CBSE Class 11 Business Studies Chapter 8 Notes: Small Business or MSME and Business Entrepreneurship

Class 11 Business Studies Chapter 8 Notes (Small Business or MSME and Business Entrepreneurship)

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  • Class: 11
  • Subject: Business Studies
  • Chapter Number: 8
  • Chapter Name: Small Business/MSME and Business Entrepreneurship

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Introduction

Small-scale industries play a significant role in the development process and act as a vital link in industrialisation in terms of production, employment generation and exports. Small businesses help in economic prosperity by widening the entrepreneurial base and using local raw materials and indigenous skills. Small businesses dominate the industrial sector in the country with a major proportion of the labour force and tremendous export potential. In India, the Village and Small Industries (VSI) are divided into seven sub-sectors, namely: Handicrafts, Handlooms, Khadi and Village Industries, Coir, Sericulture, Power Looms and Small-Scale Industries. VSIs together provide one of the largest sources of employment in India.

Village Industries and Cottage Industries
Village Industries Cottage Industries
A village industry is an industry located in a rural area that produces goods or renders services, with or without the use of power, and in which the fixed capital investment per head is specified by the Central Government from time to time. These are also known as rural industries or traditional industries. They are not defined by capital investment criteria, as is the case with other small-scale industries.
Cottage Industries Are Characterised by the Following Features
S. No. Features
1 These are organised by an individual using private resources.
2 They normally use family labour and locally available talent.
3 The equipment used is simple.
4 Capital investment is small.
5 They produce simple products, normally on their premises, using indigenous technology.
Role of Small Businesses in India
S. No. Role Explanation
1 Major Portion of Industrial Units Small industries in India account for 95 per cent of the total industries in the country. They contribute almost 40 per cent of the gross industrial value added and 45 per cent of India's total exports.
2 Second-Largest Employment Provider

Small industries are the second-largest employers of human resources after agriculture. They generate a greater number of employment opportunities compared with large industries.

Therefore, they are considered more labour-intensive and less capital-intensive.

3 Large Variety of Products Small industries in our country supply a large variety of products, including mass-consumption goods, stationery items, soaps and detergents, food and vegetables, paints, and safety matches. Along with these, electronic goods such as televisions, refrigerators, electronic teaching aids, and air conditioners are also supplied by these industries.
4 Balanced Regional Development They contribute to the balanced regional development of our country, as these industries produce simple products using simple technologies and depend on locally available resources. Therefore, they can be set up anywhere in the country.
5 Opportunities for Entrepreneurship Small industries provide ample opportunities for entrepreneurship. The latent skills and talents of people can be channelised into business ideas that can be converted into reality with little capital investment and almost no formalities required to start a small business.
6 Low Cost of Production

As they use less expensive and locally available resources, these industries enjoy the advantage of a low cost of production.

Their establishment and operating costs are also very low. Hence, they enjoy a low cost of production.

