Grade 8B
Discuss whether a firm will always benefit from an increase in its size.
Time Duration for submitting the Article is:
November 4th to November 11th, 2013
Write here your answer in 500 Words.
Write here your answer in 500 Words.
A firm is a group of people that made and sells products to consumers. They do this in an aim of profit. The main goals of a firm is to make as much as profit as possible. This is related to an increase in firm size, as usually a firm gains more profit by having a larger firm size.
ReplyDeleteFirms do benefit in from an increase in size.
They benefit by having an increase in market share. Firms when they grow in size they have a larger portion of the market share. Having a larger market share means that the business can gain more profit and this is key to a business as having profit is the point of having a business. Having a larger market share and profit will give certain benefits such as
An increase in capital as the profit of a company grows so does its ability to hire more capital, this is crucial for a much larger companies as they need more workers and machinery and funds to keep up with their growing size. If they don’t hire more capital however, the company will be at a disadvantage as the company expands it cannot produce more goods and services for the whole company to actually gain profit.
Another way would be an easier way to outcompete rival companies. As a company grows in size they expand their market share, most of the time to another country making itself a MNC or multinational company, companies as an example are coca cola, Carrefour, and apple. Having a market share at another company brings more profit which means the company could outcompete its competitors temporarily. Though, companies do not want to completely outcompete each other as rivalry brings benefits to both companies by having more motivation. This increases productivity for both companies which could help increase the growth of the company even more.
Though, growth doesn’t always bring firm benefits. In certain cases they bring obstacles, troubles and challenges to the company.
When firms grow they usually have trouble trying to reduce the cost and increase the price of the products they’re selling while staying competitive in the market. If a firm reduces its cost of production to the point where the products actually decrease in quality, consumers will not be satisfied and that could ruin the firm. If they increase the price too much they could lose a part of the market share to other competitors which cheaper prices.
Sometimes they will encounter lack of capital. Despite the fact that when firms are larger they can hire more capital sometimes the newer products that they’re making needs even more capital than they can hire in a normal situation. Sometimes they have to have to borrow money and risk going into the debt trap.
To conclude what has been discussed, the point of this would be that a growth of firms is a very important thing that firms must do to increase market share and profitability, but growth also brings problems to the firm that should be solved.
There is an impact when a firm is growing to a bigger size. It may be both positive and negative, however, it has always been every entrepreneur’s aspiration to increase the business that they built to its maximum size. Why? The reasons are either to attain more profit or seizing greater market share. Besides, when a firm is substantially big, they tend to control market price, meaning they are able to conduct monopoly. Another advantage they got from growing larger in size is that their brand name is more recognizable in other words they become more famous. As the business grows bigger, it has capability to accommodate bigger resources, attract and employ talented professionals and invest in state of the art technologies and infrastructures. There are two ways a business can grow in size, internal or externally. Internally or organically, means that they will expand the resources such as; branches, employees, machineries, factories, etc. On the other hand, when the business grows expand externally; they will conduct merger and acquisition. Merger is to attain partnership with another established firm, whilst acquisition is buying the shares/ ownership of the other company. Through merger and acquisition, the new combined companies may conquer larger network and market share.
ReplyDeleteHowever, there are also some disadvantages by having a large business. Some of them are:
1. Since the company is big, then it’s exposed and required by regulators to be more transparent hence competitors may easily emulate the business blueprint and process.
For example, Sour Sally frozen yoghurt. Initially, it was the only company that produces frozen yogurt in Indonesia. Once the company is successful, people realize that there is significantly high demand of frozen yoghurt and they try to replicate the business. Today consumers may enjoy many varieties of frozen yoghurt such as Red Mango, Tutti Frutti, Orange Berry, Smooch, and so on.
2. Large businesses are not easy to be controlled.
As you can see, the larger the business is, the more responsibility it carries. Big business possesses extensive networks and employs many workers. Due the complexity of business, a good corporate management is essential to control the company. They should also have reliable professionals and a system to ensure control is in place.
3. Bureaucracy
ReplyDeletewhen we have a big company it’ll take some time to make an important decision since one decision can make a huge impact on the company. Hence when a decision is required, there are many layers of ranks and divisions in the companies to be consulted with. It may also involve various processes to be undergone such as fill in the forms, seeking approvals, meetings and presentations etc. On the contrary, small companies or even mom and pap’s companies are much faster in decision making due to thinner layer or bureaucracy they possessed.
