The government defines a small business based on how much the business owns (asset size) and the number of people that work for it (employment) for purposes of rationalizing assistance and incentives to business enterprises. In terms of asset size, a small enterprise has capital assets between P3 million to P15 million. In terms of employment, a small business employs from 10 to 99 workers. Below the level of asset size and employment mentioned, you have a micro enterprise. Above such level, you have a medium or large-scale business.
Generally speaking, however, micro, small and medium-scale businesses are categorized as small. Some micro enterprises grow into small, then from small into medium, and so on. This is one of the reasons why the government has made distinctions among them so that its support services and incentives can be focused according to the needs of enterprises, which apparently tend to differ depending on the size category of the business (You will know more about these government services towards the end of this chapter).
Just like any other business, small businesses are found in manufacturing (for example, food processing or garment making), services (auto repair or internet café), agribusiness (farming or fishing), or trading (grocery store, buy-and-sell).
STRENGTHS
You must have heard of the phrase “small is beautiful.” E.F. Schumacher in Small is Beautiful: Economics As If People Mattered praised small business for using low-level or intermediate technology rather than the high technology of large firms. The latter “dehumanizes” the working man or makes a machine out of him, while intermediate technology still allows him to think creatively at work and find fulfillment from its results.
Indeed, in big enterprises, production has been so mechanized that the worker is reduced to setting up the equipment and watching over its operation, intervening only when something unexpected happens. In an assembly line, work is divided into smaller units for the sake of “efficiency,” but the worker gets to do only a few routine steps like cutting, punching, or soldering – work processes that require little thinking or creativity.
In contrast, in most small factories, an individual worker gets to work on a whole or part of an operation. In furniture making, for example, some work processes that require individual attention are carpentry, in-lay making, finishing; in garment manufacturing, cutting, embroidery, sewing the collar or the sleeves, etc. Usually, small enterprises are those engaged in pottery, basket weaving, papiermache making, woodcraft, jewelry making, or other craftwork where skilled artisans can still practice their traditional craft.
Small businesses also often use materials and methods that are friendly to the natural environment constantly in danger of being polluted or depleted of its resources.
Other advantages of a small business include:
v Small-scale producers are able to make use of raw materials and by-products in limited volume which otherwise would have been disposed of as waste in large-scale factories. For example, an enterprising person can buy wood scraps from large furniture makers and turn these into racks to hold DVDs, mobile phones, and even magazines.
v Because authority is centralized around the owner-manager, decision-making is fast. Communication of information downwards does not suffer from bureaucratic delays, provided that the owner-manager practices an open, rather than a secretive, management style.
v In times of rapid changes in market demand and preferences, small-scale production units can more readily modify their manufacturing set-up to make a changeover or to diversify to other products or product variants. A children’s garment subcontractor can easily shift to stuffed toys when orders stop coming.
v The patriarchal, often informal management style, practiced in many small firms, gives employees a sense of belonging. The atmosphere in a small business is more like that in an ordinary Filipino family where the owner-manager is looked up to as the “father” or “mother” or the kuya or ate of the employees. In this manner, a sense of belonging flourishes. Thus, the labor turnover in small businesses is not as high as expected when in fact the employees receive comparatively low wages.
v In seasons of economic crisis, like recession and inflation, small enterprises are often better able to make adjustments in their production, personnel and other systems. This was demonstrated in the oil crisis of the 1970s and again in the Asian currency crisis of the 1990s wherein many large firms were forced to fold up. In contrast, many small firms stayed afloat and survived.
It might be added that small-scale enterprises are the beneficiaries of various incentives and support services from government.
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