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Entrepreneurship Concept EDP in India Indian Middle class value Entrepreneur Qualities Motivation Perception risk taking market survey business opportunity guidance role of DIC, SFC, Bank Working Capital assessment balance sheet costing book keeping decision making leadership communication skill Entrepreneurship Project (CPME9406)

Entrepreneurship Concept Entrepreneur An entrepreneur is a person who has possession of a new enterprise, venture or idea and assumes significant accountability for the inherent risks and the outcome. The term is originally a loanword from French and was first defined by the Irish economist Richard Cantillon. Entrepreneur in English is a term applied to the type of personality who is willing to take upon herself or himself a new venture or enterprise and accepts full responsibility for the outcome. Jean-Baptiste Say, a French economist is believed to have coined the word "entrepreneur" first in about 1800. He said an entrepreneur is "one who undertakes an enterprise, especially a contractor, acting as intermediatory between capital and labour." Background Entrepreneurship is often difficult and tricky, resulting in many new ventures failing. The word entrepreneur is often synonymous with founder. Most commonly, the term entrepreneur applies to someone who creates value by offering a product or service, by carving out a niche in the market that may not exist currently. Entrepreneurs tend to identify a market opportunity and exploit it by organizing their resources effectively to accomplish an outcome that changes existing interactions within a given sector.Observers see them as being willing to accept a high level of personal, professional or financial risk to pursue opportunity. Business entrepreneurs are viewed as fundamentally important in the capitalistic society. Some distinguish business entrepreneurs as either "political entrepreneurs" or "market entrepreneurs," while social entrepreneurs' principal objectives include the creation of a net social benefit. As a leader Scholar Robert. B. Reich considers leadership, management ability, and team-building as essential qualities of an entrepreneur. This concept has its origins in the work of Richard Cantillon in his Essai sur la Nature du Commerce en Gnral (1755) and Jean-Baptiste Say (1803 or 1834)[note 3] in his Treatise on Political Economy. A more generally held theory is that entrepreneurs emerge from the population on demand, from the combination of opportunities and people well-positioned to take advantage of them. An entrepreneur may perceive that they are among the few to recognize or be able to solve a problem. In this view, one studies on one side the distribution of information available to would-be entrepreneurs (see Austrian School economics) and on the other, how environmental factors (access to capital, competition, etc.), change the rate of a society's production of entrepreneurs. A prominent theorist of the Austrian School in this regard is Joseph Schumpeter, who saw the entrepreneur as innovators and popularized the uses of the phrase creative destruction to describe his view of the role of entrepreneurs in changing business norms. Creative destruction dealt with the changes entrepreneurial activity makes every time a new process, product or company enters the market.

Research into entrepreneurs Schumpeter argues that the entrepreneur is an innovator, one that introduces new technologies into the workplace or market, increasing efficiency, productivity or generating new products or services (Deakins and Freel 2009). Other academics such as Say, Casson and Cantillon, say the entrepreneur is an organiser of factors or production that acts as a catalyst for economic change (Deakins and Freel, 2009). Shackle argues that the entrepreneur is a highly creative individual that imagines new solutions providing new opportunities for reward (Deakins and Freel, 2009). These are a few definitions from the entrepreneurship field but show the complexity and lack of cohesion between academic research (Gartner, 2001). Most research focuses on the traits of the entrepreneur. Cope (2001) argues that although certain entrepreneurial traits are required the entrepreneurs behaviour are dynamic and influenced by environmental factors. Shane and VenKataraman (2000) argue the entrepreneur is solely concerned with opportunity recognition and exploitation; however, the opportunity that is recognised depends on the type of entrepreneur which Ucbasaran et al (2001) argue there are many different types of dependant on their business and personal circumstances. Social Entrepreneur Social entrepreneurs act within a market aiming to create social value through the improvement of goods and services offered to the community. Their main aim is to help offer a better service improving the community as a whole and are predominately run as non profit schemes. To support this point Zahra et al (2009: 519) said that social entrepreneurs make significant and diverse contributions to their communities and societies, adopting business models to offer creative solutions to complex and persistent social problems. Examples of socially run businesses include the NHS and also the 'Love One Water' drinks brand. Entrepreneurship Entrepreneurship is the act of being an entrepreneur, which is a French english word meaning "one who undertakes an endeavor". Entrepreneurs assemble resources including activity innovations, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity to entrepreneurs. The most obvious form of entrepreneurship is that of starting new businesses; however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spinoff organizations. According to Paul Reynolds, entrepreneurship scholar and creator of the Global Entrepreneurship Monitor, "by the time they reach their retirement years, half of all working men in the United States probably have a period of selfemployment of one or more years; one in four may have engaged in self-employoment for six or more years. Participating in a new business creation is a common activity among U.S. workers over their course of their careers." And in recent years has been documented by scholars such as David Audretsch to be a major driver of economic growth in both the United States and Western Europe. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high value" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs. In more recent times, the term entrepreneurship has been extended to include elements not related necessarliy to business formation activity such as conceptualizations of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship have emerged. History The entrepreneur is an actor in microeconomics, and the study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in theFrancis Ace SESE late 17th and early 18th centuries, but was largely ignored theoretically until the late 19th and early 20th centuries and empirically until a profound resurgence in business and economics in the last 40 years. In the 20th century, the understanding of entrepreneurship owes much to the work of economist Joseph Schumpeter in the 1940s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. In Schumpeter, an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. Entrepreneurship employs what Schumpeter called "the gale of creative destruction" to replace in whole or in part inferior innovations across markets and industries, simultaneously creating new products including new business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run economic growth. The supposition that entrepreneurship leads to economic growth is an interpretation of the residual

in endogenous growth theory and as such is hotly debated in academic economics. An alternate, description posited by Israel Kirzner suggests that the majority of innovations may be much more incremental improvements such as the replacement of paper with plastic in the construction of a drinking straw. For Schumpeter, entrepreneurship resulted in new industries but also in new combinations of currently existing inputs. Schumpeter's initial example of this was the combination of a steam engine and then current wagon making technologies to produce the horseless carriage. In this case the innovation, the car, was transformational but did not require the development of a new technology, merely the application of existing technologies in a novel manner. It did not immediately replace the horsedrawn carriage, but in time, incremental improvements which reduced the cost and improved the technology led to the complete practical replacement of beast drawn vehicles in modern transportation. Despite Schumpeter's early 20th-century contributions, traditional microeconomic theory did not formally consider the entrepreneur in its theoretical frameworks (instead assuming that resources would find each other through a price system). In this treatment the entrepreneur was an implied but unspecified actor, but it is consistent with the concept of the entrepreneur being the agent of x-efficiency. Different scholars have described entrepreneurs as, among other things, baring risk. For Schumpeter, the entrepreneur did not bare risk: the capitalist did. Some notable persons and their works in entrepreneurship history. For Frank H. Knight (1921) and Peter Drucker (1970) entrepreneurship is about taking risk. The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, spending much time as well as capital on an uncertain venture. Knight classified three types of uncertainty. Risk, which is measurable statistically (such as the probability of drawing a red colour ball from a jar containing 5 red balls and 5 white balls). Ambiguity, which is hard to measure statistically (such as the probability of drawing a red ball from a jar containing 5 red balls but with an unknown number of white balls). True Uncertainty or Knightian Uncertainty, which is impossible to estimate or predict statistically (such as the probability of drawing a red ball from a jar whose number of red balls is unknown as well as the number of other coloured balls). The acts of entrepreneurship are often associated with true uncertainty, particularly when it involves bringing something really novel to the world, whose market never exists. However, even if a market already exists, there is no guarantee that a market exists for a particular new player in the cola category. The place of the disharmony-creating and idiosyncratic entrepreneur in traditional economic theory (which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries. William Baumol has added greatly to this area of economic theory and was recently honored for it at the 2006 annual meeting of the American Economic Association. The entrepreneur is widely regarded as an integral player in the business culture of American life, and particularly as an engine for job creation and economic growth. Robert Sobel published The Entrepreneurs: Explorations Within the American Business Tradition in 1974. Zoltan Acs and David Audretsch have produced an edited volume surveying Entrepreneurship as an academic field of research, and more than a hundred scholars around the world track entrepreneurial activity, policy and social influences as part of the Global Entrepreneurship Monitor (GEM) and its associated reports. Promotion of entrepreneurship Given entrepreneurship's potential to support economic growth, it is the policy goal of many governments to develop a culture of entrepreneurial thinking. This can be done in a number of ways: by integrating entrepreneurship into education systems, legislating to encourage risk-taking, and national campaigns. An example of the latter is the United Kingdom's Enterprise Week, which launched in 2004. Outside of the political world, research has been conducted on the presence of entrepreneurial theories in doctoral economics programs. Dan Johansson, fellow at the Ratio Institute in Sweden, finds such content to be sparse. He fears this will dilute doctoral programs and fail to train young economists to analyze problems in a relevant way.

Many of these initiatives have been brought together under the umbrella of Global Entrepreneurship Week, a worldwide celebration and promotion of youth entrepreneurship, which started in 2009 Financial bootstrapping Financial bootstrapping is a term used to cover different methods for avoiding using the financial resources of external investors. Bootstrapping can be defined as a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors. The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. Many successful companies including Dell Computers were founded this way. There are different types of bootstrapping: Owner financing Minimization of the accounts receivable Joint utilization Delaying payment Minimizing inventory Subsidy finance

Entrepreneurial Motivation "Mind Your Own Business" Entrepreneurial Motivation introduction Are you spending all your time in other peoples business? Is your energy and effort spent minding other peoples concerns? I am not referring here to gossiping, rumour mongering or any such vice. I am referring to the thing that makes thousands of people in this country get up early in the morning, leave their families and their homes and make a mad dash through crazy traffic like its the end of the world. That thing is work. More specifically, it is employment. Whether in the formal or informal sector it is the dominant activity in many of our lives throughout the world. It is a necessary evil for most of us because deep down we would rather not be working for anyone else, but somehow we accept that it is the only way to get by. Once the paycheck arrives at the end of the month we feel relieved, though only for a little while, that we have our needs met. By the 10th of the month the waiting starts all over again. We have to endure the rest of the month until the next paycheck. That is a reality for a lot of people, not only in Zambia, but throughout the world. We have become slaves to our salaries. Making a living is killing us. It should be making our lives better. Entrepreneurial motivation - who are you working for? When you go to work everyday, whose purpose are you fulfilling? It is the purpose of the company or organization you are working for. You are employed to help your organization achieve its objectives. If someone else took over your position they would still do the same things you do in order to achieve the organizations objectives. If you are working for an individual the same reasoning applies. You are working to fulfill the purpose given to you by that individual. In both cases you are minding someone elses business. Entrepreneurial motivation - you are not what you do However the situation gets more complex: many of us have been led into the belief that the organisations purpose is our own purpose. We whole-heartedly take up the cause of the organisation as our own. Our thoughts and ideals slowly but surely come to be replaced by those of our workplace. We become the perfect employees. Whats wrong with that? Everything. You are not what you do. Your work is not who you are. Unfortunately, our education system hasnt helped in this regard. It has trained us to become what we study. If you study law you become a lawyer, studying auto mechanics makes you a mechanic and studying cooking makes you a cook. The mistake in becoming what you study is that too many people forget to mind their own business. They spend their lives minding someone elses business and making that person rich.Those are the wise words of Robert Kiyosaki, author of Rich Dad Poor Dad.

