Features of the Governing Business Activity - Essay Example

Governing Business Activity Introduction Business evolved from ancient periods even though it was in its primitive form. Innovative changes have occurred in the field of business during the last two centuries. Globalization and industrialization were the milestones in the history of business which helped the business world to transform into the present features. The modern business mainly includes three distinct forms such as sole trader, partnership, and company. The structure and size of the business may vary according to the capital employed for the purpose. There are considerable differences between small business firms and large business houses in their internal as well as external structures. Features of small business activity Sole trading and partnership firms constitute small business entities which may be probably based on one country with comparatively lower financial resources. In sole trading, an individual procures initial capital and runs his venture as he is his own master. Individuals with innovative notions, business experience, and sufficient venture capital like to conduct sole trade business firms. ‘More risk more profit’ is the business motto of the sole trader since he owns everything that he earned from business. At the same time, partnership is formed on the strength of partnership deed by which two or more persons with same interests combine together to form their business. Under partnership, all partners have equal access to business which facilitates division of risk among the partners. In case of sole trader and partnership, registration is not necessary and members have unlimited liability. Small businesses depend on many factors for survival so that suppliers’ price, wages, interest rates can directly affect the business operations of these concerns (lecture notes). As Gitman and McDaniel (2008 p.141) state, small business firms are formed by limited number of persons, and they cannot easily raise funds during the times of contingencies. The major contingencies to small business firms arise in the form of rival business organizations. Often, competitors enter into the market with same quality products as that of existing concerns but with less price rates in order to dominate the market. Similarly they might apply most modern marketing as well as advertising techniques with a view to take root in the market. It forces the small business enterprises to sell their products at reduced prices, sometimes even less than the acquired cost. If it continues, the small business concerns reach at a stage where expenses are greater than revenue. Naturally, it weakens the bank and cash balance of the firms thereby they face difficulties in meeting working capital requirements. Local people will be the main customers for a small business enterprise, which limits the chances of extreme growth. The specific features of the community and geographical characteristics of the region also determine the boundary line up to which local businesses can travel. The deficiency of financial resources restricts the firms from responding timely to market fluctuations. A good relationship with the local community helps the business concerns to dominate the market by finding the sources of cheap raw materials. Government regulations and law amendments also affect the operations of the small business enterprises. Higher taxation levels, requirement for high standard infrastructural facilities, and environmental regulations are some of the issues emerging from the side of local and national governments. These small sized firms have no opportunities in the local market to make a considerable increase in their income rather than increasing the selling prices. As a result, customers substitute their demands to other well established firms. In addition, the establishment of World Trade Organization (WTO) and Trade Bloc has facilitated import and export of goods at cheaper rates (World Bank 2008, p.339). It adversely affects the small firms since they generally do not take part in such international deals; so they face complicatedness in confronting with the cheap imported goods. Moreover small businesses cannot effectively comply with the tastes and preferences of the customers as their market forecast facilities are poor. Features of big business activities Big business houses mainly include joint stock companies which are registered under Companies Act. These businesses are probably based on more than one country and engage in international trade. Under this system many persons with similar interests join together to form a company and invest initial capital jointly. Unlike the small business firms, registration is necessary in case of these big business activities. Here, the partners are called shareholders and selected shareholders constitute board of directors who are responsible for the day to day operations of the company. The liability of the shareholders is limited and therefore they have no further obligations after the payment of complete share money. Since big business is formed by many persons, it may have abundant financial resource which is the heart of any form of business. Like in the case of small business firms; suppliers’ prices and wages have a direct impact on the operations of big business houses; but the large concerns with good market dominance can force suppliers to adjust their prices to a lower level. Chandra and Bose (2006 p.60) point out the competitive strategy of big business houses and the difficulties small businesses face. According to them, small businesses face the difficulties of competition since the competitors try to achieve more market shares by lowering their prices. Even though it reduces the revenue of existing big businesses, they can confront with the new entrants since they have sufficient financial sources. They can raise further funds by the