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CHAPTER-3 Small Business

The document discusses small businesses, defining them as having less than 50 employees, being owned by one or few individuals, and having localized operations. It describes the importance of small businesses in providing job opportunities, introducing innovations, and aiding large businesses. The document also outlines some of the problems faced by small businesses in Ethiopia, including lack of access to capital and difficulties obtaining quality raw materials.

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mohammedkaso
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279 views

CHAPTER-3 Small Business

The document discusses small businesses, defining them as having less than 50 employees, being owned by one or few individuals, and having localized operations. It describes the importance of small businesses in providing job opportunities, introducing innovations, and aiding large businesses. The document also outlines some of the problems faced by small businesses in Ethiopia, including lack of access to capital and difficulties obtaining quality raw materials.

Uploaded by

mohammedkaso
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER THREE

Small Business
Small Business
Objectives: At the end of this chapter, students will be
able to;
 Define small business.
 Describe the main characteristics of small scale
industries.
 Understand the role of small businesses to the
economy of a country.
 Identify the problems of Ethiopian small businesses.
 
Setting Small Business
♠ In the first, the product or service that we offer
must satisfy a customer’s unmet need.
♠ This may mean a brand-new product or
service or it may mean finding a way to
provide a product or service at a lower price
than currently available.
What is Small Business
♠ Small business is a business which employs less
than 50 employees, is owned by one or few
individuals, with the exception of the marketing
function has geographically localized operations,
and does not dominate its industry.
Types of Small Business
a. Retail industry: Drug stores, clothing stores, auto
accessories dealers, appliance dealers, book stores, music
stores etc.
b. Service industry: accounting firms, advertising
agencies, managerial consultants, barber and beauty shops,
dry cleaners, travel agencies etc.
c. Finance insurance and real estate industries: insurance
agencies, real estate brokerage firms, pawnbrokers, small
banks, loan companies etc.
d. Transportation and other public utilities: Taxi cab
companies, community news paper publishers, local radio
and television stations etc
e. Manufacturing industries: Bakeries, sawmills, toy
factories, job printing shops, shoe factories, ice cream
Characteristic of Small Scale Industries
1. Closely held: the unit is generally a one-man show.
♠ Even if a unit is run by a partnership
concern/company, the activities are mainly
carried out by one of the partners/directors and
the others are merely sleeping partners/directors
who generally assist in providing finance.
2. Personal character: there is close personal
contract/supervision of all activities, say purchase,
production labor, and sale of products.
♠ The owner himself is generally the manager.
♠ Therefore, these firms are generally managed in a
personalized manner.
3. Limited scale operations: a small scale industrial unit has a
lesser gestation period.
♠ A small scale unit has a limited share of a given market.
♠ The size of the firm in the industry is small.
4. Indigenous resources: small-scale industries can be
easily located anywhere subject to availability of
raw materials, labor, finance, etc.
♠ small scale units use local resources. Therefore, they have
decentralized or dispersed location.
5. Labor intensive: they are generally more labor oriented with
comparatively smaller capital investment than the large units.
♠ The capital investment is limited due to the use of simple
technology.
♠ They require large amount of working capital to meet their
day-to-day expenses.
6. Local area of operation: the operations of a small

scale unit are generally localized.

♠ However, market for its products need not be local.

♠ It may cater to local and regional demands or its


products may even be exported.

7. Simple organization: a small business unit has few

or no layers of management.

♠ Division of labor or specialization is low and the


resources are limited.
Why are Small Businesses Important to the Economy?

Providing Job Opportunities: this is one way in which


small businesses contribute to the country’s economy.
In fact, in most countries, the number of new jobs
created by small business is significantly higher than
created by large businesses.
Contd.
Introducing Innovations: new products which
originate in the research laboratories of big
businesses make a valuable contribution to our
standard of living.
There is a question, however, as to the relative
importance of big businesses in achieving the
truly significant innovations.
Contd.
Aiding Big Businesses: the fact that some functions
are more expertly performed by small businesses
enables small businesses to contribute to the success
for larger ones.
Contd.---

Producing Goods and Services: we depend


highly on small businesses for the provision of
most goods and services we need in our lives.
 In fact, if it was not for small businesses, we
would have not been able to find the goods
and services we need at the time.
Advantages
 Small businesses require less time, energy and financial resources to
establish.
 They also provide the entrepreneur with greater autonomy, and
independence-because the money needed to start small businesses
is relatively small, the entrepreneur can raise most of it by
him/herself without relinquishing significant onrushing interest and
control.
 In addition to these, small businesses help the entrepreneur develop
his skill in running organizations as he is expected to perform
different kinds of activities concerning the business.
These include; business planning, investment and finance, customer
relations, personnel and human resources, cash control and book
keeping, inventory control, purchasing, marketing and sales, and
leadership.
Social Aspects
 Unregulated growth of large scale industries results in
concentration of economic power in a few hands and
consequently grosses inequalities in the distribution of
income and wealth in the country.
 On the other hand, income generated in large number
of small enterprises is dispersed more widely and its
benefit is derived by a large population.
 This is due to wide spread ownership and
decentralized location of small scale units. In this way
small scale enterprises bring about greater equality of
income distribution.
Cont.---
However, in underdeveloped countries workers prefer a
low paid job to no job at all.
In the absence of small enterprises workers may have to
lose even the small wage which they hope to get.
 Moreover, wage rates in small firms can be improved
through labor laws and trade unions.
Small enterprises also encourage competitive spirit and
generate the impulse of self development.
The state of Ethiopia where there is a large network of
small scale enterprises, with comparatively less
investments in the large scale sector, the general standard
of living is much higher than in the states where heavy
investments have been made in large scale industries.
Less Capital and More Labor
 The main problem is that we have vast manpower but
inadequate capital, which has resulted in increasing
unemployment.
 This is unlike in situation in western countries where
manpower is limited but capital resources are enormous.
 For example according to the data collected by the in
dial development commissioner of small industries states
that-the fixed investment in plant and machinery per
worker in the small-scale sector is about Birr 3000 and
Birr 20,000 in the large scale sector.
Removing Regional Imbalance
 Moreover, undue concentration of large industries in
urban areas creates several problems.
E.g., pollution, slums, shortage of civic facilities, etc.

due to employment opportunities in the countryside,


people migrate in large number to big cities.
Problems With Small Business in Ethiopia
@ Small-scale units do not have easy access to the
capital market.
@ They do not have access to industrial sources of
finance partly because of their size and partly
because of the fact that their surpluses which can be
utilized to repay loans are negligible.
@ Small-scale enterprises find it difficult to get raw
materials of good quality and at cheaper rates in the
field of production.
@Very often they do not get raw materials in time.

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