The Situation of Small Businesses in the United Kingdom - Essay Example

Running Head: Analysis of small businesses in UK Analysis of small businesses in UK [Institute’s Analysis of small businesses in UK Introduction According to official figures, United Kingdom is currently the sixth largest economy in terms of nominal GDP. One of the first countries to industrialize, United Kingdom still holds its influence on the world economy by being a crucial member of G-7, G-8 and G-20 economic countries (Analoui & Karami, pp. 24-39, 2003). Like other economies of this world, 95.5 percent of the businesses in UK are small in nature. This explains why on May 19, 2009 President Obama had a special meeting with award winners, small business owners and said that he is aware of the decisive contribution that small businesses make to the US economic growth. He also promised that government would not leave them alone and play its part to help them out from this troubled situation. They are significant for the economic activity of any country. In addition, they provide more than 32 percent of employment to United Kingdom’s labor force. Surprisingly, these numbers have recently fallen down and this data for the year 2002 presented a stronger picture for small business as shown in Figure 1. This paper focuses on these critical drivers of United Kingdom’s economy by exploring its competitive advantage, problems are possible reasons that distinguish it from failed ones. (Analoui & Karami, pp. 24-39, 2003) Discussion It is also imperative here to define small firms before we actually get into the actual discussion. Despite the fact that experts differ quantitatively on the definition, still in an attempt to define it by a moderate approach, small firms are those who have a relatively small share of business in the market, having less than 50 employees, operations limited to a particular locality or region and usually managers are the owners (Harbury & Lipsey, pp. 36-57, 1993). In addition, small subsidiaries of large firms are not included in this definition even if they satisfy these conditions. Moreover, according to the specific definitions of Companies Ordinance Act of 1989, a small firm is a one who satisfies any of these two conditions. Firstly, it has a turnover of less than two million pounds. Secondly, its balance has an amount less than 0.975 million pounds and lastly the numbers of employees are less than 50 (Harbury & Lipsey, pp. 36-57, 1993). Competitive Advantage The biggest competitive advantage that small businesses enjoy is non-vulnerability to economic recession. Experts agree to this fact that only large firms find themselves much affected from recession. However, small and medium businesses have the ability to absorb the shocks of recession. There are many reasons for it. Firstly, it is because most of small businesses sell things that “people must have” or are very near to their fundamental necessities (Analoui & Karami, pp. 24-39, 2003). Examples include grocery shops, food and drinks, health services and others. Secondly, these businesses also sell things that “people think that they must have” (Analoui & Karami, pp. 24-39, 2003). For example, CD and DVD shops, shops those sell alcohol, tobacco, chocolates and others because people think that these are the easiest and cheapest ways to relax and relief stress. Moreover, many small businesses are local schools, kindergartens, coaching centers, tutors and local colleges who do not witness much drop out even during a recession. Thirdly, it is imperative to note that people restrain to buy new products during recession and rely on repairing and maintenance of the product for long usage. Since many of these repairing people are from small businesses, they enjoy the benefits. Fourthly, another important department of small business, which grows, is the financial advisor or consultant business. In the times of recession, people are hesitant in making financial decisions because they do not want to end up making a wrong one. The fifth reason is that many of the small business are online. Since they are simple and inexpensive to set up and can be very profitable, many developed countries have witnessed double-digit growth of spending in this sector (Analoui & Karami, pp. 24-39, 2003). Problems In addition, there are many disadvantages associated with small businesses. Most of the local businesses find themselves in a situation of unstable sales. There sales are seasonal and thus are the revenues, expenses and profits (Peterson, pp. 1-7, 1977). The above-mentioned situation requires the owners or managers to manage cash inflows and outflows more efficiently and failure to same leads to some serious damage. Moreover, small firms are not always the best at reacting to the changes in customers’ expectations, needs, technological changes, and other environmental variables. Since most of these businesses have their owners working as managers, therefore, it requires them to use their skills in areas on operations, human resource management, marketing, finance, administration and others. If the owner is incompetent in either one of these, he finds his business in trouble. Small businesses are at a larger risk of forced out to leave the market because of their low capital structure, less efficient marketing systems and inability to adapt to changes quickly. Characteristics that distinguish it from the Business that is likely to Fail Experts have identified some of the characteristics that most likely draw a line between successful and unsuccessful businesses. Successful businesses try gaining more and more insights about their customers and the changing environment in some way or the other. These managers do not regard marketing research as unnecessary (Sawyer, pp. 23-41, 2005). In addition, good entrepreneurs keep themselves abreast by the technological advancements. Unsuccessful firms are easy to identify because they are most likely to show nepotism and one-person management. In addition, Successful small businesses have owners who have the entrepreneurial ability and can handle multiple tasks at the same time. Conclusion The United Kingdom’s government is very positive about these small businesses. In fact, they believe that at the end of this year 2010, these small businesses would create more than 2 million new jobs and would be more than 4.5 million in number (Longenecker, pp. 85-103, 2005). Without nay doubts, that would make their role towards the British economy, even more significant than ever in the history of United Kingdom. References Analoui, Farhad, & Karami, Azhdar. (2003). Strategic Management in Small and Medium Enterprises. Cengage Learning EMEA. Harbury, C. D., & Lipsey, Richard G. (1993). An Introduction to the UK Economy. Blackwell. Longenecker, Justin G., Moore, Carlos W., Petty, J. William., & Palich, Leslie E. (2005). Small Business Management. Cengage Learning. Peterson, Rein. (1977). Small Business. Musson Book Co. Sawyer, Malcolm (2005). The UK Economy. Oxford University Press. Read More