Which Firms Are Important to a Society and Its Economy? Large Firms or Small Firms.

Economies of scale: Large companies can produce products at a much lower cost than small ones because the cost per unit drops as the volume of output rises

However this latter argument ignores the fundamental advantage that big firms enjoy over small firms: economies of scale. Given the capital intensive nature of the energy industry it is most likely that large firms enjoy cost advantages that smaller firms will be unable to achieve; we can predict that the MES of an energy firm exists at an extremely high output level and so has a downward sloping long run average cost curve as seen below:

Few firms: Modern industries are characterised by oligopolistic markets which are dominated by small numbers of relatively large firms for example many manufacturing industries such as steel , automobiles , aircrafts and drugs etc, are oligopoly.

However, it is wrong to assume that the main difference between small and large companies is how much money they have. Large and small companies play very different roles in the national economy and in the minds of investors. The very large companies really are different than their smaller brethren, and not just because they have more money.

Larger organisations are smaller in numbers, yet are bigger in financial scale. There are roughly 5000 organisations (with income greater than pound 1 million, account 78% of the industry’s income). In amongst those large the biggest 577 generate more than pound 10 million (nearly half of the sector’s income and spending).

Small businesses are mighty minnows, reflecting the competitive spirit that a market economy needs for efficiency; they provide an outlet for entrepreneurial talents, a wider range of consumer goods and services, a check to monopoly inefficiency a source of innovation, and a seedbed for new industries; they allow an economy to be more adaptable to structural change through continuous initiatives embodying new technologies, skills, processes, or products (Ibielski 1997, p. 1).

Small businesses are becoming a trend in the work environment today. The analogy of small businesses to large business brings about the question, “Can they eventually equal up in the world

Small medium sized enterprises and small and medium sized businesses are often referred to as SMEs. These are companies whose number of employees or turnover falls underneath certain limits. The EU defines companies with fewer than 50 employees as small, and those

(Michael E Porter, 1998) proposed that there is some analysis on why this industry become down due to lack resources or skills of existing firms, existence firms are prejudiced or careless and lack of attention by outside firm. According to (Kevin Johnston, 2012), the advantage of fragmented industry to the small business are no big players, low entry barriers, smaller is preferred and differentiation

Small firm effect refers to a situation which the average risk adjusted returns of smaller firms are higher

Big firms often face huge organisational difficulties that can slow them down and cause costs and problems. So I was into a BBC article the big businesses learning how to think small which appeared soon after Steve Jobs’ death. His insistence on “no committees” and talking to everyone at least once inaevery week was, he said, that is more enough to keep Apple more productive, efficient and successful in terms.

In 1909 Joseph Schumpeter said that small companies (firms with fewer than 500 employees) were more inventive. Several decades later in 1942, he reversed his thought upon further research. He submitted that large firms (firms with more than 500 employees) have more incentive to invest in innovation because they can reach a broader market and recuperate the cost of R&D investments more quickly (Canter, 2016). He also believed that the disadvantage of the innovation process to small firms in a competitive market was that inventions could quickly be imitated, cannibalizing potential profits. In recent years Schumpeter’s theory has been challenged and researchers like Acs and Audretsch have expanded upon his findings to reframe the measure of firms’ innovative activities in the context of today’s economic conditions. They believed that the smallest firms’ contributions to innovation across industries were often overlooked due to a lack of quantitative measures in assessing their outputs. The two proposed that small firms are actually more prone to innovate in industries mostly composed of large firms (Acs & Audretsch, 1988).

Large firms enjoy cost advantage under economies of scale; here they are able to reduce their average cost (AC) per unit as they increase total output. This basically means there is an increase in the cost of production for the large firm and an increase in output, promoting growth. As a result of cost advantage the large firms also enjoy managerial economies (Besanko et al, 2013). Under managerial economies, the firms can afford to hire specialists in different departments such as: human resource, marketing and finance within the firm. Additionally, large firms may benefit from market power, since they will have more control over their suppliers and customers. It is mostly assumed that economies of scale cannot be applied to small businesses since they are less likely to be involved in mass production. Certain studies show that it can be applied to small businesses in some cases. Small firms could benefit from economies of scale through buying of services. For instance, if a small firm hires an accountant to go through its account, the accountant uses only a small portion of his/her time and the firm pays only a small part of his or her time (Begg et al, 2013).

The idea is not primarily for new businesses to create jobs on a small scale but to enhance maximum growth in such businesses through creation of ideas that may enable them grow into larger firms thus, creating more jobs on a larger scale and leading in the industrial world (Grabowski, 1968). This essay is going to compare big firms and small firms in terms of their innovation; the comparison will be based on their economies of scale, scope and spillovers, research and development.

The importance of small and Micro Enterprises (SMEs) in the economy of any country cannot be overlooked. In fact for nearly 15 years, most researchers dealing with economic planning have highlighted the significance of these enterprises stating that they are a key player in realizing any country’s economic goals. As such, governments as well as other organizations with interest in development are laying plans and strategies to promote the establishment of Small and Micro Enterprises. This is seen as a move to ensure that there is full participation of SMEs in the country’s economy. The Small and Micro Enterprises have been known to contribute to a large extend as a source of innovation, entrepreneurial skills as well as source of employment. For example, statistics in 25countries of the European Union show that 99% of the jobs provided to its citizens come from the micro, small and medium-sized enterprises. Rowe (2008) points out that the British economy relies heavily on the participation of SMEs. On the other hand, 99% of the UK’s economy is composed of small and micro enterprises.