Entrepreneurial motivation - minding other people's business When you mind someone elses business they may be achieving their objectives, but you are definitely not. It doesnt matter how big your salary is. The fact is your boss or the owner of the business will always make more money than you. Why not mind your own business and make your own fortune? Dont get me wrong. There is a lot of value in working for someone else: if you know why you are working there. It should not be, as most of us think, simply to be able to get a salary. Neither should it be your sole purpose in life. Working for someone else should fulfill three main objectives: Entrepreneurial motivation - work to develop yourself Firstly, it should be a way of learning and getting more knowledge and skills. People that work simply for the purpose of getting paid are often not the most productive people. It is those that realise the value that working is adding to their knowledge and skills as individuals that always perform better and that are always ready for the next challenge. Such people know that what they will get from their job will ultimately help them to mind their own business by equipping them with what they need mentally to be able to fulfill their own purpose. Entrepreneurial motivation - work to invest Secondly, working should be a means of being able to meet your basic needs whilst you work on your real purpose. Everything worthwhile takes time to build and become self sustaining and profitable. During this building phase you obviously need something to help you along. Entrepreneurial motivation - work for financial independence Thirdly, it should be a way of raising the finances needed to be able to mind your own business. Your salary is not meant to be spent as soon as it is received. Robert Kiyosaki says the poor and middle class work for money. The rich have money work of them. Some of the money you earn should be utilized in helping you to become financially independent. It should be invested. That may be in the form of having a business, buying stock or shares or anything else, so long as your money is growing. Your money should be put to work for you. Entrepreneurial motivation - delay gratification Unfortunately, the more we earn the more we spend on luxury items. Everyone wants an expensive car and a humongous house. Thats good. Just make sure that you get those things after you have built up a good financial base. Would a smaller house and a cheaper car not do in the meantime? Of course it would. Maybe you can invest the rest of the money into something that will yield far greater benefits in the long run. The employee mentality is what keeps most of us slaves to the economy and other people. We need to stop minding other peoples business and start minding our own. At the very least we should do both. But do both well. Entrepreneurial motivation conclusion Paul the apostle said that you study to be quiet, and to do your own business, and to work with your own hands, as we commanded you that you may have lack of nothing. This statement was made close to two thousand years ago. Are we so slow to learn that up to this time we dont understand its message? As a dreamer, you need to understand its significance and mind your own business. Never lose track of your vision for your life. Do not ever get so busy making a living that you forget to live your life. You are all you can be. Go on and be it! Entrepreneurship in India Entrepreneurship / Innovation in India, the thoughts: Entrepreneurship is happening in India, but there isnt enough of it and there isnt enough of capital being invested into early-stage companies. There are two issues: lack of angel funding (whatever little was there has now almost dried up) and lack of the first-round funding. Ventures need about Rs 1-5 crore to get started, and about Rs 5-15 crore in first-round funding. Most VC funds in India are either not investing in tech-focused cos. or need to invest $5 million

(Rs 25 crore) given their fund size and the commitments they can make. India needs smaller funds with smaller overheads, with more operationally focused partners to mentor and guide early-stage companies. The digital opportunities in the Internet and mobile space both have challenges. The Internet cos. are dependent entirely on advertising (which has stagnated) and the mobile cos. are hamstrung by low revenue shares from mobile operator payouts. I continue to believe that the big opportunity in India is in building direct-to-consumer cos. in the mobile space, but this requires courage and capital. Also, exits in India are few and far between. M&A needs to be part of the process and that is simply not happening in India. Result: we have lots of small companies (since one can start) but few achieve scale. That is what needs to change. Training and Entrepreneurship Development Programme in India Importance of training Methods of training EDP- Need and importance Phases of EDP Selection of entrepreneurs for EDP Training programme - Course contents Pre requisites of EDP Organisations providing EDP

Importance of Training Ensures availability of skilled manpower at all management levels Enhancing abilities, potential among entrepreneurs Increase efficiency Maintain and enhance product quality Minimise wastages in production process Minimise accidents on the job Reduce fatigue and increase speed of work Standardisation in industry and internal processes Methods of Training Individual instruction Group instruction Lecture method Demonstration method Written instruction method Conference Meetings EDP Designed with an aim of encouraging self employment Imparts training and motivates potential and existing entrepreneurs to start new business or diversify and expand the existing one Helps employment and wealth creation among educated unemployed youth Well equipped to face risks and challenges as an entrepreneur Government needs considerable human and material resource, importance to detailed planning & implementation

Phases of EDP Select area from existing government policy guidelines/socio-economic reports Techno-economic survey of the selected area; feasibility study Identify potential and existing entrepreneurs interested in starting new business/expansion/diversification Training Follow up and consultancy services Selection of entrepreneurs for EDP The programme is well publicised and promoted to attract maximum applications for screening Selection of top 25 to 30 applicants only Applications screened for: Demographics and socio cultural data age, education, work exp, financial resources, type of business etc Motivation factors pull factors, source of encouragement, credibility, endurance, concreteness of plans Psychological test results- traits like risk taking, need for achievement Training Course contents Introduction to entrepreneurship Motivation training Essentials of management Fundamentals of project feasibility study Organising the business Plant visit Pre requisites of EDP Selection of entrepreneurs Inputs for EDP Support system Follow up Organizations providing EDP National Institute for entrepreneurship and Small Business Development (NIESBUD) Established by Government of India in 1983 An apex body for coordination and supervison on activities of various institutes engaged in entrepreneurial development Helps evolution of EDP, model syllabi, effective training strategies, methodology, manuals and tools Activities undertaken: Organise and conduct training programmes Coordinate training activities of various agencies/institutes Provide affiliation to such institutes Hold examinations and confer certificates to trainers and trainees Small Industries Service Institutes (SISI) Three months part time evening courses in management 4-6 weeks part time courses in intensive training in functional areas (marketing, finance) Special courses in quality control, HR, production planning, product development etc

Mobile workshops imparting training on correct usage of tools and equipment Helps with preparation of plant layouts Helps individual firms on specific problems faced Small Industries Development Organisation (SIDO) Runs EDP in collaboration with financial institutes, directorate of industries Gives on the job training on shop floor (carpentry, electrical devices) Sends its officials/trainers to organisations to update their knowledge National Small Industries Corporation (NSIC) Provides apprenticeship for 2 years Training supervisory staff of SSI up to 2 years Training to engineers up to 2 years Training workmen for 12 months Training to set up own venture Advice on machinery and components Production of technologically advanced machines Entrepreneurship Development Institute of India (EDII) Develops programmes for entrepreneurial training and development Develops innovative training techniques for trainers Focused attention on women entrepreneurs with first such EDP in 1988 EDP for rural entrepreneurship development in U.P and Orissa Famous for organising camps on entrepreneurship Condusted EDP in Sri Lanka, Nepal, Ghana, Kenya etc National Alliance of Young Entrepreneurs (NAYE) Contribution in encouraging women entrepreneurship Set up womens wing in 1975 This wing assists women in: Getting better access to resources, infrastructure, markets Identify investment opportunities Attending to problems of individual industries Sponsor participation in trade fairs, exhibitions, conferences Organise seminars, training programmes, workshops

The Indian Middle Class Sounds very much like the Great Indian Rhino! If such a comparison is attempted it will not be entirely out of the world. Like the great Indian Rhino the Indian middle class has a tough exterior but has a great inborn tendency towards extinction. The middle class of yesteryears is already extinct. Anyone who has recorded the middle class mass exodus to Uncle Sam's land as part of the 'geek' generation will vouchsafe that. No longer are our middle class homes inhabited by lungi-clad, newspaper-reading not-so-ambitious salary-earners. The middle classes have all but vanished; they have migrated to the new rich classes having acquired the greenbacks which have given them enormous amount of purchasing power. Of course not all the new rich owe their prosperity to the American dollar. There is also a powerful new generation of traders who have made it big without foreign money. Whatever may be the source of the newly-acquired money power the middle class is no longer of the same character as it was some years ago. Understandably the value system too has undergone a rapid change having lost some of the rigidity of the earlier values. The values are now more individual-centric than family or communitycentric. Coupled with dilution in ethical values there is this dramatic reduction in the obsession with the ritual. It is

not that the middle classes have become less religious or more materialistic. It is only that the structural rigidity of the ritualistic behavior of the earlier generation has slowly disappeared giving rise to 'nominalism' or a token adherence. A case in point is the rituals still being followed in marriages. These rituals are still a must for no parent would countenance a son's marriage without the customary 'satphera'. Not that people understand and appreciate the significance of the elaborate ritual prescribed in the shastras. But people still feel that the marriage is incomplete without the Panditji chanting those sonorous mantras invoking the gods. Their faith in the ritual is not one hundred percent but is merely an allowance for the tradition. Religious faith has not dimmed however in these classes. If the number of the new rich people visiting the Tirumala is any indication it would appear that faith continues to flourish although the methods of worship have also undergone enough changes with the passage of time. Thus a devotee of yester-years would have spent six hours of arduous wait to have a glimpse of the Lord. Today's new rich would not shrink from spending a few thousand bucks as bribes to short-circuit the queue. The middle classes who have graduated to the new rich have evolved their own peculiar value system which enables them to marry traditional faith with modern conveniences born out of newly acquired prosperity. Even in the matter of pursuit of material prosperity the middle classes have evolved their own peculiar value system which is a curious admixture of practical morality appropriate to the times and traditional values sanctioned by religion. Nowhere is this more apparent than in the highly ambivalent attitude of the typical middle class patriarch who thinks nothing of paying a major part of the capitation fee for his son's engineering seat in unaccounted money. The argument advanced is that this is the way of the world and he cannot be a lone Ramachandra in a world driven by the parallel economy. You will find the same gentleman feverishly arguing in the second a.c. train compartment that the country has gone to the dogs due to the evil of corruption which has eaten into the vitals of the economy. The attitude of the middle classes towards corruption is highly ambivalent. One suspects that they talk from the moral high ground whenever they themselves are victims of corruption in public places. Their reluctance to bribe stems not out of altruism but out of their perception of their own intellectual superiority. When it comes to grabbing or cornering a few of the benefits they are not averse to bribing themselves, a fact which they conveniently forget. As a matter of fact in the initial phase of their ascent on the ladder of material prosperity they had indulged in some palm-greasing themselves. The peculiar ethic which they have evolved for themselves embraces a perfectly elastic system with lots of emphasis on pragmatism. A few moral transgressions are ok in this scheme of things but not those which directly impact on other people's lives in an adverse manner. The middle classes still manage to keep their basic morality intact. That is why the seemingly prudish behavior of these people some times when they themselves are known to have committed a few moral transgressions. In the traditional Indian society there has always been a confusion between social morality and what the religion sanctions. The manu smriti is nothing but a body of sociological tenets dividing the social fabric on the basis of castes. We have seen how the caste system has held sway for thousands of years .This has become possible because although the manu smriti is a purely sociological document a sort of religious sanction has been given to the caste system which has been enunciated therein. Through centuries the Indian society has been mixing up religion with ethics. Unlike in religions like the Islam, Hinduism has been eclectic enough to incorporate in itself the frequent changes in social morality taking place in the wake of social upheavals. Nowhere is this more apparent than in the sociological behavior of the middle classes. In the constant confusion that takes place between religion and ethics the middle classes have through centuries been trying to reconcile changing social mores with immutable religious tenets. The dilution of the ethical standards that one witnesses in the evolution of the modern day middle classes is a result of this confusion. What is very apparent is the technical compliance of the social tenets that one sees more particularly in the middle classes achieved through implementation of the 'letter' and not the 'spirit'. Lastly, the middle classes are of course becoming extinct. By the very definition the middle classes are the middle-income groups who form the commonest denomination in any civilized society. What we mean by the disappearance of the middle classes is the slow vanishing of the earlier middle-income groups. It is of course a truism to say that in place of the fast disappearing old middle classes a new group of people from the low-income groups will take their places. The only difference would be in the speed with which the new middle classes will graduate to the rich. Such a change may probably take place in the next generation. Middle class in India, the Issues and Opportunities The middle class is not (yet) the biggest segment of Indias overall population. Given all the attention focused on Indias middle class in recent years, it is important to keep a proper perspective on its size and potential purchasing power. While there is no official definition of the middle class, estimates range from 30 million to approximately 300 million people. Even using the most generous estimates of the groups size, the middle class comprises less than

