Frontiers of Entrepreneurship Research 1995

Frontiers of Entrepreneurship Research
1995 Edition

1995 Abstracts

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    Sanjay Prasad Thakur, Indian Institute of Management, Ahmedabad


    Based on nearly fifty case studies conducted in the course of field work over North India, this paper examines the interplay between resources, opportunities and capabilities in new venture creation. A model of entrepreneurial firm stabilization and human resource management is outlined. It is observed that in the small manufacturing sector, size of initial investment/ capacity may influence the choice of opportunity itself - whether a low or high growth one. There could be a path related typology of small enterprise growth and human resource management. These include the use of family labour/ supervisory resources, a leadership style with a modicum of human empathy attuned to culture transition, or the presence of entrepreneurial teams. Size of investment could present a threshold of opportunity choice and growth potential. Higher size levels could deter the number of new entrants, particularly first generation ones. The paper concludes with a note on the public policy implications of the above, from a social transformation point of view.


    There is a widening interest in entrepreneurship as an agent of transformation and recovery in developing societies as well as post -socialist and market economies. At the heart of new venture creation is the interplay of resources, capabilities and opportunites. These relationships merit a closer examination. By entrepreneurship we understand here to mean the "carrying out of new combinations" (of the factors of production) and the "creation of a new business venture". In a late industrializing economy, these new units may be based largely on the backlog of technologies and products already existing in the global pool. These have thus been described as `imitative' in nature (Ray, 1988). Nevertheless, they could represent significant departures from the past, at the local/regional economy level or even at the country level and in a social context. More recently the concern has been equally with managing survival and growth in new ventures.

    The right choice of opportunity is said to be a major part of the battle won in new enterprise creation. But successful exploitation of opportunities requires putting capable systems into place. On one hand, resources (usually scarce) are needed for the creation of organisational form. While a rudimentary structure is necessary to generate the resources. This in fact, is the vulnerable phase of new venture creation.

    Earlier Research

    That entrepreneurial firms generate `sweat equity' under conditions of resource constraint is recognized . But the precise variations along which family or other resource use occurs is less explored.1 The small firm's economical use of labour is another attribute that has been surveyed (Little,, 1987). But the precise patterns of managerial resource use, given growth opportunities on one hand, with varying levels of resource constraint on the other, has received less attention from researchers. From an organisation theory viewpoint too, new ventures are `social units (or human groupings) deliberately constructed to seek specific goals'. Modern forms of these are marked by division of labour, power and substitution of personnel (Etzioni, 1988). New venture creation too involves mobilizing resources and commitment (of people) to the venture idea. The question of leadership style in the growth firm also merits examination here.

    The importance of managerial slack as a crucial factor in firm growth was recognised early (Penrose, 1959). There is data also on how limited managerial time and resources constrain a firm's growth or its capacity to respond proactively to environmental changes (Gibb & Scott, 1985). But there is surprisingly little data on how entrepreneurs could overcome this constraint, as the high growth ones surely must. The human resource aspect has showed up, though tentatively, in a few mailed questionnaire studies of entrepreneurial firms. One study compares new businesses which grew in the second year of their existence versus those which declined (Dunkelberg, 1987). It suggests that entrepreneurs in the first category spent more time on planning and dealing with employees. Whether such activity by the entrepreneur,is a function of growth or is a influencing factor in growth, is unclear. Discovering the lines of causation is complicated by the inclusion, of increase in employee numbers as a criterion for firm growth. Thus whether growth is influenced by the number of employees, or by an `employee system' being in place, or is it merely a function of enterprise growth, remains unclear. Another study compares firms that have discontinued after three years with those that have survived. The survivors were more likely to have had full-time partners. Interestingly, these firms were also larger, having more initial employees and more capital (Cooper,, 1988). Investment size and presence/absence of entrepreneurial teams or intermediate levels of structuring of an employee/managerial force, would show up in our data as well, as a differentiating factor. The presence of founding teams has been observed to be associated with greater likelihood of success, elsewhere too (Vesper, 1980).

    The relationship between initial size - both capital and human resources-and subsequent survival or growth performance has also been examined (Cooper, 1989, 1994), with results favouring the larger firms. It has been noted that initial resources influence the range of choices to be considered by the entrepreneur. It could shape strategies, which turn upon the capabilities that could be developed in the small new firm. Initial resources could cushion the `liabilities of newness and smallness'. But how do specific human and capital resources drive performance, is still an unanswered question.

