Module – 4 Family Businesses

IMPORTANCE OF FAMILY BUSINESS: -

Family businesses from every trade imaginable have been around for centuries from shoemakers to
confectioners to farmers. According to research conducted by William T. O' Hara, President
Emeritus of Bryant College in Rhode Island and author of Centuries of Success: Lessons from the
World‘s Most Enduring Family Businesses, as reported in Family Business magazine. O'Hara's
study revealed that construction company Kongo Gumi, based in Osaka, Japan, was founded in the
year 578.
1. Over 75 per cent of all registered companies in the industrialised world are
family businesses (DECO).
2. One-third of Fortune 500 has families at their helm.
3. Seventy per cent of firms in the United Kingdom are family owned.
4. Of Italy's 100 top companies 43 are family owned.
5. Family companies employ about 50-60 per cent of the workforce in the industrialised world.
6. Companies with founding family participation performed better than non-family businesses

Some of the Largest Family Firma Worldwide:

• Wal-Mart (USA, revenues S245 billion, Sam Walton family)

• Samsung Group (Sourh Korea, revenues $98.7 billion, Lee family)
• Flat Group (Italy, revenues S54.7 billion, Agnelli family)
• The Gap (USA, revenues SI3.8 billion, Fisher Family)
• L'Oreal (France, revenues S12.2 billion, Bettencourt family)
• IKEA (Sweden, revenues SI0.4 bllllon, Kamprad family)
• Tata Group (Indy, revenues S7.9 billion, Tata family)
• Grupo Modelo (Mexico, revenues S3.5 billlon, Dlez Fernandez family)
• McCain Foods (Canada, revenues S3.S billion, McCain family)

Characteristics of a Family-owned Business in India:

Family-owned businesses play a crucial role in the economy of most countries.
Much of the retail trade, the small-scale industry, and the service sector are run by
family businesses. Worldwide, family-managed businesses employ half the world's
workforce and generate well over half the world's GDP.

In India, family-owned businesses have played and will continue to play a central
role in the growth and development of the country. Indian family businesses have
been and will continue to be key drivers of the economy, and what changes these
businesses need to undertake to continue to succeed.
Most commercial enterprises are born as family-owned and family-managed
businesses. A large number of family-owned and managed enterprises remain this
way-planets in the family-centric planetary system. A smaller number, on the other
hand, need access to public equity capital and in the process become non-family
owned. Others could remain family-owned but professionally managed, either due to
lack of interest on the part of the family or due to practical necessity. For the sake of simplicity let
us assume that a firm where a family (or, perhaps, a few families) exerts significant influence over
the firm's strategy and its destiny is family-owned; and, firms where family members unless
professionally qualified-do not hold executive positions are professionally managed.

Contributions of Family Business in India:

With time, the contribution of family businesses has gone beyond simply paying taxes and
employing people. During the last 100 years or so, Indian family businesses have made significant
contributions in three areas.

The freedom movement: Family businesses were an integral part of the Indian freedom movement.
In the early years, firms were created specifically to pursue ideals such as import substitution and
economic freedom from the colonists. The Godrej enterprise, for instance, was started by Ardeshir
Godrej in 1897 with a vision to promote India's economic freedom.
Spirit of entrepreneurship: Family businesses have done an excellent job of keeping the spirit of
enterprise alive especially through the 40 years of quasi-socialism. The spirit survived onerous
taxation and repealed government attempts to undo supposed 'concentration' of economic power.
Today, as India competes in an increasingly globalised economy, family businesses are playing a
major role in turning the engines of growth.

Philanthropy: Lastly, Indian family businesses have played a significant role in

giving back to the community. Indian business is overwhelmingly owned and managed by the
Bania families of the traditional trading castes. It is predominantly the Aggarwals and Guptas in
thenorth, the Chettiars in the south, the Parsees, Gujarati Jains and Banias, Muslim Khojas and
Memons in the west, and Marwaris in the east of these, the Marwaris have been the most successful.
Fifteen out of the twenty largest industrial houses in1997 derived from the Vaishya or Bania trading
castes. Eight of them were Marwaris. Today's industrialists, thus, rose from the bazaar. Their roots
in industry are relatively recent. going back largely to the World War I. Before that they were
traders and moneylenders engaged in the hustle and bustle of the bazaar. Even in Mumbai and
Ahmedabad in western India, where the cotton textile mills came up earlier in the last half of the
19th century, it was the trading communities who became industrialists.
Of Business India's Super 100 companies, 66 are family run. According to Business Today. family-
run businesses account for 25 percent of India Inc's sales, 32 per cent of profits aftertax (PAT),
almost 18 percent of assets, and over 37 percent of reserves.
Advantages of Family Business:
Trust lowers transaction costs: It is a well-documented fact that 'trust' lowers transaction costs,
corruption and bureaucracy. Trust can be a source of significant competitive advantage to a family
business. In India, family businesses have often revolved around large joint families. Joel Kotkin
has documented the families of Palanpuri l ai ns from western India, who have established
commercial colonies in diamond centres as dispersed as Tel Aviv, Antwerp, Mumbai, London and
NewYork. Today these families account for roughly 50 per cent of all purchases of rough diamonds
in the world.
Small, nimble, and quick to react: Family businesses, both small and large, tend to be quick to
react to threats as well as opportunities. There are fewer decision-making gates and constituencies
to deal with. Very often, the survival of the family depends on the survival of the business. This
results in sharp and decisive action in
the face of threats that could be potentially fatal for the business.
Information as a source of advantage: Many family businesses are private enterprises. This is an
advantage since a private company can see the strengths and weaknesses of its public competitor
and act accordingly while the converse is not true. Further, private companies can have private
strategies to which analysts and the competition are not privy. And, private family businesses have
the freedom to pursue truly long-term strategies that are not constrained by 'quarterly reporting.

