Chapter 3 - Size of Business
Learning Objective: Small & Family Businesses (Ch. 3.2)
Mongolia is a great place for us to discuss small businesses: look around and see the amount of them in our daily lives!
What constitutes a small business, though? It depends on where you live, but here is an example:
Not only small businesses are heavily present in our daily lives but they are also of extreme importance to countries, customers, and the economy in general.
Jobs: although small, collectively small businesses create a large portion of all jobs within a country's economy;
Flexibility and Diversification: small businesses can easily and quickly adapt. They are dynamic and offer customers an array of choices;
Competition: if it wasn't for small businesses large companies would dominate the market. Dominating businesses are likely to offer lower quality and higher prices products/services. Small businesses are here to counter-balance and create healthy competition;
Supply Chain: due to their flexibility and dynamism small businesses are oftentimes a key part of large businesses supply chain - they offer specialized, tailored, high-quality products/services that are essential for large companies;
Price: small businesses may be able to offer customers lower prices as they have a smaller cost structure (e.g. salaries, infrastructure, staff);
Growth: small businesses can naturally become larger companies which will consequentially leverage the economy (taxes, jobs, etc.);
Activity 3.1
Would you rather be a small business or a large corporation? There are pros and cons on both sides:
Remember that large businesses supply most of the world’s consumer goods. Most large businesses do this by increasing efficiency and improving levels of quality.
Most people believe that family businesses are usually small sole traders. That is a misperception. Although many family businesses remain small there are many examples of large successful family owned enterprises out there:
Although these big corporations may not look like they are still mostly controlled by their founders' families (over 50% of shares) - despite being public limited companies.
Family Businesses have some core strengths leading their development and success:
Commitment: family members have dedication and an extra incentive to work hard so that their family name can be honored and passed to next generations;
Reliability and Pride: maintaining a strong reputation is key for family businesses and therefore they develop strong relationships with their stakeholders;
Knowledge Continuity: family members are willing to pass on the knowledge to future generations so that the business continues to be successful.
On the other hand, however, a few weaknesses are inherent to Family Businesses:
Succession/Continuity of the business is difficult - only 15% of all family businesses make it to the third generation;
Informality: family businesses may become inefficient due to the lack of procedures and formalities;
Conflict: family issues may be reflected on to the business;
Traditionalism: the idea of running the business as it has always been can lead to lack of innovation and inefficiencies compared to more professionalized businesses.
To-Do-List:
Exam-Style Questions (Q8, Q9)
Essay Question Q2.b
Chapter 3 - Size of Business
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