competition.

    o Thus, implementation of the project is an important function of the entrepreneur.

    Functions Important for Developing Countries:

    The function s of an entrepreneur with reference to the under-developed countries includes wide

    range of activities has been provided by Kilby, which are as follows:

    Management of Scarce resources

    Dealing with public bureaucracy

    Acquiring and overseeing assembly of the factory.

    Industrial designing and engineering.

    Marketing of product and responding to competitions.

    Industrial new product.

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    Perception of market opportunities.

    Financial and production management.

    Management of customers and suppliers relations and

    Management of scarce resources.

    Other Functions:

    Besides the above functions the entrepreneurs has to perform many other activities at the later

    stage which are as follows:

    Diversification of Production

    Expansion of the enterprise

    Maintaining cordial employer-employee relations.

    Tackling labor problems and

    Coordination without side agencies.

    Entrepreneurship in India and Abroad:

    Entrepreneurship in India:

    1. Agriculture was and has always been the dominant occupation of the people in India. But

    even in ancient times, many Indian products enjoyed worldwide reputation. Notable

    among those were: the Muslims of Dacca, calicos of Bengal, exquisite sarees of Banaras,

    Dhotis and dupattas of Ahmedabad, woolen shawls of Kashmir and aromatic spices of

    Kerala.

    2. Historically, in pre-eminently agrarian countries, as was India, affluent people-e.g., rajas,

    nawabs, and landowners- considered land ownership as a means of social and political

    power. They, generally, did not favor using their cash supplies in risky long-term

    industrial investments. Besides, the culture of a poor country placed greater value on the

    construction of excessively decorated memorials and places of worship, and/or on

    repeated observance of social and religious ceremonies. These activities required money,but they did not serve any productive economic purpose.

    3. In the absence of organized banking facility, scattered small savings of the public could

    not be channelized for investment in industrial development. The few with

    entrepreneurial spirit, even if they existed, were discouraged from starting risky ventures

    because of technological barriers and inability to secure required capital.

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    4. Further, while under long British occupation, colonial apathy, lack of infrastructure, non-

    existence of capital market, shortage of investable finance for investment and non-

    availability of technical know-how posed hurdles in the process of industrialization in

    India. Despite the availability of manpower skilled in metal craft in early times, Indias

    metal manufacturing activity remained a cottage industry for a long time.

    5. In the early 19th century, some attempts were made, mostly by the European businessmen,

    to set-up mechanized processing operations. Among them, major efforts were made in

    1815 with the first iron-smelter in TamilNadu in 1818 with first cotton mill near Kolkata,

    in 1820 with the first coal mining in Ranigunj and in 1823, with the first coffee plantation

    in TamilNadu.

    6. Around the mid-nineteenth century, Britain as the leading industrial nation and the major

    trading country dominated the world economy. To support its expanding industries and

    meet the needs of its growing population, Britain depended heavily on the increasing

    supply of imported raw materials. Eventually, many Englishmen moved to differentBritish colonies and engaged themselves in various business operations there. Thus

    British colonies were utilized to ensure that they provided not only the raw materials for

    Britains industries, but also markets for British products.

    7. Jute processing, already a well-established cottage industry in Bengal, was modernized

    by the English and some Scotch enterprises in 1854. The first mechanized textile mill,

    Bombay Spinning & weaving Company, was founded in Maharashtra by a parsi

    entrepreneur in 1854. The beginning of mechanization of coal mining in 1870 further

    paved the way for expansion of modern factory system in India. In 1875, first attempts

    were made to produce steel by modern technique. In 1892, Professor Prafulla ChandraRoy started in Calcutta, a chemical and pharmaceutical plant, which later became famous

    as Bengal Chemical & Pharmaceutical Works Ltd.

    8. Gradually, more Indian entrepreneurs set up mechanized modern factories and notable

    among those were Indias first modern iron and steel mill built at Jamshedpur by Tata

    Iron Steel Company in 1908 and another iron and steel plant at Burnpur by Indian Iron

    Steel Company in 1919. The First World War led to a sharp decline in imports from

    Britain and other countries. During this period, the British administration granted some

    protection to a few Indian industries.

    9. Following the First World War, the British entrepreneurs started taking more care in

    furthering the growth of their commercial establishments in India. And in this direction,

    they introduced, among other things, the managing agency system in India. The

    managing agents played an all-in-one role for they assumed the entire task of providing

    finance, setting-up and managing industrial units, identifying new opportunities and also

    selling products to customers. In those days promoters, financers, and qualified

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    managers were not readily available and hence the acceptability of the managing agency

    system.

    10.The Second World War also created favorable conditions and provided stimulations for

    further growth a number of Indian industries engaged in the production of both the

    consumer and capital goods. Before Independence, a vast majority of Indianentrepreneur were mainly from leading traditional Indian business communities,

    primarily Parsi, Guajarati, Chettiar, and Marwari.