    The stage model theorists of business development (Churchill, 1983) have some valuable insights on view. The present paper's observations on the stabilization of nascent firms is analogous to the first three and half stages of the above schema: existence, success and take-off. Our description however emphasizes the transition processes which may bring a firm to the take-off stage. How does a firm reach the stage of survival from merely coming into existence? How does it go on to the next stage: success? What are the processes by which a new venture is taken to a stage where the entrepreneur can be free from day-to-day operations, as the enterprise is ready for take-off? These are some of the grey areas between neat conceptual stages which the present paper examines. Studies using mailed or telephonic questionnaire based surveys derived from the literature, predominate entrepreneurship research . This may often appear to merely reproduce limitations of earlier studies, in a modified form, with equivocal outcomes. It may be fruitful to return to the entrepreneur, with the approach of an early anthropologist perhaps, and actually spend time with the phenomenon. In understanding the process of new venture creation, this may help us to answer the question: what do entrepreneurs really do?

    Entrepreneurial Firm Stabilization and Human Resource Management : A Model

    An entrepreneurial venture in the sector we have examined tends, in the early stages, to essentially be a one-man-show. In fact, 89.5 % of small enterprises in a recent national level survey reported that the entrepreneur-owner was himself carrying out all the managerial functions, including routine activities (NCAER-FNS, 1993). This may of course, simply reflect the preponderance of tiny units within the small enterprise sector at any given point in time. In the absence of firm level growth data, whether the `bigger' small enterprises grow from tiny origins or are big from the start itself, remains unclear. There is evidence that the `bigger' small enterprises-tend to be older ones - 10 to 15 years old. Our sample of case studies also provides support for the same.


    "The entrepreneur-manager at the end of the day is left with little or no time to plan ahead, analyse business and monitor it well. The problems are tackled as and when they come up". Most commonly, the entrepreneur himself obtains raw-material supplies, supervises production, goes to the market to obtain orders as well as to collect payments. All this while interest on the loan is accruing from the day of disbursement. The duration for which credit has to be extended to the buyers, is almost always more than the initial calculations. Initially, raw-materials are almost always obtained against cash payment. Often it is the case that the entrepreneur is unable to attend satisfactorily to any one of these areas. (If you meet an entrepreneur at this stage, you may feel lucky that you have a job !) Not surprisingly, sickness is found to be common in newer firms of upto three years old. Factor and product market imperfections unfavorable to the small new firm can present highly adverse thresholds (Patibandla, 1993). With macro-economic policy favouring heavy-industry led growth, even support programmes for small firms can create access barriers to limited resources (Mead, 1991). It may also spawn low productivity and `leakages'. Imitative entrepreneurship based on technology imports would favour larger firms too.

    It is said that identifying a growth opportunity is 70% of the success in new venture creation. However, effective exploitation of growth opportunities requires creating a rudimentary organisation. Resources (usually scarce) are required for the creation of organisational form. While on the other hand, a rudimentary structure is necessary to generate the resources. In generating the `sweat equity' to bridge this vulnerable phase, the new venture often falls back upon rudimentary structures borrowed from the family and its resources. In its absence, several organisational possibilities present themselves to view. In this phase, it is less a matter of applying management skills and more a matter of discovering the skills required to manage for survival. The classic work of Edith Penrose on the growth of firms clearly recognizes the importance of managerial slack as a crucial factor in firm growth. How limited managerial time and resources constrain a firm's growth or its stragegic capacity is known too. But there is surprisingly little data on how entrepreneurs could overcome this constraint. In the prescriptive literature on small enterprise management, this is described as the "delegation crisis" (Buchele, 1967). In a developing country context the term "delegation " is an oversimplification. Entrepreneurs often report theft and fear of theft as a serious problem in going for night shift production, for instance. With large portions of the population below the poverty line, `trust' is not so easily established in the non-traditional idiom of business culture. Whom does one delegate to ? A family member, near kin, friend or employee ?

