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Comparison of small and large firms

Info: 2141 words (9 pages) Essay
Published: 11th May 2017 in Economics

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Lecturer LingLee gave us reference materials,conducted group discussion,presentation and remind importance of attitude and teamwork along with learning process.ITB assignment asked for compare small firm,large firm and multinational corporation,why small firms are lack of competitive advantage of economies of scale,then how small firm survive despite compete against large firm.Small firms have potential benefits such provide opportunity for new business trial of limited budget and liability,turn individual enthusiasm into prospective career,stimulate economy growth,create new industries and job opportunityMaterials source from library,internet,HR advices,are useful to answer the question asked.


2.1Small firms have maximum of 200 employees,small market share dividend,owners worked and took personal profit,not part of large firm.Its importances are alternative business when large firm is unsuitable, more efficient,less operation conflict(everyone will follow up boss influence),adjustable to changed market,sell products and service,innovative,job for who unsuitable work in large firm,train ‘all-round’manager,competitive advantages(quality of producys and services,affordable price),breed new industries .Its drawbacks are lack of infrastructure(ample office space,latest hardware and software,well written manual,long term vision and goals),constant changes vision and goals(impossible for managers put in place a long term strategy),limited budget(limit manager’s ability to solve problems and create opportunities),lack of experience(work together with limited human resource cause limited ideas).Its benefits are limited hierarchy(easier and quicker decision making,not waste time for arguement),ease of communication(almost everyone meet and interact everyday,built up common sense),individual presentation(if come up with good solution,your idea will resonate throughout the company and recognized quickly),extra development space(training provided to breed professional skilled worker),challengind environment(small firm develop from time to time need intensive brainstorming ideas).Problems faced including unable survive during economy downturn,lack of financial aid,managerial expertise,clerical and professional help unaffordable,high level of competition,limited markets or product range,government bureaucracy and legislation complexity,no economies of scale.Existence of small firms from low start-up costs,alternatives to unemployment,management but-outs occurred in large public companies(sell management to closest trusty business),and liquidation business(strong dissolve/sell off all assets when nearly close down).Business expansion scheme,loan guarantee scheme,rate of corporation tax reduced,exempted from register for value-added-tax and enterprise initiative.Benefits of small firm are flexibility,grassroots ingenuity,collegial atmosphere,opportunities to be hands on,no need for reduntant communication within the office and team,focus on client rather than internal process,lower risk of management.


2.2Large firms have larger amount of employees,larger amount of capital employed,higher profits earned,numerous establishment,economies of scale achieved which means unit cost of production fall as operations scale increase.Internal economies of scale refer to industry itself, including technical(machines stimulate productivity),marketing,financial(bank sign to approve loan immediately)managerial,risk-bearing(more money invest into expertise).External economies of scale means industry environment such concentration and information(need electric-saving cost).Sometimes diseconomies of scale might happened if wastage of scarcity.Expansion motives are efficiency improvements(instilled responsibilities in each department),market dominance(monopoly use strategy defeat competitor),defensive,financial,managerial(expert help).Method and direction of growth including internal expansion(invest money to expand similar production business,share technology without extra expenditure).Almalgamation/merger of business activities categorized into integrations of horizontal(product),vertical(customer,supplier),lateral(middleman).Its drawback are tend to be bureaucratic in administration,lack of personal contact with the customers,greater business risks because of huge investment,cannot easily adapt itself to a new technology because of the high cost involved in changing form one technique to another,problems of effective coordination and control,difficulty in getting talented personnel to man various positions.

Large firm offers more opportunities,achieved economies of scale,specialisation efficient.

2.3Multinational Corporation(MNC) undertakes business activities and own shares in more than one subsidiary companies which located in more than one country,such Shell,Citibank,Siemens,Walmart,McDonald’s.Importances of MNC are providing overseas subsidiaries(recognized brand/branch),excess turnover(exchange for higher value currency and expand larger market),producer for world output(unlimited in the home country but globalization).Catalyzer for MNC growth including exchange controls relaxation,communications improvement(speedy internet efficiency instead letter,time and cost saving),growth in popularity of management(educated graduants help control foreign employees’trust),countries’import tariffs and restrictions(less tax,loosen rule).Its benefits are gaining a strong foothold into the international market,low-cost locations,cheaper labor costs,cheaper raw materials and distribution costs,taking advantage of the many tax breaks offered by foreign countries,access to new technologies and methods,availability of government grants.Disadvantages including trade restrictions imposed at the government-level,taxes or tariffs imposed on imports from other countries,limited quantities (quotas) of imports,effective management of a globally dispersed organization.