    Current Entrepreneur Scenario in India:

    According to the global Entrepreneurship Monitor report, Indias High-Growth

    Expectation Early-stage Entrepreneurship (HEA) rate is only one-fifth of that of china.

    Further among medium and low income countries while Chinas nascent and new

    entrepreneurs appear to be the most growth-oriented, with more than 10% of them

    anticipating high growth.

    Early-stage entrepreneurial activity in India is marked by low levels of growth

    expectation.

    This is despite the extremely high levels of potential entrepreneurial activity as perceived

    by the non-entrepreneurially active population in the country.

    While data on entrepreneurship is hard to come by, the following numbers are telling.

    According to the NSS 62nd round, in rural India, almost 50% of all workers are self-

    employed; 57% among males and nearly 62% among females, while the corresponding

    figures in urban India are 42 for males and 44 for females.

    The NSSO defines a self-employed as an employer or worked in household enterprises as

    helper.

    The essential feature of the self-employed is that they have autonomy and economic

    independence for carrying out their operation.

    According to the 5th Economic Census conducted by the Central Statistical Organization,

    there are 41.83 million establishments in the country engaged in different economicactivities other than crop production and plantation.

    Five states i.e., Tamil Nadu, Maharashtra, West Bengal, Uttar Pradesh and Andhra

    Pradesh together account for about 50% of the total establishments in the country.

    The same five states also have the combined share 50% of total employment.

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    Entrepreneurship in Abroad:

    Entrepreneurship and Great Britain:

    The industrial Revolution in Britain was made possible by the pioneer entrepreneurs, who

    helped to open up a new line of thought on industrial development. They demonstrated

    their sense of market opportunities and ability to tap and utilize such opportunities.

    During this period, successive major technological inventions and simultaneous

    entrepreneurial innovations accelerated the process of industrial development in Britain.

    The cotton textile manufacturing industry made a substantial progress and this was

    largely because of the innovative use of use steam power and new machinery that

    replaced handlooms. The development of textile technology motivated inventions and

    growth in Britains machinery industry and factory system as well.

    The expansion of machinery industry was feasible only after advancement of

    technologies in metal and metal-using including iron and steel industries.

    The introduction of cast-iron rails replacing wooden rails, subsequent improvement inrailway system and simultaneous development of roadways and waterways expedited the

    extension of Britains transport industry.

    Enhancement in agricultural productivity was made possible by intensive cultivation of

    land and introduction of agricultural innovations.

    Entrepreneurship and United states:

    The great Industrial Revolution in Britain and the changes that took place there set the

    path which several countries followed for their economic progress.

    Oliver Evans, who invented machines to speed-up the milling of flour, was among the

    early entrepreneurs who helped to develop the American factory system.

    The mechanized factory system introduced in the 1790s was the beginning of the

    transformation of the American economy.

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    Samuel Slater, an English Immigrant, who brought with him memorized plan of a textile

    plant, started a mechanized cotton thread production unit in Rhode Island.

    With the basic technology secretly imported from Britain and adapted by the local

    entrepreneurs, mechanization of American textile industry began, somewhat moderately

    though, in Waltham, Massachusetts in 1813.

    Entrepreneurship Definition:

    According to A.H.Cole, Entrepreneurship is the purposeful activity of an individual or a group

    of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or

    distribution of economic goods and services.

    Entrepreneurship = Entrepreneur + Enterprise

    (Process) (Person) (Object)

    Forms of Entrepreneurship:

    Entrepreneurship can be of two types:

    1. Small Business Entrepreneurship.

    2. Corporate Entrepreneurship

    Small Business Entrepreneurship:

    A small Business is a business that is privately owned and operated, with a small number

    of employees and relatively low volume of sales, small business are normally privately

    owned corporations, partnerships, or sole proprietorships.

    The official definition of small business by the government of India is as follows:

    1. Small Scale Industries:

    A unit in which investment in plant and machinery does not exceed rupees five crore.

    2. Ancillary Units:

    An undertaking which sells not less than fifty percent of its output to other industrial

    undertakings and in which investment in plant and machinery does not exceed rupees

    five crore.

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    3. Export-Oriented Units:

    A unit which exports not less than thirty percent of its output and in which investment

    in plant and machinery does not exceed rupees five crore.

    4. Tiny Units:

    A unit with an investment in plant and machinery of not more than rupees twenty five

    lakh.

    Importance of Small Business in Indian Economy:

    India is largely an agricultural country and major part of the population lives in villages,

    small scale industries are small in size but play a big role in the economic development of

    a developing country like India.

    India has adopted the ideal of a socialistic pattern of society with full employment,

    balanced regional development and self-reliance as the major objectives.

    Small scale firms are helpful in the achievement of these goals in the following ways.

    1. Employment:

    o Small-scale firms use labor-intensive techniques and therefore, they have

    potential to provide employment to a larger number of people per unit of a capital.

    o For every worker employed in large scale industries about three workers are

    engaged in small-scale and cottage industries.

    o Next to agriculture small business constitutes the most popular occupations of

    people in India.

    o Small firms promote self-employment particularly among the educated and

    professional class.

    o They also provide employment to agriculturists who remain idle during a part of

    the year.

    o In fact, the healthy growth of small-scale industries can be an effective approach

    to the pressing problem of unemployment in the country.

