3.1.1 Sizes and Types of Firms Flashcards
(32 cards)
What are the different types of firm?
What is a firm?
A business organisation such as a corporation that produces and sells goods and services in markets.
What is a not for profit organisation?
Businesses that are operated commercially but with social welfare and
environmental aims in mind. Typically, profits are reinvested for social purpose and social aims.
What is a public sector organisation?
Organisations that are owned and controlled by the state e.g. the NHS, social care,
state schools, the Police, HM armed forces. The NHS employs 30% of all UK public sector staff, with education
employing 28% of public sector staff.
What is a private sector organisation?
Private sector organisations are owned by private investors rather than the state.
84% of jobs in the UK are in the private sector.
What is a private limited company?
Corporations whose share are not listed on a public exchange. Examples include
McLaren Technology Group, JCB, Specsavers, Matalan.
What are co-operative producers?
Owned and run by their members. Examples include Arla Foods, Co-Op Group,
Richer Sounds, John Lewis / Waitrose.
What are social enterprises?
With a social enterprise, profit is reinvested for social purposes rather than for the gain of
private investors. Examples include: Housing Associations, the National Trust and university Student Unions
What are the majority of business registered as?
The majority of businesses registered in the UK are small or medium-sized enterprises (known as SMEs)
Why do many small firms survive?
- Many smaller businesses act as a supplier / sub-contractor to larger enterprises especially in the construction
industry and in sectors such as software coding / web design - They might take advantage of a low-price elasticity of demand and high income-elasticity for specialist ‘niche’
or ‘bespoke’ products that can be sold at a higher price with a large profit margin - Smaller businesses can avoid internal diseconomies of scale (rising long run average cost)
- Small businesses have benefitted from consumers willing to buy online – the barriers to entry into the market
have come down because of digital technology - Small businesses keep their over-head costs low e.g. a smaller full-time staff or relying on leasing equipment
Draw a table of business objectives and their relevance to smaller firms.
What are the key reasons to stay small?
- Product differentiation & having a USP (unique selling point)
- Flexibility in meeting customer needs
- Deliver a high standard of customer service
- Exploit opportunities from e-commerce
- Avoid risks of higher unit costs from internal diseconomies of scale (rising long run average cost)
- Smaller firms can be more innovative / creative and respond more quickly to changing market trends
Why is product differentiation a reason to stay small?
Positioning a business as small can help differentiate against larger competitors
Customer perception - may be an expectation of a better product from a business that “cares” More scope for adding value and charging a higher price through selling specialist expertise
Why would flexibility to meet customer needs be a reason to stay small?
- Many small businesses talk to their customers regularly; sometime every day
- Small firms often communicate in the customers’ language which give the impression to the customer that they are more in tune with their changing needs
- Makes it easier to get customer feedback (larger firms can struggle with this - a diseconomy of scale)
Why would being able to deliver a high standard of customer service be a reason to stay small?
- Most small businesses operate in the service sector, so this is a key source of competitive advantage
- Employees in smaller firms are likely to treat customer service as a priority (compared with larger firms) though there is no guarantee!
Why would being able to exploit opportunities from e commerce be a reason to stay small?
E-commerce is a common way for small firms to reach a broader customer base
It is now relatively easy for a small firm to target niche segments using e-commerce
Smaller firms can gain significant traction with customers using social media
What is a stakeholder?
A stakeholder is any individual or organisation who has a vested interest in the activities and decision
making of a business
What is a shareholder?
Shareholders:
* Own the business – they have an equity stake in the business - perhaps a founder
* May also work day-to-day in the business
* Mainly interested in growing the value of their shareholding
What is capital gain?
an increase in the market value of a share
What are dividends?
a share of the profits made by a business
Draw a table of stakeholders and show what they would be mainly interested in
Draw a table of potential conflicts between shareholders
What is the divorce between ownership and control?
The divorce between ownership and control means that the people who own a company are different from those who manage it. This can lead to conflicts of interest and different priorities between the owners and the managers.
What is the principal agent problem?
The principal agent problem is an asymmetric information problem. Owners of a firm often cannot observe directly
the day-to-day decisions of management. The decisions and performance of agent are costly and difficult to monitor.
