This article throws light upon the fourteen main reasons for the survival of small firms.
1. Intense desire of individuals to be their own masters is a significant factor underlining the survival of small firms. The independent small entrepreneur works hard, solicits cooperation of his small labour force, builds up contacts in trade and gets rewards directly related to his efforts. Independent motivation outweighs the economies of large size.
2. Many entrepreneurs do not deliberately choose to expand their scale of operations because of complacency. Since they have small ambitions, their firms remain small. They are contented with the existing structure of affair and do not want to undertake further risks and troubles.
“Human inertia”, as Beacham says, “may overcome economic incentive.” Expansion may entail loss of freedom, comfort, leisure for the proprietors. Hence they prefer to get on with their existing small firms.
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3. Small firms thrive wherever labour is unorganised or in small towns where alternative jobs are difficult to be secured.
4. Where production processes are simple and do not involve use of complicated machines, small firms are suitable.
5. Where the product is of specialised nature, or of unique type, small firms only can operate with effectiveness.
6. Another important reason for the survival of small firms is the changing character of demand and the shifting nature of fashions.
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Small firms can quickly adjust themselves to changing situations in the market compared to large firms which are relatively inflexible.
7. Small firm exist in such spheres of business where individual tastes play decisive role, for example, tailoring, jewellery, photography, decorative furniture etc.
8. In industries where novelty, variety and minute workmanship are desired, small firms are prominent because it would be possible to plan and execute delicate designing and production of articles with accuracy “where quality, variety and attention to detail are important, the small firm often has the advantage over its large competitor.”
9. Standardisation of components and interchangeability of parts have also favoured the existence of numerous small firms. They specialise in production of standard parts, tools etc. and can sell them to other firms for assembling into a final product, such as. automobile parts. The principle of standardisation “cuts both ways”, it tends to decentralise industry as much as it tends to concentrate it.
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10. Small firms prosper in a market where individual contact with customers is desirable.
11. Where demand and supply are dispersed geographically as in building industry small firm only can better cater to the requirements of the customers, for example, bricks, stones, tiles etc. are scattered widely and all have to be assembled on the site. In that case small firms can promptly supply the materials on demand.
12. A further important reason for the survival of small firms is that they are less vulnerable to depression. Their overhead costs are lighter and variations in products to meet the changes in demand are easy to be effected.
13. Small units are labour-intensive and hence they provide gainful employment to large number of persons compared to large-scale units which are capital-intensive.
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14. Small units are encouraged by the Government as countervailing forces against monopolies and also to create employment potential. State also assists smaller units to tap the traditional or innate skill of artisans.