Chapter 3 - Enterprise, Business Growth, and Size
Learning Objectives: To understand the importance of startups to economies
We all heard that trendy word... Start-ups:
A business start-up is a newly formed business. They usually start small but might grow bigger.
Start-ups have a great importance in a country's economy and therefore governments support business start-ups in different ways:
Low interest loans;
Grants;
Lower taxation;
Rent-free agreements;
Training for workers;
Information, advice, and support.
There are many reasons on why governments support start-up businesses:
Jobs creation;
Increased variety of products and services to the population;
Competition (leads to lower price and higher quality);
Chance of becoming larger businesses in the future;
Smaller businesses often times charge lower prices.
As you can see, start-ups are of great importance to an economy. These businesses may become even more important to a country's economy if they grow. Although it might sound weird at first, understand that some businesses want to grow but some businesses might not want to grow:
Some businesses prefer to remain small for different reasons:
Owner's choice (responsibility, control, relationship with workers and customers, risk);
Market size: local businesses (e.g. hairdressers);
Access and availability of capital is an important limitation;
Market domination can make it difficult for small businesses to compete and grow on the face of large ones.
It is more common, however, that some businesses focus on growth. And there are some reasons for that:
Increased profit:
Growth means higher sales (revenue) which can lead to higher profits if costs were kept low during the growth stage.
Larger market share:
As the business' products become more popular during growth it sells larger amounts and therefore is able to take on a larger portion of the market. It becomes easier to launch new products.
Economies of scale:
As a business grows it may benefit from reduced costs which can, therefore, increase its profits.
Greater power to control the market:
As a business becomes large it may be able to set the market prices (smaller firms will follow). Larger companies may even have the power to influence government decisions.
Lower risk of takeover:
Larger companies are less likely to be taken over (acquired) by other companies. Smaller businesses are easier targets.
To-Do-List
Exam Practice Question #1 (p. 44)
Chapter 3 - Enterprise, Business Growth, and Size
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