Applied Economics

MODULE
Module No. 2-3: Week 2-3: Second Quarter

TOPIC: Business Opportunities Identification

Learning Competencies
Apply business principles, tools, and techniques in participating in various types of
industries in the locality.
Code: ABM_AE12-IIa-d-10

Objectives
After reading and analyzing this module, the learners will be able to
1. discuss identify business opportunities
2. define the localization of industries

Let’s Recall
Multiple Choice. Choose the letter of the correct answer.

For numbers 1-5

A. Supplier Power D. The Threat of Substitution
B. Buyer Power E. The Threat of New Entry
C. Competitive Rivalry
1. The strength of competition in the industry.
2. The power of your customers to drive down your prices.
3. The extent to which different products and services can be used in place of your own.
4. The power of suppliers to drive up the prices of your inputs.
5. The case with which new competitors can enter the market if they see that you are making good
profits (and then drive your prices down)
6. Which of the following is not part of the external marketing environment?
A. Political B. Legal C. Product D. Socio-cultural
7. …… is an important analytical tool as it draws attention to the cash flow and investment
characteristics of each of a firm’s offerings and indicates how financial resources can be maneuvered
to attain optimal strategic performance over the long term.
A. SWOT analysis C. Portfolio analysis
B. Political analysis D. Competitive analysis
8. The process of collecting information about the external marketing environment is:
A. environmental management C. marketing management
B. environmental scanning D. marketing research
9. The six dimensions usually considered to constitute the external marketing environment include all
of the following except:
A. political considerations C. socio-cultural aspects
B. global factors D. economic issues

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10. The differentiation of a firm’s products or services to promote environmental responsibility is
referred to as:
A. social branding C. me-too branding
B. eco-branding D. brand personality
11. Simple but powerful tool for understanding where power lies in a business situation.
A. Porter’s Five Forces C. PEST Analysis
B. SWOT Analysis D. Target Segment
12. External factors that could threaten the success of the business venture or project are listed and
addressed.
A. Strengths C. Opportunities
B. Weaknesses D. Threats
13. External elements that will prove helpful in achieving the goals set for the project.
A. Strengths C. Opportunities
B. Weaknesses D. Threats
14. Have to do with internal factors that could prevent the achievement of a successful result to the
project.
A. Strengths C. Opportunities
B. Weaknesses D. Threats
15. Characteristics within the organization that are considered to be important to the execution and
ultimate success of the project.
A. Strengths C. Opportunities
B. Weaknesses D. Threats
16. This concept is used as a tool by companies to track the environment they are operating in or are
planning to launch a new project/product/service.
A. Porter’s 5 Competitive Forces Model C. PEST Analysis
B. SWOT Analysis D. Target Segment
17. These factors scrutinize the social environment of the market, and gauge determinants like
cultural trends, demographics, population analytics etc.
A. Society C. Economic
B. Political D. Social
18. These factors determine the extent to which a government may influence the economy or a
certain industry.
A. Society C. Economic
B. Political D. Social
19. These factors are determinants of an economy’s performance that directly impacts a company and
have resonating long term effects.
A. Society C. Economic
B. Political D. Social
20. These factors pertain to innovations in technology that may affect the operations of the industry
and the market favorably or unfavorably.
A. Technological C. Environmental
B. Legal D. Political
21. These factors have both external and internal sides. Consumer Laws, Safety Standards, Labor Laws
etc.
A. Technological C. Environmental
B. Legal D. Political
22. These factors include all those that influence or are determined by the surrounding environment.
A. Technological C. Environmental
B. Legal D. Political

