Concepts and Theories of Entrepreneurship
Disclaimer: This dissertation has been submitted by a student. This is not an example of the work written by our professional dissertation writers. You can view samples of our professional work here.
Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
ENTREPRENEURSHIP AND SMALL BUSINESS (OMAN)
1 Entrepreneur & Entrepreneurship
Definition of Entrepreneur:
The term" entrepreneur" is derived from the French verb ‘enterprenedre'. It means "to undertake". In the early 16th century, the Frenchmen who organized and led military expeditions were referred to as "entrepreneurs." Around 1700A.D, the term was used for architects and contractors of public works.
An entrepreneur is a person who undertakes and operates anew enterprise or venture and assumes some accountability for the inherent risks. A female entrepreneur is sometimes referred to an “entrepreneuse”.
Entrepreneur is a person who creates and manages change by the recognition of opportunities (needs, wants, problems, and challenges) and develops people and manages resources to take advantage of the opportunity and creates a venture.
The term "entrepreneur" was applied to business initially by the French economist, Cantillon, in the 18th century, to designate a dealer who purchases the means of production form combining them into marketable products.
Concept of Entrepreneurship:
Entrepreneurship is a process undertaken by an entrepreneur to augment his business interest. It is an exercise involving innovation and creativity that will go towards establishing his/her enterprise.
One of the qualities of entrepreneurship is the ability to discover an investment opportunity and to organize an enterprise, thereby contributing to discover an investment growth. It involves taking of risks and making the necessary investments under conditions of uncertainty and innovating, planning, and taking decisions so as to increase production in agriculture, business and industry etc.
Entrepreneurship is the composite skill, the resultant of a mix of many qualities and traits - these include tangible factors as imagination, readiness to take risks. Ability to bring together and put to use other factors of production, capital, labor, land, and also tangible factors such as the ability to mobilize scientific and technological advances.
Of late a new breed of corporate entrepreneurs has come to the force in large organizations are called as “intrapreneurs”. They are entrepreneurs who catch hold of a new idea for a product, service, or process and work to bring this idea to fruition within the framework of the organization. Intrapreneurs with their innovations and dedicated effort are perceived as a valuable asset by the organization, inspiring others. He serves as a champion to others in the organization. In America, a number of intrapreneurs are leaving their jobs to start their own ventures. It is found that many are exceedingly successful in their new ventures and they are causing threat to the companies they left a few years ago.
Difference between Entrepreneur and Intrapreneur:
An entrepreneur is independent
He is dependent on the entrepreneur. i.e., owner
2. Raising of funds
They can raise fund required for the enterprise
Funds are not raised
He/She bears the risk involved I the business
An intrapreneur does not fully bear the risk
He/She operates from outside
He/She operates from within the organization itself
Distinction between an Entrepreneur and a Manager
The main motive is to start a venture by setting up an enterprise. He understands the venture for his personal gratification.
The main motive of a manager is to render his services in an enterprise already set up by someone else
He is the owner of enterprise
A manger is the servant in the enterprise owned by the entrepreneur
3. Risk bearing
He being the owner of the enterprise assumes all risks and uncertainty involved in running the enterprise
A manager as a servant does not bear any risk involved in the enterprise
The reward that he gets for bearing risks involved in the enterprise is profit which is highly uncertain
A manager gets salary as reward for the services rendered by him in the enterprise, which is fixed and certain
He himself thinks over what and how to produce goods to meet then changing demands of the customers. Hence, he acts as an innovator also called a change agent
Manager simply executes the plan prepared by the entrepreneur and translates the entrepreneur's ideas into practice
He needs to possess qualities and qualification like high achievement, motive, originality in thinking, foresight, risk bearing ability and so on.
On the contrary, manager needs to possess distinct qualification in terms of sound knowledge in management theory and practice.
Difference between Entrepreneur and Entrepreneurship:
Refers to a person
Decision - maker
Risk - taker
Refers to a process
Risk - taking
Skills required for an Entrepreneur:
1. Technical skills:
- Written and oral communication
- Monitoring environment
- Technical Business Management
- Effective Interpersonal relationship
- Effective Listening
- Ability to organize
- Network Building
- Management Styles
- Being an effective team player
2. Business Management Skills
- Planning and goal setting
- Decision making
- Human Relations
- Marketing finance
- Management growth
3. Personal entrepreneurial skills
- Self discipline
- Risk taking attitude
- Being creative
- Logical and analytical
- Visionary leader
- Ability to manage change
Characteristics of an Entrepreneur:
- Mental ability consists of intelligence and creative thinking. An entrepreneur must be reasonably intelligent, and should have creative thinking and must be able to engage in the analysis of various problems and situations in order to deal with them.
- Clear Objectives: An entrepreneur should have clear objectives as to the exact nature of the goods to be produced and subsidiary activities to be undertaken.
- Business secrecy: An entrepreneur must be able to guard business secrets. Leakage of business secrets to trade competitors is a serious matter which should be carefully guarded against by an entrepreneur.
- Human relations ability: An entrepreneur must maintain good relations with his customers if he is to establish relations that will encourage them to continue to patronize his business. He must also maintain good relations with his employees if he is to motivate them to perform their jobs at a high level of efficiency.
- Communication ability: An entrepreneur who can effectively communicate with the customers, employees, suppliers and creditors will be more likely to succeed than the one who does not.
- Technical knowledge: An entrepreneur must have a reasonable level of technical knowledge.
