Page 221 - DMGT106_MANAGING_HUMAN_ELEMENTS_AT_WORK

Unit 9: Small Groups Organizations

orders from the parent units and frequent changes in production processes. The problems Notes
of traditional small scale units include remote location with less developed infrastructural
facilities, lack of managerial talent, poor quality, traditional technology and inadequate
availability of finance.
The problems of exporting small scale units include lack of adequate data on foreign
markets, lack of market intelligence, exchange rate fluctuations, quality standards, and pre-
shipment finance. In general the small businesses are faced with the following problems:
9.5.1 Finance

One of the severe problems faced by SSIs is that of non-availability of adequate finance to
carry out its operations. Generally a small business begins with a small capital base. Many
of the units in the small sector lack the credit worthiness required to raise the capital from
the capital markets. As a result, they heavily depend on local financial resources and are
frequently the victims of exploitation by the money lenders. These units frequently suffer
from lack of adequate working capital, either due to delayed payment or locking up of their
capital in unsold stocks. Banks also do not lend money without adequate collateral security
or guarantees and margin money, which many of them are not in a position to provide.

9.5.2 Raw Materials
Another major problem of small business is the procurement of raw materials. If the
required materials are not available, they have to compromise on the quality or have to pay
a higher price to get good quality materials. Their bargaining power is relatively low due
to the small quantity of purchases made by them. Also, they cannot afford to take the risk
of buying in bulk as they have no facilities to store the materials. Because of general scarcity
of metals, chemicals and extractive raw materials in the economy, the small scale sector
suffers the most. This also means a wastage of production capacity for the economy and loss
of further units.
9.5.3 Managerial Skills
Small business is generally promoted and operated by a single person, who may not possess
all the managerial skills required to run the business. Many of the small business entrepreneurs
possess sound technical knowledge but are less successful in marketing the output. Moreover,
they may not find enough time to take care of all functional activities. At the same time,
they are not in a position to afford professional managers.

9.5.4 Labour
Small business firms cannot afford to pay higher salaries to the employees, which affects
employee willingness to work hard and produce more. Thus, productivity per employee is
relatively low and employee turnover is generally high. Because of lower remuneration
offered, attracting talented people is a major problem in small business organisations.
Unskilled workers join for low remuneration but training them is a time consuming process.
Also, unlike large organisations, division of labour cannot be practised, which results in lack
of specialisation and concentration.

9.5.5 Marketing
Marketing is one of the most important activities as it generates revenue. Effective marketing
of goods requires a thorough understanding of the customer’s needs and requirements. In
most cases, marketing is a weaker area of small organisations. These organisations have,
therefore, to depend excessively on middlemen, who at times exploit them by paying low
prices and delayed payments. Further, direct marketing may not be feasible for small
business firms as they lack the necessary infrastructure.

LOVELY PROFESSIONAL UNIVERSITY 215