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    o Several empirical studies have revealed that the employment generating capacity

    of small-scale industries in about in times more than that of the large-scale

    industries.

    2. Balanced Regional Development:

    o Small-scale industries promote decentralized development and help to remove

    regional disparities in industrialization.

    o Decentralized development contributes to the process of self-sustained growth

    and avoids concentration of industries in particular areas.

    o By providing employment in rural areas they help to check migration and

    overcrowding in urban areas.

    o Small-scale firms can be a useful means of rural re-construction and development.

    o Development of decentralized sector also improves the standard of living of

    people backward regions.

    3. Optimization of Capital:

    Small scale firms require less capital per unit of output and, therefore, greater

    output can be obtains with small investment.

    The Annual survey of Industries revealed that fixed capital per employee in

    case of small scale industry was Rs.3, 706 as compared to Rs.27, 757 in case

    of large scale industry.

    Small firms also provide quick returns after their establishment on account of

    short gestation period.

    In India, where the rate of capital formation is low, small scale industries are

    very suitable.

    4. Mobilization of Local Resources:

    Small scale industries facilitate mobilization and utilization of local resources

    and skills which mi9ght otherwise remain latent or unutilized.

    Small business promotes a new cadre of small entrepreneurs and self-

    employed and encourages local talent.

    The growth of small enterprises helps in tapping latent resources like

    entrepreneurial skills and small savings especially in rural areas.

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    Small scale industries account for ninety five percent of the industrial units in

    India and contribute almost forty percent of the gross industrial value added.

    5. Exchange Earnings:

    Small scale industries help in reducing pressure on the countrys balance of paymentin two ways.

    1. They do not require imports of sophisticated machinery and equipment.

    2. They earn valuable foreign exchange through exports of non-traditional items and

    substitutions imports through domestic production. Small scale industries account

    for forty five percent of total exports from India.

    6. Feeder to Large Industries:

    Small scale sector is complementary to the large scale industries.

    Small scale industries manufacture several of components, spare parts, tools

    and accessories which are required by the large scale sector.

    Small firms also distribute the goods produced by large scale firms.

    7. Opportunity for Artisan:

    In villages. Artisan/specialist/artist having expertise in different fields are

    found.

    Because of lack of opportunities their skills do not come into limelight.

    Small businesses provide opportunities to such people.

    This provides am impetus to their talent.

    Types of Ownership:

    Entrepreneurs have a number of legal forms of business top choose from, such as sole

    proprietorships, corporations, partnerships, or Limited Liability Companies (LLCs).

    Entrepreneurs should determine which business form is best for them based on their

    short-long-term needs.

    Because there are significant tax and non-tax differences among the forms, entrepreneurs

    should carefully consider the results and requirements of each form to ensure that the

    business form they choose best meets their requirements.

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    In choosing a form of ownership, entrepreneurs must remember that there is no single

    best form, what is the best depends on the businesss particular circumstances.

    Ownership can be classified into two categories as shown.

    Sole Trading/Sole Proprietorship:

    Sole proprietorship is a one-man business.

    It is the form simplest, the oldest, and in some respects the most natural form of businessin the private sector.

    In this form of business, a single individual is solely responsible for providing the capital,

    for bearing the risks, and for the control of the enterprise.

    It is a one-man show.

    Sole proprietorship means a business owned, financed and controlled by a single person.

    The owner, called the proprietor, alone is responsible for the profits and losses of the

    business.

    If entrepreneurs plan to start a business under a name other their own, they must register

    the name, called DBA (doing business as).

    If the business has a tradename, a Certificates of doing business under a Assumed

    name can be obtained from the state in which the business will operate.

    Business

    Ownership

    Individual

    OwnershiCollective

    Ownership

    Sole

    Proprietorship

    Family

    Business

    Partnership Cooperative

    Enterprise

    Joint stoc

    company

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    According to L.H.Haney, The individual proprietorship is the form of business organization at

    the head of which stands an individual as one who is responsible, who directs its operations, and

    who alone runs the risk of failure.

    According to J.L.Hansen, Sole trader business is type of business unit where one person is

    solely responsible for providing the capital, for bearing the risk of the enterprise, and for themanagement of business.

    Features of Sole Proprietorship:

    1. Single Ownership:

    A Sole proprietorship is wholly-owned by one individual.

    The individual supplies the total capital from his own wealth or form borrowedfunds.

    2. One-man Control:

    The proprietor alone takes all the decisions pertaining to the business.

    He is not required to consult anybody.

    Ownership and management are vested in the same person.

    Some persons may be employed to help the owner but ultimate control lies with

    him.

    3. No Separate Legal entity:

    A Sole Proprietorship has no legal identity separate from that of its owner.

