Concept of SB:

The concept of SB (Small Business) varies from country to country and between times
in the same country. There is no generally accepted concept of small business.
SB is an enterprise that is comparatively small in size, operating in a geographically localized
area, except its marketing, employed fewer than 100 employees, and is financed by one individual
or a group of individual.
-Longenecker, Moore & Petty
Definition of SB in Bangladesh:
1. "Small scale industry includes any manufacturing enterprise which either uses no
power or employ less than 20% and thus not subject to registration under section 2(J)
of the factories act.
-First 5 year plan 1955-60
2. "Small industry means an individual undertaking, engaged either in manufacturing
process or service activity within a total investment up to taka 15 million and the
investment in machinery and equipment not exceeding taka 10 million excluding taxes
and duties."
-Industrial policy, 1986
3. "Small industry means an individual undertaking, engaged either in manufacturing
process or service activities whose total fixed investment excluding the prices of the
land, expenses for inland transportation and commission in machinery appliances and
duties and taxes is limited to taka 3 crore."
-Industrial policy, 1991
4. "Small industry will mean enterprises employing fewer than 50 workers and with a
fixed capital investment of less than taka 1 hundred million."
-Industrial policy, 1999
5. Industrial policy, 2005:-
a) Definition of SI (Small Industry) for Manufacturing sector:
"Small industry will mean those manufacturing industrial enterprises which have, excluding
land and factory building and other fixed assets value replacement cost is less than taka 1.5
crore."
b) Definition of SI (Small Industry) for Non-Manufacturing/Trading or
other sectors:
"Small industry will mean those industrial enterprises where less than 25 workers work."
In conclusion we can say that small business is a privately owned and operated business which
has a small number of employees.
LECTURE-2
Department of Management, FBS, University of Dhaka Page 1
Characteristics or features of SB:
1. The business as a role is managed by the owner of the firm. The management team of the
business may consist of family members, relatives and close friends.
2. The responsibilities for decision making normally lies with one key executive with very
little or no delegation of authority. Small business owners maintain high degree of
concentration of authority. They do not delegate as they believe if you want things done
right, do it by yourself.
3. There appears to be close employee management relationship. They develop a very
intimate relationship with the employees though working along with them. Therefore the
relationships are friendly and informal.
4. Small business is an extension of the personality of the entrepreneurs. It is the reflection
of the dreams and desire of the entrepreneurs.
5. Generally there are a few functional specialists such as a full time accountant or a
personnel manager in the organization.
6. The nature of the work generally is not that much complex. Moreover, if the work is
complex or technically difficult, it is the owner who will solve the task.
7. The firm normally has not more than two tiers/ levels of management reporting and the
size of the employment made is limited by the law of the specific country.
8. In most cases the owners and managers are verbal communicators; least number of
written communication is made within a small business. Instructions are generally made
through oral media of communication.
9. Normally the firms stock is not listed with the stock exchange.
10. The management of the firm is independent. They are not subject to any others'
supervision. They have the sole authority of the firm to decide about the organizational
matters.
11. The firm often places little emphasize on long term planning although the owner or
manager may be aware of that a formal long term plan is necessary. The demand for
continuous adjustments with the current environmental conditions sometimes discourages
them to make long term plan.
12. The capital is supplied and the ownership is held by an individual or a small group of
individuals. SB may take proprietorship or partnership. In any case the number of owner is
always limited.
LECTURE-3
Department of Management, FBS, University of Dhaka Page 2
13. The area of operation is mainly local, with the workers and owners living in one home
community. However the market needs not to be local.
14. The relative size of the firm within the industry must be small. A SB should not have a
major share of the market.
15. Doctors, Dentists, Lawyers may fit all or some of the characteristics. But in most cases
they are considered professionals other than small business operators.
Department of Management, FBS, University of Dhaka Page 3
Strengths of SB:
1. Spurs/ Source of innovation:
Small Business (SB) is the major sources of innovation in our civilization. Substantive
number of successful innovations is implemented by SB.
2. Checks monopoly:
SB increases competition by checking the development of monopolies by large
business. It provides new products, methods, services and thereby checks large firms
tendency to control the market.
3. Creates employment:
SB creates jobs at a much higher rate than large scale businesses. SB alone creates
8,08,959 jobs in Bangladesh.
4. Higher financial performance:
SB earns higher return than large manufacturers do.
5. SB makes large scale businesses depended on it:
SB provides many of its raw materials and supplies to the large businesses. So, these
large businesses are depended on SB.
