Growth Of The Firms

Writen by Mary Anne Winslow

Let's discuss several factors that reveal the reasons, motivations of the firms' growth. The article grew to be more philosophical than managerial.

Growth is generally achieved by small firms by making more of its existing products, or by developing more products. Hence, a common obstacle that many small firms face is that they do not have the finance to expand through invention, or developing a new product. Finance is necessary to pay researchers or inventors, to pay for materials and then once the product has been developed, to market it. Another way of achieving growth is being merging with another firm, which is known as external growth. A merger is where two or more firms combine to form a larger, new company. It is very unlikely that a small firm would have enough finance to merge with another company, so this method of growth is more common with larger firms. Small firms, if recently established may the lack experience and expertise to help it grow. Many skills are required to run a successful company, including managerial skills, product-related knowledge, marketing skills etc. Without an adequate workforce, the company will have problems in the corresponding area of production which may hinder the success of the company in relation to growth and development. Early on in a new firm's life it is unlikely to have developed a strong brand name, and strong customer base. So, the firm cannot be sure it will have the support or demand for it to grow if a new product were to be developed.

The main factor which prevents a firm from growing is the lack of finance, and other factors are secondary to this. Once this problem is overcome, firms have much greater potential for growth and development. Innovation is defined as bringing a new idea into being within the market-place (product innovation) or workplace (process innovation). Product innovation has a considerable competitive significance, because consumers fall into patterns of purchasing patterns which change very little over time. Therefore the market share of the rival products may be quite static. The source of the innovation may be based on new technology, new design or a wholly new invention. Process innovation is also of great significance as it can lead to a major cost advantage over competitors. It involves making production processes more cost effective, accurate and efficient. At any given time, a society has a stock of technical knowledge about ways in which goods can be produced. Technical advances come through invention, the discovery of new knowledge, and innovation, the incorporation of new knowledge into actual production techniques. The most obvious incentive for innovation is so that the firm can have a stronger portfolio of core products. This may also help the firm in terms of commercial benefit, in other words the firm may be better known because of its products.

The ability for firms to patent products means that firms are more willing to develop new products because of the large financial cost involved. Patents mean that the company can be the sole beneficiary of their invention. This is important because it prevents other companies from 'stealing' new inventions for a certain time period.

Product innovation can often play a major part in improving standards of living, which is an important social benefit. For example, the development of the telephone, which is now cheaper and more efficient than previous versions. Process innovation is of crucial importance in leading to the growth of productivity, and ultimately to long-term economic growth. As firms strive for long-term economic growth this would be a major incentive for innovation for the firm.

The article was produced by Research Papers expert writer. Mar Anne Winslow has a vast experience in Dissertation writing counselling and term paper writing services for several years.