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 Let’s Understand
Identification of Business Opportunity: Idea Generation and 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 of time.
The term ‘opportunity’ also covers a product or project. Hence, the identification of an opportunity
or a product or project is identical and, therefore, all these three terms are used as synonyms. The
Government of India’s “Look East Policy” through North East is an example of ‘opportunity’ to do
business in items like tea, handicrafts, herbals, turmeric, etc.
Opportunity identification and selection are like comer stones of business enterprise. Better the
former, better is the latter. In a sense, identification and selection of a suitable business opportunity
serves as the trite saying ‘well begun is half done.’ But it is like better said than done. Why? Because if
we ask any intending entrepreneur what project or product, he/she will select and start as an enterprise,
the obvious answer he/she would give is one that having a good market and is profitable. But the
question is how without knowing the product could one know its market?
Whose market will one find out without actually having the product? Whose profitability will one
find out without actually selling the product? There are other problems, besides. While trying to identify
the suitable product or project, the intending entrepreneur passes through certain processes.
The processes at times create a situation, or say, dilemma resembling ‘Hen or Egg’ controversy.
That is, at one point, the intending entrepreneur may find one product or project as an opportunity and
may enchant and like it, but at the other moment may dislike and turn down it and may think for and
find other product or project as an opportunity for him/her. This process of dilemma goes on for some
intending entrepreneurs rendering them into the problem of what product or project to start. Then, how
to overcome this problem of product identification and selection?
One way to overcome this dilemmatic situation is to know how the existing entrepreneurs identified
the opportunity and set up their enterprises. An investigation into the historical experiences of Indian
small enterprises in this regard reveals some interesting factors.
To mention the important ones, the entrepreneurs selected their products or projects based on:
a. Their own or partners’ past experience in that business line;
b. The Government’s promotional schemes and facilities offered to run some specific business
enterprises;
c. The high profitability of products;
d. Which indicate increasing demand for them in the market?
e. The availability of inputs like raw materials, labor, etc. at cheaper rates;
f. The expansion or diversification plans of their own or any other ongoing business known to them;
g. The products reserved for small-scale units or certain locations.
Now, having gained some idea on how the existing entrepreneurs selected products/projects, the
intending entrepreneur can find a way out of the tangle of which opportunity/product/project to select
to finally pursue as one’s business enterprise.
One of the ways employed by most of the intending entrepreneurs to select a suitable
product/project is to firstly generate ideas about a few products/ projects. Accordingly, what follows
next is a discussion idea generation about products.
Idea Generation:
Sources of Ideas:
In a sense, opportunity identification and selection are akin to, what is termed in marketing terminology,
‘new product development.’ Thus, product or opportunity identification and selection process starts
with the generation of ideas, or say, ideas about some opportunities or products are generated in the
first instance.
The ideas about opportunities or products that the entrepreneur can consider for selecting the most
promising one to be pursued by him/her as an enterprise, can be generated or discovered from various
sources- both internal and external.

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These may include:
(i) Knowledge of potential customer needs,
(ii) Watching emerging trends in demands for certain products,
(iii) Scope for producing substitute product,
(iv) Going through certain professional magazines catering to specific interests like electronics,
computers, etc.,
(v) Success stories of known entrepreneurs or friends or relatives,
(vi) Making visits to trade fairs and exhibitions displaying new products and services,
(vii) Meeting with the Government agencies,
(viii) Ideas given by the knowledgeable persons,
(ix) Knowledge about the Government policy, concessions and incentives, list of items reserved for
exclusive manufacture in small-scale sector,
(x) A new product introduced by the competitor, and
(xi) One’s market insights through observation.
In nutshell, a prospective entrepreneur can get ideas for establishing his/ her enterprise from various
sources. These may include consumers, existing products and services presently on offer, distribution
channels, the government officials, and research and development.
A brief mention about each of these follows in turn:
Consumers:
No business enterprise can be thought of without consumers. Consumers demand for products and
services to satisfy their wants. Also, consumers’ wants in terms of preferences, tastes and liking keep
on changing. Hence, an entrepreneur needs to know what the consumers actually want so that he/she
can offer the product or service accordingly. Consumers’ wants can be known through their feedback
about the products and services they have been using and would want to use in future.
Existing Products and Services:
One way to have an enterprise idea may be to monitor the existing products and services already
available in the market and make a competitive analysis of them to identify their shortcomings and then,
based on it, decide what and how a better product and service can be offered to the consumers. Many
enterprises are established mainly to offer better products and services over the existing ones.
Distribution Channels:
Distribution channels called, market intermediaries, also serves as a very effective source for new ideas
for entrepreneurs. The reason is that they ultimately deal with the ultimate consumers and, hence, better
known the consumers’ wants.
As such, the channel members such as wholesalers and retailers can provide ideas for new product
development and modification in the existing product. For example, an entrepreneur came to know from
a salesman in a departmental store that the reason his hosiery was not selling was its dark shade while
most of the young customers want hosiery with light shade. The entrepreneur paid heed to this feedback
and accordingly changed the shade of his hosiery to light shade. Entrepreneur found his hosiery
enjoying increasing demand just within a month.
Government:
At times, the Government can also be a source of new product ideas in various ways. For example,
government from time to time issues regulations on product production and consumption. Many a times,
these regulations become excellent sources for new ideas for enterprise formation.
For example, government’s regulations on ban on polythene bags have given new idea to
manufacture jute bags for marketing convenience of the sellers and buyers. A prospective entrepreneur
can also get enterprise idea from the publications of patents available for license or sale.
Besides, there are some governmental agencies that assist entrepreneurs in obtaining specific
product information. Such information can also become basis for enterprise formation.
Research and Development:
The last but no means the least source of new ideas is research and development (R&D) activity. R&D
can be carried out in-house or outside the organization. R&D activity suggests what and how a new or
modified product can be produced to meet the customers’ requirements.
Available evidences indicate that many new product developments, or say, new enterprise
establishments have been the outcome of R&D activity. For example, one research scientist in a Fortune