Other main characteristics
- Self - confident and optimistic
- Able to take calculated risk
- Prepared to take risks
- Respond positively to challenges
- Flexible and able to adapt
- Knowledgeable of markets
- Versatile knowledge
- Able to get along well with others
- Independent minded
- Energetic and diligent
- Creative, need to achieve
- Dynamic leader
- Responsive to suggestions
- Take initiatives
- Resourceful and persevering
- Perceptive with foresight
- Responsive to criticism
- Ability to organize and administer efficiently
Significance/importance of entrepreneurship:
- Economic Development: Entrepreneurship contributes to economic development of every country. It enables continual improvement of societies and their organizations entrepreneurship
- Developing personal relationships: Small businesses are well placed to build personal relationships with customers, employees and suppliers.
- Responding flexibility to problems and challenges
- Inventiveness and innovation: Small businesses are well positioned to introduce and develop new ideas. This is due to their owners not having to report or seek approval from anyone else. For Example, When Anitha Roddick set up The Body Shop; she developed a range of environmentally friendly cosmetics in unsophisticated packaging. Due to the innovation in the packaging style her products are considered to be No: 1 in terms of quality and package.
- It invigorates markets: The formation of new business leads to job creation and has a multiplying effect on the economy.
- It empowers citizens, generates innovation and changes mindsets. These changes have the potential to integrate developing countries into the global economy.
Classification and Type of Entrepreneurs:
1. Innovative Entrepreneurs
It is a type of entrepreneur, who launches new products, discovers new markets, establishes new methods of production and restructures the enterprise.
He can work only when definite level of progress has been previously accomplished. They focus on revolutionalisation and development.
It is characterized by aggressive assembling of information and the analysis of results derived from novel combination of factors.
2. Imitative Entrepreneurs:
They adopt victorious innovations launched by the innovative entrepreneurs.
They duplicate the technology and techniques innovated by others and they are suitable for underdeveloped countries.
They are characterized by readiness to adopt successful innovations, by innovating entrepreneurs. They are adoptive and more flexible.
3. Fabian Entrepreneurs:
They are exemplified by great caution and skepticism in experimenting any change in the organization. They imitate only in situations where it becomes necessary to do so. They imitate only in situations where it becomes necessary to do so. They are exhibited by precaution and skepticism in practicing any change they have neither the 'will' to introduce new changes not any desire to adopt new methods, innovated by the most enterprising entrepreneurs.
Dealings are determined by customs, religion, tradition and past practices.
They are not much interested in taking risks or changes and they try to follow 'the beaten tack' created by the footsteps of their predecessors.
4. Drone Entrepreneurs:
They suffer losses, as they refuse to make any modifications in the existing production methods.
They are exhibited by refusal to adopt and use opportunities to make changes in production.
They are willing to suffer losses but they do not make changes in the production methods adopted by them.
Also called as 'laggards' because they continue in their traditional ways and in fields; their product loses its marketability soon.
5. Solo Entrepreneurs:
They basically work alone and if required may recruit few people.
6. Active partners:
They set up an enterprise as a joint venture and they actively take part in the activities of the organization.
7. Simply partners:
They contribute funds, but are not involved in the operations of the enterprise.
They are involved in the research and development and innovative activities.
These entrepreneurs in order to reduce risk buy an already established and ongoing enterprise.
10. Life timers:
They take business as primary part of their life. Family enterprise falls into this group of entrepreneurs.
Entrepreneurs according to the type of business:
1. Business Entrepreneur: They are the individuals who conceive an idea for a new product or service and then create a business to materialize their idea into reality. They tap both production and marketing resources in their search to develop a new business opportunity.
2. Trading Entrepreneur: They are the one who undertakes trading activities and is not concerned with the manufacturing work. He identifies potential markets, simulates demand for his product line and creates a desire and interest among buyers to go in for his product. He is engaged in both domestic and overseas trade.
3. Industrial Entrepreneur: It is essentially a manufacturer who identifies the potential needs of customers and tailors a product or service to meet the marketing needs. He is a product-oriented man who starts in an industrial unit because of the possibility of making some new product. The entrepreneur has the ability to convert economic resources and technology into a considerably profitable venture. E.g., Electronic industry, textile units, machine tools and the like.
4. Corporate Entrepreneur: It is a person who demonstrates his innovative skill in organizing and managing corporate undertaking. A corporate undertaking is a form of business organization which is registered under some statute or Act which gives it a separate legal entity.
5. Agricultural Entrepreneur: They are those who undertake agricultural activities as raising and marketing of crops, fertilizers and other inputs of agriculture. They are motivated to raise agricultural through mechanization, irrigation and application of technologies for dry and agriculture products.
Entrepreneurs in Technology: (Refer the Book)
- Technical Entrepreneur
- Non - technical entrepreneur
- Professional Entrepreneur
Entrepreneurs and motivation: (Refer the Book)
- Pure entrepreneur
- Induced entrepreneur
- Motivated entrepreneur
- Spontaneous entrepreneur
Growth and Entrepreneurs: (Refer the Book)
- Growth entrepreneur
- Super - growth entrepreneur
Entrepreneur and stages of development: (Refer the Book)
- First - generation entrepreneur
- Modern Entrepreneur
- Classical entrepreneur
The characteristics possessed by an entrepreneur which result in superior performance are called Entrepreneurial competencies or traits. Knowledge, skill and motive are the components of competencies. These competencies can be developed and sharpened. These can be injected in human beings through education and training. Practice helps develop competencies. Thus it is rightly said that Entrepreneurs are made and not born. Some of the major entrepreneurial competencies are :
a) The individual's capacity for the pursuit of effective personal entrepreneurial behavior
b) The way that they design the organization to maximize the potential for effective entrepreneurial behaviour by all staff
c) The way that they design the organization to enable it respond to, and indeed shape, the dynamics of the task structure and interdependencies confronting it
d) The way that the entrepreneur shapes the capacity of the business to develop and innovate over time.
