Small Firms as Economic Giants

Small Firms as Economic Giants
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Table of Contents3 1.0 Small firms as Economic Giants3 1.1 Introduction3 1.2 Why BIG is always considered BETTER4 1.3 Maximization of Profits as a reason for companies to grow bigger6 1.4 Small Firms6 1.5 Economic role of small firms7 1.6 Use of innovation to keep small firms remain competitive7 1.7 Conclusion9 Reference
1.0 Small Firms as Economic Giants
1.1 IntroductionOne of the most influential economists of the 20th century and a Nobel Prize in Economics laureate Ronald Coase once posed the questions - "Why is not all production carried out by one big firm?" and "Why is there any organisation?" he asked these questions because he puzzled by the existence of both large and small companies at the same time (Coase, 1937). If being large has got huge advantages, then it would be assumed that all the companies in existence around the globe would eventually merge and the existence of one huge company that has got more than three billion employees realised. However, that has never been the case. It implies that organising economic activities in large companies makes no sense at all. This notion too begs another question; if so, why then are people not self-employed? Furthermore, why do we have companies in existence today? The common notion amongst people is that companies are becoming fewer and larger at the same time. The belief is that the business world is slowly experiencing corporate power concentration into a minority of global behemoths (this fact has however not been substantiated). Joseph Stigler opines that if in business size does really matter, then most of the small companies would cease to exist. The smaller firms would loose in the unequal rave against the big companies and therefore disappear. The United States for instance has got one of the most competitive and most dynamic corporate sectors in the world presently. During the past few decades, there have been many acquisitions and mergers and the trillions of dollars in assets changing ownership after industry consolidations. The companies have grown and so has the country`s economy. The big firms have in fact held a lion`s share of the country`s economy since the onset of the 1970s. Coase stated that companies can be of any size. There are no advantages and disadvantages in the size of a business firm. This paper is going to further this idea and show that a firm`s size is not an indicator of its success in the business arena. To achieve this, discussions on why ‘bigger` is always better will be discussed with the core elements on why firms think going ‘big` is the solution to survive the cut throat competition. Additionally the paper will advance the idea that, a small firm is also a better way to achieve greater heights in the business world if the proper areas are focused into correctly.1.2 Why BIG is always considered BETTERBig h...