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500 company developed a new plastic resin that became the basis of a new product, a plastic molded
modular cup pallet. Most of the product diversifications have stemmed from the organization’s R&D
activity.
Methods of Generating Ideas:
As seen above, there could be variety of sources available to generate ideas for enterprise formation.
But, even after generating ideas to convert these into enterprise is still a problem for the prospective
entrepreneur. The reason is not difficult to seek.
This involves a process including first generating the ideas and then scrutinizing of the ideas
generated to come up with an idea to serve as the basis for a new enterprise formation. The entrepreneur
can use several methods to generate new ideas. However, the most commonly used methods of
generating ideas are: focus groups, brainstorming, and problem inventory analysis.
These are discussed as follows:
Focus Groups:
A group called ‘focus group’ consisting of 6-12 members belonging to various socio-economic
backgrounds are formed to focus on some particular matter like new product idea. The focus group is
facilitated by a moderator to have an open in-depth discussion. The mode of the discussion of the group
can be in either a directive or a non-directive manner.
The comment from other members is supplied with an objective to stimulate group discussion and
conceptualize and develop new product idea to meet the market requirement. While focusing on
particular matter, the focus group not only generates new ideas, but screens the ideas also to come up
with the most excellent idea to be pursued as a venture.
Brainstorming:
Brainstorming technique was originally adopted by Alex Osborn in 1938 in an American Company for
encouraging creative thinking in groups of six to eight people. According to Osborn, brainstorming
means using the brain to storm the issue/problem. Brainstorming ultimately boils down to generate a
number of ideas to be considered for the dealing with the issue/problem.
However, brainstorming exercise to be effective needs to follow a modus operandi involving four
basic guidelines:
1. Generate as many ideas as possible.
2. Be creative, freewheeling, and imaginative.
3. Build upon piggyback, extend, or combine earlier ideas.
4. Withhold criticism of others’ ideas.
There are two principles that underlie brainstorming. One is differed judgment, by which all ideas
are encouraged without criticism and evaluation. The second principle is that quantity breeds quality.
The brainstorming session to be effective needs to work like a fun, free from any type of compulsions
and pressures.
Each member needs to have willingness and capacity to listen to others’ thoughts, to use these
thoughts as a stimulus to spark new ideas of their own, and then feel free to express them. As such,
efforts are made to keep the brainstorming session free from any sort of dominance and obstruction
derailing and inhibiting discussion to proceed in a desired manner to serve its purpose. A normal
brainstorming session lasts for from ten minutes to one hour and does not require much preparation.
Problem Inventory Analysis:
Problem Inventory analysis though seems similar to focus group method, yet it is somewhat different
from the latter in the sense that it not only generates the ideas, but also identifies the problems the
product faces. The procedure involves two steps: One, providing consumers a list of specific problems
in a general product category.
Two identifying and discussing the products in the category that, suffer from the specific problems.
This method is found relatively more effective for the reason that it is easier to relate known products
to a set of suggested problems and then arrive at a new product idea.
However, experiences available suggest that problem inventory analysis method should better be
used for generating and identifying new ideas for screening and evaluation. The results derived from
product inventory analysis need to be carefully screened and evaluated as they may not actually reflect
a genuine business opportunity.