e) The degree to which the above are pursued in a socially responsible way thus laying the ground for wider acceptance of entrepreneurial 'ways of doing things' in business and society.
f) Initiative: acting out of choice rather than compulsion, taking the lead rather than waiting for others to start.
g) Sees and acts on opportunities. A mindset where one is trained to look for business opportunities from everyday experiences.
h) Persistence A 'never say die' attitude, not giving up easily, striving information seeking continuously until success is achieved.
i) Knowing: Knowing who knows, consulting experts, reading relevant material and an overall openness to ideas and information.
j) Concern for High Quality of Work
k) Commitment to work Contract: Taking personal pains to complete a task as scheduled.
l) Efficiency Orientation: concern for conservation of time, money and effort.
m) Systematic Planning
n) Problem solving
o) Self - confidence
r) Use of Influence Strategies
t) Concern for Employee welfare
Entrepreneurial Development is a key to achieve overall economic development through higher level of industrial activity. Many studies have shown that entrepreneurs are made. Entrepreneurial development is a process in which persons are injected with motivational drives of achievement and in sight to tackle uncertain and risky situations especially in business undertakings. The process of entrepreneurial development focuses on training, education, reorientation and creation of conducive and healthy environment for the growth of enterprises. Entrepreneurial competence makes all the different to the rate of economic growth - this call for the entrepreneur's potential inputs to boost the economic development of a country
Functions of Entrepreneur
- Idea generation and scanning of the best suitable idea
- Determination of the business objectives
- Product analysis and market research
- Determination of form of ownership/organization
- Completion of promotional formalities
- Raising necessary funds
- Procuring machine and material
- Recruitment of men
- Undertaking the business operations
Arthur H. Cole has given the following functions of Entrepreneur:
- Determination of objectives and change of those objectives as conditions required or made advantageous
- Development of the organization, including efficient relations with subordinates and all employees
- Securing adequate finance resources and maintaining good relations with the existing and potential investors
- Requisition of efficient technological equipment
- Development of a market for the products
- Maintenance of good relations with the public authorities and society at large
Major functions of Entrepreneur
- Innovation - Doing new things or the doing of things that are already being done in a new way. It includes new processes of production, introduction of new products, relation of new markets, discovery of a new and better form of industrial organization
- Risk - bearing - Making provisions for capital in order to enable the entrepreneur to reduce uncertainty in his plan of investment and expansion of the enterprise
- Organization and management of business so as to have leadership and control over it.
MODULE - 2
(Entrepreneurial Process, Entrepreneurial Environment, Institutional Support for small business in Oman)
The process of entrepreneurship involves both analytical and creative activities. According to Pierce and Dunham, the entrepreneurial process takes place in four sequential steps:
Step 1: Solo Phase
During this step, the typical entrepreneur works alone. The first task for the entrepreneur is to clearly identify the entrepreneurial idea. Then, the idea is developed and subjected to three feasibility tests.
- Will the idea provide clearly identifiable benefits for customer or clients?
- Is the idea compatible with the organization's resources and overall strategy?
- Are the idea and its potential implementation compatible with the entrepreneur's personal character and skills?
Step 2: Network Phase
During this step the entrepreneur shares the idea with o0ther organizational members, seeking feedback and suggestions for improvement of the idea.
Step 3: Bootlegging Phase
During this step, the entrepreneur begins to form a project team and some levels of product prototype development outside the normal operational mode of the company.
Step 4: Formal Team Phase
During this step, the idea becomes a formal organizational venture with formal organizational support.
It refers to the various facets within which big, medium, and small enterprises and others have to operate.
Entrepreneurial environment is broadly classified into six important segments, namely:
1) Political environment
2) Economic environment
3) Social environment
4) Technological environment
5) Legal environment
6) Cultural environment.
1) Political environment: It affects the entrepreneurial growth and accelerates the process of economic activity. Law and order is of high priority, followed by Government policies in regard to the promotion of entrepreneurship, followed by incentives, encouragement and right institutional structure will go a long way in fostering entrepreneurship.
2) Economic environment: It encompasses a wide spectrum of items, namely, land, availability of raw material, skilled labour, infrastructure, machinery, capital and so on.
Shortage of raw materials, inferior quality, high price resulting in high cost of production are bringing had name to the small industry. Without raw materials, no industry can run and no entrepreneurship would come up. The benefits of an improved and healthy market conditions in the environment of entrepreneurial growth are self-explanatory.
3. Social environment: It strongly affects the entrepreneurial behaviour which contributes to entrepreneurial growth. The social factors can be family background, kith and kin (relatives, friends and teachers), religion, social status, social mobility and social marginality.
4. Technological environment: It represents the application of scientific knowledge for practical purposes. The technological advancement has become a catalytic agent in the promotion of entrepreneurship growth of industrial and allied services and agriculture. Further, it brings cultural changes as well as the quality of life. The Knowledge Revolution has made it possible to routine processes - a shift from the traditional manual control of conventional machinery for using the computer brain to operate the machinery. Computer software is an alternate way to reorganize traditional work processes, through application of overseeing knowledge aided by systematic, logical analysis.
5. Legal environment: Registration, licensing, pollution, location, acquisition, payment of wages and labour related laws, pollution and environmental rules, laws relating to organization, product, patent, resource and taxes. According to a recent study, there are over 150 legal requirements an entrepreneur has to take care off.
6. Cultural environment: Every organization has an invisible quality, certain style, and character, a way of doing things that may be more powerful than the dictates of any one person or a formal system. This invisible quality 'the corporate culture' decides how effective the organization is in the marketplace.
Max Weber emphasizes that cultural factors have a crippling effect on entrepreneurial growth. Culture consists of (i) tangible man - made objects like furniture, buildings etc. (ii) intangible concepts like laws, morals, knowledge etc. (iii) values and behavior acceptable within the society.