    To bridge the vulnerable phase of new venture development requires the creation of a self-sustaining enterprise. Mobilizing commitment to a new venture idea, coupled with resources and capability for opportunity exploitation, is the core process. The first task in this, in our observations, is to make the production unit relatively self-managed. This is the first stage in the structural elaboration of organisational form in a growth venture. For the predominant majority of firms managed by the entrepreneur-owner, the crucial aspect here, is that of finding or developing the appropriate human resources and strategies for managing the same. We have found case after case illustrating this phenomenon.2 The familiar practice of poaching workers from other units on payment of transfer costs and higher wages or obtaining them through the machinery suppliers is common. But it is not always a successful strategy, nor one that has worked for long. A more workable solution has been the discovery of the strategy of recruiting raw labour and investing in their training and development. They may also leave, but human resource management skills could make a difference, in retaining and motivating the work force to sustain the enterprise in its vulnerable phase. Even where skilled personnel are required, often it is the fresh diploma-holder who is preferred, despite the lack of experience. The returns on this investment take the form of trust, stability, commitment, a concern for quality and an internalization of the goals of the firm. This may mean working beyond hours, on holidays if required and other ways of facilitating managerial flexibility, including sometimes, delay in wage payments. Other investments include distress aid, advances, loans, gifts, rewards for performance etc.

    It is observed that the leadership style in the stabilized growth firm is characterized by a softer approach, incorporating a modicum of human "empathy" in work place relations and outside of it. This essentially means sensitivity to the individual's needs - at both the physical and psychological levels. This style may be characterized as having shades of both, what has been called the `consultative' type as well as that of the `benevolent autocrat'. Encountered as the archetypical `elder brother' figure, it is also described as the `nurturant task leader' (Sinha, 1981).

    It is only with production requiring relatively less direct supervision, that the entrepreneur is released to devote more attention (time) to selling, market development and following up on payment collections (resources). These are strategic areas from the point of view of survival and stabilization. In fact, the liquidity crisis commonly reported as the primary cause of sickness in small entrepreneurial firms is partly certainly due to inadequate availability of working capital financing. But it is also in our view, partly a crisis of general management, manifesting as cash flow problems. The creation of a smoothly functioning small business system is a somewhat more complex task than the term "delegation" may indicate. Effective human resource management to deal with routine business tasks in ways that do not require frequent conscious direction, is only one aspect. One can extend the meaning of human resource management to include mobilizing commitment to organisational goals from persons outside the enterprise as well. This implies bringing the new venture to a stage where stable boundary relationships have been built up. This makes it possible for the entrepreneur, without constant interventions, to ensure a smooth cycle of inflow of raw materials, orders and cash. This is what is meant by a relatively stabilized self-sustaining enterprise (see Exhibit 2, center).

    Two levels of activities or decision-making which typically occur in an entrepreneurial firm have been identified earlier: the tactical and the strategic (McMullan and Long, 1990). The first refers to activities involving the day-to-day operations of an enterprise. The second refers to activities which may take the form of a structural response with a bearing on the long-term prospects of an enterprise. Effective human resource management could determine the extent to which an entrepreneur can move from the tactial to the more strategic areas of enterprise management. Initially, from the survival point of view, this may mean looking at marketing, developing the appropriate sales and distribution networks and managing adequate cash-flows. activities which may take the form of a structural response with a bearing on the long-term prospects of an enterprise. Effective human resource management could determine the extent to which an entrepreneur can move from the tactial to the more strategic areas of enterprise management. Initially, from the survival point of view, this may mean looking at marketing, developing the appropriate sales and distribution networks and managing adequate cash-flows. With sustainability established, such strategic activities may engage the entrepreneur which may take the venture on a high growth path and possible diversification. These activities may include, capture of significant market share, exploration of greenfield markets, expansion of production capacity, infusion of better technology, expansion of product range and diversification of business itself. The human resource management aspect may seem strategically less important to the casual observer. But in our observations of the entrepreneurial firm in fact, it appears as the central feature - that which enables a strategic perspective to be maintained - facilitating stabilization and creating conditions for growth to occur. It could determine the extent to which an entrepreneur can bring a venture to a self-sustaining stage, taking it across the `gulf of vulnerability', as it were, towards conditions in which growth could occur (see Exhibit 2).