Problems of Small Businesses
S. No. Problem Explanation
1 Finance
  • One of the major problems faced by small-scale industries is the non-availability of adequate finance to carry out their operations.
  • Generally, a small business begins with a small capital base. Many units in the small sector lack the creditworthiness required to raise capital from the capital markets. As a result, they depend heavily on moneylenders or commercial banks for the supply of credit.
2 Raw Materials
  • The second major problem faced by small businesses is the procurement of raw materials.
  • If the required materials are not available, they have to compromise on quality or pay a high price to obtain good-quality materials.
3 Quality
  • Small business organisations are not able to maintain quality standards, as their main focus is on cutting costs and keeping prices low.
  • They are unable to compete in global markets because maintaining quality is their weakest point.
4 Labour
  • Small business firms cannot afford to pay higher salaries to their employees, and lower salaries result in a lack of motivation.
  • As a result, existing employees are not able to put in their full effort, which results in low productivity per employee and high employee turnover.
5 Managerial Skills A small business is generally promoted and operated by a single person who may not possess all the managerial skills required to run the business. Also, the business may not be in a position to afford professional managers.
6 Technology The use of outdated technology is also a major problem for small industries, resulting in low productivity and uneconomical production.
Government Assistance to Small Industries and Small Business Units
Incentives
S. No. Incentive Explanation
1 Land
  • Every state offers developed plots for setting up industries.
  • The terms and conditions may vary. Some states do not charge rent during the initial years, while others allow payment in instalments.
2 Power and Water
  • Power is supplied at a concessional rate of 50 per cent, while some states exempt such units from payment during the initial years.
  • Water: Water is supplied on a no-profit, no-loss basis or with a 50 per cent concession or exemption from water charges for a period of five years.
3 Sales Tax
  • In all Union Territories, industries are exempted from sales tax, while some states extend the exemption for a period of five years.
4 Raw Materials
  • Units located in backward areas receive preferential treatment in the allotment of scarce raw materials such as cement, iron and steel.
5 Finance
  • A subsidy of 10–15 per cent is provided for building capital assets.
  • Loans are also offered at concessional rates.
Institutional Support
S. No. Institution Functions and Support
1 National Bank for Agriculture and Rural Development (NABARD)
  • NABARD was established in 1982 to promote integrated rural development.
  • Apart from agriculture, it supports small industries, cottage and village industries, and rural artisans through credit and non-credit approaches.
  • It has been adopting a multipurpose strategy for the promotion of rural business enterprises in the country.
2 Rural Small Business Development Centre (RSBDC)
  • It works for the benefit of socially and economically disadvantaged individuals and groups. It aims to provide management and technical support to small entrepreneurs in rural areas.
  • It has organised several rural entrepreneurship programmes, awareness camps and counselling camps in various villages.
3 National Small Industries Corporation (NSIC)
  • NSIC was established in 1955 to promote, aid and foster the growth of small business units in the country.
NSIC performs the following functions:
  • Supplies indigenous and imported machines on easy hire-purchase terms.
  • Procures, supplies and distributes indigenous and imported raw materials.
  • Develops software technology parks and technology transfer centres.
  • Creates awareness of technological upgrading.
NSIC also implemented a new performance and credit-rating scheme for small businesses with two objectives:
  • Sensitising small industries to the need for credit ratings.
  • Encouraging small business units to maintain a good financial track record.
4 District Industries Centres (DICs)
  • The District Industries Centres programme was launched on 1 May 1978 to provide an integrated administrative framework at the district level.
  • It provides services and support facilities to entrepreneurs for setting up small and village industries.
The main activities performed by DICs are:
  • Identification of suitable schemes.
  • Arranging credit.
  • Preparation of feasibility reports.
  • Provision of raw materials and other extension services.
  • DICs also attempt to support neglected groups, such as rural artisans, skilled craftspeople and handloom operators.
Entrepreneurship Development
  • An entrepreneur is a person who sets up a business or businesses, taking on financial risks in the pursuit of profit.
  • Entrepreneurship is the act of being an entrepreneur. The term is derived from a French word meaning “one who undertakes an endeavour.” Entrepreneurship may be defined as the process by which either an individual or a team identifies a business opportunity and acquires and deploys the necessary resources required for its expansion.
  • Entrepreneurship development seeks to equip a person with the necessary knowledge and skills required to successfully start and run an enterprise.
Entrepreneur (Person) Entrepreneurship (Process) Enterprise (Object)
Features of Entrepreneurship
Feature Explanation
Economic Activity
  • An entrepreneur seeks to satisfy the needs of society by offering appropriate goods and services.
  • Entrepreneurship is regarded as an economic activity because it is concerned with setting up a business enterprise in pursuit of earning profit.
Dynamic