Family Business Defined:

There are various definitions of a family business. in general, a family-owned business is one

1. in which two or more extended family members influence the business through the exercise
of kinship ties, management roles, and ownership rights. and/or
2. which the owner intends to pass to a family heir
There are various definitions of family-run business and these can be grouped into
two.
1. Structural definitions: These definitions focus on the firm's ownership or management
arrangements. for example, 51 per cent or more ownership by family members.
"Ownership control by' the members of a single family" . Barry (1975)
"Ownership conlrol by a single family or individual". Barnes and Hershon (1976)
"A small or closely held business" . Becker and Tillman (1978)
"Majority ownership by a single family and direct involvement by at least two
members in its operation". Rosenblatt. de Mil<. Anderson, and Johnson (1985)
"Ownership and operation by members of one or two families". Stem (1986)
"Legal control over the business by family members. lLmsberg ". Perrow. and
Raga/sky(1988) "Single family effectively controls finn through the ownership of greater
than 50 per cent of the voting shares; a significant portion of the finn's senior
management is drawn from the same family". Leach et af. (1990)
2. Process definitions: These definitions stress on how the family is involved in
the business-its influence on company policy. its desire to perpetuate family
control of the business. And so on.
"Closely identified with at least two generations of a family; link has had a
mutual influence on company policy and the interests and objectives of the
family". Donnelley (1964)
"Members of one family own enough voting equity to control strategic policy
and tactical implementation". Miller and Rice ( 1973)
"Two or more family members influence the direction of the business through
the exercise of management roles. kinship ties, or ownership rights". Tagiuri
and Davis (1982)
"Interaction between family and business organisation that detennines the
nature and uniqueness of the business". P. Davis (1983)
Enlrepreneurship Development and SmaU 8u.ine.. Entcl:pri.rt
"Business. family. and founding subsystems. with a focus on linkages among
them". Beckhard and Dyer (1983)
"Family influence over Lusiness decisions". Dyer (1986)
"Expectation or aCluality of succession by a family member". Churchill and
Hallen (1987)
"Transfer of ownership across at least two generations". Ward (1987)
"Continuous relationship between family and business". Hollander and Elman
(1988)

VARIOUS TYPES OF FAMILY BUSINESSES:-

A family owned business is a for-profit enterprise in which a controlling number of voting
shares (or other form of ownership). typically but not necessarily a majority of the shares,
are owned by members of a single extended family, or are owned by one family member but
significantly influenced by other members of the family.
2. A family owned and, managed business is a for-profit enterprise in which a
controlling number of voting shares (or other form of ownership). typically
but not necessarily a majority of the shares, are owned by members of a single
extended family, or are owned by one family member but significantly
influenced by other members of the family. The authority conferred by this
controlling interest permits the family to determine objectives, methods for
achieving them and policies for implementing such methods. And this
business has the active participation by at least one family member in the top
management of the company so that one or more family members have
ultimate management control.
3. A family owned and led company is a for-profit enterprise in which a
controlling number of voting shares (or other form of ownership), typically
but not necessarily a majority of the shares are owned by members of a single
extended family. or are owned by one family member but significantly
influenced by other members of the family. The authority conferred by this
controlling interest permits the family to determine objectives, methods for
achieving them and policies for implementing such methods. And, this
business has the active participation by at least one family member in the
board of directors of the company so that one or more family members have at
least a high level of influence over the company's direction, culture and
strategies.

The "3-Circle" Model of Family Business:

The "3-Circle" model developed by Tagiuri and Davis at Harvard (J. Davis 1982; and
1. Davis. 1982.1989) incorporates family, business, and ownership systems into the
definition of the family business system. Each of these systems interacts with the others and
influences their membership, goal and dynamics. 'The 3·circle model has become the
established systems model of the family business field.
The 3-circle model of family business has three systems
(a) The business system (b) The family system (c) The ownership system
There are three components to family governance.
• Periodic assemblies
• Family council meeting
• A family constitution
Ownership

Family Business

Figure 4.1: The "3-circle- model of

family business system
Each system in the 3-circle model has a developmental framework and is given below.
The business system: Start up, expansion/formalisation and maturity.
The family system: Young business family, entering the family business, working
together, passing the baton.The ownership system: Controlling owner, sibling partnership, cousin
consortium.

Family Business System Governance

In a family business. the business, family, and ownership all need governance. Effective governance
in the family business system generates a sense of direction, va1ues
to live by or work by, and well understood and accepted policies
Ownership that tell organisation members how they should behave or what
they should do in certain circumstances. Effective governance brings the right people together at the
right time to discuss the right things. Good governance contributes three fundamental ingredients
for a healthy family business system functioning.
1. Clarity on roles, rights and responsibilities for all members of the three systems.
2. Discipline to help members of the family, business employees and owners act responsibly.
3. Regulating appropriate family and owner inclusion in business discussions.

STAGES OF DEVELOPMENT OF A FAMILY BUSINESS:

While strategic, operational, and financial transformation is a given for any corporation that
hopes to survive the trauma of competing in the post-liberalization marketplace, India‘s
business houses have started rewriting the role of the family in business. The typical family
business goes through four stages in its development,

1. Entrepreneurial: In this phase, someone in the family starts a business after having identified
a business opportunity. At this stage, the business is customer-centric. The entrepreneurial
vision develops and a mission is set for the organization.
2. Functionally specialized: This is the growth phase for the family business. In this phase, the
organization is divided into various functions and priority is given to growth and increasing
the scale of operation. The organization becomes more flexible during this phase and the use
of control measures is limited.

