Firm Size

9 Key excerpts on "Firm Size"

• 

  eBook - ePub

  The Economics of Small Firms

  An Introduction

  • Peter Johnson(Author)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  A number of other approaches to small firm definition have been suggested. For example, some researchers (e.g. Curran and Blackburn 2001: 17) have derived definitions that are ‘grounded’ in a consensus developed by the businesses and industry concerned. Such an approach may of course lead to significant variations across industries. It is also likely to be costly in terms of data collection.

  In one sense of course definitional matters are not terribly important. It is simply necessary to define the small firm in a way which is appropriate for the task in hand. For some research tasks, it may not even be appropriate to define such a firm. If for example, the focus of interest is on the effects of scale on various firm performance measures, or on the impact of economic in?uences on scale, then it makes sense to look across the whole size spectrum. However the definitional issue does take on greater significance where policy measures designed to benefit particular size categories of firm are introduced. This issue is further discussed in Chapter 9 .

  There is one final, but nevertheless important point that needs to be made in respect of small firm definitions: while the grouping of firms into size bands may be necessary for a range of purposes, there may still be very considerable heterogeneity, in terms of firm characteristics and performance within those bands. The grouping together of (say) a high tech university spin-off with a self-employed jobbing gardener because they are the same size, may make some sense, but the differences in owner, business and environmental characteristics are likely to be greater than any similarities deriving from their scale.

  Throughout this book, the word ‘small’ will be used loosely to cover firms towards the lower end of the size distribution. The term ‘SMEs’ indicates a wider size spectrum. The context will sometimes make it clear precisely how these terms should be interpreted in statistical terms. Such a ?uid usage re?ects the nature of the literature.

  Some summary data

  In order to set the context for the rest of this book, some summary data on SMEs in Europe and elsewhere are presented below. The main purpose of the tabulations here is to provide some broad, descriptive feel for the scale of SME activity, without at this stage offering any evaluation.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Entrepreneurial Marketing for SMEs

  • Luca Cacciolatti, Soo Hee Lee(Authors)
  • 2015(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  However, by itself, size may not be a critical factor in determining financial performance. For example, it is possible that a larger company achieves higher turnovers than an SME, but the business growth in terms of volume and value might be lower, or even negative, if compared to the growth of the smaller business. Although financial performance is not necessarily related to Firm Size directly, in this regard, the main difference between large and small companies is the latter’s lack of financial resources and ‘share of voice’ [76], meaning the right access to information. SMEs show unique features that appear to be different from traditional marketing in large companies [18]. Carson and Cromie support the idea that the most significant differences between small and big firms are business objectives, management style and marketing practice, rather than the relative size. According to Carson and Cromie [18], small and big companies should not only be classified by their relative size – an idea supported by the Committee for Economic Development 1 – but also by their qualitative characteristics. Also, they feel, ‘the scope and the scale of operations, the independence and the nature of their ownership arrangements, and their management style’ should be taken into consideration [18]. When looking at how Firm Size affects SMEs’ marketing, when we take into consideration the scope and scale of operations, the management style typical of a specific SME, and the nature of the type of ownership, it is clear that there are too many dimensions taken into consideration when classifying SMEs and MNEs on quantitative size-related parameters. A qualitative approach to comparison appears to be more appropriate to obtain a less biased judgement

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  The Age of Productivity

  Transforming Economies from the Bottom Up

  • Inter-American Development Bank, Inter-American Development Bank, carmen pages(Authors)
  • 2010(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  All definitions use a quantitative measure, such as number of employees. SMEs are defined 208 THE AGE OF PRODUCTIVITY as those firms for which that measure lies below a certain threshold. However, not all countries use the same quantitative measure or threshold. The most commonly used criteria are number of employees and monthly or annual sales. 1 The relative size of the SME sector varies across countries and is an endogenous characteristic of each country. Some countries may have endowments that give them a comparative advantage in goods that are produced efficiently in large firms, while other countries may have a comparative advantage in goods produced more efficiently in small firms (You 1995). Similarly, the optimal Firm Size in countries that are open to international trade may be larger than in countries that are less integrated internationally (see Chapter 5). Economic policy can also affect Firm Size. For example, simplified tax regimes for SMEs may provide an incentive not to grow, as firms may find it unprofitable to move to the standard tax regime (see Chapter 7 for a detailed discussion of this issue). As discussed in Chapter 4, the largest fraction of small firms is com- posed of very small firms: those with fewer than five or ten employees. These firms constitute the “micro” firms in the context of the MSME sec- tor (micro plus SME) and exhibit the lowest productivity. SME Policies and Instruments SME policies are targeted at firms below a certain size. Within this broad definition fall a wide range of policies. Almost all Latin American coun- tries have a simplified tax regime (STR) or differential labor regulations for SMEs, programs to facilitate access to credit, and subsidies and ser- vices aimed at supporting SMEs. This chapter focuses on policies aimed at increasing firms’ productivity, most often through the promotion of training, innovation, and quality certification.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Understanding The Small Business Sector

  • David J. Storey(Author)
  • 2016(Publication Date)
  • Taylor & Francis

    (Publisher)

  Finally, the table earlier in this book, at the end of the preface, showed the variety of different operational definitions of a small firm which were employed by researchers on the ESRC Small Business Initiative. It demonstrates that, in practice, researchers have to tailor their definitions of a small firm according to the particular groups of small firms which are the focus of their interest. The factors which influence the inclusion of the firms are the nature of the premises in which they operate, or their use of certain types of finance, or their legal status. The same table also makes it clear that a wide variety of different sources of information are used to identify individual small firms – a point to be emphasised in the next section.