30 percent of the population. Thus, the rich and the poor combined far outweigh the Indian middle class. The importance of the middle class lies in the fact that it is the fastest growing segment of the population. The middle class is a growing consumer market. Going by one of the few estimates available, India's middle class consumption is roughly equivalent to Ireland's total private consumption and is forecast to triple as a share of India's total consumption over the next 15 years. Evidence shows that as income increases, the amount of discretionary spending and variety of this discretionary spending increases. For corporations, the middle class in India thus presents significant business opportunities. The sales growth of consumer goods such as televisions and mobile phones to the middle class has already been established, but a new range of products such as financial services is increasingly being geared towards this group as well. Education improvements are needed to match the needs of the growing middle class and the growing Indian economy. In order to ensure that the growing middle class is absorbed into the economy and can contribute to growth, the right education is crucial. Currently, private education and tuition are seen as essential to gain the necessary skills to be competitive. The challenge is to increase the quality of public education (particularly universities) and foster more competition between private and public players. Evidence on middle class apathy towards politics is vague. Although the middle class is often criticised by the media and politicians for its supposedly low voter turnout, the evidence remains mostly anecdotal. The financial crisis has hit the middle class, but optimism about the future reigns. Over the past two years of the crisis, middle class households have been hit by job losses and wealth erosion from the fall in the value of investment portfolios and property prices. Difficulties in repaying credit cards and other personal loans have been on the rise and many households have cut back on discretionary expenditures. Despite this, the middle class remains optimistic about their own future as well as the future of the Indian economy. Various definitions of the middle class lead to divergent size estimates There is no official definition of the middle class in India. The middle class not only categorises an income group, but also a political and social class and a consumer market. Thus, quantifying this demographic group can yield varying results.1 A McKinsey Global Institute study using National Council of Applied Economic Research (NCAER) data said 50 million people belonged to this group in 2005 if using the definition of real annual household disposable incomes between 200,000 and 1 million rupees.2 At the other end of the spectrum, a study by the World Bank estimated the group at 264 million in 2005 using the median poverty line in 70 countries as a lower bound and the United States poverty line as an upper bound.3 Another method employed by CNN-IBN in its middle class survey utilised a consumption-based criterion. The survey looked at whether a household owned a car or scooter, colour television, or a telephone, and estimated that the middle class equaled approximately 20% of the population or slightly over 200 million people.4 Regardless of which estimate is used, it is important to keep a proper perspective on the potential of the middle class. The middle class in India has generated tremendous interest from the media and multinational corporations looking for a new market demographic. However, despite its anticipated growth, the middle class is still a minority segment of the overall population. Using Indias planning commission estimates that 27.5% of the population in 2004-2005 was under the poverty line, then even the most generous estimates of Indias middle class puts it on par with or likely smaller than the size of the poor population (see chart 1).5 In addition, some of these larger estimates of the middle class include people living on USD 2 per day, which is not quite the demographic often pictured in the media as a group with credit cards, mobile phones, and other consumer goods. The importance of the middle class comes from the fact that it is growing at a faster pace than the overall population, so it will represent an increasingly larger market for companies and new challenges for policymakers.6 McKinsey data estimates that while the total population will increase almost 30% between 2005 and 2025, the middle class population will increase approximately 10 times or almost 1000% during this period.7 The middle class is a growing consumer market The Indian middle class as a growing consumer market has been widely covered. Chart 2 shows McKinsey estimates for how the middle class will change consumption distribution. There is a negative correlation between aggregate poverty and average consumption in India, whereby the decrease in poverty is associated with an increase in consumption.8 Studies have also shown that as income increases, a smaller percentage of it is spent on necessities such as food and more is spent on optional items.9 Thus, it is evident that in comparison with lower-income households, the middle class in India has a greater amount of discretionary income (i.e. income available after taxes and essentials such as food and shelter are taken care of) to use and it will be more diversified in its consumption choices. Findings from the governments national surveys (see chart 4 below) verify this trend in India. The surveys show that at the higher classes (12 is the highest class as categorised by mean per capita expenditures), the percentage of expenditure on food declines and the percentage of expenditure on discretionary items such as entertainment increases.

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Given the tremendous growth potential, an increasing number of products are being geared towards the middle class population. In the transport industry, which has traditionally been dominated by rail travel, newer cars like the Tata Nano (which retails for a little over USD 3,000) and low-cost airlines have enabled the middle class to be increasingly mobile. However, these items would only be available to those that fit into the McKinsey Institutes more narrow definition of the middle class with higher levels of disposable income. For the wider definitions of the middle class that include households with less disposable income, goods such as televisions and mobile phones have become increasingly popular. The growth in these products over the last several years (see chart 3) is largely attributed to the growing middle class. The use of financial services by the middle class has also increased significantly. Credit card growth has ballooned over the last several years (see chart 5) and the retail banking market offering unsecured personal loans has also grown tremendously. Before the financial crisis took effect, households were increasingly placing their savings in shares and debentures (12% of savings in 2007/2008 vs. 9% of savings the previous year) vs. more traditional routes such as government bonds. As the market and economic growth both continue to recover, this trend should continue. This provides opportunities for brokers and personal financial advisors to target the middle class. Even new fields, such as life insurance and trusts and estates advice, are being geared towards this demographic. There are still tremendous growth opportunities in many of these fields as can be seen in chart 6 where the majority of respondents in a CLSA survey of middle income and upper-middle income households still did not own a credit card as of mid-2009. The middle class should drive growth in India The growth of the middle class and the economic growth of India are in a virtuous cycle. Rising incomes lead to more consumption, which in turn leads to higher economic growth, then more employment opportunities and subsequently higher wages and the circle starts again. Thus, as the middle class grows and continues to increase domestic demand, the economy will also continue to grow. In terms of consumption, real private consumption (including both households and private companies) accounts for approximately 55% of GDP. As highlighted in the previous section, the growth of the middle class will continue to increase household consumption in the country. The middle class also demands better healthcare and education. In addition to the benefit of strengthening human capital stocks10 and thus productivity, this also leads to more private expenditure on healthcare and education and thus improvements in existing infrastructure. In fact, the CLSA survey of middle income and upper-middle income behaviour showed that education was the third largest household expenditure behind essentials such as rent/mortgage and groceries.11 In terms of investment (already around 35% of GDP), the growth of the middle class will also make an impact as it will force more business to expand or new business to take root. The middle class is also increasing its share of financial investments and thus providing new sources of capital for companies. Although household savings and investment rates as a % of GDP have remained relatively the same over the past several years, investment in shares and bonds has risen over the past several years (see chart 7 investments declined during the last year due to the financial crisis, but should be higher again in 09/10 as the markets have rebounded). As the middle class recovers from the crisis, this trend should continue. One key point to ensuring that the link between middle class growth and economic growth continues to strengthen is providing the right education and skills to the middle class and creating enough opportunities in society to absorb these employees. This point is discussed further in the next section. Matching middle class skills with the demands of the growing economy One benefit of Indias strong economic growth is that the economy has the potential to provide employment for the growing middle class. The boom in call centres and other outsourcing industries helped many households to achieve

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higher incomes over this past decade. However, one challenge is to continue increasing skills at all levels of the income pyramid to ensure that the newly emerging middle class (or those on the fringe of the middle class) are viable employees. The second challenge, of a more general nature, is to increase the number of skilled professionals in the workplace to change the structure of the economy to a higher-skilled economy. Graduates often do not have the necessary skills to be effective in the marketplace. For instance, the World Bank estimates that a threefold increase in civil engineering graduates would be necessary to meet Indias large infrastructure needs.12 To ensure that their children and they themselves have the necessary skills, families often spend significant amounts of their incomes on private education (see charts 2 and 3 in consumer section above on expenditure categories) and supplemental training (such as computer training) to remain competitive. The challenge is shifting this burden to employers, policymakers, and private-sector education institutes. Employers could focus on workplace training programmes. Policymakers could focus on continued improvements in public education and introducing new policies that encourage high-quality talent, and foster competition between different public and private universities to deliver better programmes. Although the government has significantly improved the primary education system in India (the primary school enrollment ratio is now near 90%) and thus middle class students and those on the fringe of the middle class have opportunities at a young age, higher education participation still lags behind other emerging market peers. In 2007, only 13.5% of pupils leaving secondary education enrolled in tertiary education within five years (see chart 8 for comparison with other emerging markets).13 This is often attributed to the poor quality of the universities in India. The renewed emphasis on education in the current five-year plan, increasing government expenditure on education, and plans to open up the field to foreign universities for investment and establishment of local campuses should improve the competition and quality of domestic universities and thus create better value for middle class aspirants. Ongoing reforms in terms of both public universities and in terms of education policy will be necessary. For private-sector education institutes, the challenge is to maintain high levels of quality education and thus be a source of competition among other universities (both public and private). This will help create more value for money and ensure those on the fringe of the middle class and unable to pay for education would be able to grow into the middle class. In combination, the efforts of employers and public and private education institutes will help to absorb the growing middle class more easily into the economy and thus contribute to growth. The political economy of the middle class From international newspapers such as the Times in the UK to local blogs, the middle class in India is often criticised for being apathetic towards politics.14 However, definitive statistics are difficult to find. Many analysts point to the low voter turnout in urban areas such as Delhi and Mumbai (where assumingly more middle class families live). However, using a more narrow definition of the middle class such as that from the McKinsey Global Institute, only 12% of urban households were middle class in 2005.15 In addition, even in some more rural states such as Uttaranchal and Chattisgarh, voter turnout has been low and in more urban states (such as Kerala) turnout has been high so using even a broader definition of the middle class and assuming a stronger urban middle class presence does not necessarily provide substantive proof of middle class apathy (see chart 9 for voter turnout in 2004 legislative elections). However, there is widespread anecdotal and suggestive evidence that while the middle class may have strong opinions about politics and the shape of the country, actual participation in the democratic system lags behind. For instance, in a Pew Research Center survey of the middle class in 13 countries including India (skewed to the urban middle class), 53% of respondents felt honest elections were important compared to 51% of the poor. In terms of free speech, 46% of the middle class and 39% of the poor respondents felt this was an important ideal. The same trend held true for freedom of press, freedom of religion, and other democratic ideals. However, when respondents were questioned on whether they would prefer a strong democracy over a good economy, only 49% of the middle class said yes vs. 57% of poor respondents. This switch was only found in one other country (Venezuela) in the 13-country study. One reason for this divergence between attitudes about politics and participation in reality may be the middle class emphasis on economic issues. For instance, the middle class might see less of a link between their priorities (the CLSA survey found the number one political priority for the middle class over the next 12 months was employment) and a new government vs. the poor (who are typically more concerned with things such as basic healthcare infrastructure or farm loan waivers that are more directly linked to the government). Even among the youth, this trend seems to continue. Although middle class youths with higher levels of education are more likely to say that it is a citizens duty to vote during election, actual election participation of youths with higher levels of education is less than their counterparts with lower levels of education.16 Voter activists and political party campaigns for the 2009 legislative elections tried to target the middle class and encourage voter participation through internet marketing campaigns and public service announcements, but anecdotally this only had a moderate effect. Even assuming the middle class makes up the majority of urban areas does not show any significant change (Delhi turnout increased slightly while Maharashtras turnout declined).

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The government already has a difficult task in preparing its policy agenda. Despite strong economic growth over the past decade, inequality in India has been on the rise. The Gini coefficient (a measure of inequality where 100 = high levels of inequality and 0 equals no inequality in an economy) is rather low for India overall compared to other EMs at less than 35 but has been increasing since economic liberalisation. Thus, although the poverty rate has been reduced, the rich continue to get richer in comparison. This presents a difficult challenge for the government. It must work to ensure that its economic agenda is beneficial to wide segments of society in order to retain ongoing support. If, rightly or wrongly, it is perceived that the middle class remains apathetic towards political participation as is currently thought, then the trend of focusing on poorer (often rural) voters to win elections could remain the dominant political paradigm in India. These voters often have strong turnouts and thus government programmes such as food subsidies and the National Rural Employment Guarantee programme are highly popular (notwithstanding their actual success ). A stronger political drive in the middle class would force or enable the government to also focus on issues that are of concern to them. The middle class remains optimistic despite being hit by the financial crisis Although India is now recovering from the financial crisis of the past two years, it is important to note the effect of the crisis and economic slowdown on the middle class. While unemployment as a whole is still lower than earlier in the decade, job losses increased. Job losses have affected workers both in blue collar jobs (such as construction) as well as in white collar jobs (such as IT). In addition, the decline in the stock market (50% between the peak in 2007 and the end of 2008 see chart 11) and real estate prices led to wealth erosion of the middle class because of their investments in these assets. In the CLSA survey on middle income and upper middle income households, 40% of respondents said that their employment had been affected by the downturn and over 30% of households overall income had been hit. In addition, less than 20% said they had purchased stocks in the last 12 months and less than 15% planned to buy stocks over the next 12-month period.17 Given that only 1.4-4% of household assets are estimated to be held in equities18, the slowdown effectively put the brakes on a nascent trend. As a result of these issues, many individuals in the middle class faced difficulties in repaying personal loans and credit cards that were rapidly accumulated in the boom years up through 2007. Personal loan delinquencies rose from approximately 4.5% in April to over 6% by early 2008.19 Local reports say that credit card defaults increased over 50% in 2009 from the year before and local banks such as State Bank of India are posting losses due to their credit card portfolios.20 65% of the CLSA survey respondents said that they were spending less on their credit cards, demonstrating the new cautiousness being felt by middle class consumers. In addition, many in the middle class cut down on discretionary spending and some of their savings. In the CLSA survey, a majority of respondents said that they had cut down on discretionary expenditures. Holidays were most frequently cut back, followed by jewelry and then transport.21 Despite the difficulties of the financial crisis, the middle class has still been relatively resilient and a majority appears to be optimistic about their own as well as Indias future. 65% of respondents in the CLSA survey said they felt employment prospects would improve over the next year. While some cautiousness likely remains, these optimistic feelings may have gained strength in the last several months (the survey was taken in June 2009) as both growth and the stock markets have been recovering strongly since Q3 2009. This is perhaps the most striking feature of the middle class. While they may be hit by the economic crisis and are not particularly active at the ballot box about voting for any change, they believe that India is on its way to becoming a global economy and the opportunities are there for the middle class to thrive on this growth.

Qualities of a Successful Entrepreneur: Entrepreneurs are persevering, are lovers of challenges, are action oriented and are quick to learn, and adopt techniques to perform better as well as improve their business. They are independent extroverts who have the ability to lead people, manage them effectively, and steer their business toward its success. They are intelligent and able to utilize their skills, time, resources, and energy effectively. They are emotionally stable and healthy. They set reasonable, realistic goals and determine the ways to achieve the goals without fuss, have good communication skills as well as the ability to judge people and trust them accordingly. They have business acumen even without attending any business school and have the right instinct to make the right decision at the right time. They have the ability to make maximum use of the available resources and do not fear failure and are able to solve problems and seek solutions to existing problems easily.

