business(redirected from Business entity)
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2. Informal; an industry. For example, one may refer to the automotive industry as the "car business."
3. Informal; commerce. One who buys or sells with a company is said to "do business" with that company.
enterprisea producer or distributor of GOODS or SERVICES. The economic form of a business consists of:
- a horizontal business, a business which specializes in a single activity, for example the production of bread. See HORIZONTAL INTEGRATION;
- a vertical business, a business which combines two or more successively-related vertical activities, for example flour milling and bread production. See VERTICAL INTEGRATION;
- a conglomerate or diversified business, a business that is engaged in a number of unrelated production activities, for example bread production and the supply of financial services.
A business can take a number of ‘legal’ forms:
- a sole proprietorship, a business owned and controlled by a single person;
- a partnership, a business owned and controlled by two or more persons who are parties to a partnership agreement;
- a JOINT-STOCK COMPANY, a business owned by a group of SHAREHOLDERS and whose capital is divided up into a number of shares;
- a cooperative, a business owned and controlled by a group of workers. See WORKERS' COOPERATIVE.
For purposes of COMPANY LAW and the application of many company taxes and allowances (for example, CORPORATION TAX and CAPITAL ALLOWANCES) a distinction is made between ‘small and medium-sized’ companies and ‘large’ companies. Small and medium-sized companies (SMEs) are defined as follows (Companies Act, 1995):
- annual turnover of less than £11.2 million;
- gross assets of under £5.6 million;
- not more than 250 employees In 2000 there were some 3,662,000 firms in the UK, of which 80% were run by the self-employed. Most businesses are small with around 3,630,000 firms employing under 50 people; 24,600 firms employed between 50 and 249 people, while only 6,700 firms employed over 250 people. However, in terms of their contribution to gross domestic product (GDP) firms employing over 50 people contributed in excess of 75% of total output.
The total stock of firms fluctuates from year to year depending on the net balance of new start-up businesses and those businesses ceasing trading (see INSOLVENCY). Generally the total stock of firms increases when the economy is expanding (or as a result of some ‘special’ factor, e.g. the surge in newly established INTERNET businesses) and falls in a recession.
A final point to note is that with the increasing globalization of the world economy MULTINATIONAL ENTERPRISES are becoming more prevalent in economies such as the UK.
firm growththe expansion of the size of a business or firm over time. Typical measures of firm growth are the growth of assets or capital employed, turnover, profits and number of employees. Some firms remain small either by choice or circumstances (e.g. the ‘corner shop’); other firms expand to become large, either in a national or international context (see MULTINATIONAL ENTERPRISE) through either/or INTERNAL GROWTH and EXTERNAL GROWTH (MERGERS, TAKEOVERS and STRATEGIC ALLIANCES). Firms may expand in their original lines of business (HORIZONTAL INTEGRATION), become VERTICALLY INTEGRATED or they may expand into new business activities (DIVERSIFICATION). See PRODUCT MARKET MATRIX.
The process of growth is initiated and facilitated by a combination of managerial, economic, financial and ‘chance’ factors:
- Managerial. A typical catalyst underpinning firm growth is an ambitious ENTREPRENEUR, he or she establishing a new firm and setting out to create a ‘big business’. Over time, as a firm expands, the original founder is usually unable to manage all facets of the business and will need the assistance of other directors and professional managers. While firms may develop a growth philosophy and impetus, however, serious management ‘mistakes’ may occur in the form of a failure to identify changing customer needs (see, for example, the recent setbacks at the retailing group Marks & Spencer and the car producer BMW/Rover), or ill-judged diversifications may reverse growth potential and put the very survival of the firm under threat;
- Economic. Some firms thrive and grow whilst others decline or go bankrupt (or are taken over) because the former firms are superior in creating and sustaining COMPETITIVE ADVANTAGES, which enables them to ‘meet and beat’ rival firms (see RESOURCE-BASED THEORY OF THE FIRM). Firms that are able to take full advantage of ECONOMIES OF SCALE and the EXPERIENCE CURVE are able to expand their sales and market shares by producing their products at lower cost and selling them at lower prices than rivals; similarly, firms that are able to exploit PRODUCT DIFFERENTIATION advantages, particularly through developing new products are able to expand at the expense of less innovative rivals. For example, Microsoft has gained a worldwide dominance of software systems through its ‘Windows’ technology. ECONOMIES OF SCOPE are often important in underpinning growth through concentric diversification, where firms ‘transfer’ resources and skills from their core activities into related areas of business;
- Financial. As they grow, firms will need to obtain additional financial resources. This may involve the firm in steadily ploughing back profits over the years. A quicker way to fund expansion, however, often involves the firm converting from a ‘sole proprietor’ status to one of public JOINT-STOCK COMPANY (Plc) by floating the business on the STOCK MARKET (see FLOTATION). Plcs typically continue to finance their expansion by issuing new shares to their existing share-holders (see RIGHTS ISSUE), by increased borrowing from the COMMERCIAL BANKS and investors (see CORPORATE BOND) and financing mergers and takeovers by exchanging new shares in the enlarged company for those of target companies;
- Chance or luck factors. Being in the ‘right place at the right time’ often affects the fortunes of firms. A growth opportunity may occur, for example, through the discovery of a hitherto unknown North Sea oilfield by an oil company such as BP; or from the UK government's decision to deregulate the telecommunications and bus markets, which have provided growth opportunities for new suppliers to enter these markets such as Vodaphone and Stagecoach, respectively The comparative rates of growth achieved by firms determines the eventual number and size distribution of the firms supplying a particular market and thus affects MARKET STRUCTURE.