    The law makes no distinction between the proprietor and his business.

    The business and the owner exist together.

    If the owner dies or becomes insolvent the business is dissolved.

    The proprietor and his business are one and the same.

    4. Unlimited Liability:

    The proprietor is personally liable for all the debts of the business.

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    In case the assets are insufficient to meet its debts, the personal property of the

    proprietor can be attached.

    5. No-Profit sharing:

    The Sole proprietor alone is entitled to all the profits and losses of business.

    He bears the complete risk and there is nobody to share the profits the profits or

    losses.

    6. Small Size:

    o The scale of operations carried on by a sole proprietorship is generally small.

    o A sole trader can arrange limited funds and managerial ability.

    o Therefore, the area of operations is generally local and limited.

    7. No Legal formalities:

    No legal formalities are required to start, mange, and dissolve sole trader business

    Only a license is necessary in certain types of business.

    Partnership

    Definitions (2)

    1. A type ofunincorporatedbusinessorganization in which multiple individuals, called general

    partners, manage the business and are equallyliablefor itsdebts; other individuals called limited

    partners may invest but not be directly involved in managementand are liable only to the extent

    of their investments. Unlike a Limited Liability Companyor a corporation, in a partnership

    eachpartnershares equal responsibility for the company'sprofits andlosses, and its debts

    andliabilities. The partnership itself does not pay income, but each partner has to report

    theirshareof business profits or losses on their return. Estimatedpayments are also necessary for

    each of the partners for the year in progress. Partnerships must fileare turn on Form1065 showing income and deductions. Estimated tax payments are also required if

    they expect their income to be greater than $1,000.

    2. More generally, a relationship of two or more entities conductingbusiness for mutualbenefit.

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    Types of Partnerships

    A partnership arises whenever two or more people co-own a business, and share in the profitsand losses of the business. Each person contributes something to the business -- such as ideas,money, or property -- though management rights and personal liability will vary depending onwhich of three modern partnership forms the business takes: general partnership, limited

    partnership, or limited liability partnership (LLP).

    General Partnerships

    A general partnership involves two or more owners carrying out a business purpose. Generalpartners share equal rights and responsibilities in connection with management of the business,and any individual partner can bind the entire group to a legal obligation. Each individualpartner assumes full responsibility for all of the business's debts and obligations. Although suchpersonal liability is daunting, it comes with a tax advantage: partnership profits are not taxed tothe business, butpass through to the partners, who include the gains on their individual taxreturns at a lower rate.

    Limited Partnerships

    A limited partnership allows each partner to restrict his or her personal liability to the amount ofhis or her business investment. Not every partner can benefit from this limitation -- at least oneparticipant must accept general partnership status, exposing himself or herself to full personalliability for the business's debts and obligations. The general partner retains the right to controlthe business, while the limited partner(s) do(es) not participate in management decisions. Bothgeneral and limited partners benefit from business profits.

    Limited Liability Partnerships (LLP)

    Limited liability partnerships (LLP) retain the tax advantages of the general partnership form, butoffer some personal liability protection to the participants. Individual partners in a limitedliability partnership are not personally responsible for the wrongful acts of other partners, or forthe debts or obligations of the business. Because the LLP form changes some of the fundamentalaspects of the traditional partnership, some state tax authorities may subject a limited liabilitypartnership to non-partnership tax rules. The Internal Revenue Service views these businesses aspartnerships, however, and allows partners to use the pass through technique.

    Existing partnerships that wish to take advantage of LLP status do not need to modify theirexisting partnership agreement, though they may choose to do so. In order to change status, apartnership simply files an application for registration as a limited liability partnership with the

    appropriate state agency. All states require disclosure of the partnership's name and principleplace of business. Some states also require, among other things, identification of the number ofpartners, a brief description of the business, a statement that the partnership will maintaininsurance, and written acknowledgment that the limited liability status may expire.

    Types of PartnersThe partners of a firm are broadly divided into three main categories.

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    (1) General Partners.

    (2) Special Partners.

    (3) Other Partners.

    (1) General Partners

    Basically all the partners of a firm are general partners. General partners we those whose liabilityis unlimited in the f General partners are of two types (a) Active partner, and (b) Sleeping

    partner.

    (a) Active Partner

    A partner who takes active part in the day to day management of the business is cared an active

    partner. An active partner (also called working partner) may work in different capacities such as

    manager, organizer, adviser, controller of all the affairs of the firm. The active partner is

    rewarded as per agreement between the partners.

    (b) Sleeping PartnerA sleeping partner is one who contributes capital, shares profits and losses of the firm but takes

    no part in the day to day management of the affairs of the firm. A person, who has money to

    invest but cannot spare time for the business, may become sleeping partner. A sleeping partner is

    liable for the liabilities of the business like other partners.

    (2) Special Partners

    Special partners are partners whose liability is limited to the extent of their capital contributed in

    the firm. They are only found in limited partnership. The special partners cannot take part in the

    management of the business of the firm. In Pakistan limited partnership is not recognized.