3. Process-driven: In the process-driven phase, a family business is system-oriented and

processes are set. The greatest attention is given to core competencies and to competing with
other businesses in achieving customer satisfaction.

4. Market-driven: During this phase, the family business matures and is completely
driven by market forces. The business enters various markets and crosses geographical
boundaries by strategic alliances.
 Module – 4 Idea Generation and Feasibility Analysis
Idea Generation

The feasibility study begins with the formulation of business idea, which you can obtain
through market research, family, friends, suggestion boxes or brainstorming. At this phase, you
can downsize the number of ideas and retain the most realistic one.

Depending on your business culture, you can discard the extra ones or preserve them for future
references when you need to. You have to conceptualize and visualize your business‘s final
product, a process that entails analyzing the product‘s target market, size, quality, color and
weight.

Establishing yourself as a successful entrepreneur depends upon choosing a good idea. That idea
must not only be good for the market, but good for the project and good for the entrepreneurs. It
should also be manageable by you without much dependence on others. Importantly, the idea
should give satisfaction results to you.
Ideas are the key to innovation. Without them, there isn't much to execute and because execution
is the key to learning, new ideas are necessary for making any kind of improvement. It is obvious
that ideas alone won't make innovation happen, as you need to be able to build a
systematic process for managing those ideas. The point of ideation isn't just about generating a
lot of them but about paying attention to the quality of those as well.
Idea generation is described as the process of creating, developing and communicating abstract,
concrete or visual ideas.
The front end part of the idea management funnel focuses on coming up with possible solutions
to be perceived or actual problems and opportunities ,the fig below shows the idea management

Figure 4.2: idea management funnel

As mentioned, ideas are the first step towards making improvement. Making progress as
individual human beings depends on new ideas. From the perspective of an individual,
new ideas can help you to move forward if you feel stuck with a task or are unable to
solve a certainproblem.

The ability to create and develop new ideas allows you to:

 Stay relevant
 Make positive change happen

Regardless of your goals or the types of ideas you're looking for, the purpose of new
ideas isto improve the way you operate.

So, although innovation isn‘t about ideas alone, they are an important part of the
equation asthere wouldn‘t be one without the other.
Brainstorming not only takes more time and leads to less ideas, but also worse ideas.
There are several other reasons why brainstorming may not be the best way to come
up with ideas. Scheduling, organizing and documenting the session in a usable format
will all take upeven more time.

Favourite tips, tools and techniques that can be used to generate new ideas more
systematically.

 Idea Challenge
 SCAMPER Technique
 Opposite Thinking
 Brainstorm Cards

 Analogy Thinking

Idea Challenge
Is a focused form of innovation where you raise a problem or opportunity with the
hopes ofcoming up with creative solutions.
The point of idea challenge is to participate in ideation and generate ideas around a pre-
definedtheme for a limited period of time.
It allows you to form a specific question and direct that question at a specific audience to
receivenew ideas and unique insights.
The SCAMPER technique

It is a method used for problem-solving and creative thinking. It‘s a holistic way of
applyingcritical thinking to modify ideas, concepts or processes that already exist.

The purpose of the SCAMPER is to make adjustments to some parts of the existing
idea orprocess to reach the best solution.

Opposite/reverse thinking
 Is a technique that can help you question long-held assumptions related to your business.
It‘s a useful tool to consider if you feel your team is stuck with the conventional mindset
and coming up with those ―out-of-the-box ideas‖ seems to be difficult.

Often, finding the best solutions isn‘t found through a linear thought process. Although our
brains are wired that way, opposite thinking can help us question the rule

With this type of thinking, you consider the exact opposite of what‘s normal. You can
even thinkbackwards to find unconventional solutions.

Brainstorm Cards
Brainstorm cards are a useful tool created by the Board of Innovation for coming up
withdozens of new ideas related to whatever challenge or problem you are currently
working with.

Brainstorm cards help you consider external factors such as: societal trends, new
technologies,and regulation in the context of your business.
Brainstorm cards are a useful tool created by the Board of Innovation for coming up
with dozens of new ideas related to whatever challenge or problem you are currently
working with.
Brainstorm cards help you consider external factors such as: societal trends, new
technologies,and regulation in the context of your business.

Analogy thinking
It is a technique for using information from one source to solve a problem in another
context. Often one solution to a problem or opportunity can be used to solve another
problem.

Analogy thinking can, for example, be used for analyzing a successful business,
identifying what makes it great, and then applying those same principles for your business.
This is an effortless method for coming up with new ideas that are pre-validated.
The purpose of generating new ideas is about improving what already exists as well as
comingup with something new.

Coming up with completely new ideas can help you approach your problem or
opportunity from a new perspective. It enables you to expand the range of ideas beyond
your current way of thinking which eventually leads to more ideas.

Creativity and innovation

Creativity is thinking new things, the ability to develop new ideas and to discover new
ways oflooking at problems and opportunities.

Innovation is doing new things, the ability to apply creative solutions to those
problems andopportunities in order to enhance people‘s lives or to enrich society.

Creativity and innovation are two related but separate notions, and each is
required forworkplace success
 Innovation is the process of turning a new concept into commercial success or
widespread use. Invention is the creation of a new idea or concept. Creativity is the act
of turning new and imaginative ideas into reality.