    (Exhibit 2)


    The findings in this article result in part from a project to document profiles of entrepreneurs who have emerged through interactions with support systems, including entrepreneurship and small business development training (ESBDT) programmes, in India. All the states of northern and eastern India, i.e, the largest part of the Indian sub-continent were covered. The states were divided into four categories on the basis of per capita income and level of industrial development or backwardness. Sample size for each state was determined in proportion to the number of ESBDT programmes conducted. A judicious mix of purposive and random selection of cases was resorted to. Training institutions were asked to identify cases on the basis of several criterion. These included "extent of break from the past" i.e. non-business social background of the entrepreneur and also high growth rate of the firm. Those belonging to traditional business communities/ families were also included, if they were doing something significantly different from the family. Apart from flexibility with regard to size when a new venture was socially relevant, or in the context of a backward region, unique, several criterion have brought in the purposive element. Cases thus included covered professional/employee-turned entrepreneur, educated - unemployed/underemployed, less educated, low-income group, backward/weaker sections and minorities. A conscious bias in case selection has been kept towards those which are relatively `bigger' in terms of current size of capital employed and sales turnover. These could be more entrepreneurial, generating capital accumulation and employment against merely the self-employed/ survivors. Smaller cases have also been included where they represent significant departures from the past in a social sense, i.e. non-business community and low income/social background of the business owner or where they are typical backward area cases. Locationally, cases in a particular state have been selected from (a) major urban/industrial/administrative centre, (b) smaller/more interior centre and (c) small/deep interior/remote centre.

    Initial data for this study came through field research over a period of more than six months. In-depth interviews around a semi-structured guide are the main source of inferences drawn for this article, apart from observations. Field notes were analysed for gaps and clues which required clarification and deeper enquiry. Field observations and entrepreneurs' statements conveyed some weak signals regarding the subject of this article. The tentative hypotheses were further discussed with entrepreneurs participating in a management development programme. The qualitative data was then subjected to tabulation and content analysis to discern patterns, if any.

    As a measure of size and growth, capital employed was felt to be more relevant from an entrepreneurship point of view,3i.e. entry cost. There are some inevitable inconsistencies in the data reported. For purposes of fiscal and other benefits, government classification uses fixed investments in plant, machinery, land and building as a measure of size. In interviews, the entrepreneurs tend to report total capital employed as the current "investment" including working capital. For a dynamic picture initial capital employed is certainly relevant. But often units have been started on family owned land or building or rented premises. Further, many have diversified into other product lines or entered altogther new businesses. These complicate the problem of defining size and growth. Growth in sales turnover-20% or greater increase in sales over previous years reported as superfast growth in a national study-is also used as a rough measure, apart from initial capital employed compared with current. The purposive element has brought in a larger number of high growth firms in our sample (see table 6 in Annexure A). Non-reporting and under-reporting of sales figures in tune with duty-evasion habits meant that rough estimates have been resorted to in certain cases. Our sample of cases results in an average capital employed figure of Rs.1,431,221 (n=36), (U.S. Dollars 1/- = approx. Rupees 30/-). This is slightly higher than the national average Rs.1,353,000 - reported in a recent national level sample survey (NCAER-FNS, 1993). With n =37, the figure is Rs.1,554,702. This confirms our conscious bias towards "bigger" small units. The highly skewed structure of the small enterprise sector was apparent even at the time of case selection and shows up in our sample distribution in terms of capital employed and the number of employees (see tables 2 & 3). There are a very large number of tiny units, in terms of investment as well as employment, and a few big units with a disproportionate share of total production and employment. For our sample a few tiny artisanal/cottage enterprise cases were taken for illustrative/insight purposes. Focus was more on the small modern manufacturing units, factory and non-factory type, where accumulation/growth could occur.

    (Tables 2 & 3)


    Our data and observations, as well as supporting inferences drawn from other surveys, suggests some reasonably distinct typologies of entrepreneurial firm organisation and growth. Units in the lowest investment slab typically represent a low growth opportunity subsidized by the use of family labour. The current cost of entry into such businesses would roughly be upto Rs.200,000 in terms of capital employed. These are essentially artisanal/cottage units with 5 or less employees which are estimated to comprise around 28% (15% in our sample) of all small enterprises. In this slab, output as well as labour productivity is low. It can be inferred that manual production processes dominate (more than 56%) and role of the family in decision making is very important (86.52%). This supports our characterization of such units as a poor business idea - surviving through the help of family labour, i.e, subsidized by family resources. Here, the "entrepreneur" himself/herself is an underdeveloped human resource. It appears that limited investment capacity and low levels of education/skill are combining to determine choice of business opportunity - usually a low growth one. These then are the true self-employment cases. If you can't sell your product, at least it can be eaten!

