3.2.4 Reasons for Staying Small

Small businesses

Small and medium-sized enterprises (SMEs)

🔗 Firms that employ less than a given number of employees (less than 250 for EU countries).

Why businesses choose to remain small

• Lifestyle choice of owners – Value work-life balance
• Keeping fixed costs low and
• Avoiding regulatory burdens with larger businesses (E.G CMA)
• Maintaining quality and customer satisfaction which may be compromised by expansion
• Ensures the business is flexible and able to respond to market changes (E.G Labour is more flexible to changes than capital-intensive systems)

How small businesses survive in competitive markets

• Specialist niche products that are differentiated and have a USP -> charge higher prices (price inelastic demand) and gain brand loyalty
• Flexibility allows them to respond to market changes quicker, satisfying demand spikes and taking opportunities
• Customer demands can be met with more personalised service for customers -> Higher brand loyalty and retention sales
• E-commerce allows SMEs to distribute and advertise products at lower costs whilst accessing global markets