IGCSE Economics Notes

Reasons why small fi rms co-exist with larger firms in the economy.

1. Specialisation in Niche Products

   • Providing a range of goods (niche) which cannot be bought from larger firms.

   • Catering to specific market segments with unique or specialised products/services.

2. Local Presence and Accessibility

   • Located in a remote area and be the only local seller of provisions.

   • Offering convenience and accessibility to customers who may not have easy access to larger stores.

3. Personalized Customer Experience 

   • Providing a personal shopping experience for customers.

   • Offering tailored recommendations, personalized service, and a sense of community which large firms may not be able to offer.

4. Adaptability to Changing Consumer Tastes

   • Small firms can adapt quickly to changing consumer tastes.

   • Flexibility in adjusting product offerings, pricing strategies, and marketing approaches to meet evolving demands unlike larger firms.

1. Simpler and quicker formation processes compared to larger corporations. 

   •  allowing owners to focus on developing their products or services and entering the market sooner.

2. Autonomy

   • Not having to take orders from others. Therefore, flexibility in decision making, such as dictating working hours.

   • Owners gain higher self-esteem from being successful.

3. Personalised Customer Relationships 

   • Small businesses are likely to know their customers on a more personal level.

   • Better relationships with customers due to personalised interactions. 

4. Ease of Management and Control

   • Smaller firms are easier to manage and control.

   • Easier in adapting to changes and addressing issues promptly.

1. Limited start-up capital

   • constrains the ability of small firms to invest in expansion, hindering their growth potential. 

   • limited access to resources such as advanced technology, specialized equipment, or prime locations. This can impede operational efficiency and productivity.

2. Higher risk of failure

   • Difficulty in raising finance as banks may not lend. This can constrain their ability to fund growth initiatives, invest in innovation, or weather market fluctuations.

3. Heavy workload on owners

   • Owners often have lack of fund to hire professionals. This can lead to increased stress, burnout, and mental health issues. 

   • Small business owners often find themselves consumed by day-to-day operational tasks, leaving little time for strategic planning and long-term business development. This lack of strategic focus can hinder the firm's ability to adapt to changing market conditions and capitalize on growth opportunities.

4. Often suffer from a lack of continuity.

   • If these individuals fall sick or are unable to fulfill their roles for any reason, the business may struggle to maintain operations or sustain growth.

5. Unable to exploit economies of scale

   • Small firms, with their limited production volume, often cannot achieve the same level of cost efficiency, resulting in higher average costs per unit.