  • A business operates in an ever-changing environment.
  • Entrepreneurship is dynamic in nature because the success of an entrepreneur depends on the ability to innovate constantly in light of changing situations.
Risk
  • Risk is inherent in every business activity, regardless of its nature and size.
  • Entrepreneurship, therefore, involves assuming risks of varied kinds and proportions in order to realise the desired goals.
People with High Competence
  • The success of an enterprise greatly depends on the proficiency of the entrepreneur.
  • Therefore, entrepreneurship is suitable for people who are equipped with the required knowledge and skills to work in challenging and innovative situations.
Purposeful Activity
  • Entrepreneurship is a meaningful activity.
  • Entrepreneurship involves the identification and implementation of new business ideas with the purpose of benefiting people at large.
Need for Entrepreneurship Development
Need Explanation
Employment Generation
  • By setting up a business enterprise, an entrepreneur creates job opportunities for many other people who are employed in the business.
  • Hence, entrepreneurship is regarded as a vital instrument for employment generation in the country through the establishment of new and small enterprises.
Balanced Economic Development
  • It has been observed that local talent and resources are effectively utilised by an entrepreneur who sets up a business in a rural area. Such businesses can be easily carried out in rural and semi-urban areas.
Innovations
  • Entrepreneurship provides an individual with the autonomy to explore and utilise creativity and talent in the best interests of the business as well as society at large.
  • It encourages innovation in enterprises, as small enterprises enjoy greater flexibility than large-scale enterprises. This also fosters the growth of small firms in the country.
Competing in the International Market
  • It has enabled Indian industry to compete in the international market due to the enhanced competence of small businesses in the country.
Social Benefits
  • It offers innumerable social benefits, such as ensuring the optimum utilisation of resources and raising people's standard of living by providing better-quality products at reasonable prices.
Process of Entrepreneurship Development
S. No. Stage Explanation
1 Self-Introspection The person or persons concerned undertake self-introspection to gauge their relative strengths and weaknesses.
2 Identification of Business Opportunities Various forthcoming business opportunities are identified in terms of the unsatisfied needs and wants of people.
3 Evaluation of Various Business Opportunities Various business opportunities are evaluated, and the selection is narrowed down to the best business idea.
4 Assessment of the Selected Business Idea The selected business idea is assessed in terms of its feasibility to become a viable business venture by conducting various types of research.
5 Raising Start-up Capital The entrepreneur takes steps to raise start-up capital.
6 Launching the Business Venture The business venture is launched, and the necessary activities are carried out to make it successful.
7 Fostering Growth To foster business growth, new ideas are developed and implemented through effective environmental scanning.
8 Harvesting The final stage relates to harvesting, wherein entrepreneurs may sell their business and gain rewards for their endeavours.
Startup India
S. No. Criterion Explanation
1 Meaning A start-up company is an entrepreneurial venture that is typically a newly established business aiming to meet a marketplace need by developing a viable business model around a product, service, process or platform.
2 Government Definition A start-up is defined by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India.
3 Registration A start-up means an entity incorporated or registered in India.
4 Period of Recognition It must be within seven years from the date of incorporation or registration, or within ten years in the case of start-ups in the biotechnology sector.
5 Legal Structure It must be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
6 Annual Turnover Its annual turnover must not exceed ₹25 crore in any of the financial years since its incorporation or registration.
7 Innovation and Scalability It must work towards the innovation, development or improvement of products, processes or services, or have a scalable business model with a high potential for employment generation or wealth creation.
An entity formed by splitting up or reconstructing an existing business shall not be considered a start-up.
An Entity Shall Cease to Be a Start-up
S. No. Condition
1 On completion of seven years from the date of its incorporation or registration, or ten years in the case of start-ups in the biotechnology sector.
2 If its turnover in any previous year exceeds ₹25 crore.
Objectives of Promoting Start-up
The government seeks to achieve the following objectives by promoting start-up initiatives in India. The scheme specifically aims to:
S. No. Objective
1 To foster a culture of entrepreneurship development and entrepreneurial values among people and develop a mindset towards initiating new projects independently by building upon their entrepreneurial skills.
2 To create awareness among the youth, particularly regarding the process of entrepreneurship, and develop a sense of achievement and prestige associated with being acknowledged as an entrepreneur by society.
3 To encourage educated youth from varied fields to give due consideration to entrepreneurship as an ideal, profitable and practicable career option.
4 To provide adequate assistance to budding entrepreneurs during the initial stages of setting up their businesses, from conception to promotion.
