Reasons for Growth & Reasons to Remain Small
- Many firms start small & will grow into large companies or even multi-national corporations (Amazon started in a garage)
Reasons Why Firms Grow
Owners/Shareholders/Managers desire to run a large business & continually seek to grow it |
Owners/shareholders desire for higher levels of profit | Desire for stronger market power (monopoly) so as to increase profits |
Desire to reduce costs by benefitting from economies of scale |
Growth provides opportunities for product diversification |
Larger firms often have easier access to finance |
- While many firms grow, others do not or they intentionally choose to remain small
Reasons Why Small Firms Exist
They offer a more personalised service & focus on building relationships with their customers |
Unable to access finance for expansion |
They provide a product that is in a niche market - smaller market size but can be very profitable |
Many small firms operate in mass markets with low barriers to entry |
Rapid growth can cause diseconomies of scale which can be difficult to deal with & so many owners choose to avoid these |
Owners goal is not profit maximisation but rather an acceptable quality of life (satisficing) |