The size of the firm is measured on the basis of the following criteria.
- The number of employees
- The value of the capital employed
- The value of the output
- The market share etc
Reasons for the survival of small firms
1. Size of the market
Small firms do well if the market for the product is relatively small. The reasons that keep a market small in size are:
- people’s preference of “something different” which cannot be produced under mass production,
- some services and products cannot be standardized so that it can easily be provided by small firm,
- people need individual attention for certain services like hair dressing provided by small firms,
- geographical factors limit the market. Small firms are successful in that case, and
- most of the expensive goods have a small market as their demand is less. Eg; sports cars, luxurious yachts etc. Again small firms succeed.
2. Specialist producers and distributors
Dis-integration helps the small firm to prosper under manufacturing industry. It has an assured market to provide particular parts to the larger firms.
Eg. Seat belts and rubber tire for the motor car industry.
3. Co-operation between small firms
Co-operation between small firms help them to survive and enjoy economies of scale as larger firms do. It is made possible by joint purchase inputs, joint ownership of research laboratories etc.
4. Technical factors
There are certain units of capital equipment that are relatively small and can be used only by small firms. For example; knitting and sewing machines used in a clothing industry.
Small firms can easily respond consumer demands and can adapt to changing business conditions.
6. Government assistance
In most countries, governments provide grants, subsidies and tax exemptions for the growth of small firms. These factors lead to survival of small firms in the rapidly changing business world.