Explain why, despite the technical and financial advantages of large firms, there are so many small firms.

Despite a small percentage to large firms of producing in bulk, small businesses find a niche by providing specialized products for small markets (e.g. hairdressing cannot easily achieve a large scale of operation, and tends to be dominated by small firms). An irregular or limited demand for a product prevents mass production. Small firms have the required flexibility and low overheads. Often small firms survive by accepting subcontracting work from large companies.

In printing, where fixed costs form only a small percentage of total costs, low set-up costs encourage the development of small firms. Where the market for a good is restricted and highly localized, small firms survive.

In attempt to stimulate the supply side of the economy the government has introduced a number of schemes to help small firms to survive: the Enterprise Allowance is a weekly sum paid to the unemployed while they are setting up their own businesses; the Business Expansion Scheme provides relief against income tax to investors in unquoted companies.

 

Enumerate advantages and disadvantages of small businesses in relation to large firms.

Advantages of small businesses:

· Small businesses find a niche by providing specialized products for small markets. Small firms have required flexibility and low overheads.

· Often small firms survive by accepting subcontracting work from large companies. In printing, where fixed costs form only a small percentage of total costs, low set-up costs encourage the development of small firms. Where the market for a good is restricted and highly localized, small firms survive.

· in attempt to stimulate the supply side of the economy the government has introduced a number of schemes to help small firms to survive: the Enterprise Allowance is a weekly sum paid to the unemployed while they are setting up their own businesses; the Business Expansion Scheme provides relief against income tax to investors in unquoted companies

Disadvantages of small businesses:

· Small companies can’t employ specialist skilled workers to do the same job all day with no time lost in changing tools or doing unfamiliar tasks

· Large firms that exploit economies of scale enjoy a cost advantages over small firms in the same industry.

 

Comment upon the risks involved in running a small business, namely the risk of a takeover.

A takeover occurs when one company makes a bid to assume control of or acquire another, often by purchasing a majority stake in the target firm.

Takeovers are typically initiated by a larger company for a smaller one. They can be voluntary, meaning they are the result of a mutual decision between the two companies. In other cases, they may be unwelcome, in which case the larger company goes after the target without its knowledge.

A takeover, which merges two companies into one, can bring major operational advantages and improvements to performance and for shareholders. But the case of hostile takeover is exist there are attempts to acquire companies in the face of opposition from existing management. It has a bad influence to small businesses

A small business owner needs to make sure they understand all the transactions involved so they don’t get taken for a ride.

 

 

Say in what way the performance of large and small firms differs.

· Firms with high turnovers will tend to be larger than those with small turnovers.

· Large firms tend to employ more employees than smaller firms.

· Large firms can invest more money in the business, than small firms. And large companies have more money in their balance sheet than small companies.

· Large firms often have more owners than small firms.

· One large company has a greater market share than one small company.