Institutional support for small businesses in Oman:
One of the incentives is the annual award of the Sultan's Cup for Industry. In 1999, the five winners were the Oman Cement Company, Raysut Cement Company, Oman Flour Mills Company, in the top category, with Jotun Paints and Oman Filters Industry taking best factories awards in the second category. Certificates of Merit were awarded to Oman Cables Industry Company, Amiantit Oman and National Detergent Company from the first category, and Sadolin Paints and Al-Hassan Switchgear Factory from the second category.
In 1998, the criteria for awarding His Majesty, the Sultan's Cup were changed to take account of a company's Omanisation plan. Companies should not fall below the 35% target set for the industrial sector. Companies in the first category are those with over RO3 million invested. The Ministry evaluated 27 factories, taking into account a number of other criteria such as added value, the use of local raw material, percentage of exports, quality etc, as well as considering safety standards and environmental protection.
Public /establishment for Industrial Estate (PEIE):
In 1993 the Public Establishment for Industrial Estates (PEIE) was created by Royal Decree giving a significant boost to industry by developing additional industrial estates and encouraging the private sector to participate in the industrialization of Oman. There are five industrial estates at present - namely Rusayl, Sohar, Raysut, Nizwa and al-Buraimi, Sur. but more are being planned all over the country in towns like Khasab and Qalhat. PEIE has commissioned a consultant to prepare a feasibility study for these three new industrial estates. In April 2000, the Ministry announced that a study had been carried out to privatize the industrial estates, transforming them into public companies, but for the time being, the Government will continue to develop them and has allocated around RO200 million for the purpose.
Rusayl was the first industrial estate in Oman, established in 1983, and becoming operational in 1985. It is situated about 45 kms from the Capital Area and the port of Mina Sultan Qaboos. It is close to Seeb Airport and easily accessible from the main road network. Amongst the many other services provided, an important feature is the nearby housing complex for over 1000 workers, complete with shops, supermarket, cinema, mosque, leisure centre and football pitch. Separate accommodation was recently constructed within the estate for female workers.
There are 107 industries in operation on the Rusayl Estate and five more under construction, with over 40 projects being evaluated. The factories in operation are producing chemicals, electrical and building materials, paints, textiles and garments, computer stationery, aluminum products, car batteries, steel assemblies and poly products, amongst others.
Sohar Industrial Estate is situated 220 kms from Muscat and 180 kms from Dubai, linked to both by an international highway. Thanks to its strategic location it is attractive to potential investors.
Apart from the major projects now being implemented there are 28 industries in production, 18 under construction and 44 projects coming up in the near future. Industries on the Sohar estate produce a wide range of products, such as foodstuffs, detergents, leather goods, furniture, toothpaste, ice cream, resins, glass, steel bars and engine oil. Potential products may include jewellery, roof cladding, baby food, sweets, sports shoes and polythene bags.
Inaugurated in 1992, the Raysut industrial estate is situated in Dhofar, 15 kms from Salalah, close to the sea and the new container port. The border with Yemen is only 200 kms away and will be approached by a new tarmac road across from Thumrait to al-Mazyounah, which is under construction. Port Salalah is ideally situated on the sea lanes connecting Europe, East Africa, Yemen and the Far East. A free zone has been established at al-Mazyounah which will make Raysut even more attractive as an entrepot destination.
The industrial estate has been divided into zones so that any chemical pollution is kept well away from cleaner industries. There are five factories in operation, manufacturing school stationery, box files, ice, fish processing, frozen chickens, PVC pipes and steel fabrication.
Nizwa Industrial Estate was inaugurated in 1994. It is situated 180 kms from Muscat and only 15 kms from Nizwa itself. Being the latest estate to be established, there are five pre-fabricated buildings for ceramic tiles, paper products and foodstuffs manufacture. Nine applications have been made for a plot on the Estate and these are currently being evaluated. The Estate is to be enlarged over the next Five-Year Plan. Future projects may include leather goods, novelties, military badges, pharmaceuticals, surgical gloves, chemicals and disinfectants.
During the 29th National Celebrations, the al-Buraimi Industrial Estate was officially opened. The Estate is 325 kms from Muscat but conveniently situated for the Gulf markets. There are three factories in operation.
In addition to the Oman LNG project, a fertilizer plant is to be built at Qalhat near Sur with a capacity to produce 1.65 million tonnes of urea and 250,000 tonnes of excess ammonia per annum from natural gas for export. The preliminary work on the project arrangements has been completed and the major activity is to secure the finance needed through lenders and export credit agencies to supplement the equity capital of the partners in the project. Around RO375 million will be invested in the project. It is estimated that one trillion cubic feet of gas will be required for the project over a 20 year period. The plant will employ some 450 staff of whom about half will be Omanis during the initial operating period.
Al Mazunah Free Zone commenced operations in November 1999 and is located in Oman's southern region of Dhofar, close to the Yemen border. The Free Zone is located 260 kilometers from Salalah, 245 kilometers from Al Gaydah and 500 kilometers from Sayun, the two closest Yemeni cities. Given the nature of the Free Zone it lays outside the lit of Oman's tax boundaries, and as such, businesses are able to enter Al Mazunah without visa or completing border procedures between Oman and Yemen. Indeed, Al Mazunah offers excellent opportunities to those wishing to trade goods through Oman into Yemen, or locate warehouse facilities. The Free Zone occupies 450 hectares which is divided into 100 plots ranging in size from 2,000 to 16,000 square meters. To date, 21 businesses and an exhibition area are in operation on the Free Zone.
With the kind directions of H.M. Sultan Qaboos Bin Said, for the great importance of enhancing the role of Omani manpower in the development of the country and for the purpose of creating business opportunities for Omanis who are able to take interest in work, Sanad programme is established to work under the supervision of the Ministry of Manpower and execute the following duties:
Objectives OF SANAD:
- Contributing to the employment of the national labor force.
- Encouraging and supporting individual initiatives and self-employment programmes.
- Contributing to qualifying individuals and preparing them to actively contribute to the labor market.
- Developing individual projects and drafting required programmes and plans to spread them.
- Establish incubators to provide in individuals who wish to establish small projects with required care and support
Board of Directors:
The Inspector General of Police and Custom
Minister of Social Development
Minister of Housing, Electricity & Water
Minister of Manpower
Minister of Regional Municipalities, Environment & Water Resources
Undersecretary of the Ministry of National Economy for Economic Affairs
Undersecretary of the Ministry of Commerce & industry for Commerce & Industry
Secretary General of the Tenders Board
The Board of Directors duties are:
- Preparing annual plans for creating suitable jobs opportunities.
- Creating channels of direct communications between the parties concerned with qualification, training, financing and employing.
- Suggesting ways to develop the legal and administrative rules of self - employment.
- Evaluating the annual programmes of Sanad and deciding the requirements of developing and updating.
- Preparing the constitution and executive rules of the programme.
General Objectives of the Fund:
- Supporting the work-seekers (vocational and craftsmen) by establishing individual and family self employment projects and by sharing in finding job opportunities for the manpower of different educational and vocational levels through developing the will towards work for those who are interested in investment as business owners.
- Participating in spreading the individual initiatives and enhancing the efforts of self independence as a condition to achieve the everlasting development.
- Supporting the developmental efforts by establishing productive and serviceable small projects as a main source of the national income.
- Enlarging the base of private sector and businessmen.
- Developing the small projects sector and suggesting the policies and mechanisms for realizing them.
- Participating effectively in the Omanisation plan in the private sector.
- Mobilizing the efforts for deepening the idea of free business and enhancing the initiatives for work and production in the minds of youth and Omani society.
- Work seekers (male and female) including the fresh graduates who are interested in starting small projects managed by them.
- Craftsmen who are interested in starting new productive or serviceable work for themselves.
- Craftsmen and vocational who are practicing their work and interested in expanding it.
Projects qualified to obtain small Loans:
The targeted categories have more ability to decide the suitable projects. But there are some successful sectors if provided with technical and financial support such as:
1. Grocery shops (sale of food stuffs)
2. Vegetables and fruit shops
3. Sale and supply of electrical items
4. Sale of watches, masterpieces and gifts
5. Sale of ready-made garments
6. Sale of natural flowers
7. Delivery vehicles
9. Internet café
10. Photography shops
11. Sale of fish
12. Butchery shops
13. Poultry shops
14. Home appliances maintenance
15. Sale and repair of tyres
16. Electrical installation, sale and supply of electrical items
17. Repair and maintenance of home cooling appliances
18. Painting of buildings
19. House furniture upholstery
20. Carpentry shops
21. Iron smith shop (metal doors and windows)
22. Gold smith shops
Basic conditions of the projects qualified for financing:
Approval of the project is given if all or some of the following conditions are fulfilled:
1. The project should provide a new job opportunity.
2. The project should have suitable technical and economical benefits.
3. Local raw materials to be used in the project.
4. Products of the project should be of good quality and easy to market.
5. The modern technology to be used in the project.
6. The ability to continue and expand in the future.
7. The project should comply with the conditions and requirements of the environment preservation.
8. The project should satisfy the need for quality products at competitive prices.
9. Omanis working in the project should be 100 percent.
1. Age between 18 - 40 (Omani male or female)
2. Able to read and write well.
3. Not working at present.
4. Should be fully free for the project with an acknowledgement to be presented.
5. For the loans of sewing and designing clothes, a training certificate to be obtained.
6. Financing projects will be according to the fund rules.
7. Should have a personal guarantor (father, brother, sister….)
8. Should have a place for establishing the project (owned or rented).
9. Should have good reputation and behaviour.
10. Should have a real interest for establishing the project with ambition and insistence.
11. Should present two quotations for the prices of the machines and equipments of the project.
12. Copies of the identity card or passport to be presented.
13. Should present a feasibility study of the project showing the cash flow during the period of the loan.
14. Should present an acknowledgement to employ Omani manpower only.
15. Assets of the project will be mortgaged.
16. The commercial registration of the project will be mortgaged or present post dated cheques.
17. Should sign abandonment to the fund regarding the project assets financed by the Fund. In case the borrower does not adhere to the conditions of the loan agreement, the Fund has the right to own these assets without referring to the borrower or any other judicial authority.
18. Should insure them against theft or fire.
Loan amount and procedures of financing:
1. The maximum amount of the loan is RO 5,000 per person. More than one person can participate in one project.
2. The loan will be given if it is approved as per the feasibility study and cash flow presented by the owner and approved by the Fund.
3. Oman Development Bank will give the loan amount after approval and recover it as per the Fund regulations.
Way of settlement
- Period of the loan settlement is seven years including one year as a grace period starting from the date of granting the loan. Settlement will be as monthly or quarterly or half yearly installments depending on the cash flow expected in the project study.
- Interest will be 2% per annum to cover the administrative cost of the loan. But it is not subjected to the grace periods mentioned in article (4). During the grace period, it will be settled as quarterly installments. After this period, it will be settled along with the loan installments.