  In summary, there is no uniformly satisfactory definition of a small firm. Nevertheless, the definitions employed by Bolton in 1971 can be seen to be no longer satisfactory, and have been effectively superseded by the EC definitions of a small and medium enterprise (SME), which has less than 500 employees. The value of the definition is that it uses only one criterion – employment – but can be subdivided into three categories – micro, small and medium-sized enterprises. Researchers, however, are likely to have to continue using their own definitions of small enterprises which are appropriate to their particular ‘target’ group.

  Ultimately, debates about definition turn out to be sterile unless size is shown to be a factor which influences the ‘performance’ of firms. If it were possible to demonstrate that firms below a certain size clearly had a different performance from those above that band, then the definition has real interest. In practice, however, such clear ‘breaks’ are rare, and size appears to be a ‘continuous’ rather than a ‘discrete’ variable.

  HOW MANY SMALL FIRMS ARE THERE IN THE UNITED KINGDOM?

  Given the problems identified above in defining a small firm, it is perhaps not surprising that, in the United Kingdom, there is no single definitive statement about the total number of firms in the economy, or the proportion of those which, however defined, could be regarded as small. Part of the reason is a lack of consensus about what constitutes ‘small’. Even more serious, however, is the absence of any single comprehensive data base covering all firms in the UK economy. This is not to say that data bases on UK firms do not exist – Daly and McCann (1992) noted that a study by Graham Bannock and Partners (1989), which reviewed existing official statistics, identified forty-four sources of information on firms which were categorised by size. Unfortunately none of these forty-four official sources were able to provide comprehensive

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Studies in Profit, Business Saving and Investment in the United Kingdom 1920-1962

  Volume 1

  • P. E. Hart(Author)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  One variable frequently mentioned in this context is profitability: and although there may be nothing in this or in many of the other hypotheses that some variable or other may depend on size (it is not the task of this chapter to pronounce), unless size can be measured in some satisfactory way the hypotheses cannot be tested. Since some size measures may be influenced by or may influence (arithmetically) the variables being considered (for example profit is part of value added, and a measure of size based on value added may not be the most appropriate if one is testing a statement that profits depend on size) it may from time to time be necessary to consider a few alternative measures. At an early stage in the Oxford Small Business Survey (see [ 30 ]) the problem arose of what was a small business, and several alternative suggestions had to be considered. Eventually a measure in employment terms was used, partly because this information was readily available, and this was used in sample selection. But it turned out to be much more convenient in practice to use other size measures in analysis, and in the consideration of financial problems a measure based on net assets was employed. Size measures may also be needed for administrative reasons. The Small Business Administration in the United States for example was set up in order to give specific help to small businesses: in order that it can do so it has to decide what is a small business. Small firms have several special problems, some of which stem from their size—they have problems in the field of finance, innovations, research and development, management and many other fields (see [30]) and to the extent that these problems may require legislation and special help, some criteria of size may be necessary

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Researching the Small Enterprise

  • Jim Curran, Robert Blackburn(Authors)
  • 2000(Publication Date)
  • SAGE Publications Ltd

    (Publisher)

  But the advantages of basing definitions of size of firm on numbers employed have to be set against some serious disadvantages. The most obvious is that employment measures are likely to be very sector dependent. A ‘small’ oil refinery, for example, might employ several hundred people (and be capitalized at several million pounds). Can this be compared with a small independent backstreet garage that employs three people besides the owner (and has a capitalization of perhaps £150,000)? If we include both in a sample of ‘small firms’ for research purposes, are we really categorizing and comparing like with like to produce an analysis with sensible generalizable conclusions? The apparent simplicity of numbers employed as a measure of busi-ness size is becoming more and more problematic in practice. Full-time employment is becoming less common in the UK, for example, with part-timers, casual and temporary workers and the self-employed becoming more widely used by employers. For example, between 1981 and 1996 the proportion of part-time employees (those working 30 hours a week or less) in the active labour force rose from 21 to 29 per cent (DfEE, 1997). Between 1980 and 1990, the number of self-employed people in the UK increased by 1.5m and is projected to rise to over 4m by 2007 (DfEE, 1998: 8). As discussed earlier, a substantial proportion of these are, in effect, employees and many of these work for SMEs. A measure of size, such as ‘numbers employed’ is also difficult to use where part-time, casual and temporary labour is not evenly spread across the size distribution of businesses. For example, Labour Force Survey (Spring, 1996) data reported that over 40 per cent of employees in workplaces with between one and 10 employees were part-timers compared with an all workplace average of just under 34 per cent. The mix of different kinds of labour also varies by sector.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Competitive Advantage in SMEs