Creativity

Creativity is the act of turning new and imaginative ideas into reality. Creativity is
characterized by the ability to perceive the world in new ways, to find hidden patterns, to
make connections between seemingly unrelated phenomena, and to generate solutions.
Creativity involves two processes: thinking, then producing.
If you have ideas but don‘t act on them, you are imaginative but not creative.
―Creativity is a combinatorial force: it‘s our ability to tap into our ‗inner‘ pool of resources
– knowledge, insight, information, inspiration and all the fragments occupy our minds –
that we‘ve accumulated over the years just by being present and alive and awake to the
world and to combine them in extraordinary new ways.‖ — Maria Popova, Brainpickings
―Creativity is the process of bringing something new into being. Creativity requires
passion and commitment. It brings to our awareness what was previously hidden and
points to new life. The experience is one of heightened consciousness: delight.‖ – Rollo
May, The Courage to Create
This possible in business, I believe so, but you have to be willing to take risks and
progressthrough discomfort to get to the finish line.
―A product is creative when it is (a) novel and (b) appropriate. A novel product is
original not predictable. The bigger the concept and the more the product stimulate
further work and ideas,the more the product is creative.‖
Innovation
It is the implementation of a new or significantly improved product, service or process
thatcreates value for business, government or society.

Some people say creativity has nothing to do with innovation— that innovation is a
discipline, implying that creativity is not. Creativity is also a discipline and a crucial part
of the innovation equation. There is no innovation without creativity. The key metric in
both creativity and innovation is value creation.
Innovation is important because it‘s the only way that you can differentiate your products
and services from those of your competitors. For customers and clients to choose your
business, your offer needs to be distinctive and valuable, and the only way to achieve this
is through innovation.
The main difference between creativity and innovation is the focus. Creativity is about
unleashing the potential of the mind to conceive new ideas. Innovation is about
introducing
change into relatively stable systems. It's also concerned with the work required to make
an ideaviable.

"Creativity" and "innovation" are two words that are constantly thrown around in
brainstormingsessions, corporate meetings and company mission statements.
Business opportunity
In general sense, the term opportunity implies a good chance or a favorable situation to
do something offered by circumstances. In the same vein, business opportunity means a
good or favorable change available to run a specific business in a given environment at a
given point oftime.

Business opportunity may be defined as a set of favorable circumstances in which an

entrepre- neur can exploit a new business idea that has the potential to generate profits.
Businessopportunities have the following four fundamental features:

 They create or add significant value to the customer.

 They solve a significant problem by removing pain points
or meeting a significant want or need for which someone is
willing to pay a premium.
 They have a robust market, margin, and money making
characteristics that will allow the entrepreneur to estimate and
communicate sustainable value to potential stakeholders.
 They are a good fit with the founder(s) and management teams
at the time and marketplace along with an attractive risk—
reward balance.
Good Business opportunity

An idea is a thought or a concept that comes into existence in the mind as product of
mental activity. A business idea is an idea that can be used for commercial purposes.
There can be many sources of business ideas, including the following':

 A resolved problem faced by an actual or potential entrepreneur.

 An unmet customer need discovered by an actual or potential
entrepreneur at a place of employment.
 Changes in the business environment.

Not all business ideas are found to be good business opportunities. This simple five-step
framework helps screen ideas and find out whether a business idea truly represents a good
business opportunity. An opportunity is characterized by the following:

• Urgency of the market need:

The business idea should envision a product or service that satisfies a market
need or a need of the customer. The market need has to be carefully
assessed by consulting industry experts as well as potential customer. It is
important to focus on the "need" of the customer rather than on the attributes of
the offering and to evaluate the urgency of that need in order to gain the assurance
that there are customers ready to purchase that product/ service once it hits the
market. The greater the market need, the greater the opportunity for profitable
business.
 • Adequate market size:
A business usually targets a particular market segment after assessing their
demographic, geographical, and lifestyle factors. In order to make the business
viable, a large number of potential customers should exist. There is a need to find
out thepotential market size for the product or service.

• Sound business model:

In simple terms, a business model is a broad range of descriptions of various
aspects of business, such as purpose, strategies, infrastructure, organizational
structures, marketing programmes, and operational processes and policies. In
other words, a business model clearly gives the outline or the rationale of how the
potential entrepreneur intends to satisfy a customer need and create value. A
business model that presents a plan to generate profits within three to five years is
considered to be relatively good.

• Potential brand value:

The product/service being offered must bc differentiated from those
being offered by competitors to maintain a competitive advantage in the
market. It is necessary to assess the potential brand value of the product
or service envisioned in order to ensure a fair chance of survival against
competition by existing as well as future products.
• An able management team:
The ability and passion of team members to use a business opportunity is
important to success. The team should have contacts among suppliers,
competitors, and customers. The number and quality of contacts up and
down the value chain is an important determinant of eventual business
success. On the whole, the business should
be big enough to make it worthwhile and the team should be looking forward to
beinginvolved with it for long time.
Generation o f Business Ideas

A business opportunity is a set of favorable circumstances that creates a need for a

new product or service. A business idea becomes a good business opportunity
when it hasthe following four essential qualities':

 Attractiveness.
 Timeliness.
 Durability.
 The quality of being anchored in a product or service that creates or
adds valuefor its buyer or end user
Having business ideas is central to the task of identifying business

opportunities.Ways to generate business ideas are:

• Brainstorming
Brainstorming is a technique used to quickly generate a large number of
 ideas and solutions to problems. The brainstorming session is conducted to
generate ideas that might represent business opportunities. Brainstorming
works well individually as well as with a varied group of people. A group
brainstorming session requires a facilitator, white board, and space to
accommodate the participating people. Brainstorming works well with 8-
12 people and should be performed in a relaxed environment. Participants
are encouraged to share every idea that enters their mind with the
assurance that there is no right or wrong answer. The brainstorming
session usually starts with the facilitator broadly stating the problem and
setting the time limit (such as, say, 30 minutes) for the session. The
facilitator clearly sets down the rules. discouraging criticism of any kind
and encouraging a freewheeling approach, the voicing of as many ideas
as possible, and a collective and constructive effort towards the
improvement of ideas. Once the session starts, participants can informally
present their ideas for possible solutions. The facilitator writes each
idea down for everyone to see. Once time is up, the best ideas are
selected, based on a few criteria decided upon in advance (such as, say.
cost- effectectiveness). The selection must be made on the basis of a
consensus
from everyone in the group. Next, it score (say, zero to ten points) is given
to each idea depending on how well it meets the criteria. The idea with
the highest score may be used to solve the problem. However, it is
advisable for the facilitator to keep a record of the best ideas in case
the chosen best idea does not work. The facilitator should make the
session fun for everybody, with no one dominating or inhibiting the
discussion
with no one dominating or inhibiting the discussion.
• Survey Method
The survey method is used to collect information by direct observation of
a phenomenon or systematic gathering of data from a set of people.
The survey method involves gathering information from a representative
sample population, that is, a fraction of the whole population under
study that presents an accurate proportional representation of that
population. Surveys generate new products, services. and business ideas
because they ask specific questions and get specific answers.
• Reverse Brainstorming
This is a method that is similar to brain storming, with the exception that
criticism is allowed. It is, therefore, also called "negative
brainstorming." In this technique, the focus is on the negative aspects of
every idea that has been generated through brainstorming. Also called the
"sifting" process, this process most often involves the identification of
everything that is wrong with an idea, followed by a discussion of ways
to overcome these problems.
 • The Gordon Method
This is a creative technique to develop new ideas. This method is similar
to brainstorming. Collective discussion addresses every aspect of the
planned product in an uninhibited solution-oriented way.

Creation of Opportunities

Entrepreneurial opportunities varies because of certain external changes, such as

 Technological change,
 Regulatory and political change,
 Social and demographic change, and
 Economic change.

Technological Changes:

Technological changes lead to entrepreneurial opportunities because they make it

possible for people to do things in new and more productive ways. Technological
changes can take the
form of five forms of business opportunity—new products and services, new methods of
production, new markets, new ways of organizing, and new raw material.

Political and Regulatory Changes:

Political and regulatory changes lead to business opportunity by paving the way for
new, more productive use of resources or a redistribution of wealth from one person to
another. Statutory and regulatory requirements create opportunities for entrepreneurs to
Start firms thathelp other firms and the community to comply with the requirements.

Social and Demographic Changes :

Social and demographic changes, such as changes in family and work Patterns, the
ageing of the population, increasing diversity at the workplace, increasing focus
on health and fitness, the increase in the number of cell phone and Internet users,
and new forms of entertainment, lead to the creation of business opportunities
because they alter people's preferences or demand for products and services, and
consequently make it possible to generate new ideas to meet new demands.
Economic Changes:

Economic forces affect business opportunities by determining who has money to spend.An
increase in the number of women in the workforce over the last few decades and their
related increase in disposable income is largely responsible for the number of boutique
clothing storestargeting professional women that have opened in the past few years.
Identification of Business Opportunity

Several studies have shown that previous experience in an industry helps entrepreneurs to
recognize business opportunities. In addition, the extent and depth of an individual's
social network also affects the identification of opportunity. People who build a
substantial network of social and professional contacts will be exposed to more
opportunities and ideas than people with sparse networks. Studies have demonstrated that
the identification of a business opportunity may also be a cognitive process or an innate
skill. Some people believe that entrepreneurs have an intuition or a -sixth sense, that
allows them to see opportunities that others miss. Creativity is the process of generating a
novel or useful idea. Opportunity recognition may be, at least in part, a creative process as
well.
It is important for entrepreneurs to grab a business opportunity before the market becomes
satu- rated with competitors and the window of opportunity is closed to them. There are
three general approaches entrepreneurs use to identify an opportunity. They are:

1. observing trends:

Entrepreneurs can identify business opportunities by carefidli observing trends. The most
important trends to follow are economic, social, technological, and political trends.

2. Solving a problem:

Another approach to identifying business opportunities is to recognize and solve a

pressing problem that customers are facing today. From an entrepreneur's point of
view, every problem is a disguised opportunity.

3. Finding gaps in the marketplace:

A third approach to identifying business opportunities is to find a gap between what is
needed by the customer and what is actually provided to the customer. Finding
such gapscan help entrepreneurs develop new products and improve existing ones.
Business Opportunities in India

Being the seventh-largest country in the world by area and the second largest
bypopulation. India has a growing market and is a land of opportunities. The
opportunities for importing, exporting, trading, investing, and franchising are
immense. A potential entrepreneur needs to take into account the economy,
the consumer, and business trends. One should also understand that what
may be a

good business opportunity for one entrepreneur may not be a good opportunity for
another.

It is essential for entrepreneurs to pick opportunities that they are passionate about.
There are several factors that create favorable business opportunities in India:

 India is a well-established democratic country with free and fair judicial system.
 The country also has a well-established banking system consisting of public and
privatebanks and other financial institutions.
 The country has a huge middle-class with enhanced purchasing power. Coupled
with high growth economy, this creates the potential for huge growth in
manufacturing, services, andthe retail sector.
 India has vibrant trade links with the South Asian Association for Regional
Cooperation (SAARC) nations such as Sri Lanka, Pakistan, Nepal, Bhutan,
Bangladesh, and the Mal-dives.
 India has a competitive advantage in the global market with the availability of a
huge pool of cheaper labour and knowledgeable workers to enhance industrial
productivity.
 Economic reforms and policy changes have created an investment- friendly
environment.