5 To ensure the development of entrepreneurship at the grassroots level and extend its benefits to the lower and backward sections of society. This will help promote inclusive and sustainable development within the country.
Start-up India Initiative
In order to boost start-up projects within the country, the government is providing due support in the following ways:
S. No. Initiative Explanation
1 Simplified Procedures The government has laid down simple, friendly and flexible procedures for setting up start-up ventures in order to encourage entrepreneurship.
2 The Start-up Hub India This platform has been specifically created for entrepreneurs to connect with other entrepreneurs, thereby facilitating the exchange of information, knowledge and financial resources. It includes interaction among advisers, consultants, mentors, guides and angel investors.
3 Legal Support and Fast-tracking of Patent Examination A well-defined system regarding the protection of start-ups’ intellectual property rights (IPR) has been provided to ensure the smooth processing and protection of patents, trademarks and designs of innovative and interested start-ups.
4 Easy Exit Besides providing a simplified procedure for setting up a venture, the process of exiting a start-up venture is also not difficult. This has been done to free budding entrepreneurs from the fear of being trapped in unsuccessful business ventures.
5 Tax Exemption In order to encourage entrepreneurship within the country, the profits of start-up ventures are exempted from income tax for a period of three years.
Ways to Fund Start-up
Source of Funding Explanation
Bootstrapping Bootstrapping refers to starting a business without external help or capital.
Venture Capital Venture capital is a type of private equity provided by firms or funds that take the risk of financing and investing in small, early-stage and emerging firms that are considered to have high growth potential. In exchange, they receive equity or an ownership stake in those firms.
Angel Investor An angel investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.
Start-up Accelerators or Seed Accelerators
  • Start-up accelerators are fixed-term, group-based programmes that include seed investment, connections, mentorship and educational components and culminate in a public pitch event or demonstration day to accelerate growth.
  • In contrast, business incubators are government-funded, generally take no equity and focus on biotechnology, financial technology, medical technology or product-centric companies.
Funding from Banks Banks also provide start-up funds that are essential for kick-starting a viable business idea based on certain assessments and conditions.
Government Support Since Start-up India is an initiative of the Government of India, the government also provides funds for such ventures through various schemes, such as the MUDRA Bank Scheme under the Pradhan Mantri Mudra Yojana. The initiative aims to provide microfinance and low-interest-rate loans to entrepreneurs from low socioeconomic backgrounds.
Intellectual Property Rights
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect.
Intellectual property encompasses two types of rights, namely:
  • Industrial property rights, including trademarks, patents, designations of origin, industrial designs and models.
  • Copyright.
  • It includes intangible creations of the human intellect and primarily encompasses copyrights, patents and trademarks, besides other types of rights such as trade secrets, publicity rights, moral rights and rights against unfair competition.
  • Moreover, artistic works such as music and literature, as well as certain discoveries, inventions, words, phrases, symbols and designs, can all be protected as intellectual property.
  • The rationale for formulating intellectual property law is to encourage the development of a large array of intellectual goods.
Importance of Intellectual Property Rights for Entrepreneurs
The various intellectual property rights are considered important for entrepreneurs for the following reasons:
S. No. Reason
1 It stimulates the conception of new, trend-setting inventions, leading to a paradigm shift in present approaches.
2 It acts as a source of motivation for inventors, authors, creators, etc., by providing them with due recognition for their exemplary work.
3 It brings financial gains to inventors by restricting the free distribution and communication of their work to the public without proper permission.
4 With the establishment of the WTO and India being a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), several laws were passed to protect intellectual property rights and meet international obligations. These included the Trade Marks Act, 1999; the Geographical Indications of Goods (Registration and Protection) Act, 1999; the Designs Act, 2000; the Protection of Plant Varieties and Farmers’ Rights Act, 2001; the Patents Act, 2005; and the Copyright Act.
Types of Intellectual Properties
The various types of intellectual properties are explained below:
Law Technology Business & Economics
Intellectual property rights are also deemed to be the legal rights conferred upon a creator or IP owner to prevent others from using the protected subject matter. They act as legal protectors of knowledge. Intellectual property rights are conferred upon a person only on the belief that the subject matter is their original creation related to a particular field, such as information technology, medicine, biotechnology, etc. The prime objective of granting intellectual property rights is also to promote the growth and development of business and industry within an economy. This is because they provide exclusive privileges to entrepreneurs to create a competitive edge.
Intellectual Property Rights Recognised in India
Intellectual Property Rights Recognised in India
The various types of intellectual property rights recognised in India are as follows:
S. No. Right Explanation
1 Patent
