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Critically appraise management styles in small firms Essay

The significance of small business in a country’s economy cannot be over emphasized. Small business is a good source of employment and also creates competition, which is good for a vibrant economy. The number of small businesses continues to increase in many countries due to the little resources needed to start business operations, little technical know-how needed, and relatively easy organizational formation. Governments in many countries strongly support the growth of small businesses, seeing their importance in the country’s economy.

As Anglund (2000:10), puts it, “the American national government is in the business of promoting small business. Government agencies help entrepreneurs start and grow small business through a smorgasbord of programs by providing financial assistance such as loans; help obtain government contracts including the set-aside of contracts for bidding by small concerns; and management and technical support”. This write-up focuses on the management styles practiced in small firms and also the industrial relationships that exist in such business operation.

CONCEPTUALIZATION AND CHARACTERISTICS OF SMALL FIRMS ‘Small’ is a relative term; it is not an absolute one. Here, the line of separating small from large is in a continuum, and an issue that is inevitably arbitrary. “Small business is a generic concept. Being

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the antonym of big business, its social significance becomes clearer when placed in the historical context where the latter first appeared in the world economy (Odaka & Sawai, 1999).

Owner’s active involvement in every aspect of the firm’s operation is a significant characteristic in distinguishing a small firm from a large one. Bolton (1971) identified three characteristics in its economic definition of a small firm: 1. A small market share, that is not large enough to influence national prices or qualities (Even though a village shop may be the only one, its prices cannot get too far out of line from those of major national retailers in the nearest town, even though people will pay something for local convenience).

2. Managed in a personalized way: the owners actively participate in all aspects of the business unlike in a large firm where the shareholders and management are usually almost entirely separate. 3. Independence or the exercise of ultimate management responsibility. A small subsidiary of a large firm which has a head office to report to do not share this characteristic. The above characteristics are usually found in businesses which are inherently small in size.

According to Bannock (2005), one significant way of defining a small firm is in the number of employed staff it has. Although, there is difficulty with this definition since number varies depending on the nature of the enterprise. To illustrate this, a manufacturing enterprise that employs 250 people is categorized to be small, while a retail organization with 250 employees and perhaps with 10 to 15 branch outlays is considered to be a large firm. Government of different countries uses a definite statistics to categorize the size of a firm.

“The European Commission and many member states, including the UK, define Small Medium Enterprises (SMEs) as those with fewer than 250 employees. Other countries use other thresholds for statistical purposes: the United States uses 499 employees as the overall threshold for large firms Japan uses different thresholds for manufacturing (299 employees), wholesale distribution (99 employees), and retail distribution and other services (49 employees)” (ibid).

In the same vein, Odaka & Sawai (1999) puts it that, statistical definitions of small businesses vary from one country to another. The image of small size has also shifted over the years. In Japan before the World War, the statistics for a production unit was defined as a ‘factory’ if it met the arbitrary criterion of having ten workers or more. This has changed by 1937, wherein enterprises were classified into three groups: those employing 100 operatives or more as ‘big’, 30 to 99 operatives as ‘medium size’, and fewer than 30 as ‘small’.

Thus, from the above statistics it is seen that there is no universally accepted definition for small firms or small businesses. “The terminology for small business is equally haphazard, whereas the term’ small business’ is widely used, ‘small’ is often extended to ‘small-and medium-sized’. By the same token, ‘business’ is frequently substituted by ‘company’, ‘concern’, ‘enterprise’, ‘firm’, or even ‘industry’, depending on the preference of the author. No single phrase or definition has yet been universally agreed upon” (ibid).

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