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Do small firms have a role in modern business?

We often hear the name of multinational firms even in our casual conversations like, “I love the shoes from Nike!”; “he is a diehard fan of Apple products (like iPhone)”; etcetera. In other words, the highly influential and reputed brands have become the synonym to business to most of the people. The retailers seem to hold the role of a mediator only - between such firms and customers. In this context, it is even obvious to ask whether the small firms have any role in modern business. However, a careful inspection of the business and the economy as a whole reveals us that the small firms are vital to the modern economies and businesses.

Comparatively, production is more efficient with large firms and marketing with small firms. Therefore, small firms work in coordination and collaboration with the large firms. Rather than rivals they are each others’ supporters and if the chain of these independent firms did not exist, the larger firms would have a tough time retailing their products as that can involve higher bureaucratic cost and red tape delays. However, with small firms, if one firm gets stuck at something there will, mostly, be another firm taking advantage of the delay. Therefore, small firms are more efficient at selling and distribution and hence have an important role in modern business.

Small firms have a simpler and more flexible structure which makes them attractive for a lot of prospective entrepreneurs. Not only are the small firms easier to establish but also to shut down if they fail to provide good return. Similarly, they need small initial investment and hence, have small financial risk. If the business succeeds, entrepreneurs can safely increase investment and expand the business quickly and if it fails, they can switch to another business easily. This strategy can be useful, even to the experienced businessmen.  Therefore, because of this easiness and flexibility, small firms have a great value, even if they just serve the purpose of an experiment, in today’s highly dynamic business environment.

Similarly, small firms can help the entrepreneurs minimize the risk through diversification. “Don’t put all your eggs in one basket” is a popular adage in business when it comes to minimizing risk. Establishing many small firms instead of a single large firm can substantially minimize the risk to the entrepreneurs. The modern corporate world is so complicated that entrepreneurs have a tough time entering the market, let alone being a player. Even for the entrepreneurs with enough capital and experience, this might be the case because of the volatile business environment and rapidly changing technology. In this scenario, small firms are very suitable, even for the most ambitious entrepreneurs, to diversify the risk associated with investment. Even if some businesses fail, the entrepreneurs will have other firms providing some return.

Moreover, the modern businesses are all about specialization. While the firms of the past focused on overall self-reliance, the modern firms are centered upon their core business activity outsourcing all the other activities to different firms specialized in their respective sector. For example, a manufacturing firm outsources sales and marketing to a different firm, hires employees managed by an independent human resource firm and so on. This gives more control to each firm on their core business activities. For example, marketing firm can study about the tastes and preferences of consumers and order products accordingly from a manufacturing firm; the manufacturing firm can research on economizing and improving production; and so on. This disintegration of businesses in modern economy is based on the idea that ‘gains on trade come from specialization’ and suggests us that specific, and thus smaller, firms are the heart of modern business.

The latest of the business models is a virtual firm which outsources everything, production, research and development, sales and marketing and so on. What does it do? It simply gives a brand name to its product and launches it in the market. This type of firm can be managed even by a single entrepreneur. This suggests us that small firms have a great importance in the modern business world.

In conclusion, from providing experience to an entrepreneur to venturing highly adaptable and changeable firms, small firms serve the purpose. They are flexible, have small risk, and are highly specialized most of the times. Furthermore, they can be established anywhere, from rural areas where infrastructure and workforce is minimum to boundless online world without any geographical location. Therefore, all things considered, small businesses have a huge role to play in the modern business environment.


  1. In this essay word count is 756. But in exams, it is strongly recommended to bound our essay within 500-600 words. Does CIE give A grades to those essays, which has exceeded the word limit???

  2. You have rightly pointed out that CIE is, indeed, quite careful about the word limits. However, I can justify that this essay is fine from three perspectives:

    First, the word limit is different for GP 8001 and GP 8004. While the lower limit is 500 words in both papers, 8001 paper allows you up to 800 words. So, if that is the case, this essay is quite safe. However, you'll have 1hr 15mins time to write an essay in this paper as opposed to 1hr only for the essays in 8004 paper. Moreover, my aim is to provide you with more points rather than bound myself within the time frame set for the examinees.

    Second, in my opinion, CIE penalizes you for a different and indirect reason. For example, if you write less than 500 words, your essay is likely to have insufficient points to score all the marks which you could have scored otherwise. Similarly, if you try to go beyond the word limit by writing too long then you'll not be able to complete another essay and ultimately, you won't be able to score good marks.

    Thirdly, the word limit is approximate. CIE doesn't count word by word, hence you will not be penalized as long as your essay is of moderate size.

    Therefore, because of all these reasons, I wrote a little longer. But you and me are not in the same position. So, I highly recommend you to stay within the word limit as far as possible because this will ensure that you'll finish your both essays in time and save yourself from penalty, if any, for crossing the limits.

  3. This is an excellent essay! Will contact you for advice where things go wrong. Am doing my A LEVEL in UGANDA and your ideas are necessary here.

  4. suksusukaina razakasukainaOctober 26, 2012 at 11:57 AM

    This is a really EXCELLENT. I want to know that if my pattern is correct,for instance these are the points

  5. First of all, the whole essay will speak your opinion. You just emphasize it some more at the conclusion.

    Second, this essay isn't about advantages and disadvantages directly! You should link them to their role in modern business.

    Just focus on the "role of small firms in the current context" for this essay! Are small firms obsolete now? How far do they support the country's economy? What will ensure that they will continue to exist to play role in the economy (i.e., their advantages or strengths)? What weakens their role (i.e, their weak aspects)? What will be their likely role in future?

    These are the types of question you should tackle in your essay.

  6. Sir , I am a student of AS Level in Karachi , Pakistan. I strongly need to study GP and there are just 3 days left for my papers , Please recommend me A Concise book which have the content of all topics of AS Level CIE.
    Thanking You &
    Waiting for your utmost reply

  7. First thing, don't panic!!

    Second, I'm really sorry that I don't have such a book!!

    Third, your English level is quite good!! So, don't worry, whatever you write will be at least grammatically correct and sensible!!

    Fourth, examiners don't test your general knowledge primarily!! They will test your maturity level that is appropriate for your level!! That's a good news for you. Make good use of whatever you know and answer the question directly often giving your opinions!

    I wish you all the best!!

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