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Some Other Traits of Entrepreneurs: o Leadership: An entrepreneur is a natural leader with the vision and the drive to do things right and steer his company toward success with ease. o Confidence: He has to be self-confident, confident in his plans as he has carefully researched them and has mastered the skills necessary to implement them carefully. o Energetic: They have amazing capacity for hard work and are energetic, motivating those that come in contact with them on account of their drive and determination. o Creative And Innovative: This will be an essential criterion to design and sell products that are interesting which offer several benefits and have a competitive edge, making sure they capture the target market on launch without much difficulty. o Organized: Entrepreneurs have to be highly organized and systematic, making it possible to achieve things in a much shorter time. The ability to deliver anything that has been promised on time and the ability to stick to schedules are necessary for a person to be a successful entrepreneur. o Have Trouble Being Subordinates: They usually are strong-willed and have trouble working under someone else. o Highly Competitive: They are very competitive and will strive offer better services and products than the competition. o Will Not Hesitate To Take Risks: Risks are part of any business, and a successful entrepreneur will have the knack of taking calculated risks that will only benefit the business. o Will Not Hesitate To Seek Help When Necessary: They will hire necessary staff to help them in areas where they are not very confident. These are some of the traits of entrepreneurs, which can be used as a checklist to determine if someone has the capability to be an entrepreneur. If you do start your own business, be sure to use the services as well as products offered by some firms to help new entrepreneurs like you succeed.

Motivation Perception It should be interesting for you to know that the word motivation has its origin in the Latin word movere, meaning "to move." Psychologically, it means an inner or environmental stimulus to action, forces or the factors that are responsible for initiation, sustaining (and restraining/abstaining from) behaviour. ENTREPRENEURIAL MOTIVATION In common perception, entrepreneurs are after money and they engage in profit making. True, profit- as understood in terms of the residual income of the owner after meeting all the expenses incurred on the engagement and utilization of other factors of production-is the reward of entrepreneurship just as salary is to men and women in employment and professional fees is to those in profession. So everybody works for money. But people certainly dont work for money alone. After all, money is required not for its own sake, but for the sake of the needs of the person that it can fulfill. Money, thus, is not the need as such. It is teleological (to put it more simply, distantly) related to the internally felt needs (such as need for food) and socially acquired needs (such as status symbols).This leads us to the needs framework of studying entrepreneurial motivation. This framework serves the important purpose of enabling us to understand what motivates an entrepreneur. There are various variants of the needs framework, such as the Need Hierarchy Theory propounded by Maslow, Two-Factor Theory given by Herzberg and Three- Factor/ERG Theory formulated by Alderfer. _ We would, however, be referring to here much celebrated framework of manifest needs given by McClelland who may be regarded as the father of the study of entrepreneurial motivation. The prefix manifest suggests that you can easily perceive or observe these needs from the behaviour of the individual. As such manifest needs framework relates directly to what the entrepreneurs do

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and how they do it. Take for example the risk-taking and innovative behaviour of entrepreneurs that imply an individuals desire to undertake challenging tasks, pursuit of excellence and competitiveness. All these observable behaviours are summarised in Need for Achievement or N-Ach. NEEDS THEORY McClelland identified three types of manifest needs, namely, Need for Achievement (N-Ach.), Need for Power (NPow) and Need for Affiliation (NAff.). However, it is the N-Ach. That finds the pride of its place in entrepreneurship literature, so much so that achievement motivation is considered synonymous to entrepreneurial motivation. Need for Power (N-Pow.): If a man speculates about who is boss, he has a concern for power, notes McClleland. Need for power, in effect, is the concern for influencing people or the behaviour of others for moving in the chosen direction and attaining the envisioned objectives. In common perception, politicians, social-religious leaders Chief Executive Officers (CEOs), Government Bureaucrats/Civil Servants typify the need for power. Such a perception seems more based on the belief that the source of power lies in the position a person occupies in organizational/societal context. In the same vein, business ownership too may imply a need for power. Moreover, you would appreciate that the process of founding a business, one has to win the commitment of capital providers, suppliers of equipment and materials, the employees and that of the customers. Link this aspect of entrepreneurial motivation to the competencies related to Assertiveness, Persuasion and Influence Strategies. Need for Affiliation: If a man readily thinks about interpersonal relationships, he has a concern for affiliation, wrote McClleland. It implies, among other things, a tendency of the people to conform to the wishes and norms of those whom they value. Apparently, social activists, environmentalists, teachers, and doctors and nurses may seem as predominantly driven by these needs. Entrepreneurs are believed to be low on affiliation, as they are and expected to be, innovative, trendsetters and tradition breakers. However, it is not necessary that affiliation should only interfere with achievement. In certain cultures, family comprises the bedrock on which the successful careers are built. One works, as if, not for personal gratification but for family. Desire to carry on the tradition of business in the family and the community to which one belongs, may be interpreted as reflecting need for affiliation as well. In the countries with the colonial past, such as ours, the first generation of entrepreneurs in Independent India was driven by patriotic fervor and the desire to rebuild the economy left stagnated by the alien rulers. One can certainly trace some elements of affiliation in such instances. Moreover, some industries are particularly suitable for person with high need for affiliation and having distinct competencies in Empathy and Concern for Employees. Need for Achievement: Entrepreneurial behaviour is so much singularly attributed to this need that one may just stop short of taking entrepreneurial motivation and achievement motivation as synonymous. N-ach. Concerns issues of excellence, competition, challenging goals and overcoming difficulties. A complete achievement sequence would comprise, defining the problem, wanting to solve it, thinking of means to solving it, thinking of difficulties that get in the way of solving it (either in ones self or in the environment), thinking of people who might help in solving it, and anticipating what would happen if one succeeded or failed. The Entrepreneur, Risk Taking and the Profit Motive One of the more important players in the free market is the entrepreneur. In the free market the skills and risks which the entrepreneur is willing to take can be fully exploited by both producers and consumers to their advantage. Entrepreneurship manifests itself in many ways. Entrepreneurs start businesses, develop new procedures for the production and distribution of goods, act as middlemen between markets and are a source of information. The entrepreneur is also characterized by an alertness for opportunities which have been ignored or unseen by others. These opportunities are almost always accompanied by some profit. The perception that a profit can be made by a market action is perhaps the prime mover of the entrepreneur. To buy at a set price and then sell at a higher one and the accompanying freedom to keep the difference as reward for his

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efforts provides the individual with the proper incentive to utilize the skills and abilities, along with a calculated risk, which make an entrepreneur. Moreover, if the entrepreneur is to function at all, it is only by the absence of stifling government restrictions and regulations, which may inhibit any pursuit of perceived opportunities. The reference above to government restriction does not exclude the need for laws to prevent fraud and promote competition. The benefits which society gains from the actions of entrepreneurs are generally three-fold: Firstly, the entrepreneur, by learning from past mistakes, often develops better ways of utilizing resources. This means greater efficiency and often cheaper manufacturing methods which are introduced into the production process, thus saving resources and providing a relatively cheaper good to the consumer. Secondly, new resources are discovered. For example, in the last one hundred years man has seen electricity provided by coal, then water and now, by nuclear power plants and solar cells. Finally, it is through innovation, chance and alertness that much of our current technology has been produced. It is no mistake that the freest nations of the world have enjoyed supremacy in the field of technology, whether it be medical, biological, chemical, etc. Again, it must be said that these three benefits are available through the presence of those who are alert, who are risk takers and who are able to link markets for a profit. Some may believe that many of the more restrictive nations of the world also possess the same achievements as the freer western countries. A closer look often reveals that this is not true. In the vast majority of cases it is the West that has provided the Communist countries with what they possess. It is no secret that Henry Ford built many of the transport companies that are found in the Soviet Union today. It is no secret that the period of detente during the mid-1970 was a period in which the Soviet Union gained much needed technology from the United States and Western Europe. Manufacturing processes in the Soviet Union were often inefficient and labour intensive, the costs of which were invariably passed on to the Soviet consumer. It is also true that much of the benefits of technology of totalitarian nations is not available to their citizens, but is reserved for party and bureaucratic leaders or for the generation of export income. This was exemplified by the need of the wife of Andrei Sakharov to be treated for a heart condition in the west. All the cases provided above are maintained by the inability to link markets, discover new production techniques, to do as one pleases, or to think outside the boundaries of official dogma. In other words, the absence of entrepreneurship. The market order tends to generate goods and services to cater to the demands of the customer. More precisely, individual producers and sellers produce the goods and services, acting on the basis of their appraisal of the wants of the customers. If they are correct in their judgement then they will prosper, if not, they will not attract buyers and they will fail. Within a free market order, entrepreneurs have to take risks because the last word lies with the potential buyers, the consumers. This involves an element of risk for the entrepreneur and in return for the risk he demands a reward this is the profit margin. Profits serve the dual purpose of rewarding the successful entrepreneur (that is, the person who caters best to the wants of the public) and providing capital to develop the business. This may take the form of investment in updated plant for increased efficiency and lower prices, it may involve expansion into new products and new markets, it may involve the takeover of less thriving firms in order to put their resources to more productive use. Profits cannot be obtained by exploitation, unless the market is not free (a situation considered below). They are obtained by bringing the factors of production together in a creative manner that makes the resulting product worth more in the market than the sum of the individual components. In addition, the entrepreneur may find new ways to satisfy the wishes of consumers. The entrepreneur, within the private enterprise system, has been a target of attack. Entrepreneurs are supposed to be driven by unbridled greed to maximise their profits at the expense of workers and consumers. They use monopoly powers to exploit the workers with low pay and hazardous working conditions. And in modern times they have perfected various means of exploiting consumers as well, especially by advertising and control of the markets to force people to buy things that they do not really need or want. This overlooks the dimension that entrepreneurial impulse is diverted to antisocial ends when markets are distorted by law and political interference. Everyone acts as an entrepreneur to a greater or lesser extent in making use of their resources and assets to satisfy their wants and to do the best for themselves. In open markets entrepreneurs do the best for themselves by providing better or cheaper goods than their rivals. But another way to improve their position, and to minimise their risks, is to obtain government support to close the market to other competitors. The result can be a state-protected monopoly or a market where some firms have favoured status, for example by tariff protection against foreign competitors. Under these circumstances the monopolists can indeed exploit the consumers but this

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so-called "monopoly capitalism" is not a product of free market forces. It is a result of those forces being eliminated or reduced by government edicts. Where governments are prepared to make such edicts then a great deal of entrepreneurial flair will be diverted into lobbying and other activities that serve political purposes to obtain more favourable trading conditions, at the expense of the people. This results in guaranteed profits without the risks of the open market. The extreme form of the closed market is the socialist state or the state-run monopoly. Here the profit motive is absent, as is consumer choice. Those who see profits and market competition as the root of evil in the capitalist system close their eyes and minds to the inefficiency of state monopolies, and the way that consumers are invariably in a worse and more exploited position. Glaring inequalities persist because people with the right political or bureaucratic connections obtain access to the best of everything that is available. This is explained by the fact that the entrepreneurial impulse is not eliminated in state-controlled systems, it is simply turned to ends other than satisfying the wishes of consumers. At the upper levels of state-controlled systems (including the public service in western democracies) people struggle for power and influence, with a tendency to empire building. At lower levels the entrepreneurial flair of the "common man" is diverted to minimising the expenditure of effort or creating alternatives to productive work (ie restrictive work practices). The socialist attack on entrepreneurs, profits and open markets has been supported by the conservative and capitalist vested interests which were threatened by the transition from feudalism to democratic capitalism, or who fear the integrity of market forces. The industrial revolution ushered in a "market society" where individuals were to some extent forced to make their own way in the world, replacing the "status society" where people tended to take the rank and station of their parents. This created a great deal of tension and resentment among members of the upper classes who did not have the qualities required for success in the new system. The result is a highly conservative tradition of thought that sometimes nearly matches the extreme left in its hostility to capitalism, profits and the market order.

Market Survey Overview Whether you are starting a new business or launching a new product, conducting a marketing analysis is the first step in determining if there is a need or audience for your idea. Knowing the market's needs and how it is currently serviced provides you with key information that is essential in developing your product/service and marketing plan. Too often, businesses spend thousands of dollars launching a "new" idea with a limited market because of competition. The owner is forced to reevaluate his strategy and determine if there is room for another player. Although the quality of the product is critical, your development of the best product on the market will not necessarily correlate with the most sales. Up to 50 percent of a product's price can be for marketing. The company who wins the marketing game generally will capture the larger share of the market. For related information, see Identify Your Target Market.