  Organising for Innovation and Change

  • Oswald Jones, Fiona Tilley, Oswald Jones, Fiona Tilley(Authors)
  • 2003(Publication Date)
  • Wiley

    (Publisher)

  While we acknowledge that using the number of employees as a measure of Firm Size may create a number of anomalies, we believe it is the most convenient and widely understood categorisation. Therefore, this is the approach which has been adopted throughout this book. This chapter begins with a discussion of those factors which encourage or discourage the growth of SMEs. We then briefly review the main policy initiatives in this area and end with a brief evaluation of SME-related policy-making. 2 COMPETITIVE ADVANTAGE IN SMEs TABLE 1.1 EC definition of SMEs (Source: DTI, 2001) Criterion Micro firm Small firm Medium firm Maximum number of employees 9 49 249 Maximum annual turnover – 7m euros 40m euros Maximum annual balance sheet total – 5m euros 27m euros Maximum percentage owned by one, or jointly by several enterprise(s) not satisfying the same criteria – 25% 25% Note: To qualify as an SME, both the employee and the independence criteria must be satisfied, plus either the turnover or the balance sheet criteria. Understanding SME Growth According to some experts, there is little justification for many of the government policy measures introduced to improve the competitiveness of SMEs. As Curran (1999, p. 42) points out, ‘the alleged existence of shortages of start-up finance or the negative impact of employment legislation on small business expansion and job creation, have been overwhelmingly rejected by research’. Seeking to improve the competitiveness of SMEs is not only about understanding problems confronting businesses in this sector; it is also about a better understanding of how to overcome these barriers. Much research has focused on SME competitiveness and has sought to identify factors which make some SMEs successful, while others fail to grow or go out of business.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Small Business Exposed

  The Tribes That Drive Economies

  • Scott Holmes, Michael T. Schaper(Authors)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  and Stanger, A. (1996) “The small enterprise financial objective function”, Journal of Small Business Management, 34(3), pp. 1–14. US Small Business Administration Office of Advocacy (2016) Frequently asked questions, viewed 5 October 2016, www.sba.gov/sites/default/files/advocacy/SB-FAQ-2016_WEB.pdf. Zimmer, I. and Holmes, S. (1993) “Understanding small businesses and the role of government funded advice”, Key Center in Strategic Management working paper series, 26, Queensland University of Technology. Chapter 3 The nature of the small firm The amusement of adults is called business. St Augustine, The Confessions, AD 397–398 Defining the small firm The default to metric-driven definitions of small firms fails to address the unique nature of these firms. In fact, metrics such as counts of employees (or revenue) can be completely misleading in developing an understanding of the operations of small firms. Because small firms represent a diverse and very large group within each economy, the use of crude metrics has limited the discussion of the real nature of these firms. Small firms’ underlying complexity has caused defining them to be a “vexing and enduring difficulty” (Holmes et al. 2003, p. 4). Within the research and related literature, there is no universally accepted definition of a small business. This is evident from the discussion in Chapter 2 : globally, governments adopt a range of definitions that to a large extent determine the information captured about small businesses. However, among researchers who have sought to address this issue over many years a common view has emerged. Basically, small firms are best described by their inherent characteristics. The problem has perhaps been that the search for a universal qualitative definition has stymied progress into understanding small businesses. Perhaps a matrix-based model is more appropriate. This type of debate has antecedents in the literature occurring in the 1990s in the UK, US and Australia

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Strategic Financial Management for Small and Medium Sized Companies

  • Hande Karadag(Author)
  • 2015(Publication Date)
  • Emerald Group Publishing Limited

    (Publisher)

  Here, employee number, revenues, assets, and capital are generally used for quanti-tative indicators whereas independency is a usual qualitative criter-ion. In European Union (EU28), the “ autonomy ” dimension of SMEs, described as “ the one where 25% or more of the enterprise ’ s capital (or equity) is not undertaken by an enterprise or that its 8 Strategic Financial Management capital is not owned by enterprises that are not defined as SMEs ” is combined with the quantitative criteria of having “ either an annual turnover not exceeding 50 million euro, or an annual balance sheet total not exceeding 43 million euro ” ( European Commission, User guide to SME definition, 2015 ). In the United States, the terminology and categorization of small and medium companies have both convergent and divergent aspects compared to European Union. In terms of terminology, the term small businesses is used as the synonym of SME, and a small business is described as “ the one that is independently owned and operated, is organized for profit, and is not dominant in its field ” ( SBA, 2014 ), which is parallel with EU ’ s SME definition. However in the United States, there is a major variance of small business categor-ization, which is the “ industry ” criterion, as size of enterprises is measured by employee number and sales volume, and is differen-tiated according to each major industry. In brief terms, SBA ’ s general small business criteria can be regarded as 500 employees for most mining and manufacturing sectors and an annual turnover of 7.5 million USD for most non-manufacturing industries, which are set in accor-dance with NAICS (North American Industry Classification System) code and are frequently changed.

  Sign up to read

  Learn more about book