CHAPTER 1 INTRODUCTION

1.1 . Introduction
Small and Medium Enterprises (SMEs) are very important in the development of any

country particularly developing countries to which India is not an exception. Scholars

(e.g., Zaidi, 2013) believe that SMEs play an essential role and are the backbone of the

national economy.

Entrepreneurship has been focused on by the researchers in many countries where it is

growingly considered as a paramount engine in economic development, economic growth,

productivity, employment, and innovation. It has also been recognized as a key concept in

economic dynamism around the globe.1

Emphasizing the impact of entrepreneurship on the countries’ development, it is seen as

one of the important contribution in the economic development of countries. The business

report reveals that entrepreneurship is only a newcomer in the field (Vesper & McMullan,

1987).

Entrepreneurship is the process through which entrepreneurs create and grow enterprise.

Entrepreneurship plays an important role in the economic development of a nation. It is the

process of exploring and discovering opportunities, providing value in different cultural,

social, and economic areas and is also seen as a basic foundation for a comprehensive and a

sustainable development in countries.

Consequently, in the governmental and public sectors, entrepreneurship development is

1
Avasilicai, S. (coord.), 2009. Entrepreneurship: applied research, Cluj-Napoca: Tedosco.

1
 regarded to have an influential role in the global market, developing products, sustainable

employment, dealing with competitors, solving problems and reducing poverty in societies.

Entrepreneurship as a crucial foundation in human development and advancement has

various definitions in different contexts social, psychological, and management as well as

economic scientists’ accordingly presents different meaning for entrepreneurs.

There are two different definition of entrepreneurship. The first definition is that who is an

entrepreneur. Entrepreneurship must be based on the findings identified.

The second definition is related behaviour, hence the people who are involved in

entrepreneurship (Yaghoubi, 2010). An entrepreneur is a person who sees a market

opportunity, gather the needed resources (finance and people) and execute to seize it

(Cohort, 2006).

Scholars believe that an entrepreneur is person who evaluates market opportunities, collects

the required resources and then decides to make a decision in taking a business. According

to the Merriam-Webster’s online dictionary an entrepreneur is someone who organizes,

manages and assumes the risks of a business or enterprise. Sobel (2008) sees an

entrepreneur as an agent of change. On the other hand, Shepherd and Wingham (2007)

assert that in entrepreneurship one brings the labour, resources, materials and another brings

assets into combinations which cause their value to increase and while others introduce

innovations, changes, new order, etc.2

From the various definitions of entrepreneurship, entrepreneurs are considered as the

drivers of the economic development who help to replace the old inefficient methods

leading to modern and more efficient methods. Feili et al in 2011 claim that

2
Borza, A. (coord.), 2009. Entrepreneurship: the management of small and medium enterprises, Cluj-Napoca:
Risoprint.

2
 entrepreneurship is a momentous component of development. They added that, fostering

and promoting entrepreneurship is seen as one of the fundamental measures which are

carried out to accelerate social and economic development.

Undoubtedly, the economic development trends in developed countries verify this reality

that economy is actually influenced by entrepreneurship due to the central role of

entrepreneurs in economic development. Fundamental changes are provided by the global

economy for the industries and organizations all over the world. These changes need

commercial companies to carefully explore their goals and to cautiously select and follow

strategies leading to an increase in the level of activities.

Mostafavi, Abraham, DeLaurentis and Sinfield (2011) state that for rapid changes in their

internal and external environments, a great number of established companies employed a

new foundation for their operation structure.

As the matter of fact, in the present century companies have placed much emphasis on

entrepreneurship. The emphasis on entrepreneurship has been started in 1980s (Histrich et al

2005). It was since then, that it’s fundamental role has been considered as a key factor in

countries economic success.3

Significance of Entrepreneurship
Entrepreneurship is seen as a very imperative movement in each country’s growth and

competitiveness and is considered as a major source of social mobility. Regarding their

contribution to new job creation, Birch (1979) asserts that new ventures have become a vital

aspect of economic development in countries.

3
Druker, P.F., 2009. Innovation and Entrepreneurship, New York: Harper Collins.

3
 Different scholars maintain that the function of entrepreneurship in job creation, not all

researchers agree on the real impact of entrepreneurship on a country’s competitiveness and

economic development.4

Entrepreneurship processes can be very crucial in gaining competitive advantages as it

fosters’ the innovational processes in industrial sectors. Amorós, et al (2012) states that

the new entrepreneurial businesses may serve new segments or try new methods that their

rivals who have been on the scene longer failed to identify or respond to for lack of

flexibility (p. 252).

Definitions of Entrepreneurship

Among the various types of definitions and conceptualizations on entrepreneurship

available, the definition presented by Schumpeter (1934 as cited in Morris & Sexton, 1996)

is the widely accepted one.

Morris and Sexton explain that Schumpeter defines entrepreneurship as an introduction of

new goods or new quality of goods, introduction of new methods of production, opening of

a new market, exploration and utilization of new sources of raw materials and carrying out

new organizational forms p. 6).5

According to this definition, entrepreneurship involves creation of new economic activities

or in simple words, any activities which bring changes in the market which are seen as

‘entrepreneurship’. Davidsson (2003) noted that new activities can range from new firm to

internal activities which are new to the firm.

Firm growth in this definition is also considered as ‘entrepreneurship’ because growth can

4
Lazăr, I., Ilieș, L., Mortan, M., Vereș, V., Lungescu, D., 2006. Company management, ClujNapoca: Risporint
5
Nicolescu, O., 2007. The SME management, Bucharest: Economica.

4
 itself cause changes both in the internal and external environments. Entrepreneurship is

generally considered as an organizational and personal phenomenon. It is not often easy to

study entrepreneurship at the individual level because there are possibilities that can

influence the success of individual entrepreneurs.

Covin, and Slevin (1990) claim that although it is difficult to do, studying entrepreneurship

regarding firm behavior would be beneficial. In 1991, they also stated that by bringing

changes in the economic environment, the same as individuals, organizations can also

establish value for society.6

Murray (1984) believes that conceptualizing and investigating entrepreneurship as an

organizational behavior would be a better approach than studying it as an individual act.

Furthermore, authors (e.g., Covin & Slevin, 1991; Wiklund, 1998) theorize that although

entrepreneurship as an organizational behavior is mostly related to large established

enterprises, it can also be used for smaller organizations.

According to Hisrich and Peters (1998) entrepreneurship is a dynamic practice of new

venture creation and encompasses the rewards and risks of the new ventures.

Timmons and Spinelli (1999) suggest that entrepreneurial behavior and attitudes take

account of: taking ownership and being accountable; the inspiration to achieve and compete;

new ideas, practices, being able to tolerate ambiguity and uncertainty, problem-solving and

decision making, creative and flexible thinking, the ability to capture opportunities, and

the ability to manage and finally reduce risks.

Entrepreneurship as a field of study is rather young (Cooper et al 1997). Thornton (1999)

stated that the definition of entrepreneurship evolved from two approaches regarding the

6
Nicolescu, O., 2001. The SME management. Concepts, applications, methods, case studies, Bucharest: Economica.

5
 concept of the term ‘entrepreneur’ and the ‘demand side’ which refers to the influence of

firms and markets on how, where, and why new enterprises are founded (p. 19).

A literature review, on entrepreneurship and development indicates that scholars see

entrepreneurship as creating new economic activities (e.g., Low & McMillan, 1988; Shane

& Venkataraman, 2000) which can lead to creating new organizations (e.g., Reynolds et al

2005; Schumpeter, 1934) or the pursuit of innovations (e.g., Davidsson et al 2002;

Schumpeter, 1934; Wennekers & Thurik, 1999).

Leading scholars, namely Schumpeter (1934), Baumol (2002) and others such as Acs, and

Audretsch (1988) also Wennekers and Thurik (1999) declare that entrepreneurship seems to

be a vital mechanism in economic development through innovation, employment, and

welfare effects.7

Autio (2007) stated that the orientation of entrepreneurial activities varies across countries.

Autio believes that the dynamics of entrepreneurship can highly rely on the level of

economic development and institutional context.

Entrepreneurial activities are believed to be a very significant contributing factor in the

economic vitality of a country (Kent, 1984; Schumpeter, 1934). These activities are in

association with new ventures, individuals, innovations, and risk- taking (Jennings &

Lumpkin, 1989; Lumpkin & Dess, 1996). It is also in close link with job creation and

growth. Therefore, it is remarkably essential for emerging economies in industrial countries.

Entrepreneurship is regarded to have a very decisive impact on countries’ social and

economic development (Reynolds et al 2005). However, substantial and out of study on

entrepreneurship is limited to small business and new business enterprises with no focal

7
Văduva, S., 2004. Entrepreneurship, Bucharest: Economica.

6
 point on its international roles.

Some other scholars see entrepreneurship as self-employment activities of any kind.

Entrepreneurs are mostly experiencing uncertainty and bearing risks while pursuing

opportunities and involving creative and innovative actions.

While running their business, either compulsorily or voluntarily, entrepreneurs are always

facing challenges of uncertainties, social, or potential financial losses. They are risk-takers

and it is this risk-taking that prompt’s those to highly focus their actions and attention to the

exploration of profit realization.

Regardless of the contribution to development, entrepreneurship is seen as a momentous

issue to guarantee the success of firms (Knight, 2000; Luo, 1999; Zahra & Neubaum,

1998). Consequently, investigating how entrepreneurship enables the firms to achieve

superior performances in business.8

Entrepreneurship has a key role in growth, personal fulfillment, and employment and is

defined as an individual’s ability to turn ideas into action (European Commission, 2013,

para. 1), but besides these, in order to transform these ideas into action you need to be able

to use a set of competence, namely creativity, self-confidence, risk-taking, and innovation.

As a matter of fact, they are the mindset, personal abilities, and behavioral or social

attitudes which are necessary to be taken into account. According to Hisrich (2007) the

central core in presented definitions of entrepreneurship by the scholars is regarding the

kind of behavior that includes: a. initiative taking, b. organizing and reorganizing the

economic and social mechanisms in order to turn the situations and resources to practical

account, and c. risk and failure acceptance.

8
Zahiu, L., Nastase, M., 2004. The enterprises economy, Bucharest: ASE.

7
 Entrepreneurship Activity in India
Entrepreneurship is seen as a very imperative activity in every country’s growth and

competitiveness and is considered as a major source of social mobility. Regarding their

contribution to new job creation, Birch (1979) asserts that new ventures have become a vital

aspect of economic development in countries.

Entrepreneurship processes can be very crucial in gaining competitive advantages as it

fermentation innovational processes in industrial sectors. Amorós, Fernández, and Tapia

(2012) states that the new entrepreneurial businesses may serve new segments or try new

methods that their rivals who have been on the scene longer failed to identify or respond to

for lack of flexibility (p. 252).9

According to Draker (2006), entrepreneurship strategy is a set of personal knowledge to

which is in the form of a guide or a plan to change the opportunities into values that may

result in personal, massive, and social benefits. The SMEs in India continue to have a

growth route since last decade. It increased noticeably from

261.12 in 2006-2007 to 311.52 in 2010-2013 which is a considerable rise in the number of

MSMEs or SMEs (Zaidi, 2013).

Based on the World Bank report, Zaidi (2013, p. 413) adds that SMEs contributes for 50 %

of the GDP and emphasizes the functions of small and medium enterprises in providing 70

per cent of the employment.

In India, SMEs had an undeniable contribution to the economy. SMEs is contributes for 40

% of the country’s domestic production, 50 per cent of total exports and 45 % of industrial

employment in India.
9

www.dcmsme.gov.in/ssiindia/defination_msme.htm

8
 Ace (2003) reported on a number of scholars having provided explanations regarding the

impact of entrepreneurship on economic development. The different factors (e.g., law,

cultural, institutional, social, etc.), the function of entrepreneurship has been different in

different countries.

As countries are different in how they provide and regulate an environment for enterprises,

India is a good case due to its distinguished open economy and because it has got fairly

liberal economic policy and capability to promote speedy economic growth during the past

20 years. Consequently, we need to fully understand and analyze SMEs’ contribution to

economic development during the past two decades in India and also to study the

formation of new enterprises as a significant indicator of entrepreneurial activities in this

country. We also need to analyze the major constraints impeding the emergence of new

businesses in India. It is also required to discover new proper policy measures which can

support entrepreneurship development in the country.

Concept of Entrepreneurship

Entrepreneurship the heart of present business and a power behind innovative businesses

characterizes the modern economy. Kuratko and Hodgetts (1998) describe it as a vibrant

process to generate incremental wealth by people who assume great risk regarding equity,

time or career commitment to create value for products and services.

For various reasons, entrepreneurship is regarded as a crucial component of economic

development and growth. Shane and Venkataraman (2000) believe that it is a mechanism

in which business and technological ideas are converted into products and services by the

society. Schumpeter (1934, as cited in Maes, 2004, p.10

10
dcmsme.gov.in/LegalFramework.htm

9
1) states that this type of entrepreneurially driven innovation in products or services and

processes is a crucial engine driving the change process in a capitalist society. According to

Shane and Venkataraman (2000, as cited in Maes, 2004) Entrepreneurship discovers and

mitigates not only technological, but also temporal and spatial inefficiencies in an economy

(p. 1). This definition holds that the study of entrepreneurship is in close relationship with

the study of business. Rothwell and Zegveld (1982) argue that entrepreneurship has long

been regarded as synonymous for creating new SMEs and as an appropriate means for

entrepreneurship endeavor.

Considerable research indicates that entrepreneurship is a process rather than a static

phenomenon. Pirich,Knuckey and Campbell (2001) claim that entrepreneurship is not just

an economic factor Entrepreneurship has to-do with change and is also commonly

associated with choice-related issues (Ibiyemi and Adenipekun, (2013, p.1).

Economic Development

Economic development refers to a long-term process of change in order to reach to

sustainable development, community prosperity, income, and community health. Economic

development bestows improvement in the quality of life. This goal can be achieved by

making net gain of money flow into the community, by adding to the standard of living of

its people.

Economic development process comprises establishing goals and measurable objects,

developing and implementing policy, and setting of detailed action plans. A variety of

instruments can be applied to measure, evaluate, and monitor success. Baselines of

community economic health indicators and life quality are formed against which change is

10
 assessed.

Economic development refers to a long-term multi-directional process of growth associated

with change. Here, the term growth indicates quantitative changes in the level of income,

output, investment, saving, and population etc. On the other hand, the qualitative changes

refer to changes in institutions structure, finance, administration and the quality of human

life. Growth and change together as a concept implies movement of an economy from one

sate to another higher state of equilibrium. Such a movement as a continuous process can

improve the quality or life in the community. This process is known as economic process.