Conducting a market analysis will help you: 1. Prepare to enter a new market 2. Launch a new product/service 3. Start a new business At the completion of this exercise, you should be able to:

Explain the concepts of a marketing analysis Determine if there is a need for your idea or product/service Identify a new market Analyze your current market Gain a competitive advantage Begin to establish a marketing plan

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I. Marketing Analysis - What Is It? Why Should You Do It? Although the terms "marketing" and "marketing analysis" can both be described as games of information, they are not to be confused. Marketing encompasses all of the activities that go into promoting a product or service. A marketing analysis is the actual assessment of the target population, competition and needs for marketing that product or service. The marketing analysis process can be broken down into six steps: 1. 2. 3. 4. 5. 6. Defining the problem Analysis of the situation Obtaining data that is specific to the problem Analysis and interpreting the data Fostering ideas and problem solving Designing a plan

So, why should you embark on the market analysis process? The primary reasons are:

To determine if there is a market for your products or services To establish the need for developing a marketing plan To ascertain market information that will assist in the sale of your product or service

Before embarking on the complete process, complete the following Market Analysis Questionnaire. Market Analysis Questionnaire To begin the market analysis process, answer the following questions. If you cannot answer every question, focus on finding the answers even if it means consulting others. This article can be downloaded or printed to enable you to complete the questionnaire. These questions will enhance your understanding and knowledge of your target market and industry, and ultimately determine: Is there a need for my product or service? 1. What defined market am I trying to reach? 2. What specific companies are servicing this market? a. Are they successful? b. Are there other companies servicing this market with a similar product? c. Are they successful? d. What is their market share? 3. Is the market saturated or wide open? If so, why? 4. What is the size of the market? a. Is it a growing market? b. Is the industry stable, volatile, growing or trendy? 5. How can I reach this market? a. How do my competitors reach the market? 6. What are the business models of my competitors? 7. What do customers expect from this type of product or service? 8. What core competencies must the product or service have? 9. What are customers willing to pay for this type of product or service? 10. What is my competitive advantage? II. The Complete Process: Defining The Problem

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Defining the problem is crucial to conducting a successful marketing analysis. This may require a great deal of time but it is well worth the time and energy expended. Defining the objectives is tantamount to a successful marketing campaign. Many individuals waste valuable time performing good research on the wrong problem. The following questions will assist you in defining the problem: 1. Are we trying to market our entire product or service line? Or, are we trying to hone in on a new product or a new service? 2. What specific marketing strategies have we utilized in the past two years? a. How has each strategy affected sales? b. What strategies are we currently using? c. How do our competitors market their product? 3. How much money is allocated to marketing? 4. When making a sale, do we survey our customers to determine a referral source? a. Do we thank our referral source? 5. Why would someone choose our product? a. What differentiates our product from our competitors' products? b. Why do people choose our competitors' products or services? c. Do we need to enhance our current product or service? 6. Who are our customers? a. Are they from a specific region? b. How do we attract new customers? c. How do we increase sales from current customers? Many companies fail to understand the nature of the problem before trying to solve problems related to sales. A classic example occurred in the soft drink industry when Coke and Pepsi, the two top soft drink rivals increased the intensity of marketing efforts to battle for higher sales. At the same time, Dr Pepper's revenues began to decline, a problem that was attributed to a weak promotional campaign. Subsequently, the "Be a Pepper" slogan was instituted. Although the ads were a hit, revenues continued to decrease. The marketing managers had to reanalyze their problem. Focused research revealed that the target population for Dr Pepper differed from Coke and Pepsi. It was found that Dr Pepper's target market believe life should be lived in accordance with one's own set of personal values and not based on the expectations of others. Cola drinkers, on the other hand, try to win the approval of others. Despite the catchy slogan, Dr Pepper's marketers turned away prospects with a campaign that invited them to be part of a large group of "Peppers." The soft drink industry clearly exemplifies the importance of defining the problem. It is important not to confuse the symptom with the problem. If a company is having trouble selling a certain product, it doesn't mean that there isn't a need. The problem may be distribution and/or pricing. Mistaking symptoms for problems will lead to misguided research and serious mistakes. B. Analysis Of The Situation An analysis of the situation is an informal survey of what information is available in the problem area. The analysis will help define the problem and ascertain the need for additional information. This process entails informal talks with informed people. Informed individuals can be others in the company or outsiders with knowledge about the industry or product. In some instances, customers are contacted to provide information. When the marketing manager is unfamiliar with the situation, the analysis step is of primary importance. It is important to understand the problem area - including the nature of the target market, competition, the marketing mix and the external environment. Without this knowledge, costly mistakes may result. An example of this problem would be a retailer who wants to survey his customers. A research firm is hired to do in-store interviews. However, as an example, the contracted firm is not aware that many of the stores are in the process of being renovated. As a result, the information collected reveals the customer's focus on the appearance, noise level and difficulty finding items due to construction. The information would be of no value. The analysis should focus on both primary and secondary research.

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Primary And Secondary Market Research: If you don't have all the answers to the questions listed in the Problem Definition section, you can find the answers by either conducting primary research or accessing secondary research. Primary research is research that is proactively created for a specific purpose. Primary research may include focus groups, qualitative surveys and phone interviews. This is information you collect yourself. In contrast, secondary research is research that has already been conducted for other purposes. From it valuable information can be gleaned. Secondary research can be found in libraries, online, through periodicals, books, etc. The easiest and most efficient way of accessing this type of data is on the Internet. If you want to conduct a detailed industry search, and just type in "industry research reports" and you'll receive a variety of sites. The more specific you are, the more defined your search will be. The Internet is an excellent tool to conduct a competitive analysis. Simply type in the company name followed by .com. If this doesn't work, try accessing the online yellow pages and type in your competitor's company name. If they have a Web site, you'll have an insider's view of their services and various other reports. Demographic and competitive reports can be attained for a fee at Dun and Bradstreet's Web site, dnb.com. Industry newsletters can be emailed to you when new data is reported. By searching your industry on the Internet, you will uncover lots of potentially valuable marketing analysis information. Other widely used standard research sources include:

Trade and Industry Sources such as Gale Research publishes the Small Business Source Book, which has a strong focus on retail trade. It lists industry associations, trade shows and conventions, consultants and venture capital firms. Forrester Research and Gartner Research publish detailed reports and studies focusing on the information technology industry. American Demographics Magazine Federal level and state governments publish reports on specific industries, markets and products. To receive a list of publications call the U.S. Printing Office in Washington, D.C. (202) 783-3238 The U.S. Department of Commerce publishes the U.S. Industrial Outlook each January. It provides a general economic outlook by forecasting growth rates for the coming year and reporting on the production of the last year. The U.S. Census Bureau publishes more than 100 current industrial reports on 5,000 manufactured products. Consumer Information Reports, better known as CIRs, provide information on production, shipping, inventories, consumption and the number of firms manufacturing each product.

Once you feel comfortable entering a market, make sure your market will be receptive to your product or service. Your widget might be the most innovative on the market, but if your target market doesn't think so, you may be in for a costly year. A comprehensive primary market research study is ideal. For it to be comprehensive, the research should include information from field and laboratory studies to professionally run focus groups. If you are unable to perform a comprehensive study, conduct a focus group to achieve a comfort level. C. Obtaining Data Specific To The Problem The next step requires gathering primary research and performing a formal research project. Many approaches can be used to collect primary data. The purpose is for the research to identify what customers think about some topic or behavior patterns. Research can be done in person or through a survey. Questioning can be qualitative or quantitative. Another research option is to use observation of customers and their purchases or utilization of a product or service.

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Qualitative research utilizes open-ended questions to obtain in-depth answers. Closed-ended questions requiring yes or no answers are avoided. The idea is to have people share their thoughts on a topic without giving them extensive directions or guidelines. Examples of qualitative research questions include: "What do you think about when you decide on a place to shop for your kids' clothes?" The consumers are free to answer as they chose: one might talk about convenient location, another about service, and others about the type of designer clothing available. Depth is the important factor in this type of research. Follow-up questions can be asked of each individual to better understand their response and shopping habits. The qualitative approach requires the researcher to exercise judgment in summarizing all the information. Depth is the key. Qualitative research doesn't have to be question-oriented. Focus group interviews are the most widely used format for qualitative marketing research. This involves the interviewing of six to 10 people in an informal setting. Openended questions are posed to gather in-depth information on the subject matter. In a group setting the researcher looks for group interaction to stimulate thinking. A skilled focus group leader or facilitator can learn a lot from this approach. The facilitator's role is to establish guidelines for the group interaction, to talk as little as possible, to keep the group focused, and to ask simple openended questions. A typical focus group session lasts an hour. The sessions can be videotaped for different managers to view. Conclusions reached vary depending on the skill level of the individual. Although qualitative research can be objective, it requires extensive training and experience. Qualitative research may provide ideas or hypotheses, but other approaches based on larger sample size and objective measures are needed to test the hypothesis. Researchers often use qualitative research to prepare for quantitative research. Quantitative research differs from qualitative in that it gathers parametric statistical information, i.e., information with a number to it. Sample sizes are generally larger and more representative of the market. From the statistics or data generated, conclusions can be drawn. Survey research is usually quantitative in nature. It seeks structured responses, which can be summarized in numbers, like percentages, averages or other usable statistics. An example of quantitative research is what percentage of the consumers shopping in grocery stores purchase coffee. An average score can be calculated. Survey questionnaires often provide fixed responses to questions to simplify the reply. This multiple choice format makes it faster and easier for the respondent. Simple fill-in-the-number, circle-the-range or exact answer questions are also widely used. A market researcher might ask how many suppliers you use for household appliances or what is your salary range (multiple choices given with ranges of salaries). Fixed responses are computer-friendly, which is how most surveys are analyzed. A common approach to objectively measuring consumers' attitudes and opinions is to have respondents indicate how much they agree or disagree with a questionnaire statement. Another approach is to have respondents rate a product using a rating scale, called a Likert scale. A number is attached to the product value, for example: Excellent Good Fair Poor = = = = 4 3 2 1

A researcher interested in what a target consumer population thinks about a particular frozen dinner might use the following example:

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A. Please check your level of agreement with each of the following statements. Strongly Strongly Agree Agree Uncertain Disagree Disagree 1. I add extra seasoning when I prepare a frozen dinner. 2. A frozen dinner is more expensive than eating at a fast food restaurant. B. Please rate how important each of the following is to you in selecting a brand of frozen dinner. No Very Importance Important 1. Price per serving 2. Amount of meat 3. Amount of vegetables 4. Cooking time C. Please check the rating which best describes your feelings about the last frozen dinner you prepared. Poor Fair Good Excellent 1. Price per serving 2. Amount of meat 3. Amount of vegetables 4. Cooking time

Decisions about what specific questions to ask and how to ask them usually depends on how the respondents will be contacted: by mail, in person or by phone. A mail questionnaire is useful when extensive questioning is desired. This type of format allows the respondents to complete the questions at their convenience. They may be more willing to fill out personal or family sensitive issues since the mail questionnaire can be returned anonymously. The questions must be simple and the directions easy to follow, since no interviewer will be present to assist. The response rate to consumer survey questionnaires is usually 25 percent. Response rates less than 25 percent may not be representative of the market. Only the individual interested might respond, skewing the data. Mail surveys are economical if a large number of people respond. On the other hand, if the response rate is low, this can be a very expensive proposition. This format is slow and requires extensive time to design, disseminate, collect and analyze responses. Telephone surveys are growing in number, and they can be fast and effective. In this format market researchers can ascertain answers to simple questions quickly. Telephone interviews allow the interviewer to probe and learn what the respondent is thinking. If the market researcher is attempting to gather personal or family sensitive information, this is a poor tool. Numerous firms exist for telemarketing surveys. One thousand respondents may be reached in a single evening when 50 interviewers are placing telephone survey calls. With immediate data entry into computers, results can be attained instantaneously. This format has gained popularity due to the speed and high response rates. Personal interview surveys can be effective for maintaining a respondent's attention. In this format the interviewer is present in order to explain difficult directions hopefully leading to better responses. This type of interview is common in the retail and industrial setting. To reduce the cost of locating consumers, interviews are sometimes