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 For example, General Foods’ introduction of a compact cereal box in response to the problem that
the available boxes did not fit well on the shelf was not successful, as the problem of package size had
little effect on actual purchasing behavior. Therefore, to ensure the better if not the best results, problem
inventory analysis should be used primarily to generate product ideas for evaluation.
All of above sources and methods may give a few ideas about the possible projects to be examined
as the final project or product.
Opportunity/Product Identification:
After going through above process, one might have been able to generate some ideas that can be
considered to be pursued as one’s business enterprise.
Imagine that someone has generated the five ideas as opportunities as a result of above analysis:
1. Nut and bolt manufacturing (industry)
2. Lakhani Shoes (industry)
3. Photocopying unit (service-based industry)
4. Electro-type writer servicing (service-based industry).
5. Polythene bags for textile industry (ancillary industry)
An entrepreneur cannot start all above five types of enterprises due to small in size in terms of
capital, capability, and other resources. Hence, he/she needs to finally select one idea which he/she
thinks the most suitable to be pursued as an enterprise. How does the entrepreneur select the most
suitable project out of the alternatives available? This is done through a selection process discussed
subsequently.
Additional Information: What do you Need to Know
Spotting market opportunities is essential for growth and survival. You need to know where to find
these opportunities and understand how to take advantage of them.
There are a number of ways of working out what are the best opportunities for your business,
including:
➢ Carrying out an analysis of the strengths and weaknesses of your business, and the opportunities
and threats it faces (a SWOT analysis)
➢ Establishing your unique selling point (USP)
SWOT Analysis
An analysis of the strengths & weaknesses of your business, the opportunities and threats it faces and
how these factors influence your business.
Threats do not necessarily have to be a negative for your business. Consider what opportunities
you would have if the threat did not exist or did not happen and use this information to help you plan
for growth.
When considering threats to your business, identify those trends that currently affect your business
and those that could affect it over the next 12 months or so. You need to expect and plan for change.
As these trends will create both opportunities and threats, you will need to think about how you will
prepare your business to adapt to these changes. Ways you might do this include introducing new
products, altering prices, changing your marketing methods or adding value to the customer experience.
Establish you USP
Set yourself apart from your competitors by establishing your USP. Position yourself as being different
to your competitors. Identify why customers should buy from you and promote this.
Products of Business and Industry in the Locality
New Products and services are the lifeblood of all businesses. Investing in their development is not an
optional extra – it is crucial to business growth and profitability.
But embarking on the development process is risky. It needs considerable planning and
organization.
This guide will continue the key stages in the lifecycle of products and services so you know when
the time is right for your business to start the development process.
It will explain how a planned and phased development process will help you make the wisest
investment and budgeting decisions. It will also advise you on how best to create a development team
and manage a project.
The Lifecycle of Products and Services
There are five key stages in the lifecycle of any product or service.

