Challenges Facing Small Business in Australia - Essay Example

Small Business in Australia A small business could be defined as “an independently owned and operated business that is not dominant in its field” (Small Business). Also, generally it recruits a small number of employees and generates relatively low volume of sales. Small business could be owned by corporations, partnerships or sole proprietorships. However, for any business to be called a small business is ultimately determined by the industry in which it is operating. The legal definition for the term “small” for a small business varies from country to country. In the US, a business is considered as a small business if the number of employees is less than hundred whereas in the European Union the number is less than fifty. In Australia, a small business is defined by the Fair Work Act, 2009 which has been commenced from July 1st 2009. The examples of small business could be convenience stores, other small shops like bakery, lawyers, restaurants and guest houses, photographers and small-scale manufacturing units. Small businesses play a very significant role in economies across the world. If we consider history, we find that almost all the famous business house of today was started as a small business. They contribute to the society by selling products or services according to customer needs. They also provide employment opportunities to people. They provide maximum of the new jobs and generates much of the creativity and innovation to fuel economic growth of a nation. Small and medium size businesses has significant contribution towards the growth of industrialized countries over the past several years. In Australia, business is governed by Australian Competition and Consumer Commission (ACCC). The ACCC endorses competition and fair trade to benefit consumers, businesses and the community by large. The organization also regulates national infrastructure services. The prime responsibility of the organization is to ensure that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws. (ACCC) In late 1990s, the small business sector in Australia was growing rapidly. In between 1997-98 and 2000-01, the total output of Australian small business sector increased by 2.7% per annum. In 2000-01, small business in Australia employed around 3.3 million people that amount to 47% of the private sector workforce of the time. (Recent Growth). While considering small business growth (in numbers) across the regions, during 1997-98 to 2000-01, the Australian Capital Territory scored the highest (7.5%), followed by the Northern Territory (7.1%). Also, Western Australia recorded a moderate growth rate (3.7 %). However, Tasmania (0.3%) recorded the lowest growth rate. In the same time, at an industry level, finance and insurance witnessed the largest annual average increase (14.7%) followed by construction (7.4%) and education. Whereas the personal and other services and the manufacturing industry recorded a decline in numbers by (-1.2%) and (-0.6%) respectively. It was of no doubt that slowly but steadily the small business was on a rise and becoming successful ventures. Success, on the other hand, could be explained as a point where "preparation and opportunity meet". But how to define and measure success in case of a small business? Experts felt that here comes the concept of critical success factors. The key success factors are the milestones or the indicators that measures the business achievements and help determine how well the business is progressing towards its goals and objectives. While planning to start a business, these are the most important aspects. The critical success factors for small business could be mentioned as the following - Sell each unit at a profit - one has to evaluate each and every product that is going to be sold and determine if the business is selling them profitably or not. Continue to reduce overhead cost - reducing overhead cost could be done by evaluating insurance needs, reducing reliance on outside consultants and service providers or by cutting down unnecessary supplies and equipment. Develop new products while maintaining the quality of existing products - to ensure that the products are created or chosen according to the needs of the customers. Customer feedback could be taken through surveys or direct interaction with them to understand their expectations from the business. Find and retain high value customers - the 80-20 rule of business states that 80% of business comes from a specific group constructing 20% of the customers. Hence, it is critical to satisfy those 20% for the business. To create and maintain the highest level of customer satisfaction - last but not the least is to provide the best service to the customers. The satisfied customers, in all probability, would come back again and form a long term relation. Although there are several key success factors for a small business, however, the most important success factor is its people or the employees. When the employees are enthusiastic for new innovation, disciplined and dedicated to complete their targets and flexible enough to adjust to changing situations, the business produce a profitable product or service. There are various ground-breaking ideas to start a small business. Starting New Life Psychiatric Rehabilitation Association (New Life) in Hong Kong was one amongst them. The initiative was started in 1994 to create employment and training opportunities for former mental patients in Hong Kong. In late 1990s in Hong Kong many stabilized mental patients were discharged from the hospitals due to the adoption of community approach in rehabilitation by the government. To absorb these people, New Life started organic farming and was certified organic in 2003. By 2008, New Life launched 18 social enterprises including a supply chain of organic foods with a farm, two restaurants and five retail shops. Another successful case of small business we can discuss here is that of LightWorks Optics. It was launched by Dan Barber, Roger Johnston and Don Small at Orange County, California. The company prepares highly sophisticated optical components for defense aeronautics, space exploration, and commercial applications. Before starting their business under the name of LightWorks Optics, the three founders attended business classes and worked with an advisor from the small business administration. Slowly they set out to develop a business plan, pro forma financials and an operating approach. From the beginning, they approached an open book management style where they wanted to have all employees aware of everything that was going on in the business. They also came up with all the financial aspects of what was contributing towards profit and what was not. Finally, the company was incorporated in 1997 with each of its founders contributing $ 15,000 and one computer to the business. None of the founders took salary for the first eight months of their operation as they struggled to bring in contracts. However, the company was able to obtain credit line from a local bank. Nonetheless, throughout its history LightWorks mainly relied on its own revenue to fund operations. Over the following decade, the company gradually prospered. In 2006, its revenue was around $ 9 million. About 90 percent of this revenue came from defense contracts. Generally, the company subcontracted to larger firms, making a wide range of optical components for military applications. These military application included eyeballs for the Apache helicopter and parts for infrared search and track (IRST) systems for fighter jets and missile launch detection systems. Four percent of revenue came from space related projects. For example, the company provided optical instruments used on robotic aircrafts and also built part of the telescope that was used in a NASA project. As mentioned earlier, in Australia, the business environment is governed by the ACCC. The organization is having a vital role in promoting small business. Many of its decisions have brought benefits to small business in the country. More often than not, small businesses are hampered by things such as a price fixing agreement or abusive market power or anticompetitive merger. In its effort to assist small business in Australia to cope up with the demands placed on it by today's economic environment, the ACCC helped to amend some of the provisions of the Trade Practices Act (TPA) regarding the interrelationship between big business and small business. The main objectives of TPA are the following - to check anti-competitive conduct by encouraging competition and efficiency in business. Consequently, it results in a greater choice for individual consumers (or any other business when they are the purchasers) in terms of price, quality and service. to protect the position of consumers in their dealings with manufacturers and sellers in case of retail business. Also, it upholds the business in its dealings with other business is case of business to business (B2B) operations. Consequently, TPA bans anti-competitive practices like any kind of anti-competitive agreements and exclusionary provisions. For example, price fixing agreements, market sharing agreements and primary or secondary boycotts (sections 45 - 45D). Moreover, it also inhibits the misuse of market power (Section 46 of TPA). In addition to this, the rules and regulations of the Act would also have an impact on the mergers which would lower down competition in a market (Section 50 and 50A). TPA also prohibits agreements between competitors to fix, maintain or control prices (Section 45A). However, only time can tell how far the small businesses in Australia would be benefited by all these initiatives of ACCC. Works Cited "Small Business", http://www.yourdictionary.com/business/small-business "ACCC", http://www.smallbusinessinaustralia.com/ "Recent Growth in Small Business Sector", http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbyReleaseDate/89CF4EE30BB0BBB0CA256C5400000ED6?OpenDocument, October 16th 2002 Read More