Chapter 51- Reasons for Staying Small

Question 1

Personal service

Answer 1

• it’s a lot more personal and friendly if you are communicating with the owner of the business etc. – Many businesses serve in niche markets

– it is usually easier for businesses to deliver a personal service in such circumstances

Question 2

Owner’s preference

Answer 2

May be content with the current levels of profits, for instance remaining below the VAT threshold to avoid administrative burden of increased correspondence with HMRC e.g. they may be below the VAT threshold

Question 3

Flexibility and efficiency

Answer 3

You can make and implement decisions more quickly and respond to market changes

– Management can make decisions quickly, without following lengthy procedures

Question 4

Lower costs

Answer 4

You may be able to pay lower wages due to lower costs etc. as it’s only a small firm

Question 5

Product differentiation

Answer 5

Even in competitive markets that might be dominated by larger businesses, it is still possible to flourish from operating as a small business.

• The banking industry in the UK is dominated by a few very large banks, - however, a number of small businesses have entered the market by offering peer-peer lending – these small businesses allow individuals to lend money to other individuals using an online site. Higher interest rates than other banks offer.
• In retailing, small specialists may be able to offer more product choice than larger rivals

Question 6

Flexibility in responding to customer needs

Answer 6

• Small firms can survive alongside larger ones by offering customers flexibility
• Smaller businesses can often make changes to customer orders even though a start has been made on production
• A small business can often respond to changes in external factors, such as shifts in customer needs, exchange rates or legislation
• Sometimes a customer may have a special request – small businesses are often able to cater for such requests because they do not have rigid systems

Question 7

Customer service

Answer 7

Offering high-quality customer service is way of vale to products. It can also give firms in a competitive edge in a market and allow smaller firms to survive in markets dominated by large corporations.

• It is a lot easier for a small business than for a giant corporation to offer customers a personal service. This can sometimes give a small business a competitive edge. Because customers attach a value to dealing directly with the owner of a business, the business can charge a premium price for this.
• Small retailers may have a geographical advantage over their larger rivals – for example a local grocer offers convenience to customers – they do not need to travel far for their shopping
• Communication in smaller organisations may be more effective – For example, customers trying to contact someone in a position of authority in a large corporation will often be met with an automated answering machine – such systems often lack flexibility and have a habit of directing customers to automated messages where it seeming impossible to get access to someone with expertise. In a small business, it may be possible to get straight through to the owner of the business where an issue can be resolved immediately.