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EXECUTIVE SUMMARY

It has been a good learning experience to do the detailed project report on setting up of the
Handicraft industry in the RIICO industrial area, Jhunjhunu as a part of my MBA program.
The study has been made an attempt to gain better understanding about how actually the
manufacturing plant is set up.

Under this, at first I generated the product idea of handicraft, matching with my profile. The
main objective of the project is to the study the feasibility analysis of the handicraft
manufacturing plant. After the idea generation, the industry analysis at both the global and
domestic level was done to understand the market trends and other factors.

Then the market analysis was done through the survey in form of questionnaires and
interviews of the manufacturers. After this using the statistical techniques did the demand
analysis. With this the demand estimation, the technical analysis was done.

After completing the technical analysis, the financial analysis was done to check the financial
feasibility of the project. It involved the preparation of cash flow statements, working capital
requirement schedules, profitability statements and the balance sheets of 3 years. This
provided the data for using the performance indicators and other capital budgeting
techniques. Lastly, the risk analysis was done to estimate the risk involved in the project.

On the whole it was a wonderful experience & a great learning opportunity. The complete
project was an eye opener which added to my theoretical knowledge. There were times when
I was disheartened & disappointed, but there were times when things went right & made me
feel proud.

Success does not come at once; one has to start right from the scratch & struggle his way
through all hardships with courage & determination.

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PROMOTER’S IDEA

The idea of handicraft manufacturing was conceived by looking the aptitude & qualifications
of the conceiver (myself).

Qualifications:

- MBA in Marketing & HR

- BCA

Along with the above qualification belongingness to a Business, family will support my
project.

• The idea was generated as my Uncle is a manufacturer and exporter of wooden


handicraft. So this project would provide me an in-depth knowledge to set up a
handicraft-manufacturing mill in Jhunjhunu.

• The Indian Handicraft Industry is showing continuous growth rate of 15% every year.

• The profitability with which the current firms are running nationally as well as
internationally is also one of the factors for conceiving the idea of handicraft
manufacturing mill.

Thus, taking all of the above factors into account the idea of setting up a handicraft-
manufacturing mill was established.

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FIRM AND PROMOTERS

Firm:

The firm namely Shekhawati Handicrafts, Jhunjhunu will be a sole proprietorship firm
and will function from Jhunjhunu under the concerned person’s name (myself).

Promoter:

Decision for entrepreneurship is promoted by 5 major reasons. These are:

Personal Personal
Characteristics Environment Personal Goals

Decision to Behave
Entrepreneurially

Business
Environment Idea

Moreover, it is an Idea/Innovation that leads towards Entrepreneurship i.e.; idea comes


first and entrepreneurship follows afterwards.

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HANDICRAFT

Introduction

Handicrafts are unique expressions and represent a culture, tradition and heritage of a
country. The Handicraft Industry is one of the important productive sectors. Various
attempts have been made to define this broad and diversified industry. The following
definition strives to cover diversity and complexity of Handicraft Industry.

Defining Handicrafts:

Definition According to United Nations Educational, Scientific and Cultural


Organization/Information Technology Community (UNESCO/ITC) International
Symposium on “Crafts and the International Market: Trade and Customs Codification”,
Manila, Philippines, October 1997:

Handicrafts can be defined as products which are produced either completely by hand or
with the help of tools. Mechanical tools may be used as long as the direct manual
contribution of the artisan remains the most substantial component of the finished product.
Handicrafts are made from raw materials and can be produced in unlimited numbers. Such
products can be utilitarian, aesthetic, artistic, creative, culturally attached, decorative,
functional, traditional, religiously and socially symbolic and significant.

Definition according to Govt. of India:

Handicraft can be defined, which is made by hand; should have some artistic value; they
may or may not have functional utility.

Importance of Handicrafts:

• The Cultural Importance: Handicrafts play very important role in representing the
culture and traditions of any country or region. Handicrafts are a substantial medium
to preserve of rich traditional art, heritage and culture, traditional skills and talents
which are associated with people’s lifestyle and history.

• The Economic Importance: Handicrafts are hugely important in terms of economic


development. They provide ample opportunities for employment even with low
capital investments and become a prominent medium for foreign earnings.

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Industry Analysis

India is a country of rich culture, history and traditions. India is one of the major
producer and supplier of Handicrafts products in the world. India has been major
producer and supplier of handicrafts products since very long time. Before the industrial
development, this art and industry was a potential economic advantage for the country.

During recent years, the importance of handicrafts has been surged due to their cultural
and financial values. The small-scale industries including handicrafts can play a major
role in the development of the economy of both developed and the developing countries
equally. The 90-95% of the total industrial products of the world is produced in small
workshops run by less than 100 people. For instance, Japan, which is at the peak of the
economic development, has considered 84% of its industries as small and medium scale
industries. In countries such as India and China, handicrafts are as high as the
mechanized products in quality and volume, and are a major source of their foreign
earnings. These countries are focusing on the development of handicraft industry, in
order to strengthen the economy.

The Indian handicrafts industry is highly labour intensive, cottage based and
decentralized industry. The industry is spread all over the country mainly in rural and
urban areas. Most of the manufacturing units are located in rural and small towns, and
there is huge market potential in all Indian cities and abroad. Handicraft industry is a
major source of income for rural communities employing over six million artisans
including a large number of women and people belonging to the weaker sections of the
society.