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performed on-site. A random selection of consumers is questioned. Having a well-trained interviewer helps to decrease the chance of biasing the response. There are a number of negatives to the personal interview survey. It is more expensive than a mailing or phone call, and at times the respondents won't objectively answer all questions, especially ones dealing with sensitive family issues. Observation can be used for data collection. With observation, researchers try to learn what the subject does naturally. Observations should not influence the consumer's behavior. Observation methods are common in advertising research. D. Data Analysis and Interpretation Data analysis and interpretation is critical in analyzing the market. What does this information mean? Can one use the data in a constructive way to define the problem and then establish a plan? In quantitative research, this step most often involves statistics. In the marketplace one can find many statistical packages (computer-based) to analyze the data. It is impossible to collect data on every person in a select population; therefore samples are necessary. A sample population is a part of the relevant population. How well the sample reflects the relevant population dictates its validity. Results from a sample that is not representative will negatively impact your marketing. Example of Poor Sampling: A store manager has his staff conduct phone surveys during the hours that the store is open. The survey is conducted between 11:00 am and 2:00 p.m. This survey does not represent the general population, as it doesn't include people who work during those hours. The sample will only assess individuals who don't work or just happen to be home then. The quality of the research data is another consideration. The data must be valid - in other words, you must be measuring what you want to measure. A poorly worded question can be ambiguous, leading to incorrect information. In addition to sampling and validity issues, marketing managers must make sure the data supports the conclusions drawn. This is the interpretation step. Despite use of the correct statistical tool and accurate calculations, the interpretation could be wrong. Example of Data Misinterpretation: In a survey, parents were asked to rank five infant car seats for ease of use. They were to rank the seats in order from "most preferred" to "least preferred." One car seat was ranked first by slightly more respondents than any other car seat. The researchers reported that it was the most liked car seat by parents with infants. They failed to report that 70 percent of the respondents preferred that particular car seat least. So, the first-ranked car seat was most preferred by only 30 percent of the parents. E. Fostering Ideas And Problem Solving In this step, the research results are used to make marketing decisions. The findings should be applied in marketing planning. If the research doesn't provide the information necessary to make these decisions, the company, whether small or large, has wasted its time, money and manpower on unnecessary data. The final step must be anticipated throughout the entire process. F. Marketing Plan This six-step process of market analysis is critical in designing a marketing plan that is tailored to your specific product or service. The process can be extremely helpful in disclosing a significant but previously unrecognized problem. By finding and focusing on the real problem, the researcher and business owner can move quickly to a useful solution. Role of District Industries Centre (DIC) 1. 2. 3. 4. 5. 6. Technical support for preparation of Project Report. Information on sources of machinery & Equipment. Priority in Power supply/ Telephone connection. Promotion of new Industrial Estates/ Growth Centres. Land/ Shed in Industrial Estate. Approval of Project Reports of special types.

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7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Promotion of Electronic Industries. Govt. Margin Money Loan under Additional Employment Programme. Training through Entrepreneurship Development Programme. Assistance under State Incentives Scheme. Allotment of Raw Materials. Financial Assistance under Self Employment Schemes. Financial assistance through Bank/ WBFC/ WBSIC/NSIC. Assistance under Equipment Leasing Scheme through NSIC. Marketing linkage with Central Govt./ State Govt. organizations/ undertakings. Marketing assistance through WBSIC/NSIC/CEO. Ancillary Industry tie-up with Govt. undertakings. Marketing information. Marketing assistance through participation in Exhibitions/ Trade Fairs/ Buyers-Sellers Meet etc. Marketing assistance to Handicrafts Artisans through participation in Handicrafts Expo and Exhibition inside/ outside of the state. Linkage with organizations like WBHDC/ WB State Handicrafts Co-operative Society Ltd./Development Commissioners ( Handicrafts ). Attending problems related to SSI Registration/ Bank loan/ Marketing of production etc. Linkage with Research Institutes like CMERI/CGCRI/NML/CFTRI etc. for technology up gradation and innovation. Financial Assistance for modernisation of Unit. Skill development training through own workshop/ organisation like SISI, PDTC/ Coir Board/ETDC. Managerial capability improvement through training, workshop, seminars. Export assistance. In plant study of their SSI Units. Standardisation of products. Sick unit Revitalisation. National level awards for innovative products/ outstanding growth/ exports etc. Promotion of products under Non-conventional Energy Sources. Assistance under Coir development Schemes. Registration of Industrial Co-operative and financial assistance to them. Pollution control.

23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

35. Assistance under scheme promoted by W.B.Minority Dev. Finance Corporation/ KVI Commission/ Board and such other organisations. 36. 37. 38. 39. 40. Single window assistance through SIDA and District Industries Centres. BSAI Loan for Cottage Industries. Design & Product Development for Handicrafts. Awards to Handicrafts Artisans. Development of Lac Industries.

41. Setting up of Bio-gas plants. State Financing Corporation :

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SFC is a term lending Institution for promoting small and medium scale industries under the provisions of the Sate Financial Corporations Act, 1951. The corporation has launched many entrepreneur-friendly schemes to provide term loans, working capital term loans, and special and seed capital assistance to suit the needs of various categories of entrepreneurs. The Corporation has completed five decades of dedicated service in industrial financing of tiny, small and medium scale sector units and contributing to the balanced regional development of the state. Objective of State Financing Corporation To industrialize the State through balanced regional development and dispersal of industries To support promotion and development of tiny, small and medium scale industries and service sector units by extending need based credit to them. Nurtures entrepreneurship and encourages first generation entrepreneurs To act as a catalyst for generation of employment Role of Commercial Banks In Financing Small and Medium Enterprises. Small and Medium Enterprises (SMEs) constitute the backbone of an economy. They not only provide employment and therefore income opportunities to a large number of people, but are also at the forefront of technological innovation and export diversification. The definition of SMEs varies from country to country. The classification can be based on the firms assets, number of employees, or annual sales. SMEs can be defined - according to International Finance Corporation - as firms with less than 300 employees and total assets less than US$15 million. In smaller economies, SMEs are defined as firms with less than 20 employees. Whatever the definition, and regardless of the size of the economy, the growth of SMEs is becoming increasingly crucial to economic growth. The issue of SMEs development ranks high among the priorities of socio-economic development, given the growing need for employment creation and poverty alleviation. There is also an urgent need to create a strong competitive SMEs sector that is able to play a leading role in the development process, in order to be able to face the various challenges posed by global economic developments. It is within this context that SMEs development became of focal attention for governmental as well as non governmental organizations including donor agencies. There is a broad consensus on the significance of entrepreneurship skills among the driving forces for SMEs to develop. For entrepreneurship to flourish they need the right conditions. This requires bringing the specific needs of the enterprise to the center of the policy-making process, and the recognition that SMEs are to be assisted not because they are small, but because of their capability to be efficient, innovative and able to compete in the local and international markets. Finance among the Prerequisites for SMEs Development: In dealing with the issue of SMEs we have to notice the premise that for SMEs specific policies or programs to bear fruit they must be placed within the larger context of the country's economic policies. Financing is one of the necessary prerequisites for SMEs development such as legislative, marketing and research requirements. Lack of finance represents a major obstacle to SMEs growth and development. It is undeniable that in both developed and developing countries, SMEs traditionally lacked access to formal credit, particularly long-term finance. This is because SMEs are considered of high risk due to insufficient assets, low capitalization, and lack of collateral as well as high vulnerability to market conditions. Experiences with SMEs development efforts worldwide suggest that the most successful efforts were those that sought to stimulate intermediaries to provide competitive finance to SMEs, rather than the provision of direct financial assistance in the form of support programs, which have proven to be costly and inefficient. Role of the Banking Sector in Financing SMEs: The banking sector - specifically commercial banks and specialized banks - have several ways to get involved in SMEs finance, ranging from the creation or participation in SMEs finance investment funds, to the creation of a special unit for financing SMEs within the bank. Banking Sector services provided to SMEs, take various forms, such as (1) short term loans, compatible with SMEs business and income patterns (2) repeated loans, where full repayment of one loan brings access to another, and where the size of the loan depends on the client's cash flow

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(3) very small loans, or bank overdraft facilities are also appropriate for meeting the dayto- day financial requirements of small businesses (4) factoring and invoice discounting, asset finance (including commercial mortgages), and equity finance, all being within the framework of a customer-friendly approach. In providing all these services, it is recommended that banks take into consideration (1) that outlets are located close to entrepreneurs, (2) to use extremely simple loan applications, (3) to limit the time between application and disbursement to a few days (4) as well as to develop a public image of being approachable to low-income people. These are all among the characteristics that should be available in banking units serving the SMEs sector. Advantages of Commercial Banks in Financing SMEs: Commercial Banks have several advantages over non-bank financial institutions (NBFIs) and non governmental organizations (NGOs) when it comes to financing SMEs as they have (1)Clear Regulations illustrating the conditions of ownership, financial disclosure, and capital adequacy that help them ensure prudent risk management (2) Physical Infrastructure, includinga large network of branches, which enables them to reach a substantial number of small andmedium sized clients (3) Well-Established Internal Controls, Administrative and Accounting Systems which facilitate keeping track of a large number of transactions (4) Ownership Structures Increasingly Dominated by Private Sector which tends to encourage sound governance practices, seeking cost-effectiveness and profitability. This ownership structure also usually leads to stainability in funding sources - mainly relying on deposits and equity capital - rather than depending on scarce and volatile donor resources, as NGOs do. All of these advantages give commercial banks a special edge over NBFIs and NGOs in providing financial services to SMEs. Moreover, the computerization of accounting softwares used by commercial banks could make great headway in increasing transparency which leads to attracting private investors to the SMEs sector.

Working Capital assessment

Every running business needs working capital. Even a business which is fully equipped with all types of fixed assets required is bound to collapse without (i) adequate supply of raw materials for processing; (ii) cash to pay for wages, power and other costs; (iii) creating a stock of finished goods to feed the market demand regularly; and, (iv) the ability to grant credit to its customers. All these require working capital. Working capital is thus like the lifeblood of a business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. Working capital cycle involves conversions and rotation of various constituents/ components of the working capital. Initially cash is converted into raw materials. Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get converted into work in process and then into finished goods. When sold on credit, the finished goods assume the form of debtors who give the business cash on due date. Thus cash assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a result, they rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital. While managing the working capital, two characteristics of current assets should be kept in mind viz. (i) short life span, and (ii) swift transformation into other form of current asset. Each constituent of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period. The life span of current assets depends upon the time required in the activities of procurement; production, sales and collection and degree of synchronization among them. A very short life span of current assets results into swift transformation into other form of current assets for a running business. These characteristics have certain implications: i. Decision regarding management of the working capital has to be taken frequently and on a repeat basis.

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ii. The various components of the working capital are closely related and mismanagement of any one component adversely affects the other components too. iii. The difference between the present value and the book value of profit is not significant. The working capital has the following components, which are in several forms of current assets: Stock of Cash Stock of Raw Material Stock of Finished Goods Value of Debtors Miscellaneous current assets like short term investment loans & advances The working capital needs of a business are influenced by numerous factors. The important ones are discussed in brief as given below: i. Nature of Enterprise The nature and the working capital requirements of an enterprise are interlinked. While a manufacturing industry has a long cycle of operation of the working capital, the same would be short in an enterprise involved in providing services. The amount required also varies as per the nature; an enterprise involved in production would require more working capital than a service sector enterprise. ii. Manufacturing/Production Policy Each enterprise in the manufacturing sector has its own production policy, some follow the policy of uniform production even if the demand varies from time to time, and others may follow the principle of 'demand-based production' in which production is based on the demand during that particular phase of time. Accordingly, the working capital requirements vary for both of them. iii. Operations The requirement of working capital fluctuates for seasonal business. The working capital needs of such businesses may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers, while in winters the sales are negligible. iv. Market Condition If there is high competition in the chosen product category, then one shall need to offer sops like credit, immediate delivery of goods etc. for which the working capital requirement will be high. Otherwise, if there is no competition or less competition in the market then the working capital requirements will be low. v. Availability of Raw Material If raw material is readily available then one need not maintain a large stock of the same, thereby reducing the working capital investment in raw material stock. On the other hand, if raw material is not readily available then a large inventory/stock needs to be maintained, thereby calling for substantial investment in the same. vi. Growth and Expansion Growth and expansion in the volume of business results in enhancement of the working capital requirement. As business grows and expands, it needs a larger amount of working capital. Normally, the need for increased working capital funds precedes growth in business activities. vii. Price Level Changes Generally, rising price level requires a higher investment in the working capital. With increasing prices, the same level of current assets needs enhanced investment. viii. Manufacturing Cycle The manufacturing cycle starts with the purchase of raw material and is completed with the production of finished goods. If the manufacturing cycle involves a longer period, the need for working capital would be more. At times, business needs to estimate the requirement of working capital in advance for proper control and management. The factors discussed above influence the quantum of working capital in the business. The assessment of working capital requirement is made keeping these factors in view. Each constituent of working capital retains its form for a certain period and that holding period is determined by the factors discussed above. So for correct assessment of the working capital requirement, the duration at various stages of the working capital cycle is estimated. Thereafter, proper value is assigned to the respective current assets, depending on its level of completion. The basis for assigning value to each component is given below: Component of Working Capital Basis of Valuation i. Stock of raw material Purchase cost of raw materials ii. Stock of work in process At cost or market value, whichever is lower iii. Stock of finished goods Cost of production

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iv. Debtors Cost of sales or sales value v. Cash Working expenses Each constituent of the working capital is valued on the basis of valuation enumerated above for the holding period estimated. The total of all such valuation becomes the total estimated working capital requirement. The assessment of the working capital should be accurate even in the case of small and micro enterprises where business operation is not very large. We know that working capital has a very close relationship with day-to-day operations of a business. Negligence in proper assessment of the working capital, therefore, can affect the day-to-day operations severely. It may lead to cash crisis and ultimately to liquidation. An inaccurate assessment of the working capital may cause either under-assessment or over-assessment of the working capital and both of them are dangerous. CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL Growth may be stunted. It may become difficult for the enterprise to undertake profitable projects due to nonavailability of working capital. Implementation of operating plans may become difficult and consequently the profit goals may not be achieved. Cash crisis may emerge due to paucity of working funds. Optimum capacity utilisation of fixed assets may not be achieved due to non-availability of the working capital. The business may fail to honour its commitment in time, thereby adversely affecting its credibility. This situation may lead to business closure. The business may be compelled to buy raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. Both these situations would affect profitability adversely. Non-availability of stocks due to non-availability of funds may result in production stoppage. While underassessment of working capital has disastrous implications on business, overassessment of working capital also has its own dangers. CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL Excess of working capital may result in unnecessary accumulation of inventories. It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash management. It may make management complacent leading to its inefficiency. Over-investment in working capital makes capital less productive and may reduce return on investment. Working capital is very essential for success of a business and, therefore, needs efficient management and control. Each of the components of the working capital needs proper management to optimise profit. Inventory Management Inventory includes all types of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously, stock out costs should also be minimised. Business, therefore, should fix the minimum safety stock level, re-order level and ordering quantity so that the inventory cost is reduced and its management becomes efficient.