6. Fosters flexibility:
SB has relative freedom to enter and leave a business willing. They can start and
grow, expand or construct, subside or fail as they feel comfort with the situation.
7. Provides opportunity ground for women:
SB is the most opportune source of self-employment for women. In Bangladesh,
thousands of women are employed on their own through SB.
8. Seedbed for new ventures:
SB is the seedbed for new ventures throughout the world. Many of the big businesses
of today were started as small.
9. Carrier for new graduates:
SB is the right venture for new graduates who welcome the challenges of innovative
work, want to be a decision maker, want freedom of owning a SB.
LECTURE-4
Department of Management, FBS, University of Dhaka Page 4
10. Ease of entry:
SB does not require much formality to start; financial requirements are not too high.
Reasons for failure of SB:
1) Inadequate management:
The lack of managerial knowledge and skills is the vital cause of failure of large
number of SB. Anybody with any academic background and experience can go for
starting SB. This deters them to recognize, hire and tap the talents.
2) Shortage of working capital:
Working capital is the lifeblood of all business enterprises. SB faces shortage of
capital to maintain desirable level of operation. Study shows that businesses starting
with little investment by owner have a better chance of failure than businesses with
adequate investment by owners.
3) Lack of balance:
SB does not maintain a proper balance among many interrelated affairs of the
organization. The significant reasons of such imbalances are:
a) Lack of coordination between production and marketing
b) Lack of proper record keeping
c) Lack of effective selling technique
d) Lack of coping with increasing complexities of internal management.
4) Lack of business experience:
SB is generally run by people without prior industry experience. People with any track
record can start SB and for this people with low track record cannot cope with the
operational problems and crisis. Inexperience in line of operation makes decision
faulty.
5) Fraud and disaster:
SB is vulnerable to many situations due to its inability to sustain the damage. It may
be eased by fraud, by fine, by flood, by criminal act, by the death of the manager and
owner of the business.
6) Wrong location:
Location is one of the fundamental reasons for the success or failure of SB. Common
scene is that the most important factors of SB success are: - location, location and
location. So it is well recognized that wrong location seriously affects the success of
SB.
7) Poor credit granting practice:
Department of Management, FBS, University of Dhaka Page 5
Poor credit practices affect the credit collection and due position. It also handicaps
the firm to maintain the daily operations.
8) Non-business family background:
SB owners whose parents did not own a business have a greater chance of failure than
the owners whose parents did own a business.
9) Neglect/ Negligence:
Little attention to the affairs of SB by the owner or manager is a strong reason for the
failure of SB. SB needs absolute personal care, attention and close supervision.
10)Marketing inefficiency:
The survival of the firm depends on generating sufficient sales from its market.
Studies have found that business owners without marketing skills have a greater
chance of failure than others with marketing skills.
Causes of success and failure of SB:
Criteria Chances of
failure
Chances of
success
1. Age Younger Older
2. Capital Little Adequate
3. Economic time Recession Prosperity
4. Education No college education One or more years of
college education
5. Experience Without prior industry
experience
With prior industry
experience
6. Marketing Without marketing
skills
With marketing skills
7. Parents Did not have
experienced parents.
Did have experienced
parents.
8. Partner One person More than one person
9. Planning Do prepare business
plans
Do not prepare
business plans
Department of Management, FBS, University of Dhaka Page 6
SME & Entrepreneurship:
Two major areas of similarities between SME and entrepreneurship are pointed
out:-
1) Both SME and entrepreneurship aim towards the same objectives; they both have
been noted for employment creation, economic growth and economic
development. They also play a significant role in socio-political economic
transformation of national economy.
In addition, they are affected by the same factors; this implies that their success
or failure is being determined by some set of similar factors and these factors are:
environment, culture, location, individual characteristics, firms characteristics
etc. These all affect both SME and entrepreneurship development.
2) Furthermore, the SME owners and entrepreneurs tend to possess the same
characteristics or traits for business management. Both causes traits such as
initiative, commitment to agreement, systematic planning, creative problem
solving, self-confidence, convincing, right to achieve success, integrity, reliability
and ability to seek and use feedback. These traits have assisted both SME owners
and entrepreneurs to effectively and successfully run their operational activities.
Differences between SME and entrepreneurship:-
SME is a kind of activities that tends to the creation of entrepreneurship. SME are just
firms or business ventures that are being managed by individuals or owner managers.
Entrepreneurs discover, innovate and establish business. They seek for and discover
opportunities, and then execute these business opportunities. Whereas SME owners
capitalized or managing their business. They hardly engage in looking for business
opportunities like entrepreneurs. Hence they produce, buy and sell goods & services.
In addition to this, they also differ in terms of the different and special skills used by
entrepreneurs and SME owners. They both seem to possess different and unique skills.
LECTURE-5
Department of Management, FBS, University of Dhaka Page 7
For instance: the entrepreneurs possess the skills to discover and innovate, whereas
the SME owners possess the managerial skills that enable them to efficiently and
properly manage their firms or businesses. For clear understanding the differences
below offer ore details:-
Subject matter Entrepreneurship SME
1. Definition
A process where an
individual discovers,
creates, innovates,
evaluates and executes
opportunities
independently.
Firms or business ventures
managed by individual
owner.
2. Purpose
To discover, innovate and
establish.
To produce, buy and sell.
3. Degree of risk
Varies. Lower.
4. Key attributes
High need for
achievement; creativity
and innovation.
Organizational skills to
manage efficiently, little
innovation, moderate
growth and moderate need
for achievement.
Department of Management, FBS, University of Dhaka Page 8
Small business as a seedbed/ dimension for
entrepreneurship:
SB is regarded as a seedbed for entrepreneurship as it provides conductive conditions
for the emergence and growth of entrepreneurs. SB employs available technology and
can be started with less investment. They are going to use local resources and cater/
fulfill mainly local demand. This business normally revolves around one individual who
is the owner, manager and risk bearer.
The emergence, growth and success of entrepreneur are linked with the growth of SB.
SB is called the dimension of entrepreneurship due to the following reasons:
1) SB can be started with less investment and which can be contributed by the
promoter, arranged from family and friends.
2) SB carry on business on a small scale and as such the element of risk is too less.
3) SB is generally based on local resources and as such there is no problem
regarding their availability.
4) SB can be located anywhere and thus helping the development of backward
areas of the country.
5) SB generally caters to local demand and necessary modifications can be made
in the product keeping in mind the changing demand of people.
6) It provides opportunities for creativity and experimentation.
7) Relatively more environment friendly.
8) SB helps in building motivation among the entrepreneurs
9) SB is viewed favorable by the govt. and society because they help in equitable
distribution of income & wealth.
LECTURE-6
Department of Management, FBS, University of Dhaka Page 9
Scope of SB:
Scope of SB is quite vast covering a wide range of activities. Businesses that come
within the distinct characteristics of SB are too many.
The Industrial Policy 2005 has mentioned a list of industrial activities that come within
the scope of SB. The following are the list of the areas of activities where SB will fit
best:-
1) Electronics/ electrical,
2) Software development,
3) Agro-business/ plantation agriculture,
4) Leather making & leather goods,
5) Readymade garments,
6) Plastic products,
7) Healthcare & diagnostic,
8) Educational services,
9) Pharmaceutical/ cosmetics / toiletries,
10) Fast-food & frozen food,
11) Food processing and food assembling,
12) Paper printing & publishing,
13) Poultry farming,
14) Fishery,
15) Constructions,
16) Furniture,
17) Glass & ceramics,
18) Mineral water,
19) Cyber cafe,
20) Stationery items,
21) Rubber,
22) Sports goods,
23) Clocks & watches,
24) Servicing & repairing,
25) Auto part components.
Department of Management, FBS, University of Dhaka Page 10
Roles & responsibilities of SB owners:
The independent business person has a role quite different from that of hypo business
owner. Corporate managers become professional specialists, focusing on specific tasks
and responsibilities such as tax accounting, design, engineering or advising. SB owners
must wear many professional hats at once. They may hire few people, but they
behave more as an autonomous freedom owner than as a professional manager. Some
of the many responsibilities of SB owner are pointed below:-
SB owners keep their own books and do their own taxes but in most of the cases they
are not expert in tax accounting. They may use personal computers to track inventory
and do a bit of word processing but they rarely care about knowing computers or
programming. As a manager or owner, they must motivate a team of employees and
this activity is important for them. They think strategically but do not develop
strategic plans. They are concerned about market demand but dont engage in
market resource. In most instances, they do things require to survive tomorrow and &
to compete next week.
The SB role is complex; encompassing all the activities requires to be in business; yet
lacks the depth necessary to become specialize in any particular area. In most
instances the business owner is technically competent; perhaps an expert in
accounting machinery, medicine or engineering, but often this technical orientation
reduces the ability of the owner to deal with management and other issues.
LECTURE-7
Owner
Investment & Finance
Customer Relation
Cash Control
Inventory Control
Purchasing Marketing & Sales
Leadership Business Planning
Personnel & HRM
Department of Management, FBS, University of Dhaka Page 11