The Handicraft sector is highly creative sector and produces large variety of crafts
products. This industry is localized segment of the domestic and international market. In
India the production of craft products are done on both large and small scale. Because of
low capital investment people can start their business on small scale. Through this
flexibility the demand and supply can be managed Hough Indian Handicraft industry is
considered a cottage industry, but it has evolved as one of the major revenue generator
over the years. There has been consistent growth of 15% over few years and the industry
has evolved as one of the major contributor for export and foreign revenue generation.

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There is huge demand for the Indian Handicraft products in both national and
international market. To match the demand and supply with quality, there is need to
have greater technological support and innovativeness with the uniqueness in industry.

Key Facts of Indian Handicrafts Industry

• India’s rich cultural diversity and heritage provides a unique and huge resource for
developing craft products.

• The Indian Handicraft Industry is showing continuous growth rate of 15% every year.

• Handicrafts industry is one of the important segments of decentralized sector in India.

• Major parts of industry operates in rural and semi urban areas throughout the country
and has potential Indian and International market with around 67000 exporters to tap
the market.

• According to the national census of handicrafts, undertaken by the National Council


for Applied Economic Research the value of handicrafts produced last year were of
Rs 26, 213 Crores.

• This Industry provides huge employment opportunities to artisans that include women
and people belonging to backward and weaker society. This is one of the major
sources of income there.

• India’s contribution in world market is 1.2%

• The total exports of crafts items: - Rs. 134129.2 millions.

• Industry’s share in India's exports:- 1.51 %

• In spite of having diversified products, some part of Indian market are still untapped
and market is price sensitive.

• Products are high priced in big and metro cities, which are beyond, reach of people
belonging middle and lower middle class.

• Craft producers have to compete on price, quality and delivery for different segments.

• There is poor promotion for craft products in national market.

• There is lack of awareness about new traditions and among craftsmen and there is
need of technological support and training.

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Classification:
Handicrafts industry comprises diversified products portfolio and there is large variety
available in market. Handicrafts products can be distinguished into following:

Metal ware, Wood ware, Hand printed textiles, Embroidered and crocheted goods,
Shawls, Carpets, Bamboo products, Zari goods, Imitation jewellery, Paintings,
Earthenware, Jute products, Marble Sculpture, Bronze Sculpture, Leather Products and
other (are u going to produce all these ) miscellaneous handicrafts.

SWOT Analysis

Strengths:

• Large, diversified and potential market.


• There is large product variety and range is available because of diversified culture.
• It has strong, diversified and supportive retail infrastructure.
• Diversified product range that service different market.
• Cheap labour rates that result to competitive price.
• Need low capital investment.
• There is flexible production flexibility.
• Low barriers of new entry.
• Easy creation and development of production centres.
• There is no need for macro-investment.
• Industry provides potential sources of employment.
• Products are high value added, and handicrafts have various applications.
• It is the potential source of foreign revenue because of higher export.
Weaknesses:

• Lack of infrastructure and communication facilities.


• Unawareness about international requirements and market.
• Lack of co-ordination between government bodies and private players.
• Inadequate information of new technology.
• Inadequate information of current market trends.
• Less interest of young people in craft industry.
• Lack of skilled labour.
• Still confined to rural areas and small cities and untapped market.

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• Lack of promotion of products.
Opportunities:

• Rising demand for handicraft products in developed countries such as USA, Canada,
Britain, France, Germany, Italy etc.
• Developing fashion industry requires handicrafts products.
• Development of sectors like Retail, Real Estate that offers great requirements of
handicrafts products.
• Development of domestic and international tourism sector.
• E-Commerce and Internet are emerged as promissory distribution channels to market
and sell the craft products.
Threats:

• Competition in domestic market.


• Quality products produced by competing countries like China, South Africa.
• Better Trade terms offered by competing countries.
• Increased and better technological support and R and D facility in competing
countries.

Limitations of Handicraft Industry

• Inspite of having diversified products, some part of Indian market is still untapped and
market is price sensitive.
• Products are high priced in big and metro cities, which are beyond the reach of people
belonging middle and lower middle class.
• Craft producers have to compete on price, quality and delivery for different segments.
• There is poor promotion for craft products in national market.
• There is lack of awareness about new traditions and among craftsmen.
• It is difficult to balance the cultural and commercial value of handicraft products.
• Inadequate supply chain management and distribution reduces the sector’s
commercial viability and economic sustainability.
• Lack of Technological support and training.
• Lack of Research and development for key handicraft sectors like, ceramics, paper
making etc.
• There is shortage of skilled craftsmen and labour to match the competition.

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• Lack of ability to produce in large scale and create economies of scale.
• Inadequate material testing and performance measurement.
• Inappropriate energy supplies to rural and sub-urban areas.
• Untapped and inaccessible market due to poor transportation infrastructure.
• There are inadequate training centres to develop skilled craftsmen.

Possible Initiatives should be taken to overcome the limitations of industry

• The primary objective is to create an environment that helps the industry to compete
on the global basis.
• To build the environment that will focus on: Wealth Creation, Infrastructure
Development, Training, Technological Development, and Poverty Alleviation etc. to
enhance the sector performance.
• Awareness should be increased among craftsmen and customers through Trade
Events, Seminars, Craft Forums and advertisements.
• More training centres should be opened to provide proper training to craft persons.
• There should be more trade shows to facilitate craft producers to access the market.
• Transportation infrastructure should be improved to access the untapped market that
would be beneficial to reduce the transportation cost.
• Promotion of cultural tradition and heritage.
• Promotion of Indian Tourism to attract the foreign customers.
• Developing technologies to recycle natural resources to produce new products and
ensure waste minimization, product durability and reliability.
• Promoting Partnership and collaboration with private sector.
• There should be market platform for craft producers belonging to rural areas to
market their products.
• Development of electronic platform by using internet to provide information,
database, and marketing and distribution solution.
• Increased Private participation in industry.
• There should be optimized distribution network and supply chain management.
• Through improving labour productivity in a high labour intensive and price
competitive market.
• There should be proper balance between cultural and commercial value of craft
products to sustain business opportunities.

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• Through using low cost production methods the sustainability of small business can
be improved.

Value Addition Model

The performance of Handicraft Industry can be improved and the greater value addition
can be done by implementing following model:

• Identify the Potential Market


• Making Effective Business Plan and Refinement in existing business
• Test Marketing to test the initial potential of new products in market
• Effective Operational and Technological Up gradation
• Hiring skilled manpower, provide training and awareness about latest technology and
market trends and effective management.
• Hiring skilled manpower, provide training and awareness about latest technology and
market trends.
• Cost Effective Production; Maintain Quality Standards, and Packaging.
• Set the Costing and Pricing with Quality taken to be consideration
• Cost Effective Distribution Development using both Physical and Electronic
Distribution Channels (Internet, e-Commerce)
• Both National and International Market Development for better Export and Foreign
Revenue.

Wooden Handicraft Industrial Overview

Wooden handicrafts are specialized skills passed on from one generation to the next. The
term 'wooden handicrafts' refers to a wide range of wooden items carrying utilitarian and
artistic value that are made by hand, or with the use of simple tools. Indian wooden
handicrafts reflect unmatched workmanship, fine designs, and subtle elegance. This makes
India one of the chief exporters of wooden handicrafts in the world market.

According to the classification of Indian industries, a small scale industry is defined as an


industry that is:

• Not registered under the Factory Act.


• Investment in fixed assets does not exceed Rs 60 lakhs.

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Small scale industries are classified into two categories:
• Modern small scale industries like power looms etc.
• Traditional industries like handlooms, sericulture, khadi, coir, and handicrafts.
Wooden handicrafts fall in the category of small scale traditional industries.

Role in Indian Economy

The wooden handicrafts industry plays an important role in the Indian economy. This
industry requires low capital investment and other resources. The wooden handicraft sector
provides a high ratio of value addition, and has emerged as one of the major sources of
foreign exchange earnings for India.

Indian wooden handicrafts are much sought after the world over, and form an important
export commodity of India. Although India's handicraft exports show a consistent increase of
fifteen percent every year, its share in the international market is not more than two percent.

The Indian wooden handicraft sector is the second largest employment provider (after
agriculture). It employs about six million artisans. Women constitute a large section of the
handicrafts industry, including people belonging to the weaker sections of society.

Conclusion:

The Indian Handicraft Industry stands a unique place among all other industries. It represents
the rich culture, tradition and heritage of India. India’s rich cultural diversity and heritage
provides a unique and huge resource for developing craft products. The Indian Handicraft
Industry is showing continuous growth rate of 15% every year and it is one of the most
important segment of decentralized sector in India.

Most of the part of industry operates in rural and semi urban areas throughout the country
and have large and potential in Indian & International market. Indian Handicraft Industry
provides wide range of products because of country’s diversified culture, traditions and
heritage. There is huge demand of Indian Handicraft products in international market.
Industry provides ample opportunities for employment to people belonging to backward
and weaker classes of society. However, Indian Handicraft Industry has the status of
cottage industry in India, but it has shown promising growth and evolved as one of the
major revenue generator over the years. It has shown continuous growth at the rate of 15-
20% over the years and contributes major role for export and foreign earnings.

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Low capital investment, Cheap and skilled labour, Diversified product portfolio, Flexible
Production are few important features of Indian Handicraft Industry. However, Lack of
Infrastructure & Technological support, Lack of awareness of international and new trends
and Poor Promotional campaigns are a few drawbacks of industry which needs to be
overcome. It is estimated that Handicraft Industry in India is all set to grow with rapid rate in
future and contribute its share towards economic development handsomely.

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MARKET ANALYSIS

Geographical Area

Jhunjhunu (RIICO Industrial Area)

Objective of the survey

• To know about the market potential for the handicraft

• To analyze the handicraft manufacturing, its competition, customer preferences and


their satisfaction level.

• To find out the major players in the market

Source of Information

Primary (Market Survey) and Secondary data

Methodology Adopted:

Research plan was developed through conclusive research design using descriptive research
analysis methods by survey as detailed below:

Research Approach:

1. Primary data for gathering information regarding manufacturing requirements and


facilities available at Shekhawati region was collected by personal interview with
different manufacturers selected on the basis of random sampling survey method.

2. Secondary data regarding world demand and supply positions, Indian Handicraft
status and other relevant information were gathered from different websites.

Research Instruments: Questionnaire (See Annexure I) was used to collect the data on
both the sensitivity of demand and supply, customer preferences and to know the market
potential and future growth.

After deciding the research approach and instruments, sampling plan was prepared.

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Sampling Procedure: Simple random sampling method was used for survey on
representative basis.

Sample Size: 20 handicraft units

Contact Method: Personal interview with each of the manufacturer and raw material
suppliers was conducted.

Information collected from Manufacturers Questionnaire wise

Q.1 Variety of handicraft item you manufacture?


(a) Chairs
(b) Tables
(c) Book shelves
(d) Decorative items
(e) All of the above
Chairs 0
Tables 0
Book shelves 0
Decorative items 2
All of the above 18

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As the above analysis shows that 90% manufacturer are manufacturing all the major items
like chairs, tables, bookshelves etc.

Q.2 From where you acquire the raw material for wooden handicraft?

(a) Bihar

(b) U.P.

(c) Gujarat

(d) All of the above

(e) Import from other countries, if yes specify

Bihar 2
U.P. 4
Gujarat 2
All of the above 11
Import from other
countries 1

The raw material is acquired from all the places like Bihar , U.P. , Gujarat etc. but the
analysis shows that most the wood is purchased from U.P. some part of raw is also available
in Rajasthan.

Q.3 Your Re- order point

(a) Weekly

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(b) Fortnightly

(c) Monthly

(d) As required

Weekly 3
Fortnightly 0
Monthly 4
As required 13

As the analysis shows that most of the manufacturers keep inventory as per the requirement.

Q4. Order size

(a) 400 – 500 units

(b) 500 – 700 units

(c) 700 – 1000 units

(d) 1000 and above

400-500 units 2
500-700 units 15
700-1000 units 2

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1000 units and above 1

As the above analysis shows that most of the manufacturer gets the avg. order 500-700 units
per month. There are only 20% manufacturers who get the orders above 700 units per month
or 1000 units per month.

Q.5. Who bears the transportation cost?

(a) Supplier

(b) Yourself

Suppliers 4
Yourself 16

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An analysis show that mostly cases manufacturer bears the transportation cost.

Q.6 Which type of handicraft item is more in demand?

(a) Wooden

(b) Glass made

(c) Metal made

Wooden 9

Glass made 4

Metal made 7

Wooden items are more in demand because 45% of respondent said that wooden item is more
in demand.

Q.7 Which type of wood is more in demand in manufacturing?

(a) Babul/Aakashiya

(b) Shisham

(c) Pine

(d) Teak

(e) Mango

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Babul 7
Shisham 9
Pine 1
Teak 1
Mango 2

In answer of this question 45% respondent said that shisham is more in demand after
shisham, babul made handicraft is more in demand.

Q.8 what level of Inventory you keep?

(a) 15 days
(b) 30 days
(c) 2 months
(d) 4 months
15 Days 1
30 Days 16
2 Months 3
4 Months 0

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The analysis shows that most of manufacturer keep 30 days inventory. Some manufacturer
also keep 2-month inventory.

Q.9 From where you get the skilled workers?

(a) Saharanpur

(b) Barmer

(c) jaisalmer

(d) Locally

Saharanpur 4
Barmer 1
Jaisalmer 1
Locally 14

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The analysis of this question shows that mostly skilled are locally available. Some part of
labour comes from Saharanpur also.

Q.10 On which basis you appoint the workers?

(a) Contractual basis

(b) Monthly basis

Contractual basis 14

Monthly basis 6

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Most of manufacturer appoints workers on contractual basis.

Q.11 What type of facility you provide to the worker to retain them?

(a) Housing

(b) Canteen

(c) Bonus

(d) Medical

Housing 5
Canteen 1
Bonus 12
Medical 2

In the answer of this question respondent said that they provide mainly bonus to their
employees to retain them some manufacturer provide housing facility also to their workers.
There are only few manufacturer who provide medical and canteen facility to their
employees.

Q.12 What mode of selling of handicraft you use?

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(a) Through exhibition

(b) Direct selling through retailer

(c) Export

Through Exhibition 1
Direct Selling through Retailers 2
Export 17

Mainly the mode of selling is through export. Most of manufacturers go for direct export
as per the data. As per analysis 85% respondents said that they are direct exporting their
product.

Q.13 How much margin you get while going for export?

(a) 0% - 5%

(b) 5% - 10%

(c) 10% - 15%

(d) 15% - 20%

0% - 5% 0

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5% - 10% 0
10% - 15% 2
15% - 20% 18

If the manufacturer is going for export then the profit margin is 15-20% as per the analysis.
90% manufacturers are in favour of this. Only 10% said that they get only 10-15% profit
margin if they go for export.

Q.14 How much margin you get while going for local selling?

(a) 0%-5%

(b) 5%-10%

(c) 10%-15%

(d) 15% -20%

0% - 5% 3
5% - 10% 17
10% - 15% 0

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15% - 20% 0

If the manufacturer is going for local selling then they get 5-10% profit margin.

Demand Analysis

After conducting the market survey in the form of questionnaire and interview of the
manufacturers, the next step is to estimate the effective demand in the past and the present.