All said; economic development implies the sustained action of policy makers and

communities which promote higher living standards in a specified area.11

Entrepreneurship and Economic Development

Entrepreneurship development refers to the infrastructure of public and private policies and

practices that foster and support entrepreneurship. Entrepreneurship is an essential condition

for the process of economic development. In fact, the need and importance of

entrepreneurship in the context of a developing economy; hardly need any explanation. It is

a basis of prosperity creative thinking, social innovations. It is an important system of

developing an enterprising society. According to Schumpeter, Everyone is an entrepreneur

when he actually carries out new combinations. Finding new combinations of factors of

production is a process of entrepreneurial discovery that has become the engine that drives

economic development.12

11

www.moneycontrol.com/smementor/mentorade/legal-9.html?classic=true

12

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 The present day business and economic world cannot survive without entrepreneurial

competence. This has become essential for rapid change and innovation, social development

and industrialization. It promotes thinking and creativity in business for adopting new

production techniques, modem technological changes and discovering new sources of raw

material, new markets, and innovative products. The rapid economic growth can be

achieved with the help of entrepreneurial spirits and creative attitudes and achievement

vision of the persons. It can be pointed out that entrepreneurship is a key factor for rapid

and balanced economic development, optimum utilization of resources, creation of

employment opportunities, promotion of capital formation and establishment of a developed

self sufficient society.

True development means the development in the three categories of a human. These are

individual, social, and economic development. Individual development means increased

skills and capability, greater freedom, creativity, self- discipline, responsibility and material

well being. Increasing capacity connotes social development, while economic

development is determined by the increased capacity of the members of a society in dealing

with their environment. This emphasis means that development at the individual stage

subsumed both the social and economic categories of development. Development is

dynamic and therefore assumes a continuous transformation process and a movement

towards better and improved conditions, locally and internationally.

Entrepreneurship Development Process

https://ppp.worldbank.org/public-private.../small-and-medium-enterprises-and-ppps

12
 There are three schools of theoreticians about entrepreneurship. They have explained the

entrepreneurship process. The first is the German tradition of von Thunen, Schumpeter and

Baumol. The second is the neoclassical tradition of Marshall, Knight and Schultz and the

third the Austrian tradition of Menger, Von Mises, and Kirzner (Wennekers and Thurik,

1999: 31). In this section, we focus on four entrepreneurial roles, emphasized by

Schumpeter, Baumol, Knight, and Kirzner respectively.

The first use of the term entrepreneur in an economic context is attributed to Richard

Cantillon in 1755. He refers to the entrepreneur as any individual who works under

conditions where expenditures are known and certain, but incomes are unknown and

uncertain. The uncertainty of income arises as future market demand is not perfectly

forecast (Binks and Vale, 1990: 9-10).13

The Schumpeterian entrepreneur is an innovator who introduces new technological process

or products. The Schumpeterian entrepreneur alters technological possibilities and alters

convention through innovative activity, and lifts up production constraints. According to

Schumpeter, the main driving force behind the economic growth is the introduction of new

combination of resources and services, not the creation of new possibilities:

Whatever the type, everyone is an entrepreneur only when he actually carries out new

combinations and loses that character as soon as he has built up his businesses, when he

settles down to running it as other people run their businesses(Schumpeter, 1934: 78).

They have not accumulated any kind of goods; they have created no original means of

production, but have employed existing means of production differently, more

appropriately, more advantageously. They have carried out new combinations. They are the

13
corporatelawreporter.com/2019/02/08/msme-compliances-recent-notifications/

13
 entrepreneurs. And their profit, the surplus to which no liability corresponds, is the

entrepreneurial profit (Schumpeter, 1934: 132).

According to Schumpeter, the carrying out of new combinations can be classified into five

groups: 1) the introduction of a new good, 2) the introduction of new methods of

production, 3) the opening of a new market, 4) the invention of a new source of supply of

raw materials or half-manufactured goods, and 5) the carrying out of new organization of

any industry, like the creation of a monopoly position.

Baumol (1990: 893-921) stated there are several types of entrepreneurs among societies

and overall environment plays an extremely significant role in the determination of each

type of entrepreneurship. Baumol’s basic hypothesis is that, While the total supply of

entrepreneurs varies among societies, the productive contribution of the society’s

entrepreneurial activities vary much more because of their allocation between productive

activities such as innovation and largely unproductive activities such as seeking rent or

organized crime (Baumol, 1990: 893). To him, entrepreneurship will be allocated in

productive or unproductive directions depending on the relative payoffs to different

entrepreneurial activities, which can significantly affect the strength of the economy’s

productivity growth.14

The productive entrepreneurship is fostered by incentives for entrepreneurs to devote

themselves to productive innovation rather than to innovative rent-seeking (the non-

productive pursuit of economic profit such as occurs in inter-business lawsuits), or event to

destructive occupations, such as criminal activities (Baumol, 2002: 5). Baumol stated that

the entrepreneur is an innovator and this idea is motivated by Schumpeter’s work.

14
Agarwal, M.S (1987) “Bank Financing of Small- Scale Industries in India”, Ph.D thesis, Kerala University.

14
 According to Knight (1921), the entrepreneur is a risk taker whose reward- profit- is the

return for bearing uncertainty and is an uninsurable risk. The opportunity for profit arises

out of uncertainty that develops because of change. The entrepreneur is someone who is

prepared to take on risk in an uncertain world. Knight made a significant difference

between risk and uncertainty. Risk exists when we have uncertain results but those results

can be forecasted with a certain degree of probability. Uncertainty occurs when the

probability of results cannot be computed. The entrepreneur is someone who is willing to

accept the remaining risk that cannot be moved through insurance.15

For Kirzner (1973: 16-17), the entrepreneur is someone who is alert to cost- effective

opportunities for trade. Recognizing the possibilities for trade allows the entrepreneur to

take advantage by behaving, as a ‘middleman’ who facilitates the trade. Entrepreneur can

identify suppliers and customers and act as the intermediary. Also, there is no need to own

resources and profit arises out of the intermediary’s role. The role of knowledge in the

market place is significant for the Kirznerian entrepreneur. Market exchange itself is an

entrepreneurial process, but people can benefit from exchange due to information gaps in

the market. In this view, the entrepreneur may be seen as little more than a market trader,

gaining advantage of opportunities to trade; for Kirzner, the entrepreneur is someone who is

still creative. The possession of additional information provides opportunities for creative

discoveries. How-ever, in contrast to the Schumpeterian sight, anyone could potentially

have the additional information and be alert to opportunities for exchange and trade.

According to the survey, there are three basic entrepreneurial roles: the first is the role of

innovator (Schupeter’s innovating entrepreneurship). The second is the role of perceiving

profit opportunities (Kirzeznrian entrepreneurship). The third role is that of assuming the
15
Anil Kumar (2008) “Awareness of Supporting Agencies among Women Entrepreneurs in Small Businesses”, in
The ICFAI University Journal of Entrepreneurship Development, Vol.V(4), pp. 6-17.

15
 risk associated with uncertainty (Knightian entrepreneurship). A lack of entrepreneurial

activity in the economy is related to low rates of innovation, to unseen ’profit opportunities’

and to risk-averse attitudes which would cause lack of economic development.

Schumpeterian Entrepreneurship
Numerous visions have been articulated about the role of the entrepreneur in a capitalist

economy. Perhaps the best known is Joseph Schumpeter’s view of the entrepreneur in the

Theory of Economic Development. Schumpeter’s entrepreneur is an agent of change that is

the source of his famous creative destruction. He introduces a new good or a new method

of production, opens a new market or discovers a new source of supply, or carries out a

new organization of an industry. He upsets the conventional way of doing things. When

successful, he elicits widespread imitation. Such success presupposes a great surplus force

over the everyday demand and is something peculiar and by its nature rare (Schumpeter

[1949]).16

What is the impetus for this kind of Schumpeterian entrepreneurship? Popular theories of

entrepreneurship feature the role of risk taking (Kihlstrom and Laffont (1979)), managerial

ability (Lucas [1978]), wealth (Evans and Jovanovic [1989]), and preferences for the

control, flexibility and other job attributes that come with being one’s own boss (Hamilton

[2000]) as the primary motivations for entrepreneurship. While all receive support from

empirical investigations of the self employed and business owners, none maps into

entrepreneurship with the singular impact envisioned by Schumpeter.

Entrepreneurial profit is the direct result of the activity of innovation and from this

perspective this type of activity could be considered a temporarily productive factor. As we

16
Arun Thukral, (2011) “SMEs to Know the Borrower’s Credit Worthiness”, in SME World., Vol. (1), pp. 1-9.

16
 have already seen, the entrepreneurial leader is the person capable of initiating these actions

and his or her role is indispensable in the economic process, or as Schumpeter puts it in

most cases... the means of production are replaceable, but not the leader. This

contextualization of entrepreneurial activity and its recompenses allows for the fact that

entrepreneurs’ profit is different of rent, wage or return on capital.17

Contribution of Entrepreneurship to Economic Development

The OECD strongly emphasizes the significance of entrepreneurial activity as one of the

main factors in economic growth because entrepreneurship provides new ideas, and

innovation, both of which are positive sources of economic growth and development. The

OECD defines the entrepreneurship is the ability to marshal resources to seize new business

opportunities. Entrepreneurship defined in this broad sense, is central to economic growth

(OECD, 1998: 41). The increasing role of entrepreneurs in economic growth encourages

governments to promote entrepreneurship via reducing the financial constraints that

entrepreneurs face; either through preferential loans to new businesses, or preferential tax

treatment for new or small businesses. Among other polices, the OECD (2003) recommends

stable economy, deregulation of monopoly sectors, establishing property rights and

political stability, better education, investment in human capital, efficient capital and

financial markets, avoiding excessive red tape.

Wennekers and Thurik’s (1999: 30-35) stated that we need this framework because there is

no direct link between entrepreneurship and economic growth. The definition of the

entrepreneurship has not been an easy task. Therefore, various intermediate variables or

linkages (innovation, competition) are needed to explain how entrepreneurship affects

17
Azad, R,R (2010) “ Grooming SMEs in Booming ASEAN”, in Facts For You, Vol.30 (10), ISSN No. 0970-2652,
pp. 35-39.

17
 economic growth. According to the framework, personal characteristics are important

conditions for entrepreneurship. Cultural (open-mindedness towards other cultures,

acceptance of risk, determination, valuation of wealth and savings, competitiveness) and

institutional (incentives, competition rules, property right, possibilities for trade and

specialization) conditions stimulating entrepreneurial characters and behaviour, as well as

influencing the intermediate linkages. Entrepreneurship has two major roles regarding the

linking entrepreneurship to economic growth. The first is related to ‘new entry’. New entry

can be accomplished by entering new business and a firm start-up is a major form of new

entry. The second is related to innovation role of entrepreneurs. An innovative could be

accomplished by a firm start-up. Start-ups and innovations as well as competition are the

most relevant factors linking entrepreneurship to economic growth.18

Small and Medium Enterprises (SMEs)

Over the last few years, SMEs and MSMEs sectors have emerged to be highly vibrant and

dynamic sectors in the Indian economy. MSMEs have a momentous role in not only

providing employment opportunities at comparatively lower capital cost compared to large

industries but also helping the rural areas to move towards industrialization, which in turn

reduces regional imbalances and causes equitable distribution of national wealth and

income. According to the Union Ministry of Small and Medium Enterprises (2012-2013),

MSMEs are complementary to large industries as additional units which can contribute

greatly to the socio-economic development of the country.19

Development of SMEs is to a great extent dependent on the presence of supportive

18
Balasubramanian, N (2007) “Expanding Role of SIDBI”, in The Hindu, Survey of Indian Industry, pp. 70-73
19
Jagapathi Rao, G, V (2010) “A Study on Socio Economic Background of Entrepreneurs in Small Scale
Industries”, in Indian Journal of Marketing, Vol.40 (9), pp. 55-59.

18
environment. Programs ranging from applying receptive regulatory environments to

providing access to finance and technology are the inevitable components for SMEs

development. However, all the Asian countries focused specifically on ‘entrepreneurship’

and its importance as an independent factor in promoting competitiveness. Needless to

mention that government in every country has a crucial role in enhancing entrepreneurial

culture. In countries like India, the Philippines and Malaysia the private-sector enterprises

have also made attempts in this regard.

19
 CHAPTER 2

REVIEW OF THE RELATED LITERATURE

Conceptual Framework of the Research

Review of Literature helps to study the economic impact of entrepreneurship in enterprises

performance on the basis of entrepreneurial characteristics. The personality characteristics

of entrepreneurs include:

A) Innovativeness

B) Risk-taking

C) Pro-activeness

D) Autonomy and

E) Competitive Aggressiveness.

The following variables are derivative Independent Variable to evaluate the impact of

economic performance of small and medium-sized enterprises it includes:

A. Sales growth

B. Customer satisfaction

C. Market share and

D. Profitability.

Dependent Variables are:

1) Export

2) Employment creation and

3) LPG policies.

20
 The study also examined the differences between producers, commercial and services in

their exports and creation of employment according to performance. It covered sales growth,

customer satisfaction, market share and profitability based on the findings of previous

research studies. It also seeks to find the relationship between performance of small and

medium enterprises, with reference entrepreneur characteristics’ and its impact on economic

indicators.20

Because of their limited financial, human, and technological resources compared with large

enterprises, SMEs are advantageous due to their, flexibility and innovation capacity which

make them the major actors in the modern economy and exports. Recently, SMEs have been

significantly successful in the international markets because smaller enterprises gain a

competitive edge and contribute considerably to total exports. This changing role in the

international trade caused them to contribute noticeably to the development and economic

growth of many countries (Birch, 1988; UNCTAD, 1998; & Weaver et al 1998).

Observation of some of the rapidly growing Asian economics’ (e.g., South Korea,

Singapore, Taiwan etc.) closely reveals that a great number of opportunities for economic

growth originate from encouragement of SMEs’ export capabilities among others

(UNCTAD, 1998).

It is obvious that exports have an undeniable role in any country’s economy by creating

employment and promoting economic growth. Countries with no ability to support or

motivate their enterprises to enter global markets tend to lag behind. The common belief is

that export development is the best way for economic development (Seringhaus, 1986).

By the employment of entrepreneurship orientation in enterprises, instead of old methods of

20
Basheer Ahmed, (2000), “Sickness of SSI”, in Southern Economist, Vol.38 (18), p.19.
21
 offering products, we can introduce new methods, rules, and offer totally different products.

Effectiveness of activities is important but it is not the only one necessary for the success

of the company because effectiveness only guarantees superiority over other competitors.

Today, being superior also requires basic changes in rules of the enterprises. Ahmadi and

Allhyari (2003) believe that such strategies can happen in supportive systems, distribution

and communication, production policies and other areas.

The existing definitions of entrepreneurship mainly focus on the functional role of

entrepreneurs, namely coordination, motivation, capital supply, uncertainty bearing,

decision making, resource allocation and ownership (Friijs et al 2002; Jääskeläinen, 2000).

As a matter of fact, some of these functional roles which are mentioned frequently are

associated with the following main schools of thought on entrepreneurship:

Definition of Entrepreneurial Characteristics

Innovativeness: the Schumpeterian entrepreneur is willing to accelerate the creation,

dissemination and application of ideas.

Risk-taking: the Cantillon or Knightian entrepreneur who is willing to take risks associated

with uncertainty.

Pro-activeness: the organization’s willingness to lead in developing new technologies and

products and also in the introduction of new services instead of following the traditional

market.

Autonomy: Lee and Peterson (2001) hold that for having strong autonomy, entrepreneurs

require to operate within the cultures which promote their independent acting and seek

opportunities as well.21
21
Butler, P and Durkin, M (1998)
22
Competitive aggressiveness: refers to the organization’s propensity in direct challenges

with their competitors to reach to a better market position and even seeking to overcome

them. As Venkatraman (1989) notes, competitive aggressiveness is a strategy taken by a

company in which it allocates its sources to obtain positions faster than other competitors.

Wennekers and Thurik (1999) presented an operational definition for entrepreneurship

which well synthesizes the function of entrepreneurship. They argue that: …the manifest

ability and willingness of individuals, on their own, in teams within and outside existing

organizations, to perceive and create new economic opportunities (new products, new

production methods, new organizational schemes and new product-market combinations)

and to introduce their ideas in the market, in the face of uncertainty and other obstacles, by

making decisions on location, form and the use of resources and institutions (p.).

Carree and Thurik (2002) reported that entrepreneurship is basically a behavioral feature of

a person. They added that entrepreneurs may manifest their very behavioral characteristic

only in certain phases of their careers or in certain activities.

Definition of 'Employment'
Employment is a situation in which available labour resources are being used in the most

economically efficient way. Full employment embodies the highest amount of skilled and

unskilled labour that could be employed within an economy at any given time. The

remaining unemployment is frictional (Kiel, December 1984).

Frictional unemployment is the amount of unemployment that results from workers who are

in between jobs, but are still in the labour force. Full employment is attainable within any

economy, but may result in an inflationary period. Inflation would result from workers, as a

whole, having more disposable income, which would drive prices upward. Many
23
economists have estimated the amount of frictional unemployment, with the number

ranging from 2-7% of the labour force (Kiel, December 1984).

Definition of ‘Export’
Makableh (2013) explained exports as a function of international trade whereby goods

produced in one country is shipped to another country for future sale or trade. This sale of

goods adds to the exporting nation's gross output. If used for trade, exports are generally

exchanged for other products or services. Exports are one of the oldest forms of economic

transfer, and occur on a large measure between nations that have very few restrictions on

trade, such as tariffs or subsidies.

In other definition presented by Makableh (2013) says: of most of the largest corporations

operating in advanced economies will derive a large portion of their annual revenues from

exports to other nations. The capability to export goods helps an economy to grow by selling

more services and goods. One of the core functions of negotiation and foreign policy within

governments is to foster economic trade in ways that benefit both parties involved.

Export with its grammatical variations and cognate expressions, has in this context of my

study it means, taking good out of one country to a place outside the country.

Export goods means goods which are going to be taken out of the country to a place

else’s where.

Exporter in relative to any goods at any time, between their entry for export and the time

when they are exported includes every owner or any person holding himself out will be the

exporter.

Employment opportunities: Export trade calls for more production. More production

24
 opens the doors for more employment. Opportunities are available not only in the export

sector but also in allied sectors like banking, insurance etc.

Promoting economic development: Exports are needed for promoting economic and

industrial development. The business grows rapidly if it has access to international markets.

Large-scale exports bring about rapid economic development of a nation.

Definitions of the Export Management

1. Export management means managing export marketing activities efficiently,

smoothly and in an orderly manner.22

2. Export management means finding opportunities for marketing goods and

services, in foreign markets and exporting such opportunities for the benefit of an

exporting firm, subject to existing export rules and regulations.

3. Export management is a specific area of business management and it is

concerned exclusively with exporting goods abroad. It is concerned with international

marketing activities and operations.

4. Export Management means planning, organizing, coordinating and controlling

export activities to achieve desired export objectives without hassles and continuously.

Trends in India’s Exports Export Growth

India‘s exports have increased over the last two decades, from US $17.9 billion in 1991-92

to US $83.5 billion in 2004-05 and further to US $312.6 billion in 2013-14. Similarly, the

share of merchandise exports from India in the world exports has increased from 0.5 percent

in 1991 to 0.8 percent in 2004 and 1.7 percent in 2013. India‘s greater integration with the

22
Chandrajit Banerji (2009) “Economic Stimulus Package Working: CII SME Survey”, in the CII Communique,
Vol.18 (4), p. 32
25
world economy was reflected by the trade openness indicator, the merchandise trade to

GDP, which increased from 14.3 percent of GDP in 1991-92 to 28.2 in 2004-05 and

further to 41.8 percent of GDP in 2013-14.

During the five-year period 2004-05 to 2008-09, India‘s merchandise exports grew at a

compound annual growth rate Compound Annual Growth Rate (CAGR) of

23.8 percent compared to the 14.0 percent of the preceding five- year period. As a result of

global financial crisis, export growth in 2009-10 was negative at (-) 3.6 percent and

during the period 2009-10 to 2013-14, it grew by a CAGR, of only 15.0 percent. This low

growth was a result of both external factors like low global demand and domestic factors

like infrastructural bottlenecks and policy constraints.

In the last five years, India‘s export growth has seen ups and downs, being in negative

territory twice in 2009-10 as an aftershock of the 2008 crisis and in 2012- 13 as a result of

the euro zone crisis and global slowdown. India‘s exports were US$

312.6 billion against a target of US$ 325 billion during 2013-14, though they grew by a

positive 4.1 percent as compared to the negative growth of 1.8 percent during the previous

year. Monthly export growth rates have seen many ups and downs in 2013-14.

After being in double digits continuously for four months from July to October 2013, they

decelerated to single digit for three months from November 2013 to January 2014, and

remained in negative territory in the next two months, and ended with a positive but low

growth of 4.1 percent for the full year. In April 2014, export growth was slightly better at

5.3 percent and with the 12.4 percent growth in May 2014, double-digit growth was back

after a gap of six months, though on a lower base. Exports registered double digit growth

for the second successive month in June 2014 at 10.2 percent over June 2013. However, in

26
 July 2014 it was slightly lower at 7.3 percent. Export growth during 2014-15 (April-July)

was at 8.6 percent over the same period of the previous year.

Definition of LPG (Liberalization, Privatization, Globalization)

Liberalization
Liberalizations denote looseness in the rule and regulations. When Government removes

the restrictions from the fields of production exchange and distribution through its industrial

export-import and taxation policies, it is called the Policy of liberalization (Sinha &

Srivastava, 2012).

 The term Liberalization stands for the act of being less strict.

 Liberalization in economy stands for The process of creating policies less

compelling of economic activity. And also Reduction of tariffs and/or removal of non-tariff

barriers.

 Economic liberalization is a very comprehensive term that usually refers to

fewer government regulations and restrictions in the economy in exchange for greater

involvement of private entities; the principle is associated with neo-liberalism. The opinions

for economic liberalization include greater efficiency and effectiveness that would translate

to a bigger pie for everybody.

 In developing countries, economic liberalization refers more liberalization or

further opening up of their respective economies to foreign capital and investments. Three

of the fastest growing developing economies today; Brazil, China and India, have achieved

rapid economic growth in the past several years or decades after they have liberalized their

economies to foreign capital.23

23
Chockalingam, S,M and Sundar raj, J (2007) “Trends in the Flow of Bank Credit to SSI Sector”, in the
27
 Privatization
Privatization is the process of converting an enterprise or industry from the public sector to

the private sector. Privatization may involve either sale of government-held assets or

removal of restrictions ending private individuals and businesses from participating in a

given industry.

Privatization is a continuing trend in many parts of the world. Supporters of privatization

maintain that the competition in the private sector adopts more efficient practices, which

ultimately yield better service and products, lower prices and less fraud. On the other side,

opponents of privatization argue that some services – such as health care, utilities, education

and law enforcement - should be in the public sector to enable greater control and ensure

more impartial access.

Privatization connotes a wide range of ideas. Privatization implies induction of private

ownership, management and control of organizations. Privatization can imply regulation

meaning thereby lesser control of the government. It refers to expansion of private sector

and reduction of public sector. The shift towards privatization reduces the role of the

government and increases the role of the private, cooperative and local government.

Globalization
Globalization can be defined as the strengthening of worldwide social relations which link

distant localities in such a way that local events are shaped by events occurring several miles

away and vice versa. (Cambridge: Polity Press, 1990 p.64)24

The closing decade of 20th century saw major social, political and economic

transformations on a global stage. Globalization as the name suggests is a global economic

Organisational Management, Vol. XXIII., No.3, pp.14-17.
24
Chopra, K, C (2006) “Financing for the Decentralized Sector - Small and Medium Industries”, in The Banker, p. 6
28
 measure which involves all national and international economic players including the all-

pervasive administration. It is a multi-role, multi-layered occurrence in which everyone

adds his bit.

Globalization entails privatization and marketization of economic and political structures

in which ability of the state to control all the activities within its borders is becoming

limited. Simply put, globalization in fact is a combination of free exchange of goods

services and capital.25

Liberalization, privatization and globalization of Indian Economy

Liberalization, privatization and globalization together have changed the Indian marketing

operations. The Indian economy embarked its journey on LPG with adoption of new

economic policy in 1991.

Under the globalization of Indian economy the following schemes are included:

 To avoid the foreign exchange control by and by to facilitate the multinational

companies for investing in India;

 To allow foreign companies to invest in different economic activities in India;

 In place of quantitative restrictions tariffs should be substituted so that import

liberalization program may be applied on a wider scale;

 To promote the exports by introducing changes in the exchange rate; and

 To allow Indian companies to work with the foreign companies.

The movement of globalization is persisting and continuing. It is no longer a choice; it is a

fact. It is spreading its arms everywhere and the developed nations are using it as a means to
25
CII survey (2010) “Infrastructure Development Key to MSME Growth & Development: CII Survey”, in the
Communique, Vol.19 (7), p 32.
29
 control world economy. Few researcher’s label it as yet another form of economic

colonialism.

Foundations of SMEs Performance

Success and failure firm performance refers to the firm’s success in the market, which may

have different outcomes. Small and mediums enterprises performance is a focal

phenomenon in business studies. However, it is also a complex and multidimensional

phenomenon. Small and mediums enterprises performance can be characterized as the

firm’s ability to create acceptable outcomes and actions (Pfeffer & Alancik, 1978).

In other words, performance can be seen to have different meanings by different people. In

spite of these differences, people generally seem to have a similar idea of the

phenomenon, i.e. of what kind of business based on enterprises performance have been

successful (cf. Kay 1995: vi). Rather than maximizing the financial performance of the firm,

the owner-manager may prefer independence and style of life, for example (see e.g. Gray

1992; Jennings & Beaver 1995; Koiranen 1998: 29). Therefore, the role of an entrepreneur’s

values and expectations may be very important.

However, even firms with lifestyle goals should attain at least a minimum profitability in

their operations, i.e. their incomes should exceed costs, to ensure the continuity of

operations. Moreover, according to Foley and Green (1989), whatever the goals for a small

firm, many successful firms have similar characteristics.26

Often, performance have been measured by growth SMEs that included: customer

satisfaction turnover, number of employees, market share, profitability (e.g. profit, return on

investment), and survival (see e.g. Storey 1994; Kauranen 1993; Smith et al. 1988;
26
Ganeshan, (2009) “Institutional Finance for Small-Scale Industries-An Overview”, in the Business and Travel
Times, Vol. 2(7), pp. 46-47
30
Robinson et al. 1984; Dess & Robinson 1984).

Brush and Vanderwerf (1992) suggest that growth is the most suitable indicator of the

performance for the survival of small firms. Also, growth is an important prerequisite for the

achievement of some other financial goals of business (de Geus 1997: 53; Storey 1994;

Reynolds 1993; Day 1992: 128; Phillips &

Kirchhoff 1989).

When we look in terms of an SME, growth is usually a critical requirement for its

prolonged existence (Storey 1994: 158). Phillips and Kirchhoff (1989) have found that

young firms that grow have twice the probability of survival as young non-growing firms. It

is also found that strong growth may reduce the firm’s profitability provisionally, but

increase in the long run (McDougall et al. 1994; cf. MacMillan & Day 1987).

A firm’s profitability can be a useful measure of performance in the case of large

companies. The measurement of performance is more complicated when studying SMEs,

for several reasons. First, the central goals and objectives of SMEs may be other than

financial. Second, it is difficult to obtain reliable information on the factors affecting the

financial performance of SMEs. Third, organizational form can create artificial differences,

and e.g. procedures for handling owner compensation can present major sources of error

(Dess & Robinson 1984). Fourth, SMEs may be very reluctant to provide financial data on

their performance (e.g. Dess & Robinson 1984). Fifth, it may take several years before a

new business venture becomes profitable (Biggadike 1979).

The definition of SMEs performance may depend on the time frame: SMEs performance

can be approached as a short- or long-term phenomenon. Even one year high economic

output can be interpreted as SMEs performance success. However, the existence of the firm

31
in the long run, i.e. longevity, can be interpreted as success of SMEs performance meaning

firm survival. As a matter of fact, it has been argued that the most important and most

challenging business goal is long-term survival (e.g. Simon 1996: 12). Moreover, survival

is, at least in the long term, a prerequisite for success in other terms, such as market share or

profitability.

Customer Satisfaction
In general, satisfaction is a person’s feeling of pleasure or disappointment that result from

comparing a product’s perceived to their expectation. It is depending on the price, service

and quality of product and there is a direct relationship among them and rate of selling and

customer satisfaction. Measuring customer’s satisfaction has an essential role for

businesses to achieve competitive advantage. Companies can have both customer

knowledge and competitor’s knowledge in the market through measuring customer

satisfaction.

It means when the demand for a product increased the customer satisfaction it is also raise

up. In today’s marketplace the customer satisfaction it’s one of the main goals of the

managers of companies and they are trying a lot for that. Nowadays in many companies

they provide the human resource department who specially work in customer satisfaction

and take care of this kind of activity and performance.

Customer satisfaction level is showing the clear picture of trends to the manager of

companies and it is one of the important parts in the marketing and developing of the

business.

Actually if the company’s intent to be in stable or permanent competition with others they

most increases the amount of customer satisfaction otherwise easily will loss, its main thing
32
 for trading strategy.

Sales Growth
Sales growth is an effort to stimulate consumers to purchase more and more of a particular

commodity and make the marketing activity more effective. The main objective of sales

growth is to effect spot buying by prospective consumers through short term incentive

which are temporary and none recurring in nature.27

Sales growth of any company can be estimated by three ways. The first one its historical

growth rate while future growth many not always indicated by historical growth, but there

are significant information in past growth for estimating the future. Secondly, the equity

research analysts can be helpful for valuation of growth rate. But relying on the quality of

growth estimates can be lead to wrong and conflicting assessments of value. Thirdly,

company’s growth can be estimated by a company’s fundamentals. A company’s growth is

evaluated through reinvesting in new assets and its quality consisting acquisitions,

distribution and developing marketing capabilities.

Market Share
Market share it is the percentage of revenue for specific brand or company in the market.

Vendors and companies are trying to have a major role on a share market. The companies

invest their capital in the market which they will become the part of the market by that and

they have impact in the market competition, in strategic situation and tactical action.

Increasing the market share it’s one of the main goals of every firm. According to the

companies they wish to have market share on foreign exchange that is more common and

will give more benefit to them in long period but in some extent it’s risky also. Investment

27
Gaurav Sehgal, and Ashok Aima (2011) “Microfinance for SMEs: Prospects, Challenges and Implications”, in the
International Journal Research in Commerce and Management, Vol. No. 1(4), pp. 37-44.
33
 in market or market share will decrease the variable of risks.