    (3) Other Partners

    The other types of partners sometimes found in a firm are as follows.

    (a) Secret Partner

    A partner who takes active part in the affairs of a business but is not known to the public as a

    partner is called Secret partner. He, like other partners, is liable to the creditors of the firm to an

    unlimited extent He shares profits according to the agreement signed.

    (b) Nominal Partner

    nominal partner lends his name for the goodwill and credit worthiness to the firm. He neither

    contributes capital nor takes active part in the management of business. Such partners are called

    nominal partners. Nominal partners are liable for the debts of the firm.

    (c) Minor Partner

    Partnership is a contract and a contract with minor is void. Under Section 30 of Partnership Act,

    a minor is not able to enter into a contract and so he cannot become a partner of a firm. He can,

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    however be admitted to the benefits of a firm with the consent of other members and that too n a

    business which is already operating. His liability remains limited to the extent of his share in the

    capital. On attaining majority, he has to choose whether he has to continue as a partner or not.

    (d) Partner at Will

    type of partner will continue so long the partners have mutual faith, trust and confidence among

    them.

    (e) Partners in Profit Only

    If a partner is entitled to receive certain share of profit and is not held liable for the losses, he is

    known as partner in profit only. He is not allowed to take part in the management of the

    business.

    (f) Partner by Estoppels

    There is another minor type of partner which is called partner by estoppels. If person styles the

    character of a partner in a business before a third party (outsiders) by words or in writing or by

    his act, he is called a partner by estoppels. The third party mistaking him as a partner in the

    business advances loans on his creditability, that person would be personally responsible for the

    liability attaching to the position of a partner The partner by estoppels would, however, not be

    entitled to any right like other partners in the business. For example Mr. Hamid is a rich man and

    is not a partner in a firm named Three Star Carpets. Mr. Hamid makes a false statement to Mr.

    Rauf, that he is a partner of the firm Three Star Carpets. On this impression Mr. Rauf sells

    carpets worth Rs. one million to Three Star Carpets on credit. The firm is not able to pay the

    amount of Rs, one million. Mr. Rauf can recover the amount of Rs. one million from Mr. Hamid,

    Mr. Hamid here is a partner by Estoppels.

    Advantages of Partnership

    Capital Due to the nature of the business, the partners will fund the business withstartup capital. This means that the more partners there are, the more money they can put intothe business, which will allow better flexibility and more potential for growth. It also meansmore potential profit, which will be equally shared between the partners.

    Flexibility A partnership is generally easier to form, manage and run. They are lessstrictly regulated than companies, in terms of the laws governing the formation and becausethe partners have the only say in the way the business is run (without interference by

    shareholders) they are far more flexible in terms of management, as long as all the partnerscan agree.

    Shared Responsibility Partners can share the responsibility of the running of thebusiness. This will allow them to make the most of their abilities. Rather than splitting themanagement and taking an equal share of each business task, they might well split the workaccording to their skills. So if one partner is good with figures, they might deal with the book

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    keeping and accounts, while the other partner might have a flare for sales and therefore bethe main sales person for the business.

    Decision Making Partners share the decision making and can help each other outwhen they need to. More partners means more brains that can be picked for business ideasand for the solving of problems that the business encounters.

    Disadvantages of Partnership

    Disagreements One of the most obvious disadvantages of partnership is the dangerof disagreements between the partners. Obviously people are likely to have different ideas onhow the business should be run, who should be doing what and what the best interests of thebusiness are. This can lead to disagreements and disputes which might not only harm thebusiness, but also the relationship of those involved. This is why it is always advisable todraft a deed of partnership during the formation period to ensure that everyone is aware ofwhat procedures will be in place in case of disagreement and what will happen if thepartnership is dissolved.

    Agreement Because the partnership is jointly run, it is necessary that all thepartners agree with things that are being done. This means that in some circumstances thereare less freedoms with regards to the management of the business. Especially compared tosole traders. However, there is still more flexibility than with limited companies where thedirectors must bow to the will of the members (shareholders).

    Liability Ordinary Partnerships are subject to unlimited liability, which means thateach of the partners shares the liability and financial risks of the business. Which can be offputting for some people. This can be countered by the formation of a limited liabilitypartnership, which benefits from the advantages of limited liability granted to limitedcompanies, while still taking advantage of the flexibility of the partnership model.

    Taxation One of the major disadvantages of partnership, taxation laws mean thatpartners must pay tax in the same way as sole traders, each submitting a Self Assessment taxreturn each year. They are also required to register as self employed with HM Revenue &Customs. The current laws mean that if the partnership (and the partners) bring in more thana certain level, then they are subject to greater levels of personal taxation than they would bein a limited company. This means that in most cases setting up a limited company would bemore beneficial as the taxation laws are more favourable (see our article on the Advantagesand Disadvantages of a Limited Company).

    Profit Sharing Partners share the profits equally. This can lead to inconsistencywhere one or more partners arent putting a fair share of effort into the running ormanagement of the business, but still reaping the rewards.