As per the secondary data the demand of wooden handicraft is as follows:

Total Demand in units = 9200000 units/year (on an average of all items listed below)

Category wise demand of wooden handicraft:

S. No. Items Item wise demand in unit/year

1 Chairs 15, 64,000

2 Dining tables 11, 96,000

3 Coffee tables 18, 40,000

4 Book shelves 11, 04,000

5 Sopha 4, 60,000

6 Bad 5, 52,000

7 Other decorative items 24, 84,000


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Total export from India 92, 00,000 units/year
Supply:

Area Manufacturer Supply(units/month)

Sikar 1 400

Jhunjhunu 5 2,410

Jaipur 10 5,650

Mundwa 4 2,100

Total supply by these 10,560units/month


20 manufacturer
So annual demand of these 20 manufacturer is = 10560*12

= 126,720 units/ year

Total manufacturer of wooden handicraft in Shekhawati region = 300

Total supply = {300*126720}/ 20

= 1900,800 units /year

Demand-Supply Gap Estimation

The demand of handicraft is 9200000 units/ year and the supply is 1900,800 units/ year.

So the demand supply gap is:

= 9200000-1900800

= 7299200 units/ year

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This gap is currently filled in by the manufacturers who are located outside Rajasthan which
is fulfilled by nearby states like U.P., Madras, and Jammu & Kashmir. So to fill this gap the
handicraft manufacturing unit can be set up locally.

Demand Forecasting

The information collected in market analysis is helpful in forecasting estimated demand for
my product. As 0.082% of the total market is the potential market for my product, this is the
market for local brands. On the basis of this survey, my product will replace 0.082% of the
total demand. The market is growing with a growth rate of 15 %; accordingly my production
will be there. These also decide my capacity as on the basis of the market demand my
capacity will be 60% for 1st year & than will grow accordingly. The plant will run only in one
shift.

The production and capacity related data will be:

Year Operating No. of shifts Total Production


capacity (In 8hrs/day) (Units /year)

2009 60% 1 7200

2010 65% 1 7800

2011 70% 1 8400

2012 76% 1 9120

2013 82% 1 9840

2014 89% 1 10680

2015 97% 1 11640

Marketing Channel

Most producers do not sell their goods directly to the final users; between them stands a set of
intermediaries performing a variety of functions. These intermediaries constitute a marketing
channel. The marketing channelsManufacturers
just not only serve the markets but they also make markets.

Currently, the existing marketing channel of the wooden handicraft manufacturers is as


follows:

Distributors

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End Users
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Strategic Marketing Plan:

Wooden handicraft is being an unbranded commodity, so as such the manufacturers incur no


promotional expenditure. Sometimes they just increase the commissions or the margins of
these, if the targets are achieved enormously.

But in order to differentiate the product and capture the existing market and to develop strong
customer base, some strategic marketing plan is necessary to be designed and implemented.

Various strategies that will be used being a new entrant are:-

• Steady supply with timely delivery to fulfil the demand of the domestic area as well
as outside area and good quality would be one of the strategic strength of the
marketing plan.

• Apart from good quality good designs are an important factor. These designs will be
based on traditional pattern so that it can impress foreign customer.

• Besides from these efforts e-commerce is also a promotional tool for marketing of this
product. So I will do online selling also in order to promote my product.

• So orders will also be taken online apart from fax and telephonically.

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Technical Analysis

Process involve in manufacturing of wooden handicraft:

A lot of skill and hard work goes into every piece of Indian wooden handicraft. It mirrors
Indian culture, and each handicraft is a masterpiece in its own right. Let's take a peek at the
actual process which goes into creating a piece of wooden handicraft.

• Raw wood available in the form of logs is cut into planks of desired thickness and
length.
• The piece of wood is then seasoned to obtain a texture which is favourable for
carving.
• Decorative patterns are first drawn on the wood with a pencil.
• The design is then carved into the wood with a carving tool.
• Craftsmen inlay the wooden handicraft with metal, bone, or wood which gives off a
contrast effect, enhancing the intricacies of the carved design.
• Different pieces of carved wood are joined together to make complete, functional
objects.
• A protective coating is applied with a suitable wood finish.

Production Time
Wood carving is a time consuming process. The time needed by Indian craftsmen to create
carved wooden handicrafts may range anywhere from a week (for small items) to a few
months (for large items which require elaborate carving techniques.

Production Tools
Indian craftsmen have a wide range of tools at their disposal, depending on the stage of
production. Some of them are as follows:

• Saws: Powered by an electric motor, Band saws are used to cut off scrap wood
effortlessly. Chain saws are used to cut logs for large carvings.
• Drills are primarily used to drill holes, and they are available with several attachments
to perform sanding, sawing, mixing paint etc.

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• Lathes are used to turn wood. They are used to make spherical, cylindrical or round
objects. They are handy while making vases, bowls, and plates.
• Primarily used for whittling and chip carving, Carving knives are also used to make
the surface of the wood smooth.
• Wood-carving chisels have a sharp flat edge which is used to cut into the wood. They
are available in bent, straight, and spoon shapes.
• U-gouges have curved cutting edges which form a 'u' shape, hence the name.
Craftsmen use them to remove large pieces of unwanted wood, to define large shapes,
and to round out the edges.
• Also known as parting tools, V-gouges are used to cut fine lines. They are used for
outlining while carving intricate patterns.
These tools are not specific and easily available at local market because it is
manufactured locally.