- The borrower must present the guarantees required to cover the loan. These guarantees are all/some of the following:
a) Mortgage the project assets.
b) Mortgage the commercial registration of the project or by presenting post dated cheques for the installments.
c) Signing abandonment to the Fund regarding the project assets financed by the Fund. In case the borrower fails to adhere to the loan agreement, the Fund has the right to own these assets without referring to the borrower or any other judicial authority.
d) The Fund will insure the project assets against theft and fire provided the insurance installments are deducted from the loan amount.
e) The borrower has no right to use the loan amount for other purposes except for the purpose mentioned in the agreement.
Mechanisms of technical support and follow up of the small projects.
Sanad office in the governorates and regions will provide the technical and administrative support to the beneficiaries. They will be responsible for the following:
- Providing advice and consultancy services to the owners of the small projects regarding the activities to be practiced. This assistance will be provided through studies of the investment opportunities available in the new projects in the different regions of the Sultanate.
- Field follow-up for the stages of executing the small projects and evaluating them after execution.
- Organizing short courses for training the owners regarding management, accounts, cost and marketing with the cooperation of the concerned parties in the public and private sectors.
- Follow-up of the projects in order to be assured of quality whether they are goods or services.
- Solving the problems and difficulties which may face these projects.
- Discussing the best ways for marketing the products and suggesting the possibilities available inside or outside the Sultanate such as seminars and conferences coordinating with the Ministry of Commerce & Industry and Oman Chamber of Commerce & Industry.
- Supervising the field studies to decide the best projects which could be established in the different regions.
- Periodical evaluation (social and economical) of the small projects and their effects on the targeted categories and the national economy in general.
Oman Chamber of Commerce and Industry (OCCI):
Established in 1973 by virtue of a Royal Decree as a public utility organization, Oman Chamber of Commerce and Industry (OCCI) is the apex body of Oman's private sector, which represents it at local and international levels and acts as a catalyst in activating Oman's national economy. OCCI also plays a significant role in implementing the country's development plans aimed at diversifying the national income sources.
Several services and consultations are provided by OCCI to its members as well as the local and foreign businessmen in economic, commercial, legal and information areas. OCCI conducts trade missions to foreign countries and receives business delegation from its counterparts from overseas, with a view to expanding bilateral trade and exchange of expertise, investment and technical know-how. It also participates in international and local trade fairs, economic seminars and conference in different parts of the world.
As at the end of 1996, OCCI has a total of over 76,000 registered members, representing various types and sizes of business establishments.
The Oman Chamber of Commerce and Industry (OCCI) represents the interests of the private sector, which along with the Omani public, is an active partner in shaping the course of the country's development and promoting progress and prosperity. The OCCI is based in Muscat and has eight other branches around the country. Currently it is taking steps to expand its operations and offer businessmen a wider range of services, including an up-to date database containing full details of its member companies and establishments; it publishes information about investment opportunities in Oman. It also promotes economic and trade relations and supports joint businessmen's councils with Arab and foreign countries.
The training and employment of the nation's manpower has always been a priority of the OCCI's plans and programmes. The Chamber took part in the third seminar on the employment of national manpower in the wilayats and it held programmes and training courses for Omani nationals, to encourage Omanisation in the private sector. Moreover, Sanad projects have been exempted from OCCI registration and membership fees to encourage budding entrepreneurs to become fully-fledged members of the Omani business community. The OCCI helped draw up the Seventh Five-Year Development Plan (2006-2010).
The Chamber is represented on several government committees and when Omani delegations visit foreign countries they frequently include OCCI representatives among their members. The OCCI is a member of over 200 Arab and European joint unions and chambers and participates in events abroad, including trade fairs and exhibitions. It also hosts events in the Sultanate.
Public Authority for Craft Industries (PACI):
It was established in 2003 as an independent legal entity overseen by the Diwan of Royal court. Its responsibilities encompass even aspect of the craft industry sector with the aim of promoting the survival and growth of Omani's traditional crafts and trades as well as ensuring that they can operate as productive industries capable of attracting a new generation of craftspeople.
The Omani Centre for Investment Promotion and Export Development
The Omani Centre for Investment Promotion and Export Development (OCIPED) is a Government establishment, formed by a Royal Decree No. 59/96 dated 26th June 1996 of the Sultanate of Oman.
The Centre aims at increasing the contribution of the Private Sector to the investments required for the development plans and promoting the export of Omani products to foreign countries to improve the balance of trade of the Sultanate.
World Trade Centre:
Oman's World Trade Centre (WTC), a member of the New York based WTC Association, is planning to set up an international commerce centre which will place Muscat on the map as one of the key global cities for trade and industry. WTC Muscat provides its members with immediate access to international trading and commercial information, together with an integrated package of services to incoming trade missions. It offers free advertising for products of member companies and circulates to all WTC's around the world. WTC Muscat has excellent exposure to global markets, strong financial management, trade and infrastructure. The centre has a huge database on Omani companies and local companies' activities can be made available on request to members. Requests are usually met within a few hours.
Intilaaqah” is a non-profit programme that is modeled on a Shell founded initiative called ‘Livewire', which is running now in 25 countries. The purpose of Intilaaqah is to stimulate and encourage unemployed young Omanis to consider the option of starting their own business. Shell then provides assistance to those who wish to take up this scheme. The programme started in Oman on the occasion of the Sultanate's 25th National Day in November 1995 and since then, nearly 4,000 young Omanis have benefited.
The objectives of our programme include providing young and unemployed Omanis with the tools to develop their business ideas by offering personal counseling and referral to training in preparation for starting a business; assisting the government's aim of diversifying the economy away from oil and gas; helping alleviate the growing unemployment amongst young Omanis; and demonstrating Shell's commitment to the sustainable development of the sultanate.
Several government and private sector organizations are now partners in the programme and sponsor a number of its activities. The partners of the programme are Bank Muscat, National Bank of Oman, Oman International Bank, Oman Air, SANAD Programme, Sultan Qaboos University and Knowledge Oasis Muscat (KOM).
Sharakah provides equity investment to address the need of Omani Entrepreneurs for seed capital for Startups and Expansion. It also provides support by way of loan and discounting. Sharakah's focus is on Small & Medium Enterprises that have high growth potential and contribute overall to the economy.
- Total projects costs not exceeding R.O 1 Million
- Projects where Sharakah can take a minimum equity stake of 25% and maximum stake of 49%
- Loan up to 80% for expansion and 67% for new
- Projects backed by capable and committed Omani entrepreneurs
- Projects that produce products and services that have a competitive advantage and have potential for significant sales growth
- Projects that will generate employment for Omanis
- Projects that provide a clear Exit Strategy for the Fund within 6 years of Investment.
Role of Entrepreneurship in Economic Development:
Economic Development means a process of upward change where by the real per capita income of a country increases over a long period of time. Entrepreneurship is significant in economic development.
The economic history of the presently developed countries like America, Russia and Japan support the fact that the economy is an effect for which entrepreneurship is the cause. People have become aware that for achieving the goal of economic development it is necessary to increase entrepreneurship both qualitatively and quantitatively. An ability to perceive opportunity, search for a change and then bring together manpower, material and capital required to respond to the opportunity that he sees. Entrepreneur and entrepreneurship are catalysts in the process of economic development in a country such as:
- Entrepreneurship promotes capital formation by mobilizing the idle saving of the public.
- It provides immediate large scale employment. Thus it helps the unemployment problems in the country which is the root of all socio economic problems.
- It promotes balanced regional development.
- It helps to reduce the concentration of economic power.
- It encourages effective resource mobilization of capital and skill.
- It promotes country's export trade i.e. an important ingredient to economic development.
- It stimulates equitable redistribution of wealth, income and even political power in the interest of the country.
Thus entrepreneur and entrepreneurship serves as catalyst of economic development. An economy is the effect for which entrepreneurship is the cause.
OVERVIEW OF PROJECT MANAGEMENT
Identification of Business idea, Project formulation, Project Report, Project Appraisal
I. Identification of Business idea (Project Identification):
Project Identification is concerned with collection, compilation and analysis of economic data for the eventual purpose of locating possible opportunities for investment and with the development of such opportunities.
Opportunities according to Drucker are of three kinds: 1. Additive, 2. Complementary and 3. Breakthrough.
Additive opportunities are those opportunities which enable the decision maker to better utilize the existing resources without in any way involving a change in the character of business.
Complementary opportunities involve the introduction of new ideas and as such do lead to a certain amount of change in the existing structure.
Breakthrough opportunities involve fundamental changes in both the structure and character of business.
Criteria for selecting a particular project:
After gathering a large number of project profiles, the entrepreneur should consider the following criteria for selecting a particular project:
Investment size: Professional managers in Multinational companies should plan to start medium sized or large sized units only. It is easier to get projects cleared which require lesser promoter's contribution.
Location: A new entrepreneur should locate his project to the extent possible in and around the city to attract competent managers.
Technology: The first project should not be for a product which requires a very high technology and foreign technical collaboration. It is easier to begin with a product with a proven technology that is readily available.
Equipment: The entrepreneur should not compromise on the quality of the equipment and should select as per advice of experience technical consultants.
Marketing: The entrepreneur should go for products with a limited number of customers and should not get into projects which would mean survival amidst cut throat competition.
: Importance of Project identification
- They become the catalytic agents of economic development.
- They initiate the process of development in terms of employment and income generation.
- They provide framework of the future pattern of activities and services of the enterprises.
- They initiate development of basic infrastructure and environment.
- They bring necessary changes in society in course of time.
- They have beneficial consequences which are long term in nature.
Project Feasibility Analysis includes Market analysis, Technical analysis, financial analysis and socio profitability analysis. Its goal is to identify the existing strengths and weakness of the project.
It can thus be said that project identification is an important dimension of entrepreneurship. Also more important is its classification which goes towards the emergence of 3 dimensions-inputs, outputs and social costs and benefits and finally economic development of the country.
II. Project formulation:
Project formulation is defined as taking a first a look carefully and critically at a project idea by an entrepreneur to build up an all round beneficial to project after carefully weighing its various components.
It is prepared by the entrepreneur with the assistance of specialists or consultants. It is a process whereby the entrepreneur makes an objective and independent assessment of the various aspects of investment proposition of a project idea for determining its total impact and also its liability.
Sequential stages of Project Formulation: The process of Project formulation has been categorized into 7 distinct and sequential stages. They are:
- Feasibility analysis
- Techno economic analysis
- Project design and network analysis
- Input analysis
- Financial Analysis
- Social Cost Benefit Analysis
- Pre-investment Analysis
1. Feasibility analysis:
This is the very first stage in project formulation. At this stage, the project idea is examined from the point of view whether to go in for a detailed investment or not.
2. Techno economic analysis:
In this stage estimation of project demand potential and choice of optimal technology is made. The choice of technology itself will be based on the demand potential and aid in project design.
3. Project design and network analysis:
In this stage individual activities which constitute the project and their inter relationship with each other is analyzed. The sequence of events of the project is presented. A detailed work plan of the project is prepared with time allocation for each activity and presented in a network drawing.
4. Input analysis:
In this stage the input requirements for each activity of the project is assessed. Inputs include materials, human resources etc. It evaluates the feasibility of the project on the basis of availability of resources and also helps in assessing the project cost.
5. Financial Analysis:
This stage mainly involves estimating the project costs and fund requirements. Some of the analytical tools used in financial analysis are discounted cash flow, ratio analysis, cost volume profit relationship etc.
6. Social Cost Benefit Analysis:
The overall worth of the project is the main consideration here. While financial analysis will justify a project from profitability point of view, cost benefit analysis will consider the project from the national viability point of view.
7. Pre-investment Analysis :
All the results obtained in the above steps are consolidated to present a clear picture and to arrive at a conclusion. The project is presented in such a way that the consultancy agency, the project implementing body, the project sponsoring bodies are able to decide whether to accept the proposal or not. Project formulation involves a detailed study of the environment, weighing objectively the internal and external constraints and development. Project formulation is a key input of management aid.
III. Project Report:
A project report incorporating relevant data in respect of a project serves as a guide to management and records merits and demerits in allocating resources to production of specific goods or services. A project report is prepared for analyzing the extent of opportunities in the contemplated project.
It is prepared by an expert after a detailed analysis and study of the various aspects of the project. It gives a complete analysis of input and output of the project. It enables to understand at the initial stage whether the project is sound on technical, commercial, financial and economic parameters.
Financial institutions and commercial bankers are the interested parties in the project report which is prepared for direct submission to financial institutions and banks for getting loans.
Project report includes information on the following aspects:
- Economic Aspect: The project report should be able to present economic justification for investment. It should present analysis of the market for the product to be manufactured. How big in the present market? How much is it likely to grow? How much of the future market can the product capture?
- Technical Aspect: The report should give details about the technology needed, equipments and machinery required and the source of availability.
- Financial aspects: The report should indicate the total investment required including sources of finance and entrepreneur's contribution. It should present a comparison of cost of capital with the return on capital.
- Production aspects: It should contain a description of the product selected for manufacture and the reasons for selection, whether the product is export worthy. It should also give the design of the product.
- Managerial Aspects: The report should contain qualification and experience of the persons to be put on the management of the job. If the entrepreneur himself will look after management the report must emphasis as to how he is qualified to manage the venture.
Significance of a project report:
- Project report enables an entrepreneur to know his goals and that he is proceeding in the right direction.
- A good project report attracts lenders and investors. It is on this basis that financial institution make appraisal if enterprise requires financial assistance or not.
- Other institution which provide other assistance like work shed, raw materials, seed etc are interested in knowing the economic soundness' of the project.
- It highlights the practicability of the project in terms of different factors like economy, finance, technology and social desirability.
- It is need for carrying out expansion or starting a new production line.
- It helps in determining the profitability of the project and minimizing risks in the execution of the project.
The project report must contain the various detailed information which ultimately helps in decision making process of whether or not to encourage the project conceived. The financial institution insists upon such a project report in order to be sure about the feasibility of the project.
IV. Project Appraisal:
Project appraisal is an exercise whereby the lending financial institution makes an independent and objective assessment of various aspects of an investment proposition to arrive at the financing decision.
It is aimed at determining the viability of a project and sometimes also in reshaping the project so as to upgrade its viability.
Project appraisal helps is selecting the best project.
It enables the entrepreneur to allocate scarce resources to the best project.
It helps in determining the market potential of a project and selecting an optimal strategy.
Steps/Stages in Project Appraisal:
The project appraisal is a scientific tool. The main 6 stages of the system of project appraisal are: Economic, Organizational, Managerial, Technical, Financial and Operational aspect.
Economic aspect: The economic or social analysis looks at the project from the view point of the whole economy. The economic benefits brought about by successful project would include increased output of goods or services either directly or indirectly. This increased production will generate different forms of additional income such as increased wages, large government revenue, higher earning on capital, higher standard of living, increased national income, improved income distribution etc.
Organizational aspect: During appraisal 2 essential aspect of project, efficient organisation and responsible management are examined.
The bank recommends short term remedial steps to entrepreneur are suggested if required in recruitment, training and the structure of the organization. The objective of this aspect is to ensure that the project is adequately carried out and that organization is capable of contributing effectively to the development of the project.
If the management is incompetent even a good project will fail. It is therefore essential that financial institution very carefully appraise the managerial aspects before sanctioning assistance for project. The companies act, the industries development act empower government to exercise power to control over the management including the take over of management of industrial undertakings. Another example is conversion of loan to equity, level of shareholding etc.
Technical appraisal for a project broadly involves a critical study of the Location and site, availability of inputs like water, power, transport, communication facilities, coping with anti pollution laws, availability of raw materials as per quantity and quality, availability of work force as per required skill, arrangements of training in plant and outside, selection of manufacturing process and technology, arrangements of technical collaboration, etc.
Finance is one of the most important pre requisites to establish an enterprise. In order to adjudge the financial viability of the project the following aspects need to be analyzed:
- Assessment of the financial requirements both fixed and working capital need to be properly made. The requirement of fixed assets/capital may vary from enterprise to enterprise depending on the type and scale of operation.
- Working capital is that amount of funds which is needed in day to day business operations. The requirement of working capital should be clearly provided for.
- Break Even analysis indicates the level of production at which there is no profit or loss in the enterprise. This is needed to determine the optimum level of production.
The size of operation or operational aspect is an important aspect in project appraisal. Technological plant capacities, diseconomies of scale, availability of finance, rapid obsolescence of technology, demand constraints are all factors determining the operational aspect or size of plant. In many industries there are certain technological plant capacities which are economical. If the size is sub-optimal, there will be diseconomies of scale. Diseconomies of scale result in high cost and make survival in a competitive market very difficult. This aspect of appraisal assists in deciding the optimum scale of operation. Rapid obsolescence of technology is another factor that may discourage the establishment of large scale facilities. Scale of operation also depends on availability of finance.
MODULE - 4
FINANCING OF ENTERPRISE
Cite This Dissertation
To export a reference to this article please select a referencing stye below: