A Review To Understand The Challenges A Prospective Entrepreneur May Face in The Indian Emerging Economy
A Review To Understand The Challenges A Prospective Entrepreneur May Face in The Indian Emerging Economy
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Abstract
The Entrepreneurship in emerging markets is certainly different from those in the
developed countries. This difference brings with it a series of challenges that an
entrepreneur is exposed to. Currently, there are huge numbers of new limited liability
companies across India and a queue of new startup ideas waiting to launch themselves,
which are the victim of Indian business environment and needs a proper consideration,
particularly by the government. This paper put a light on the various bugs and problems
in the business environment of the country that are creating a challenge for the existing
companies (particularly the startups and small scale firms) and also upcoming
prospective companies to sustain in the market. A careful consideration and
understanding of these challenges will certainly help the policymakers and other stake
holders in designing strategies to overcome these issues to facilitate and support the
healthy development of entrepreneurship in the country. This will also help a prospective
entrepreneur understand what are the various possible challenges that he/she may
face in the Indian emerging market? Thus aiding in decision making process.
Keywords: Business Environment, Challenges, Emerging Market, Entrepreneur
1. Introduction
A business idea is just the start of a series of activities that an entrepreneur needs to perform
or take care in the process of actualization of the idea. There is no defined role for an
entrepreneur, he may be sometimes a manager or sometime an engineer or sometime a customer
care executive or sometime even a hospitality manager or even something else to meet the
business challenges, but an entrepreneur’s one of the most prioritized role is that of a business
environment auditor. An entrepreneur is highly exposed to macroeconomic and microeconomic
risks. From an idea to its implementation and beyond, an entrepreneur needs to face a series
of barriers. Few of these barriers may be education barrier, experience barrier, age barrier,
regulatory barrier, cultural and social barriers, financial barriers, political barriers, government
policies, lack of resources, lack of government and NGO support, government interventions,
technological barrier, international relations, and category based barriers may be due to gender,
being from minority community, belonging to deprived areas etc. Ease of doing business is an
important factor that defines the level of difficulty an entrepreneur may face in its journey. An
entrepreneur is likely to face more challenges in the emerging economies like India.
India is one of the largest economies in the world, and certainly, one of the most prominent
emerging markets in the world, in discussion. India’s economic development is highly dependent
on its entrepreneurial strength/potential/competency. In one of the report from Mckinsey and
Company-Nasscom, it is estimated that India may need at least eight thousand new businesses
to achieve its target of building a US$87 billion Information Technology sector. In the coming
years, more than 100 million Indian citizens will be searching for jobs, which may include a
large population looking for their first jobs. This is a serious concern and can be met through
new business development. An entrepreneur in an emerging economy may need to face lots of
challenges due to improper business environment of the country. In India, these concerns are
increasing day by day as more new companies are entering the market but in a similar scale
they are becoming sick in short run. Currently, there are huge numbers of new limited liability
companies across the country and a queue of new startup ideas waiting to launch themselves,
which are the victim of Indian business environment and needs a proper consideration, particularly
by the government. This paper put a light on the various bugs and problems in the business
environment of the country that are creating a challenge for the existing companies (particularly
the startups) and also upcoming prospective companies to sustain in the market. A careful
consideration and understanding of these challenges will certainly help the policymakers and
other stake holders in designing strategies to overcome these issues to facilitate and support
the healthy development of entrepreneurship in the country. This will also help a prospective
entrepreneur understand what are the various possible challenges that he/she may face in the
Indian emerging market? Thus aiding in decision making process.
2. Objectives of the Study
The objectives of the study is to highlight the various challenges that an entrepreneur faces in
the Indian emerging market. This will help the policymakers and other stake holders in designing
strategies to overcome these issues to facilitate and support the healthy development of
entrepreneurship in the country. This will also help a prospective entrepreneur understand what
are the various possible challenges that he/she may face in the Indian emerging market? Thus
aiding in decision making process.
