Is Small Beautiful? Essay

Published: 2020-04-22 08:25:56
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Critically appraise management styles in small firms. The significance of small business in a countrys economy cannot be over emphasized. Small business is a good source of employment and also creates competition, which is good for a vibrant economy. The number of small businesses continues to increase in many countries due to the little resources needed to start business operations, little technical know-how needed, and relatively easy organizational formation. Governments in many countries strongly support the growth of small businesses, seeing their importance in the countrys economy.

As Anglund (2000:10), puts it, the American national government is in the business of promoting small business. Government agencies help entrepreneurs start and grow small business through a smorgasbord of programs by providing financial assistance such as loans; help obtain government contracts including the set-aside of contracts for bidding by small concerns; and management and technical support. This write-up focuses on the management styles practiced in small firms and also the industrial relationships that exist in such business operation.

CONCEPTUALIZATION AND CHARACTERISTICS OF SMALL FIRMS Small is a relative term; it is not an absolute one. Here, the line of separating small from large is in a continuum, and an issue that is inevitably arbitrary. Small business is a generic concept. Being the antonym of big business, its social significance becomes clearer when placed in the historical context where the latter first appeared in the world economy (Odaka & Sawai, 1999).

Owners active involvement in every aspect of the firms operation is a significant characteristic in distinguishing a small firm from a large one. Bolton (1971) identified three characteristics in its economic definition of a small firm: 1. A small market share, that is not large enough to influence national prices or qualities (Even though a village shop may be the only one, its prices cannot get too far out of line from those of major national retailers in the nearest town, even though people will pay something for local convenience).

2. Managed in a personalized way: the owners actively participate in all aspects of the business unlike in a large firm where the shareholders and management are usually almost entirely separate. 3. Independence or the exercise of ultimate management responsibility. A small subsidiary of a large firm which has a head office to report to do not share this characteristic. The above characteristics are usually found in businesses which are inherently small in size.

According to Bannock (2005), one significant way of defining a small firm is in the number of employed staff it has. Although, there is difficulty with this definition since number varies depending on the nature of the enterprise. To illustrate this, a manufacturing enterprise that employs 250 people is categorized to be small, while a retail organization with 250 employees and perhaps with 10 to 15 branch outlays is considered to be a large firm. Government of different countries uses a definite statistics to categorize the size of a firm.

The European Commission and many member states, including the UK, define Small Medium Enterprises (SMEs) as those with fewer than 250 employees. Other countries use other thresholds for statistical purposes: the United States uses 499 employees as the overall threshold for large firms Japan uses different thresholds for manufacturing (299 employees), wholesale distribution (99 employees), and retail distribution and other services (49 employees) (ibid).

In the same vein, Odaka & Sawai (1999) puts it that, statistical definitions of small businesses vary from one country to another. The image of small size has also shifted over the years. In Japan before the World War, the statistics for a production unit was defined as a factory if it met the arbitrary criterion of having ten workers or more. This has changed by 1937, wherein enterprises were classified into three groups: those employing 100 operatives or more as big, 30 to 99 operatives as medium size, and fewer than 30 as small.

Thus, from the above statistics it is seen that there is no universally accepted definition for small firms or small businesses. The terminology for small business is equally haphazard, whereas the term small business is widely used, small is often extended to small-and medium-sized. By the same token, business is frequently substituted by company, concern, enterprise, firm, or even industry, depending on the preference of the author. No single phrase or definition has yet been universally agreed upon (ibid).

BENEFITS AND VULNERABILITIES IN MANAGING SMALL FIRMS Operating small scale business has several advantages when compared to large firms. According to Bannock (2005), small and medium-sized enterprises (SMEs) are desirable because they promote competition and employment, and since a few innovate and grow into large firms that potentially generate even more of these things. Furthermore, starting a small business can be a means for an individual to achieve independence, self-expression, wealth, and perhaps even serve a broader purpose and address other social issues and concerns.

According to Bruchey 1980; Bunzel 1962, cited in Bannock (2005), the presence of SMEs also helps to avoid an over concentration of political and economic power, a role traditionally greatly valued in the United States. The advantages of small firms are usually due to their size and management strategies. Among these advantages are: greater government support, favorable environment to operate into, little resources required to start operations, relatively simple registration process, small taxes, quick decision making, and more flexibility to make innovative and operational changes compared to large businesses.

Success of small firms relies largely on the dedication, loyalty, and involvement of owners in the operation of the organization. Odaka & Sawai (1999), opined that networking is an area where small firms have definite comparative advantages over big business. Each member of the network is an independent specialist in designing and/ or manufacturing intermediate products, while being simultaneously integrated into a coherent group of co-operation led by the core leader at the center, which generally serves as the designer- cum-assembler of the final product.

The disadvantages associated with small scale businesses have to do with the vulnerability of the business to collapse and fold up within the few years of their creation. This is mostly adduced to the small human and financial resources that are readily available to small firms. Hundreds of thousands of firms open and close each year in major countries, the vast majority of them very small¦certainly, the smaller and younger the firm, the more likely it is to close: about two-thirds of closures take place within three years of the start-up (Bannock, 2005).

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