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1. Development: At this point your product or service is only an idea. You are investing heavily in
research and development.
2. Introduction: You launch your product or service. You are spending heavily on marketing.
3. Growth: your product or service is establishing itself. You have few competitors, sales are growing
and profit margins are good. Now’s the time to work out how you can reduce the costs of delivering
the new product.
4. Maturity: Sales growth is slowing or has even stopped. You’ve been able to reduce production
and marketing costs, but increased competition has driven down prices. Now is likely to be the best
time to invest in a new product.
5. Decline: New and improved products or services are on the market and competition is high. Sales
fall and profit margins decline. Increased marketing will have little impact on sales and would not
be cost-effective unless new markets are identified.
You can extend the lifecycle of a product or service by investing in an “extension strategy”. You could:
➢ increase your promotional spending
➢ introduce minor innovations – perhaps by adding extra features or updating the design
➢ seek new markets
But ultimately this only delays a product or service’s decline.
Ideally, you should always have new products or services to introduce as others decline so that at least
one part of your range is showing a sales peak.
Developing Your Ideas
There’s a lot at stake when developing a new product or service. To minimize risks and allocate
investment and resources wisely, you should consider a number of factors:
➢ Will your new product or service meet customers’ specifications? For example, consider its design,
ease of use and performance benefits.
➢ How technologically feasible is the product or service? Can you meet the design, resource and
manufacturing requirements?
➢ Are you clear about what you hope to achieve with the new product or service? Does it meet the
strategy outlined in your business plan and play to your business’ strengths?
The clearer you are about your plans, the better you can analyses the risks involved. The following tips
may also be helpful:
➢ consult members of your team about your development plans – they may contribute insights that
you’ve overlooked
➢ seek the views of suppliers and other business associates – their specialist expertise could be
invaluable
➢ test lots of ideas at the start of a project – it costs relatively little to asses which are most promising,
but make sure you stop work on ideas that do not meet your criteria before committing a lot of time
and resources
➢ ask your best customers what they think of your plans
➢ consider the regulatory framework within which your new product or service will operate
➢ do not overlook the environmental impact of your plans
➢ look beyond a new product or service’s immediate potential and consider the longer term
Match Products and Services to Market Needs
New products and services have to offer benefits that meet your customers’ needs.
You need to discover what these are.
Market Research, using techniques such as surveys and focus groups, will help you do this.
Remember that although the end user of your product or service might be your most important customer,
you may have to take the needs of other parties into account. For example, if you were planning a new
DIY product, you would need to consider how retailers would stock it as well as how would benefit
professional decorators. If you are creating a toy, you should consider what parents as well as children
will think of it.
Your competition
Not only must you meet your customers’ needs, you have to do so in a way that is better than the
alternatives offered by the competition.
Your new product or service needs a unique selling proposition – a feature or property that makes
it stand out in the marketplace.

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Before entering the market, you need to determine:
➢ how customers’ needs are currently met
➢ why customers would choose your product or service rather than the competition’s, both now and
in the future
➢ what risks you are prepared to take to launch your product or service into this market
Pricing Your Proposed Service or Product
Establishing a pricing strategy for a new product or service is an important part of the development
process. You should consider pricing the moment you decide to take an idea forward as it will determine
how much you can afford to invest in the project.
You will need to take the following factors into account:
➢ The benefits – or value – to the customer of your product or service compared with what the
competition has to offer. Will the price be one that customers are prepared to pay?
➢ Whether or not you are first to market. Is your product or service revolutionary or are you following
a market trend?
➢ The selling channels you want to use, which will affect your promotional spending and distribution
costs.
➢ The speed with which you want to establish your product or service.
➢ The expected lifecycle of your product or service.
➢ Whether you are covering your costs.
The Localization of Industries
Localization means the concentration of a certain industry in a particular area, locality or region.
Localization is related to the territorial division of labor, that is, specialization by areas or regions. A
certain town or region tends to specialize in the production of a particular commodity.
Causes of Localization:
What factors influence the location of an industry in one area rather than in another? “When a firm
chooses its location, it may be influenced by a wide range of factors from the relative costs of alternative
sites to the irrational whims of the businessman. Fancy and chance play a part; liking for a particular
district, the accident of having been born in it, and so on.” But all factors are influenced by low costs
of production, and minimum transport costs. These causes may be enumerated as under:
(1) Climatic Conditions:
Climatic or soil conditions in certain areas are suited for the production of a particular product. Such an
area has got an overwhelming advantage over other areas. If efforts are made to develop other areas by
artificial means, the cost of manufacture would be very high. This is the reason for the concentration of
tea industry in Assam and North Bengal and of coffee industry in the Nilgiris.
(2) Nearness to Raw Materials:
Nearness to raw materials is a dominant factor in the location of an industry, especially that industry
which uses bulky raw material that is expensive to transport and looses weight in the manufacturing
process. The concentration of iron and steel industry in Bihar is due to the availability of iron ore and
other smelting materials there. Similarly, the localization of sugar factories in UP and Bihar is due to
the widespread cultivation of sugarcane which is bulky and costly to transport to other regions.
(3) Nearness to Sources of power:
Nearness to the sources of power is another important cause of localization of industries. This explains
the concentration of iron and steel industry near the coal-fields. The farther coal is carried away from
the coal mines, the higher become the costs of transportation. But with the development of hydro-power
and atomic-power, coal as a source of power has become less important because the former can be
carried to hundreds of kilometers with comparatively less cost. The concentration of the cotton textile
industry in Bombay region may be attributed to the establishment of the Tata Hydro-electric Works.
(4) Nearness to Markets:
Before starting an industry, an entrepreneur has to take into consideration the market potentialities of
his product. If the market is quite away from the place of manufacture, transport costs will be high
which will raise the selling price of the product in comparison with other similar products which are
manufactured near the market. The former will thus decay soon.
The establishment of sugar industry in the South, of the cotton textile industry, especially in UP,
Punjab, and Bengal has been motivated to meet the demand of these areas. On the other hand, export-

