Small Businesses (Cambridge International IGCSE Business)
Exam board Cambridge International · IGCSEUpdated 2025-08-27
Why do some businesses remain small?
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Some entrepreneurs choose for their business to remain small
- In 2021, 98.9% of businesses in the European Union (EU) were classified as small firms with less than 49 employees
- Small businesses dominate some industries, such as hair and beauty, home improvement and childcare services
Reasons why small firms exist
- They offer a personalised service and focus on building relationships with customers (excellent customer service)
- They are unable to access financing for expansion
- They provide a product that is in a niche market - small market size but potential for high profits
- By remaining small they are able to respond quickly to changing customer needs/preferences
- Rapid growth can cause diseconomies of scale, which can be avoided by remaining small
- A small business owner's goal is satisficing rather than profit maximisation
- Conditions in the economy make expanding a business risky at the time
- Competition in the market limits opportunities for growth
- Business owners may lack the management skills to grow the business
Evaluating the choice to remain small
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Developments in technology often benefit smaller businesses
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The internet offers low-cost access to market for many firms
- Social media allows even the smallest business to achieve an online presence and target specific groups of customers
- Online storefronts such as Amazon Marketplace,Etsy and Ebay provide low-cost distribution options
| Advantages | Disadvantages |
|---|---|
| - Small firms often provide highly customised or unique goods and services, which are sold profitably in small quantities at high prices - E.g. Pet grooming in the customer's home - Personal relationships can be developed with loyal customers, which helps to generate word-of-mouth advertising - Smaller firms can respond quickly to changing market conditions such as changes in fashions and trends | - Small firms are unlikely to benefit from economies of scale, as the level of output is lower than that of larger firms - Access to finance, such as bank loans or trade credit is likely to be limited - Recruiting and retaining high-quality staff can be challenging, as wage and non-wage benefits are less competitive than those offered by bigger firms - Small business owners may struggle to take holidays or sick leave, as the business relies on their presence to function |
Exam Hint Avoid assuming small businesses always want to grow – many remain small because of personal choice, niche markets, or limited resources. Be ready to explain these reasons in context
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