Small Firms and Large Firms (Cambridge International IGCSE Economics)
Exam board Cambridge International · IGCSEUpdated 2025-08-18
Comparing the size of firms
Spec point — Comparing the size of firms
- When considering the size of firms, several metrics are useful for comparison and analysis
- The number of employees
- E.g. In 2021, Toyota had 366,000 employees, whereas Hyundai had 75,000
- The % of market share in an industry
- E.g. During the 1st quarter of 2022, Samsung had 23% of the global market share for smartphones
- The size of profits
- E.g. In 2021, Apple made the highest level of profits for any firm, $58.4bn
- Market capitalisation
- Calculated by multiplying the number of shares in existence by the share price
- E.g. In October 2022, Apple, Saudi Aramco, and Microsoft were the top three firms and had a market capitalisation in excess of $2trn each
Advantages and disadvantages of large firms
Spec point — Advantages and disadvantages of large firms
- Large firms experience both benefits and drawbacks due to their scale and structure
Advantages
- Can achieve economies of scale, reducing average costs and increasing profit margins
- Have greater access to finance from banks and investors, allowing for more investment in technology, expansion and R&D
- Benefit from strong brand recognition and customer loyalty built through national or global presence
- Able to offer higher wages and more attractive non-wage benefits (e.g. pensions, training, bonuses) to recruit and retain skilled staff
- Can spread risk by operating across multiple product lines or regions
- More able to absorb economic shocks, such as recessions or changes in market demand
Disadvantages
- Can suffer from slower decision-making due to many layers of management
- May experience diseconomies of scale, where costs rise due to communication breakdowns or coordination issues
- Risk becoming detached from customer needs, with less personalised service than small firms
- May struggle with innovation or flexibility, especially in rapidly changing markets
- Subject to greater scrutiny from the public, media, and regulators (e.g., for environmental or employment practices)
- Can face negative publicity or legal challenges if accused of monopolistic behaviour or unethical practices
Advantages and disadvantages of small firms
Spec point — Advantages and disadvantages of small firms
Evaluating the pros and cons of small firms
| Advantages | Disadvantages |
|---|---|
| - They often provide highly customised goods and services - For example, pet grooming in the customer's home - They often create personal relationships with their customers, which helps to generate customer loyalty and word-of-mouth advertising - They often provide very unique products which are sold in small quantities at high prices – this can be very profitable - Smaller firms can respond quickly to changing market conditions | - More susceptible to changes in the wider economy than large firms, especially during recessions - Less financial resources available to them, including access to larger bank loans - some smaller firms are unable to access any loans at all - It is harder to recruit/retain staff as the wage and non-wage benefits are less competitive than those offered by bigger firms - Owners may struggle to take a holiday or sick leave as revenue slows/stops coming in when they stop working - Small firms struggle to generate economies of scale as the volume of output is significantly lower than that of larger firms, resulting in lower profit margins |
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