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Role Of Small Scale Business In Rural Areas

For many years traditionally rural areas in our country has been viewed as exclusively engaged in Agriculture. Recently it has been evident that rural household can engage themselves in wide range of non-agricultural activities like self employment, wage employment in commerce, manufacturing and services etc,. This can be a source of multiple incomes apart from the traditional farming and agricultural activities. They owe the entire credit to the government as the policy initiatives of government of India to encourage and promote agro based rural industries have paved the way for these rural households. Cottage and rural industries play a vital role in providing employment opportunities to these sectors. Development of the rural sector will also prevent the migration of rural population to urban areas in search of employment. Disperse development of industries and reduction in income inequalities are also an important attribute of the small scale industry. The government of India considers by promoting the rural sector it can accelerate industrial growth and create additional productive employment which is potential in rural and backward areas. However, the small scale industry has not been realized fully due to several issue related to its size. Now we shall see the short comings of these small industries in urban and rural areas.

Problems of Small Business

The small scale industry face disadvantages like availability of finance, short fall of modern technologies, procurement of raw materials and the scale of operation are few areas which give rise to several other problems. Such problems are faced by these industries due to their small size, although the problems are different with different small industries. Like, an ancillary unit may have problem of delayed payments, irregular order from parent units and changes in production pattern while traditional small scale unit face problem due to its remote location and unavailability of infrastructural facilities, poor quality and lack of managerial skills. Other sectors like export unit may face problem due to restricted knowledge on foreign market and data, exchange rate fluctuations and pre-shipment finance. In general all these small units face few common problems they are:
  1. Finance: A major problem faced by the small business is no adequate finance available to carry its operations. They are unable to create credit worthiness in the capital market and have to heavily depend on local financial people and exploited by these money lenders. The small businesses generally suffer from working capital due to delayed payments and unsold stocks. Many banks ask for collateral security or guarantees and even for margin money before lending to these small units which many of these small business units are unable to provide.
  2. Raw Material: Another distinct problem faced by this unit is procurement of raw materials. When the required raw material is unavailable they have to either compromise on quality or pay a heavy price to get the good quality material. As they purchase in small quantities there is no room for bargain also they cannot purchase in bulk as they lack of storage space. Due to the general scarcity in chemicals, metals and extractive raw material in the economy the small scale unit suffers more than other sectors.
  3. Managerial Skills: Generally small scale units are run by single person who may not possess the required managerial skills to run the unit. These entrepreneurs may have sound technical skills but lack marketing and sales techniques to sell the output. Moreover time constraint hinders them from taking care of all the functional activities and at the same time they cannot afford to have a professional manager too.
  4. Labour: Employees willingness is less to work efficiently due to the meager salaries offered to them. This results in low productivity per employee and whereas the employees turn over is high. Since the pay scale is low it does not attract talented people. Hence unskilled labours join for low remuneration and training them is highly time consuming process. There is no division of labour here so lack of concentration and specialization is absent in these small business units.
  5. Marketing: In any business this is a very important aspect. Efficient marketing requires a thorough knowledge of product and customer's requirement which is generally weak in small scale units. Hence small business depend more on middlemen who exploit by paying lower than market price and by making delayed payments. Further direct marketing is also not possible due to its lack of good infrastructure.
  6. Quality: To cut the cost and reduce the price many small units do not concentrate on quality. They do not have resource to invest in quality research and maintain quality standard and do not have expertise to upgrade technology. In global market competition quality is the weakest point for these small scale units.
  7. Capacity Utilisation: Absence of marketing skills or lack of demand leads these small units to operate below their full capacity which results in increase of operational cost gradually leading to sickness and closure of unit.
  8. Technology: Outdated technology in small scale industries result in low productivity and uneconomical production.
  9. Sickness: Policy makers and entrepreneurs worry about the prevalence of sickness in small scale units. Internal factors like lack of skilled labours, managerial and marketing skills and external factors like delayed payments, inadequate working capital, loans and lack of demand for their products cause sickness in these small units.
  10. Global Competition: liberalization privatization and globalization polices have increased the fear for small businesses. Let us see the threaten faced by the small units due to the onslaught of global competition.
    1. The small units face tough competition from multinational companies which are huge in size and business volumes. There is cut throat competition in trade sector for these small units when compared to such huge companies.
    2. It is extremely difficult for small unit to withstand the skill set, technology, financial capability and manpower with efficient employees of large industries.
    3. Access to global market is limited for these small units they lack contact with developed countries as they don't have certificates like ISO9000.

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