The Small Scale Industry Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

A thorough review and survey of related literature forms an important part of research. It deals with the critical examination of various published and unpublished works related to the present study. Knowledge of related research enables the researcher to define the frontiers of his fields; it helps in comparing the efficiency of various procedures and instruments used. Further review of literature avoids unintentional replication of previous studies and also places the researcher in a better position to interpret the significance of his own results. In the early literature on small scale agro-base industries as a source of employment and capital accumulation has been recognized by various researchers. Also some researcher identified problems and opportunities in agro-base industries. Here researcher highlight the review of works by various authors as well as different committee reports related to the small scale agro-base industries.

The Chapter is divided in four sections

3.1 Small Scale industry

3.2 Concepts related to agro-base industries

3.3 Problems and Future of small scale agro- base Industry in India

3.4 Organization structure of industry

3.5 Conclusion of review of literature


To appreciate small scale industries in India, a basic understanding of the definition and scope of the terminology "small enterprise" is very necessary. In India, the small industry is defined in terms of investment ceiling. Also the small industry sector enjoys a special reservation policy in terms of items of manufacture. The investment limit ceiling was revised by the central government from time to time, depending on the industrial and economic development and needs of entrepreneurs.

Initially, there was an additional condition limiting number of persons employed, the same was deleted in 1960. Further, the investment ceiling was linked to plant and machinery only, excluding investment in other fixed assets i.e., land and building. The reason was to define small industry with respect to such investments mainly in productive assets. The investment limit was raised to Rs. 30 million based on the recommendations of the report of the Expert Committee on Small Enterprises, with Dr. Abid Hossain as Chairman. The report, submitted to the Central Government in July 1997, recommended that the definition of small scale industries be broadened to small scale enterprises and allowing incentives, credit facilities, and promotional facilities to flow to all small enterprises. On line with this, it was recommended that the investment limit of small scale enterprise be raised to Rs. 30 million. But later, it was felt that this raise in investment limit up to Rs. 30 million did not truly result in accelerated investments in small enterprises. Large majority of small enterprises still belong to the lower investments up to Rs. 1 million. There was also an apprehension that with the increased investment limit up to Rs. 30 million, some of the medium scale may roll back to small scale thus bringing in unhealthy competition. Therefore, the investment ceiling was, for the first time in 1999, reduced from Rs. 30 million to Rs. 10 million. It was in 1977, the Central Government introduced a new category namely "Tiny Sector Industries" with the small scale industry category, particularly to provide promotional measures and incentives to such of the small industries having much lower investment limits. For the purpose of this study, the tiny sector is also considered as part of small enterprises.

J.M. Keynes (1936) [1] in his General Theory of Employment, Interest and Money given attention on the forces that determine employment policy followed in industrialization. He propounded the theory that entrepreneurs will offer the amount of employment which maximizes their output and profit. Here he stressed the productivity of labour as the determining factor of the level of employment. There is a positive relationship among productivity of labour, output and employment.

Dhar and Lydall (1961) [2] in the Role of Small Enterprises in India's Economic Development made their study on the data collected from Census of Indian Manufactures, 1956 and the study prepared by the Perspective Planning Division of the Planning Commission in respect of capital, labour and output relations in various industries. They concluded that the issue of choice between large and small industries for the purpose of an employment-oriented industrialization strategy is largely irrelevant, and it should aim at making the best use of scarce resources, instead of aiming at creating employment for the sake of employment.

Prasad (1983) [3] in his study found that the small scale industrial sector is an integral part of not only the industrial sector, but also of the country's economic structure as a whole. If small scale industries are properly developed, they can provide a large volume of employment, can raise income and standard of living of the people in lower income group and can bring about more prosperity and balanced economic development. Small scale industrial sector has vast potential in terms of creating employment and output, promotion of export, expansion of base for indigenous entrepreneurship and dispersal of industries and entrepreneurship skills in both rural as well as backward areas.

Chachadi (1988) [4] defined small scale industry in his doctoral research work on 'Decision Making in Small Industry', as it incorporates managerial aspects like ownership and control. The definition of Government of India only refers to ceiling on investment in plant and machinery, which relates to economic aspects, because financial and capital resources of small enterprises are not so abundant, as in developed countries. The definition of Haksever has added significance to the present study, as it does not ignore local area of operation and local owners and employees. In an attempt to formulate qualitative definitions of small firms, a key assumption made, was that small firms were fundamentally different from large firms. In one of the classics of small business theorizing (Penrose, 1959) this assumption was summed up in the analogy that small and large firms were fundamentally different from each other as caterpillars are from butterflies. It was noted that even if one metamorphosis into other, it would not be simply larger version of the other, and in case of small firms, the chance of metamorphosis is also not certain. Many small firms may never grow beyond a small size, as most of the 'caterpillars' may never become butterflies (Blackburn, 2001).

Burrows and Curran (1989) [5] in his Sociological research on service sector small business argue as " Size, whether measured in terms of number of employees, turnover, market share whatever, is not sufficiently robust criterion to allow ' small firms ' to be isolated and analyzed as having an economic and social specificity". These authors continue their arguments that smallness is not technically a necessary characteristic of an organization but a contingent one. Smallness has the same status as other characteristics such as legal form of organization, type of economic activity engaged, the technology employed, region or local economy, the age, gender, ethnicity and educational level of the owners or workers of the firm etc. Small enterprises may employ a few people, and the management levels may be of simple structure. On the other hand, small enterprises having low capital investment, according to the statistical definition, could be involved in complex business. In his opinion, the only possible and defensible ground for categorization of small, medium and large industry in Indian context is by differentiating their management problems. This means that amount of complexity involved in management of enterprises becomes a key parameter for differentiating enterprises as small or large. Parameters such as sales turnover, investment in fixed assets, or number of employees are simply surrogates for complexity. Therefore, the paradox that by definition, the small enterprises management ought to be simpler, but seldom, it is based on the above arguments on defining the small enterprises. It would be unrealistic to demand uniformity of approach in small business research.

Rajendran (1999) [6] made a study to examine the various kinds of assistance given to small scale industries with the prime objective of identifying institutional assistance for the development of small scale industries and the problems faced by these industries in Tiruchirapalli district of Kerala. He concluded that the greatest problem faced by the small entrepreneurs was non availability of adequate financial assistance. Moreover, the small enterprises also face problems relating to the acquisition of raw material, marketing of products and technological and administrative problems. There were complicated procedures in availing loans from financial institutions and there is no coordination between the promotional institutions and government agencies.


Planning Commission of India (1966) [7] , had set for the following criteria for distinguishing the agro-industries. The Industries which satisfy the criteria are those

Encourage greater input into agriculture.

Lead to better processing and conversion of agricultural commodities

Ensure high returns on proceeds goods

Increase agricultural production.

Obliviously planning commission has included under agro- industries not only those industries which are concerned with the processing of agricultural product but also such industries which are involved in the production of farm input and farm implements.

Reserve bank of India(1969), [8] observes the agencies supporting agriculture by way of designing and manufacturing of input generally term as agro-industrial are by nature somewhat different from those supported by agricultural products which are known as Agro-base Industries. According to reserve bank of India industries which mainly depend for their raw materials on Agricultural products including plantations, animals, husbandry products but excluding forest products are brought under agro-base industries. It has further classified agro-base industry into food excluding salts, beverages, tobacco, textiles products leather and leather products and rubber and rubber products industries.

M. Ahmed (1969), [9] have used the term agro-base industries instead of agro industries in the view that it is difficult to give precise definition of agro industries because in the ultimate analyze the whole economy depend on agriculture sector either directly or Indirectly as agriculture is feeder to industries.

A.S. Ramaswamy (1969), [10] in National Counseling of applied economic research had defined agro-industries as those, which use either agriculture raw materials or make things that farmers need for agricultural purposes.

C. C. Pattanshett (1978), [11] classified agro-processing industries on the basis of nature and stage of the processing of agricultural produce into 1) Primary processing industry 2) Secondary processing industries. Primary processing industries are those industries which are engage in the first stage of processing such as sugarcane, gur and khandasari industries, processing of oilseed, ginning and processing of cotton and baling of jut, rice, wheat and dal milling, processing of fruits and vegetables etc. Secondary processing industries are engaged in the further stage of processing or more sophisticate treatment of the product or in the utilization of bi-product viz bakery products, manufacture confectionary, vanaspati, waving and spinning.

U. K. Srivastava (1989) [12] has defined an Agro-processing industry as an enterprise that process bio mass that is agricultural raw materials, which included ground and tree crops as well as live stocks and fisheries, to create edible or usable forms, improve storage and shelf life, create easily transportable forms enhance nutritive value and extra chemicals for other use. The degree of processing of various raw materials, varies tremendously ranging from the cleaning and grading of a apples to the milling of rice, to the cooking, mixing and chemicals alteration that create ready to eat food and textured vegetable food.

According to S. K. Gupta (1993), [13] The concept of agro-industry is confined only to those industries that are engaged in the processing of agricultural produce either for consumption or for the use of industry and those industries which produce input for agriculture such as fertilizers and farm implement.

Ajit Prasad Jain, (1995) [14] has defined Agro- Industry as one which carry out of processing of farm produce and which provides input for the development of agriculture. He hold that development. of agriculture in modern times is marked by the growth of agro-industry which on the one hand provide machine and materials needed for achieving higher agricultural yield and on the other process farm produce into the finish and semi finish goods.

According to Union Development Commissioner, for small scale industries, all enterprises connected with the processing of agriculture produce and farm waste, Industry related to canning and processing of fruits and also those providing cold storage facilities, Industries producing chemicals needed in the processing operation of plant, fibers, forest produce, and some marine based ventures are categories as agro-base industries. Besides manufacturing of farm implements of various types including power, tillers, threshers, poultry equipments, and accessories of dairying and formulations of pesticides have been listed as Agro- industries in this list.

Mitra, S.K. (1998) [15] says that, the flow of credit to the SSI sector is affected because of "a weak financial base, which eventually prompts the entrepreneurs to bring in funds by way of loan rather than capital, improper maintenance of books of account, inability to provide collateral security, delay in payments by the larger units, lack of appreciation of financial data required by banks or financial institutions etc. high mortality rate, high administrative cost of lending to small units and the concessional interest rate does not basically motivate the financial institutions to invest in SSI units.

B. A. Iqbal (1998), [16] define agro-base industries as industry manufacturing input for agriculture or processing agricultural output or those industries which are supported by agricultural products.

Food and Agriculture Organization (FAO) [17] in their report the term agro-processing industries has been used as synonym for agro-industries or agro-base industries or the term agro-industry has been used as a convenient abbreviations' of agro-processing industry. The term agro-processing industries, Agro-industries and Agro-base industries have been used interchangeably by researcher and institutions to include industries engaged in the primary processing of agricultural products and industries engaged in the secondary and tertiary processing of semi processed agricultural products.


W.A. Lewis (1954) [18] has strongly advocated the application of labour intensive techniques of production to have a steady and smooth economic growth. He opined that many important works can be done by human labour with very little capital. Efficient labour could be used to make even capital goods without using any scarce factors. In this sense, small scale industry should be developed and promoted especially in an economy where capital is scarce. He recommends the use of capital intensive techniques only when they are necessary.

According to the Village and Small scale Industries Committee Report (1955) [19] , popularly known as Karve Committee Report, since a substantial number of employed and underemployed belongs to the village and small industries group, setting up of small scale and village industries will provide employment to them in occupations in which they have been traditionally trained and for which they posses equipments. The committee realizes the necessity of

introducing better techniques in the village industry, so that they can keep pace with the progressively expanding economy and do not become unsuitable tomorrow.

Ruddar Datt and Sundaram (1979) [20] strongly advocated the small scale and house hold enterprises as an important component of an employment- oriented strategy of industrialization. They found that employment-output ratio is the lowest in the small scale sector while that employment generation capacity is eight times higher than that of large sectors.

K.M. Rastogi (1980) [21] has made a case study of Madhya Pradesh, which he calls "a unique case of growing unemployment and poverty amidst plenty". He is in favour of only small scale and village industries, which made optimum use of indigenous techniques and local resources. According to him, "there are hundreds of items which can be produced in cottage and small scale industries more economically than in large industrial sector".

Pande (1983) [22] explained few causes that attributed to the slow growth of small scale industries in hill areas. The small scale industrial units in the village area and suburban localities suffer from a considerable degree of technological obsolescence, inadequacy of raw materials, dearth of marketing channels, unawareness of market situation in urban centers, poor credit facilities and the shortage of skilled labour and power supplies.

Dasgupta (1983) [23] has recommended the establishment of small scale and cottage industries in the North-eastern region of the country. He suggested that if labour intensive small scale industries are established, they will provide some alternative economic opportunities to the people in the hill areas of the region as the improved cultivation with multiple cropping is difficult proposition in this area.

B.K. Sharma (1985) [24] suggested that the programme of rural industries would require constant support. The training and marketing infrastructures would therefore, have to be developed suitably for the sustenance and healthy growth of the rural industries programme.

R.K Sing and J Rai study (1989) [25] "Importance of agro-processing industry diversification of agricultural in India" have analyzed the failure of capital oriented and centralize agro-base industry in India in stimulating agricultural development and rising the standard of living of the people of rural population and the enormous loss of centralized urban base agro industry during post harvest period in production areas. For solving this problem the study has emphasize some of the aspects of diversification oriented towards horizontal, vertical and regional interaction of farming and its possible effect on prices, adoption of new technologies and profits for any crop. In order to reduce post harvest loss of agricultural commodities, the study suggest that the processing industries must be established in the production areas of agricultural products within the formaland informal sector which would create the potential for labour absorption and alleviate poverty and unemployment in India.

U. K Shrivastava(1989), [26] in study of "Agro-processing industries: Potential constrains and tasks a head" analyzed the profile and trends in the growth of agro-processing industries and identified constrains of agro-processing industries. It is also observe in the study that substantial portion of net value added from the agro-industry is derived from unregistered an cottage scale units. Further it is observed that bulk of the agro-processing industries are very small and that fixed capital investment per factory is very less as compared to fix capital investment per factory in the non agro-based industries, and working capital employed is more as compared in non-agro industries and capital labour ratio is less in the agro-based industries as compared in non agro-based industries indicating the labour intensive character of the agro-based industries. The study identifies following constrains in adequacy and suitability of raw materials under utilization of the existing capacity, obsolete processing technology and consequent sub optimal yields, energy over utilization, lack of scale economics in production, and increase marketing costs, larger expenditure on market development, high rate of interest on working capital from commercial bank, high tax on processed products.