Market shares its display the competition in market and how companies with their

experience take action against competitors. The market share will teach to the manager

group of companies to take action and decision due to their operation on inflation period in

the market. If the manager of companies takes a correct decision in the minimum level of

time will give the profit to the companies and they stop the loss. Usually the market share of

firms or companies will make asset for their shareholder and ownership which will increase

the rate of satisfactory and investment in future.28

Profitability
Profitability it is capability of trading to earn profit. The profit it is the revenue or income

which is obtain from trading. The accurate determination of profit is of special

importance between the shareholder and manager to indicate the present scenario whether

business it is in right way or not and it is so helpful for manager decision making, without

profit the business will not forward and the manager most have capability to analyze the

last, present and future profitability of company. The company earns profits from the

different sources like a) income from the business, b) income from other sources, c) income

from investments and d) determination of surplus.

The profitability of companies will increase the margin of profit and also the margin of

safety this two are main metrics for attract the investor. Profitability it is the target of

manager and playing a major role in company’s development and forward movement. For

instance if the companies or industries are in profitability situation definitely more number

of investor will invest their capital and when the level of earning increase it means there is

28
Haseeb A Drabu (2010) “Banks Need to Change Lending Model to Promote SMEs”, SME Times, News Bureau,
pp. 5-6
34
Return on Investment (RoI). Therefore the utilizing of profit in the best possible manner is

of crucial importance.

35
 CHAPTER 3

MICRO, SMALL AND MEDIUM ENTERPRISES IN INDIA

Background
According to the Government of India ministry, of micro, small and medium enterprises

(MSMEs), also cover SMEs. In 2006, a more comprehensive definition was attempted

which included services and an international nomenclature of micro, small and medium

enterprises under the s development act. So now, the manufacturing MSMEs are defined as

per their capital investment: micro (less than Rs. 2.5 million), small (between Rs. 2.5~ 50

million) and medium (between Rs. 50~100 million). The corresponding thresholds for

service MSMEs are: micro (less than Rs. 1. million), small (between Rs. 1.0~ 20 million)

and medium (between Rs. 20~50 million).29

To arrive at the total number of MSME units, the following data sets were added: 100%

enumeration of registered MSMEs registered with district industry Centers of the states,

factories act and Khadi and village industries commission (KVIC), a sample survey of

unregistered MSMEs which were otherwise within the frame of MSMEs definition and their

extrapolation for the entire country. As additional ‘services’ were added to the earlier list

such as wholesale/retail trade; legal, education and social services; hotels and restaurants;

transports and storage etc., their data were extracted from the economic census (2005).

The MSMEs Sector in Numbers

So the last MSMEs census (2006-07) finally reported that there were 36.17 million MSMEs

units employing over 80 million people producing a gross output of Rs. 13.5 trillion. (Based

29
Jagapathi Rao, G,V (2010) “A Study on Socio Economic Background of Entrepreneurs in Small Scale Industries”,
in the Indian Journal of marketing, Vol.40(9), pp. 55-59.
36
 on census, the corresponding figures projected by ministry of MSMEs for the year 2011-

12 are 44.7 million units, employing 101 million people with gross output exceeding Rs.

18.3 trillion. )

Of the 36.17 million strong MSMEs sector, the registered MSMEs segment comprises of

1.54 million units, barely 4.3%! Because almost 96% of the MSMEs were found to be

unregistered, the sector is largely the epithet of informal sector. Further, of these 1.54

million MSMEs almost 95% are ‘micro’, 4.8% are ‘small’ and 0.2% ‘medium’. This means

the segment of MSMEs sector which has some scale i.e. small and medium units, and which

has access to some form of policy support because it is registered, is just 5% i.e. 77,000

units. An amazingly small number!30

According to NIIR project consultancy services there are about 1, 03,000 Small and medium

enterprises (SME's) in India, and there are 13,600 Small and Medium enterprises (SME's) in

Karnataka also over 16,000 small and medium Enterprises (SME's) in Bangalore

(Karnataka) alone and finally in Mysore city there are almost 1007 registered enterprises.

Micro, small and medium enterprises (MSMEs), sector has emerged as a highly vibrant and

dynamic sector of the Indian economy over the last five decades. MSMEs not only play a

crucial role in providing large employment opportunities at comparatively lower capital cost

than large industries but also help in industrialization of rural and backward areas, thereby,

reducing regional imbalances, assuring more equitable distribution of national income and

wealth. MSMEs are complementary to large industries as ancillary units and this sector

contributes enormously to the socioeconomic field.

The primary responsibility of promotion and development of MSMEs is of the State

30
Jailal Saaw, (2005) “Growth of Small Scale Industries in India” in the Journal of Industry and Trade, Vol.1 (3), pp.
32-35.
37
governments. However, the government of India, supplements the efforts of the State

governments through various initiatives. The role of the MSMEs and its organizations is to

assist the States in their efforts to encourage entrepreneurship, employment and livelihood

opportunities and enhance the competitiveness of MSMEs in the changed economic

scenario.

The programs / schemes undertaken by the ministry and its organizations seek to

facilitate/provide:

1) Adequate flow of credit from financial institutions/banks

2) Support for technology up gradation and modernization

3) Integrated infrastructural facilities

4) Modern testing facilities and quality certification

5) Access to modern management practices

6) Entrepreneurship development and skill up gradation through appropriate

training facilities

7) Support for product development, design intervention and packaging

8) Welfare of artisans and workers

9) Assistance for better access to domestic and export markets and

10) Cluster-wise measures to promote capacity building and empowerment of the

units and their collectives.

National Entrepreneurship Development Institutes

Entrepreneurship development and training is one of the key elements for the promotion of

micro, small and medium enterprises (MSMEs), especially for creation of new enterprises

38
by the first generation entrepreneurs. In order to inculcate the entrepreneurial culture

amongst the first generation of entrepreneurs on a regular basis, the ministry has set up

three national level entrepreneurship development Institutes Viz; national institute for

micro, small and medium enterprises (NI- MSMEs) (1960) at Hyderabad, the national

institute for entrepreneurship and small business development (NIESBUD) (1983) at Noida

(Uttar Pradesh) and Indian institute of Entrepreneurship (IIE) (1993) at Guwahati, as

autonomous societies. These institutes are engaged in developing training modules;

undertaking research and training; and providing consultancy services for entrepreneurship

development and promotion of MSMEs, including enhancement of their competitiveness.

Overview of the SSI / MSMEs Sector

Performance of micro, small and medium enterprises (MSMEs) sector is assessed

periodically by entire India census of the Sector. The latest census conducted was the

fourth all India census of MSMEs. The fourth all India census of MSMEs is the first census

conducted post implementation of micro, small and medium enterprises development

(MSMED) Act, 2006. Prior to implementation of MSMED Act, 2006, the sector was

defined, as per the provision of industries development and regulation act 1951, as small

scale industries (SSI) sector and its constituent tiny and auxiliary units as per periodic

revision of criteria for defining such units.

The scope and coverage of the MSMEs sector was broadened significantly under the

MSMEs Act, 2006, which recognized the concept of enterprise and to include both

manufacturing and services sector, besides defining the medium enterprise under MSMEs

sector. Thus the entire non-agricultural sector of economy was brought under the coverage

of MSMEs sector subject to the revised criteria prescribed for defining micro, small and

39
 medium enterprises separately for manufacturing and services sectors.31

Small and Medium Enterprises in India

According to; Deshmukhet al (2002) with the emergence of planned economy in 1951 and

the subsequent industrial policy followed by the Indian government, both government and

planners assigned a special role to small- and medium-scale industries in the Indian

economy. Due protection was provided for both sectors especially for small-scale

industries from 1951 to 1991 until India adopted liberalization and globalization policy.32

For a long time, certain products were reserved for small-scale units. However, because of a

change in industrial policies, the list of reserved products is decreasing. Since the early years

of transition in India, the role of SMEs in creating employment in general the development

of enterprises has been considered as a positive factor in economic development.

Lot of research has been conducted in India on regional development regarding small

enterprises, evaluating differences in socio-economic development across areas and sources

of regional problems along with presenting possible policy strategies. Those studies

presented a handful of issues on success through establishing a support system and foreign

assistance participation. The studies on manufacturing SMEs in transitional countries and

the impact of internationalization paved the way to realize the contribution of SMEs to

economic development, firms' behavior characteristics, and their support for future

development (Smallbone et al1996, 1999).

31
Jaya Sing (2003) “SSIs, Small Industries, Big Scope”, in the Kisan World, Vol. 30(6), pp. 26-27.
32
John Manohar, S and Ravindra, N, S (2011) “Perception and Receptivity of Branding by Banks by Customers of
Small Scale Industries in Bangalore”, in Indian Journal of Research in Commerce and Management, Vol.1 (3), pp.
48-52
40
In recent years, some studies have been made to assess the results of measures

implemented as entrepreneurship support policies and to identify more precisely

entrepreneurs’ demands in the country as a whole as well as in different regions (Jürgenson

et al 2003; Eesti, 2005).

But the role of SMEs during such a long period and activity on firm formation rates across

counties and economic activities have been studied less thoroughly, which will be a

contribution of the preset study of the entrepreneurship in India .There is a wide-spread

opinion that national or regional economic development is associated with new firms

creation intensity. New firms’ formation is considered as an important indicator of

entrepreneurial activity and key component in economic development, which has been

explained by the creation of new capacities into the market and through improvement of the

competitiveness of the economy, industry or region (Fritsch & Mueller, 2004). There are a

number of empirical studies to show that new firms have a significant role to play in

employment generation (Baptista et al 2005; Stel & Suddle, 2006) innovation, (Fritsch and

Mueller, 2005), economic growth and reduction of unemployment. Consequently resulting

from different impacts of these roles, several surveys have indicated spatial variations in

business formation rates by countries as well as within countries (Bartelsman et al 2004;

Johnson, 2004; Reynolds, 2002). It is therefore important for every region of the county to

understand more thoroughly the reasons of spatial variations, which may have important

implications for entrepreneurship policy. For policy interest it is necessary to know how to

increase the firm formation rate in regions.

41
 HISTORY OF MICRO, SMALL AND MEDIUM INDUSTRIES

Introduction

The advanced industrialised countries like Japan, Germany, Great Britain, United
Kingdom, Russia, the United States of America (USA) and other developed and
developing nations have exteriorized (incarnated) that small scale industries occupies an
important place in the development and growth of an economy through employment
creation, resource utilisation, income generation, reducing regional disparity, alleviating
poverty, discouraging rural-urban migration and many others. But the concept of small
scale industries which it has developed in years possess lots of confusion and lacks in
clarity. Hypothetically, the definition of MSME is dependent on many factors such as the
nature of business, large size of population, government policy, level of economic
integration, administrative set-up and on pattern of development of a particular country.
Since then, on the basis of these factors from time to time the number of definitions is
provided by different countries. For example, in United States of America (USA) the
small and medium enterprise is defined as an enterprise with less than 500 employees and
a turnover of $0.75 million to $29 million depending upon the type of business which
includes all sectors of economy using the North America Industry Classification System
(NAICS) (United States International Trade Commission Report, 2010). Then, in United
Kingdom (U.K) according to the section of 247 and 249 of the Companies Act, 1985 the
small and medium enterprise is defined as a company having employees between 50 to
250 and a turnover of £5.6 million to £22.8 million which is not universally applied in all
around United Kingdom (Indian Institute of Foreign Trade Report, 2014). Whereas, in
Japan which is considered to be a landmark in the history of small industries defined it as
a smaller enterprises refers to such companies with a capital of not more than five million
yen, companies with not more than two hundred personnel regularly employed
(Rathakrishnan, 2010). On the other side, in China it is defined as an enterprise with 1 to

42
 3,000 employees having total assets from 40 to 400 million yuan and business revenues
from 10 to 300 million yuan depending on industry. Likewise, there are several other
countries such as Australia, Malaysia, European Union, Asian countries who have
defined small scale industry according to the parameters of their own economy (Indian
Institute of Foreign Trade Report, 2014). But in a developing country like India the
definition is much different from other countries because before independence the small
scale industry was known for cottage industry which was existed in rural and urban areas
both including a variety of industries ranging from manufacturing of iron safes, carpets,
marble jigs, baskets, hand-loom cloths etc. The first definition was given by Prof. K.T.
Shah (the first Indian economist) who wrote that a small scale or cottage industry may be
defined as an enterprise or series of operations carried on by a workman skilled in the
craft on his responsibility, the finished product of which, he markets himself
(Sindhukumar, 2010). Later on, Jawaharlal Nehru also seemed to be very clear in his
mind when he maintained separate entities for cottage and small industries and said that
Cottage and small scale industries are of very special importance in India. If we lack
capital, we do not lack manpower, and we must use this manpower both to add to the
wealth of the country and to reduce unemployment (Velsamy, 2012). After then, there
were number of definitions given by different committees whenever changes took place
in economy. Presently, the small scale industries is renamed as Micro, Small and Medium
Enterprises (MSMEs) which is being defined as an industrial undertaking engaged in
manufacturing, preservation, processing, mining and quarrying or assembling of products
where investment on plant and machinery should not exceed Rs. 5 crore (Ministry of
MSME Report, 2010).33

History of Micro, Small and Medium Enterprises

The concept of small business was originated more than 4,000 years ago since the ancient

33
John Thompson, and Stephen Lumpkin (2004) “The SME Financing Gap: Theory and Evidence” in the
Organisation for Economic Co-Operation and Development, Vol.1, pp. 11-17.
43
cultures and the business was flourished among all like the Egyptians, Arabs,
Babylonians, Jews, Greeks and Romans etc. Earlier at beginning of the history of small
business; the cottage industries had thrived the period through the production of goods at
home carried out by a workman skilled in the craft on his own responsibility to finish
goods in time and sell himself/herself directly in the market (The History: Cottage
Industry, Concept of Small Business, 2015). But with the passage of time there observed
a major resurgence in small scale industries throughout the world. In India, the British
government destroyed the handicraft business and did not care to provide an alternative
source of employment to people. As a result, there took place a large ruralisation and de-
industrialization in country so to tackle this situation the

Gandhian concept of Swaraj played an important role in the growth and development of
Village and Khadi Industries. After independence, the first comprehensive industrial
policy was announced by the Government of India (GOI) i.e. the Industrial Policy
Resolutions (IPRs) in 1948 which identified the critical role of cottage and small scale
industries and advocated that the expansion of these industries would depend on the
factors like supply of raw materials, power supply at low rates, providing technical advice
and organized marketing to products. Later on, with the advent of planning period the
Industries (Development and Regulation) Act was passed in 1951 which was treated as an
undertaking for small scale and cottage industries. Both the IPRs and this act laid the
foundation stone of small scale sector on a wider scale and assigned a pivotal role in the
national economy ((Nath, 2014). Again, in 1952-53 the five boards were set-up for
handloom, handicrafts, coir, silk and village industries on the recommendations of the
Cottage Industries Board to expand the areas of small industrial sector. With these
recommendations the Government of India formed the Small-Scale Industries Board
(SSIB) and Central Small Industries Organization (CSIO) in 1954-55 which defined SSIs
as „a unit employing less than 50 persons, if using power and less than 100 persons
without the use of power, and with capital assets not exceeding Rs. 5 lac‟ (Laskar, 2010).
After the First Five Year Plan, the Second Industrial Policy Resolution was announced in
1956 in Second Five Year Plan period which was based on P.C. Mahalanobis model of
44
 industrialization. This resolution further made provisions for the development of cottage
and small scale industries by limiting the volume of production of large scale industries,
providing direct subsidies and establishing industrial estates for them (Raju, 2008).
Consequently, these measures somehow enhanced the competitiveness of the small sector
through modernization in technique of production, facility of rural electrification at
affordable prices and credit facilities.34

Besides these, several other changes were also made when the New Industrial Licensing
Policy was announced in 1970 which removed some demerits of the Industries
(Development and Regulation) Act, 1951 and involved that investment up to Rs. 1 crore
in industries were exempted from license requirement. Subsequently, when the Janata
Government came into power in 1977 then the New Industrial Policy was announced in
which the major changes were took place in the operation of SSIs (Rao, 1979). Despite,
all these adopted policies many ups and downs were seen in the

development of small industries till 1980s but no significant improvement was observed
due to the stranglehold of bureaucratic rigidity, excessive regulations and ignorance. With
the changing market dynamics the New Economic Policy was announced in 1991 with
the objective to „unshackle the Indian industries economy from the cobwebs of
unnecessary bureaucratic control‟ (Nath, 2014). The reform period served as a turning
point for the Indian economy and enabled the Central Government to take necessary
initiatives in the areas of industrial licensing, foreign investment, technological
enhancement, dissolution of sick public sector undertakings, finance and credit support,
provision to import of raw materials and equipment‟s, liberalization the world economy
with the domestic economy and many more. In July, 1993 the Reserve Bank of India
announced one special measure in the sphere of small and medium enterprises i.e. to meet
the credit requirement of village and tiny industries by commercial banks. Later on, year
by year the Gupta Study Group was constituted in May, 1999 with the objective to
provide maximum support and protection to tiny units, somewhat lesser support to small

34
Kandhaswami (2011) “Industries Burdened with High Interest Rates”, in The Hindu, p. 2.
45
scale units and no facilities to the medium enterprises except credit (Evolution of Small
Scale Industries in India, 2006).

Table 3.1: Changes in the Definition of SSIs in terms of Investment Limits

Seria Yea Investment Limits in Plant Additional

l r and Machinery Conditions
No.
1 1990 Up to Rs. 5 Lac Less than 50/100
persons
with/without power
2 1995 Up to Rs. 5 Lac No conditions
3 1999 Up to Rs. 7.5 No conditions
Lac
4 2000 Up to Rs. 10 No conditions
Lac
5 2001 Up to Rs. 20 No conditions
Lac
6 2000 Up to Rs. 35 No conditions
Lac
7 2006 Up to Rs. 60 No conditions
Lac
8 2007 Up to Rs. 3 No conditions
Crore
9 2017 Up to Rs. 1 No conditions
Crore
10 2018 Up to Rs.5 No conditions
Crore
Source: Laskar, 2018

The table 3.1 is carrying the definition of small scale industries in terms of investment
limit that changed from time to time by the GOI up to 2006 which is compiled from
46
 various sources. It is observed in table that from 1955 to 2006 the investment limit in
plant and machinery has continuously risen from Rs. 500,000 to Rs. 5 crore. The
investment limit was increased whenever required in order to widen the functioning of
small industrial sector at macro level. After 1999, the concept of SSIs was again revised
in 2006 under the MSMED Act enacted by the Government of India and was renamed as
Micro, Small and Medium Enterprises (MSMEs). This act seeks to facilitate the
development of MSMEs and to enhance their competitiveness in domestic as well as in
global market. The act for the first time legally recognised the word enterprise and
divided sector in three tiers i.e. Micro, Small and Medium Enterprises. Apart from this,
the act aims to impart greater vitality and growth impetus to the MSMEs in terms of
output, employment, exports and instil a competition based environment by removing
barriers and establishing regulatory and legal framework such as credit facilities, grants,
development of skill in employees, management and entrepreneurs, provisioning for
marketing assistance or infrastructure facilities, cluster development approach, worker
related facilities and other basic needs of industry like power, water, transportation,
adequate supply of raw materials and several others (RBI Report, 2013).35

Table 3.2: Fixed Investment Limits in Manufacturing & Service Sector adopted in
Act

Manufacturing
Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed Rs. 25 lac.
Small Enterprises More than Rs. 25 lac but does not exceed Rs. 5 crore.
Medium Enterprises More than Rs. 5 crore but does not exceed Rs. 10 crore.
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed Rs. 10 lac.
35
Ahmed, N (1987), Problems and Management of Small-Scale & Cottage Industries, Deep and Deep Publications,
New Delhi.
47
Small Enterprises More than Rs. 10 lac but does not exceed Rs. 2 crore.
Medium Enterprises More than Rs. 2 crore but does not exceed Rs. 5 crore.
Source: FICCI-Confederation of Micro, Small & Medium Enterprises, 2014

On the other side, enterprises under this act have been broadly categorized into two parts
i.e. manufacturing enterprises and service enterprises. In both categories, the investment
limits are fixed for micro, small and medium enterprises which are shown in table 3.2.
This new act replaced and merged all the earlier adopted acts and bodies

in it and is expected to bring major structural change in Indian manufacturing sector.

Since independence, this act for the first time focus on number of issues which is granted
as challenge to enhance the competitiveness of micro, small and medium enterprises in an
environment of economic liberalization and globalization. Not only these in a concerted
effort to promote uninhibited growth and development of SMEs; the government has also
established a number of departments, corporations and promotional agencies at Central
and State level to help in setting-up of industries. These development agencies are the
National Small Industries Corporation (NSIC), National Bank for Agricultural and Rural
Development (NABARD), Small Industries Development Bank of India (SIDBI),
National Institute for Small Industries Extension Training (NISIET), Industrial
Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI),
Industrial Credit and Investment Corporation of India (ICICI), Khadi and Village
Industries Commission (KVIC), Council of Scientific and Industrial Research (CSIR),
India Investment Centre (IIC), Regional Rural Banks (RRBs which especially increased
the scope of village and cottage industries) and several others (Laskar, 2010). On the
other hand, the District Industries Centre (DICs) is also functioning to promote small,
tiny, cottage and village industries in a particular district and to avail them all necessary
services and facilities. Till now there are 422 DICs have been set-up which covers 431
districts of the country leaving out the metropolitan cities and some new districts. Under
the MSMED Act, 2006 the registered micro, small and medium enterprises are those

48
 enterprises which certified (apply for license) themselves with the DICs and unregistered
are those which do not apply for license in District Industries Centre (Kushwaha, 2009).36

Subsequently, to focus more on this sector for the first time in Indian history the All India
Census of MSME was conducted in 1973-74 in respect of 2.58 lac units which were
registered up to 30 November, 1973. After then, the second census was conducted during
1990-91 in respect of 9.87 lac units registered up to 31 March, 1988. Later on, the most
ambitious third census was conducted during 2002-03 with 2001-02 as a reference year
where it has covered around 13.75 lac registered units and
91.46 lac unregistered units (Das, 2011). The latest census conducted on Micro, Small
and Medium Enterprises i.e. fourth with reference year of 2006-07 where the data was
collected up to 2009 and the results were published in a year 2011-12 in respect of
26.1 million industries (Fourth All India Census of MSMEs, 2012). After fourth

census the need for change in definition of MSMEs was raised by various stakeholders,
organisations and associations from time to time because of dynamic change in market
situation. Hence, in 2011-12 a committee constituted by Reserve Bank of India to
consider the changes in price index and cost of inputs from the existing limit and finally
in the budget of 2014-15 the limit was increased which is shown in table 3.3.

Table 3.3: Increase in Investment Limits of Manufacturing & Service Sector

Manufacturing
Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed Rs. 50 lac.
Small Enterprises More than Rs. 50 lac but does not exceed Rs. 10 crore.
Medium Enterprises More than Rs. 10 crore but does not exceed Rs. 30
crore.
Service Sector
Enterprises Investment in equipment’s
36
Arora, A.K (1992), Financing of Small-Scale Industries, Deep & Deep Publications, New Delhi.
49
 Micro Enterprises Does not exceed Rs. 20 lac.
Small Enterprises More than Rs. 20 lac but does not exceed Rs. 5 crore.
Medium Enterprises More than Rs. 5 crore but does not exceed Rs. 15 crore.
Source: MSME Amendemet Bill, 2015

The investment in plant and machinery of micro enterprises has increased from Rs. 25 lac
to Rs. 50 lac and simultaneously the fixed limit in small and medium enterprises were
also increased from the previous fixed limits. With this revised definition the Department
related Parliamentary Standing Committee (DRPSC) on industry suggested that the small
and medium enterprise definition should be revised every after five years and if needed
the act should be amended to make changes in other prospects. So, the programmes,
policies and activities that have been adopted in favour of small and medium enterprises
are functioning somehow well but not fully due lack of seriousness and execution.
Despite all, the MSMEs are very important sector in India and for its proper development
every citizen or official organization and government has to become very clear in its
decisions.37

Brief Historical Background of Lock Making

A lock is a mechanical or electronic fastening device which is used on a door, vehicle,

container, enclosed property or on other things which requires security. The history of

locks was originated from Egypt in ancient times around 4,000 years ago in Near East
which was found in the ruins of the Palace of Khorsabad (Persia) near Nineveh (the
ancient capital of Assyria) where the locksmith first managed to create a simple but
effective pin-tumbler lock that was made entirely from wood. The designs of locks were
notably influenced by gothic architecture during the Renaissance period (History of
Locks, 2015). With the advent of time, different civilizations like Europe, Greeks,

37
Awasti, D.N. (1991), Regional Patterns of Industrial Growth in India, Concept Publishing Company, New Delhi.
50
Romans and Chinese developed lock manufacturing independently according to their own
new designs and techniques. For example, after Egyptians the Greeks started
manufacturing locks that were commonly viewed as unsecure but they gave inspiration to
the Roman innovators who quickly managed to improve upon Greek and Egyptian locks
by introducing metals as their primary materials in making of locks and made the first
iron padlocks and bronze keys that are even recognized and existed in modern world of
21st century. The production of padlocks was encouraged because it is potable and easy to
handle with high degree of security. It was first introduced in Europe and later on
followed by Romans (Dafor, 2009).

After then, when the time crossed a line from ancient to medieval period, the design of
locks were changed because lock making during this time was developed into a skilled
trade and characterised mainly by their high degree of more embellishment (decorative
and more attractive). However, these locks did not provide a great deal of security against
the determined and skilled thief and were easy to pick and open. So, the lock puzzles
came into existence which was used to obscure the locking mechanism with high security
technique as such in 1778 a double-acting tumbler lock was patented by Robert Barron
which had two levers where each had to be lifted differently. In 1818, the Barron‟s device
was developed further by Jeremiah Chubb, who incorporated a spring into the lock which
would catch and hold any lever with an extra level of security (Walcot, 2008). In this
way, skills were passed on from one generation to other and locks were started to
manufacture in many countries like United Kingdom, USA, France, Germany, Russia,
Spain and China. During nineteenth century, there saw a huge activity in lock
development based on the variation of the three basic types of locks i.e. Bramah Lever or
Cylinder Lock, the Yale Compact Cylinder Lock and the Combination Lock. So far as,
many innovations took place in lock making till 21 st century but still on large scale the
locks are

produced on the model of Bramah lever, Yale and combination lock in order to provide
more safety in this world of burglary and crime (Nirala & Young, 2014).

51
Introduction of Lock Making in India

The lock is the symbol of safety and security against crime and burglary. In India, the
lock system was introduced under the rule of the Emperor of Annam (18 th Century) where
the valuable were sealed into large blocks of wood and were placed on small islands or
sub-merged into surrounding pools of the inner courts of palace.
These valuables were protected by several crocodiles that were not fed sufficiently and
were always remains hungry hence entering in moat means death is sure to the burglar.
So, the legitimate access to treasure was only gained either by drugging or killing the
crocodiles (International Professional Locksmith Association, 2013). But the proper
history of lock making was started almost 155 years ago in 1860 when the British
government organised a workshop where workers get training that how to make metallic
locks for postal department. After then, in 1870, a gentleman from England established a
firm i.e. „Johnson and Company‟ (British Company) in city where the locks was
imported from England for sale in Aligarh on commercial scale. Till 1890, the company
initiated the manual production of locks on a small scale by cutting the metal and
manufacturing it with the process of moulding. With it, the

Metal Workshop School was also set-up by government in 1935 to train the workers
(Nasir, 2011). Again, in 1950, Surendra Kumar; an advocate by profession and the son of
a barrister started manufacturing locks in a very systematic way by importing machine
and techniques from foreign markets. Eventually, due to family dispute, inept government
policies and labour movements this manufacturing unit got closed. In 1975, when the
company collapsed the engineers, contractor‟s mechanics, labours employed on large
scale in firm; set-up their own manufacturing units on small scale (Jain, 2003). When
time passed, these units developed into big units and Aligarh becomes the hub of lock
production and now city is known as Taala Nagari (i.e. the Lock City of India). Though,
Surendra Kumar is always remembered as a mentor of lock manufacturing in India. Some
of the popular locks that are produced in city are Jemco Locks, Rose Locks, Godrej

52
 Locks, Link Locks, Malik Locks and few more.38

After the partition of India in 1947, there was a sudden shift in the social composition of
lock makers because many traditional artisans departed to Pakistan due to which the
production of locks was reduced to certain extent. But the introduction of economic
reform in 1990s brought a paradigm shift in the development strategy by assigning a
wider role for markets and private initiatives (Kulshreshtha, 1996). Now, the
modernisation, mechanisation, financial accessibility and innovation are the pre- requisite
for the survival of lock industry in twenty-first century. Besides Aligarh, the Dindigul
district of Tamil Nadu is also famous for the production of locks in country over a
century. The manufacturing began in 1950 when Sankaralinga Achari, who married the
daughter of a locksmith of Tuticorin, brought the lock industry to this little town where it
is still operating as an unorganised industry with a very optimum size of business.

Lock Industry at a Glance

Once a time when lock industry was booming in India with almost about 90 per cent
share in market has now headed towards the unfortunate end due to many reasons such as
unsubsidized raw material, no relaxation in taxes, no infrastructure like supply of power
and smooth transportation system and introduction of liberalisation policy. On the other
hand, the foreign export earnings has also reduced since 1991 as shown in table 3.4,
where it is analysed that in 1991 the total earning was about Rs. 450 crore (estimated)
which decreased down to Rs. 250 (approx.) in 2001.

