Introduction‘
l They are more substantial than the very small businesses that act as the medium for
the self-employment of their owners.
l The business’s securities are not quoted in any established capital market: that is,
they are not traded in an efficient market.
l The ownership of the business’s equity and hence its control lie in the hands of a
small close-knit group, that is, it is a family-typebusiness.The importance of small businesses
Small businesses, as we have defined them, are an important part of the UK private
sector. According to the Forum for Private Businesses (2008) and the Department for
Business Enterprise and Regulatory Reform (2008), small businessesl employ 58 per cent of the private sector workforce (or about 30 per cent of the entire
UK workforce); and
l contribute about 50 per cent of the UK’s gross domestic product.There are good reasons to believe that small businesses will become increasingly
important in the UK. The industrial restructuring that occurred in the 1980s and 1990s
shifted the balance still further away from the traditional manufacturing, mineral
extracting and power generation industries towards the service industries. Service
industries, perhaps because they often do not depend so much on the economies of
scale, tend to operate in smaller units. Even in manufacturing, the new computer-
based technologies have tended to make smaller businesses more viable. This is
because the flexibility of such technologies has meant that the economies of scale, in
manufacturing, are much less profound than was the case with more traditional
industrial methods. As we saw in Chapter 13 in the context of ‘just-in-time’ systems,
flexibility is increasingly important in manufacturing industries. Small businesses
have probably shown themselves to be more flexible.
There seems to be an increasing trend towards a future where businesses of all sizes
will subcontract or buy in services and components, as they need them, from busi-
nesses specialising in such work, rather than seeking to do virtually everything ‘in
house’ (this is known as outsourcing). Already there is an increasing number of exam-
ples of businesses outsourcing functions such as personnel and IT. For example, the
Finland-based mobile phone manufacturer Nokiaannounced in 2007 that it intended
to outsource the development of microchips that are used in its products. This leaves
Nokia free to concentrate on its core activities. In fact, not surprisingly given Nokia’s
size, this outsourced work will be done by larger businesses. Nevertheless, outsourc-
ing tends to promote a need for many small businesses, each one specialising in the
provision of some product or service. Not only does outsourcing create a market for
the output of small businesses, it also has the effect of providing labour to staff them.
This is because larger businesses are tending to shed labour with skills other than in
what they see as their core activity. The divestments, including management buy-outs
(which we discussed in Chapter 14), may be seen as part of a trend towards smaller
units and a concentration on core activities.
Small businesses are also seen as being particularly important in that they provide
an environment in which innovation tends to flourish. Claims are made that a very
high proportion, perhaps a majority, of new ideas emerge and are first tried in the
small business sector.