Running Head: ARE SMALL FIRMS REALLY LESS PRODUCTIVE?
Are Small Firms Really Less Productive?
Are Small Firms Really Less Productive?
In the present world the small and medium sized organizations are involve in a wide range of significant procedures that ensures that a large size of the population is employed in addition to adding to production in most countries. Such small firms are significant in advancing entrepreneurship and creating new products and procedures. The small firms are a point where one is bale to acquire new ideas as well as innovations (Audretsch, 1999). For the renowned productivity it has attributed itself to, there are methods that one is bale to acquire productivity; there is the technological transformation and the returns to scale. An instance is the processing organizations in Turkey that have applied these aspects in getting the survival probability and advancing hostilities of the other possible points.
Introduction
Since earlier point of time, larger organizations have been attributed to industrial revolution. This is seen in the United States in the 19th Century. On the other hand, the small companies acquired the attribute of dying out (Nguyen, and Reznek, 1991). There arose a relation between the income a country and the form of establishments acquired where most of the labor was used. In states where the income was low and medium, the small companies are the major source of employment. With the increase in income per capita, the dominance of the small firms went down (Tybout, 2000). While on the other hand states that have huge incomes, the labour is basically in the big firms.
It was not until the massive economic crisis in the 1970s that there arose a transformation in the view concerning the small firms. The small firms beat the odds and proved that they are able to survive when going against the large companies in a fast transforming environment. Moreover, they are quite useful in advancing an innovative milieu. Here, according to Acs and Audretsch 1990, the process of product flow continues to restructure the competitive environment. In addition, the rising availability of employment opportunity of the small companies in more advanced economies in the 1980s presented an important stature of enterprise organization. Even with the restructuring by researchers, the small firms have been acquired all over the world in the past few years. They have gone on to show a rigid and persistent production contrast between the large firms and the small ones with no consideration for the independent sector and state aspects.
Small firms have developed a sense of contrast in the production aspects as well as the function of these firms flexibility. This has led to a wide range of studies to be performed on the advancement of these firms as well as industrial productivity. There are theories that have been advanced, like the Schumpeterian notion which states that markets are moving; here while new markets continue to join in others are leaving it (Australian Society of Certified Practicing Accountants, 1994).). Firms only join an industry after looking at their performance; they leave only when they notice that their performance is below a certain point, firms that better than others are able to survive and are able to advance.
The aspect of productivity is a significant when one wants to get to know about the dynamic nature of a firm. It is in most cases attributed by the cost parameter and estimated as a labour productivity in several studies. Productivity has its source acquire from the economies of scale, technicality and its transformation (Hopenhayn, 1992). Firms enter into a market so as to acquire a better productivity, such firms termed to as entrants are either small or large reliant on the entry size.
There are other scholars that however attribute the small firms as being not that productive. Jennings and Beaver (1995) termed the business fall of the small firms based on the signs by the persons behind it as opposed to the main reasons for the failure. There are three points that they brought forth as the factors behind it. There are first the generic issues of the smallness and the most known reliance on one owner in varied circumstances. This is the followed by main aspect behind the causes that are noted for the firms like no finance or below standard management. Then there is the sign of the issues that the people behind it do not clearly know with the main causes. This may be like poor planning as result of poor management.
These failures later brought the need to use the diagnosis doctors that would help in alleviating the problems. It is due to this that in 1988 the federal government created a national project named the National Business Information and Awareness Program which had the main function of letting the small business persons to know of the importance of raising their management standards and lay more emphasis on factors that are before them (Taymaz, n.d.;1997). The people working in this government agency needed to have an understanding of the basic problems faced by the small firms.
Small firms are known to be a growing factor in the present world and have acquired a large number of people by storm. They are presently having acquired the capability of being able to compete with bigger companies and being able to outdo them in the end. Their survival has been noted and is worth admiring. There are however other areas of the small business firms that are still pulling its productivity down.
Take an instance of the ownership of the small businesses; it is owned by one person or two who are the ones destined to make significant decisions for the firm (Peacock, 2000). There qualification of specialization is point of concern taking into fact that it is easy to start and the main purpose they in it is to acquire profit. Little consideration is given to the efficiency and innovation leading to the down fall of such businesses. In large firms, important decisions are made after a wide number of people have been consulted. Such individuals are specialized in their areas of study hence quality decisions are made.
With consideration being placed on the flexibility of the small firms depending on the changing times it is a point of concern that such firms tend to be reliant more on the product as opposed to the other firms. They are more reliant on what they produce and what they give (Cohn and 1974). This is attributing to the limited size of their portfolios it becomes hard for them to transform their operations to something more contrasting to what they were handling.
Conclusion
Even with the foreseen difficulty that has been attributed to the small firms, it becomes quite necessary to mention that such firms have become the new face in the merging world. Considering their easy management of its processes and products that adds to its flexibility, small firms are now taking most parts of the markets (W. Reynolds, et al, 1994). Large firms are becoming too expensive to manage and breaking them into smaller entities that specialize in certain aspects of the whole organization is becoming a significant phenomenon. A large size of the population is easily reached and accorded an efficient and effective goods and service. Such firms re hence able to acquire the main essence of business which is to satisfy the customer and maintain him or her while on the other hand advancing and acquisition of profits. Small firms are hence termed to as being more productive.
Bibliography
Acs, Z.J. and Audretsch, D.B. (1990), Innovation and Small Firms, Cambridge: The MIT
Press. Audretsch.
Audretsch, D. B. (1999), “Entrepreneurship and Economic Restructuring: An Evolutionary
View”, in Z. Acs, B. Carlsson, and C. Karlsson (ed.) Entrepreneurship, Small and
Medium-Sized Enterprises and the Macro economy, Cambridge: Cambridge
University Press.
Australian Society of Certified Practicing Accountants (1994). Handling Your Bank: A Small Business Perspective (Melbourne: ASCPA 1994).
Hopenhayn, H.A. (1992), “Entry, Exit, and Firm Dynamics in Long Run Equilibrium”,
Econometrical, 60: 1127-1150.
Nguyen, S. V. and Reznek, A.P. (1991), “Returns to Scale in Small and Large U.S.
Manufacturing Establishments”, Small Business Economics, 1, 29–46.
Peacock, R. (2000). FAILURE AND ASSISTANCE OF SMALL FIRMS.
Taymaz, E. (n.d.). Are Small Firms Really Less Productive? An Analysis of Productivity Differentials and Firm.
Taymaz, E. (1997), Small and Medium-Sized Industry in Turkey, Ankara: State Institute of
Statistics.
Tybout, J.R. (2000), “Manufacturing Firms in Developing Countries: How Well Do They
Do, and Why?”, Journal of Economic Literature, 38: 11-44.
W. Reynolds, W. Savage and A. Williams, (1994). Your Own Business. A Practical Guide to Success (Sydney: ITP Thomas Nelson, 2/e), p. 38.