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oriented industries are concentrated near the port- towns because the transport costs of carrying exports
to the ports are low for such industries.
This explains the concentration of the majority of industrial houses in the port cities of Mumbai,
Chennai and Calcutta. Besides, industries also tend to be concentrated around railway junctions because
their products can be transported to other regions with lesser transport costs.
(5) Adequate and Trained Labor:
Industries tend to be concentrated in those areas where adequate supplies of trained labor are available.
New industries are also attracted to such areas. The growth of many industries around Mumbai,
Calcutta, Chennai and Delhi is due to a regular supply of labor in these areas from far and near.
(6) Availability of Finance:
Finance is the life of every industry. Industries are located in those areas where banking and financial
facilities are easily available. As a matter of fact, capital is attracted to those areas where industries are
localized which, in turn, attract more industries. Mumbai, Calcutta, Chennai and Delhi being the centers
of industry have better banking and financial facilities than other cities.
(7) Momentum of an Early Start:
Sometimes an industry is concentrated at a particular place simply by chance, or due to the whims of
the entrepreneur, or due to his attachment to that place. It was by chance that the hosiery industry was
started at Ludhiana which later on attracted a number of other manufacturers. The establishment of a
chain of industries at Modi Nagar in UP has been due to the whims of G.M. Modi rather than any
economic consideration. The setting up of the motor car industry at Detroit in America by Henry Ford,
and at Oxford in England by William Morris was due to their attachment to these places as their birth
places respectively.
(8) Political Patronage:
Political causes have the greatest influence in the concentration of industries. The patronage given by
the Hindu and Muslim rulers led to the concentration of silk industry in Varanasi and ivory work in
Delhi. In recent years, the various concessions provided by the State Governments in India in the form
of cheap land, credit, power and transport facilities have led to the development of new industrial
centers.
Consequences of Localization:
Localization has both advantages and disadvantages.
Advantages:
When an industry is localized in a particular locality, it enjoys a number of advantages which are
enumerated below.
(1) Reputation:
The place where an industry is localized gains reputation, and so do the products manufactured there.
As a result, products bearing the name of that place find wide markets, such as Sheffield cutlery, Swiss
watches, Ludhiana hosiery, etc.
(2) Skilled Labor:
Localization leads to specialization in particular trades. As a result, workers skilled in those trades are
attracted to that place. The localized industry is continuously fed by a regular supply of skilled labor
that also attracts new firms into the industry. Besides, there is the local supply of skilled labor which
children of the workers inherit from them. The developments of the watch industry in Switzerland, of
the shawl industry in Kashmir, and of the brassware industry in Moradabad are primarily due to this
factor.
(3) Growth of Facilities:
Concentration of an industry in particular locality leads to the growth of certain facilities there. To cater
to the needs of the industry, banks and financial institutions open their branches, whereby the firms are
able to get timely credit facilities. Railways and transport companies provide special transport facilities
which the firms utilize for bringing inputs and transporting outputs. Similarly, insurance companies
provide insurance facilities and thus cover risks of fire, accidents, etc.
(4) Subsidiary Industries:
Where industries are localized, subsidiary industries grow up to supply machines, tools, implements
and other materials, and to utilize their by-products. For example, where the sugar industry is localized,
plants to manufacture sugar machinery, tools and implements are set up, and subsidiary industries crop
up for the manufacture of spirit from molasses and for rearing poultry which utilize molasses in feed.