 The capital markets in India are one of the fastest-growing markets in the world,
attracting huge foreign investments. A lot of international companies have started
outsourcing and setting up international operations in the country.
 The country is self-sufficient in agriculture and rich in natural resources.
 India is it part of the BRICS group of nations comprising Brazil, Russia, China, and
SouthAfrica.
 India has developed vibrant trade links with these nations.

Market entry strategy in India

A market entry strategy is the planned method of delivering goods or services to a new
targetmarket

India is the second-most populous market in the world, but also among the most
complex toenter as a company without any previous experience in the region.
5 tips for better Indian market entry strategy

1. Find the right partner

India is the world‘s seventh largest economy in terms of GDP, and has a population
of 1.3 billion people. It is a complex market for the best Indian companies, and even
more so for companies from abroad. Businesses with a pre-determined mindset and
less exposure to international markets might find the commerce culture in India too
intimidating.
Identifying the right partner goes a long way in successfully navigating the complexities
of the local business environment for a new entrant into the Indian market. A local
partner can provide much-needed assistance in understanding the Indian market. This
partner can give you valuable market insights on competition, regulation and other
important issues. Localize your products to meet consumer needs and preferences.

India is a vast and diverse country encompassing many different identities, languages,
cultures and religions. It is important to avoid making generalizations or assumptions, as
local practicesand consumer behavior may vary substantially from region to region.
Since India has such a pluralistic, multilingual society, more often than not, a one
solution fits all approach doesn‘t work. Even a global bigwig like McDonald‘s had to
localize its product
offerings based on the fact that half of Indians are vegetarian. They also have to leave
their most popular item, beef burgers, off the shelf given the religious sensibilities of the
Indian population.
2. Remember the high level of price sensitivity
It is extremely important for a new entrant into the Indian market to get its price strategy
right, particularly if it‘s targeted towards the low and middle income populations. Even
with a growingeconomy and a growing middle class, there‘s no denying the fact that India
is still a low middle income economy, with a per capita income of around $2,000 and a
huge population still living below the poverty line. Since the government cannot afford to
provide for education and healthcare coverage, the majority of the population has to pay
for these necessities from their own income. With little disposable income left after
covering basic amenities, there‘s not much money left in the hands of a significant portion
of the population. This makes the market price sensitive as many people need to spend
judiciously.

3. Enter the Indian market for long-term growth, not to make a quick buck
India is certainly not a place for businesses to make quick gains – you need to be invested
for
the long haul. Although it‘s a huge market with a population of 1.3 billion people,
including 400million middle class consumers, it has its share of challenges when it comes
to market entry.
Because India is such a huge and attractive opportunity, there is no dearth of competition.
More often than not, you have companies looking for market share and compromising on
potential short-term profitability in order to establish themselves more firmly there.
Given the complexity of the market, it takes time for the companies to understand the
environment and develop the right strategy.
4. Prepare to navigate a much different legal and regulatory landscape
The Indian judicial system follows ―common law‖, and the constitution has provided for a
single integrated system of courts to administer both union and state laws. Due attention
should be paid, including seeking professional advice, before entering into a formal
agreement. Court judgments are often delayed because of the huge backlog of cases, so
any agreement should provide the scope for alternate dispute resolution mechanisms.
Feasibility Analysis or Project Analysis

Feasibility (possibility) analysis is used to determine the viability of an idea, such as

ensuring
a project is legally and technically feasible as well as economically justifiable. It tells us
whethera project is worth the investment.

It ultimately tests the viability of an idea, a project, or a new business.

A feasibility study may become the basis for the business plan, which outlines the action
steps
necessary to take a proposal from ideation to realization. A feasibility study allows a
business to
address where and how it will operate, its competition, possible hurdles, and the funding
needed
to begin. The business plan then provides a framework that sets out a map for following
through
and executing on the entrepreneurial vision.

A well-designed study should offer a historical background of the business or project,

such as a description of the product or service, accounting statements, details of
operations and management, marketing research and policies, financial data, legal
requirements, and tax obligations. Generally, such studies lead technical development
and project implementation

This is also known as project feasibility study. Once a project proposal is identified and
if the project seems worthwhile, detailed analysis of the marketing, technical,
economical, andecological aspects are under taken.

Based on the information developed in the analysis, the stream of costs and benefits
associated with the project can be defined. The important aspect of project analysis is
market analysis, technical analysis, financial analysis, economic analysis, and ecological
analysis. A schematic diagram of the project feasibility study is shown in figure.
 Figure 4.3: Project Feasibility study Schematic Diagram

Types of Feasibility Analysis:

This feasibility can be ascertained on following parameters:

1) Marketing feasibility
2) Financial Feasibility
3) Political feasibility
4) Economic Feasibility
5) Social Feasibility
6) Legal feasibility
7) Technical Feasibility
8) Managerial feasibility
9) Location and other feasibility

1)Marketing feasibility

This mainly deals with determining the potential market and the market share for the
proposed project. Market analysis is concerned with forecasting the demand for the
product/service under consideration. It requires finding a variety of information on
consumption trends, cost structures,

structures of the competition, the elasticity of demand, consumer behaviour, and

exports andimports.

In simple words it determines whether a product or service can sustain in a specific market
or notas well as whether it is capable of generating financial surplus for the firm or not.
Most market feasibility studies include:-

 Description of the industry

 Current Market Analysis
 Competition or presence of competing products.
 Anticipated future market potential.
 Potential buyers and sources of revenues.
 Sales projections.

Market feasibility tests can be carried out not only on products but on ideas,
campaigns,processes and entire businesses too.

2)Financial Feasibility
This mainly deals with determining the risk and return for the proposed project. Financial
analy- sis seeks to ascertain whether the proposed project will be financially viable. It
requires finding a variety of inhumation on the cost of the project and the means of
finance; the cost of capital, the projected liability; cash flows of the project, the break-
even point, the level of risk, the investment outlay and worthiness, and projected financial
position.