issue of new shares or debentures (ibid). The success or failure of a local business mainly depends on the culture and economic features of the community where the business is located. The big business activities can also provide many employment opportunities to the native people; it increases the reputation of the company among the public. Likewise, the process of large scale production helps these organizations to reduce the production cost per unit and thereby to lessen the selling price (lecture notes). The big concerns engage in the trade of a wide variety of goods which satisfy the varying trends of the customers. In addition, big businesses will have a good market research team in order to up to date with the changing market trends. Since these firms have branches across the globe, the import-export tax variations in various countries greatly influence the revenue rates. The big business activities can take advantages on the regulations of WTO and Trade Bloc since these establishments facilitate international trade cheaper and easier. According to Barthwal (2007 p.168), since a huge organization is in a position to provide good salaries, bonuses, and other allowances; they can ensure the service of well qualified and experienced employees so that shareholders’ interest are protected. These concerns engage in large scale operations which help them to earn more revenue and thereby retained earnings can be maximized. The surplus funds facilitate the exploitation of maximum promotional opportunities such as advertisements and television shows. Since these firms spread beyond the boundaries of the nations, the global customers would have a thorough knowledge on products’ information which will defend the rivals’ competition. Moreover, modern customers like to choose the policy of ‘selecting from a large group’ which can be satisfied with the strategies of big business houses. In addition, big business enterprises function on the basis of Companies Act and thereby they cannot deviate from fundamental business principles and ethics. Why big business is entirely different from small? A big business house is primarily different from a small business for its structure. A big business is clearly separated from owners so that it has a separate legal entity and perpetual succession. Therefore, it can acquire assets or open bank accounts in its own name. On the other hand, small businesses are conducted by sole trader or partners without a legal separation of business from the owners. It imposes unlimited liability on the members. Small businesses are driven by innovators whereas written laws and articles determine the large business houses operations. At the same time, the big business concerns can exert pressure on their suppliers using their market strength, which is not possible in the case of a small business firm since they have less publicity and only a small group of suppliers. Small firms can concentrate more in production process and hence elimination of wastage can be minimized. An important feature that distinguishes a big business from a smaller one is that it can procure funds in times of contingencies by the issue of shares and debentures. People generally wish to invest their money in reputed companies since they get reasonable interests and safety for their savings. So the small traders need to depend more on bank loans and other financial institutions which would weaken their economic structure. The big business houses present their financial statements at the end of the year for share holders and other third parties. The financial statement includes all relevant information concerned to the year, which enable the bankers and investors to analyze the reliability of the company. There are no such methods for the small firms to reveal its financial position to the public. Similarly, a small business concern cannot provide too much opportunity for the local people since it does not engage in large scale operations. Diversified product collection is a plus point for big business activities since they can substitute their concentration on other product in case of failure of particular one. Governments are also customers of big businesses so that its authenticity is amplified in the market. Tromble, (1998, p.5) finds the abundance or resources as the feasibility of big businesses; according to him, it can provide financial assistance to charitable societies and local community projects in order to increase the economic status of the organization ( p.5). They can also influence the local governments to amend the business policies in favor of them; it is not practical in case of small firms. Large business organizations can also influence the strategies of WTO and Trade Bloc. This all factors aid big business activities to overcome different market crises more than that of small business firms do. Even though big business concern is better than a small firm, some times it disappears as a result of strategic failure. Conclusion From the study it is clear that big businesses are entirely different kind of organizations but not just a scaled up version of small business. Similarly, big firms’ long time existence is not only because of their competing capacity, but also due to their power over the firm’s internal and external environment. Reference: Birthwal, BR 2007, Industrial Economics: An Introductory Text Book, Edition-2, New Age International, New Delhi. Chandra & Bose, DC 2006, Fundamentals of Financial Management, PHI learning Pvt. Ltd., New Delhi. Gitman, LJ & McDaniel,C 2008, The Future of Business: The essentials, Edition-4, South-Western Cengage learning, USA. Tromble, WW 1998, Excellence in advancement: Applications for higher education and nonprofit organizations, Aspen Publication, Inc., Maryland. World Bank 2008, World development indicators, International Economics Dept. Development Data Group, World Bank Publications. US. Read More