Hello again. Do you remember last week’s lesson? I hope so. It dealt with definitions and examples of the small firm, characteristics of the small firm and the role of the small firm in Caribbean Communities. This week, we will concentrate on the reasons why many firms remain small and the advantages and disadvantages of the small firms.
Caribbean governments recognise the importance of small firms and try to encourage their existence by charging them less tax or exempting from certain taxes. In some instances, loans are made available to small firms at special rates of interest. In Jamaica, there is the Small Businesses Association of Jamaica (SBAJ) that assists small businesses in the country, including lending them money at low rates of interest. But, why do firms remain small?
Reasons for remaining small
• To keep the business in the family. Expansion may require hiring persons outside of the family.
• Market for the good or service is small. Unless the market grows, the firm will remain small.
• Some firms are linkages to small- and medium-size businesses. Unless they expand, these firms will remain small.
• Some firms remain small because they have missed the opportunities to expand.
• Many firms have not gone into large-scale production because they do not have the necessary collateral to access loans for expansion.
• The owners of some small firms do not have the necessary management and/or technical skills needed for a larger business.
• For many firms, the most efficient size is the small firm.
Advantages of small firms
1. These businesses are often strategically placed; that is, they are located in places that are convenient for customers.
2. They provide goods and services that are not provided by larger firms.
3. They normally sell a variety of goods and services and the items sold are usually unique and customers prefer this to the standardisation of larger firms.
4. People support small firms because operators of these firms know their customers well and often offer them credit.
5. The small firm is more efficient where personal services are to be carried out.
6. The top manager is the sole decision-maker. He/she can, therefore, make decisions quickly and knows exactly what is going on.
7. Small firms have a small number of staff, therefore, staff problems can be more easily detected and dealt with than in larger firms.
8. There is clear communication among employees and it is easier for management to have a good relationship with employees since the business is small.
9. Because small firms offer certain services, large firms are prevented from becoming too large.
10. Small firms stay open for longer hours than larger firms, to their advantage.
11. They are easy to start up and often receive government assistance.
12. These firms benefit from assistance from small business associations, for example the SBAJ.
The disadvantages of small firms
1. Owners have to put in long hours, sometimes without holidays in order to make the business a success.
2. Many of these businesses have limited liability; that is, they may loose more than they have invested in the business if it should fail.
3. The manager is often bogged down by other tasks which, in larger businesses, are delegated to assistant managers and supervisors.
4. They suffer because of competition from larger firms. This is so since the simple, cheap machinery used in small firms may not allow them to compete equally with larger firms.
5. Prices tend to be higher than those of larger firms.
6. Small firms are vulnerable to changes in the economy; they are easily affected by the ‘ups’ and ‘downs’ in the economy.
7. They have difficulty in arranging loan financing since financial institutions are often reluctant to lend them money. When they do lend them money, the rate of interest is often higher and the loan amount is smaller than that of larger firms.
As usual, I will end with your homework.
(a) Define a small firm. (2 marks)
(b) List THREE characteristics of a small firm. (3 marks)
(c) (i) Explain FOUR important roles of small businesses in your local community. (4 marks)
(ii) Discuss TWO advantages and TWO disadvantages of small firms. (8 marks)
(d) State THREE reasons why many firms remain small. (3 marks)


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