John H. Davis of Harvard University first used the term agribusiness in 1955. In 1980s it was given three connotations: (1) synonymous with term agriculture, (2) synonymous with agricultural economics and (3) a modified concept of agriculture, excluding farming, or the off-farm aspects of agriculture.
At present, agribusiness is defined as all business enterprises or sells to farmers / traders / consumers. The transaction may involve either an input or a produce or service and encompasses items such as:
- Productive resources (feed, seed, fertilizer, equipment, energy, pesticides, machinery, etc.)
- Agricultural commodities – (raw and processed commodities of food and fiber)
- Facilitative services (credit, insurance, marketing, storage, processing, transportation, packing, distribution, consultancy, soil testing etc.).
Scope for Agribusiness in India
- India is endowed with varied ago-climate, which facilitates production of temperate, sub-tropical and tropical agricultural commodities.
- There is growing demand for agricultural inputs like feed and fodder, inorganic fertilizers, bio-fertilizers.
- Biotechnology applications in agriculture have vast scope in production of seed, bio-control agents, industrial harnessing of microbes for bakery products.
- Export can be harnessed as a source of economic growth. As a signatory of World Trade Organization, India has vast potential to improve it present position in the World trade of agricultural commodities both raw and processed form. The products line include cereals, pulses, oilseeds and oils, oil meal, spices and condiments, fruits and vegetables, flowers, medicinal plants and essential oils, agricultural advisory services, agricultural tools and implements, meat, milk and milk products, fish and fish products, ornamental fish, forest by products etc.
- At present processing is done at primary level only and the rising standard of living expands opportunities for secondary and tertiary processing of agricultural commodities.
- The vast coastal line and internal water courses provides enormous opportunity for production of marine and inland fish and ornamental fish culture gaining popularity with increase in aesthetic value among the citizens of India..
- The livestock wealth gives enormous scope for production of meat, milk and milk products, poultry products etc
- The forest resources can be utilized for production of by products of forestry.
- Beekeeping and apiary can be taken up on large scale in India.
- Mushroom production for domestic consumption and export can be enhanced with improvement in the state of art of their production.
- Organic farming has highest potential in India as the pesticide and inorganic fertilizer application are less in India compared to industrial nations of the world. The farmers can be encouraged and educated to switch over for organic farming.
- There is wide scope for production and promotion of bio-pesticides and bio-control agents for protection of crops.
- Seeds, hybrid and genetically modified crops, have the highest potential in India in the future, since the productivity of high yielding varieties have reached a plateau.
- Micro-irrigation systems and labor saving farm equipments have good potential for the years to come due to declining groundwater level and labor scarcity for agricultural operations like weeding, transplanting and harvesting.
- Production of vegetables and flowers under green house conditions can be taken up to harness the export market.
- Trained human resources in agriculture and allied sciences will take on agricultural extension system due to dwindling resources of state finance and down sizing the present government agricultural extension staff as consulting services.
- The enhanced agricultural production throws open opportunities for employment in marketing, transport, cold storage and warehousing facilities, credit, insurance and logistic support services.
Types of Small Businesses
With the exception of Government, most of the small businesses can be classified as the following types
- Personal services
- Professional services
- Production: This classification includes all types of production including agricultural production of crops and livestock, as well as forestry.
- Distribution: This classification refers to those businesses, which do not make anything but which bring the goods and services to the consumer or user. This includes such activities as packaging, labeling, transporting, refrigerating, freezing, processing, storing, and performing any service necessary to prepare the goods or to provide the service to eventual consumer.
- Retailing: Although often included as a phase of distribution, retailing is listed as a separate category because there are a large number of persons employed in retailing. Obviously it represents one of the best opportunities for the potential entrepreneur. Retailing is that stage of distribution, which deals with the consumers. Examples of retailers are grocers, self-service sores, florists, agricultural input retailing.
- Personal services: The service business is those, which do not primarily supply goods to the public, but instead perform a service. Goods may be used to perform the service but they are of secondary importance. Examples of personal service are hotels, restaurants, agro-service centers.
- Professional services: Some type of services, in order to protect the public, requires considerable training on the part of those offering the service. Usually those professional services must have a formal education and rigid examinations before receiving licenses to offer their services to the public. Examples of those offering services are investment brokers, insurance agents etc.
