Breaking the Mold: Rethinking the Dynamics of Large and Small Firms
Would you rather have a big ice cream cone or a small ice cream cone ? Well, sometimes a massive ice cream cone can seem appealing, but the perfect-sized scoop might offer a better balance of flavour and enjoyment. So is bigger always better? When it comes to economics, there's been a long debate between economists on what size firms are more likely to drive business expansions and job creations.
Many owners in Kazakhstan will hope to grow their businesses. However, in some cases, growth may not be easy. What might influence the growth of firms?
Government regulations; Through competition government will monitor business activity to improve efficiency and prevent consumer exploitation. Consequently, governments will monitor business activity and ensure that individual markets are not dominated by one or a small number of firms.
Access to finance; Access to finance can have an important influence on growth, as businesses need finance to grow. They may need money to build new factories, open new stores or develop new products.
Economies of scale; One of the main motives for growth is to reduce average costs. As a firm grows, average costs will fall because it is possible to exploit economies of scale. Costs can be lowered significantly by producing large quantities of output.
The desire to spread risk; Another motive for growth is to spread business risk. Risk can be reduced by diversifying. Businesses can sell into new markets and develop new products so that if one venture fails, success in others can keep the firm going. As the risk increases, firms are likely to diversify and grow as a result.
How is the size of a firm measured? Several methods can be used to measure the size of a firm. Here are three common methods:
Turnovers; Firms with high turnovers will tend to be larger than those with small turnovers. Turnover is your total business income during a set period of time – in other words, the net sales figure. in 2022, KMG had a turnover (total revenue) of US$13 439 million. This makes KMG a large company. KMG or KazMunayGas is a state-owned national oil and gas company of Kazakhstan, involved in exploration, production, refining, and transportation of oil and gas.
Number of employees; Large firms tend to employ larger numbers of employees than smaller firms. KMG employs more than 47,000 people across its regions of operation. By this measure, again KMG is classified as a large company.
Balance sheet total; This measure is based on the amount of money invested in the business by the owners. Generally, more money will be invested in larger firms such as KazMunayGas (KMG). In 2022, the balance sheet total for KMG was US$5 300 million.
Advantages and disadvantages of large firms and small firms Governments in many countries have encouraged the development of small businesses. In developed countries, the growth in the tertiary sector has also helped. This is because the provision of many services is more effective on a small scale, but it doesn’t mean that there are no negatives.
Advantages (Small firm): Flexibility: Small firms are able to adapt to changes more quickly Personal service: Owners are far more accessible (as firms get bigger, it often becomes difficult to offer customers an individual personal service) Lower wage costs: Many workers in small firms do not belong to trade unions Better communication: Since small firms have fewer employees, communication tends to be informal and more rapid Innovation: Small firms are more prepared to take a risk (diversifying and selling into new markets)
Disadvantages: Higher cost: Cannot exploit economies of scale because their output is limited Lack of finance: Their choice of sources is limited Difficult attracting quality staff: Lack of resources. (not able to afford the wages or the training that high-quality employees require) Vulnerability: risk of takeovers (owners may be forced to accept unattractive takeover terms)
The largest firms in the world are multinational companies. Multinationals have a great deal of power. They have huge resources and employ thousands of people, but despite all the advantages, they may also face some drawbacks; Advantages (Large firm): Economies of scale: Operate in large-scale/exploit economies of scale (accessibility to bulk buying) Market domination: Higher profile in the public eye as a result it will be easier to attract consumers Large-scale contracts: Government contracts are easier to approve (large-scale project approvals, as they have the resources to carry out the work) Disadvantages: Too bureaucratic: Communicating problems as too many workers will get involved as a result it may lower the productivity of the firm Coordination and control: It is hard to control and maintain too many workers Coordination and control: No personal contact between employees (can result in poor worker motivation)
Examples of Large Firms in Kazakhstan:
KazMunayGas (KMG): A state-owned national oil and gas company of Kazakhstan, involved in exploration, production, refining, and transportation of oil and gas.
Kazakhstan Temir Zholy (KTZ): Kazakhstan's national railway company, responsible for railway transportation and infrastructure development in the country.
Halyk Bank: One of the largest commercial banks in Kazakhstan, offering a wide range of banking and financial services to individuals and businesses.
Kaspi Bank: A leading retail bank in Kazakhstan, providing banking, financial, and e-commerce services, including online payments and digital banking solutions.
Kazakhtelecom: Kazakhstan's largest telecommunications operator, offering a range of services including fixed-line and mobile telephony, internet, and digital television.
Air Astana: The national airline of Kazakhstan, providing domestic and international air transportation services to passengers and cargo.
Examples of Small Firms in Kazakhstan:
Almaty Bakery: A family-owned bakery specialising in traditional Kazakh pastries and bread.
Astana Tech Solutions: A small IT consulting firm offering services such as software development and IT support to local businesses.
Kazakhstan Cleaning Crew: A small cleaning services company providing residential and commercial cleaning solutions in cities like Almaty and Astana.
Silk Road Tours: A small travel agency specialising in personalised tours and excursions for tourists exploring Kazakhstan's cultural and natural attractions.
Eco-Friendly Products: A startup producing and selling environmentally friendly household products, such as reusable bags and organic cleaning supplies.
Kazakhstan Fitness Club: A small gym and fitness center offering personalised training programs and group fitness classes to local residents.