What is the best definition of the term cottage industry a group of cottages that serves as a factory a group or community that starts in industry together?

The cottage industry refers to small manufacturing units producing goods and services using conventional and low-technology methods. An example of the cottage industry is the locally produced handicrafts and textiles, which are still the backbone of many rural economies around the globe.
Índice Show

How Does Cottage Industry Work?
Cottage Industry Examples
Cottage Industry in India
What Are the Problems Faced by Them?
Recommended Articles

Members of the household and materials usually provide the labor for such a setup for production are mostly locally sourced. Profits generated from the operations are typically used to meet the household’s expenses.

The cottage industry is defined as the small and mostly family-run enterprises where the profits are majorly used to meet the daily needs of the households. Therefore, it is also known as a small-scale industry.
Japan, Germany, Italy, etc., boast many successful examples of small-scale industries, with a developing country like India showcasing one of the oldest and widest expansions of such enterprises.
Although cottage industries are small, their sheer size and sizable economic contribution make them a thriving rural backbone of many economies worldwide.
Despite facing multiple headwinds from industrialization, digitization, and lately from the crippling lockdowns during the Covid-19 pandemic, the industry worldwide has continued to soldier on and, in some cases, grow.

How Does Cottage Industry Work?

Formerly, when most of the world did not live in urban clusters, families were forced to be independent. Often, they had to look out for the production of their food, clothing, and other essentials. So, the family members began to pool their resources to set up a small facility to create their clothes and kitchenware. If they made an amount greater than their consumption, they would sell the excess amount for a profit.

In time, the cottage industry produced various supporting services in trading and logistics. This web of interconnected traders and manufacturers makes them an elixir for rural economies. Hence, the cottage industry is usually classified as a small-scale industry as, in most cases, these setups do not have the scale required for mass productionMass production is defined as the manufacturing of goods on a large scale without compromising on the quality.read more. More features of the cottage industries include being highly fragmented and usually involved in producing goods that require skilled and semi-skilled labor.

The final products are sold to the local market, external agents, or intermediaries in other regions. As a result, countries with low employment in the formal sectors usually witness a strong cottage industrial complex, especially in the rural areas.

Cottage Industry Examples

We can give you some examples from around the globe.

Europe

Although we normally associate with developing countries. Many developed economiesA developed economy is the one that has a high per capita income or per capita GDP, a high degree of industrialization, developed infrastructure, technical advances, and a relatively high rank in human development, health, and education.read more like Japan, Germany, Italy, etc., which are successful, are examples of the cottage industry. In Europe, family cottage enterprises’ legacy was primarily associated with clockwork, straw plating, watchmaking, basket weaving, etc. In Germany, small-scale enterprises are popularly known as Mittelstand companies.

Japan

Japan, a country that boasts an envious economy and standard of living, is also home to some of the world’s oldest family-run cottage enterprises. A shop near an old Kyoto shrine run sells delicacies to pilgrims, among the more notable ones. This family has operated it for more than a thousand years.

Other countries

Other regions with a significantly visible cottage entrepreneurship culture include South East Asia, the Middle East, the US, and countries in South America.

Some economists have argued that countries with strong manufacturing capabilities like Germany and Japan tend to have a strong family-run enterprise culture. Others have even further claimed that these small family firms’ success created the industrialized economies of many developed nations that we can see today.

Cottage Industry in India

India has one of the oldest and widest penetrations of cottage industries globally. The country’s diversity is also reflected in the dynamic and wide-ranging products that the industry churns out into the market.
The top five cottage industries you may find in India are leather manufacturing, silk weaving, cotton weaving, small-scale food processing like pickles, meticulously done metal handicrafts, and carpet making.
The cottage industries in India have witnessed in-depth analysis to comprehend their features. They have found out that the leather industry supplies 12.9% of the global leather demand with an annual production of 3bn square feet of leather. Moreover, the tanning industry generates employment for close to 4mn people, with women accountingAccounting is the process of processing and recording financial information on behalf of a business, and it serves as the foundation for all subsequent financial statements.read more for 30% of the labor.
Most finished products are exported globally, with the USA, Germany, and the UK accounting for nearly 40% of total export value. The major leather-producing states include West Bengal, Uttar Pradesh, Haryana, and Tamil Nadu.
The cotton weaving and textiles industry in India dates back to historical times. The textile industry is also the second-largest employer in India after agriculture. It accounts for 51mn direct jobs and contributes almost 5% to India’s GDP. Karnataka, Telangana, Maharashtra, and Gujarat are some of the major cotton-producing states of India.
The silk weaving industry largely caters to the demand during the wedding and festival seasons when people wear silk clothing. 70% of India’s silk weaving is based in Karnataka, with major types being Mulberry, Eri, and Muga.
Metal handicrafts and the carpet-making industry are specialized industries requiring semi-skilled and skilled labor. In addition to this, these two industries also have an ethnic touch to the regions where they have historically dominated the economic scene.
Overall, the small-scale manufacturing industry has had a stronghold in the rural Indian economy. Such enterprises also provide a good amount of employment and bring in a mass portion of foreign exchange.

What Are the Problems Faced by Them?

You are free to use this image on your website, templates, etc., Please provide us with an attribution link

Source: Cottage Industry (wallstreetmojo.com)

The small-scale industry adds to the economy; numerous problems also plague it. Some of the major issues are provided below: –

#1 – Migration of Skilled Labor towards Cities

Since the boom of cities post-industrialization, many rural cottage industries have witnessed a significant reduction in their available talent pool due to the brain drain of skilled and semi-skilled labor searching for better opportunities.

#2 – Competition from Industrial Houses

Under their scale, cottage industries are severely limited by their inability to capitalize on economies of scale and face high input costs. As a result, it is not uncommon for many cottage entrepreneurs to operate their businessesBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more with razor-thin margins. That does not bode well when a large company moves into the neighborhood and begins to mass-produce the same goods at lower prices.

Being in the countryside usually comes with the advantages of low setup costs, but this is a double-edged sword in reality. In developing countries where the road network is patchy and not properly maintained, delivering goods to buying houses is a logistical nightmare. Furthermore, these small-scale business owners do not usually have easy access to cheap credit that their larger competitors often enjoy. That is one area where size does matter!

#4 – Market-Cornering and Predatory Practices by Middlemen

When you are a small manufacturer who spent most of your life in a village, setting up a business is impossible unless you have a steady buyer. Finally, after a long search spanning many weeks, you may find a buyer willing to purchase your entire production capacity. But there is a catch; the buyer will only pay a price that covers the cost of running your business. So, what would you do in such a situation?

Unfortunately, this is the reality encountered by countless small-scale businesses every day. Their fragmented nature works against them since there are only a few buyers but multiple producers and manufacturers.

#5 -Digitization

Since most small-scale cottage enterprises are not tech-driven, they could not capitalize on the opportunities of the e-commerce and online markets. Moreover, with consumer shopping habits favoring online sales, many small enterprises have been forced to see dwindling sales and close shops.

However, in recent years the new age cottage entrepreneurs have been upskilling themselves and their business practices to sell online and drive better efficiencies into their businesses.