Small businesses

HELLO, STUDENTS. I hope you are all ready for this week’s lesson. As I indicated last week, we will start with a question based on last week’s topic – Cottage Industries. I will then outline the functions of small businesses and the advantages and disadvantages of small businesses, objectives 9 and 10 of Section 5.

COTTAGE INDUSTRY QUESTIONS

(a) Explain the term ‘cottage industry’. (2 marks)

(b) Describe THREE characteristics of this type of industry. (6 marks)

(c) Name THREE types of cottage industry that are in operation in your local community. (3 marks)

(d) (i) Suggest THREE ways in which cottage industries benefit the local community. (3 marks)

(ii) Discuss THREE problems encountered by cottage industries. (6 marks) Total: 20 Marks

If you have any difficulty in answering any part of this question, please look back at last week’s lesson.

A small business is one that has not expanded and gone into large-scale production. With such businesses, it is hard to distinguish management from workers, and the employees are few.

So, what are the functions of small businesses?

1. Small businesses provide employment for many, especially in rural areas. Some persons cannot find work with larger firms for various reasons and so they have to depend on small businesses as their source of income.

2. They provide services that are not provided by larger firms, usually because it is not profitable for them to produce it.

3. Small businesses provide niche markets. These are subsets of the larger market where a specialised good or service is provided that is not addressed in the main market. For example, within the market for shoes, a niche market might be created for leather shoes to address that particular demand, or, within the hairdressing service, a niche market might be created for hair braiding.

4. Small businesses provide competition to larger firms, forcing them to be efficient and keep their prices low.

5. These businesses serve as a means for persons to supplement regular income, e.g., as farmers, fishermen, etc, especially where the nature of work is seasonal.

6. Many small businesses assist larger firms in ‘breaking bulk’ and in the distribution process, e.g., small-scale retailers.

7. Small businesses often try out new ideas and expand to become larger firms, to the benefit of the community.

8. Small businesses can manage the demand of small communities, whereas larger firms may see their demand as insignificant and a waste of time.

9. Some businesses are difficult to control on a large scale. Therefore, if it were not for the small firm, these businesses would not exist in some communities, e.g., taxi services.

10. Small businesses are often linkages to larger firms in the community, e.g., obtaining materials from them or supplying them.

SOME ADVANTAGES OF SMALL BUSINESSES

1.These businesses are often strategically placed, i.e., they are located in places that are convenient for customers.

2. They provide goods and services that are not provided by larger firms.

3. They normally sell a variety of goods and services. The items sold are usually unique, and customers prefer this to the standardisation of larger firms.

4. People support small firms because these firms know their customers well and often offer them credit.

5. The top manager is the sole decision-maker. He can, therefore, make decisions quickly, and he knows exactly what is going on.

6. Small businesses have a small number of staff; therefore, staff problems can be more easily detected and dealt with than in larger firms.

7. There is clear communication among employees, and it is easier for management to have a good relationship with employees since the business is small.

8. Small businesses stay open for longer hours than larger firms, to their advantage.

9. They are easy to start up and often receive government assistance.

10. These firms benefit from assistance from small business associations, e.g., the Small Business Association of Jamaica.

SOME DISADVANTAGES OF SMALL BUSINESSES

1. Owners have to put in long hours, sometimes without holidays, in order to make the business a success.

2. Many of these businesses have unlimited liability, i.e., they may lose more than they have invested in the business if it should fail.

3. The manager is often bogged down other tasks which, in larger businesses, are delegated to assistant managers and supervisors.

4. They suffer because of competition from larger firms. This is so since the simple, cheap machinery used in small firms may not allow them to compete equally with larger firms.

5. Prices tend to be higher than those of larger firms.

6. They have difficulty in arranging loan financing since financial institutions are often reluctant to lend them money. When they do lend them money, the rate of interest is often higher and the loan amount is smaller than that of larger firms.

Next week, the topic will be internal and external growth of a business. This will cover objectives 11 and 13 of Section 5. Take care until then.