There are several reasons which have made the existence and growth of small scale enterprises essential. These reasons re as follows:

(i)    Development of Entrepreneurship. Small enterprises is the seedbed of entrepreneurship. Enterprising persona who are dynamic and have confidence in themselves can launch small enterprises instead of going in for employment in the existing firms. Entrepreneurship offers an independent way of life for the young persons who want to be the masters of their own destiny. It may be noted that there is abundance of natural resources in India, but there is shortage of entrepreneurs. Perhaps this is one of the most important reasons of the slow rate of growth of the Indian economy. This fact has been recognized by the Government which is providing many facilities and incentives to small business units. It has also set up institutions for the training of entrepreneurs.
 
 A small business can be started with a small amount of capital. It offers wide opportunities to the young entrepreneurs for self-employment and also create employment opportunities for others. To start with an entrepreneur can try new products and ideas on a small scale and later on expand the operations if his products have a wide market. In fact, small business is the route through which an entrepreneur can launch business operations on a small scale and become a big businessman through his intelligence, hard work an initiative.

(ii)    Introduction of New Products. When new products or ideas are to be tried out, it is better to start on a small scale. The acceptability of the new product or idea may need market testing. It is advisable to check market reaction before investing huge capital in a new venture. Market opportunities are uncertain and financial requirements unknown during the initial period of a new firm. There will be less risks if the operations re launched on a small scale.

(iii)    Limited Demand. Some products are not demanded on a massive scale or their demand may be local only. In such cases, it is not economical to adept a scale of operation which exceeds demand of the local market. The marking of bricks or concrete blocks for the construction industry is an example in this regard.

(iv)    Flexibility. Certain lines of business are characterized by wired variations in demands, as for instance, manufacture of readymade garments. In such cases, there is a need of greater flexibility. Small firms can be more flexible than large ones. Because of their size, large firms usually cannot make rapid changes in their products. Thus, small firms re more suitable for manufacturing and selling specialty items that may be popular for only a short period of time. They can shift to new lines of business more easily when older ones are no longer popular.

(v)    Personalized Service. Personalized services are dominant small scale firms are more suitable. Beauty parlour, television repair shops and interior decorating firms are example in this regard they usually serve a local market. This allows them to known their customer and to emphasize personal service which may not be possible in case of a large enterprise. Similarly, firms providing professional services like accounting and legal are also run on a small scale since they must keep personal relations with their clients.

(vi)    Relations with Employees. When close rapport with personnel is essential to provide high quality products tot eh customers, small scale units is in a better position. The owners who are also managers of the business have the most valuable advantage of being close to the employees. They known their problems for daily contacts and can adjust easily. Hey can make their workers understand the requirements of the customers, so that they may agree to introduction of change in the production system whenever it is demand necessary.

(vii)    Support to Large Enterprise. Small scale enterprises are complementary to large scale enterprises. Many big enterprises make use of small firms for distributing their goods and services through them. For instance, Hindustan Lever Ltd. is dependent on small firms for sale of its products to the consumers. Several big manufacturing companies also depend on the small scale units for the manufacture of certain spare parts. In many courtiers, big automobile companies get supplies of spare parts from the small industrial units.

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