    Joint Stock CompanyDefinition

    A company which has some features of acorporation and some features of apartnership. The

    company sells fully transferable stock, but allshareholders have unlimited liability.

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    Types of Joint Stock Company:

    Types of Join Stock Company

    Types of Joint Stock Company

    1. Chartered Company: The companies that form by the order of the king of England are calledthe charter company. These companies were formed before 1844. For example, East IndiaCompany, Chartered Bank of England, the charter of the British South Africa Company, given

    by Queen Victoria2. Statutory Company: Companies that are formed by the order of the President, or by theLegislative Committee or by bill of Parliament are called Statutory Company. These Companiesare operated by those laws. For example, municipal councils, universities, central banks andgovernment regulators, Central Bank.3. Registered Corporation: Companies that are formed under the prevailing law of thecompany are called the registered company. The corporation that has filed a registrationstatement with the SEC prior to releasing a new stock issue. It is two types-

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    i) Unlimited Company: The liabilities of the shareholders of this company are unlimited. Forexample, British all-terrain vehicle manufacturer Land Rover, GlaxoSmithKline ServicesUnlimited.ii) Limited Company / Limited Corporation: The liabilities of the shareholders are limited.For example, charitable organizations, Financial Services Authority. This liability of a company

    can be of two types.a) By Guarantee

    b) By share value. The company limited by share can be of two types.

    Private Limited Company, where the number of shareholder ranges from two to fifty. Theshare of these companies cant be traded in the stock market. Public Limited Company, where the number of shareholder ranges from seven to sharelimitation. The share of the public limited company is traded in the stock market.Procedure of Formation of a Joint Stock Company

    In "Bangladesh" perspective (but the moreover same process all over the world) Joint StockCompany is formed, registered and guided by the Companies Act 1994. The promoters bythemselves or by their appointed person (advocate, consultancy firm, or consultant) undertookthe task of formation. However, the task of formation could be discussed in steps.

    1. Promotional Steps:

    The person who undertook the task of formation is called promoter or entrepreneur. For PublicLimited Company there should be at least seven (7) and for Private Limited company, thereshould be at least two (2) promoters. These promoters undertook the following tasks:

    a) Planning: Here the promoters decide about the objectives, area, type, capital structure of thenew business. Based on these factors, the promoters go forward.b) Feasibility Analysis: Here the promoters undertook the feasibility analysis for the new

    venture: both from existing and potential view point. Promoters undertook different tools likeSWOT (Strength, Weakness, Opportunity and Threat) Analysis; Competitive Analysis, etc.Being assured of the potentiality of the business the promoters go for the further.c) Naming the Company: The name of the company should be such that is not used by anyother existing company; it is not a name of the King or Queen or President. The Public LimitedCompany should use (pvt.) Limited and the Public Limited Company must use Limited at theend of the company name. The promoter upon deciding the name, they submit the name in blackand white for Clearance in the registrar office. The registrar upon verifying the uniqueness of theproposed name gives clearance of using the name.2. Registration or Incorporation:

    To incorporate the new company the promoters needs go through the following steps:

    a) Collecting Registration Form and Filling it up: The promoters have to collect theregistration form and other papers for a fee from the registrar office. Then they should fill up itby themselves or should take the help of the consultants or advocates.b) Preparing Documents and Submitting for Registration: The promoters have to submit thefilled-up form with fees and the following documents in the registrar office: Memorandum of Association Articles of Association

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    Capital Structure of the proposed Company

    List of Directors and the amount of the sponsored share they purchased

    Declaration regarding the proposed name of the company

    Declaration of an advocate or chartered accountant or any director of a proposed company thatthe company has followed all the rules and regulations of Company Act 1994.

    The registrar being satisfied on the paper submitted for the proposed company issues' Certificateof Incorporation. On getting that certificate the Private Limited Company can start its businessbut the Public Limited Company has to go to another step to start its business.

    c) Obtaining Certificate of Commencement: Here the promoters should make the Prospectusfor the company. This prospectus needs to be published in the daily newspaper. To get theCertificate of Commencement, the promoters need to submit the following documents to theregistrar: A copy of Prospectus

    Name, address, designation, occupation, etc. of Directors

    Directors written Letter of Agreement that they want to work as director of that company.

    Declaration that the directors have fully paid the minimum amount of sponsor share.

    Declaration by the company secretary or other authorized person that the above affairs havemaintained all rules and regulation of Company Act 1994.

    The registrar being satisfied on the paper submitted for the proposed company issues' Certificateof Commencement. On getting that certificate the Public Limited Company can start its business.

    3. Flotation StageIf the sponsor directors are unable to provide the adequate capital, public limited company canfloat their share in the capital market (Stock Exchange) to get required capital. By this time, thecompany can do its other functions.

    Advantages of Joint Stock Company:

    Large financial resources:

    A joint stock company is able to collect a large amount of capital through contributions

    from a large number of people. In a public limited company, shares can be offered to the

    general public to raise capital. The companies can also accept deposits from the public

    and issue debentures to raise funds.

