Small businesses are one of the first organizational
entities that sink during a recession. The strength and innovative ability of a
nation lies in the ability of smaller businesses to maintain profit margins and
find new ways of adapting to poor market conditions. Research helps highlight
how the legal form, management, and market exposure of such small businesses
contributes to their success in overcoming recession related challenges.
The advantages of having small businesses within the
market cannot be underestimated. They significantly contribute to employment,
income generation, exporting of products/services, stimulators of competition
and sources of innovation (Anderson & Tell, 2009). Without the success of
small business states and nations would not have those innovative cushions that
can recoup quickly and take advantage of market trends.
In many cases such businesses suffer from poor financial
capital as well as ineffective management that lacks clear strategic vision. In order maximize performances small firms
must accurately match their business strategies to the business environment to
produce more revenue (Tang et. al., 2010). This can be accomplished by ensuring that
products and services are being sold in a manner that further contributes to
proper international hedging when local market conditions suffer from
recession.
Successful
businesses are seen as having a number of important positive factors. According
to Hudson, et. al (2001) these factors can include cash flow, market share,
overhead costs, performance, inventory control, marketing, efficiency,
profitability, and cost controls. Through these multiple factors businesses are
more able to adjust and steer course to new challenges.
Unfortunately,
small firms do not have the financial capital or cushion to adjust
appropriately to large market fluctuations which put them under considerable
risk. For example, large firms have stronger bargaining power with suppliers
and customers and can compete on both broad-based strategies and their
reputation (Chen & Hambrick, 1995). Small firms have limited capacity to
adjust the market conditions so they must rely on their own resources.
Research
conducted by Izabella Steinerowska-Streb, from the University of Economics in
Katowice Poland, attempted to determine firm specific variables on enterprise
profitability during a recession (2012). These variables included firm size
(amount of employees), type of manager (owner or hired), and market range
(domestic or international).
In
the study 1107 firms with fewer than 250 employees were used in the survey
sample. Of the respondents 58.4% were micro-firms, 28.6 % were small firms and
9% were medium size firms. 90% of the firms were owner-managed meaning that the
owners had some level of daily management within the company.
The
Results:
-Companies
run by a professional manager were less exposed to decreasing wealth in a
recession.
-Joint
stock and limited liability businesses experienced fewer declines in wealth
than other forms of small to medium businesses.
-Joint
stock and limited liability companies with international exposure experienced
less declines than other forms of local businesses.
The
final results help small to medium business owners to consider the best forms
of conducting business when trying to hedge against recession and poor market
conditions. The best practices included finding professional managers, using
joint stock or limited liability legal forms, as well ensuring they have a
level of international market exposure. Through the use of solid business
decisions such firms can reduce their potential loss and liability when
compared to other forms of businesses operating within their local market.
Anderson,
S. & Tell, J. (2009). The relationship between the manager and growth in
small firms,
Journal of Small Business and Enterprise Management, 16(4): 568.
Chen,
M.& Hambrick, D. (1995). Speed, stealth, and selective attack: how small
firms differ from large firms in competitive behavior, Academy of Marketing
Management Journal, 38: 453–482.
Steinerowska-Streb, I. (2012).
The determinants of enterprise opportunity during reduced economic activity. Journal
of Business Economics and Management, 13 (4).
Tang,
Z., Kreiser, M., Marino, L.& Weaver, K. (2010). Exploring proactivness as a
moderator
in
the process of perceiving industrial munificence: a field study of SMEs in four
countries,
Journal of Small Business Management 48(2): 97–115.
