Essay on "Small Company Entry Advantage"

Essay 5 pages (1698 words) Sources: 2 Style: MLA

[EXCERPT] . . . .

Small Company Entry Advantage

No Big Players

Low Entry Barriers

Smaller is Preferred

Differentiation

Sequential Game

Backward induction is an important phenomenon used in this game. For instance, if it uses the assumption of rationality and maximization, 4

Conclusion Drawn from the Game

Advantages of Businesses Entering Small and Remaining Small

Risks are lower

Profits are Generated Quickly

Gaining Edge over the Competition

Things can be Managed Faster in Small Businesses

Other Advantages

Role of Commitment in Small Company Entry Advantage

Real World Organization being soft when entering a Market

In context of competition and economies of scale, barriers to enter a market are the hindrances that make it difficult and hard for any business to enter in the market. Numerous reasons can be listed that can be held responsible for this trouble such as government regulation and taxes imposed by the government which makes the entry difficult. Secondly, already existing established firms usually gain advantage over the economies of scale. Lastly, in certain circumstances, fulfilling the conditions of entering in the market are quiet problematic like the standard of education required or licensing requirements. Because barriers to entry defendunavoidable firms and limit competition in a market, they can back distortionary prices. The presence of monopolies or market power is frequentlyassisted by barriers to entry. So in order to avoid the risks and fears of suffering loses and having trouble, many companies manage to make a virtue out of staying small when entering markets dominated by large incumbents (Tuller, 2008). There are numerous advantages of small businesses; few of them are as follows:

No Big Players

The absence of a large setup means the customers and general public has not attributed its loyalty to one business. Basically the standards have not emerged on a national basis and still there is a room for innovation and the company can fight against big brands by struggling and experimenting. As the setup is not huge so it has wide variety of opportunities to develop the business (Yang, 2012).

Low Entry Barriers

It is a well acknowledged reality that marketing expenses are much lower for smaller businesses than for huge firms with a great name. As the business is usually small so use of media is usually local in such circumstances and this form of advertising is much smaller and less expensive. Thus the overall cost of marketing is reduced while entering a new market. A company can also use word-of-mouth advertising, because customers in small industries are inclined to look for new businesses, and those customers are much more eager to experiment (Awuah & Reinert, 2012).

Smaller is Preferred

This means that the organization hasto face fewer difficulties to start competing, and in fact, if they keep their focus small, they are more likely to attract new customers.

Differentiation

Differentiation is one of the basic advantages of small businesses. This means that the organization can pay attention on explicit customer other businesses may have missed (Howard, 2006). This can be a huge opportunity for the business owners and help them gain competitive advantage over other firms in the market.

Sequential Game

Sequential game is a tool used within the study of economics. It can be a useful tool that can play a great role in majorstudy of industries, sectors and any plannedcontact between two or more firms.

Assumptions

Rationality and maximization is an integral assumption of economics. In context of sequential game, the assumption made is that players within the game are rational and will struggle to maximize their payoffs in the game.

Solving Sequential Games Using Backwards Induction

Backward induction is an important phenomenon used in this game. For instance, if it uses the assumption of rationality and maximization, meaning that Player 2 will maximize his payoff in any given situation. At any information set the player has two choices, four in all. By excluding the choices that Player 2 will not choose, the tree can be narrowed. In this way, the lines that maximize the player's payoff will be bolded at the given information set.

This game can be setup using companies as a player to explain the benefits and advantages of entering as a small company in the market. This game could include product release situations. This will help the company (named company 2 in the figure) to determine the response of the other company (named company 2 in the figure) if it wants to release a product. It will give know-how that whether the other Company releases a similar competing product. By predicting sales of this new product in dissimilarsituations, company can set up a game to forecast how situations might develop. Below is an example of how one might model such a game.

Conclusion Drawn from the Game

By means of simple approaches of sequential game theory, a confusing array of results in a real life situation will be easily solved. It can be a viable tool for financial analysis and can be very useful in categorizationofpossiblychaotic real-world situations, from mergers to product releases.

Advantages of Businesses Entering Small and Remaining Small

Multiple advantages can be listed for businesses entering and remaining small in the market. Firstly, with the increased globalization and increased trend of marketing, it is a significant measure that needs to be adopted. Marketing expenses are much lower for smaller businesses than for huge firms with a great name. As the business is usually small so use of media is usually local in such circumstances and this form of advertising is much smaller and less expensive. Thus the overall cost of marketing is reduced while entering a new market. A company can also use word-of-mouth advertising, because customers in small industries are inclined to look for new businesses, and those customers are much more eager to experiment (Watson, 2010). The advantages of remaining small are as follows:

Risks are lower

Small businesses has multiple advantages like reduced overhead cost, less money required for investment purpose and less time is required to set up the business. In case the business flops and the idea fails, the loss is not big enough when compared to the experience gained by setting up the business (Morrison, Breen, & Ali, 2003).

Profits are Generated Quickly

A business is not established until the money generated in the form of profit exceeds the money invested in the business. Till this point is reached, the company is not said to be running business. Staying small by keeping the overheads low means the income will be generated at a faster pace and the profits will be higher.

Gaining Edge over the Competition

In case of situations where a business is set to compete against large established firms with established brands, small size is considered a huge advantage. With less overhead expense, little or no office rent, lesser expenses of stationary or admin staff, the company can focus on investing in the business itself, which will in turn increase profits. The bigger companies must charge more to withstand their mass (Watson, 2010).

Things can be Managed Faster in Small Businesses

The product can be launched faster, directions can be changed at a faster pace according to the requirement of the work, and in case directions need to be changed often, they can be done instantly because of the smaller setup. On the contrary, in larger companies, directions cannot be changed easily as compared to smaller firms. There are certain rules and regulations that need to be followed, for instance, a board needs to be consulted, its shareholders need to be informed and asked for consent and put strategies in place.

Other Advantages

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