Machinery Involved

S. No. Particulars No. Rate Amount

1 Chemical treatment plant 1 200000 200000

2 Seasoning plant 1 300000 300000

3 Surface planner 9 30000 270000

4 Grinder(small) 5 2500 12500

5 Grinder(big) 5 7000 35000

6 Driller 2 1500 3000

7 Band show (aara machine) 1 25000 25000

8 Gaze machine 3 30000 90000

9 Ziksha machine 1 3000 3000

10 Sanding machine 1 30000 30000

Total: 968500

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These machines will be purchased from Ludhiana as many manufacturers are making these
machines. Therefore, these are available at competitive prices.

Location and site development

 The area for setting up a handicraft manufacturing unit is decided after surveying all
the potential areas. The location of plant will be in RIICO industrial area in
Jhunjhunu district.

The rate of land is Rs 500sq meters (one side road plot), of area 2,000sq meters or 21529sq ft.

Structure and Civil works:

S. No. Particulars Size Area Rate Amount


1 Factory shed 30”*60” 1800 200 3,60,000
2 2 stock room 18”*20” 360 200 72000
3 Guard room 8”*10” 80 200 16000
4 Power room 8”*10” 80 200 16000
5 Boundary wall 220000
6 Washroom 6”*8” 48 200 9600
5 labour quarters -
7 Room 12”*10” 120 200 24000*5=120000
8 Washrooms 6”*8” 48 200 9600*5=48000
9. Office room 15”*12” 180 200 36000
10. Fire fitting 39200
Total 9,36,800

Utilities

The important utility used in handicraft manufacturing is power.

Other necessary utilities used in plant are: -

♦ Fans – 2

♦ Tubelights-20

33
♦ Computer with laser printer

♦ Furniture comprise of – office table, cello chairs.

Materials

Babool/Aakashiya: This is available in Rajasthan and some part of Gujarat. The rates of
babool are Rs.20 / sq ft

Shisham: Most of wooden handicraft is made of shisham wood. The highest demand is of
shisham made wooden handicraft. This is available in Gujarat, U.P. & Bihar. This is made
available by local wholesale timber merchant. The rates are Rs. 30/sq ft.

Pine: Rs. 25 /sq ft. These are less demanded.

Teak: Rs. 80 /sq ft

Mango: Rs. 25 /sq ft

Only Shisham will be used to manufacture wooden handicraft because it is more in demand
and suitable for these type of handicrafts.

Labour Requirements

Handicraft is a labour intensive product and it is all depend upon labour only and all kind of
labour requirements are there like in this we need skilled , semi skilled and unskilled
workers. So total requirements are as follows:

Salary (Rs.)
Employees Number
Per day Per month Annually
Production
1 - 5000 60000
Supervisor
Accountant 1 - 5000 60000
54000*5 =
Skilled Workers 5 150 4500
2,70,000
Semi skilled 45000*8 =
8 125 3750
Workers 3,60,000
Unskilled 36000*3 =
3 100 3,000
workers 1,08,000
Peon 1 - 2,500 30,000
Guard 1 - 2,500 30,000
Total 20 9,18,000

34
Strategy to appoint & retain employees

 On time payment is a best retention strategy. So I will give on time payments to retain
my skilled worker.

 Medical facility to all worker and employees.

 Occasional bonus to skilled workers.

 Housing facility: I will provide labour quarter to skilled worker who are not from
local areas.

 I will provide employment to their spouses based upon their ability.

35
FINANCIAL ANALYSIS

Cost of Project

Particulars Cost in Rs

Land & Site development 10,63,600

Building 9,36,800

Plant & Machinery 9,68,500

Other Fixed Assets 2,30,000

Preoperative Expenses 2,71,995

Preliminary Expenses 1,94,282

Provision for Contingency 1,94,282

WC Margin 26,189

Total 38,85,648

Means of Finance

Particulars Cost in Rs.

Promoter's Capital 12,95,203

Long/ medium Term Loan from Banks 25,90,445

Total 38,85,648

Basic Assumptions underlying Financial Projections

The profitability and other projections may be prepared on the basis of following
assumptions:-

1.) The construction period will last for one year.

2.) The company would work for 360 days per year on a 1 shift basis. The installed
capacity on this basis works out to 12000.

36
3.) The company will start commercial production on July 1, of year 1. The expected
capacity utilization will be 60% in first year, 65% in the second year, and 70% for the
third year and so on.

4.) Wages and salaries are expected to be Rs 918000.

5.) Factory overheads expenses will be Rs 32880 for the first year.

6.) Administration expenses will be Rs 360000 per annum.

7.) The term loan will be repaid in 14 equal half-yearly instalments, with the first
instalment due at the end starting of first operating year. The interest rate on the
outstanding term loan will be 12%.

8.) The bank finance for working capital will cost 12% interest rate.

9.) The depreciation rates for company law purposes are as follows:

Building : 3.34%

Plant and Machinery : 8%

Miscellaneous Fixed assets : 5%

11. The depreciation rates for the income tax purposes are as follows, under the written down
value method:

Building : 10%

Plant & Machinery & Miscellaneous Fixed assets: 33.33%

12. The income tax rate applicable is 30%. Further 10% of Gross Total income will be
allowed as deduction for newly set up industrial undertaking under sec. 80I for 10 years
from the initial year.

