Small vs Big Business Market Competition - Essay Example

Introduction In any industry in the business world, competition has always been a constant in any location and market. Competition has been the core of success for these business players or companies. Over the years small businesses have been competing with large business on the same field of business or industry, some fail but there also quite a number who are still around. There a lot of factors which a businessman or business group needs to consider in terms of competition, and some of the essential aspect or factors of a business is as follows. Target market: the target market is a group of companies or end users the businesses is targeting to service (Longenecker, 2005, p.151). But under this factor are sub-factors like, market level which pertains to the buying capability or to the standards of demand and need of that market. Second is the manufacturing, which pertains to the quality of the raw materials that will be used for the product or service. Market availability is a very important factor in terms of competition. In some instances, competition can also be in-terms of availability, not all products and services can be readily available in the market at all times, and in cases like this end users have to get what is available. Price: product and service pricing, would actually depend on the current market prices, these prices are more often termed as the standard market prices. Benchmarking of prices actually depends on the economical standing of a specific industry, this is why prices cannot go up or down easily. It also determines the profit against capital and ( R O I ) or return of investment for a certain business. Characteristics of a Small Business There are three main characteristics of a small business (Fuller, p.6). First, it has no market power meaning to say, that since it has small market share, it will be unable to affect its business environment, national prices or national sales. Second, the owners run the firm in a personalized way, meaning to say, the people who run the company are the owners themselves and so there is no complex management or organizational structure since the main people who run the firm are the owners themselves. Third, the firm is independent, meaning to say, since the firm is not part of a larger business organization, it is able to make its own independent decisions without taking into consideration an approval from a larger firm. Types of a Small Business The main objectives of a small business are profit and ownership (Fuller, p.13). Their purpose is to achieve the highest income possible for their company and for a return of investment. There are three types of small business: the sole proprietor and the expansion of the sole proprietor, the partnership and cooperatives (Fuller, p.9-13). Looking at the advantages of setting up a business in this regard, we can also see the advantages of setting up a small business. Since it is a small business, there is more specialization and flexibility in terms of management. Also, with regards to a cooperative, it being a business which provides goods and services to its members, everyone who works in the cooperative and those who buy from the cooperative are owners of the business. The advantage in this is the inflexibility of the business in terms of democratic procedures. Of course, there are still management levels that decisions and approvals come from even if all the producers and consumers are part of the cooperative. As the sole proprietor expands its business, the assets and liabilities continue to grow. The advantage of an expansion, either towards partnership or cooperative is the expansion of assets as well as increase in investment sources. The primary disadvantage of a small business is the unlimited liability, meaning if the liabilities of the business is more than the return of investments, then the business might be in debt and in jeopardy of failing out. The loss and mistake of one may affect the other shareholders since everyone bought stocks for the expansion of the business. To minimize, or even eliminate the disadvantage of unlimited liability is to transform the business into a limited company. In this way, the business becomes a separate entity from the owners. This carries on with the debts of the company. It means that if there is a possible loss of money, the shareholders only lose the money that they have invested in the company, and their personal finances may not be affected. A Board of Directors elected by the shareholders also makes it possible for a direct, small group of people from the company, which holds the core decision-making for the business. Because of the limited people involved in the small business, even if it has expanded to being a limited company or partnership, there is still a core group that handles and manages the business directly. There is only a small group of people that decides for the company. There is no complex management or organizational structure that the decision-making or proposals has to go through. Some small businesses want to remain small because of this, and because of a socially-inclined perspective, in which the business has more job satisfaction in running a small number of people, maintaining the quality of the product rather than increasing in size and maintaining close links or ties with the social community. However, there are some small business that are forced to expand and grow because of the competition of larger and more powerful firms in terms of the price, quality, service, range of products, networks, location, marketing and advertising. Competition with Big Business Considering these aspects we can clearly evaluate how small and big businesses compliment and help each other and at the same time how competition between small and big businesses causes loss for small businesses or even shut down. In any field of business, it is important to have sufficient capital and funds to back-up your business. This is also one way for businesses to get through tough times like unexpected economical situations. More often than not, almost every company or organization is aware of this factor, however, a large number of small business organizations tend to miss out on other factors because of this. Having funds is one good thing an organization should have, but in order to service