    There is however, enough cause for cautious optimism with regard to micro-enterprise in a developing economy context. Since capital investment is low, if there is sufficient local product demand to sustain sales for a given time period, return on investment can be fairly high (see Case 2 in Annexure B) Net profit as a percentage of total assets by fixed investment is estimated to be 45% for units within the slab upto Rs.200,000 and 35% for the slab Rs.200,000-Rs.500,000. Thus sufficient income can be generated from these micro-enterprises to maintain and uplift current standards of living and provide hope of social mobility for a family, by making possible higher levels of education for a family member etc., illustrated in Case 1. This is apart from indirect effects on the economy. A second path is illustrated by Case 2, where income could be generated for a sufficient period of time to enable accumulation for entry into a similar new business if/when growth/profitabilty limits are reached in the original business. The possibility of such micro-tiny enterprises developing into small industry in a real sense or even becoming a stepping stone for the individual to develop into a small industrialist however, appears remote. Poor choice of opportunity influenced by resource constraint is much of the battle lost in new venture creation, as far as micro-enterprises are concerned.

    Initial Size and Growth Threshold

    The second strata of firms with 6 - 25 employees (66% of our sample and 67% of the national survey) represent moderate to high growth opportunities. By initial capital employed in the higher slab of Rs. 1,000,000 - Rs. 3,500,000, 20% of national sample (33% of our sample, excluding low growth cases), these represent the potential growth zone. Non-matching of cross tabulation with employment size reflects inter-industry variations in labour intensity. Higher levels of education - matriculate and above, plus significant numbers with post-school technical education or college degree - are found in this cluster. This is found in other developing countries too (Ayal & Chulasai, 1988). The high growth cases, also report grasp over marketing - via prior experience, training or the `hard knocks school of discovery'. These firms are in industries where demand is growing and markets are developing, but competition is also intensifying. Stabilization and growth of entrepreneurial firms can occur, provided the requisite management skill, human resource management in particular, comes into play. Business growth here can take alternative paths: (a) the firm can remain a one-man-show, with the entrepreneur struggling to stagnate - "running harder to remain where you are" - illustrated by Case 3, (b) a more humane management style combined with some family supervision as a transitory mechanism can help the firm stabilize, illustrated by Case 4, (c) a human resource management approach can help stabilize a firm in its vulnerable phase and enable effective exploitation of a growth opportunity - illustrated by Case 7. The Cases 3 & 4 together represent same businesses but different management styles, in similar - industrially backward, low income - environments. Cases 4, 5 & 6 together represent same location, different businesses, varying management styles.

    A third type of firm in this middle sized investment slab, is where the exploitation of high growth opportunities has been facilitated by the placement of family members in functional managerial positions - the family management team. Here too, there are variations. Take the case of D. Shah, Gujarat:

    A chemistry graduate with a knack for experimentation, Shah started a small dyestuffs unit with a Rs.50,000/- bank loan. With the business doing sufficiently well, he decided to go in for an ambitious new unit for H.Acid. To his dismay, there were some gaps in his technical knowledge. It was a near total loss and he almost went out of business. A chance enquiry brought an export order for 340 metric tonnes of black dye to be met in four months. The unit's capacity was only 10 mt/ month. Shah mobilized the workers, his friends and family with the idea that "we either sink or swim together". In these three months, the team actually lived in the factory. There were no holidays and no working hours. The order was executed and repeat orders came. After this, 15 days leave was given to workers and he also took them on an out-of-town excursion. Unlike the traditional approach, Shah feels that employees had to be treated as an asset rather than as a cost. The business depends critically on a core of highly motivated and committed workers, several trained by Shah himself. His father looks after office administration. Production is managed by one brother while another who is a practicing Chartered Accountant looks after finance related matters. An in-house R & D cell has been initiated. The firm also sponsors Ph.D. students in the University for research in Chemistry, particularly on non-toxic substitutes. Shah feels that without investment in education, research and training, he would not be able to compete internationally. The total investment is now Rs.50 million with a turnover of Rs.250 million and the firm is one of the leading exporters of dyestuffs.