Table 3.4: Foreign Export Earning from Aligarh Lock Industry

Year Export (in crore)

1991 450
2001 250
2011 300 to 400
38
Bala, N (2003) Small Scale Sector In India : Growth, Efficiency and Prospects, A Ph.D Thesis Submitted to the
Faculty of Economics and Business, Guru Nanak Dev University, Amritsar (Punjab)
53
 (approx.)
Source: DIC 2011, Aligarh

Subsequently, keeping in mind the downfall of lock industry the CDPs was introduced in
2006 to protect the remaining industry. After then, there was seen a little improvement in
functioning of industry and the export earnings increased up to Rs. 300 to 400 crore
(approximately) in 2011. With the initiation of cluster development programme the
industrial profile of Aligarh district was prepared by the Directorate of Industries, Agra in
2011 to find out the status of lock industry. The table 3.5 reveals the data of lock and
hardware industry both because these two are the major industries covered under cluster
approach. As far as, there are number of factories that produce both the lock and
hardware items.39

Table 3.5: Details of Locks and Hardware Industry

Number of functional units in the cluster Approx. 2500

Turnover of the Cluster Approx. 1500
Crore
Value of Exports from the Cluster Approx. 800
Crore
Average investment in plant & Machinery App. 2.5 lac
Source: DIC 2011, Aligarh

Hence, the data of two were presented together where it was observed that approximately
2,500 units were functioning under programme with a turnover of Rs. 1,500 crore
(approximately). As far as, the average investment in plant and machinery (fixed capital)
were around of Rs. 2.5 lac in both the industries and the total value of exports were
estimated around Rs. 800 crore which was not much enough as compared to profile of
other micro, small and medium enterprises of Uttar Pradesh. After this survey, till now no
39
Bal, N (2007), Economic Reforms and Growth of Small Scale Industries, Deep & Deep Publications, New Delhi.
54
 any survey is conduct in Aligarh as reported by the officials of District Industries Centre
at Aligarh due to which it has become very difficult to collect the recent data. However,
Aligarh being the part of Uttar Pradesh so it is better to focus on the overall growth of
micro, small and medium enterprises in UP from 2000 to 2015 which is shown in table
3.6 where it is found that since 2000- 01 the 20,042 number of MSMEs were
established with a capital investment of Rs. 217.75 crore and provided employment to
about 45,400 people. After ten years i.e. in 2000-10 the 34,136 number of MSMEs were
again registered with a capital investment of Rs. 3848.95 crore and provided employment
to about 179,334 lac people.40

Table 3.6: Growth of Micro, Small and Medium Enterprises in Uttar Pradesh

Year No. of Capital Investment Employme

Established (in crores) nt (Nos.)
MSMEs
2000-2001 2004 217.75 45400
2
2001-2002 2158 176.52 70053
5
2004-2005 3040 284.34 121102
2
2005-2006 3028 262.79 125611
2
2006-2007 2848 507.59 120876
7
2007-2008 3175 1357.48 152582
1
2008-2009 3331 2122.13 171857
4
2009-2010 3413 3848.95 179334

40
Bala, S (1984) Management of Small-Scale Industries, Deep & Deep Publications, New Delhi.
55
 6
2010-2011 3417 3403.92 178594
8
2011-2012 3356 3681.56 191566
3
2012-2013 3093 4152.31 216749
3
2013-2014 4534 3995.48 490820
2
2014-2015 5223 4512.51 417967
1
Source: State Profile of Uttar Pradesh 2014-15, Ministry of MSMEs, GOI

Hence, it is examined from table that after a gap of ten years with increasing emphasis on
small scale sector the more people has been attracted towards it. As far as, for increase in
number of units the state government has also raised the funds of capital investment for
micro, small and medium enterprises. Subsequently, the recent data shows that there are
around 52,231 units have been established at the end of 2015 and provided employment
to about 417,967 lac persons. On the basis of this report it can be said that the state
government is making all efforts to provide conducive atmosphere and policy support to
enable micro, small and medium enterprise sector in achieving higher levels of
production, export and employment. Simultaneously, various programmes have been
organized for motivating the entrepreneurs and promoting manufacturing sector by way
of providing consultancy, training, incentives, concessions and infrastructural facilities.41

41
Bala, S (1988) Management of Small-Scale Industries, Deep & Deep Publications, New Delhi.
56
 CHAPTER 4

IMPACT OF ENTREPRENEURSHIP IN SMEs

Starting with the collapse of Lehman Brothers in 2008, the greatest worldwide financial turmoil
since the Global Depression of 1930’s (Barron, et.al, 2012; Chowdhury, 2011) hampered large
and smaller-sized enterprises in every economy, causing many existing businesses to downsize,
reduced the number of new venture creations and resulted with thousands of jobs losses. The
crisis particularly impacted small and medium sized enterprises (SMEs), which are regarded as
the engines of growth and key source of dynamism, innovation and flexibility (OECD, 2010) due
to their large share within total enterprises and significant contribution to real GDP growth, new
job creation and reduction of poverty, as these units have significant resource limitations and
operate in highly competitive business environments.42

Despite the importance of the organic link between the dynamics of SME sector and the overall
economy and the immensity of the problems resulting from the diminishing global demand and
tightened financial resources, the number of scholarly studies focusing on the investigation of the
after-crisis performance indicators of SMEs, is interestingly very limited, with the exception of
Sannajust (2014) and Chowdhury’s (2011) studies about SME sector

during the crisis. Therefore, the major objective of the current study is to address this gap in the
SME literature, by conducting a detailed analysis on the damage of the crisis on this sector and
the major indicators of recovery both for the existing and new SMEs, by focusing on the the
developments in the enterprise numbers and the crutial workforce and value added supply of
these units, which basically create their backbone role in every economy. As a second research
objective, the paper aims to address the important research question What is the relationship
between the SME sector and economic growth in the post-crisis period? based on a number of

42
Bansal, S.K ( 1990), Financial Problems of Small scale Industries in Punjab, Ph.D . Thesis Submitted to
Department of Commerce, Punjabi University, Patiala
57
previous studies indicating a strong and positive relationship between economic growth and size
of the SME sector, when controlling for other determinants (Ardıç, et al., 2011; Beck, 2010).
Finally, the study targets to help the SME researchers by presenting the major post-crisis period
developments in the SME context within the milder but challenging the business climate, by
taking a comparative perspective and examining the dynamics of recovery in selected developed
and developing economies and a large emerging economy, namely Turkey, which also enables to
pinpoint the divergence and convergence points of the performance indicators in international
and local SME contexts, in the post-crisis era.43

The paper is organized as follows. In the first chapter, terminological and categorical variations
about the small and medium sized enterprise concept among different economic contexts are
discussed. In the second part, performance, challenges and recovery dynamics for new and
existing SMEs across OECD area, European Union member states and selected economies like
Japan, Brazil, India and Russia in terms of numbers, employment and value added contributions,
are analyzed. Third section presents the post-crisis developments of the SME sector in the local
context of Turkey, together with a comparison of the performance indicators and recovery
factors with respect to major developed and developing economy SME sectors are presented and
section four concludes.

1. The SME concept

The role of small and medium sized ecompanies on the real gross domestic product (GDP)
growth, new job creation and reduction of poverty is recognized at a worldwide level (Muller,
et.al, 2014; OECD, 2014; Chowdhury, 2011). This role is particularly crutial in developing
economies, where there are comparably less number of large corporations (Narteh, 2013; Floyd
and McManus, 2005), which leads to a larger impact of these economic units on the socio-
43
Baruah, R.K (2000) Financing Small Scale Industries, Om-Sons Publications, New Delhi.
58
economic development through reduced poverty and balanced income distribution. However, it
would be less accurate to argue that small and particularly micro enterprises only matter for less
developed economies, as these units account for 50% of GDP in high income countries
(Ayyagari, et. al., 2007). Across EUR28 area, 99.8% of all non-financial businesses, 58% of
total value added and 66.8% of total employment are supplied by SMEs (Briozzo and Riportella,
2012), making them the backbone of the European economy (Muller, et.al, 2014; Gagliardi, et.al,
2013; Wyamenga, et.al, 2012), while in Japan, SMEs account for 99.7% of all companies, 70%
of all employees, and more than 50% of all added value of manufacturing industry (Chusho
Meti, 2013).44

After the research studies indicating a robust, positive relationship between the relative size of
the SME sector and economic growth, even when controlling for other growth determinants
(Ardıç, et al., 2011; Beck, 2010), SME sector started to attract a growing attention both from
policy-makers and academic scholars. However, various categorizations of SMEs, across
economies and sometimes institutions of the same country (Yurtttadur and Kaya, 2012), imposed
significant challenges on SME studies, especially cross-country analyses. According to a recent
study, around 30 different SME definitions exist in the literature (Sannajust, 2014). Apart from
spatial factors, small and medium sized enterprise categorizations are also affected by temporal
changes, as the criteria have to be revised with the changing macroeconomic conditions of the
specific economic environment, making the SME sector analyses more challenging.

In SME studies, while former SME denotations mainly addresssed the small market share and
independency features of these units (Storey, 1994; Bolton Commette Report, 1971), the recent
OECD definition introduced the dynamic workforce characteristic of SMEs to the literature by
stating the employment of fewer than a given number of employees, which varies across
countries (OECD, 2004) criterion within its definition. As this definition implies, number of
employees is a common denominator in most SME categorizations, therefore is widely used in
SME research (OECD, 2010). While Eurozone, Turkey and a number of countries set this
44
Batra, G.S (2004) Development of Entrepreneurship, Deep & Deep Publications, New Delhi
59
number as 250, US and Canada have the highest upper limit with 500 employees for small and
medium sized companies.

In the pursuit of differentiating small and medium sized businesses from larger companies, a
popular practice is using qualitative and quantitative aspects together (Nguyen, 2001), where
employee number, revenues, assets and capital are generally used for quantitative indicators
(Yurttadur and Kaya, 2012), whereas independency is a usual qualitative criterion. In European
Union (EU28), the independence dimension of SMEs, described as the one where 25% or more
of the enterprise’s capital (or equity) is not undertaken by an enterprise or that its capital is not
owned by enterprises that are not defined as SMEs is combined with the quantitative criteria of
annual turnover and number of employees.

In United States, the terminology and categorization of SMEs has both convergent and divergent
aspects compared to European Union. In terms of terminology, the term small businesses is used
for the synonym of small and medium sized enterprises, and a small business is described as the
one that is independently owned and operated, is organized for profit, and is not dominant in its
field (SBA, 2014), which is parallel with EU’s SME definition. The major variance of US small
business categorization is the industry criterion, as size of enterprises is measured by employee
number and sales volume, and is differentiated according to each major industry. The industry
differentation also exists for Japanese SMEs, this time in terms of capital, together with
employee number criterion (Chusho Meti, 2013).45

In Turkey, small and medium sized enterprise categorization is undertaken on a quantitative

basis, and is revised in accordance with the changes in macroeconomic conditions. The most
recent SME categorization regulation, which was enforced on 04.11.2012 caused a significant
increase in the already high number of SMEs in the economy, by raising the upper limit of
annual revenues factor. According to this new classification, SMEs in Turkey are currently

45
Batrs, G.S; and Dangwal, R.C (2003), Entrepreneurship & Small Scale Industries: New Potentials, Deep & Deep
Publications, New Delhi
60
categorized into three groups of micro, small and medium sized enterprises with respect to their
employee numbers and annual revenues. As Table 3 illustrates, the criterion of number of
employees is in parallel with EU standardization, and is attributed with European Union’s pre-
acceptance adaptation procedures, by some researchers (Yurttadur and Kaya, 2012).

Despite the variety of SME definitions and categorizations across different economic contexts,
the importance of SMEs and entrepreneurship is recognized at a worldwide level (OECD, 2014).
As the massive damage caused by the crisis on the SME sector and overall economy became
clearer, this crutial role was seriously acknowledged during the post-crisis era.

2. The crisis and SMEs

The domino effect of the global financial crisis was quick and unanticipated. Starting from the
last two quarters of 2008, global real GDP growth turned to negative with the alarming 7.5% and
4% decreases in developed and developing economies respectively (Chowdhury, 2011). The
impact of crisis was immediate for high-income economies, followed by a one-year delay in the
developing economies (IFC, 2014). In OECD area, the economy shrinked by 6.4% from 2007
and 2009 while total employment decreased by 9 million people in the 2008-2011 period, US
experiencing more than two-thirds of the job losses, 60% percent of them in small businesses. In
US, construction and manufacturing industries in US lost an average of 25% and 32% of their
total workforce in 2008 (SBA, 2009).46

For small and medium sized companies, structural factors such as limited potential for flexibility
and downsizing, lack of business diversification, weak financial structure, low levels of
capitalization and being heavily dependent on external financing, contributed largely to the
vulnerability of these units against the external shockwaves of the crisis (Sannajust, 2014) and
SMEs faced their hardest-ever period between 2008 and 2010 due to their hampered capabilities
of survival in the chaotic market conditions (OECD, 2014a). Mostly due to tightened credit lines,
46
Bhagwanti, J.N.; and Desai, P. (1970), India: Planning for Industrialization, Oxford University Press, New Delhi.
61
growth in existing ventures and the numbers of start-ups took a serious hit, bank loan rejections
amounting to 2.5 times of pre-crisis levels (Sannajust, 2014), resulting with decreasing of
enterprise birth rate in all countries (OECD, 2014b). However,

besides worsening financial conditions, SMEs also suffered from the shrinkage of global
demand, which particularly impacted small-scale suppliers of large sized corporations
(Chowdhury, 2011). Recession combined with a severe credit crunch caused increased rates of
bankruptcies, as the survey conducted on 50.000 SMEs by Europoean Association of Craft
clearly indicated (Barron, et.al, 2012). The outcome was a sharp decline in the number, job
supply and value added of SMEs on a worldwide level.

The crisis impacted advanced economy SMEs far beyond expectations. SME numbers decreased
dramatically during 2008 particularly in EU28 and Japan, the latter experiencing the most severe
downfall due to crisis-related complications combined with the 2011 eartquake disaster, causing
sharp decreases in both enterprise numbers and employment (Muller, et.al, 2014).

While not seriously affected in business numbers, US SMEs experienced a harsh decline in terms
of employment during the crisis, the total of job losses in US SMEs amounting to 2.8 million in
comparison to 650.000 jobs lost in EUR28 between 2008 and 2009 (Gagliardi, et.al, 2013).
Despite this comparative resiliency of the Eurozone SMEs, the trend of employment in EUR28
also turned negative after 2011. The crisis caused the severest damage on value added of SMEs,
both in US and EUR28 in 2008, as Figure 3 illustrates, whereas the US SME sector showed a
stronger bounce-back than EUR28 SMEs, its performance largely impacted by the recovery
dynamics of the US economic environment (European Commission, Annual report on European
SMEs, 2014).

In contrast to advanced economies, SMEs in emerging economies such as Brazil, India and
Russia showed remarkable performances during and after the crisis. Both India and Brazil grew
in terms of employment and enterprise numbers, the value added of Brazilian SMEs increasing
62
by an incredible 40% between 2009 and 2010. In developed economies, particularly in EU28 and
US, immediate short and long-term support programs for the impairment and re-growth of small
businesses were enforced by regulatory authorities, as the damage of the crisis on the SME sector
became more evident. The early outcomes of these efforts and the dynamics of recovery both in
developed and developing economies are analyzed in detail, in the next section.