In order to ascertain financial viability, financial projections are made and on the basis
of such projections which need to be objective and realistic, the followings broad
parameters are evaluated for determining the feasibility of the project-
a. Return on Investment
b. Payback period of the outlay
c. Internal rate of return
d. Profitability index.
In case of a new project, financial viability can be judged on the following parameters:
a. Total estimated cost of the project
b. Financing of the project in terms of its capital structure, debt to equity ratio and
promoter‘sshare of total cost
c. Existing investment by the promoter in any other business
d. Projected cash flow and profitability
The financial viability of a project should provide the following information:
a. Full details of the assets to be financed and how liquid those assets are
b. Rate of conversion to cash-liquidity
c. Project‘s funding potential and repayment terms
d. Sensitivity in the repayments capability to the following factors
e. Mild slowing of sales
f. Acute reduction/slowing of sales
g. Small increase in cost
h. Large increase in cost
i. Adverse economic conditions.
If, on the above mentioned parameters, the project is found suitable, then only further
feasibilitytests are carried out.
3)Political feasibility

Political feasibility is a measure of how well a solution to a policy problem, will be

accepted by a set of decision makers and the general public. For a policy to be enacted and
implemented, it must be politically acceptable, or feasible.

Political feasibility analysis is used to predict the probable outcome of a proposed

solution to a policy problem through examining the performer, events and environment
involved in all stages of the policy-making process. It is a frequently used component of a
policy analysis and can serve as an evaluative criterion in choosing between policy
alternatives.
Feasible policies must be politically acceptable or at least not unacceptable. Political
unacceptability is a combination of two conditions too much opposition or too little
support. One common mistake is widespread in practice that feasibility becomes a
dominant criterion of preferable alternative. Feasibility is ―the state or degree of being
easily or conveniently done
Political feasibility is a measure of how well a solution to a policy problem, will be
accepted by a set of decision makers and the general public. For a policy to be enacted and
implemented, it must be politically acceptable, or feasible.
Alternatively, a politically feasible alternative is one that has the greatest
probability of "receiving sufficient political push and support to be implemented"
given any specific constraints.
When policy analysis generates policy alternatives, the political risks and costs associated
with each can be important criteria for deciding between alternatives. A good policy
alternative requires a certain amount of political feasibility, or implementation of the
policy will be impossible. It is important to keep in mind; however, that feasibility alone
does not make a policy "good." Examining all criteria is necessary for the implementation
of socially responsiblepolicy.
Politics are difficult to predict but it has been said that "no decision is ever made in
complexsystems without political feasibility having played some role.

4) Economic Feasibility
This is also called social-cost benefit analysis and is mainly concerned with judging a
project from the social point of view. The focus is on the social costs and benefits of the
proposed project. It deals with determining benefits and costs in terms of shadow prices
and other social impacts. Economic analysis requires finding a variety of information on
economic costs and benefits measured in terms of the efficiency (shadow) prices,
employment to be generated by the project, impact of the project on the distribution of
income in society; and the impact of the project on the level of savings and investment in
society.
The purpose of an economic feasibility study (EFS) is to demonstrate the net benefit of a
proposed project for accepting or disbursing electronic funds/benefits, taking into
consideration the benefits and costs to the agency, other state agencies, and the general
public as a whole.
In sync with the phrase ―Parity between haves and have not‘s‖, a social cost-benefit
analysis (SCBA) of the project should be carried out. This ensures that the organization is
contributing to the GDP of the economy and is also discharging its social obligations, by
providing employment opportunities and bringing in improvement in quality of life.
The purpose of business in a capitalist society is to turn a profit, or to earn positive
income. While some ideas seem excellent when they are first presented, they are not
always economically feasible. That is, that they are not always profitable or even possible
within a company‘s budget. Since companies often determine their budgets several months
in advance, it is necessary to know how much of the budget needs to be set aside for future
projects.
Economic feasibility helps companies determine what that amount is before a project is
ultimately approved. This allows companies to carefully manage their money to insure the
most profitable projects are undertaken. Economic feasibility also helps companies
determine whether or not revisions to a project that at first seems unfeasible will make it
feasible.

5) Social Feasibility:
Social feasibility is a detailed study on how one interacts with others within a
system or an organization. Social impact analysis is an exercise aimed at identifying
and analyzing such impacts in order to understand the scale and reach of the
project‘s social impacts.
At a minimum, all projects demand a review of project data at the Appraisal Phase, so as
to identify if material social impacts exist. Social impact analysis greatly reduces the
overall risks of the project, as it helps to reduce resistance, strengthens general support,
and allows for a more comprehensive understanding of the costs and benefits of the
project.
However, social impact analysis can be expensive and time consuming, so the full
analysis process cannot be justified for all projects. At a minimum, all projects demand a
review of project data at the Appraisal Phase, so as to identify if material social impacts
exist. If they do, afull social impact analysis should be conducted.
6)Legal Feasibility:
It should first be determined whether the proposed project conflicts with legal
requirements, and if the proposed venture is acceptable in accordance to the laws of the
land. The project team has to make a thorough analysis of the legal issues surrounding the
project, across several dimensions.
A detailed legal due diligence should be done to ensure that all foreseeable legal
requirements, which have not or will not be dealt with, in other appraisal exercises, are
met for the development of the project.
The main objectives of the legal feasibility analysis are as follows:
a. To ensure that the project is legally doable;
b. To facilitate risk management, indicating the risks and obstacles that need to be
addressed within the technical analyses, the financial model and/or the Value for
Money analysis; and
c. To avoid, to the extent possible, major problems in the project‘s development and
implementation, specifying the requirements that need to be considered at subsequent
stages ofthe PPP process, [public private partnership

7) Technical Feasibility

This principally deals with determining the technical viability for successful
commissioning of the proposed project and for ascertaining whether sensible choices
have been made with respect to location, size, process, etc. Technical analysis requires
finding a variety of information on the

availability of raw material and various other inputs, the type of technology to be
adopted, choosing a suitable layout for the site, building and plant, and choosing the
appropriate plant,machinery, and process.

