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IMPORTANCE OF SMALL BUSINESS



IMPORTANCE OF SMALL BUSINESS
Small business contributes a significant portion of the national Gross Domestic Product (GDP) of many economies.  For instance, in Canada small business contributes 29% toward GDP and employs 5 Million people, representing 48% of the total work force in the private sector (Industry Canada, 2010).  In the United States the contribution to GDP is 30% and employment of 50% of the total work force (Michma & Bednarz, 2006).  Further, small business employs a large percentage of the total workforce, as shown in Table 1.

PERCENTAGE EMPLOYMENT OF TOTAL WORKFORCE


COUNTRY
PERCENTAGE EMPLOYMENT OF TOTAL WORKFORCE

SOURCE
Canada
48
Industry Canada (2010)
United Kingdom
47
Department for Business Innovation and Skills (2012)
United States
50
Michma & Bednarz (2006)

SMALL BUSINESS VERSUS LARGE COMPANY

A small business is not a smaller version of a large company (Welsh & White, 1981).  Small business managers take an approach to decision making that is different from large company administrators (Forsman, 2008).  Stevenson (1999) determined that small business managers allocate their scarce resources to activities considered priorities with a focus on the short term.  The concept of scarce resources is known as “resource poverty” (Thong et al, 1994).  When compared with large company administrators, small business managers lack time, finances, and skills.  These limitations affect decision making and activities within a small business. Due to their lack of size, small businesses may have limited market power and consequently will have a relatively few customers (Zontanos & Anderson, 2004).  This situation may cause the small business to be dependent upon the actions of their customers.  Also, because the small business will have few employees, they must be multi-skilled and prepared to perform many varied tasks.  Further, when a small business is just starting out it is difficult to gain legitimacy and support from various stakeholders such as employees, customers, suppliers, and financial institutions (D’Intino et al, 2007).  There are two types of liabilities that impact a small business.  They are the liability of newness and the liability of smallness (Liao et al, 2008/2009).  The liability of newness suggests that the small business has been formed relatively recently and does not have a track record dealing with external entities such as suppliers and financial institutions.  The liability of smallness relates to the lack of resources in a similar way as the Thong et al (1994) concept of resource poverty.

A perspective of small business characteristics is described by Stevenson (1999).  Table 2 presents a continuum of approaches taken for business practice by small business managers and large company administrators.  The continuum differentiates small business managers and large company administrators.  The term “Promoter” is associated with small business managers and reflects a risk taking proactive and flexible approach to business practices.  The large company administrator term is “Trustee”.  In this case the focus is on maintenance of existing assets through formal procedures.

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