Recovery dynamics in the post-crisis era

The international context

Following the most severe economic crisis modern world has experienced (Chowdhury, 2011) ,
macroeconomic environment displays weak and divergent patterns of recovery, under the
shadows of large risks (OECD, 2013). While a slow but positive growth trend is observed in
most emerging economies, only United States continues to enjoy a a clear growth performance
within the advanced economies, Eurozone and Japan’s growth rates still struggling. Across
OECD members, weak demand and high employment continued, as of 2013 (OECD, 2014a).

The downturn in global demand and post-crisis financial resource constraints did not impose
identical burdens on economies, causing a siginificant variance on the performance of SME
sectors. In EUR28 area, the number of SMEs started to decline in 2012 after the strong bounce
back of 2009-2011, while in US, the upward trend starting at 2009 continued in the post-crisis
period. In emerging economies of Brazil, India and Russia, the pre-crisis positive performance of
SMEs was maintained, as the enterprise numbers continued their impressive growth, by 10%, 6%
and 35% respectively (EC, 2014). In terms of SME employment, Japan experienced the largest
amount of job losses, followed by EUR28 and Russia, US displaying a slow recovery after the
sharp downfall of 2008. In contrast, Brazil and India enjoyed a strong increase in SME
employment, by 18% and 9% respectively between 2008 and 2011. Brazilian SMEs were also
highly succesful in terms of value added growth, with a 56% positive change between 2008 and
2011, while SMEs in US and EU28 the improvement rates were much slower (Muller, et.al,

63
2014).47

In Euro area, employment was the weakest factor among the three major indicators of SME
performance, between 2008 and 2013. While value added recovery was slower than expected,
the decline in both total number of SMEs by -‐-0.9% and the number of employees by -‐-0.5%,
of 2013 were more alarming. Despite a negative 2012-2013 period, total value added
generated by SMEs is expected to increase by 2.8% in 2014 and 3.4% in 2015, together with an
additional 740,000 jobs to be created by SMEs in Euro area. The number of SMEs is also
anticipated to increase by 0.38%, by 2015.

In terms of recovery dynamics, European SMEs reported lack of customers as their crutial
problem, independent from the size class of businesses, in the 2013 Survey on the Access to
Finance of Small and Medium-sized Enterprises (SAFE) conducted across 37 countries
(Muller,et.al, 2014). Access to finance was reported as the second most important factor,
particularly by micro enterprises, while finding high quality of labor force and managers were
stated to a larger extent by small and medium sized businesses. As a final consideration,
problems regarding competition were mentioned mostly by the medium sized enterprises.
Parallel to the findings of the SAFE survey, another cross-country analysis indicated the finance-
related problems of SMEs in the post-crisis period, showing the only 7 countries had a
significant increase in SME loans in 2012, Portugal, Greece and Ireland experiencing the
weakest SME loan performance (OECD, 2014a).48

Results of the two extensive surveys supported the findings of previous scholarly studies stating
that challenges of financing are among the most crutial problems of SMEs (Narteh; 2013;
Abdulsaleh and Worthington, 2013; Rocha, et. al, 2011; Beck, 2010). Within the post- crisis
period, the credit crunch resulting from the banks’ perception of macroeconomic risk factors and
47
Bhatnagar,V. (1995) Small Scale Industry: Concept, Status and Policy, Kaveri Books, Delhi.
48
Bhivani, T.A (2009), Globalization & Indian Small Scale Industries: Technology and Competitiveness, Ane
Books Pvt. Ltd, New Delhi.
64
Basel III requirements caused a greater level of vulnerability for small and medium sized
companies to credit market conditions as these businesses are heavily reliant on

bank loans (OECD, 2014a). Besides availability of credits, higher interest rate spreads and
collateral requirements, delays in payments and increasing rates of bankruptcies also created
important financial challenges for SMEs.
In the post-crisis era, new venture creations were also regarded as important factors for economic
performance, as these units play a crutial role in real GDP growth and particularly new job
creations (Klapper, et. al, 2014). Throughout the world, the percentage of economies where the
new enterprise registrations have reached to the before-crisis levels were found to be 56 among
the total of 139, developed countries performing slightly better than developing economies
(Klapper, et.al, 2014). Registration of new businesses was fastest in high income countries,
followed by low-middle and low income economies, while the upper middle income economies
reported to face serious challenges (Klapper, et.al, 2014).

Patterns of start-up rates and employment share of young enterprises were diverse across high
and upper middle income economies (OECD, 2014b). New business creation rates rates
remained below pre-crisis levels across in most of the OECD members, while in France, the new
legislation that was enforced in 2009 for supporting auto-entrepreneurs hugely increased the pace
of start-ups, once again pinpointing the significant role of government actions on
entrepreneurship and SMEs. In terms of employment, Brazil start-ups showed the most succesful
performance, while most countries’ employment levels remained far behind of 2008. With regard
to the impact of new ventures on new job creations, OECD’s 2014 survey across 30 member
countries had a very important implication, stating that, employment growth is driven by the
establishment of new enterprises, rather than by the growth of enterprises during their first years
of activity (OECD, 2014b). Due to challenging post-crisis conditions, the employment
contribution of the young businesses was found to be in a showed a declining trend from 2008 to
2011.
In previous research studies, governmental reforms facilitating new enterprise registration
65
proceses were addressed as important drivers of new venture creations, where the impact of
significant improvements in bureacratic transactions as oppposed to minor changes have been
found to be more effective (Das and Das,2014; Smallbone, et.al 2013, Klapper and Love, 2011).
In terms of the factors impacting new venture creations, findings of the World Bank research
supported fingings of these studies, underlining the significant correlation between the entry
density of newly registrated companies with start-up costs.
Adequacy of financial resources was also cited as a critical factor in starting a business both in
developing and developed economies in the recent survey conducted across OECD countries.
After the sharp decline in 2008, the recovery of venture capital investments continued to be
significantly slow in Europe but was very fast in US. Russian Federation, South Africa and
Luxembourg experienced a rapid growth in venture capital investments between 2009 and 2013,
while Greece, Belgium and Austria stayed far behind the pre-crisis levels (OECD, 2014b).

Despite these various post-crises challenges, SMEs in emerging economies, led by Brazil and
India display a comparatively higher degree of resiliency and a better performance with respect
to advanced economy SMEs, particularly Eurozone and Japan. The findings also support the
previous statements of Ardic, et.al (2011), who advocated an organic link between SME sector
and economic growth. The next section further discusses the topic by shifting the level of
analysis to another emerging economy, Turkey.49

The local context

Turkey is a large, upper middle-income country, with relatively few natural sources (Karpak and
Topçu, 2010). Turkey ranks as 18th largest economy in the world, with a GDP of
$786 billion (Worldbank, 2014). Turkish economy grew substantially in the last decade, per
capita income nearly tripling and exceeding $10,000. The fast growth trend was ceased by the
global crisis, which caused a major decline in the real GDP in 2009, followed by the economic
49
Dawar. R. (1986), Institutional Finance to Small Scale Industries, Deep & Deep Publications Pvt. Ltd, New Delhi.
66
slowdown of 2012-2014 resulting mainly from political unstabilities and changes in FED’s
monetary policies.

Following the turmoil of the global crisis, the SME sector in Turkey recovered rapidly, similar to
other emerging economy SMEs. There are currently a total of 2.641.961 small and medium sized
enterprises in Turkey, with employees under 250, as shown in Table 2. Out of all registered
businesses, 97% are micro enterprises with 0-19 employees, which is the highest percentage
among OECD member states (OECD, 2014a). SMEs supply 75.7 % of total workforce and
53.9% of total value added, which together make these economic units the most significant tools
for economic development, gross domestic product and workforce in Turkey (Nurrachmi, et.al,
2012).

The number of small and medium sized businesses which had a fast growth pace between 2002
and 2007 experienced a decline in 2008-2010 and then regained the pre-crisis levels in 2011 and
2012 (Turkish Statistical Institute Reports, 2002-2012). Turkish SMEs showed a more
impressive performance in terms of employment. The number of registered employees in SMEs
increased from 7.407.101 in 2009 to 9.517.367 in 2012. Value added was the worst among the
three indicators, as the share of SME value added in total value added dropped from 56.2% in
2006 to 53.9 in 2012.

While SME sector has shown a successful performance particularly in terms of employment and
new business creations, SMEs in Turkey are faced with a number of challenges. Previous studies
have stated that financial problems, such as low capitalization levels and external financing
requirements are among the major impediments of growth for SMEs in Turkey (Öndeş and
Güngör, 2013; Şahin, 2011; Çetin, et,al, 2011; Güler, 2010). Despite that, the share of SME
loans within the overall lending volumes have long remained significantly low compared to the
other economies (OECD, 2013). For this reason, the facilitation of SMEs’ access to finance,
particularly during the post-crisis period, has been prioritized by the governmental authorities
and the financial institutions. With the commercial banks’ changing strategies, the loans lent to
67
SMEs rose at the rate of 156%, between 2007- 2012, the greatest expansion in SME lending
among OECD countries (OECD, 2014a). The growth pattern of SME loans was consistent, with
the exception of 2009, when a slight decrease of 1.6% was experienced. For supporting SME
loans, the guarantee volumes provided by KOSGEB, the governmental body in charge of SMEs,
increased to 1.553 million TL in 2012, from 75 million in 2007, with the help of specific
Treasury guarantee provided to SME loans. Despite the increasing SME lending volumes, the
constrained access to finance is still perceived as the single largest obstacle to growth (OPIC,
2015), with the various dimensions of informality, opaqueness and credibility concerns for
SMEs, combined with macroeconomic instabilities (Şahin, 2011).

Besides bank loans, alternative sources of financing in terms of venture capital investments were
also actively used, the volumes increasing more than seven times between 2007 and 2012. The
regulators also enacted a new law regarding the promotion of business angel investments in
2012, followed by a secondary legislation on 15 February 2013, resulting with the licencing of
100 business angels between 15.03.2013 and 31.10.2013. As another important mechanism
aiming to accelerate the establishment of innovative start-ups, increase the dynamism of the
economy and contribute to a stronger and more sustainable economic growth (OECD, 2014a),
the government passed the law regarding the capital contribution of the Turkish Treasury to a
fund of venture capital funds on April 3, 2013, which enabled the direct contribution of relevant
government agencies to the fund of venture capital funds and co-investment funds that invest
together with the angel investors into early stage companies (OECD, 2014a).

Despite the clear focus of authorities on finance-related problems, SMEs in Turkey have other
important constraints, such as low levels of technology, R&D, innovation and
institutionalization, inadequate marketing, administrative burdens, quality and trademark
concerns, insufficient education level and managerial capabilites of SME owner/managers that
limit SME growth and competitiveness (KOSGEB, 2012). As a result, SME sector in Turkey is
mostly comprised of low-technology micro-enterprises, with very limited potential to create
significant levels of value added growth. The percentage of micro enterprises with less than 10
68
employees within all businesses is 97%, the highest across OECD members. Turkey is also
ranked as 55th in the World Bank Doing Business Report and 79th in starting a business,
indicating the need for regulatory improvements for the facilitation of new venture creations and
investments in existing businesses.

To address the negativities and provide solutions for existing SMEs and new ventures, seperate
commission reports were prepared in the 10th Development Plan for 2014-2018, differentiating
small business and entrepreneurship areas for the first time and announcing the major action
plans of providing new support and financing tools for innovative and information-based
enterprises, improvement of education system for enhancing entrepreneurship and
competitiveness and enforcing institutional regulations and improvements for enterprises, for the
improvement of business environment for SMEs and entrepreneurs. The plans are anticipated to
strenghten the position of SMEs in the economy and enhance their competitiveness in the
challenging post-crisis era.50

50
Lai, S. (1978) Loans to Small Industries and Small Borrowers, Navrang Publishers, New Delhi.
69
 CHAPTER 5

CONCLUSIONS, SUMMARY FINDINGS AND SUGGESTIONS

Small associate degreed medium enterprises (SMEs) area unit terribly vital in the

development of any country; notably developing countries to that Bharat is not an

exception. several students believe that SMEs play a necessary role and area unit the

backbone of the economy and conjointly industrial development. it's vital for each

developed and developing countries little and medium enterprises perpetually described

the model of economic development, that emphasized;

 High contribution to domestic production,

 Significant export earnings,

 Low investment needs, and

 Employment creation.

The MSMEs sector contributes considerably to the country’s producing output, employment

creation and exports, and is attributable with creation of the ‘highest employment growth’

yet as account for a significant share of business production for exports. MSMEs are

globally thought-about as associate degree engine of economic process and as key

instruments for promoting just development. The MSMEs sector in Bharat is very

heterogeneous in terms of the scale of the enterprises, type of product, services and level

of technology. This sector not solely plays a important role in providing employment

opportunities at relatively lower cost of capital than massive industries however conjointly
70
helps in manufacture of rural and backward areas. This reduces regional imbalances and

assures additional just distribution of value and wealth. MSMEs complement massive

industries.

The micros, little and medium enterprises (MSMEs) play a significant role within the

economic and social development of the ’country, usually acting’ as a nursery of

entrepreneurship and innovation. These conjointly play a key role within the development

of the economy with their effective, efficient, versatile and innovative entrepreneurial spirit.

Entrepreneurship has been targeted on by the researchers in several countries. It is

growingly thought-about as a predominate engine in economic development, economic

process, productivity, employment, and innovation. it's conjointly been recognized as a key

construct in economic dynamism round the globe. Entrepreneurship is thought to be

associate degree economical strategy in economic and social development of countries in

the planet. it's the method of exploring and discovering opportunities, providing worth in

several cultural, social, and economic areas and is additionally seen as a basic foundation

for comprehensive and property development all told countries. during this background, this

study analyzed the performance of entrepreneurship in SMEs and its impact in and around

Mysore town.

Major Findings of the Study

Based on the study, the main findings area unit according below within the following 2

sections, i.e.6.2.1 and 6.2.2.

1. Findings from the secondary knowledge

71
2. Findings from the first knowledge

Findings from the Secondary knowledge

 MSMEs census final report shows that there have been thirty six.17 million MSMEs

units using over eighty million individuals manufacturing a gross output of Rs. 13.5 trillion.

 Out of the thirty six.17 million robust MSMEs sector, the registered MSMEs section

includes of one.54 million units, barely 4.3 percent. as a result of virtually ninety six p.c of

the MSMEs were found to be unregistered, the arena is essentially the epithet of informal

sector. Further, of these 1.54 million MSMEs virtually ninety five p.c area unit ‘micro’, 4.8

p.c area unit ‘small’ and zero.2 p.c ‘medium’.

 According to NIIR project practice services there area unit concerning one,

03,000 little and medium enterprises (SME's) in Bharat, and 13,600 little and Medium

Enterprises (SME's) in Mysore. Also, little and medium enterprises (SME's) area unit over

sixteen,000 at metropolis (Karnataka) alone. Finally in Mysore town there area unit 1007

registered enterprises.

 The knowledge clearly shows that there area unit over 6000 product starting from ancient

to hi-tech things, that area unit being factory-made by the MSMEs sector additionally to

providing big selection of services.

 The leading industries within the MSMEs sector show that the most important range is

in retail trade and repair of private and menage product. The share is thirty-nine.85 percent.

72
However, this excludes industries like motorized vehicles and motorcycles producing

apparels as well as dress materials and therefore the colouring method, these accounts for

eight.75 percent. Food and food product sector as well as beverages stood at six.94 percent.