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    Limited liability:

    In case of a joint stock company, the liability of it's members is limited to the value of

    shares held by them. Private property of members cannot be confiscated for overcoming

    the debts of the company. This advantage attracts many people to invest their savings in

    the company and it encourages the company to take more risks.

    Professional management:

    Management of a company is in the hands of the directors, who are elected

    democratically by the members or shareholders. These directors are known as the "Board

    of Directors". They manage the affairs of the company and are accountable to all the

    investors. So, the investors elect capable persons who have sound financial, legal and

    business knowledge to the board so that they can manage the company efficiently.

    Large-scale production:

    Since there is an availability of large financial resources and technical expertise, it is

    possible for the companies to have "large-scale" production. This enables the company to

    produce more efficiently and at a lower cost.

    Research and development:

    Only in joint stock company form of business, it is possible to invest a lot of money on

    research and development so that new design, better quality products, etc. can be

    achieved.

    Disadvantages of Joint stock companies:

    Difficult to form:

    The formation & registration of joint stock company involves a long and complicated

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    procedure. A number of legal documents and formalities have to be completed before a

    company can start business. The process of formation requires the services of specialists

    such as chartered accountants, company secretaries, etc. Because of all this, the cost of

    formation of a company is very high.

    Excessive government control:

    Joint stock companies are regulated by government through the Companies Act and other

    economic legislations. Especially, public limited companies are required to complete

    various legal formalities as provided in the Companies Act and other legislations. Non-

    compliance with these causes a heavy penalty. This affects the smooth functioning of the

    companies.

    Delay in policy decisions:

    Generally policy decisions are taken at the Board of Directors meetings of the

    company. Further, the company has to fulfill certain procedural formalities. These

    procedures are time consuming and therefore, may delay action on the decisions.

    FIRST MOVERS:

    DEFINITION

    In the business world, a first mover is a company that aims to gain an advantageous and perhaps

    insurmountable market position by being the first to establish itself in a given market. Since the

    arrival of the World Wide Web, many new companies (called "start-ups" until theirIPO) have

    established themselves as first movers in their respective marketplace on the Web. Perhaps the

    quintessential example of being a first mover on the Web is Yahoo, which provided early Web

    users with the first popular directory and search engine. Although Yahoo has competition from

    Alta Vista, Google, and several other companies, its well-entrenched position as the one that gotthere first along with its easy-to-remember brand name and aggregation of content combine to

    make it difficult to compete with.

    Other examples of first movers include Amazon.com (books), Travelocity (airline tickets), and

    eBay (online auctions). Although each of these has encountered competition, their early arrival

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    and commitment to becoming the predominant owner of their market has seemed to assure their

    success.

    One of the usual creeds of companies who attempt to be a first mover and command a market

    niche is "go big or stay home (GOBOSH)." Once a first mover has become established, the fact

    that someone has already arrived becomes in itself a barrier to entry for prospective competitors.

    First Mover Disadvantages:

    1. Demand Uncertainty:

    First movers have little information upon which to estimate the potential size of the

    market and how fast it will grow.

    Such demand uncertainty make it difficult to estimate future demand, which has

    important implications for new venture performance as both over estimating and under

    estimating demand can negatively impact performance.

    By over estimating demand, the entrepreneur will suffer the costs associated with over

    capacity and will find that the market may be so small that it cannot sustain the

    entrepreneurs will suffer the costs of under capacity, such as not being able to satisfy

    existing and new customers and losing them to competitors, or will alternatively face the

    additional costs of incrementally adding capacity.

    2. Technological Uncertainty:

    First movers often must make a commitment to a new technology.

    There are a number of uncertainties surrounding a new technology, such as whether the

    technology will perform as expected and whether an alternate technology will be

    introduced that leapfrogs the current technology.

    If the technology does not perform as expected the entrepreneur will incur a number of

    costs that will negatively impact performance, e.g., damage to the entrepreneurs

    reputation and also the additional R&D and production costs incurred by making

    necessary changes to the technology.

    3. Adaptation:

    Changes in market demand and technology do not necessarily mean that first movers

    cannot prosper.

    They do mean that the entrepreneur must adapt to the new environmental conditions.

    Such changes are difficult.

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    The entrepreneur will likely find it difficult to move away from the people and systems

    that brought initial success and toward new configurations requiring changes to

    employees roles and responsibilities as well as changes to systems.

    In other words, the organization has an inertia that represents a force for continuation that

    resists change.

    4. Customers Uncertainty:

    Whether introducing a new product into an establishes market or an established product

    into a new market, the entry involves an element of newness.

    They may be uncertain about how to use the product and whether it will perform as

    expected.

    Even if it does perform. They may wonder to what extent its performance provides

    benefits over and above the products that are currently being used.

    5. Building Customer Loyalties:

    First movers need to establish the firm and its products in the minds of its customers and

    thus build customer loyalty.

