UNIT -2
Promotion of a Venture
Q1) Write short answers notes to the following:
A1) Meaning of Promotion of a Venture.
Promotion simply means an act of producing or developing or starting an enterprise. Venture means a business project or an undertaking especially a commercial one involving certain degree of risk and uncertainty.
Promotion of a venture is the process of starting an enterprise. It begins when an idea of forming or establishing a venture conceived either by a person or a group of persons and thereafter, go for identifying the scope, nature and size of the proposed enterprise.
Promotion of a venture means initiating all necessary efforts required to form a business or any other enterprise. Promotion starts from the stage of conceiving an idea of forming an enterprise and end with its actually being established, and if necessary or desirable then being registered as per law.
According to C.W. Gerstenbeg, "Promotion is the discovery of business opportunities and the subsequent organisation of funds, property and managerial ability into a business concern for the purpose of making profits there form."
According to E.S. Mead, "promotion involves four elements, i.e. discovery, investigation, assembling and financing."
Q2) Mention the stages in promotion of a new venture.
A2) The stages in promotion of new venture are as follows:
SOURCES OF BUSINESS IDEA There are numerous sources from which an entrepreneur can get business idea
(i) Observation: Observation is one of the most important sources of project
idea. The observant mind continuously comes across situations which
can be utilised to develop investment opportunities.
(ii) The demand and supply conditions of various products will give an idea
about the unfulfilled demand for certain products. For example, people
especially youngsters prefer fast food or ready to eat food.
(iii) Conversion of waste into wealth: A study of the end products can throw
light on new project ideas.
(iv) Adoption of Technology: Commercial exploitation of indigenous or
imported technologies is another source of business idea.
(v) Socio-economic changes: The change in the socio-economic status of
People scope for business opportunities. By careful observation, a
business idea can be identified easily. For example, there is preference
of people towards foreign brand shirts, beauty parlours, cell phones etc.
2. Preliminary Investigation: The entrepreneur is required to investigate
the various matters whether there is any business in the surrounding area
similar to the one to be promoted and if so, he should get information like
the amount of capital invested, an account of income and expenditure etc.
If any similar business does not exist, his task of investigation will be more
complex. This investigation will help him to reach a conclusion as to the
feasibility and prospect of the whole proposal. If he gets favourable idea out
of such investigation, he will proceed to the next.
3. Preparation of Project Report: It is necessary to prepare a project report
according to the format of the loan application of the concerned term lending
institution. An entrepreneur may get these report done by a consultant or
Technical Consultancy Organisation. The report normally covers important
items like sources of finance - long term and short term, availability of
machinery and technical know-how, sources of labour and raw materials,
market potential and overall profitability. All these are systematically
estimated and presented balancing the opportunities and constraints.
4. Assembling of different factors of production: The entrepreneur in this
stage should procure and assemble the different factors needed to
materialise the plan, viz, land, labour, machinery and capital, etc. out of these
factors, machinery and capital is the most important.
5. Legal Formalities: The entrepreneur will have to comply with the various
legal formalities. It is necessary for him to prepare some document in order to
give the proposed company a concrete shape. These are the permission from
local authority, Trade License, Memorandum of Association, Article of
Association, Prospectus etc.
6. Financing: After discovery, investigation, verifying and assembling the next
step is financing, i.e., making arrangements of the requisite finance for
establishing and starting venture.
7. Starting of Venture: The last step in the promotion of a venture is the
starting of venture and thus commencement of business venture. At the time of
commencement of venture, the entrepreneur should provide leadership and
emphasise the united efforts of workers so as to optimise the available
resources in the interest of the venture.
Q3) Meaning of opportunity Analysis.
A3) Opportunity is a positive trend in external environment. It is an attractive project idea which an entrepreneur accepts as a basis for his investment decision. Finding out the possibilities of a business is generally regarding as identification of business opportunity. A mere "possibility" is to be distinguished from business "opportunity". Good business ideas must be capable of being converted into feasible projects. Entrepreneurs generally have different possibilities and select only highest reward paying possibly for execution. Thus, a business possibility may take the shape business opportunity fit proves as commercial value.
Before taking a decision to implement new ideas, it is necessary to implement new ideas, it is necessary to study in depth their profitability and viability so that the venture may be successful and there may be reasonable return on investment. Such studies are called opportunities analysis and this is done in various ways. While selecting a project, a prospective entrepreneur as to consider various aspects like input, output, social cost and benefits. An entrepreneur is always on looking for potential profitable opportunities and exploits them in the best interest of his enterprise. Various factors such as financial incentives provided by the government, availability of markets and environmental factors etc. are also considered by the prospective entrepreneur in the process of opportunity analysis.
Q4) Write 5 objectives of identification of business opportunities.
A4) An entrepreneur desirous of investing on a project has a look for suitable opportunities. This is not simple, since he has a very wide choice, and the dimensions of the choice are: product/service, technology, equipment, scale of production, market, time-phasing and location. The vast range of opportunities may be summarised follows:
(i) To evaluate the possibilities of utilising physical resources of a particular region from technical angle.
(ii) To identify those industries which are not based on local resources.
(iii) To identify the industrial potentialities in particular region and country as a whole.
(iv) To estimate the capital, labour, transport, power, fuel, raw material for feasible industries.
(v) To explore the development possibilities of the region with regards to agriculture, minerals, labour, irrigation etc.
Q5) Meaning of venture capital.
A5) The concept of venture capital was originated in the U.S.A. Now it has become a worldwide concept in the field of risk financing of industrial projects. The development of venture capital in India is still in infancy, being about a decade old. It is a growing capital market. In fact in India, 'risk financing is still in a evolutionary stage. The funds available to Indian venture capital industry are small. What is the need or relevance of venture capital in India when there are commercial banks and financial institutions to provide funds to industrial enterprise, small or large? In developed countries, where there is highly progressive industrial environment as well as advanced entrepreneurial culture, it is common for entrepreneurs to set up companies to produce new products by obtaining funds from venture capitalists. On the other hand, in India and also in other developing countries, 'risk' financing of this type is yet in its infant stage. Of course, there are a large number of commercial banks and financial institutions in India, which provide 'traditional' (non-risk) financing mainly to those enterprise that use proven or established technologies with minimum level of risk. Such financing is collateral-security oriented and asset based. It involves uniform payment of fixed instalment. It is security oriented rather than risk oriented.
Venture Capital refers to investments in new and untried enterprises which are lacking stable record of growth. Venture Capital involves financial investment on high-risk entrepreneurial business with expectation of earning a high rate of return. It is an alternative form of equity financing for small business. It is the form of capital needed for formation of forms with new ideas or technologies, having a high risk but having potential for rapid growth
Venture Capital is long term financial assistance provided to small enterprises, high technology and risky venture. Venture capitalist takes huge risk in anticipation of future high returns hence venture capital is also known as 'risk capital'.
Q6) Meaning of external environmental analysis.
A6) The word "External Environment Analysis" has been made up of two words 'External Environment' and 'Analysis'. The first word 'External Environment' means elements or factors outside the institution of the entrepreneur, like - economic, social, cultural, political, physical, educational, technical, religious, ethical and international, etc. which affects his business. The other word, 'Analysis' means reactions towards those factors or elements or issues, neglect thereof or taking of decisions by predicting the opportunities.
Hence, in composite form, external environment analysis means such process through which decision is taken, by assessing economic, socio-cultural, political, physical, educational, technical, religious, ethical and international environment or factors or element, or issues and also opportunities.
External environmental analysis or evaluation is a process through which strategic planner (entrepreneur) evaluates economic, social, official, supply, technological and market conditions to determine the opportunities and challenges for the enterprise and according to which he adjusts his strategy and objectives.
Q7) Why Venture Capital is known as risk capital?
A7) Venture Capital refers to investments in new and untried enterprises which are lacking stable record of growth. Venture Capital involves financial investment on high-risk entrepreneurial business with expectation of earning a high rate of return. It is an alternative form of equity financing for small business. It is the form of capital needed for formation of forms with new ideas or technologies, having a high risk but having potential for rapid growth
Venture Capital is long term financial assistance provided to small enterprises, high technology and risky venture. Venture capitalist takes huge risk in anticipation of future high returns hence venture capital is also known as 'risk capital'.
Q8) Write the factors of Opportunity Analysis.
A8) Following factors or sources are included in the opportunities analysis:
(1) Market and Demand Analysis: Success of a business unit not depends on the amount of production but mainly on the fact that what amount of goods it can be sold in the market. Therefore, market and demand analysis is considered origin of opportunity analysis.
(2) Resource Analysis: Entrepreneur has to see whether adequate amount of resources such as land, raw material, machines, technology, financial sources, man-power etc. are available or not. If the adequate amount of these resources are not available then project will be assumed as come to an end. On the contrary, if resources are available then an entrepreneur has to see the sources and method of acquiring these resources.
(3) Technical Analysis: Technical possibilities for establishing a project is analysed in the technical analysis. If it is found that from the technical point of view project establishment is not feasible then no question arises to consider other factors.
(4) Business Environment Analysis: Business environment analysis is necessary before establishment of a new enterprise. An important aspect of the business environment affecting investment opportunities is the government's policy framework.
(5) Financial Analysis: Financial analysis is a broad under which availability of financial resources and profitability of a project is analysed. Various factors such as cost of project, cost of raw-material, technical cost, marketing cost, operatinf cost etc. are considered in the financial analysis.
(6) Risk Analysis: Various types of risks are found in a particular business in which economic risks, social risk, environmental risk, technical risk etc. are the main risk. With the change of business environment, nature and extent of risk also get changed. An entrepreneur has to decide the identification of opportunity
analysis that what amount of risk is involved in availing opportunity and upto what extent risk acceptance will prove profitable to him.
(7) Plant Location and Layout Situation: The main object of plant location analysis is to find out the place where plant is to be established. The decision of plant location depends upon various factors such as, availability of raw material, labour, power supply, transportation facilities, communication and bank facilities, social amenities, service facilities, market etc. The government also allows certain incentives and concession for industries development in backward areas such as concessions in taxes, facilities of training, light and land at cheaper rates, financial subsidies, facilities for import of raw-material etc. an entrepreneur should take into consideration all these factors while deciding the plant location. An entrepreneur should also prepare best layout so that he can produce maximum production at lower cost.
(8) Evaluation Analysis: It is the last stage of opportunity analysis. Following are included in the evaluation analysis:
(i) Evaluation of various aspects of project.
(ii) Evaluation of economic profitability.
(iii) Evaluation of Social profitability.
(iv) Evaluation of cost of project,
(v) Evaluation of availability of essential resources.
(vi) Evaluation of existing competition.
(vii) Evaluation of competition in global market.
(viii) Evaluation of effects of there external factors.
Q9) What is external environmental analysis? Discuss the factors affecting environmental analysis.
A9) The word "External Environment Analysis" has been made up of two words 'External Environment' and 'Analysis'. The first word 'External Environment' means elements or factors outside the institution of the entrepreneur, like - economic, social, cultural, political, physical, educational, technical, religious, ethical and international, etc. which affects his business. The other word, 'Analysis' means reactions towards those factors or elements or issues, neglect thereof or taking of decisions by predicting the opportunities.
Hence, in composite form, external environment analysis means such process through which decision is taken, by assessing economic, socio-cultural, political, physical, educational, technical, religious, ethical and international environment or factors or element, or issues and also opportunities.
External environmental analysis or evaluation is a process through which strategic planner (entrepreneur) evaluates economic, social, official, supply, technological and market conditions to determine the opportunities and challenges for the enterprise and according to which he adjusts his strategy and objectives.
The factors affecting environmental analysis are as follows-
(1) Economic Factors: The economic environment exercises perhaps the most direct and immediate influence on business environment. They include capital, labour, raw-materials and markets etc. Further, type of economy whether developed, developing or underdeveloped, rates of savings and investment, growth rate of G.N.P. per capita income, volume of exports and imports, balance of payment position, price level, rates of inflation, deflation, and reflation, means of transport and communication also affect the economy of the country. For example, capital is one of the most prerequisites for establishing a business enterprise. It is regarded as the lubricant to the process of running a business enterprise. The new economic is the process of running a business enterprise. The new economic policy of liberalisation, privatisation and globalisation has given impetus to the development of trade, business commerce and industry in our country.
(2) Social Factors: Social external environmental factors in a country also exercises a significant impact on the emergence of entrepreneur in a country. Social factors in a country determine the exact and level of industrialisation, as they influence, the demand of a product or service at a given point of time. Social factors are bound to have deep influence on consumer taste, temperament, life and living. They include social mobility, social security, social values, family tradition, customs, culture, traditions, spending habits, level of education, size of population, density and sex ration of population, speed of urbanisation etc. The analysts are required to have a detailed social environmental analysis and make necessary suggestion for their improvement.
(3) Technological Factors: The most dynamic force, shaping entrepreneurs density is technology. Technological factor in a country also exercise a significant influence on external environmental analysis. Technology means method, procedure, process or system of production. Technology is not fixed but it is always changing. New technology will mean new ideas, new products and new marketing efforts. This requires the entrepreneur to keep on eye on the fast changing technology. Every new technology is a force for create work. Change in technology may affect production and distribution of goods. Technological environmental analysis leads to -
(i) Increase in production capacity
(ii) Economy of resources
(iii) New discovery, researches, inventions in field of production and resources,
(iv) Increase in competitive power
(v) Improvement in quality
(vi) cost reduction
(vii) Increase sales
(viii) Improvement in the standard of living
(ix) Innovation
(x) Increase in profits etc.
4) Competitive factors: Competitive factors also affect external environmental analysis. Competitive play an important role in the conduct of business in his business activities in accordance to the behaviour of his competitors. Competition may be of the following types:
i) Desire competition.
ii) Genetic competition.
iii) Product size competition.
iv) Brand competition.
v) Quality competition.
vi) Price competition.
vii) Market competition.
Q10) What are the documents required for obtaining Venture Capital?
A10) The documents for obtaining venture capital are as follows-
1. Project Report: The project report should be a self explanatory document capable of evoking positive response. It should contain the following items of information about the project.
a) Name of the project
b) Address of the unit.
c) Product to be manufactured.
d) Target of the production- monthly, quarterly and yearly etc. (in terms of quality and value both).
e) Principal raw material to be used.
f) Covered area of workshop- square meter
g) Power requirement- Horse power, K. watt
h) Employment- No. of skilled and unskilled labour.
i) Cost of Project:
i) Fixed capital
ii) Working capital
iii) Total of both capital.
j) Sales Turnover expected monthly, quarterly or yearly sales proceeds.
k) Expected profit in total and expected profit as percentage of expected sales or capital invested.
l) Break even point and chart,
m) Project Profit and Loss A/C, Balance Sheet, Cash Flow Statement, Fund Flow Statement etc.
n) Profit at the various level of capacity utilisation.
o) Gestation period etc.
2. Details of Promoters: Educational, business, experience back ground and information relating to assets and liabilities.
3. Land documents
4. No objection certificate about the technology and product from the concerned authority.
5. Market Survey report.
6. Detail of source of Plant and Machinery regarding indigenous or imported
7. Detail source of raw materials.
8. Qualification for various items.
9. Details of consultants and marketing tie up organisation, if any.
10. Income tax clearance certificate of the promoter.
Q11) What are the legal documents required to start a new business unit?
A11)
Keeping in view the present trend of competition and policy of Liberalisation, Globalisation and Privatisation, the government has taken decision to reduce the number of permissions and procedures required. However, certain formalities are necessary.
1. Obtaining Statutory Licence: Municipal Corporation/Town Committee/Gaon Panchayat issues trade licence or no-objection certificate. The party has to apply for trade licence or no-objection certificate to the appropriate authority along with the prescribed fees for such licence. On being satisfied after the scrutiny of the application, the authority issues the certificate.
2. Licensing: Either licence or registration is required for undertaking industrial activity. Industrial licence is not required for a large no of small scale units/ancillary units and medium scale units as they come under exempted categories on the basis of fulfilling certain conditions as under:
a) The industry is not reserved for public sector(List of reserved industries is in Annexure - 1)
b) The is not governed by any special regulation (List of specially regulated industries is in Annexure - 2)
c) The industrial undertaking is not covered by 20A and the Monopolies and Restrictive Trade Practices (MRTP) Act.
d) The medium scale unit's annual foreign exchange requirement for raw materials (other than steel and aluminium) or part and components (after 3 years of going into production) should not exceeds 15% of ex-factory value of the annual production or Rs. 7.5 million.
3. Small Scale Industry Registration: Though registration as a SSI unit is not strictly compulsory, it is advisable to get our units registered as a small unit with the District Industrial and Commerce Centre of the district in which the project is to be located. The registration is required by the government for purpose of record to plan for the future requirement of the industries. Besides, the registration would also entitled to avail of the incentives and benefits available to the SSI sector. The DICs grant provisional registration which is valid for a period of five years and if the units goes into production within this period, a permanent registration is granted.
4. Pollution Control Clearance: The party has to obtain a 'no-objection certificate'(NOC) from the State Pollution Control Board, if the project is likely to be a pollution hazard. The Board first issues a NOC stipulation certain conditions to ensure the installation of facilities to control air and/or water pollution before getting the permission to start operation.
5. Constitution of Business: It means whether the unit would be started in the form of sole proprietorship, partnership, private limited company or public limited company. Usually it depends on the size of the project and the degree of risk involved.
6. Registration of Design : Under the Design Act, 1911, the design of an article may be registered in the features and shape, configuration, pattern or ornament given to the article by any industrial process or means in new and original.
7. Registration of Trade Marks: A trade mark is visual symbol which is applied to goods or merchants and the mark any consist of device (like Butterfly) or a word like (Binaca or Dalda) or letters or numbers or a numbers or a combination of such features. The trade mark is applied to all goods with a view to indicate to the purchaser that the goods emanates from a particular producer.
Any persons who claim to be the proprietor of the trade mark used or proposed to be used by him and desirous of registering the same, shall apply to the Registrar of Trade Mark in a prescribed form along with the required fees. The fees may be paid in cash, bank draft or in postal order form. For the purpose trade mark registrations, goods are classified in 34 classes, an application for registration of a trade mark should be confined to one class only.
In order to set up new unit/firm and raise funds the legal requirements are:
i) Registration of Firm: Before operation, the firm must be registered in order to follow the constitutional requirement.
ii) Registration of License: Firm requires a licence for operation by the government locally, nationally and internationally.
iii) Sales Permission: A firm requires permission to sell their goods in the market after they are approved by the government.