Receivables Management Given a choice, every business would prefer selling its produce on cash basis. However, due to factors like trade policies, prevailing marketing conditions, etc., businesses are compelled to sell their goods on credit. In certain circumstances, a business may deliberately extend credit as a strategy of increasing sales. Extending credit means creating a current asset in the form of Debtors or Accounts Receivable. Investment in this type of current assets needs proper and effective management as it gives rise to costs such as: i. Cost of carrying receivable (payment of interest etc.) ii. Cost of bad debt losses Thus the objective of any management policy pertaining to accounts receivables would be to ensure that the benefits arising due to the receivables are more than the cost incurred for receivables and the gap between benefit and cost increases resulting in increased profits. An effective control of receivables helps a great deal in properly managing it. Each business should, therefore, try to find out average credit extended to its client using the below given formula: Each business should project expected sales and expected investment in receivables based on various factors, which influence the working capital requirement. From this it would be possible to find out the average

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credit days using the above given formula. A business should continuously try to monitor the credit days and see that the average credit offered to clients is not crossing the budgeted period. Otherwise, the requirement of investment in the working capital would increase and, as a result, activities may get squeezed. This may lead to cash crisis. Cash Management Cash is the most liquid current asset. It is of vital importance to the daily operations of business. While the proportion of assets held in the form of cash is very small, its efficient management is crucial to the solvency of the business. Therefore, planning cash and controlling its use are very important tasks. Cash budgeting is a useful device for this purpose. Financing Working Capital Now let us understand the means to finance the working capital. Working capital or current assets are those assets, which unlike fixed assets change their forms rapidly. Due to this nature, they need to be financed through short-term funds. Short-term funds are also called current liabilities. The following are the major sources of raising short-term funds: i. Suppliers Credit At times, business gets raw material on credit from the suppliers. The cost of raw material is paid after some time, i.e. upon completion of the credit period. Thus, without having an outflow of cash the business is in a position to use raw material and continue the activities. The credit given by the suppliers of raw materials is for a short period and is considered current liabilities. These funds should be used for creating current assets like stock of raw material, work in process, finished goods, etc. ii. Bank Loan for Working Capital This is a major source for raising short-term funds. Banks extend loans to businesses to help them create necessary current assets so as to achieve the required business level. The loans are available for creating the following current assets: Stock of Raw Materials Stock of Work in Process Stock of Finished Goods Debtors Banks give short-term loans against these assets, keeping some security margin. The advances given by banks against current assets are short-term in nature and banks have the right to ask for immediate repayment if they consider doing so. Thus bank loans for creation of current assets are also current liabilities. iii. Promoters Fund It is advisable to finance a portion of current assets from the promoters funds. They are long-term funds and, therefore do not require immediate repayment. These funds increase the liquidity of the business. Balance sheet:

In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition".Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. Another way to look at the same equation is that assets equal liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing." Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system.A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want

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to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities. Sample balance sheet structure The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows goodwill, it could be a consolidated balance sheet. Monetary values are not shown; summary (total) rows are missing as well.

Balance Sheet of XYZ, Ltd. as of 31 December 2006 ASSETS Current Assets Cash and cash equivalents Accounts receivable (debtors) Inventories Prepaid Expenses Investments held for trading Other current assets Fixed Assets (Non-Current Assets) Property, plant and equipment Less : Accumulated Depreciation Goodwill Other intangible fixed assets Investments in associates Deferred tax assets LIABILITIES and EQUITY Creditors: amounts falling due within one year (Current Liabilities) Accounts payable Current income tax liabilities Current portion of bank loans payable Short-term provisions Other current liabilities Creditors: amounts falling due after more than one year (Long-Term Liabilities) Bank loans Issued debt securities Deferred tax liability Provisions Minority interest Equity Share capital Capital reserves Revaluation reserve Translation reserve Retained earnings

Cost Benefit Analysis:

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Cost benefit analysis is a technique used to compare different courses of action based upon assigning a dollar value to both the expenditure and its results. A cost benefit analysis is a rather simple tool to use and is a great way to analyze actions whether you are one single consumer, a small business or a large corporation. It should be noted that a cost benefit analysis can be used when solving either simple, moderate or highly complicated analyses. The cost benefit analysis does not focus on finding a solution to the problem; instead a cost benefit analysis will ask the simple, but important question of whether a problem is worth solving monetarily. The two major components of a cost benefit analysis are obviously the cost and the benefits. It should be noted that costs can be categorized as one time costs or long term costs in which a cost must be paid or an investment must be made over a period of time. Benefits can be immediate or may also take long periods of time to be realized. When initiating a cost benefit analysis, these factors must be known and considered. An Example Cost Benefit Analysis Corporation XYZ is in the technology business signing up individuals over the phone for conventions. One of the owners would like to implement a new Internet based system that will include powerful software in which any individual from around the world would be able to sign up over the web for a convention. However, while it sounds like a great idea, XYZ Corporation would like to know how much is the cost of implementing and using the new software compared to the system in place and what will be the benefits over the next three years of having the new software implemented over the existing system. Figure out the Costs First figure out the costs of implementing the new computer software in your firm, for example you may want to take into consideration the cost of the software license for each computer you intend to run it on, the cost of purchasing a new server to run the software properly. The cost of installation and the cost of consulting fees. License for 10 computers at $500 each Cost of new server Cost of installation Cost of consulting fees $5,000 $2,000 $1,500 $1,000

You will also want to figure out any costs associated with labor and implementing your new system such as training and the time taken away from productivity due to training. Training costs for 10 employees x 20 hours $4,000 Cost of lost labor for 10 employees x 20 hours $4,000 Now simply add up all the costs you can came up with for purchasing and implementing your new software. In this case, the total cost will be $17,500. Figure Out the Benefits Now think about the benefits of implementing this system. For instance, you might come to the conclusion (using good evidence and analysis) that you will be able to sign up twice as many people in the same amount of time. So if you are normally able to make a profit of $500 for signing up individuals over a 40 hour period, with this system implemented, you will be able to make a profit of $1,000 ($500 more) over the same 40 hour period. Compare the Costs to the Benefits Its easy to calculate that if you can double your profit in a 40 hour work week from $500 to $1,000, the implementation of a $17,500 software system will be paid for in exactly 35 weeks, in which case, from this point your profits will jump 100% to $1,000 per 40 hour period. Obviously, this is an easy case study, but it shows how using a cost benefit analysis can help all types of business determine the best path of action.

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Short Term and Long Term There are some cost benefit analyses where the benefits will be immediate; others, like the example above, require a period of time to invest in the technology in order to realize a profit. Obviously, an analysis with an immediate benefit are extremely easy decisions to make, some are even no-brainers. However, those analyses that require a fairly long period of time to repay their initial investment in order to first start seeing benefits require a degree of risk. The better your analysis and evidence to determine the repayment period and benefits achieved once the repayment period is complete, the less risk you will ultimately require. However, nothing is a sure thing and many times a well thought out cost benefit analysis in the end can cost more money than anticipated, take longer to achieve repayment (if ever) and produce a smaller profit. Intangibles While many cost benefit analysis are done with objects of financial value, they can include any type of investment including emotional, educational, etc. When doing a cost benefit analysis on these items, the values of both the cost and benefits will ultimately be subjective.

Book keeping: Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Bookkeeping should not be confused with accounting. The accounting process is usually performed by an accountant. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper. There are some common methods of bookkeeping such as the Single-entry bookkeeping system and the Double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process. Concepts of Leadership Leadership is a process by which a person influences others to accomplish an objective and directs the organization in a way that makes it more cohesive and coherent. Leaders carry out this process by applying their leadership attributes, such as beliefs, values, ethics, character, knowledge, and skills. Although your position as a manager, supervisor, lead, etc. gives you the authority to accomplish certain tasks and objectives in the organization, this power does not make you a leader, it simply makes you the boss. Leadership differs in that it makes the followers want to achieve high goals, rather than simply bossing people around. The basis of good leadership is honorable character and selfless service to your organization. In your employees' eyes, your leadership is everything you do that effects the organization's objectives and their well-being. Respected leaders concentrate on what they are [be] (such as beliefs and character), what they know (such as job, tasks, and human nature), and what they do (such as implementing, motivating, and providing direction). What makes a person want to follow a leader? People want to be guided by those they respect and who have a clear sense of direction. To gain respect, they must be ethical. A sense of direction is achieved by conveying a strong vision of the future. The Two Most Important Keys to Effective Leadership According to a study by the Hay Group, a global management consultancy, there are 75 key components of employee satisfaction (Lamb, McKee, 2004). They found that: Trust and confidence in top leadership was the single most reliable predictor of employee satisfaction in an organization. Effective communication by leadership in three critical areas was the key to winning organizational trust and confidence:

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1. 2. 3.

Helping employees understand the company's overall business strategy. Helping employees understand how they contribute to achieving key business objectives. Sharing information with employees on both how the company is doing and how an employee's own division is doing - relative to strategic business objectives.

So in a nutshell -- you must be trustworthy and you have to be able to communicate a vision of where the organization needs to go. The next section, "Principles of Leadership", ties in closely with this key concept. Principles of Leadership To help you be, known, follow these eleven principles of leadership 1. Know yourself and seek self-improvement - In order to know yourself, you have to understand your be, know, and do, attributes. Seeking self-improvement means continually strengthening your attributes. This can be accomplished through self-study, formal classes, reflection, and interacting with others. Be technically proficient - As a leader, you must know your job and have a solid familiarity with your employees' tasks. Seek responsibility and take responsibility for your actions - Search for ways to guide your organization to new heights. And when things go wrong, they always do sooner or later -- do not blame others. Analyze the situation, take corrective action, and move on to the next challenge. Make sound and timely decisions - Use good problem solving, decision making, and planning tools. Set the example - Be a good role model for your employees. They must not only hear what they are expected to do, but also see. We must become the change we want to see - Mahatma Gandhi Know your people and look out for their well-being - Know human nature and the importance of sincerely caring for your workers. Keep your workers informed - Know how to communicate with not only them, but also seniors and other key people. Develop a sense of responsibility in your workers - Help to develop good character traits that will help them carry out their professional responsibilities. Ensure that tasks are understood, supervised, and accomplished - Communication is the key to this responsibility. Train as a team - Although many so called leaders call their organization, department, section, etc. a team; they are not really teams...they are just a group of people doing their jobs. Use the full capabilities of your organization - By developing a team spirit, you will be able to employ your organization, department, section, etc. to its fullest capabilities.

2. 3.

4. 5. 6. 7. 8. 9. 10. 11.

Factors of leadership There are four major factors in leadership:

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Follower Different people require different styles of leadership. For example, a new hire requires more supervision than an experienced employee. A person who lacks motivation requires a different approach than one with a high degree of motivation. You must know your people! The fundamental starting point is having a good understanding of human nature, such as needs, emotions, and motivation. You must come to know your employees' be, know, and do attributes. Leader You must have an honest understanding of who you are, what you know, and what you can do. Also, note that it is the followers, not the leader who determines if a leader is successful. If they do not trust or lack confidence in their leader, then they will be uninspired. To be successful you have to convince your followers, not yourself or your superiors, that you are worthy of being followed. Communication You lead through two-way communication. Much of it is nonverbal. For instance, when you "set the example," that communicates to your people that you would not ask them to perform anything that you would not be willing to do. What and how you communicate either builds or harms the relationship between you and your employees. Situation All are different. What you do in one situation will not always work in another. You must use your judgment to decide the best course of action and the leadership style needed for each situation. For example, you may need to confront an employee for inappropriate behavior, but if the confrontation is too late or too early, too harsh or too weak, then the results may prove ineffective. Various forces will affect these factors. Examples of forces are your relationship with your seniors, the skill of your people, the informal leaders within your organization, and how your company is organized. Leaders exert influence on the environment via three types of actions: 1. 2. 3. The goals and performance standards they establish. The values they establish for the organization. The business and people concepts they establish.