- Financial: Financial businesses are usually service-oriented but since they deal primarily with the loaning or investing of money or the equivalents of money (stocks, bonds, property rights, etc) a separate category describes them best. Examples of financial services are commercial banks, insurance companies, thrift and loan societies etc.
- Franchising: Franchising is a system for selectively distributing goods or services through outlets owned by the franchisee. Basically, a franchise is a patent or trademark, license, entitling the holder to market particular products or services under a brand name or trademark according to prearranged terms and conditions. The franchiser is the owner of his or her own business (the franchisee) is likely to be more diligent and strive harder for success than the hired manager of a company-owned outlet. Since franchising is form of selective distribution, the typical franchise agreement prohibits the franchise from setting up competing outlets within the franchise area. Examples of franchise services are diet services, quick-service food-drive inns like fried chicken.
Forms of the Business Organizations
There are three basic forms of business organization methods: the sole proprietorship, the partnership, and the corporation. With only a few limited exceptions, any type of business venture can use nay form of business organization. The factors that will affect the business form chosen are:
- Ease of formation
- Exposure to financial risk
- Ability to raise capital
- Tax treatment of income
- Continuity of business upon the death of owner.
Many economic theories emphasize the significant role played by individual entrepreneurs as they combine talents, abilities and drive to transform resources into profitable undertakings. Joseph Schumpeter was the first major writer to highlight the human agent in the process of economic development. He believed that the economy was propelled by the activities of persons who wanted to promote new goods and new methods of productions or to exploit a new source of materials or new market not merely for profit but also for the purpose of creating. Likewise, Arthur W. Lewis contended that economic growth was bound to be slow unless there was an adequate supply of entrepreneurs looking out for new ideas, and willing to take the risk of introducing them.
The relation between self-sustained growth of an economy and entrepreneurship was further discussed by W.W. Rostow when he claimed that, “economic growth was the result of an interesting process involving the economic, social and political sectors of society, including emergence of corps of entrepreneurs who are psychologically motivated and technologically prepared regularly to lead the way in introducing new production functions in the economy’’.
As it is, experts as have variously described the entrepreneur
A person who innovates
One who allocates and manages the factors of production and bears risk
One who has ability to perceive latent economic opportunities and devise their exploitation
An individual, who conceives the ideas of business, design the organization of firms, accumulates capital, recruits labour, establishes relations with supplier, customers and the government and converts the conception into a functional organization.
The supplier of resources, supervisor and coordinator and ultimate decision maker.
The Importance of Personality in Business
One of the most important assets of any business owner is a personality, which lends itself to the type of business chosen. There are many different kinds of business and innumerable types of personalities. An objective self-examination is therefore necessary for the discovery of personal strengths and weaknesses, especially as they relate to owning a particular type of business. In assessing one’s own personality, the following inventory should prove helpful. Potential business owners should question themselves on each of these items, noting those areas where improvement is most needed.
- General health
- General intelligence
- Knowledge of business
- Speed of reaction
- Insight into character
- Ability to work with others
- Ability to direct others
- Ability to organize
- Ability to make decisions
- Ability to take responsibility
- Ability to accept suggestions
Small Scale Industry
Small Scale Industry in the Indian Economy Development
Small businesses / small-scale industrial units are playing an important role in the economic development of any nation. Although it is not generally recognized, this segment of our economy includes some of the dynamic, profitable and interesting firms. In India, there are 32.25 lakhs small-scale industrial units / businesses in the SSI sector, employing 177.30 lakh persons (1999-2000). The output of this sector is around Rs.5, 78,470 crores. The export amounted to Rs.53, 975 crores. SSIs contribute up to 40 per cent of gross turnover in manufacturing sector, 45% of the manufacturing exports and 35% of the total exports. SSI sector, contributes 7% of the GDP. During this era of economic liberalization, the growth of the SSI sector is rather quite perceptible.
Definition of Small Scale Industry
There is no generally accepted definition of a ‘small business’. The definitions vary all the way from country to country and Government-to-Government in a country. The following are some of the definitions.
In the USA, in the Small Business Act 1953, congress defined a small business as one that is independently owned and operated and which is not dominant in its field of operation.
In India, the Department of Small Scale and Agro and Rural Industries considered small businesses as a sector and given the following definitions.
1. Small Scale Industrial Undertaking
An industrial undertaking in which the investment in fixed assets in Plant and Machinery, whether held in ownership terms or on lease or by hire purchase, does not exceed Rs.100 lakhs is called a Small Scale Industrial Undertaking.
2. Ancillary Industrial Undertaking
An industrial undertaking which is engaged or proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates or the rendering of services and the undertaking supplies or renders or proposes to supply or render not less than 50% of its production or services as the case may be to one or more other industrial undertakings and whose investment in fixed assets in Plant and Machinery, whether held on ownership terms or on lease or on by hire purchase does not exceed Rs.100 lakhs is called an Ancillary Industrial Undertaking.
3. Tiny Enterprises
All small-scale units with investment limit in Plant and Machinery up to Rs.25 lakhs irrespective of the location of the unit are called tiny enterprises.
4. Export Oriented Units
Units having fixed assets in Plant and Machinery not exceeding Rs.100 lakhs and which undertake to export at least 30% of its current production by the end of 3rd year from the date of its commencing of production are called Export Oriented Units (EOU).
5. Small Scale (Industrial related) Service and Business Enterprises (SSSBE)
Industry related Service and Business Enterprises with investment up to Rs.5 lakhs in fixed assets excluding Land and Building are called Small scale (Industry related) Service and Business Enterprises (SSSBE).
6. Women Enterprises
Women enterprises are those small-scale units, where one or more women entrepreneurs have not less than 51% of financial holding. Such units are given more concessions and encouragement.
7. Village and Small Scale Industries (24.12.1999)
Modern segment - Power looms
Traditional segment - Khadi and Village industries,Handlooms,
Sericulture, Handicrafts, Coir units
Objectives of a Small Business
Objectives are the ends towards which all the activities of the organization are directed.
- Community participation
The above definitions exhibit the following characteristics associated with small business and small-scale units.
- Characterized by smallness
- Involves lesser capital
- Mostly one man venture
- They are highly diversified – wide range of products
- Wide dispersal geographically
There are a number of reasons why smaller firms are of importance to our economy.
- They are the important sources of competition and challenge the economic power of larger firms
- They broaden the distribution of economic and political power and does not result in concentration of power
- They are the sources of innovation and creativity
- They offer career opportunities to those, who are happiest and most productive in the unstructured environment of a small company
- Provide the dynamism, innovation and effectiveness that lead to the productive economic system
- There exists vast agribusiness opportunities in developing economy of India
- Generating employment with minimum investment
- Promoting export
- Control over production widely distributed
- Develop risk takers
- Less capital outlay but more employment generation
- Does not require sophisticated technology
- Facilitates decentralization and dispersal of business units
- They offer a wide range of choices to consumers
- Can serve specialized needs
- Utilizes the resources in full without wastage
- Inadequate management ability
- Inadequate finance
- Poor competitive position
- Uncertain business continuity
Organization and Administration
Organizational structure and administration for promotion of SSI in India are out lined below:
At national Level, under Ministry of Industry an exclusive Department of Small Scale & Agro and Rural industries exists since 1991 for the promotion and development of small-scale industries. The Office of Development Commissioner (Small Scale Industries) has been functioning within the Ministry of Industry since 1954 as an apex / nodal organ and provides link between the Ministry / Department and field organizations. Since 1991 it has been working as an attached office to the Department of Small Scale & Agro and Rural Industries.
Development Commissioner (Small Scale Industries)
The Small Industries Development Organization (SIDO) headed by the Additional Secretary & Development Commissioner (SSI), being an apex body for formulating policies for the development of small-scale industries in the country is playing a very constructive role for strengthening this vital sector. It functions through a network of SISIs, Branch SISIs, Regional Testing Centres, Footwear Training Centres, Production Centre, Field Testing Stations and specialized institutes. It renders services such as:
- Advising the Government in policy formulation for the promotion and development of small-scale industries.
- Providing techno-economic and managerial consultancy, common facilities and extension services to small scale units
- Providing facilities for technology upgradation, modernization, quality improvement and infrastructure.