    Such customer loyalty will make it more difficult and more costly for competitors to

    enter the market and take the first movers customers.

    Loyalty is sometimes established when customers associate the industry with the first

    mover.

    6. Building Switching Cost:

    First movers need to develop customers switching costs that lock-in existing customers.

    This is a mechanism by which customer loyalty is enhanced.

    Reward programs, such as frequent flyer points with a particular airline, establish for the

    customer a financial and/or emotional attachment to the first mover, which makes its

    costly for the customer to switch to a competitor.

    Risk Reduction Strategies for New Entry Exploitation:

    A new entry involves considerable risk for the entrepreneur and his or her firm.

    Risk here refers to the probability, and magnitude of downside loss, which could result in

    bankruptcy.

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    The risk of downside loss is partly derived from the entrepreneurs uncertainities over

    market demand, technological development and the actions of competitors.

    Strategies can be used to reduce some of all of these uncertainities and thereby to reduce

    the risk of downside loss.

    Two such strategies are

    1. Market Scope Strategies

    2. Imitation Strategies

    Market Scope Strategy:

    Scope is a choice by the entrepreneur about which customer groups to serve and how to serve

    them.

    The choice of market scope ranges from a narrow to a broad-scope strategy and depends on the

    type of risk the entrepreneur believes is more important reduce.

    1. Narrow-Scope strategy:

    A narrow scope strategy offers a small product range to a small number of customer

    groups in order to satisfy a particular need. The narrow scope can reduce the risk that

    the firm will face competition with larger, more established firms in a number of

    ways.

    a. A narrow-scope strategy focuses the firm on producing customized products,localized business operations, and high levels competitors who are more oriented

    toward mass production and the advantages that are derived from that volume. A

    narrow scope strategy of product differentiation reduces competition with the

    larger established firms and allows the entrepreneur to charge premium prices.

    b. By focusing on a specific group of customers, the entrepreneur can build up

    specialized expertise and knowledge that provide an advantage over companies

    that are competing more broadly

    c. The high end of the market typically represents a highly profitable niche that is

    well suited to those firms that can produce customized products, localized

    business operations and high levels of craftsmanship. From the first point tested

    above we know that firms pursuing a narrow scope strategy more likely to offer

    products and services with these attributes than are larger firms that are more

    interested in volume.

    2. Broad-Scope Strategy:

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    A broad scope strategy can be thought of as taking a portfolio approach to

    deal with uncertainties about the attractiveness of different market segments.

    By offering a range of products across many different market segments, the

    entrepreneur can again an understanding of the whole market by determining

    which products are the most profitable.

    Unsuccessful products can then be dropped and resources concerned on those

    product markets that show the greatest promise.

    In essence the entrepreneur can cope with market uncertainty by using a broad

    scope strategy to learn about the market through a process of trial and error.

    The entrepreneurs ultimate strategy will emerge as a result of the information

    provided by this learning process.

    In contrast, a narrow-scope strategy requires the entrepreneur to heve

    sufficient certainty about the market that she or he is willing to focus their

    resources on a small piece of the market, with few options to fall back on if

    the initial assessment about the product proves incorrect.

    Offering a range of products across a range of market segments means that a

    broad scope strategy is opening the firm up to many different fronts of

    competition.

    The entrepreneur may need to compete with the more specialized firms within

    narrow market niches and simultaneously with volume producers in the massmarket.

    Imitation Strategies:

    Imitation is another strategy for minimizing risk downside loss associated with new

    entry.

    Imitation involves copying the practices of other firms, whether those other firms are in

    the industry being entered or from related industries.

    This idea of using imitation strategies to improve firm performance at first appearsinconsistent with the argument at the start of the chapter that superior performance arises

    from the qualities of being valuable rare, and imitable.

    An imitation strategy cannot be rare or imitable

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    Although this may be true an imitation strategy can still enhance firm performance

    because a successful new entry does not need to be valuable, rare and imitable on every

    aspect of the firms operations.

    Rather imitation of others practices that are peripheral to the competitive advantage of the

    firm offers a number of entrepreneurs may simply find it easier to imitate the practices ofa successful firm than to go through the process of a systematic and expensive search that

    still a decision based on imperfect information..

    Types of Imitation Strategies:

    Franchising Strategy is an example of a new industry on imitation to reduce the risk of

    downside loss for the franchise.

    A franchisee acquires the use of a proven formula for new entry from a franchisor.

    For example, an entrepreneur might enter the fast-food industry by franchising a

    McDonalds store in a new geographic location.

    This entrepreneur is imitating the business practices of the other McDonalds stores and

    benefits from an established market demand; an intellectual property-protected name and

    products; and access to knowledge of financial, marketing and managerial issues.

    Franchising is not the only imitation strategy.

    Some entrepreneurs will attempt to copy successful businesses.

    For example, new entry can involve copying products that already exist and attempting to

    build an advantage through minor variations.

    This form of imitation is often referred to as a me-too strategy.

    Managing Newness: