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Why Small Scale Business?

Updated on August 30, 2013

The reasons (or) logic behind setting up of small scale units has been clearly demonstrated in the industrial policy resolution of 1956.

"they provide immediate large scale employment, they offer a method of ensuring a more equitable distribution of national income and they facilitate an effective mobilization of resources of capital and skill which might otherwise remain underutilized. Some of the problems that unplanned urbanization tends to create will be avoided by the establishment of small centers of industrial production all over the country"

Thus these are 4 major reasons for the setting up of small scale units are:

1) Employment Generation:

Small scale industries are labor intensive on one hand and employ lesser amount of financial resources. While the output employment ratio is the pow-erst in the small scale sector, employment generation capacity of small sector is eight times that of the large scale sector. Thus small scale industries are more labor and less capital intensive in comparison with large scale industries . small scale industries have got the right solution for the unemployment problem confronting our country.

2) Equitable Distribution:

Unrestricted (or) unregulated growth of large scale units will usher in the concentration of economic power in the hands of a few individuals and widening of gap between have and have not due to gross inequalities in the distribution of income and wealth. Whereas ownership of small scale units is widely spread amongst large number of small entrepreneurs and benefits too are shared by large number of persons. This results in more even distribution of income and wealth amongst large number of persons spread over a wide territory.

3) Mobilization of Resources:

In the absence of small scale industries various local resources like entrepreneurial talent, capital, labor and other resources are likely to remain idle (or) underutilized. Small scale industries provide opportunities to the talented entrepreneurs to exploit the local resources in the best possible manner.

4) Balanced Regional Development:

Industrial policy resolution of 1956 highlight ‘in order the industrialization may benefit the economy of the country as a whole, it is important that disparities in the matter of development between different regions should be progressively reduced’. Large scale industries are normally concentrated in urban areas. This results in migration of people from rural to urban areas in search of employment opportunities. It leads to more pressure on civic amenities resulting in industrial slums, pollution and adverse effect on the health of workers. Small scale industries on the other hand can be located in rural (or) semi-urban areas. These units employ local resources and primarily meet local demands. Small scale industries thus help in regional dispersal of industries and more balanced development of various regions of the country.

Objective of Small Scale Industries

The small scale sector can stimulate economic activity and is entrusted with the responsibility of realizing the following objectives:

  1. To create more employment opportunities with less investment.
  2. To remove economic backwardness of rural and less developed regions of the economy.
  3. To reduce regional imbalance.
  4. To mobilize and ensure optimum utilization of unexploited resources of the country.
  5. To improve standard of living of people.
  6. To ensure equitable distribution of income and wealth.
  7. To solve unemployment problem.
  8. To attain self reliance.
  9. To adopt latest technology aimed at producing better quality products at lower costs.

Features of Small Scale Industries

1) Ownership:

Ownership of small scale unit is with one individual in sole proprietorship (or) it can be with a few individual in partnership.

2) Management and Control:

A small scale unit is normally a one man show and even in case of partnership the activities are mainly carried out by the active partner and the rest are generally sleeping partners. These units are managed in a personalised fashion. The owner is activity involved in all the decisions concerning business.

3) Gestation Period:

Gestation period is that period after which teething problems are over and return on investment starts. Gestation period of small scale unit is less as compared to large scale unit.

4) Area of operation:

The area of operation of small scale unit is generally localized catering to the local (or) regional demand. The overall resources at the disposal of a small scale units are limited and as a result of this, it is forced to confine its activities to the local level.

5) Technology:

Small industries are fairly labour intensive with comparatively smaller capital investment them the large units. Therefore these units are more suited for economies where capital is scarce and there is abundant supply of labour.

6) Resources:

Small industries are fairly labour intensive with comparatively smaller capital investment than the large units. Therefore these units are more suited for economies where capital is scarce and there is abundant supply of labour.

7) Dispersal of unit:

Small scale units use local resources and can be dispersed over a wide territory. The development of small scale units in rural and backward areas promotes more balanced regional development and can prevent the influx of job seeker from rural areas to cities.

8) Flexibility:

Small scale units as compared to large scale units are more change susceptible and highly and responsive to socio-economic conditions. They are more flexible to adopt changes like new method of production, introduction of new products etc.


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