- Human Resource Development through training and skill up gradation.
- Providing economic information services.
- Maintaining a close liaison with the Central Ministries, Planning Commission, State Governments, Financial Institutions and other organizations concerned with development of Small Scale Industries.
- Evolving and Coordinating Policies and Programmes for development of Small Scale Industries as ancillaries to large and medium scale industries.
- Monitoring of PMRY Scheme.
Over the years SIDO has served a very useful purpose as a catalyst of growth of small enterprises through its vast network of field organizations spread over different parts of the country.
Small Scale Industries Board
The range of development work in Small Scale Industries involves several Department / Ministries and several organizations of Central / State Governments. To facilitate coordination and inter-institutional linkage, the Small Industries Board has been constituted. It is an apex advisory body constituted to render advice to the Government on all issues pertaining to the small-scale sector. The Industry Minister of the Government of India is the Chairman and the Board comprises among others State Industry Ministers, some Members of Parliament, and Secretaries of various Departments of Government of India, financial institutions, public sector undertakings, industry associations and eminent experts in the field. The Board was last constituted on 26.9.1998 with 93 members besides the Chairman. The term of the Board is for two years.
Small Industries Service Institutes (SISIs)
There are 28 SISIs and 30 Branch SISIs set up in State capitals and other industrial cities all over the country. The main activities of these institutions are as follows:
- Assistance / Consultancy to Prospective Entrepreneurs
- Assistance / Consultancy rendered to existing units
- Preparation of State Industries Profiles
- Preparation / Updating of District Industrial Potential Surveys
- Project Profiles
- Entrepreneurship Development Programmes
- Motivational Campaigns
- Production Index
- Management Development Programmes
- Skill Development Programmes
- Energy Conservation
- Pollution Control
- Quality Control & Up gradation
- Export Promotion
- Ancillary Development
- Common Facility Workshop / Lab
- Preparation of Directory of Specific Industry
- Intensive Technical Assistance
- Coordination with DICs
- Linkage with State Govt. Functionaries
- Market Surveys
- Other Action Plan Activities assigned by Headquarters
SISIs and its Branches have common facility workshops in various trades. There is at present 42 such common facility workshops attached to SISIs / Branch SISIs.
Some Current Problems Worrying Small Businessmen
- Govt. regulation/ policy in general
- Govt. paper works
- Labour unions
- High interest rates
- Environmental restrictions
- Lack of required capital
- Minimum Wage Laws
- Corruptive and bureaucratic officialdom
- Seasonality in agricultural production and interruptions in raw materials availability
- Seasonality in demand for agricultural inputs
- Lack of appropriate technology
Business Failure May Result From One or More of the Following Weakness
- Lack of business records
- Lack of business experience
- Insufficient stock-turnover
- Uncollected Accounts receivables
- Inventory shrinkage
- Poor inventory control
- Lack of finance
- Improper mark-up
- Lack of sales
- Too much left to chance
- Crucial obstacles go un-noticed through ignorance.
Entrepreneurial opportunities in Modern Agriculture
|| Product Marketing
||Research & Developement
They are Enterprises, Entrepreneurs and Environment. Already we discussed on the entrepreneurial personality, abilities, motives and competencies. Also we have discussed on the enterprises opportunities and their feasibility and viability, only those enterprises meeting the feasibility and viability will be considered for taking. Next important thing is the environment in which the enterprises and entrepreneurs function.
The environment factors or forces which affect the success of business are into (1) Economic environment, (2) Demographic environment, (3) Socio-cultural environment, (4) Technological environment (5) Political environment, and (6) Legal environment.
Importance of Environment Analysis
The manager needs to be dynamic to effectively deal with the challenges of environment. The environment of business is not static. Some of the following benefits of environment scanning are as follows:
- It creates an increased general awareness of environmental changes on the part of management
- It guides with greater effectiveness in matters relating to Government
- It helps in marketing analysis
- It suggests improvements in diversification and resource allocation
- It helps firms to identify and capitalize upon opportunities rather than losing out to competitors
- It provides a base of objective qualitative information about the business environment that can subsequently be of value in designing the strategies.