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SMALL BUSINESSES – They play an important part in the economy as they serve the needs of people
in the Caribbean as well as across the world.

It is difficult to define a small business. However, we can say that:

a. There may be between 6-15 employees.

Large size business – over 50 employees

Medium size business – 16-50 employees

Small size business – 6-15 employees

Micro business – 1-5 employees

MSME’s –Micro/small/medium sized enterprise.

Small business perform many functions eg.

Creating employment eg. Hotel and catering and providing services.

Advantages/benefits:

a. Generate employment and incomes

b. Increase competition for larger firms - they can provide goods and services in a way that
large companies cannot, as they can see to the personal satisfaction of the consumer.
c. Introduce new products and ideas.

Disadvantages/problems/challenges:

a. Usually family-oriented, therefore capital may be limited/unavailable

b. Difficulties in obtaining loans. Due to lack of the necessary collateral.
NOTE: collateral is a security, something that can be used to cover the loan eg. Land title,
investment section of an insurance policy, motor vehicle, valuable jewellery/artwork etc.
c. Lack of managerial skills needed to operate the business on the part of the owners.

COSTS:

COST OF PRODUCTION – to determine the price that you will charge for your product you will have
to consider how much each good or service will cost you to produce it. Then you will need to add a
percentage (MARK-UP) for your profits, mark-up will depend of the type of market you are
producing in.

COST-BASED PRICING – is where we look at the BREAKEVEN ANALYSIS which will assist you in finding
out which sales volume will result in losses or profits. This calculation will be based on 3 financial
concepts:

a. Total revenue (TR) - the price of the product multiplied by the number of units sold.
b. Fixed costs (FC) – expenses that do not change regardless of the volume. Some examples
are property taxes, salaries for senior executives and insurance premiums
c. Variable costs (VC) – expenses that change in proportion to output. These include the raw
materials, labour and energy/utility bills/costs.
SMALL BUSINESS INCUBATORS – a facility which provides essential business services such as
consultancy training and flexible work place for young companies and entrepreneurs. Their main
aim is to encourage innovation.

FUNCTIONS OF SMALL BUSINESS:

a. Provide a service to the community that large business do not always provide
b. Serve those small districts, towns or other areas of cities that are not serviced by large
businesses
c. Provide the ‘personal touch’
d. Build staff relationships for the provision of better service to customers.

COSTS OF PRODUCTION IN THE SHORT-RUN

The short-run refers to the initial period of production ie. From zero to three/four years. In this
time, economic theory predicts that factors of production will be mainly fixed (amount cannot be
adjusted eg. Capital or land) and at least one may be variable (amount can be changed eg. Labour)
therefore, if demand for the product increases and prices rise the firm can only increase supply by
adding labour, it cannot add more machines.

EFFECTS OF GROWTH ON A BUSINESS

Growth of a business means that a small business has increased its production levels through
increased market demand, so therefore it will need to employee more workers, operate from a
larger establishment etc.

A business may increase in size or expand because to:

a. Increase profits
b. Increase market share
c. Maintain monopoly position
d. Fill supply gaps in the market
e. Because of integration (merger) whether vertical or horizontal:

Vertical integration refers to firms which merge at different stages of type of production, such as a
motor vehicle manufacturer.

Horizontal integration refers to the merger of the firm at the same stage of production such as two
motor vehicle manufacturers.

Integration - is basically the combining of two industries.

f. The organization structure will change

g. Shareholder (investors) may reduce increased profits
h. Customer will benefit from lower prices which may result from the prosperity experienced
by the firm (increased profits/revenue coming into the firm)
i. Government will received increased taxes
j. Suppliers of eg. Raw materials will receive increase orders
k. Society will have more jobs being available
l. Labour – more persons will be employed, which will improve their standard of living
ECONOMIES OF SCALE – These are benefits that a firm will gain from large scale production. These
benefits are not attained by small firms, as their levels of production is too small.

Benefits gained are both internal and external

Internal benefits include:

a. Technical economies of scale – the firm can now afford to hirer/employ more specialist
workers and larger/industrial machines.
b. Financial economies of scale – firms are now in a position where they can raise funds and
expand their business even more.
c. Managerial economies of scale – the firm can now employ managers for the different
functional areas in the business.
d. Marketing/commercial economies of scale – the firm can now afford to purchase raw
materials in large quantities and acquire trade/cash discounts. They can also afford to
advertise using high quality media and products can also be sold more cheaply.
e. Risk-bearing economies of scale – risks can be spread. They can produce in large quantities
and sell in many markets. This means that if there is a fall in demand for the product in one
market it can be made up in another.

INTERNAL DISECONOMIES OF SCALE – problems that firms may encounter brought about by large
scale production:

a. Difficulty in maintaining large equipment eg. Machine breakdown, unavailable of local

trained technicians to fix/service these machines.
b. Training expenses
c. Rising marketing costs eg. Advertising
d. Rising financial costs eg. Interest rates may rise due to competition among firms for the
limited capital available at lending institutions eg. Banks
e. Rising managerial costs – over expansion may affect management as manager may make
poor decisions that may be costly to the business
f. Rising labour costs – sourcing specialised and trained workers
g. Diminishing returns – if the firm expands beyond the ideal size they may find that they start
experiencing losses
h. Loss of personal touch – a large firm/due to their size may lose the personal touch need to
keep customers satisfied.
i. Lack of flexibility – may be difficult to make changes as technology may be programmed to
carry out specific tasks/functions
j. Specialist not readily available to operate or repair machinery.