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If multinational companies provide employment, infrastructure development and growth in economies, then on the other hand, there are various disadvantages of multinational companies. Firstly, multinational companies can severely impact the local industries because it increases the competition in the economy. Secondly, multinational companies can negatively impact the culture of the economy. Thirdly, because of the trade restrictions the multinational companies can face various problems. The availability of resources are limited in an economy and when multinational companies are opened then resources can get scarce.Moreover, though a company can grow because of investment brought by multinational companies but still the economies can grow more if the local investors make these investments.MNC expand into different countries through entry

methods,such exporting(solid product which already done,low capital if without modifications,low risk,shipping after payment guaranteed,various transportation costs,tariffs and taxes,security checking,faced loss if representative/agent who focus market needs and deter competition emergence,run away),licensing(franchising,limited rights use other’s assets,tech expertise,design patents,copyrights/equipment,pay


royalty,gain profits without lay out large sums,license familiar with local culture and

method,buyers might give up license for own profit,sellers have right to stop buyers from doing similar biz),strategic alliances(merged with others,joint venture,lower risk of introducing new products,stay abreast of new tech,combine tech expertise and capital from home-country),wholly owned subsidiaries(operate on foreign soil,totally owned and controlled by headquarters outside host-country,direct investments,established through acquisitions:buy existing company in foreign;start-ups:develop from scratch,not share profit/loss,the parent company has sole management authority to operate subsidiary within foreign existing laws and control tech expertise).

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2.4Small firms lack of competitive advantages of economies of scale because it separate concentration in each department,care details of products’quality and customers’service.It produces all parts of product in affordable quantity,to supply market’s demand not electronic components in bulk.

2.5Small firms survive and prosper in Malaysia despite compete against large firms and multinationals such WiMax,LexisNexis(law),MISC(shipping).Malaysian small firms get $25 million boost from private equity.Small firms create jobs as it rely on labour intensive techniques of production and use local inputs as raw materials.Fresh graduates are looking for working in small firm as there is no need experiences in years,free training provided,extra development space for individual and teamwork performance.Despite modest size,it has competitive edge in recruiting,retention,client service and other vital business area.Its flexibility,collegial atmosphere,opportunities to be hands on,grassroots ingenuity.Seniors are friendly to help newcomers,precious their contributions and spur up through bonus and praise in good and bad times.Ambitious staffs get more opportunities.Staff who do not want to advance to management level still can find challenging work.They do noy want to spend lots of time on the road but involve in work process,such clients work with decision makers in small firm.Talented professional women easier suited themselves into flexible working style as they have to play mom’s role.From partner’s point of view,easier feel like owner of small firm but partner feel like employees at large firm.Small firm do not have to change and follow to be more like large firm,instead simply recognize all the good they have going for them and reinforce both inside and outside small firm. Small firms have greater growth opportunities than large firms.Small Firm Effect explain superior returns in Three Factor Model which are market return,companies with high book-to-market values and small stock capitalization.Small firms tend to have more volatile business environment, correction of funding deficiency which lead to large price appreciation(cited from www.investopedia.com). Financial aid including Malaysia government subsidies,small and medium enterprise(SME)Bank Malaysia.As Malaysia rich in natural resources,crops(oil palm,coconut),fisheries,mining,logging as raw materials for small industries to save time and money.Foreign investers build small-scale factories in Malaysia and employ local citizens as well as foreign employees because low start-up cost,cheap local materials.Compared to large firms and multinationals,small firms easier to manage as everyone can be boss as long as having limited budget,develop personal interest as career(catering,gardening).Sole trader and partnership are examples.It

advantages of leanness,maneuverability,innovation,customer concern,steady,earn significant return on investment.Small businessman excel at various skills,mature intelligence make decision andchange course rapidly,It is backbone of economy contribute job opportunities,free develop,less regulated,listen to


customers’feedback/complaint/critic through free hotline,then try to improve for

better.Not like bureaucratic organizations,its employees are passionate,accomplished/satisfied,focus and proud of what they do,owners learn to be risk- taker;employees interpret prime directive as keeping jobs.It can be quite profitable as small profits but quick turnover,control risk to minimum impact with limited liability to avoid bankrupt.Unlike large firms and multinationals,small firms tend to be independent to create trusty brand image as it have not recognized/established reputations(market leaders,proven specialists,easy company to cooperate with,high quality,low cost,innovative,advanced technology,offering superior service)by public,not have deep expertise in all functions.


After done assignment given,I learnt more deeper about small firm,large firm and multinational corporation.There is two sides of a coin.Small firm perform task which large firm is ill suited,more efficient,adjustable to changed market,sell both product and services,innovation source,train ‘all-round’ managers,traditional breeding-groung for new industries,struggling turn crisis into opportunities.Large firms have more aspect to consider as any decision-making may cause related consequences.It increases technology development opportunities across a broad spectrum of technology areas and industries.MNC regulated strictly as international security concern,competition disadvantages(monopoly/oligopoly),unsteady currency exchange rate,jobless.


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