13.) The current assets requirements are expected to be as follows:-

Raw materials : 30 days

Stock-in-process : 1 day

Finished goods : 4 day

Book debt : 7 days

14.) The suppliers of raw material will provide trade credit for 15 days.

15.) The salvage value is assumed to be 5% of Fixed Assets.

16.) The corporate tax rate is 30% p.a.

37
SALES FORECASTING

SALES FORECAST
Year 2009 2010 2011
Sales 3288000 3562000 3836000

38
Bibliography

• www.indianhandicraftexporter.com

• www.google.co.in

• www.wikipedia.com

• www.yahoo.com

• www.ori.nic.in

• www.answers.com

• www.handicraftdpr.htm

39
Annexure: 1

Questionnaire (Manufacturer)

Name____________________________ Company name___________________


Area of production_________________ Year of Establishment___________________

1) Variety of handicraft item you manufacture?

a) Chairs c) Decorative items

b) Tables d) Any other

2) From where you acquire the raw material for wooden handicraft?

a) Bihar c) Gujarat

b) U.P. d) Import from other countries

3) At what frequency do you order the raw material stock?

a) Weekly c) Monthly

b) Fortnightly d) As required

4) Order size

a) 400-500 units c) 700-1000 units

b) 500-700 units d) 1000 units and above

5) Who bears the transportation cost?

a) Supplier

b) Yourself

6) Which type of handicraft item is more in demand ?

a) Wooden

b) Glass made

c) Metal made

7) Which type of wood is maximum in demand for manufacturing?

40
a) Babul/Aakashiya d) Teak

b) Shisham e) Mango

c) Pine

8) What level of Inventory you keep?

a) 15 days c) 2 months

b) 30 day d) 4 months

9) From where you get the skilled workers for the ornamental work?

a) Saharanpur c) Jaisalmer

b) Barmer d) Locally

10) On which basis you appoint the workers?

a) Contractual

b) Monthly basis

11) What type of facility you provide to the worker to retain them?

a) Housing c) Bonus

b) Canteen d) Medical

12) What mode of selling of handicraft you use?

a) Through exhibition

b) Direct selling through retailer

c) Export

13) How much margin you get while going for export?

a) 0%-5% c) 10%-15%

b) 5%-10% d) 15% -20%

14) How much margin you get while going for local selling?

a) 0%-5% c) 10%-15%

b) 5%-10% d) 15% -20%

41
Annexure: 2

Interest Term Loan

14 Equal Instalments @ 12% per annum


Interest Interest Total
Loan O/S Loan O/S at Loan O/S at for the for the interest
Yea at the the end of 1st the end of 2nd 1st half 2nd half for the
r beginning half year half year year year term loan
1 2590445 2405413 2220381 155426 144324 299750
2 2220381 2035349 1850317 133222 122120 255342
3 1850317 1665285 1480253 111019 99917 210936
4 1480253 1295221 1110189 88815 77713 166528
5 1110189 925157 740125 66611 55509 122120
6 740125 555093 370061 44408 33306 77714
7 370061 185029 0 22204 11102 33306
Note: term loan of 25, 90,445 will be paid

Annexure: 3

Working Capital Requirements


Items Norms in days 1st year 2nd year 3rd year
Raw materials 30.00 62500 67708 72916
Stock in process 1.00 1837 1990 2143
Finished goods 4.00 14698 15923 17148
Book debts 7.00 25722 27866 30009
Total Current Assets 42.00 104757 113487 122216
Less: Margin for WC
from long term
sources (25% of RM
CAs) 26189 28371 30554
Less: Trade credit for
raw materials 62500 67708 72916
Bank finance for WC 16068 17408 18746
INTREST @ 12 % 1928 2088 2249

42
Annexure: 4

Depreciation

A. Asset Valuation for depreciation purpose


Share of Share of
Preoperative Contigency
Asset expenses Basic cost cost margin Total
Land 1063600 90435 64596 1218631
Building 936800 79655 56896 1073351
Plant & machinery 968500 82349 58821 2291982
Miscellaneous fixed
assets 230000 19556 13969 263525
Total 3198900 271995 194282 3665177

B. Depreciation schedule for company law purposes (SLM)


Building 3.34% 40702
Plant & machinery 8% 85868
Miscellaneous fixed assets 5% 114599
Annual depreciation 16.34% 241169

C. Depreciation schedule for income tax purposes (WDV)


Assets 1st yr 2nd yr 3rd yr
Building 107335 96601 86941
Plant & machinery &
Miscellaneous fixed
assets (33.3%) 851750 567862 378593
Total 959085 664463 465534

43
Annexure: 5

Profitability Estimates (Estimates of Working Results)


1st yr 2nd yr 3rd yr
Installed Capacity 12000 12000 12000
Production 7200 7812 8476
Capacity Utilization 60 65 70
A. Sales Realization 3288000 3562000 3836000
B. Cost of production 1322880 1433120 1543360
*Raw Materials 750000 812500 875000
*Power 60000 65000 70000
*Wages & Salaries 480000 520000 560000
*Factory Overheads 32880 35620 38360
C. Admn & Selling Expenses 410000 444167 478333
*Admn Expenses 360000 390000 420000
*Selling Expenses 50000 54167 58333
D. Gross Profit Before interest 1555120 1684713 1814307
E. Total Financial Expenses 301678 257430.000 213185.000
*Interest on Term Loans 299750 255342 210936
*Interest on Bank Borrowings 1928 2088 2249
F. Depreciation 241169 241169 241169
1186114.33
G. Operating Profit 1012273 3 1359952.667
H. Preliminary Expenses W/O 194282 194282 194282
I. Profit/ Loss Before Tax 817991 991832.333 1165670.667
J. Provision for Tax 30022.50 170561.400 282391.500
K. Profit After Tax 787968.50 821270.933 883279.167
L. Retained Profit 787968.50 821270.933 883279.167
M .Add: *Depreciation 241169 241169 241169
*Preliminary Expenses W/O 194282 194282 194282
1256721.93
*N. Net Cash Accruals 1223419.50 3 1318730.167