EXTERNAL ECONOMIES OF SCALE –benefits which occur through the growth of the industry that the
firms are in.

NOTE: a firm is a business organization. An industry is a group of firms that product a particular
good or offer a particular service.

Where a firm in the same industry are located within a particular area their external economies of
scale are referred to as economies of concentration. Benefits include:

a. Skilled labour force – training local people living in the area the skills that the firm need.
 b. Common services such as marketing organizations – firms cooperate in promoting and
selling their products.
c. Ancillary firms supplying specialized materials – when firms producing similar products
locate near to each other, other firms will be established to cater for their needs eg. Banks,
insurance companies etc.
d. Technical and vocational schools catering to the local industry – schools to cater for the skills
required by these large industries.
e. Product reputation – positive endorsement of products may lead to greater sales.
f. Cooperation – firms producing similar goods in the same area tend to help each other eg.
Cooperative advertising, lobbying for provision of transportation services and also
maintenance services to meet the needs of the industry, even though they are competitors.
g. Government incentives – tax relief or subsidies
h. Research and development – industries cooperate to research improvement of the various
production techniques.

External diseconomies:

a. Increased costs for the factors of production

b. Industrial action affecting the entire industry eg. Strike
c. Traffic congestion - concentration of firms in one area may mean less land space for building
roads and car parks.
d. Pollution – through heavy production.
e. Immobility of labour – workers may be trained in a particular area of work and may not want
to shift to another.
f. Diminishing returns – (same as the information given under internal diseconomies of scale)

LAW OF DIMINISHING RETURNS/LAW OF VARIABLE RETURNS

This is a situation where if a firm continues to increase a variable factor eg. Labour and add this to a
fixed factor eg. Land the result will be that the total output resulting from employing more workers
will decrease after which the output per person will also decrease (Will be discussed in class).

NOTE: diversification – when businesses wish to offer other lines of products/services in addition to
those they currently produce.

NOTE: through specialization and division of labour goods can be massed produced (goods
produced in large quantities)

SOME FEATURES OF MASS PRODUCTION

A. Standardization – goods can be produced the same size, shape etc. due to fact that
technology may be programme to make the exactly the same.
B. Mechanization/automation – technology is used
C. Promotes division of labour and specialization
D. Lower unit cost (producing of one item/a single item) due to the benefits of economies of
scale. More product will now be available in the market place at a lower price.

CAPITAL INTENSIVE INDUSTRY – the production process using more machinery than humans to
carry out the job function.
 In the manufacturing sector, machines are being used for pattern-making, embroidery etc which
use to be done manually (by hand).

CAD – Computer-aided design has been introduced in the garment and engineering industries
etc. these computer programmes are special software that can do drawings, sketches, charts
etc.

CAM – computer-aided manufacturing. Computer linked to machines can automatically produce

a finished product.

CAI – computer aided instructions. Software which allows the user to be aided through
repetition of instructions eliminating the need for a trainer.

Mechanization – the use of machines to replace some human or animal effort.

Automation – use of programmed methods aided by computer technology to replace a number

of functions which humans would have done.

LABOUR INTENSIVE PRODUCTION – The use of human effort more than machines.

In an effort to function successfully today workers need to:

a. Use the computer

b. Use computer software packages to complete tasks
c. Use telecommunication equipment and facilitate communication by way of:
i.) Email
ii.) Fax
iii.) Voice mail
iv.) Card phone
v.) Caller information
- Use printers and scanner
- Use the internet
- Use wide area network (WAN) to access information
- Use the local area network (LAN) the Intranet system
- Use a desktop publishing system.

ADVANTAGES OF TECHNOLOGICAL DEVELOPMENT

a. Better turn-around time on tasks

b. Reduction in the wastage of resources which often results from many operations
c. Increased production
d. Higher quality products
e. More skilled workers
f. Standard procedures are greatly enhanced via programmed instructions.

DISADVANTAGES OF TECHNOLOGICAL DEVELOPMENT

a. Unemployment due to lack of skills

b. High cost of technology
c. Invasion of privacy via the internet
d. Problems with unsuitable materials and its effect on the vulnerable
e. Manipulating the ‘truth’
f. Deskilling jobs – reducing the need for skilled labour due to the use of technology
ECONOMIC AND SOCIAL IMPLICATIONS OF TECHNOLOGY DEVELOPMENT

ECONOMIC IMPLICATIONS -Businesses are better able to achieve higher levels of productivity.
Which will lead to increased profits.

SOCIAL IMPLICATIONS-unemployment, the invasion of privacy, the need to monitor information

provided on the internet, problems and unsuitable information and its effect on the young and
vulnerable who have access to the internet. Strategies must be developed to combat these negative
effects.