  • A patent is a form of right granted by the government to an inventor, giving the owner the right to exclude others from making, using, selling, offering to sell or importing an invention for a limited period, in exchange for the public disclosure of the invention.
  • An invention is a solution to a specific technological problem, which may be a product or a process, and generally has to fulfil three main requirements.
  • It has to be new and non-obvious, and it must have industrial applicability. To enrich the body of knowledge and stimulate innovation, patent owners are obligated to disclose valuable information about their inventions to the public.
  • The Indian Patent Office is administered by the Office of the Controller General of Patents, Designs and Trade Marks (CGPDTM). It is a subordinate office of the Government of India and administers Indian laws relating to patents, designs and trademarks.
  • The World Trade Organization’s TRIPS Agreement provides that the term of protection available for a patent should be a minimum of twenty years.
2 Copyright
  • Copyright gives the creator of an original work exclusive rights to it, usually for a limited period. Copyright may apply to a wide range of creative, intellectual or artistic forms or “works.”
  • Copyright does not cover ideas and information themselves, but only the form or manner in which those ideas are expressed.
  • The Copyright Act, 1957, as amended for the sixth time by the Copyright (Amendment) Act, 2012, governs copyright law in India.
3 Trademarks
  • A trademark is a recognisable sign, design or expression that distinguishes the products or services of a particular trader from similar products or services offered by other traders.
  • Indian trademark law statutorily protects trademarks under the Trade Marks Act, 1999, as well as under the common-law remedy of passing off.
  • In India, the Controller General of Patents, Designs and Trade Marks is responsible for ensuring the statutory protection of trademarks. This agency is accountable to the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry.
  • Trademarks may be grouped into two categories, namely conventional and non-conventional trademarks.
4 Geographical Indication
  • Geographical indications are generally traditional products produced by rural, marginal or indigenous communities over generations. These products have gained a reputation in local, national or international markets because of their specific and unique qualities. For example, a US firm cannot use a trademark in the name of basmati rice, as the rice is protected as a geographical indication under the GI Registry of India.
  • Goods that can be protected and registered as geographical indications may be grouped into categories such as agricultural products, natural products, handicrafts, manufactured goods and foodstuffs. Examples include Darjeeling tea, Nagpur oranges, Banaras brocades and sarees.
5 Design
  • Design is one of the categories of intellectual property rights in which the design system focuses on the aesthetic features of an article derived from its visual appearance.
  • Relevant aspects include the shape, configuration, surface pattern, colour, line or a combination thereof applied to an article, which produces an aesthetic impression on the sense of sight.
  • For example, a toothbrush design includes the pattern, ornament or composition of colours.
6 Plant Variety
  • The Protection of Plant Varieties and Farmers’ Rights Act, 2001, was enacted to provide for the establishment of an effective system for the protection of plant varieties and the rights of farmers and plant breeders, and to encourage the development and cultivation of new varieties of plants.
  • The rights granted under this Act are heritable and assignable, and only the registration of a plant variety confers the right.
  • Farmers are entitled to save, use, sow, re-sow, exchange or sell their farm produce, including the seed of a registered variety, in an unbranded manner.
7 Semiconductor Integrated Circuits Layout Design
  • A semiconductor integrated circuit is an integral part of every computer chip.
  • Furthermore, an integrated circuit is made up of hundreds or thousands of semiconductor devices and is not easily describable in a patent specification or its claims.
  • The Semiconductor Integrated Circuits Layout-Design Act, 2000, was passed in the year 2000. The Act supplements the protection provided to designs.
Traditional Knowledge
S. No. Explanation
1 It refers to indigenous knowledge and local knowledge systems rooted in the cultural traditions of regional, indigenous or local communities and based on a series of experiential observations and interactions with the environment.
2 Traditional knowledge includes knowledge about traditional subsistence technologies, such as tools and techniques for hunting or agriculture, ecological knowledge, traditional medicine, celestial navigation, ethnoastronomy and climate, to name a few.
3 This knowledge is passed orally from one generation to another.
Trade Secrets
S. No. Explanation
1 Trade secrets are also considered a type of intellectual property.
2 They include information related to a formula, pattern, compilation, programme, device, method, technique or process.
3 In India, trade secrets are protected under the Indian Contract Act, 1872.
4 These secrets help a business obtain an economic advantage by creating an edge over its competitors.
5 Trade secrets may also include substances that a person or company has not yet decided to patent, such as a new plant hybrid, chemical compound or technical invention.

The End

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A List of Notes:
Chapter 1  |  Chapter 2  |  Chapter 3  |  Chapter 4  |  Chapter 5  |  Chapter 6  |  Chapter 7  |  Chapter 8  |  Chapter 9  |  Chapter 10  |  Chapter 11  |  Chapter 12

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