3. Research Methodology
The paper is based on the literature review from various journals, books, newspaper, and
conference paper. It also includes some data taken from various government websites, reports,
and other trusted sources. Literature is studied to understand the possible problems that an
entrepreneur may face through the research which has been already undertaken in this field.
4. Literature Review
The wealth and poverty of nations in developing stage has been linked to the entrepreneurial
nature of their economies. Entrepreneurship has played an important role in the growth of
economy, innovation, and competitiveness in the nations where entrepreneurial nature in the
economy is well appreciated, and it may also play an important role over time in the alleviation
of poverty (Landes, 1998). Through entrepreneurship, a country grow economically and also
encourages sustainable business activity. Entrepreneurship is thus a key ingredient in the growth
of developing countries (Parker, 2009). The competitiveness of these entrepreneurial ventures is
a key factor that determines the success in accelerating the growth of the nation, and this is
fundamentally dependent on the capacities of the entrepreneurs and the managers (Cuervo et
al., 2008). In developing countries, there is information asymmetry between entrepreneurs and
potential international marketplaces due to the lack of knowledge and inability to take risk
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A Review to Understand the Challenges a Prospective Entrepreneur May Face in the
Indian Emerging Economy
because of financial circumstances (Malhotra et al., 2006). Many entrepreneurs are vulnerable
to the changing market conditions due to the short term fluctuations in pricing and quantity
needs from consumers (Teal, 2002). A limited geographic position may lead to financial problems
due to corruption and bribery (Shane, 2003). Opportunities are often lost or hindered in developing
nations due to government influences or interventions that may have a negative impact on
entrepreneurship (Dana, 2004). Often entrepreneurs in developing nations avoid formal business
practices (Like having business licenses or registrations) due to high time and cost requirements
(Nichter and Goldmark, 2009). Government intervention may help to promote entrepreneurship
in the developing nations (Ghanem, 2013). More policy work is required on evaluating the role
of governments in developing nations in helping the entrepreneurs (Vanessa, 2014). Political
instability is often seen as a barrier for entrepreneurs in many developing nations due to the
fact that it brings uncertainty in taxation system and employment (Dana, 2004). Starting a new
business may be very difficult in developing nations due to the bureaucracy problem and the
inflexibility of adjusting to changing market conditions (Vanessa, 2014).
During the literature review we couldn’t came across any recent research in the concerned
topic and could find very few related paper on the business environment of India. Even we
couldn’t came across any empirical research on the topic.
5. Analysis (Primary Challenges)
An entrepreneur can’t afford to be in doubt or to commit mistakes in any form in operation
management and more specifically in case of startup companies. It is of utmost importance to
take care of the operations of a company because services continue to drive any business,
particularly in the developed countries and is a big challenge for companies in developing
countries. Indeed, proper operation management may provide a huge opportunity for revenue
generation and in maintaining the stakes of the company, and they continuously play a pivotal
role for the further development of the organization. Operational challenges come in the
administration of business practices and creating the highest level of efficiency possible within
an organization. There is a huge challenge in converting materials and labor hours into goods
and services of superior quality in an efficient and effective manner in order to have a maximum
profit for an organization and the concern is more in case of newly established companies.
A business idea, even before it is implemented faces a series of problems till its implementation.
These problems may be from financial, business process, communication, geographical, data
management aspects etc. All this problems holds almost equal importance. Like, the type of
location is a very important choice for a new venture. If the location is not connected with the
global constituents, it would eventually prove to be a dangerous sign that could bring down a
venture to it sick stage. Location of a company should be such that it has easy access to tier
one cities, global industrial hubs, trade center, consumer market, well connected roads, railways
with national and international airports, proper telecommunication facilities etc. But due to lack
of data new ventures face great deal of difficulty in find a right place to start their business.
Often startups need to start their business in an alienated piece of land due to high price of
land and time consuming process of accruing land in industrial belts like delay in receiving
construction permits, electricity connection etc. These inferences is validated by the following
results of analysis which puts a serious concern on time required for construction permits, cost
of land, and other essential factors like time to register a property, cost of property registration
etc.
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Jishnu Bhattacharyya and Manoj Kumar Dash
Graph 1: Dealing With Construction Permits across Cities in India, Time Based Analysis
(Data Source: http://data.worldbank.org/)
Graph 2: Dealing With Construction Permits across Cities In India, Cost Based Analysis
(Data Source: http://data.worldbank.org/)
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A Review to Understand the Challenges a Prospective Entrepreneur May Face in the
Indian Emerging Economy
The conclusion derived from the above analysis indicates that all the Indian states and/or cities
are not equally favorable to start a business. Overall, these issues are certainly a matter of
concern for any entrepreneur.
Another important challenge is to get finance from the right place, in a right amount, in right
terms, and rightly on time. For an entrepreneur this is one of the toughest challenges to overcome
and is a reason for establishment of sick companies. Strong financial base is a fundamental
need of any company. According to some statistics as much as 90% of startup fails to continue
beyond one year due to lack of proper finance. From the business idea to its implementation,
one of the most important fuel for success in capital fund. There are many ways of having
these funds for fueling the venture like bootstrapping, crowd funding, venture capitalists, business
incubators, angle investors, peer to peer lending system etc.
Bootstrapping is way of self-funding, where fund is raised using personal savings, or with support
from family or friends. But this is suitable only if initial requirements are small and have a high
risk of loss because there is saying “Do business with others money and not with your savings”,
primarily to reduce risk and expand capital. But still this is the best option for those who are
facing great difficulty in getting investment or unable to meet investment conditions. They
policymakers have designed a number of schemes to counter such problems and boost business
environment but such schemes are often found in short and often have high complexity in term
of process and often time consuming. With increasing requirement for such schemes, government
should take care that the schemes meet the rising demands. Another option is crowd funding
where entrepreneur can seek more than one person for investment by providing details of the
project in a crowd funding platform. It will contain goals of business, plans for profit making,
fund requirements etc. An add-on facility is that apart from fund generation there is an awareness
developed about the business and thus marketing its product. Then, Venture capitals are
professionally managed funds that invest in companies with promising potential. Generally they
invest against equity and exit when there is an IPO (Being public) or on an acquisition.
It is an increasing trend to go for incubators to start a business. But the capacity and support
of most incubators are often falling short as per the requirements of the company. Hardly any
incubators finance more than even 50 lakhs of rupees. These days a lot of higher education
institutes have establishes incubators like IIITs, NITs, IITs and private university like Amity
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Jishnu Bhattacharyya and Manoj Kumar Dash
University etc. But their commitment in term of number of years and the amount they can
finance is limited and often insufficient for many startups. To set an example, The Centre for
Innovation Incubation and Entrepreneurship was set-up by IIM Ahmedabad, India with support
from the Government of India and Gujarat Government with an investment structure of INR 20
lakhs only). Funds in these scale are often insufficient to many startup companies specially
the manufacturing companies. And most of these funds go for IT startups and such funds are
not well distributed across all sectors. Even time commitment typically ranges from 4 to 8
months to maximum of 2 years, in general.
Apart from these options there are options from angle investors, who have surplus cash and
keen interest to invest in new ventures. Such investors have helped to start up many prominent
market leaders like Flipkart, Alibaba and Google etc. Apart from capital they often provide
mentorship and advice to these new ventures. Giurca Vasilescu (2009) presented the business
angels as an important link between funding and developing startup ventures right from their
initial stage to the stage at which the ventures are ready to be on the capital market. Business
angels provide the much needed financial and managerial support to help survive the venture in
the competitive market.
It is also critical to every new business to have a process to keep track of the money flowing
through their company at every phase to avoid leaks, theft, and unaccountability etc. New
companies in order to get permits for business like construction permits, tax waving etc. often
need to deal with corruptions in the government mechanism. Understanding a stakeholder in
term of relevant stakeholder requirement, their power, interest and level of impact on their
project is essential to avoid problems from stakeholders. It is seen often that stakeholders
mistrust the company, leaves, and withdraw their investment in the mid-way which severely
damage the company’s financial base.
Even there are challenges due to macro economy of a country, political scenario, and natural
process like climate change, ever increasing water shortage etc. and increasing cost of raw
materials, services and human resource that an entrepreneur need to face.
Managing data is a challenge for an entrepreneur with low financial, technical, and manpower
strength in the company, which is very common for a new company. Security and maintenance
of business process data creates lots of difficulty for a new venture specially due to cost
incurred in managing big data, using cloud storage (though sometime cheaper than physical
storage), and in implementations of enterprise resource planning system which may cost 2 to
4% of the value of a company or even more.
Another challenge is to identify target customer and reduce customer churn in this high
competition market where it takes few days in launching a substitute for a particular product.
Teambuilding is especially hard if an entrepreneur is a new manager and doesn’t have an EDP
training or required experience. The availability, quality and sometime cost of such EDP trainings
may fail the need/purpose. It’s not enough to just find the candidates to fill certain business
roles but one need to consider their cost to the company, value fit, and their suitability in the
team. Getting the right human resource is a big challenge. Such considerations are exceptionally
hard when recruitment need to be done in short time.
Sometime and nowadays quit often startup does find excess growth rate beyond their prediction
when demand for their products and services sees a sudden surge. Now, it’s a challenge for
the company to grow and adapt to this new height of customer expectations and fulfill their
needs in order to retain the customer base. Growing and adapting in such a fast rate is a
challenge for small companies and may lead to its collapse.
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A Review to Understand the Challenges a Prospective Entrepreneur May Face in the
Indian Emerging Economy
Table 1: Business Environment, India and South Asian Countries (As on 2016)
Parameter Rank
Ease of Doing Business (Rank of India) 5th
Starting a Business (Rank of India) 1st
Getting Credit (Rank of India) 8th
Trading Across Boarder Rank of India 5th
Paying Tax (Rank of India) 4th
Overall Among South Asian Countries 5th (Rank of India)
Countries Considered: India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, and
Afghanistan
Note: The above analysis is based on the data sourced from World Bank database.
India is sufficiently left back in the ease of doing business among the south Asian countries. It
is found that among the south Asian countries Indian business face great difficulty in getting
credit. Though the taxation system in India is found to be less effective for business promotion
when compared to some south Asian countries but the new GST policy is expected to ease
the taxation system with economic growth and may prove to be a business facilitator and aid
the entrepreneurs in their journey. The trade across the border needs to be increased to facilitate
business. The south Asian countries like Bangladesh can certainly prove to be a potential treat
and lure business in their territory.
Table 2: Business Environment, India and World (As on 2016)
When compared to the world, India is at advantage of low cost of labor, availability of large
English speaking manpower, cost and quality of telecom infrastructure etc. which makes India
a favorable place to invest in business and/or start a business, thus indicates benefit for an
entrepreneur .But The economic freedom score of India when compared with the rest of the
world seems to be mostly unfree that hinders the business environment of the country, creating
more problem for an Indian entrepreneur The business environment of India is a serious and
critical concern for an entrepreneur and more because of the low rank in ease of doing business.
7. Analysis (Macro Economic Challenges)
The various macroeconomic challenges faced by an entrepreneur in the Indian emerging market
are discussed in the following tables.
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A Review to Understand the Challenges a Prospective Entrepreneur May Face in the
Indian Emerging Economy
forms of support for entrepreneurship and this will pay back the nation in terms of socio-
economic growth, self-reliance, and prosperity.
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