Sanjay Sinha and Saurabh Sinhas (1992), [27] in study of "Small scale fruit and vegetable processing industries," has traced the growth of the industry, analyze constrains and opportunities, discuss the prospectus for the growth and assess the future of the industry. They have identified the following constrains faced by the industry in the study. They are poor horticultural base, a weak production system, Market limitations, consumer preferences and government policies.

Nayak Committee (1992) [28] set up by the Reserve Bank of India to examine the adequacy of institutional credit to the Small Scale Industrial sector and the related aspects. The Committee found that banks has insufficiently serviced the working capital needs of the sector particularly that of cottage and tiny enterprises. Moreover, there is a need for the setting up of specialized bank branches for small scale industries, the absence of which has led to serious bottlenecks. Further, the system of providing term loan and working capital by two kinds of institutions, viz. Banks and State Financial Corporations (SFCs) has given rise to a host of problems of co-ordination among them.

Vasant P. Gandhi and Gyanendra Mani (1994), [29] in his study of "Agro-processing for development and exports : The importance and pattern of value addition from food processing" attempt to analyze the magnitude, variation and pattern in the value addition in the food processing industries using data from annual survey of industries. The study finds that net value addition from food processing industry on the total value of input is high and grown during the period of study. The extent of value addition as percentage of input differs substantially by the food industry group from over 25% for cashew, coffee and fine sugar to five - six percent in traditional industries like milling, edible oil and vanaspati. The study conclude that information on value addition of agro-processing industries in different sectors will be of immense help in designing investment portfolio for the development of agro-processing industries and for the promotion of agro-industries for domestic marks and exports.

U.K Shrivastava and N. T. Patel (1994), [30] in the study of "Managing food processing industries in India" analyze the structure and the export performance of agro-processing industries in India, illustrate methods for financial and economic analysis, focuses on working capital and raw material management, examining specific problems in the marketing of processed food products, packaging and capacity utilization.

Agarwal (1999) [31] mentioned that the entrepreneurs of small scale industries are generally lacking in knowledge of various aspects as how to set up an industry. Owing to the predominance of agricultural background of the region, the infrastructure for industrial development has not developed properly. Apart from lack of industrial tradition and managerial class, the state is handicapped by difficult terrain and disturbed socio-political conditions are also adversely affecting industrialization in the state.

G.K. Chadha and P.P Sahus (2003), [32] study on "Small Scale Agro-industry in India - low productivity is its Achilles Heel" examines the size and performance of agro-industries in India, analyze the growth productivity in unorganized and organized manufacturing sector in India, and examine the location and scaled advantages and disadvantages among tiny and small enterprises. The study finds that the most festering part of the Achilles hills lies among the lowest rung of the unorganized agro-base units.

R. P. Kacharu (2004), [33] "Agro-Processing Industries in India-Growth, Status and Prospects" provides a summary of the growth history of the sector covering role of R&D, recent trends vis-a-vis crop-wise status of agro processing industrialization and problems, export trends, SWOT analysis and thrust areas for future for achieving greater role of this sector in the national economy. He suggests making National plan for improvement and extension of agro-processing technology at farm, traditional small industry and modern industry levels should be prepared. The plan should take into account the diversity in resources and needs of different regions in the Country. It should include programme details and implementation schedule for the first four or five years. The progress of plan implementation should be periodically reviewed to allow adjustments and corrective measures, and to develop programme details for the years beyond the period under review.

G.C. Kar and S.N. Mishra (2004) [34] has stressed in his book "Agro industries & economic development" that setting industries which make use the produces of agriculture directly or indirectly are considered more desirable in the context of the economic development of the country. Such a development has a two way effect i.e. Agriculture helps agro-related industries to make use of the raw materials directly supplied by this sector and it facilitates the growth of those types of industries which produce several inputs like fertilizer, pesticides and agricultural implements that help to promote the productivity and expansion of agriculture.

Himanshu (2006), [35] study on "Agribusiness management: Problems and prospectus" deals with the problems prospects and other related operational aspects involved in setting up new agro-industrial projects in India. Suggestions and policy recommendations for the growth of agro-industries in India have also been made in this study.

National Bank for Agriculture and Rural Development (NABARD) (2005) [36] in his paper on Status and potentials of village agro-processing units /industries states that rural manufacturing employment has not seen substantial increase in the last two decades. The manufacturing sector occupies an important position in the rural informal non-farm sector, employing 45 per cent of its workforce. Still, as manufacturing sector is relatively more labour-intensive than other non-farm sectors, the value added per worker is lower as compared to the other non-farm sectors.The growth of village level agro-industry in terms of number of units, employment and value added went downhill from 1984-85 to 1989-90 and further to 1994-95. Only in 2000-01, it showed improvement or stability in all characteristics namely number of units, employment and gross value added. In relation to the non-agro industry over the years, the share of agro-industry in terms of number of units show marginal decline, in terms of employment moderate decline and in terms of gross value added substantial decline over 12 per cent in last two decades. Backward production linkage of agro-industry is much stronger than its forward production linkage. But, as compared to all India, the forward production linkages of village level agro-industries are weaker. The whole of agricultural production takes place in rural areas but the village level agro-industry is largely involved in secondary processing. At all India level, however, the agro-industry is mainly involved in primary processing. Therefore, the output of village level agro-industries is more constrained by marketing since a smaller proportion of their output gets used as input in other manufacturing activities. This marketing problem has led to widespread prevalence of business service activities particularly among the smallest size group of own account enterprises which is akin to the putting out system. This phenomenon is leading to a vicious circle of low productivity, low earnings and low level of technology. Marketing infrastructure needs to be urgently provided to them-in the form of rural mandies, marketing cooperatives, larger purchases by governments, strengthening linkage with larger sized enterprises, etc. However, marketing framework will vary across industry groups and size classes.

Pardeep S. Shehrawat (2006), [37] in his study of Agro Processing Industries---A Challenging Entrepreneurship For Rural Development found important areas of training preferred by entrepreneurs were quality management, marketing management, packaging techniques, marketing techniques, technology up gradation, financial management, brand promotion, export promotion technique, advertising the products and personnel management. The study further revealed that 'lack of physical facilities', 'lack of sufficient stock of raw material', 'lack of managerial competence', 'poor attention on advertisement and publicity of the products', 'poor working of various industrial agencies,' 'lack of cooperation and coordination among different developmental agencies,' 'technological gap', 'lack of sufficient working capital', 'problems in procuring finance from different financial institutions,' 'cheaper/ superior competitive substitute,' 'inadequate supply of export information', 'power supply inadequate, uncertain and costly', 'preparation, identification and implementation of the project', 'licensing and registration', 'poor linkage with marketing structure', and 'lack of govt. support and incentives' constituted very serious problems encountered by entrepreneurs for a sustainable unit.

Baharul (2009) [38] , in his doctoral research on Small Scale And Cottage Industries In Mizoram - Problems And Employment Prospects argues that Small scale industrial sector faces a number of difficulties in marketing their products due to growing competition among themselves and in recent years due to the emergence of stiff competition from foreign goods in the era of liberalization. It is due to weak financial base of the small scale units they cannot afford to spent as heavily as the large units does on marketing their product. Owing to the limited resources and lack of experience small scale units cannot incur heavy selling cost on publicity, advertisement and other sales promotion measures. Moreover, market analysis is almost absent in the sector which leads to failure in marketing the products. Many problems which the SSI units face in marketing their products related to lack of demand, poor quality and design, poor bargaining power, poor service to customers, brand preferences and ignorance of potential market areas, etc. In absence of a marketing channel and cooperatives for selling of their own products, most of the small scale and cottage industrial units in rural areas are forced to sell their products produced to the middlemen or money lenders to whom they depend for finance and raw materials at low prices due to poor bargaining power. Many small scale units even in urban areas sell their products to large industrial houses having wide and improved marketing network. The well known business house of the country like Britannia, Bata, and Hindustan Unilever etc. markets a good number of products produced by small units. Thus the large companies make huge profits from marketing the products of small scale units by charging much higher prices from the consumers. Therefore, there is a need for a larger number of marketing consortiums for marketing promotion of the products of small industrial units.

Montek S. Ahulwalia (2011), [39] in the research article on , " Prospects and policy challenges in the 12 fifth plan" says that the shift of labour out of agriculture follows from the fact that productivity in the agriculture is relatively low and if agriculture is not expected to grow at more than 4% a natural movement to higher paid employment in non-agriculture sector. Agricultural development will itself give rise to new demands for non-agricultural services and generate employment in agriculture related sectors such as modernized marketing and Agro-processing activities

Dr. Pawan Kumar Dhiman & Ms. Amita Rani (2011) in the paper Problems and prospects of small scale agro based industries: an analysis of Patiala district explains that agro-based industries are essential ways for the attainment of national objectives, especially poverty alleviation and economic development in the rural areas. However these industries are facing several problems such as -Infrastructural problem, Lack of proper Skills, Upgrading technological, Support services etc. Although some of the problems could be dealt with by the industries and also requires government intervention and the cooperation and support of international agencies [40] .

At this crucial juncture, the challenge in front of entrepreneurs of the agro based units i.e. rice mill units is to produce rice for 1.2 billion people of our country because scarcity can cause considerable distortions in any country. Patiala district most of the agro-based industries are located in rural areas where all weather transport facilities are greatly lacking. The quality of services is also very poor and irregular - not available at the time of their need. This not only creates problems in transporting the final industrial products to their destination, that is, to the market centres and ports in the case of exportable products, but also disturbs the collection of inputs for processing. Hence, the need of the hour is the with a greater emphasis on the problems faced by agro based units, require a well furnished governmental policy, It lies in the long term interest of the entrepreneurs to actively contribute in bringing the above to fruition


Weber (1948) [41] gives the analogy that "the fully developed bureaucratic mechanism compares with other organizations exactly as does the machine compare with the non-mechanical modes of production. Precision, speed, un ambiguity, strict subordination, reduction of friction and of material and personal costs- these are raised to the optimum point in the strictly bureaucratic administration." Bureaucratic structures have a certain degree of standardization. They are better suited for more complex or larger scale organizations, usually adopting a tall structure. The Weberian characteristics of bureaucracy are:

Clear defined roles and responsibilities

A hierarchical structure

Respect for merit.

Williamson (1975) [42] , points at the diseconomies caused by unbalances between firm size, organisational form and external relationships.

Handy, C. (1976) [43] in the study on Understanding Organizations, he commented on Divisional structure which is also called a "product structure", the divisional structure groups each organizational function into a division. Each division within a divisional structure contains all the necessary resources and functions within it. Divisions can be categorized from different points of view. One might make distinctions on a geographical basis (a US division and an EU division, for example) or on product/service basis (different products for different customers: households or companies). In another example, an automobile company with a divisional structure might have one division for SUVs, another division for subcompact cars, and another division for sedans. Each division may have its own sales, engineering and marketing departments. The operating model for multinational corporations with business in different countries around the world, each requiring regionally specific approaches. This organizational chart has become symbolic of big business.

Mintzberg (1979) [44] , says that one of the most elementary decisions a small firm owner or manager has to make is the design of the firm's organisation. As soon as a small firm hires one or more employees, some kind of organisational structure develops. The actual design of this organisational structure is a mix between intended, deliberate choices and unconscious, emergent developments. Who decides on what, who is responsible for what, and how do we coordinate these decisions and responsibilities effectively? Acknowledging an ongoing debate on the interrelationships between strategy, structure and performance, the outcome of the organisational design process is unmistakably an important determinant of the performance of firms. Theoretical support of the importance can be found almost anywhere. Engineers, economists and sociologists have written on organisational structure and design.

Mintzberg conceives of a mature and fully elaborated organization as having five basic unit groupings. The Strategic Apex, the Middle Line and the Operating Core (are) all connected in an uninterrupted sequence to indicate that they are typically connected through a single line of formal authority. The Techno structure and the Support Staff are shown off to one side to indicate that they are separated from the main line of authority and influence the Operating Core only indirectly. The Strategic Apex is responsible for defining the organization's "ends": its mission and (to a certain extent) its strategic orientation.

The Middle Line, according to Mintzberg, is responsible for holding the organization together and serves an important integrating function, vertically and horizontally. The Middle Line helps to interpret strategic objectives and to integrate planning and delivery.

The Operating Core "encompasses those members - the operators - who perform the basic work related directly to the production of products and services" (Mintzberg 1993, 12). The operators perform the core functions and deliver the primary outputs.

Mintzberg's model defines a fourth unit in a fully elaborated organization. Off to one side, but centrally important to the organization's effective functioning, is the Techno structure, whose function is to ensure standardization, analysis and stabilization. This includes the standardization of work process, planning and various control functions such as finance, information technology, procedural policy and skills development.

The fifth and final organizational grouping, as defined by Mintzberg, is the Support Staff. Off to the side, this functions as the administrative support to the operating activities of the organization. This often includes payroll, legal services, reception and anything else that is not involved with delivering the organization's output or standardizing its work processes.

Mohr (1982) [45] in the organisation behavior argues that organizational structure was considered a matter of choice. When in the 1930s, the rebellion began that came to be known as human relations theory, there was still not a denial of the idea of structure as an artifact, but rather an advocacy of the creation of a different sort of structure, one in which the needs, knowledge, and opinions of employees might be given greater recognition." However, a different view arose in the 1960s, suggesting that the organizational structure is "an externally caused phenomenon, an outcome rather than an artifact.

Morgan (1989) [46] , in the study of Creative organizational theory he made matrix structure. The matrix structure groups employees by both function and product. This structure can combine the best of both separate structures. A matrix organization frequently uses teams of employees to accomplish work, in order to take advantage of the strengths, as well as make up for the weaknesses, of functional and decentralized forms. An example would be a company that produces two products, "product a" and "product b". Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, "product b" accounting department. Matrix structure is amongst the purest of organizational structures, a simple lattice emulating order and regularity demonstrated in nature. Matrix model has been applied to businesses that expect internal collaboration (everyone has at least two reporting relationships) to support problem solving, and require innovation to balance with efficiency.

Weak/Functional Matrix: A project manager with only limited authority is assigned to oversee the cross- functional aspects of the project. The functional managers maintain control over their resources and project areas.

Balanced/Functional Matrix: A project manager is assigned to oversee the project. Power is shared equally between the project manager and the functional managers. It brings the best aspects of functional and projectized organizations. However, this is the most difficult system to maintain as the sharing power is delicate proposition.

Strong/Project Matrix: A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed.

Pugh, D. S., (1990) [47] in his organization theory explains that an organizational structure consists of activities such as task allocation, coordination and supervision, which are directed towards the achievement of organizational aims. It can also be considered as the viewing glass or perspective through which individuals see their organization and its environment. An organization can be structured in many different ways, depending on their objectives. The structure of an organization will determine the modes in which it operates and performs. Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual.

Organizational structure affects organizational action in two big ways. First, it provides the foundation on which standard operating procedures and routines rest. Second, it determines which individuals get to participate in which decision-making processes, and thus to what extent their views shape the organization's actions.

Lyne, J. (1992) [48] developed adhocracy type of structure. This organizational form, first described by Alvin Toffler in Future Shock (1970), has been applied at Intel, NASA and the Manhattan Project. It represents a fluid collection of teams. Its form is temporary, because by nature it changes constantly.

Raymond E. Miles, Charles C. Snow (1992) [49] , in his study on Causes of Failure in Network Organizations says that employees within the functional divisions of an organization tend to perform a specialized set of tasks, for instance the engineering department would be staffed only with software engineers. This leads to operational efficiencies within that group. However it could also lead to a lack of communication between the functional groups within an organization, making the organization slow and inflexible. As a whole, a functional organization is best suited as a producer of standardized goods and services at large volume and low cost. Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable. Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost. For instance, a small business could make components used in production of its products instead of buying them. This benefits the organization and employees faiths.

Quinn, J. B. (1997) [50] studied factors influencing design of organization structure; It was argued that design considerations are influenced by three key factors:

Strategy: the pattern or plan that integrates an organization's major goals, policies and action sequences into a cohesive whole.

People: who are the leaders, how many people are involved, what are the cultural norms, values, etc.

Environment: the economy, competition, distance to market, political climate, etc.

In Strategy and Structure Alfred Chandler has argued that a firm's structure is dictated by its chosen strategy. "Unless structure follows strategy, inefficiency results. First, a company should establish a strategy and then seek to create the structure appropriate to achieving it". Only after an organization figures out what it wants to be, should it then consider how to structure itself to serve the strategy. On the surface this sounds rational and appropriate: you have to know where you are going before you choose the mode of transportation.

Since 1962 many management professionals have challenged Chandler's position, claiming that strategy and structure are actually related partners in a process (Lawrence and Lorsch 1967; Mintzberg 1991; Morgan 1998; Quinn 1977). Structure, these authors suggest, is a critical part of the strategic process. For many, structure is the most important strategic tool available to a manager, especially for organizations that operate in dynamic environments where multiple variables are in play on a constant basis, or where the focus is on innovation. Where fluid, informed problem solving is necessary to respond to changes in the marketplace, strategy and structure must act as partners in the delivery of successful results - they inform each other ( Bartlett and Ghoshal 1989; Mintzberg and Quinn 1996). In Strategy Safari (1993, 35), Mintzberg writes that "structure follows strategy, the way the left foot follows the right in walking. In effect, the development of strategy and the design of structure both support the organization, as well as each other. Each always precedes the other and follows it, except when the two move together, as the organization jumps to a new position. Strategy formulation is an integrated system, not an arbitrary sequence."

The second factor influencing design is people. The leadership styles and management approach of the people involved in any enterprise are increasingly regarded as critical variables in the design of organizational structure. For any organization, certain parts of the puzzle are in place.

Charles Handy in Understanding organizations writes that the critical determinants of organizational design and effectiveness are linked to the characteristics of its members, the leadership style of its managers and the group's overall size and stage of development.

Grey C., Garsten C., (2001) [51] in his study argues that Pre-bureaucratic (entrepreneurial) structures are lack of standardization of tasks. This structure is most common in smaller organizations and is best used to solve simple tasks. The structure is totally centralized. The strategic leader makes all key decisions and most communication is done by one on one conversations. It is particularly useful for new (entrepreneurial) business as it enables the founder to control growth and development. They are usually based on traditional domination or charismatic domination in the sense of Max Weber's tripartite classification of authority. The term of post bureaucratic is used in two senses in the organizational literature: one generic and one much more specific. In the generic sense the term post bureaucratic is often used to describe a range of ideas developed since the 1980s that specifically contrast themselves with Weber's ideal type bureaucracy. This may include total quality management, culture management and matrix management, amongst others. None of these however has left behind the core tenets of Bureaucracy. Hierarchies still exist, authority is still Weber's rational, legal type, and the organization is still rule bound. Post-Bureaucratic Organization, provide a detailed discussion which attempts to describe an organization that is fundamentally not bureaucratic. The post-bureaucratic organization, in which decisions are based on dialogue and consensus rather than authority and command, the organization is a network rather than a hierarchy, open at the boundaries (in direct contrast to culture management); there is an emphasis on meta-decision making rules rather than decision making rules. This sort of horizontal decision making by consensus model is often used in housing cooperatives, other cooperatives and when running a non-profit or community organization. It is used in order to encourage participation and help to empower people who normally experience oppression in groups.

Gummesson, E. (2002) [52] in the "Total Marketing Control" formed another modern structure called as network. While business giants risk becoming too clumsy to proact (such as), act and react efficiently, the new network organizations contract out any business function, that can be done better or more cheaply. In essence, managers in network structures spend most of their time coordinating and controlling external relations, usually by electronic means. [53] 

people are independent and yet part of a whole. In some respects it looks like a view of a city - from high above.