Successful organizations have leaders who set high standards and goals across the entire spectrum, such as strategies, market leadership, plans, meetings and presentations, productivity, quality, and reliability.

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Values reflect the concern the organization has for its employees, customers, investors, vendors, and surrounding community. These values define the manner in how business will be conducted. Concepts define what products or services the organization will offer and the methods and processes for conducting business. These goals, values, and concepts make up the organization's "personality" or how the organization is observed by both outsiders and insiders. This personality defines the roles, relationships, rewards, and rites that take place. Leadership Models Leadership models help us to understand what makes leaders act the way they do. The ideal is not to lock yourself in to a type of behavior discussed in the model, but to realize that every situation calls for a different approach or behavior to be taken. Two models will be discussed, the Four Framework Approach and the Managerial Grid. Four Framework Approach In the Four Framework Approach, Bolman and Deal (1991) suggest that leaders display leadership behaviors in one of four types of frameworks: Structural, Human Resource, Political, or Symbolic. The style can either be effective or ineffective, depending upon the chosen behavior in certain situations. Structural Framework In an effective leadership situation, the leader is a social architect whose leadership style is analysis and design. While in an ineffective leadership situation, the leader is a petty tyrant whose leadership style is details. Structural Leaders focus on structure, strategy, environment, implementation, experimentation, and adaptation. Human Resource Framework In an effective leadership situation, the leader is a catalyst and servant whose leadership style is support, advocation, and empowerment. while in an ineffective leadership situation, the leader is a pushover, whose leadership style is abdication and fraud. Human Resource Leaders believe in people and communicate that belief; they are visible and accessible; they empower, increase participation, support, share information, and move decision making down into the organization. Political Framework In an effective leadership situation, the leader is an advocate, whose leadership style is coalition and building. While in an ineffective leadership situation, the leader is a hustler, whose leadership style is manipulation. Political leaders clarify what they want and what they can get; they assess the distribution of power and interests; they build linkages to other stakeholders, use persuasion first, then use negotiation and coercion only if necessary. Symbolic Framework In an effective leadership situation, the leader is a prophet, whose leadership style is inspiration. While in an ineffective leadership situation, the leader is a fanatic or fool, whose leadership style is smoke and mirrors. Symbolic leaders view organizations as a stage or theater to play certain roles and give impressions; these leaders use symbols to capture attention; they try to frame experience by providing plausible interpretations of experiences; they discover and communicate a vision. This model suggests that leaders can be put into one of these four categories and there are times when one approach is appropriate and times when it would not be. Any one of these approaches alone would be inadequate, thus we should strive to be conscious of all four approaches, and not just rely on one or two. For example, during a major organization change, a structural leadership style may be more effective than a visionary leadership style; while during a period when strong growth is needed, the visionary approach may be better. We also need to understand ourselves as each of us tends to have a preferred approach. We need to be conscious of this at all times and be aware of the limitations of our favoring just one approach. Team Leader (high task, high relationship)

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This type of person leads by positive example and endeavors to foster a team environment in which all team members can reach their highest potential, both as team members and as people. They encourage the team to reach team goals as effectively as possible, while also working tirelessly to strengthen the bonds among the various members. They normally form and lead some of the most productive teams. Country Club Leader (low task, high relationship) This person uses predominantly reward power to maintain discipline and to encourage the team to accomplish its goals. Conversely, they are almost incapable of employing the more punitive coercive and legitimate powers. This inability results from fear that using such powers could jeopardize relationships with the other team members. Impoverished Leader (low task, low relationship) A leader who uses a "delegate and disappear" management style. Since they are not committed to either task accomplishment or maintenance; they essentially allow their team to do whatever it wishes and prefer to detach themselves from the team process by allowing the team to suffer from a series of power struggles. The most desirable place for a leader to be along the two axes at most times would be a 9 on task and a 9 on people -- the Team Leader. However, do not entirely dismiss the other three. Certain situations might call for one of the other three to be used at times. For example, by playing the Impoverished Leader, you allow your team to gain self-reliance. Be an Authoritarian Leader to instill a sense of discipline in an unmotivated worker. By carefully studying the situation and the forces affecting it, you will know at what points along the axes you need to be in order to achieve the desired result. The Process of Great Leadership The road to great leadership (Kouzes & Posner, 1987) that is common to successful leaders: o o o o o Challenge the process - First, find a process that you believe needs to be improved the most. Inspire a shared vision - Next, share your vision in words that can be understood by your followers. Enable others to act - Give them the tools and methods to solve the problem. Model the way - When the process gets tough, get your hands dirty. A boss tells others what to do, a leader shows that it can be done. Encourage the heart - Share the glory with your followers' hearts, while keeping the pains within your own.

Communication skills: Oral communication is a process whereby information is transferred from a sender to receiver usually by a verbal means but visual aid can support the process.. The receiver could be an individual person, a group of persons or even an audience. There are a few of oral communication types: discussion, speeches, presentations, etc. However, often when you communicate face to face the body language and your voice tonality has a bigger impact than the actual words that you are saying. A widely cited and widely mis-interpreted figure, used to emphasize the importance of delivery, is that "communication is 55% body language, 38% tone of voice, 7% content of words", the so-called 55/38/7 rule. This is not however what the cited research shows rather, when conveying emotion, if body language, tone of voice, and words disagree, then body language and tone of voice will be believed more than words. [9] For example, a person saying "I'm delighted to meet you" while mumbling, hunched over, and looking away will be interpreted as insincere. Further discussion at Albert Mehrabian: Three elements of communication.

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You can notice that the content or the word that you are using is not the determining part of a good communication. The how you say it has a major impact on the receiver. You have to capture the attention of the audience and connect with them. For example, two persons saying the same joke, one of them could make the audience die laughing related to his good body language and tone of voice. However, the second person that has the exact same words could make the audience stare at one another. In an oral communication, it is possible to have visual aid helping you to provide more precise information. Often enough, we use a presentation program in presentations related to our speech to facilitate or enhance the communication process. Although, we cannot communicate by providing only visual content because we would not be talking about oral communication anymore.

Shannon and Weaver Model of Communication

Communication major dimensions scheme

Communication code scheme

Linear Communication Model

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Interactional Model of Communication

Berlo's Sender-Message-Channel-Receiver Model of Communication

Transactional Model of Communication The first major model for communication came in 1949 by Claude Shannon and Warren Weaver for Bell Laboratories [10] The original model was designed to mirror the functioning of radio and telephone technologies. Their initial model consisted of three primary parts: sender, channel, and receiver. The sender was the part of a telephone a person spoke into, the channel was the telephone itself, and the receiver was the part of the phone where one could hear the other person. Shannon and Weaver also recognized that often there is static that interferes with one listening to a telephone conversation, which they deemed noise. In a simple model, often referred to as the transmission model or standard view of communication, information or content (e.g. a message in natural language) is sent in some form (as spoken language) from an emisor/ sender/ encoder to a destination/ receiver/ decoder. This common conception of communication simply views communication as a means of sending and receiving information. The strengths of this model are simplicity, generality, and quantifiability. Social scientists Claude Shannon and Warren Weaver structured this model based on the following elements: 1. 2. 3. 4. 5. An information source, which produces a message. A transmitter, which encodes the message into signals A channel, to which signals are adapted for transmission A receiver, which 'decodes' (reconstructs) the message from the signal. A destination, where the message arrives.

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Shannon and Weaver argued that there were three levels of problems for communication within this theory. The technical problem: how accurately can the message be transmitted? The semantic problem: how precisely is the meaning 'conveyed'? The effectiveness problem: how effectively does the received meaning affect behavior? Daniel Chandler critiques the transmission model by stating It assumes communicators are isolated individuals. No allowance for differing purposes. No allowance for differing interpretations. No allowance for unequal power relations. No allowance for situational contexts. In 1960, David Berlo expanded on Shannon and Weavers (1949) linear model of communication and created the SMCR Model of Communication [11]. The Sender-Message-Channel-Receiver Model of communication separated the model into clear parts and has been expanded upon by other scholars. Communication is usually described along a few major dimensions: Message (what type of things are communicated), source / emisor / sender / encoder (by whom), form (in which form), channel (through which medium), destination / receiver / target / decoder (to whom), and Receiver. Wilbur Schram (1954) also indicated that we should also examine the impact that a message has (both desired and undesired) on the target of the message [12]. Between parties, communication includes acts that confer knowledge and experiences, give advice and commands, and ask questions. These acts may take many forms, in one of the various manners of communication. The form depends on the abilities of the group communicating. Together, communication content and form make messages that are sent towards a destination. The target can be oneself, another person or being, another entity (such as a corporation or group of beings). Communication can be seen as processes of information transmission governed by three levels of semiotic rules:

1. Syntactic (formal properties of signs and symbols), 2. Pragmatic (concerned with the relations between signs/expressions and their users) and 3. Semantic (study of relationships between signs and symbols and what they represent).
Therefore, communication is social interaction where at least two interacting agents share a common set of signs and a common set of semiotic rules. This commonly held rules in some sense ignores autocommunication, including intrapersonal communication via diaries or self-talk, both secondary phenomena that followed the primary acquisition of communicative competences within social interactions. In light of these weaknesses, Barnlund (2008) proposed a transactional model of communication [13]. The basic premise of the transactional model of communication is that individuals are simultaneously engaging in the sending and receiving of messages. In a slightly more complex form a sender and a receiver are linked reciprocally. This second attitude of communication, referred to as the constitutive model or constructionist view, focuses on how an individual communicates as the determining factor of the way the message will be interpreted. Communication is viewed as a conduit; a passage in which information travels from one individual to another and this information becomes separate from the communication itself. A particular instance of communication is called a speech act. The sender's personal filters and the receiver's personal filters may vary depending upon different regional traditions, cultures, or gender; which may alter the intended meaning of message contents. In the presence of "communication noise" on the transmission channel (air, in this case), reception and decoding of content may be faulty, and thus the speech act may not achieve the desired effect. One problem with this encode-transmit-receive-decode model is that the processes of encoding and decoding imply that the sender and receiver each possess something that functions as a code book, and that these two code books are, at the very least, similar if not identical. Although something like code books is implied by the model, they are nowhere represented in the model, which creates many conceptual difficulties. Theories of coregulation describe communication as a creative and dynamic continuous process, rather than a discrete exchange of information. Canadian media scholar Harold Innis had the theory that people use different types

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of media to communicate and which one they choose to use will offer different possibilities for the shape and durability of society (Wark, McKenzie 1997). His famous example of this is using ancient Egypt and looking at the ways they built themselves out of media with very different properties stone and papyrus. Papyrus is what he called 'Space Binding'. it made possible the transmission of written orders across space, empires and enables the waging of distant military campaigns and colonial administration. The other is stone and 'Time Binding', through the construction of temples and the pyramids can sustain their authority generation to generation, through this media they can change and shape communication in their society (Wark, McKenzie 1997). The Krishi Vigyan Kendra Kannur under Kerala Agricultural University has pioneered a new branch of agricultural communication called Creative Extension. Communication Noise In every communication models, noise is anything that interferes with the decoding of messages sent over the channel by an encoder. There are many examples of noise: Environmental Noise: Noise that physically disrupts communication, such as standing next to loud speakers at a party, or a construction site next to a classroom making it hard to hear the professor. Physiological-Impairment Noise: physical maladies that prevent effective communication, such as actual deafness or blindness preventing messages from being received correctly. Semantic Noise: different interpretations of the meanings of certain words, like how the word "weed" can be interpreted as both an undesirable plant in your yard or marijuana, or how "LOL" is easily recognizable by most teens, but complete gibberish to older readers. Syntactical Noise: mistakes in grammar can disrupt communication, such as abrupt changes in verb tense during a sentence, or differing sentence structures between different cultures. Organizational Noise: poorly structured communication can prevent the receiver from accurate interpretations, like unclear and badly stated directions can make the receiver even more lost, or how unfocused and disorganized lectures by professors are extremely hard for students to understand. Cultural Noise: stereotypical assumptions can cause misunderstandings, such as unintentionally offending Jews by wishing them a "Merry Christmas, or how Democrats and Republicans alike are bigoted about the other partys policies. Psychological Noise: certain attitudes can make communication difficult, like when great anger or sadness causes someone to lose focus on the present, or how more serious psychological diseases like autism severely hamper effective communication.

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