Survival of small scale firms alongside large firms/why firm tend to remain small
As firms increase their scale of operation, they enjoy economies of large scale. Therefore every firm must strive hard in order to reap such benefits. However some firms continue to operate on a small scale because of the following factors.
- Limited capital. Small firms may be limited by capital for their expansion and this makes them to remain small for a long time.
- Limited Market Size. Some firms may remain small due to a small market size which necessitates the production of low output. Therefore the firm remains small to avoid loss resulting from over production.
- Using bi-products from large firms. Small scale firms may survive When they are using raw materials supplied by large firms. This makes them to remain in a small state despite the benefits of large production.
- Providing personalized services. Small scale firms which provide personal services and pay individual attention to their customers like doctors, tailors may not need to operate on a large scale if they are to provide standardized services to their customers.
- Need for personal contact. The owners of small scale firms can easily develop personal contacts with their customers. This may help the firms to keep on operating unlike large firms where the owners may not develop personal contacts with their customers e.g. salons.
- Simplicity in management. Small scale firms are easy to manage that is there is easy communication and co-ordination within the small firm unlike large firms.
- Beginner firm. When the firm has just started, it operates on a small scale because time is required for it to expand and enjoy the economies of large scale.
- Fear of diseconomies of scale. Unlike large scale firms, small firms do not face internal diseconomies of scale and therefore, this forces them to small for a long time.
- Production of very expensive products. Firms engaged in the production goods of ostentation may remain small because of the nature of their expensive products and the need to show class among their customers. Examples are firms dealing in sports cars, expensive jewelry etc.
- Flexibility in production. Small scale firms can easily change the line of production without wasting much resources for example when the market demand changes, a small firm does not lose so much as compared to a large firm,
- Production of bulky and fragile products. Small scale firms dealing in bulky and fragile products may feel secure to remain small to avoid risks of over expansion e.g. Firms dealing in glass making, brick making, eggs etc.
12. Fear of paying taxes to the government. Small firms can easily avoid and evade paying taxes and this makes them to operate on a small scale.
CATEGORIES Economics
TAGS Dr. Bbosa Science