44
Annexure: 6

Tax Calculation
1st yr 2nd yr 3rd yr
Profit/ Loss Before Tax 817991 991832 1165670
Add: Depreciation for company law
purposes 241169 241169 241169
Total 1059160 1233001 1406839
Less: Depreciation for Tax purposes 959085 664463 465534
Gross Total Income 100075 568538 941305
Total Income 100075 568538 941305
Income Tax @ 30% of Total Income 30022.50 170561.40 282391.50

Annexure: 7

Projected Balance Sheet

Construction
Period End 1st yr 2nd yr 3rd yr
Liabilities
Share Capital 1295203 1295203 1295203 1295203
Reserve & Surplus 787968.50 1609238 2492517
*Term Loans 2590445 2220381 1850317 1480253
* WC Adv 16068 17408 18746
Current Liabilities &
Provisions 1365497.50 1555739 1745273
* Trade Credit 62500 67708 72916
Total 3885661 5685131 6327918 7032005
Assets
Fixed Assets
* Gross Block 3665177 3665177 3665177 3665177
* Less: Accumulated
Deprecition 241169 482338 723507
* Net FA 3665177 3424008 3182839 2941670
Current Asset Loans & Adv
* Raw Materials 62500 67708 72916
* Stock in Process 1837 1990 2143
* Finished Goods 14698 15923 17148
*Book Debts 25722 27866 30009
Cash & Bank Balances 26189 2059225 3031592 3968119
*Preliminary Expenses 194282 97141 97141
Total 3885648 5685131 6327918 7032005

45
Annexure: 8

Projected Cash Flow

Construction
Period 1st yr 2nd yr 3rd yr
Sources of Funds
Share Issue 1295203
PBT with Interest Added
Back 1119669 1249262 1378855
Depreciation 241169 241169 241169
Preliminary Expenses W/O 97141 97141
Increase in Secured Medium
& Long term Borrowings 2590445
Increase in Bank
Borrowings for WC 16068 1340 1338
Increase in State Govt
Special Incentive Loan
Total (A) 3885648 1474047 1588912 1621362
Disposition of Funds

Capital Expenditure 3665177


Increase in WC 42257 3522 4227
Preliminary Expenses 194282
Decrease in Secured
Medium & Long term
Borrowings 185032 185032 185032
Interest on Term Loan 299750 255342 210936
Interest in Bank Borrowings
for WC 1928 2088 2249
Taxation 30022.50 170561.40 282391.50
Total (B) 3859459 558989.50 616545.40 684835.50
Opening Balance of Cash &
Bank 26189 2059225 3031592
Net Surplus/ Deficit (A)-
(B) 26189 2033036 972367 936527
Closing Balance of Cash &
Bank 26189 2059225 3031592 3968119

46
Annexure: 9

Operating Cash flows


0 yr 1st yr 2nd yr 3rd yr
A Total funds 3885648
B Revenues 3288000 3562000 3836000
C Operating Costs 1732880 1877287 2021693
D Depreciation 959085 664463 465534.000
Interest on working capital
E advance 1928 2088 2249
F Interest on term loan 299750 255342 210936
H Profit before tax 294357 762820 1135588
I Tax 30022.50 170561.40 282391.50
J Profit after tax 264334.50 592258.60 853196.50
L Net salvage value of fixed assets
M Net salvage value of current assets
N Initial investment 3885648
1436922.6
P Operating cash flows 1434594 0 1467960
Q Terminal cash flow
1436922.6
R Net cash flow 3885648 1434594 0 1467960

47
Annexure: 10

BREAK EVEN POINT FOR THE PROJECT


Amount Amount Amount
A Sales Realisation 3288000 3562000 3836000

B Variable Costs
Raw Materials 750000 812500 875000
Interest On Working Capital 1928 2088 2249
Power & Water 60000 65000 70000
Selling & Distribution Expenses 50000 54167 58333
Total 861928 933755 1005582

C Fixed Cost
Wages And Salaries 480000
Repairs And Maintainance 10000
Depriciation 241169
Administrative Expenses 360000
Interest On Term Loan 299750
Total 1390919 1390919 1390919

D Contribution(A-B) 2426072 2628245 2830418

73.7856
p/v ratio 4

Break Even Point In Terms Of Volumes Of Sales 1885081

57.3321
Break Even Point In Terms Of Installed Capacity 4

48
YEARS 2009 2010 2011
139091 139091 1390919
Fixed cost 9 9
225284 23246 23965
total cost 7 74 01
328800 356200
Sales Realisation 0 0 3836000
188508 18850 18850
Break Even Point In Terms Of Volumes Of Sales 1 81 81

49