4. Bigger cost
The bigger the company is then the bigger cost it requires. Large companies will definitely require bigger cost than a small company. The cost is necessary to employ more people, pay their salaries and fringe benefits, train more employees, buy more sophisticated system, post advertisements, retain lawyers, corporate legal, tax consultants etc.
5. Redundancy
In a big company, many people are trying to keep track of everything that is going on inside the business, however, many people may perform similar task for different divisions in the same company. For instance; there is accountant in each divisions in the Bank whilst there will be another team of accountants in the Head Office which will review their work once again.
6. Lack of sense of loyalty from the employees
It’ll take some time for a person to be recognized in a big firms that already has system running systematically. It is also highly competitive to work in big firms since they are able to hire many talented resources. Hence it is a very tight competition and with numerous employees, they may not always able to see their CEO or management every day. Whilst on smaller companies, employees tend to have higher sense of loyalty due to smaller numbers of employees. Thus they may have a stronger bond between them or even with the employers.
To conclude it, there is always a positive and negative impacts in growing the firms in size. Although entrepreneurs are fully aware of it, most of them chose to grow it. Some chose to grow it up to maximum capacity, make it publicly listed whilst some chose to grow it to certain extent that the company remains private and the owner able to give legacy to his/her heirs
Charlene 8B
PART I
ReplyDeleteA firm will always find any way that is beneficial for them. One of the ways is by increasing its business size. It means the firm will wider for its business range. It may form as increase of its production, sales, capital, and many other forms of wealth.
Mostly, a firm will get benefit if they increase in its business size. The main example is when a business open and developing many more branches. That case will give the firm many benefits, such as
1. Increase in its sales
By developing more branches, the firm can sell more goods. So, if they can sell more goods, it means they increase their sales and will get more money
2. Increase in popularity
By developing more branches, means the firm wider their business range and cause more people to know about the firm, e.g. Carrefour. They have successfully increase their popularity by opening many branches in most of the not elite and elite shopping mall. As the result, most of indonesian society know Carrefour as the super complete supermarket.
3. Gain more profit
There are two sub-factors that may give a firm possibility to gain more profit. The first is because of gain in sales, it can gain more profit because the rushed up of their sold goods. The second is because their shops range have been spreaded widely, people can easily access and go visit their stores and buy their goods.
4. Lower the cost of production (Part of increase in profit gaining)
By launching more branches, they can increase their sales. So they can take more supplies from producer and manufacturer(the supplier). They can make agreement with their supplier to reduce the cost of per unit by puchasing in a larger quantity of unit supplies.
5. Increase in Market Share
By increasing their sales and gain more popularity, the firm automatically will increase its market share value among other competitors in the market. For example Samsung Smartphones. They are one of the biggest market shares value holders in the Smarphone creator market. The only one its biggest and effective competitors is Apple, Inc. which has only bit lower market shares value that Samsung Smartphones’.
But opening more branches is not the only one biggest factor to increase a firm’s business size. Without having much branches or no any branches will also make a business increase its size, for example Google Inc., Coca Cola, Yahoo, Inc., Universal Studio, etc. But there also businesses that needs much branches and stores to increase their size, for example Indomaret, Carrefour, Hypermart, Electronics Solution, etc. The other ways to increase business size are,
-Increase its popularity by posting many more interesting advertisement through many form and sources
-Lower its production cost
-Increase and gain more business productivity and business capital.
But the most important thing to increase a business size is gain more profit, capital and its market share.
PART II
ReplyDeleteBut bigger the business size may not guarantee a business to be always get more benefits. It may cause inefficiency in business running process. Means they still have to pay for more direct and indirect cost for bigger size of the business, such as
-Pay for more employees, ex: Manager, Cashier, Salesperson, Waiter, Security, etc.
-Pay for more general requirements, e.g. Carrefour: the product shelles(to store the goods), computers for cashier, electricity, etc.
-Pay for more shops rental, ex: in the shopping mall, have to pay monthly certain shop rental payment.
But if the firm has run out of money or lack of capital, they have to borrow some money from the bank or else if not the firm will stop running the business. And if the firm have borrowed some money of the bank and can’t use the money well and cause unability to return the money with its interests, the firm will trapped to debt trap and cause business bankrupt and the business owner will gone to prison.
So if a firm bigger its business size, it has more chances to make more profit and gain bigger income and will gain many other beneficial things. But it also have a failing possibility, for example if they can’t afford the increase of expenses for accomplishing the development of increasing the business size. If the firm fails, many problems will come.
That's all of the ideas pop out from my brain, Thank You!