Formation of Small Scale Industry Short Answer Type Questions

Question 1.
How do you identify a business opportunity? OR Give a brief note on business opportunity. OR Write the factors influencing business opportunities.
Answer:
It is not easy to identify a business opportunity. Following steps should be followed to identify a business opportunity:
(1) Conduct a survey/research: Conduct a survey/research and collect information on the existing condition of the proposed product/service to be manufactured/rendered.

(2) Market behaviour, consumer behaviour, financial support, legal aspects and economic viability: Market behaviour, consumer behaviour, financial support, legal aspects and economic viability have to be examined.

(3) market feasibility: Market behaviour gives information on the market feasibility. It gives information on whether the product has the potential to get sold without any problems.

(4) Consumer behaviour: Consumer behaviour will explain the tastes and preferences of the consumer and throw light on the demand situation.

(5) The study on financial support: The study on financial support will examine the quantum of money required, sources of obtaining finance, subsidies and incentives available, cost of finance and the break even period.

(6) Legal aspects: Legal aspects will determine the type of business opportunity available, the prevailing government policy, ecological constraints and the like.

Question 2.
Discuss the factors influencing “scanning the business environment”.
Answer:
There are interacting and interdependent groups of variables in the business system of an enterprise. One of the important variables is environmental forces. Environmental forces comprise of two types of variables namely

Controllable variables and
Uncontrollable variables.

As the name suggests, controllable variables are internal factors which can be changed. On the other hand, uncontrollable variables cannot be changed and have a direct impact on business. Science and technology, economic conditions, ecology, legal and political conditions, demography, consumer behaviour, social and cultural climate etc are all uncontrollable factors.

An answer to the following questions will reveal whether there is a business opportunity or not:

Whether the environment is conducive to start or not to start the business?
Whether the proposed production is needed in that locality or can serve as an ancillary unit to a large industry?
Whether production facilities in case of small units are available without much problems?
Whether the product can be produced at a cheaper cost?
Whether the proposed SSI can easily market its product?
Whether the technology to produce is available and at what cost?
Can the total project cost be mobilised without any problem?

Based on this, entrepreneur can take the decision whether or not to establish his enterprise?

Question 3.
Explain the errors in selection of location.
Answer:
The errors in selection of location are as follows:

Unprepared site selection team.
Lack of executive consensus.
Incorrect search area.
Narrowing the search area too rapidly.
Failure to consider all the issues.
Incomplete labor market analysis.
Failure to consider community trends.
Poor or absent technical site review,
Breach of confidentiality.
Failure to capture negotiable incentives,
Acceptance of overvalued incentives.
Low culture and educational standards.

Question 4.
Write a note on project feasibility analysis Or Discuss the importance of feasibility report and explain the factors to be considered while preparing feasibility report.
Answer:
A project feasibility analysis includes market analysis, technical analysis, financial analysis and social profitability analysis.
(i) A market analysis is a method of screening project ideas as well as means of evaluating a project’s feasibility in terms of the market.

(ii) The technical analysis of a project feasibility study establishes whether the project is technically feasible or not, and whether it offers basis for the estimation of costs.

(iii) In the financial analysis of this feasibility study, the emphasis is on the preparation of financial statements, so that the project may be evaluated in terms of the different measures of commercial profitability followed by the magnitude of financing which requires the assembly of the market and also technical cost estimated in various proforma statements.

(iv) The social purpose of the investment is to convince a lender that the project is a desirable investment; that it not only possesses the potential for profit but that the proposed management team has the capability to achieve the potential.

Question 5.
Explain financial feasibility of the project.
Answer:
The financial aspects of any business relate to the total amount of capital required, the sources of finance, the cost of capital and its implication on the business. An analysis of these issues will indicate whether a business is financially viable or not.

The project should be evaluated in terms of the different measures of commercial profitability followed by the magnitude of financing which requires the assembly of the market and also technical cost estimated in various proforma statements.

The following statements should be prepared:

Statements of total project costs: Statements of total project costs, capital requirements and cashflows need to be prepared.
Collection period of sales: Collection period of sales, inventory levels, credit period that can be availed, etc need to be estimated.
Projections for future time periods: Projections for future time periods need to be worked out.
Returns on investment: Returns on investment, returns on equity, Break even volume and price analysis needs to be studied.
Sensitivity analysis: A sensitivity analysis needs to be conducted to know the impact of certain items on profitability.

The financial feasibility report will thus give an idea of an industry’s financial requirements and viability of the proposed business.

Question 6.
Explain technical feasibility of the project.
Answer:
Technical feasibility analysis helps the entrepreneur to possess the required technology for proposed business unit. For small enterprises, high end technology involving huge cost is not feasible. However, the technology to be adopted has to be cost effective in production process. As far as possible tested and proven technology has to be adopted. Some of the important aspects that should be considered are:

Already established: The technology should, as far as possible, be already established.
Indigenous raw materials and resources: The technology should be based on indigenous raw materials and resources.
Workable under local conditions: The technology should be workable under local conditions.
Tune with the national goals: The technology should be in tune with the national goals and objectives.
Risk of obsolescence: The risk of obsolescence and the scope of continuous updating of technology should be examined.
Climate conditions: Climate conditions, nature and quality of the product and also the size of the project should be taken into account.

In order to expedite the examination of technological aspects, the borrower should be fully prepared with explanations for selecting a particular process, technology and its techno-economic advantages over other available processes.

Question 7.
Explain social feasibility OF THE Project.
Answer:
Social feasibility aspect has to be looked into to assess as to how far the proposed business is useful for both the entrepreneur and the society. An activity deterrent to the societal value cannot be pursued. To assess the feasibility, social cost-Benefit analysis has to be made.

Social-Cost-Benefit analysis considers:

The estimation of costs and benefits which will accrue to individual members of society as consumers or as suppliers of factor input.
Costs and benefits accrue to the community.
Costs and benefits accrue to the National Exchequer.
Costs and benefits accrue to the entrepreneur.

“Social need” concept considers several societal aspects. It may be environmental protection, stopping the depletion of rainforests, generating employment and the like.

In social feasibility analysis, entrepreneurs have to study the problem of social economy to know as to how their business would help the society in enhancing social values and returns.