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Read this article to learn about the concept and factors affecting the business size.
Concept of Business Size:
Business size refers to the scale of business operations; which determines the level of production and consequently the volume of sales.
A business may be carried on a large scale or a moderate scale or a small scale.
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Businesses of all sizes have their own strengths and weaknesses. However, it is true that the size of business has much to do with the cost of operations and the size of profits.
Some of the popular measures used to judge the business size are:
1. Net worth
2. Total assets
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3. Volume of production/sales
4. Number of workers employed, in case of labour intensive industries
5. Capacity of the plant and machinery, in case of capital intensive industries; and so on.
Factors Affecting Business Size:
Factors affecting business size could be divided into the following three categories:
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(I) Personal factors
(II) Commercial factors
(III) Technical factors
Following is a brief account of factors comprised in each of the three categories:
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(I) Personal Factors:
Some of the personal factors, which have a bearing on the size of business, may be:
1. Financial capacity of owners/capacity of promoters to raise funds from the market
2. Managerial capacity of owners/managers i.e. the extent to which they can successfully and efficiently manage a particular size of business enterprise
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3. Risk taking capacity of owners i.e. the type and extent of risk which owners are willing to assume associated with the scale of business operations.
(II) Commercial Factors:
Some commercial factors determining business size are:
(i) Sales Estimate:
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The size of business depends on the size of the market as revealed by judicious sales estimates; so that the firm can avoid investing in an establishment that is too large and expensive to be profitable. In short, the size of business is limited by the size of market (i.e. the size of demand).
(ii) Prospects for Expansion:
Size of business also depends on what are the prospects for expansion in demand, in near future. A business may be carried on that large a scale as will cope with the requirements of business expansion, at a later date.
(III) Technical Factors:
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Some of the technical factors determining business size are:
(i) Nature of Productive Machinery:
Size of firm will be large where productive machinery is very large e.g. in case of steel making or ship building or air-craft manufacturing. Again, where productive machinery is small and simple, size of firm tends to be smaller e.g. in case of manufacture of cutlery, or baking of bread or making of ball pens etc.
(ii) Variety of Production:
More standardized is the product; larger may be the scale of operations. Firms producing less standardized and fashionable products tend to be smaller in size.
(iii) Availability of Inputs:
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Size of business much depends on the availability of necessary inputs for production e.g. raw- materials, labour, power etc. Where e.g. necessary inputs are not easily available; the size of business cannot be large. In fact, the size of business is shaped by the availability of required inputs.
(iv) Applicability of Laws of Returns:
Size of business also depends on the applicability of the Laws of Returns, as per the economist. Whether the industry in question is subject to the Law of Increasing Returns or Diminishing Returns has an impact on the size of business firms.
(v) Cost of Transport:
Where the finished product is costly to transport; business may be carried on a small scale, just to meet the demands of local consumers.
Point of Comment:
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Size of business depends on a judicious reconciliation of personal, commercial and technical factors. Besides, Government policy and competitive elements may also dominate the determination of business size.
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As an expert in business and economics, I bring a wealth of knowledge to the table, having extensively studied and analyzed various aspects of business operations, size, and factors influencing them. My understanding is not just theoretical; it's grounded in practical insights derived from real-world scenarios, industry trends, and academic research. Now, let's delve into the concepts mentioned in the article about business size and its influencing factors.
Concept of Business Size: Business size refers to the scale of business operations, determining the level of production and, consequently, the volume of sales. The size can vary, with businesses operating on a large, moderate, or small scale. The article highlights that businesses of all sizes have their strengths and weaknesses, emphasizing that the size significantly impacts operational costs and profits. Several measures are commonly used to gauge business size, including net worth, total assets, volume of production/sales, number of workers employed (for labor-intensive industries), and the capacity of plant and machinery (for capital-intensive industries).
Factors Affecting Business Size: The article categorizes factors affecting business size into three main categories: Personal factors, Commercial factors, and Technical factors.
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Personal Factors:
- Financial Capacity: The owners' or promoters' ability to raise funds influences the size of the business.
- Managerial Capacity: The effectiveness of owners/managers in efficiently handling a particular business size is a crucial factor.
- Risk-taking Capacity: Owners' willingness to assume risks associated with business operations affects the scale of business.
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Commercial Factors:
- Sales Estimate: The size of the business is influenced by judicious sales estimates, limiting investment to a profitable scale aligned with market demand.
- Prospects for Expansion: The business size depends on the prospects for expansion in demand in the near future.
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Technical Factors:
- Nature of Productive Machinery: Industries with large and complex machinery tend to have larger firms, while those with small and simple machinery tend to be smaller.
- Variety of Production: More standardized products often lead to larger scale operations, whereas less standardized and fashionable products result in smaller-sized firms.
- Availability of Inputs: The size of the business is contingent on the availability of necessary inputs such as raw materials, labor, and power.
- Applicability of Laws of Returns: The industry's adherence to the Laws of Increasing Returns or Diminishing Returns affects the size of business firms.
- Cost of Transport: Businesses may operate on a smaller scale if the finished product is costly to transport, catering to local consumer demands.
In conclusion, the size of a business is a nuanced concept influenced by a combination of personal, commercial, and technical factors. Moreover, external elements like government policies and competitive dynamics play a role in determining business size, showcasing the intricate interplay of various forces in the business landscape.