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(5) Employment Opportunities:
As a corollary to the above, with the localization of an industry in a particular locality and the
establishment of subsidiary industries, employment opportunities considerably increase in that locality.
(6) Common Problems:
All firms form an association to solve their common problems. This association secures various types
of facilities from the government and other agencies for expanding business, establishes research
laboratory, publishes technical and trade journals, and opens training centers for technical personnel.
As a result, all firms benefit.
(7) Economy Gains:
Localization leads to the lowering of production costs and improvement in the quality of the products
when the firms benefit from the availability of skilled labor, timely credit, quality materials, research
facilities, market intelligence, transport facilities, etc. Besides, the trade gains through the reputation of
the place, the people gain through larger employment opportunities, the government gains through
larger tax revenue, and thus the economy gains on the whole.
Disadvantages:
But localization is not an unmixed blessing. It has its disadvantages.
(1) Dependence:
When an industry is localized in a particular locality, it makes the economy dependent for its
requirements of the products manufactured there. Such dependence is dangerous in the event of a war,
a depression, or a natural calamity because the supplies of the products will be disrupted and the entire
economy will suffer.
(2) Social Problems:
Localization of industries in a particular locality creates many social problems, such as congestion,
emergence of slums, accidents, strikes, etc. These adversely affect the efficiency of labor and the
productive capacity of the industry.
(3) Limited Employment:
Where an industry is localized, employment opportunities are limited to a particular type of labor. In
the event of a recession in that industry, specialized labor fails to get alternative employment elsewhere.
Again, if such specialized labor organizes itself into a powerful trade union, it can force the employers
to pay higher wages which may raise the cost of production and adversely affect the industry.
(4) Diseconomies:
With the passage of time, the concentration of industries in a particular locality, economies of scale may
give way to diseconomies. Transport bottlenecks emerge. There is frequent power break-downs.
Financial institutions are unable to meet the credit requirements of the entire industry due to financial
stringency. As already noted above, labor asks for higher wages and better living conditions. All these
tend to raise costs of production and reduce production.
(5) Regional Imbalances:
Concentration of industries in one region or area leads to the lop-sided development of the economy.
When one industry is localized in a region, it attracts more entrepreneurs who establish other industries
there because of the availability of infrastructure facilities like power, transport, finance, labor, etc.
Thus, such regions develop more while the other regions remain backward.
Employment opportunities, the level of income, and the standard of living increase at a much higher
rate in these regions as compared with the other regions of the country. The people of the backward
regions feel envious and jealous of the people of the developed regions and the government has to start
its own industries or encourage private enterprise to start industries by giving a number of concessions.
Decentralization of Industries:
To overcome the disadvantages of localization of industries, decentralization is recommended.
Decentralization refers to the policy of dispersal of industries, whereby an industry is scattered in
different regions of the country.
Besides removing the defects of centralization of industries, the policy of decentralization is
essential from the strategic and defense points of view. The policy of decentralization of industries
requires the development of sources of power and means of transport in all areas of the country.
To encourage private enterprise to set up industries in backward areas, the state government should
provide land, power and other infrastructure facilities at concessional rates. The central government
should give tax concessions and various financial institutions should provide cheap credit facilities. It

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is in this way that the disadvantages of localization can be removed and the different regions develop
in a balanced way.