Hotels and restaurants area unit another sector of leading industries with a share of three.64

percent.

 Retail sale of fuel for machine motives, their sale, maintenance and repair forms

3.57 percent. Manufacture of furniture; producing Not Elsewhere Classified (N.E.C),

accounts for three.21 p.c of the MSMEs sector. All fictitious metal product and their

manufacture bring machinery and instrumentation destroyed two.33 percent. Textile

producing stands at two.35 p.c and every one alternative industries return up to nineteen.40

percent.

 The knowledge shows that the numbers of operating enterprises have shown a gradual

increase from thirty six 100000 in 2006-07 to 447.73 100000 in 2010-11. In 2007-08, it was

377.37 100000 that rose additional to 393.70 100000 in 2008-09.

In 2009-10, it crossed the four hundred mark to the touch 410.82 100000 and in 2010-11, it

was 428.77 lakh.

 Employment in MSMEs conjointly rose bit by bit exaggerated from 806.23 100000 in

2006-07 it went up to 1012.59 100000 in 2011-12, 2007-08 and 2008-09 saw a rise of those

from 842.23 100000 to 881.14 100000 severally. Employment rate crossed the 900 mark in

2009-10, recording 922.198 100000 staff. In 2010-11, it stood at 965.59 100000 staff.

 Fixed investment in MSMEs sector and its value of fastened assets in 2006-07,
73
8658543.79 crore, 917437.46 large integer in 2007-08, in 2008-09 it rose to 971407.49

and in 2009-10 it had been 1029331.46 crore. In 2010-11 it had been 1094893.42 large

integer and 1176939.36in 2011-12.

 Gross output in MSMEs sector in 2006-07 was 1351383.45 crore, in 2007- 08,

1435179.26 crore, in 2008-09, 1435179.26 crore, in 2009-10, 1619355.53 crore, in 2010-

11, 1721553.42 large integer and in 2011-12, it had been 1834332.05 crore.

 The knowledge shows that thirty one.79 p.c of the enterprises within the MSMEs sector

area unit engaged in producing, whereas 68.21 p.c of the enterprises area unit engaged

within the services.

 It was ascertained that MSMEs have shown consistent growth in terms of range of EM-II,

(Entrepreneur Memorandum-II) filed each year. range of EM-II filed throughout 2007-08

within the District Industries Centers across the country was one.74 100000 that

exaggerated to one.93, 2.14, 2.37 and 2.82 100000 throughout 2008-09, 2009-10 and 2010-

11 severally.

 MSMEs have shown constant rate of growth of over ten p.c each year until 2010-11,

whereas within the year of 2011-12 rate of growth was nineteen p.c

which is about doubly the expansion rate recorded for previous years.

 According to the most recent economic survey, Indian SMEs use on the brink of forty p.c

of India’s personnel. once the agriculture sector, SMEs rank second in fostering

74
employment opportunities. Over 3.25 100000 jobs were generated within the SMEs sector

throughout the amount between April 2011 and Gregorian calendar month 2012.

 Micro and little sector had virtually similar share of gross output of registered MSMEs

sector with shares of forty four.24 p.c and forty five.06 p.c severally.

 Medium sector had a comparatively lower share of ten.71 p.c in gross output of

registered MSMEs sector.

 Manufacturing enterprises dominated in terms of gross output of shares. Registered

MSMEs sector with ninety four.095 p.c share followed by service enterprises and repairing

and maintenance enterprises three.055 p.c and a pair of.865percent) severally.

Findings from the first knowledge

The primary knowledge has been collected through direct interview of 252 SMEs within the

Mysore town of Mysore.

• Majority of the respondents were found to be males (85.3%), followed by feminine

respondents (14.7%).

• It was found that majority of them (66.7%) area unit within the people of 20-30 years;

twenty two.2percent of them area unit within the people of 31-40 years and solely

five.6percent of every of them area unit within the age teams of 41-50 years and higher than

fifty years severally. Chi-square take a look at unconcealed a big distinction between teams

of frequencies getting on teams, having respondents within the people of 21-30 years

considerably high.

75
• The knowledge clearly shows that the bulk of the respondents possessed the

qualifications of bachelors degree (55.6%), followed by thirty three.3 p.c of the respondents

World Health Organization have complete masters degree and remaining eleven.1 p.c of

them studied up to pre university course.

• It is ascertained that one-half of the respondents opine that their level of pc acquirement

is ‘good’, 22.2 p.c of them area unit consultants, 16.7 p.c of them have average information

of pc and remaining eleven.1 p.c of them have poor pc acquirement.

• When style of activity conducted is verified, it's found that sixty five.1 p.c of them were

concerned in services, 28.6 p.c of them in business activities and remaining six.3 p.c as

‘producer’.

• The knowledge reveals that the bulk of the enterprises area unit found to be little (68.7%)

and 31.36 p.c of them area unit medium enterprises. Chi-square take a look at unconcealed

important distinction between these teams with little enterprises being considerably high.

• The initial hypothesis is that ’the employment creation potential’ of entrepreneurship

among SMEs’ is critical and positive has been accepted. as a result of the utilization creation

potential of SMEs’ studied through correlation and analysis of variance clearly shows that

every one the sub variables of SMEs performance and sub variables of entrepreneurship

related to considerably and completely with employment creation apart from risk-taking

variable of entrepreneurship. therefore it's ascertained that every one the variables like

originality, pro-activeness, autonomy, competitive aggressiveness and total entrepreneurship

scores, total SMEs performance, sales growth, client satisfaction, market share and

profitableness share positive relationship between the utilization creation of

entrepreneurship among
76
• SMEs. Of the nine elements of entrepreneurship and SMEs performance regressed on

employment creation potential, seven variables best foretold SMEs performance to the

extent of seventy seven.7percent.

• The second hypothesis is that there's a positive influence of LPG policies on the

performance of entrepreneurship among SMEs has been accepted.The influence of LPG

policies on the performance of entrepreneurship among SMEs was studied through analysis

of variance and correlation. In correlation, the scores on variables like originality, pro-

activeness, autonomy, competitive aggressiveness, and total entrepreneurship scores, total

SMEs performance, sales growth, client satisfaction, market share and profitableness once

exaggerated, scores on LPG policies conjointly exaggerated linearly and considerably.

analysis of variance unconcealed that every one the expected models have high F worths

and significance value guiding to reject the null hypothesis and all over that there's a bigger

influence on LPG policies on the performance of entrepreneurship among SMEs. Of the

nine elements of entrepreneurship and SMEs performance regressed on LPG policies, six

variables best foretold SMEs performance to the extent of sixty nine.6 percent.

• The relationship between entrepreneurship and performance of SMEs studied by testing

the hypotheses shows that every one the sub variables of SMEs performance area unit

related to considerably and completely with sub variables of entrepreneurship. The

coefficient of correlation of variables was found to be extremely important. therefore it's

ascertained that every one the SMEs performance variables like total SMEs performance

sales growth, client satisfaction, market share and profitableness and entrepreneurship

variables, originality, risk–taking, pro-activeness, and autonomy, competitive

aggressiveness and total entrepreneurship area unit important and analysis of variance

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conjointly shows important values to reject the null hypothesis, and therefore there's a

positive relationship between the entrepreneurship and performance of SMEs. All the five

variables of entrepreneurship best foretold SMEs performance to the extent of sixty three.9

percent.

• The performance of SMEs and exports of SMEs studied through correlation and analysis

of variance shows that every one the sub variables of entrepreneurship and SMEs

performance area unit related to considerably and completely with export variable. All the

correlation coefficients obtained between these variables were found to be extremely

important. therefore it's ascertained that every one the variables like originality, risk-taking

pro- activeness, autonomy, competitive aggressiveness and total entrepreneurship scores,

total SMEs performance, sales growth, client satisfaction, market share and profitableness

shows positive relationship between performance of SMEs and exports of SMEs. Of the

nine elements of entrepreneurship and SME performance were regressed on SMEs

performance, five variables best foretold SMEs performance to the extent of

eighty.6percent.

• The fifth hypothesis that there's a distinction between producers, business and services

SMEs, in their export and employment creation has been accepted. The variations in

producers, business and services SMEs in their export, and employment creation studied

with the assistance of analysis of variance and Scheffe’s post hoc ergo propter hoc tests

unconcealed important variations between respondents in production, business and repair

SMEs apart from pro-activeness scores. therefore it's ascertained that every one the

variables like, innovation, risk-taking, autonomy, competitive aggressiveness and

entrepreneurship scores area unit totally different and there's positive relationship between

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producers, business and services SMEs entrepreneurship, in their export, and employment

creation.

• Entrepreneurial competencies have important influence on the business performance, that

means that prime entrepreneurial competencies of SMEs homeowners, positive area unit the

result on business performance. The entrepreneurial characteristics like originality, risk-

taking, pro-activeness, autonomy and competitive aggressiveness light-emitting diode to

explore new concepts, take risk, monitor progress towards the goal and perceive the

business implication with a good vary of concepts. It conjointly helps to spot strengths and

weaknesses.

• Entrepreneurial characteristics area unit ready to improve business performance through

the institution of the entrepreneurial competencies; entrepreneurial competencies are ready

to additional improve the business performance. Psychological factors that embody the

requirement for action, and motivation. These can resurrect the spirit of perseverance,

encouraging homeowners to still learn one thing new, whereas the expertise which will

profit the homeowners of doing business designing, sensitive reading opportunities,

establish rapport, and therefore the role of family can produce a culture for homeowners to

still learn and that they area unit perpetually searching for ways in which to trot out the

competition.

• Within this apace dynamic state of affairs, exporters in developing countries get

international markets that area unit restricted by variety of challenges. These embody lack of

acceptable market, product and technology-related data, the requirement to fulfill and

demonstrate compliance with quality standards, buyers’ needs, trade laws, tariffs and non-
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tariff barriers. These conditions area unit exacerbated by restricted access to finance. the

doorway methods of SMEs to international markets vary supported the scale of the firm,

expertise within the market and therefore the degree of management of their resources.

during this respect, SMEs with restricted resources, ought to implement totally different

methods so as to be ready to enter foreign markets. At an equivalent time, it is

natural that SMEs area unit reluctant to develop their activities in overseas markets; since,

they lack data and skill concerning them. alternative factors as well as, monetary issues,

high transportation prices, intensive competition and lack of appropriate distribution

channels even have a control on SMEs exports.

• The SMEs play a significant role within the economic and social development of the

country. The SMEs sector may be a nursery of entrepreneurship, usually derived from

innovation, pro-activeness, individual creative thinking and competitive aggressiveness.

This sector offers nearly eight p.c of country’s gross domestic product and 40percent of the

exports SMEs provide employment to concerning five hundred 100000 persons through

two hundred 100000 enterprises. the general growth of SMEs and ’labour flip over capital

ratio’ area unit abundant massiver than large industries. Thus, SMEs play a significant role

in economic development and therefore the national objective of growth with equity and

inclusion.

• The management variables play a significant role in SMEs failure and success. The new

corporations lack basic skills and competencies to address problems and challenges. the

main issues area unit promoting skills, accounting, monetary management, and operation

and production management, inadequate and improper monetary and accounting observe
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and human resources management.

Suggestions

Based on the findings of the study, the subsequent policy measures area unit urged for

development of SMEs within the end of the day.

• Government ought to promote SMEs entrepreneurship, through corporations to begin up

and expand, improve access to Venture -capital and alternative monetary

facilities. Government may scale back the regulative burden on smaller firms which may be

one amongst the best boosts to entrepreneurship.

• Promoting enterprise clusters may also enhance SMEs performance and aggressiveness.

little corporations operating in clusters will attain the benefits of huge corporations

whereas holding the advantages of specialization and adaptability. Local, regional and

national governments will foster little firm’s linkages through providing the framework for

public/ non-public and inter-firm partnerships.

• Government may conduct technical education and skilled courses of entrepreneurship

management that is useful to all or any sorts of business.

• Financial, inventory management and accounts management is that the biggest deficiency

of SMEs. Therefore, there's would like for correct information of production and operation

to scale back the deficiencies among SMEs.

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• Entrepreneurship variables like pro-activeness got to be thought-about and therefore the

entrepreneurs got to be motivated so as to require effective choices that leads in

improvement of the sales of firms.

• Entrepreneurship development is one of the key components for development of

small, little and medium enterprises (MSMEs). To undertake this task on regular basis, the

Ministry needs to set up additional institutes.

• Information technology helps in quick and correct decision-making by the bourgeois of

SMEs thanks to exaggerated quality. The important elements before entrepreneurs of SMEs

area unit speed of services, access to data, empowering staff in terms of talent and delivering

highest valued services at competitive price. SMEs would like IT-based solutions in terms

of Multi-tasking, increasing client base, raising productivity, dominant price, operating

remotely, quick and correct decision-making and facilitating collaboration.

• More support is required from the govt. Bharat for entrepreneurs of SMEs within the

type of priority sector disposition, government procurance program, credit and performance

ratings and promoting support. Technology transfers, like inexperienced technology and

networking will revive the expansion of SMEs.

• An bourgeois should acquire the flexibility to envision what others cannot see. whereas

others see issues, associate degree bourgeois should see opportunities. to beat the challenge

of raising capital, associate degree bourgeois should develop the flexibility to sell their plan

and vision to potential investors.

• Ensuring political stability can result in peaceful being within the nation to encourage

growth in alternative regions of the country. Regular check on officialdom staff against

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corrupt practices can facilitate curb corruption, since corruption among existing regulative

bodies and agencies started to assist entrepreneurs may be a downside.

• Limited firm resources, and international contacts yet as lack of requisite social control

information concerning internationalisation of SMEs, have remained important constraints

to SMEs internationalisation. These resource limitations, particularly of a monetary kind,

appear notably current among smaller, and new internationalizing, firms. SMEs from

specific sectors and regions conjointly seem to face specific international barriers.

• Serious attention ought to be given to the organized non-public sector-led model of

SMEs support provision. for instance, the organized non-public sector, as well as the

chamber of commerce network, may have bigger involvement in coming up with and

providing SMEs support.

• Creating a competitive surroundings wherever businesses thrive by encouraging and

supporting business concepts among entrepreneurs through provision of finances and

association to already thriving business networks wherever their concepts may be enforced.

it'd encourage tykes to return up with bright concepts.

• Finally, the international and national policy changes have opened new opportunities and

markets for the SMEs in Bharat. Integrated and unified effort is needed from little

industries and government to grasp and absorb technological dynamism. Technological up

gradation, analysis and development and encouragement of inter-firm linkages got to be

promoted by design and systematically. monetary infrastructure desires to be increased and

spare credit to the arena needs to be created obtainable taking into thought the growing

investment demand, globalisation, increasing competition and therefore the needs of

technological transformation. it's vital to require care of the arena to alter it to contribute
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towards growth within the Indian economy.

Recommendations for future studies

Following studies is preoccupied by alternative investigator within the future:

• The study is extended to any of the commercial districts in Bharat.

• The study is done sector wise and clusters within the software package business or

industry.

• A comparative study of SMEs performance in varied districts of Mysore may also be

preoccupied.

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