Cottage industries enable families to run their small businesses without a huge capital. They provide a space for good manufacturing at a small scale. They are more common in rural areas than in small-scale industries found in urban sites. While it may not seem apparent, cottage industries are an essential part of any country’s economy. India has the largest number of cottage industries globally. Small scale and cottage industries account for around 40% of the total industrial output in India.
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What is Cottage Industry?
Cottage industries are small-sized businesses, often built-in homes instead of offices or production facilities. Manufacturing such facilities do not have advanced technologies and mainly relies on traditional methods. The income generated through cottage industries typically goes into managing household expenses. The cost of labor is usually zero as members of a family work themselves to produce goods. Besides India, cottage industries are also quite popular in Italy, Germany, and Japan.
What are the Characteristics of Cottage Industries?
Cottage industries differ from small-scale and large-scale as they do not involve labor. The manufacturing units are small and do not require a large capital. These industries produce daily-use items without using extensive machinery that may sometimes be exported to other countries.
No Labor Involved
Labor is not involved in cottage industries. As the members of the family work in cottage industries within their homes, they do not employ others. This reduces the cost of technicians and labor. Sometimes they may employ distant relatives to do the jobs.
Smallest Manufacturing Unit
Cottage industries are the smallest manufacturing unit in any country. They do not involve huge machinery or advanced technologies. Cottage industries use traditional or small equipment that can be easily used within the house’s premises. These units manufacture goods that may be used locally or sent to other regions. Despite being the smallest manufacturing unit, they hold significant importance in a country’s economy.
Less Capital
As cottage industries do not utilize high-scale technologies and machinery, they do not require a lot of capital. They usually invest their family capital in the business for a kick start. The money eventually multiplies, giving them enough to run the household and buy raw materials. Less capital investment also means that a large quantity of goods is not produced. The produced goods are mostly used by neighboring areas.
Local Raw Material
To reduce the cost of the product, cottage industries use the raw material to manufacture products. It helps locals sell their materials and make money while the cottage industry owners use it to generate income. Using local raw materials is better for the seller and the buyer both. Sellers can sell their goods quickly as the buyers are around the corners. Similarly, cottage industry owners do not have to travel to faraway places to get raw materials. It decreases the cost of production as well.
Simple Tools
Cottage industries do not utilize huge machinery, as mentioned above. Mostly all work is done by hand, or sometimes simple tools are used. People running cottage industries sometimes manufacture simple machines by themselves to facilitate production. These machines are just a helping hand and cannot be used for large-scale production.
Daily-use Item Production
The goods produced in cottage industries are usually utilized in daily life that requires manforce only. These industries manufacture carpets, fabrics, ceramics, cane furniture, food processing, and leather and metal handicrafts. Other items include papads and local textile.
Exported Rarely
While the products of cottage industries are distributed and sold locally after production, some items may also be exported. Exported cottage industry items include papads, traditional jewelry, handicraft items, clothes, and metalwork articles. It is usually done by a third party that gathers orders for the family to increase their income.
The Bottom Line
Cottage industries are small in size but play a major role in a country’s economy. India has the largest cottage industry network. Cottage and small-scale industries combined contribute to around 40% of the total economic output in India. These industries are run and managed by family members without the need for external help. Cottage industries do not employ labor, use less capital and produce goods for local use. Sometimes the products are also exported to other countries.
Matthew is a Co-Founder at BusinessFinanceArticles.org. Matthew was a floor manager at a local restaurant in Wales. He lost his job after the pandemic and took initiative to make a team and start the project.
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