    This case illustrates an enlightened human resource management approach, combined with family members in management functions. The case of S. Baxi, Haryana illustrates high growth opportunity exploitation with human resource management, without family management:

    Baxi, a tool room technician by training, produces sheet metal auto components for manufacturers such as Eicher Motors, Maruti-Suzuki and Lucas TVS. Products meeting exacting Japanese standards at a cheaper price have been developed by his unit. The vendor rating is 99% and components have been developed with 0.1% variation in quality. As a manager, Baxi with one glance can see where work has been slow in the factory. He tries to practice an open system of management where everybody is his own boss and the focus is on team work. Except for one person, all the workers are raw recruits. This means spending time and energy on human resource development. When a mistake is made, instead of giving vent to anger or showing his authority, Baxi tries to treat it as a learning opportunity. The results are sincerity, pride in work, quality consciousness, loyalty to the firm and less need for control or supervision. Under the laws in Haryana, if a worker leaves employment on his own, he is not entitled to gratuity. But Baxi has paid workers who have worked in the lean periods also. This generates confidence and a sense of security in the others. He gives a good salary and provides incentives for not taking leave, etc. Monthly schedules are put up on the walls after a participative decision-making process. If there is a fault in a product, they try to discuss the reasons for it. Influenced of course, by the "Japanese" culture of parent companies like Maruti-Suzuki, the workers have learnt to be quality conscious. They are disturbed if a batch is rejected, though there is no punishment for it. The production now is against stable orders. Baxi has set up a second unit. There is a plan to set up a plastic moulding unit also, for in-house supply of a sub-component, being purchased from the market at present. According to him, in his line of business the entrepreneurs who exploit labour are also the ones who exploit customers by compromising on quality and get orders through bribes. They never grow. Baxi was recently awarded the National Entrepreneur of the Year award and has a current turnover of more than Rs.5 million.

    The fourth type of business venture, which could have the maximum growth potential (but is less commonly found), is characterized by the presence of entrepreneurial teams. Representing 7.6% of our sample (n=39), these cases have shown spectacular growth. Interestingly two of these are located in two of the industrially most backward, low per-capita income states of India. Partnership firms have been shown to perform better elsewhere too.4 Our cases however, refer to entrepreneurial teams of three or more persons. These ventures with small beginnings have grown into diversified business groups. For example, K.P.Singh, Bihar :

    K.P.Singh and six other engineer friends got together with Rs.10,000/- each and started two businesses - a precision blanking unit, only the second of its kind in India, as well as a housing development company. The second business alone grew to a turnover of Rs.60 million. Though the friends have parted ways now, the group turnover is estimated to be above Rs.200 million. Singh has purchased a fruit processing unit, apart from his construction/development company. The group built eight residential complexes and a mini-township, where the earlier culture was for individuals to build their own houses.

    J.K. Rath, Orissa:

    While still an undergraduate science student, Rath made up his mind to do business someday. He realised that in an industrially backward, lowest per-capita income state, it would be difficult for an individual struggling alone. He thus teamed up with a friend who was a commerce graduate. Later two more engineer friends were roped in. On a very small scale, in a small rented room on the outskirts of town they began manufacture of high value added specialized aromatic chemicals. Within 2-3 years they captured maximum possible market share at the national level. Moving next into fibre reinforced plastics (FRP), the market was developed for a wide range of FRP applications : water storage tanks, engine covers, boats, etc. Ocean going steel vessels are now being fabricated. The group has now entered the manufacture of electronic telephone exchanges in a joint venture with the state government. Even trainee engineers or managers are recruited with the understanding that they could achieve a stake in the group, or even hive-off independent businesses, should the entrepreneurial zeal be there.

    The typology we have attempted to describe above can be conceptualized in the form of a model (Exhibit-3). A great number of the micro-enterprises are in the lower left quadrant - low growth opportunity/low human resource. The variation here is that some firms, in a low to moderate growth opportunity zone, can stabilize with the help of family supervisory resources. A moderate to high growth opportunity can be effectively exploited after stabilization through family members as part of the managerial team (lower right quadrant) - as against family labour or partial/transitory supervisory use of family resources. However, the family management team can also constrain effective exploitation of a high growth potential opportunity beyond a point, due to the need to retain close control, etc., as is well known. A one-man-show (entrepreneur-owner-manager) combined with human resource management practices can have a multiplicative effect, not only in stabilizing the business, but also enabling effective growth. The ideal of course, is the entrepreneurial management team (upper right quadrant). Effective division of managerial effort in this case can successfully exploit even moderate growth opportunities, as a base from which to diversify. This particular HRM typology can reduce the problem solving time in operational, day-to-day business matters. It also enables the business organisation to behave more strategically, with better scanning of the environment for potential high growth opportunities, as well as for possible threats to the current business.