Let’s Apply

Direction: Read Situation I and II. Answer the questions that follow.

Having gone through idea generation, also expressed as ‘opportunity scanning’ and opportunity
identification, we can distinguish between an idea and opportunity. We are giving below the two
situations that will help you understand and draw the line of difference between an ‘idea’ and an
‘opportunity’.
Situation I Situation II
Having completed their Master of Business On completion of his engineering degree, Tridip
Administration (MBA), Mrinmoy and Chandan got a job in Assam State Transport Corporation.
met after about six months. The two were He was the in-charge of the purchase
conversing with each other about who is doing department. Having worked in the purchase
what. Mrinmoy is running his business of travel department for over ten years, he had gained
agency and Chandan is still searching for a job. good idea about which components have more
Mrinmoy suggests Chandan to start some demand and who are the buyers of these parts in
business. Observe and read the market scenario bulk. He, therefore, thought good prospects of
and produce what the consumers actually want. manufacturing of some of the components
having good demand in bulk.
1. From the situation given, in which of these is the idea stage and the opportunity stage?
2. Can you describe what is in the idea stage and in opportunity stage out of the given situation?
3. Do you think it is important to know the difference between idea stage and opportunity stage? Why?
4. Choose between Situation I and II. Would this situation be useful to you in the future? How?

Let’s Analyze
How are you coping with our lesson? I hope you are curious about the activities that
we will discuss in this module. In this activity you will be tasked to do the following:

Activity 1. Self-Evaluation. Examine yourself using the SWOT Analysis.

SWOT Analysis Examples Given
What are your Strengths? e.g.: good qualities, skills or talents etc.
What are your Weaknesses? e.g.: difficulty in time management or attitude
problem etc.
Are there Opportunities for you? e.g.: job opportunity or business opportunity etc.
What are those Threats in you? e.g.: cannot finish studies, unemployment of the
family member etc.

Activity 2. Community Check. After checking your own self. May you also check your community in
terms of business applying the SWOT Analysis. Use the following guide questions.
1. Name the business in your community that is best for the people?
2. What does this business offer? Is it service or a product?
3. What do you think are the strengths of the business?
4. Are there any weaknesses? What are they?
5. Do you think there are still opportunities for the business to expand or to be more profitable aside
from the existing strengths? How?
6. What are the possible threats that the business is experiencing or facing in the future?

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Activity 3. After doing the self-evaluation and community check, let’s do the Identification of Business
Opportunity: Idea Generation and Opportunity!
Direction: In this activity you will be tasked to create a survey form.
If you were given a chance to put up your own business in the future and you wanted to create an
“Identification of Business Opportunity Survey” template with questions for evaluating customer needs
or wants, product or service use satisfaction, process evaluation, etc. What possible data do you wish
to gather when conducting the survey? What questions do you need to ask?

Let’s Try

Multiple Choice. Choose the letter of the correct answer from the box.

A. Localization F. Adequate and Trained Labor

B. Climatic Conditions G. Availability of Finance
C. Nearness to Raw Materials H. Momentum of an Early Start
D. Nearness to Sources of power I. Political Patronage
E. Nearness to Markets
1. Have the greatest influence in the concentration of industries.
2. Industry is concentrated at a particular place simply by chance, or due to the whims of the
entrepreneur, or due to his attachment to that place.
3. Industries are located in those areas where banking and financial facilities are easily available.
4. Industries tend to be concentrated in those areas where adequate supplies of trained labor are
available.
5. Before starting an industry, an entrepreneur has to take into consideration the market potentialities of
his product.
6. Another important cause of localization of industries like example of iron and steel industry near the
coal-fields.
7. Dominant factor in the location of an industry, especially that industry which uses bulky raw material
that is expensive to transport and loses weight in the manufacturing process.
8. Suited for the production of a particular product. Such an area has got an overwhelming advantage
over other areas.
9. The concentration of a certain industry in a particular area, locality or region.
10. To overcome the disadvantages of localization of industries, decentralization is recommended.
A. True B. False

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