its market the business organization should also have enough resources to continue its operation (Storey, 2000, p.580-581). Compared to big business organizations which can fully utilize their funds or capital and their ability to operate nationally and internationally, small business organizations have limited source of their capitals and profit (Anglund, , 2000, p.61). Small businesses rely on their market, which could be limited only to the area of their operation. Also, because of lower capital, small businesses have limited advertising ways. The trading blocks and other organizations in the market that controls trade and the market, also pose a threat to the small business as it increases the cost of their import and buying capabilities (Fuller, Section 2, p.22-26). Large businesses which are able to withstand the competition and costs of the trading industries are able to set a price ceiling for the market. And since, they are big business which has the capability to affect and control the market, with the international blocs acting as governing bodies, they are able to affect other industries and companies within the industry. With this, small businesses are forced to lower their prices, which in turn, lower their profits because of the prices that the big businesses have set. Small businesses eventually lose to the competition from cheaper products not only caused by the big businesses but also by the actions of the international blocs, mainly the World Trade Organization, in restrictions in export and imports. However, the international blocs may also affect small businesses positively when common regulations are put into place in the countries within the organization. If they are able to purchase lower priced goods for their products and services, then they will be able to produce more products at a lower cost and they will be able to keep up with the market. Small businesses usually serve as the users and purchasers of the goods and products that big businesses market. And because of this, they have no control over the costs of the products they purchase. This shows a double-edged sword carried by a relationship with the supplier, given that it is a big business. It provides for the small business what it needs for its own production, however, it can increase the cost of production by the small business depending on the movement of the market. If the small business has a strong local and community relationship which wants to produce products within its locality, then negotiating for lower costs may be possible (Marsden, 2008, p.78-80; Fuller, Section 2, p.20). Big businesses has the capability of targeting different markets, including market niches, those with a desire for consumption of specific and distinct types of goods instead of the general marketed ones. Because of their ability to purchase more materials and allot money for advertising, either through mass media, or through developing and starting up their business in different locations, big businesses are able to reach a large number of people which the small businesses cannot because of their limited capabilities (Fuller, Section 3, p.29-30). With this, they become a big threat for one of the most important aspects of the small business’ profit, their consumer market. Although small businesses have been forced to lower their prices, they are still in jeopardy when the big businesses are able to provide the same products at almost the same price as what they are offering their market (High, 2001, p.xxii). This clearly shows the effect of the movement of the market in which they purchase general goods from known big businesses rather than small businesses because of popular media method. The way to increased profit with a small business then is to establish their name through quality and lower-priced goods or to establish a difference from the general goods that big businesses produce. Establishing a market niche is important for the small businesses in order to fight off the competition and not lose their entire market to the general big businesses (Longenecker, 2005, p.64). Big businesses can cater to small businesses in terms of providing them with their own products, services and the most important part, training and skills and vice versa. In this manner, if the small business can be able to adjust to other big businesses, make use of the big businesses’ goods and services, then they will be able to keep up with the competition in the market. Big businesses are important in this manner as they look at small businesses as a way to reach their own market niches. However, one disadvantage in this is if the small business will allow the big business to take control of its own market, then it will still be the big business’ market not their own. Conclusion Innovation, training and skills, flexibility and development of market niches and exporting capabilities are ways how to increase the chances of the small businesses’ chance in the market industry (Fuller, Section 2, p.31; Fuller, Section 3, p.37, 38; Little, p.79, 85, 105, 137). Finding the right people to the job and creating and dominating a market niche are important in the success of the small business. The main advantage of the small business over a large business is its capability to cater locally and maintain close ties with its community and market that will help in the growth of the business. As big businesses pose a threat to small business, it also gives the small businesses a reason to move even faster in its innovation and quality-enriched products and services. With this, small businesses can also benefit from the threat of the big businesses. This, thus, shows that big businesses and small businesses operate within the advantages and disadvantages of each other. References: Anglund, S. (2000). Small business policy and the American creed. CT: Preager Publishers. High, J. (2001). Competition. Cheltenham: Elgar Publishing. Longenecker, J. et.al. (2005). Small business management: an entrepreneurial emphasis, 13th ed. KY:Cengage Learning. Marsden, T. (2008). Sustainable communities. London:Emerald Group Publishing. Storey, D. (2000). Small business: Critical perspectives on business and management. London:Taylor & Francis. Fuller, C. (n.d). Section 2. Small business activity. Fuller, C. (n.d). Section 3: Global competition and big business activity. Read More