This assessment is based on an outline design of system requirements, to determine

whether the company has the technical expertise to handle completion of the project.
When writing a feasibility report, the following should be taken to consideration.
The technical feasibility assessment is focused on gaining an understanding of the
present technical resources of the organization and their applicability to the expected
needs of the proposed system. It is an evaluation of the hardware and software and how
it meets the need ofthe proposed system.
An in depth and critical study of following parameters is done:
a. Plant location
b. Layout
c. Plant & machinery and equipment
d. Manufacturing process
e. Infrastructure
f. Technology
g. Efficient waste disposal.
The technical feasibility assessment is focused on gaining an understanding of the
present technical resources of the organization and their applicability to the expected
needs of the proposed system. It is an evaluation of the hardware and software and how
it meets the need ofthe proposed system.
8) Managerial feasibility
Managerial feasibility analysis is a form of project analysis that look at every aspect of a
proposal to determine its likelihood of success before commencing. These types of
studies take an objective look at the strengths and weaknesses of the proposed project to
see how viable theidea is in terms of generating profit and meeting objectives.

Managerial Feasibility analysis objectively and rationally uncover the strengths and
weaknesses of an existing business or proposed venture, opportunities and threats which
are presented by the environment, the resources required to carry through, and ultimately
the prospects for success. Inits simplest terms, the two criteria to judge feasibility are cost
required and value to be attained. Managerial feasibility study is an analysis of the
viability of an idea.
9) Location and other feasibility

Location feasibility

There is a saying that the three most important considerations in business are location,
location, location. If you‘re starting a new business that operates primarily offline,
location is critical.

Your business location analysis should take into account demographics, psychographics,
censusand other data, location analysis is to maximize chances of success in business.

The location of a retail outlet is the most influencing factor for the success of the
business. Therefore selecting a location for a retail store or an outlet is a challenging
process. The purpose of this study is to define a method and develop a system to analyze
the feasibility of a selected location for a retail store.

Consumer surveys were conducted in selected areas to get information about

consumers' shopping patterns and selections. From the web service, identify transport
modes, locations ofcompeting stores and shopping areas.

The retail industry is a fast growing and a highly revenue generating industry. The
location of a retail outlet is the most influencing factor for the success of the business.
Therefore selecting a location for a retail store or an outlet is a challenging process. The
purpose of this study is to define a method and develop a system to analyze the feasibility
of a selected location for a retailstore.

Many hospitality and restaurant businesses fail due to inappropriate location or market
entries.
Location feasibility and market studies are an essential part of the building or
growing abusiness.

Other Feasibilities-

Schedule Feasibility:

A project will fail if it takes too long to be completed before it is useful. Typically this
means estimating how long the system will take to develop, and if it can be completed
in a given time period using some methods like payback period. Schedule feasibility is a
measure of how reasonable the project timetable is.
Some projects are initiated with specific deadlines. It is necessary to determine
whether the deadlines are mandatory or desirable. To do proper scheduling, the
versatile techniques likePERT & CPM is adopted.

Resource Feasibility:
This involves questions such as how much time is available to build the new system,
when it can be built, whether it interferes with normal business operations, type and
amount of resources required, dependencies, and developmental procedures with company
revenue prospects.
There are resources necessary to complete any project. All the important resources like
human resource, artificial resources, financial resource etc. are taken care of by
indulging in complete research on feasibility of the resources needed to complete the
project.

Operational Feasibility:
Operational feasibility is the measure of how well a proposed system solves the
problems, and takes advantage of the opportunities identified during scope definition
and how it satisfies the requirements identified in the requirements analysis phase of
system development.
The operational feasibility assessment focuses on the degree to which the proposed
development projects fits in with the existing business environment and objectives with
regard to development schedule, delivery date, corporate culture and existing business
processes.
To ensure success, desired operational outcomes must be imparted during design and
development. These include such design-dependent parameters as reliability,
maintainability, supportability, usability, producibility, disposability, sustainability,
affordability and others. These parameters are required to be considered at the early stages
of design if desired operational behaviours are to be realised.

Commercial Feasibility:
Commercial Feasibility is ascertained by finding out the following:
a. Current and Potential competition
b. Profit margin
c. Size of the market.
d. Degree of demand for the product
e. Future growth of market

Environmental Feasibility:
The environmental feasibility study considers both human and environmental health
factors. The EF is a comparative process that looks at all potential solutions, and then
evaluates them against specific criteria to ultimately find the best choice. It is a fact that
external environment exerts considerable influence on the organizations. In fact the
climatic conditions in a particular area/region have a significant impact on the existence
of an enterprise. Therefore, it is necessaryto ascertain the environment viability as well.

The parameters considered are:

a. Overall protection of public and environmental health
b. Effective reduction of hazardous waste toxicity, mobility and volume.
c. Long-term and short-term effectiveness of environmental policies of the company
d. Potential consequences of the remedial measures taken for protecting environment

Ecological Feasibility
This mainly deals with determining the quantum of damage likely to be caused by the
proposed project to the environment, and the cost of restoration measures required to
beundertaken to ensure that the damage to the environment is within acceptable limits.