Robbins, S.F., Judge, T.A. (2007) [54] commented on one of the newest organizational structures developed in the 20th century is team. In small businesses, the team structure can define the entire organization. Teams can be both horizontal and vertical. While an organization is constituted as a set of people who synergize individual competencies to achieve newer dimensions, the quality of organizational structure revolves around the competencies of teams in totality. For example, every one of the Whole Foods Market stores, the largest natural-foods grocer in the US developing a focused strategy, is an autonomous profit centre composed of an average of 10 self-managed teams, while team leaders in each store and each region are also a team. Larger bureaucratic organizations can benefit from the flexibility of teams as well. Xerox, Motorola, and Daimler Chrysler are all among the companies that actively use teams to perform tasks. Organization structure is a institutional arrangements and mechanisms for mobilizing human, physical, financial and information resources at all levels of the system. The Organization structure is useful for Division of work into activities and linkage between different functions.

Grant, R.M. (2008) [55] , in the History of the Royal Dutch/Shell Group he argues that the flat structure is common in small companies (entrepreneurial start-ups, university spin offs). As the company grows it becomes more complex and hierarchical, which leads to an expanded structure, with more levels and departments.

Often, it would result in bureaucracy, the most prevalent structure in the past. It is still, however, relevant in former Soviet Republics, China, and most governmental organizations all over the world. Shell Group used to represent the typical bureaucracy: top-heavy and hierarchical. It featured multiple levels of command and duplicate service companies existing in different regions. All this made Shell apprehensive to market changes, leading to its incapacity to grow and develop further. The failure of this structure became the main reason for the company restructuring into a matrix. In general, over the last decade, it has become increasingly clear that through the forces of globalization, competition and more demanding customers, the structure of many companies has become flatter, less hierarchical, more fluid and even virtual.

Lim, Griffiths, and Sambrook (2010) [56] are once again proposing that organizational structure development is very much dependent on the expression of the strategies and behavior of the management and the workers as constrained by the power distribution between them, and influenced by their environment and the outcome.

Lim, Griffiths, and Sambrook also developed the Hierarchy-Community Phenotype Model of Organizational Structure borrowing from the concept of Phenotype from genetics. "A phenotype refers to the observable characteristics of an organism. It results from the expression of an organism's genes and the influence of the environment. The expression of an organism's genes is usually determined by pairs of alleles. Alleles are different forms of a gene. In our model, each employee's formal, hierarchical participation and informal, community participation within the organization, as influenced by his or her environment, contributes to the overall observable characteristics (phenotype) of the organization. In other words, just as all the pair of alleles within the genetic material of an organism determines the physical characteristics of the organism, the combined expressions of all the employees' formal hierarchical and informal community participation within an organization give rise to the organizational structure. Due to the vast potentially different combination of the employees' formal hierarchical and informal community participation, each organization is therefore a unique phenotype along a spectrum between a pure hierarchy and a pure community (flat) organizational structure.

Overview of Organisational structure variables as used in various studies

Pugh & Hickson (1976)



Dewar et al.






Burton & Obler (1998)




















Coordination mechanism

Task routine

Coordination & control

As Table illustrates, various authors use somewhat different structure variables. The earlier studies use specialisation to describe how tasks are distributed among firm members. Geeraerts (1984) later distinguishes specialisation and differentiation (also referred to as departmentalisation). More recent authors put forward that the types of impact that specialisation and differentiation have on an organisation are very similar. They both contribute to the complexity of the structure. As regards to the importance of the locus of authority of decisions ('centralisation') and the relevance of codes and procedures ('formalisation') most authors agree. A final feature mentioned by several authors describes the way firms organize day-to-day coordination ('standardization') between individuals and departments. Mintzberg (1979) distinguishes three main types of coordination: direct control, mutual adjustment and standardization. Grouping along the two dimensions (work division and coordination mechanisms), complexity and decentralization are about how specific tasks (either activities or decision-making tasks) are distributed in the organisation, i.e. the work division. Formalization, standardization and coordination are about controlling and optimizing organisational procedures i.e. the coordination mechanisms.


Through review of literature, a researcher came to know that, India is the largest producer of milk in the world and second largest producer of food grains, sugar cane, fruits and vegetables in the world.

But till in India the processing of agro-produce is very low, Fruits and Vegetables (2.2%) Poultry (6%) Milk (35%) as compared to developed countries (60 to 70%).

There was need of the research to know the facts about underdeveloped agro base industries.

Also review of literature clears that Organization Structure is highly important for the industries. But research in the area of organization Structure of Small Scale agro-base industries is not done.

The postharvest losses of agro-produce are more in India, due to this farmers not getting right price to their agro-produce which causes poor economical condition of farmers.

Properly developed agro-base industries can make India a major player at the global level for marketing and supply of processed food, feed and a wide range of other plant and animal products

In this view there is need to understand working & problems faced by current small scale agro-base industries. Therefore the present study on "A critical study of organisation structure, problems and future of small scale agro-base industries with special reference to Ahmednagar district" assumes much significance and has more relevance.