    The dotted arrow "G" in Exhibit-4, can be considered as the idealized index of the base potential for growth of a venture, at a given point in time. For a firm characterized by an entrepreneurial management team, base potential for growth is obviously high. Degree of deviation from line G will bring variations in growth performance. In a dynamic perspective two possible growth paths have been indicated, along which firm's would cluster (see Exhibit-5). A one-man-show with the multiplicative effect of a human resource management orientation can be developed into a dynamic organization approximating the behaviours of an entrepreneurial management team, described above. A family managed venture can also be developed into a high growth one if professionalization can be brought in.

    The highest investment slab, approaching medium sized firms, is a significant threshold. In this third category of firms, it can be inferred that the sheer size of the promoters-own-equity required would deter the number of new entrants. It could significantly discourage the first generation, first-timer new entrant. This has implications from the social transformation point of view. At this investment level, resource barriers would favour start-ups from the `catchment zone' of the already privileged, in a given society. This is borne out from our sample distribution of cases - the number of firms in the highest size group is significantly smaller both by quantum of investment and number of employees. At this level, financial strength enables the `creation of competencies' and the relevant management systems could simply be hired or installed.

    Policy Implications

    The argument for small new ventures in developing countries lies in their positive employment effects. The claim rests on the presumed better efficiency of factor use in small enterprises - (surplus) labour in particular. Since the 1970's and the 1980's in the developed countries too, new firms are acknowledged as vital to an economy. The outlook for an individual new firm however, can vary. High rates of sickness and mortality are also widely reported. Small firm start-ups are thought to play a role in widening the entrepreneurial base of a given society. It is an important expression of social mobility as well as structural change, in a developing country context. The small enterprise sector broadly appears to have a multi-layered, plural structure. At the micro-enterprise level, limited resources can restrict choice of opportunity to low growth ones. These represent a bad business idea, subsidized by family resources, including labour - the true self employment cases. There could be a middle `growth zone' where higher investment size widens opportunity choice. The capability of the entrepreneur himself/herself as a resource begins to exercise influence in this slab. This strata represents the seedbed for firms with high growth

    (Exhibit 3)

    potential and merits the focus of policy makers or promotional agencies. The strategic behaviour of these firms can provide valuable insights into the leadership style and managerial heuristics of how `sweat equity' is generated in growth ventures. There is a significantly sharp decrease in the number of firms in the third or highest, investment slab, approaching medium size. At this level, the size of the margin money required from the potential entrepreneur would limit the number of new entrants and their catchment sources. Particularly in the absence of a developed venture capital market. From a social transformation point of view, this may not be the desirable outcome. This would render weak, the case for complete withdrawal of countervailing state assistance in industrially backward regions, which would favour those already advantaged.


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    Little, Ian M.D., Mazumdar, Dipak and Page Jr., John M. (1987), Small Manufacturing Enterprises: A Comparative Study of India and Other Economies. Washington : The World Bank.

    McMullan, W.Ed and Long, Wayne A. (1990), Developing New Ventures : The Entrepreneurial Option. Orlando: Harcourt Brace Jovanovich, pp 107 -108.

    Mead, Donald C., (1991), "Small Enterprises and Development", Economic Development and Cultural Change, January 1991.

    National Council of Applied Economic Research & Friedrich Naumann Stiftung (NCAER-FNS) (1993), Structure and Promotion of Small Scale Industries in India. New Delhi: monograph.

    Patibandla, Murali (1993), "Factor and Product Market Distortions, Production Efficiency and International Trade", Economic and Political Weekly, November.

    Penrose, Edith T. (1980), The Theory of the Growth of the Firm. (2nd Edition), Oxford : Blackwell.

    Ray, Dennis (1988), "The Role of Entrepreneurship in Economic Development", Journal of Development Planning, No.18, p. 3.

    Sinha, Jai B.P. (1981), The Nurturant - Task Leader : A Model of the Effective Executive. New Delhi: Concept.

    Vesper, Karl (1980), New Venture Strategies. Englewood Cliffs: Prentice Hall.

    1. Whether personnel or working capital finance through mortgage of bridal jewellery, etc.

    2. Case 7 in Annexure B, available with author.

    3. The utility of capital employed as a measure is anticipated by the World Bank survey too, (Little,, 1987) and its difficulties noted.

    4. Though it is unclear whether this is because of the presence of a team or a healthier capital base.

    5. Note the recent experiences of post-socialist economies with the `nomenklatura', former security personnel and black marketeers.

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